The US postal regulator, the Postal Regulatory Commission (PRC), has rejected the request byUSPS to increase its mail prices by an average of 5.6% from next January.
PRC explained that USPS failed to justify rate increases higher that its statutory CPI (consumerprice index) cap. “The Commission finds that the Postal Service has shown the recent recession tobe an exigent circumstance but it has failed both to quantify the impact of the recession on itsfinances and to show how its rate request relates to the resulting loss of mail volume; therefore,we unanimously deny its exigent rate request,” said Chairman Ruth Y. Goldway.
To back up its decision, the Commission stated the law requiring the US Postal Service todemonstrate that any urgent rate adjustments are due to the identified exceptional circumstances.This prevents a bona fide extraordinary or exceptional situation from being used as a general rateincrease mechanism that would go round the price cap system.
Even though PRC recognised USPS’ recent volume losses and multi-billion dollar shortfalls, itsanalysis confirmed that the cash flow problem of the postal operator was not a result of therecession and would have occurred whether or not the recession took place. “lt is the result ofother, unrelated structural problems and the proposed exigent rate adjustments would neither solvenor delay those problems,” PRC confirmed.
The Commission also suspects that USPS may not be able to continue to meet its statutory 10-yearpayment schedule averaging roughly $5.5 billion per year to create a fund to pay future retireehealth benefit premiums. “lt has been unable to fund this obligation from operations, and hasinstead used up all of its retained earnings and drawn down from its $15 billion borrowingauthority. Even with the requested increase, the Postal Service would be unable to meet this annualobligation either in 2011, or in succeeding years,” PRC added.
However, it acknowledged that USPS achieved over $6 billion in cost reductions in 2009. “Whilevolume declines outstripped cost reductions during the actual recession, Postal Service costcontainment programmes are producing results and work hours have declined faster than volumes in2010.”
In response to PRC’s decision, USPS said: “We are disappointed to learn that the PostalRegulatory Commission (PRC) has denied our price filing. But we are encouraged by theiracknowledgment and understanding of the larger financial risk we face through the mandatedprefunding of Retiree Health Benefits.”
“We will need to take a much closer look at the ruling from the PRC in order to make an informeddecision about what options we have and what may be the best course of action for our customers,our employees, our stakeholders and the American public,” USPS stated.
The US postal operator stressed that it ends the current fiscal year with approximately $2billion cash and available credit, meeting all its end-of-year financial obligations, including a$5.5 billion payment to the Retiree Health Benefit Fund as required by law.
“The financial risk remains. We will carefully manage every dollar we spend in the upcomingfiscal year. Our current forecast shows that we will not have sufficient cash to make the $5.5billion payment due on Sept. 30, 2011, and any major disruption, whether in volume loss orunforeseen circumstances, could cause us to default on financial obligations earlier in thefinancial year 2011,” the postal operator added.
Finally, USPS highlighted its achievements despite the critical financial situation. “In themidst of financial and regulatory challenges, the Postal Service achieved record productivity gainsin 2010 and a reduction of over 100,000 career employees and cost savings of over $10 billionduring the last three years.”
Senator Tom Carper, Chairman of the Senate subcommittee with jurisdiction over the US PostalService and who introduced a new postal services bill last week, commented: “The rate increase thatwas denied today would not have fixed the Postal Service’s problems. Postal management has done atremendous job in recent years cutting costs, becoming more efficient, and reducing its workforce.But despite these efforts, more needs to be done to reduce costs and increase revenue, especiallyduring the labour negotiations currently underway. Perhaps more importantly, Congress needs toclear the way for further progress by passing legislation to free the Postal Service to execute itsreform plans.”
“If we do nothing, we face a future without the valuable services the Postal Service provides,”he warned. “However, if we act quickly, we can turn things around by passing my recently introducedbill, the Postal Operations Sustainment and Transformation (POST) Act of 2010. This necessarylegislation would give the Postal Service the room it needs to manage itself and avoid becoming thelatest victim of Congressional gridlock. More specifically, my bill addresses the current budgetissues plaguing the Postal Service by proposing a series of provisions including: easing postalemployee pension and retiree health costs; addressing postal employee wages and benefits; allowingpartnerships with state and local governments; and giving the Postal Service leeway to close postoffices, market certain non-postal items, and eliminate Saturday delivery,” he explained.
The customer lobby organisation Affordable Mail Alliance that earlier urged PRC to dismiss theprice increases proposed by USPS, has achieved its goal. “After hours of hearings and thousands ofstatements, the Postal Regulatory Commission has rejected the Postal Service’s demand for a massiverate hike above the rate of inflation. Now, the Postal Service will be obliged to follow the lawand keep any rate increase within the legal limit, equal to the rate of inflation,” theorganisation said.
“The PRC has helped countless businesses stay competitive and saved tens of thousands of jobs,”said Tony Conway, Affordable Mail Alliance spokesperson and Executive Director of the Alliance ofNonprofit Mailers. “The Commissioners recognised that imposing an additional tax on Postal Servicecustomers is not the way to address its financial troubles. Our members look forward to workingwith the Postal Service on the long-term restructuring needed to restore the Postal Service tocompetitiveness.”
