April 24, 2014
Exigent rate case decision: The good, the bad and the ugly

By Stephen M. Kearney, executive director, Alliance of Nonprofit Mailers | 01/16/2014

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Yes, believe it or not, there was something good in the Postal Regulatory Commission’s decision to allow the Postal Service to breach the Consumer Price Index cap that has limited market dominant postal rates since 2006.

You may wonder what could be good about an average rate increase of 4.3 percent above inflation. The good is that the PRC placed a dollar limit, which also amounts to a time limit, on the surcharge portion of the price increases that will take effect on January 26. When the Postal Service receives a cumulative $2.8 billion in additional contribution from the above-inflation portion of the increase, the surcharges must be rescinded, according to the PRC. That should happen in less than two years.

The PRC-imposed limit on the exigent increase is a direct result of the strong case the Alliance and a coalition of postal customers put on at the PRC. We argued that the law allows an above-inflation surcharge rate only to the extent needed to offset the losses caused by the 2007-2009 recession, and only to the extent that those losses could not be avoided by downsizing the Postal Service’s costs. The Postal Service had requested a permanent above-inflation price increase that would have cost mailers several billion dollars extra every year in perpetuity. The present value of such a permanent increase would have been about $60 billion, far more than the PRC allowed in its decision. So it could have been much worse.

But, according to many mailers in the nonprofit and for-profit communities, decisions have been made or will be made to reduce or eliminate permanently certain elements of postal mail in their organizations. These include people, campaigns, publications, mailing lists, you name it. Many say that it will be very unlikely that any of these elements will be restored when the exigent surcharge pricing is removed in about two years.

Of course, the bad in this PRC decision is that any above-inflation price increase was approved at all. The increases will be a severe financial hit on our members, who themselves have just recently begun recovering from the recession.

To make the bad even worse, the PRC approved the 4.3 percent increase after spending most of the first 82 pages of its decision severely criticizing as inadequate the Postal Service’s justification for the increase, which attributed most of the Postal Service’s financial woes to the recession, while omitting any variables to account for the diversion of communications to the Internet, a much more significant long-term trend. How these criticisms can be reconciled with the Commission’s ultimate decision to award the Postal Service $2.8 billion in above- inflation increases leaves many observers scratching their heads.

The really ugly part of this comes from Deputy Postmaster General Ron Stroman, who confirmed yesterday that the Postal Service will appeal the PRC decision to the court. He hinted that the basis of the appeal will be that the exigent increase should not be limited in dollars or time. That’s the $60 billion net present value hit to mailers I mentioned earlier. So, the Postal Service will implement the CPI and exigent rate increases on January 26, and it will fight to lock in those increases permanently. The Alliance and its allies certainly will intervene in a Postal appeal, and we are actively reviewing our options for filing our own appeal. All notices of appeal must be filed with the court by January 23.

Legislative front

If the exigent case were not enough, informed sources tell us that the leaders of the Postal Service’s Senate oversight committee, Senator Tom Coburn (R-OK) and Senator Tom Carper (D-DE), will release a new draft of the postal reform legislation they have been working on in the next few days. Further, we have heard that the committee tentatively plans to hold a markup of the bill on January 29. Previous versions of the bill have greatly concerned the mailing community because they would essentially remove the CPI price cap and greatly reduce the regulatory authority of the PRC. In other words, the legislation would assume the free market would determine reasonable postal pricing even though the Postal Service still has both a legal and a de facto monopoly.

Needless to say, the Alliance will remain heavily involved in any litigation or legislation that affects our members’ livelihoods and access to affordable, reliable mail service.

Details: www.nonprofitmailers.org. This column originally appeared in ANM's Jan. 15 Alliance Report.

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