On Friday, December 1, 2017, the Postal Regulatory Commission (PRC) issued its findings related to the statutorily mandated review of the system for regulating rates and classes for Marketing Dominant products that was first established in 2006 by the Postal Accountability and Enhancement Act (PAEA). Throughout the last year, the PRC performed a comprehensive review to determine if the existing Market Dominant rate and classification system achieved the nine objectives and 14 factors established by Congress under PAEA.
After extensive review, the PRC concluded that the system achieved some of the goals of the law but failed to achieve some of the objectives set for it by statute. Areas where it fell short include:
- Not increasing pricing efficiency
- Not advancing the financial health of the USPS®
- Not allowing the USPS the flexibility to set rates to cover costs for some classes of mail
- Not fostering acceptable Service Standard quality
As a result of these findings, the PRC issued a Notice of Proposed Rulemaking on Friday to address the shortcomings identified by the PRC in its review. There will be a 90-day comment period and one additional month for reply comments. The PRC will then issue a final rule. Key proposals include:
- The USPS will still be tied to a price cap based on CPI.
- The new cap is proposed to change to CPI + 2% for the next five years. After five years, the PRC will reevaluate the financial health of the USPS and recommend appropriate changes.
- There is a provision for an additional 1% Performance Based Increase that the USPS will be eligible for.
- .75% of the amount can be used if the USPS demonstrates certain operational efficiencies.
- .25% of the amount can be used if the USPS demonstrates improved service quality.
- The USPS will be required to raise prices for underwater products (Periodicals and Flats for example) a minimum of an additional 2% above the price change authority to move prices towards full-cost coverage over time.
- The USPS will have new restrictions on worksharing passthroughs:
- For Periodicals, they will be limited to 75% – 125% of avoided costs.
- For all other classes, they will be limited to 85% – 115%* of avoided costs.
- Non-compliant passthroughs would be subject to a 3-year grace period.
- No changes to institutional cost calculations.
The Postmaster General stated “The Postal Service agrees with the conclusion of the Postal Regulatory Commission that the current CPI price cap does not work and needs to be changed, because it does not enable us to achieve our mission of providing prompt, reliable, and efficient universal postal services to the American people in a financially sustainable manner.”
Many in the mailing industry expected several of these changes to be proposed. When viewed in aggregate, some feel that this will result in additional volume declines, further stressing USPS financials.
You can find the full filings at www.prc.gov.
*Note our original email contained an incorrect percentage in bullet 5b. We have corrected the value in this article.