The Postal Regulatory Commission (PRC) announced today that it is revising its proposal on the 10 year review of the current ratemaking system for classes of Market Dominant products. This comes after comments from the first rulemaking were taken into consideration and a thorough review was done by the three new Commissioners that were not around when the original proposal was created.
The Postal Accountability and Enhancement Act (PAEA) requires the PRC to review the first 10 years of the existing Market Dominant rate and classification system to determine if the system achieved the nine objectives and 14 factors established by Congress. The objectives reflect the goals of the PAEA to create a flexible, stable, predictable, and streamlined ratemaking system that ensures the Postal Service’s financial health and maintains high-quality service standards and performance.
The first rulemaking took place in December 2017. In its first order, the PRC determined that the overall system created by the PAEA had not achieved the objectives taking into account the factors of the PAEA and proposed to amend several parts of title 39 of the Code of Federal Regulations to achieve the objectives.
Revisions to the PRC’s original proposal include:
- The PRC modifies the proposed supplemental rate authority mechanism to address drivers of the Postal Service’s inability to achieve net income during the PAEA era. Instead of a singular, fixed amount of supplemental rate authority, the revised supplemental authority proposal includes a mechanism that targets two underlying drivers of the Postal Service’s net losses that are largely outside of its direct control: declining mail density and statutorily mandated amortization payments for particular retirement costs.
- The PRC adjusts the performance-based authority to retain the 1 percentage point of rate authority benchmark but modifies how the specific performance-based requirements for operational efficiency and service will be measured.
- The PRC makes revisions to the rules for non-compensatory products and classes, proposing that the use of an additional 2 percentage points of rate authority for non-compensatory classes be optional and removing the requirement that determinations be made in the Annual Compliance Determination proceeding.
- The PRC proposes revised rules for worksharing discounts that dispense with the 3-year grace period. The modifications separately address workshare discounts set below avoided costs and workshare discounts set above avoided costs and add new requirements that the Postal Service provide information and analysis specific to certain workshare costs set excessively above or below avoided cost.
- The PRC proposes new reporting requirements for costs and cost-reduction initiatives in response to commenter concerns and in light of the revised proposals for additional rate authority. These reporting requirements address changes in unit costs, specific cost-reduction initiatives, and Decision Analysis Reports (DARs).
- The PRC proposes additional procedural rules related to planning rate adjustments of general applicability.
You can read the full proposal here. Comments on the proposal are due on February 3, 2020, with reply comments due on March 4, 2020.
So, what does this mean for mailers?
- The PRC heard the comments from the last proposal but kept the same basic framework anyway.
- The new rules will establish floors for workshare discounts to encourage discounts that more fully compensate mailers for the work they do preparing, processing, and drop-shipping mail.
- The 2% additional authority for underwater products is discretionary and a lot more complex that the original proposal that mandated it.
- Items like pre-funding and delivery density have to be taken into consideration.
- There are also changes to the way the 1% performance incentive works.
- While a little better than the original proposal, mailers will not be happy with it.
What happens next?
- Initial comments are due on February 3. You can expect a large number of comments to be provided.
- Reply comments might be extended due to the number of initial comments predicted to be received.
- The PRC will probably deliberate for several months before putting out a final rule.
- We might see something by next summer.
- Lawsuits will immediately be filed. This might result in a stay while litigation goes on but it is not guaranteed.
- From a timing perspective, we will likely see the additional authority added to the January 2021 price change, unless the USPS® wants to simultaneously implement an increase in the fall while working on the 2021 price change. That would cause serious disruption to mailers and add unbudgeted costs, resulting in reduced mail volumes.
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