Laws That Govern Postage Rates

Initially the prices for postage was set directly by Congress.  The authority to set rates was established in the Postal Service Act of 1792, which was signed into law by President George Washington.  Under this early system, prices were not uniform; instead, they were calculated using a “distance zone” system where the cost of a letter depended on how many miles it traveled and how many sheets of paper it contained.

Postage rate setting went through an evolution three major times with shifts in responsibility.

• Congressional Era (1792 – 1970) For nearly 180 years, Congress legislated every rate change.
• The Postal Reorganization Act (1970-2006) Following a massive postal strike, the Post Office Department was transformed into the independent United States Postal Service (USPS) shifting authority from Congress to the USPS Board of Governors and the Postal Rate Commission.
• Modern Era (2006 – Present) The Postal Accountability and Enhancement Act (PAEA) created the current system.

Postal Accountability and Enhancement Act (PAEA), 2006

• Established a price cap based on the Consumer Price Index (CPI-U)
• Sets fixed annual schedule that the USPS and PRC must follow:
  • • The ACR (USPS Filing): Within 90 days after the end of each fiscal year (typically by December 29), the USPS must file the Annual Compliance Report. This report contains the “final” data on costs, revenues, and service performance for the year.
      • This report will identify if a mail class or product is non-compensatory (not covering its costs).
      • Avoided costs will determine passthroughs for workshare discounts (must be between 85% – 100%).
    • The ACD (PRC Determination): The PRC then has 90 days after receiving the ACR (typically until late March) to issue the Annual Compliance Determination.
      • PRC reviews all USPS reported data to determine compliance with workshare passthroughs and and other statutory requirements.
    • The new law mandated that 10 years after the enactment of the PAEA (which was Dec 20, 2006), the PRC was required to initiate a comprehensive review of the ratemaking system for Market Dominant products.
      • The PRC initiated a docket to begin that review in December 2016.
        • In 2017, they officially determined that the system was not achieving its objectives – specifically regarding the Postal Service’s financial stability and operational efficiency. The docket remained open until November 2020.
        • In November 2020 the PRC issued Order No. 5763, which created the additional rate authorities that we have today.

Rate Making under PRC Order No. 5763, 2020

• Recognition of System Failure: The order was the result of the “10-Year Review,” where the PRC officially concluded that the original CPI-only price cap was not achieving the statutory objective of maintaining USPS financial stability.
• Expansion of Rate Authority: It moved the USPS from a “Single-Factor” cap (CPI only) to a “Multi-Factor” cap by adding three new types of annual rate-raising authority:
  • • Density Authority: Allows USPS to raise rates to offset the increase in per-unit costs caused by declining mail volumes spread across a growing number of delivery addresses.
    • Retirement Authority: Provides additional rate room specifically to help USPS fund its legally mandated payments for retiree health benefits and pensions (amortization of unfunded liabilities).
      • This was allowed for five years, and has since expired.
    • Non-Compensatory (“Underwater”) Authority: Mandates an additional 2 percentage point rate increase for any product class where revenue does not cover 100% of its attributable costs (primarily affecting Periodicals.
      • Requires that with each price change the USPS increase the rates 2% over class average for any product that is in a class that is covering its costs, but the product is non-compensatory (Marketing Mail Flats)
    • Five-Year Review Cycle: Mandated that the PRC conduct a holistic review of this modified system in five years (the review is currently underway under docket RM2024-4) to ensure it is meeting the intended goals.

Rate Making, Now What, PRC Docket RM-2024-4, 2026

Statutory Review of the System for Regulating Rates and Classes for Market Dominant Products

• Open Docket: Docket was opened in April 2024. There is no requirement about an end date.
  • • Initial comments were due by July 8, 2024, with reply comments due by September 11, 2024
    • On June 9, 2025 the PRC issued “proposed rule, Order No. 8893, 8892, and 8891
      • 8891, and 8892, identified that the PRC found that the current rate making process was not meeting its objectives, and that they were going to move forward with a phased approach.
      • 8893, phase two stated that USPS would be generally limited to one Market Dominant rate change each fiscal year, and restricted the Postal Service from setting workshare discounts farther away from their avoided costs.
        • On January 13, 2026, the PRC enacted 8893 as a final rule under Order No. 9426
          • USPS has filed an appeal in the D.C. Circuit Court; this will not stop the rule from going in place until a decision is made by the courts, which could take 12-18 months.
        • Order No. 9427: On the same day, January 13, the PRC put out a request for proposals from any interested stakeholders to present a modified Market Dominant Rate setting plan.
          • USPS presented a proposal calling for NO rate cap and allowing the BOG to set the rates, they also presented an alternative proposal of keeping the rate cap, but being given an additional 23% that they could use over five years.
          • Multiple Industry trade associations have submitted proposals, all with keeping the CPI rate cap.
            • Comments and petitions were due by February 17, with reply comments due by March 3, 2026.
              • There is NO time limit requirement of when the PRC will respond with any additional phased changes to rate making rules.