USPS Denied Exigent Rate Increase Request

WASHINGTON, DC—In a move that was as shocking as it was welcomed by the mailing community, the Postal Regulatory Commission (PRC) denied the U.S. Postal Service’s (USPS) request for an average 5.6 percent rate increase. The commission unanimously found that the Postal Service failed to justify rate increases in excess of its statutory Consumer Price Index (CPI) price cap.

“The commission finds that the Postal Service has shown the recent recession to be an exigent circumstance, but it has failed both to quantify the impact of the recession on its finances and to show how its rate request relates to the resulting loss of mail volume; therefore, we unanimously deny its exigent rate request,” said PRC Chairman Ruth Goldway.

Michael Makin, president and CEO of Printing Industries of America, applauded the PRC decision, stating that it was “right on the policy, right on the law, and, most importantly, right for business. Tens of thousands of jobs in the printing industry and throughout the mailing supply chain have been saved by this decision. As printers continue to struggle with economic and regulatory uncertainty, the PRC decision is one bright spot as the industry seeks growth opportunities in the mailing and fulfillment market.”

The law requires the Postal Service to demonstrate that any exigent rate adjustments are due to the identified exceptional circumstances. This prevents a bona fide extraordinary or exceptional circumstance from being used as a general rate increase mechanism that would circumvent the price cap system.

While the PRC recognized the USPS’ recent volume losses and multi-billion dollar shortfalls, the commission analysis found that the Postal Service’s cash flow problem “is not a result of the recession and would have occurred whether or not the recession took place.”

The USPS may be unable to continue to meet a statutory 10-year payment schedule—averaging roughly $5.5 billion per year—to create a fund to pay future retiree health benefit premiums. It has been unable to fund this obligation from operations, and has instead used up all of its retained earnings and drawn down from its $15 billion borrowing authority. Even with the requested increase, the Postal Service would be unable to meet this annual obligation either in 2011, or in succeeding years.

The Postal Service achieved more than $6 billion in cost reductions in 2009. While volume declines outstripped cost reductions during the actual recession, Postal Service cost containment programs are said to be producing results and work hours have declined faster than volumes in 2010.