Pierce Myers, Executive Vice President & Counsel To insert your company logo on this slide From the Insert Menu Select “Picture” Locate your loo file Click OK To resize the logo Click anywhere inside the logo. The boxes that appear outside the logo are known as “resize handles.” Use these to resize the object. If you hold down the shift key before using the resize handles, you will maintain the proportions of the object you wish to resize. 2017 PRC Review October 26, 2017 Pierce Myers, Executive Vice President & Counsel

The Law (1) Sec. 3622. Modern rate regulation “(a) The Postal Regulatory Commission shall, within 18 months after [December 20, 2006], by regulation establish (and may from time to time thereafter by regulation revise) a modern system for regulating rates and classes for market-dominant products.’

The Law (2) The PRC shall “review the system . . .established under this section. If the Commission determines [the system is not meeting the factors and objectives] the Commission may, by regulation, make such modification or adopt such alternative system for regulating rates and classes for market-dominant products as necessary to achieve the objectives.” 39 U.S.C 3622(d)(3)

Status of the Review Awaiting the next Shop to Drop Review Began 12/20/16—RM2017-3 Achieving Objectives? Comments Filed 3/20/16—70+parties Procedural Skirmishes 1/18/17 Challenge to Procedural Framework Discovery and phased approach suggested—denied Awaiting the next Shop to Drop Proposed regulations-comments

Objectives Objective 1 (“maximize incentives to reduce costs and increase efficiency”), in addition to cost reductions and efficiencies driven by the price cap, there are opportunities to maximize efficiencies through better regulation of workshare discounts. Objective 5 provides that the system for regulating market dominant product should “assure adequate revenues, including retained earnings, to maintain financial stability.”

PSA’S CHECKLIST Existing system works well Price cap—Should be continued, but may be modified “Appropriate share” (institutional costs)—Should be eliminated Last mile model/Worksharing Rules—fully compensatory discounts Cost attribution, allocation, distribution—no change; continued PRC review for improvement Stronger confidentiality rules FOR NSAs

Conclusion “The process and procedures and the price cap system implemented in 2007 have worked well. There is no cause for the Commission to adopt an alternative system of rates and classifications for market dominant products. The Commission, however, should explore changes in the areas discussed herein that could enable the system to better achieve objectives.”

What’s Next PRC order (proposed regulations) imminent Several months of comments and reply comments Final order with implementation date (January 2019?) Requests for Reconsideration and court appeals

Questions/Comments?