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National Postal Policy Council Regulatory Update Mark D. Acton, Commissioner Alex Cooper, Special Assistant
December 10, 2015
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Contents
The Postal Regulatory Commission
Postal Pricing for 2016
Status of Exigent Rate Case
Latest CPI-U Price Cap Authority
Compliance
FY2014 Annual Compliance Determination
Separate Financial Analysis
Proposal 13
First Class Mail Parcels
2017 Ratemaking Study
Latest Tech Credit Promotions
Reform/Legislative Update
Questions & Answers
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3. The Postal Regulatory Commission
The Postal Regulatory Commission currently has one vacant Commissioner slot
Ruth Goldway’s term expired on November 22, 2015 after 18 years of public service
Commissioner Tony Hammond’s term expires on October 14, 2018
Commissioner Nanci Langley’s term expires on November 22, 2018
Acting Chairman Robert Taub’s term expires on October 14, 2016
Commissioner Mark Acton’s term expires on October 14, 2016
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4. No Postal Price Change for 2016
The Postal Service has announced that there will be no "postal price change" scheduled for other than the roll-back of the exigency surcharge which is scheduled to occur this coming spring
In other words, average prices for market dominant products should DECREASE roughly 4.3% starting in April 2016
USPS still anticipates revenue growth in spite of the exigent rollback, which they predict will be due in large part to increased Parcel delivery
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Exigent Rate Case
The USPS has filed with the Commission its latest exigent surcharge report
The USPS has collected $504.0 million in exigent surcharge revenue in Q4 of FY2015
It has collected $3.520 billion cumulative surcharge revenue since implementation
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Exigent Rate Case
The Postal Service, with the additional $1.191 billion directed by the Court, it has a total exigent surcharge of $3.957 billion in contribution
USPS still needs to collect $437 million in contribution before it reaches its total exigent surcharge, estimated to be near the first week of April 2016
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7. Exigent Rate Case Status
As an intervening party, you are aware that on August 27, 2015, the Postal Service filed notice with the U.S. Court of Appeals for the D.C. Circuit that it was appealing the Commission’s order on remand for the exigent decision issued at the end of July (R R)
As per the DC Circuit Court of Appeals, intervening parties may suggest an alternative briefing format to reduce the number of pages submitted to the court. It should be noted the court said that “In so doing, the parties should keep in mind that the court looks with extreme disfavor on repetitious submissions and will, where appropriate, require a joint brief of aligned parties with total words not to exceed the standard allotment for a single brief.”
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8. Exigent Rate Case Status
The Postal Service identifies the issue on appeal as “[w]hether the Postal Regulatory Commission’s method of computing the mail volume and contribution lost ‘due to either extraordinary or exceptional circumstances is inconsistent with the test that this Court upheld in Alliance of Nonprofit Mailers, et al. v. Postal Regulatory Commission or is otherwise arbitrary, capricious, or an abuse of discretion.”
It may be that the Court’s review of this appeal will not be completed before the Postal Service has recovered the additional roughly $1.191 billion of exigent revenues approved by the PRC (on top of the original $2.766 billion the Commission originally determined in R )
Depending on the outcome of the Court’s decision, this could functionally result in two rate adjustments
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9. Latest CPI-U Price Cap Authority (Last Update October 2015)
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10. Compliance: Annual Compliance Determination
On March 27, 2015, the Commission issued its FY 2014 Annual Compliance Determination
This report is issued by the Postal Regulatory Commission (PRC) in response to the Annual Compliance Report submitted by USPS to the PRC each fiscal year
PRC determines whether any price or fee in effect during the year under review was not in compliance with applicable provisions and whether any service standards were not met
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11. Compliance: Annual Compliance Determination
Principal Findings for FY 2014 include:
26 workshare discounts did not comply with section 3622(e), which requires the Commission to ensure that workshare discounts do not exceed the costs avoided by the Postal Service as a result of mailers preparing the mail
Seven noncompensatory Market Dominant products are identified: Periodicals In-County, Periodicals Outside County, Standard Flats, Standard Parcels, Media/Library Mail, Inbound Letter Post and Stamp Fulfillment Services
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12. Compliance: Annual Compliance Determination
Principal Findings for FY 2014, continued:
Revenue for two Competitive products failed to cover attributable costs and therefore do not comply with the law: International Money Transfer Service – Inbound, and International Money Transfer Service – Outbound
The Postal Service met its service performance targets for Presorted First-Class Letters/Postcards (Overnight and 2-Day), while performance results for Periodicals and Package Services fell short despite initiatives to increase performance
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13. Compliance: Financial Analysis Report
Separated from the ACD for the second year for greater clarity and transparency
Includes a more in-depth discussion of the cost savings the Postal Service has generated, the financial impact of the various classes of mail, and a review of its assets and liabilities
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14. Compliance: Financial Analysis Report
Findings include:
In FY 2014, the Postal Service had a total net loss of $5.5 billion. This is the Postal Service’s eighth consecutive financial loss, bringing its total net deficit since FY 2007 to $51.7 billion.
The total net loss for the year was $10.9 billion less than the total net loss in FY 2012 and $1 billion better than expected under the Financial Plan
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15. Compliance: Financial Analysis Report
The Postal Service had a “controllable income” of $1.4 billion for the first time since FY 2008 (and for FY2015, USPS has indicated $1.2 billion in controllable income, although the PRC has not yet conducted the FY2015 ACD to confirm)
Postal Service liquidity is insufficient to significantly improve operational efficiency
Based on Q4 FY2015 numbers (ending September 30, 2015) provided by USPS, they currently have 25 days of liquidity, versus 19 days of liquidity SPLY
Liquid assets (current assets) are insufficient to meet the payment of current liabilities
The Postal Service has no further access to borrowing under current law
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16. Proposal Thirteen (Analytic Principle/Cost Attribution)
On October 29, 2015, the PRC approved a modified version of a Postal Service petition seeking consideration of Proposal Thirteen, which describes an updated approach to developing estimates of city carrier street time costs and presents a cost model to implement the proposed approach
The PRC found that USPS Proposal Thirteen improves the quality, accuracy, and completeness of the data presented in the Postal Service’s periodic reports to the Commission
The data improvements include replacing data from the Docket No. R Street Time Study with more recent data and providing more accurate estimates of mail shape variabilities
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Proposal Thirteen
The Commission found that UPS’s proposed concept of a single, unified delivery model warrants further consideration
Due to concerns regarding measurement error and data reliability (imputation problems), the Commission concludes that UPS’s National Form 3999 model and Modified Proposal Thirteen do not offer greater improvement to the quality, accuracy, or completeness of data than Proposal Thirteen
Accordingly, tied to its approval of Proposal Thirteen, the Commission directs the Postal Service to file a data development report, no later than February 15, 2016
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18. First-Class Mail Parcels (MC2015-7)
On August 26, the PRC denied without prejudice the Postal Service’s requested transfer of First-Class Mail Parcels to the Competitive Products list
This product transfer was denied on a 3-2 bipartisan vote
“In my view, common sense alone would seem to dictate that as a parcel, evident in the product’s very name, this product may indeed be part of the broader, competitive parcel market. The Commission however, as a regulatory body, requires a proper and thorough evidentiary record consistent with applicable law to support such an analysis and finding, and this was lacking in the course of this filing.”
USPS has brought suit appealing the Commission’s decision in DC Circuit Court of Appeals
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2017 Ratemaking Study
As per the 2006 Postal Accountability and Enhancement Act, the PRC is required to review the system for regulating rates and classes for market-dominant products ten years after the date of enactment of that legislation (which would be December 20, 2016) Title 39, Sec. 3622(d)(3):
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2017 Ratemaking Study
Ten years after the date of enactment of the Postal Accountability and Enhancement Act and as appropriate thereafter, the Commission shall review the system for regulating rates and classes for market-dominant products established under this section to determine if the system is achieving the objectives in subsection (b), taking into account the factors in subsection (c). If the Commission determines, after notice and opportunity for public comment, that the system is not achieving the objectives in subsection (b), taking into account the factors in subsection (c), 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.
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2017 Ratemaking Study
The Commission is required by law to consider 9 objectives, while taking into account 14 factors, as described in the previous slide (see handout for factors and objectives)
These multiple considerations may suggest a balanced approach, and that no one factor or objective may necessarily result in a change
In 2016, the Commission plans internal preparations
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22. Latest Tech Credit Promotions
On November 16, the Postal Service filed with the Postal Regulatory Commission (PRC) seeking approval for five promotions to be held during the 2016 calendar year.
The 2016 Promotions are continuations of the calendar year 2015 technology promotions
Emerging and Advanced Technology/Video in Print Promotion
Tactile, Sensory, and Interactive Mailpiece Engagement Promotion
Earned Value Reply Mail Promotion
Mobile Shopping Promotion
Personalized Color Transpromo Promotion
The promotional program will undergo certain updates – promotion titles will be revised, this year’s continuation of the 2015 Advanced and Emerging Technology Promotion will offer an A/B Testing option allowing mailers to receive the promotional discount for a limited number of pieces that do not meet the promotion’s eligibility requirements, and the print technology category of the 2015 Advanced and Emerging Technology Promotion will be presented in 2016 as a stand-alone promotion for Standard Mail
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Legislative Update
On September 17, Senate Homeland Security and Governmental Affairs Committee Ranking Member, Sen. Tom Carper, introduced reform legislation, S. 2051, the “Improving Postal Operations, Service, and Transparency Act of 2015”
Sens. Jerry Moran (R-Kan.), Claire McCaskill (D-Mo.), and Roy Blunt (R-Mo.) cosponsored the legislation
Broader question is whether targeted legislative changes are more “passable” than broad legislative reform
Some agree a combination of re-amortization of USPS retiree health benefits prepayments, and the ability to administer its own health care plan would put USPS in a sustainable financial position
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Legislative Update
Factors (+) favoring/ (-) not favoring reform?
(+) Reform of some form is needed!
(-) The Postal Service had its first operational profit since 2008, which may impact the chances of reform as USPS circumstance seem less dire
(-) Extended exigent surcharge
(-) Presidential Election in the current (114th) Congress
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QUESTIONS?
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