1. NATIONAL POSTAL POLICY COUNCIL
Postal Counsel Report
William B. Baker
February 18, 2016

2. Exigency Case Appeal Briefing Schedule:
NPPC has intervened on side of PRC
USPS brief due Jan. 4
PRC brief delayed until Feb. 24
Intervenors (NPPC et al.) due Mar. 2
Oral argument still not scheduled

3. Exigency Surcharge Removal
USPS must give 45-day advance notice of removal
USPS circulated “rollback” rates on Feb. 5
Feb. 16 report:
Stay?

4. R Remand
“Full Service IMb” case – when is a mailing regulation change a mail classification change?
Court found PRC decision poorly explained & remanded
PRC adopted a new test on remand Order No (Jan. 22):
“a mail preparation change will be considered a classification change with price cap effects requiring compliance with 39 C.F.R. § (d) when the change results in either the deletion and/or redefinition of a rate cell”
Deletion of a rate cell occurs when the mail preparation change causes the elimination of a rate, or the functional equivalent of an elimination of a rate, e.g., making the rate inaccessible.
Redefinition of a rate cell occurs when the mail preparation change causes a significant change to a basic characteristic of the mailing.
USPS to designate initially; PRC proposing to require mailer motions wtihin 30 days of notice. Comments due 3/2

5. ACR FY2015 NPPC filed comments on Feb. 2 PRC ACD due by end of March
Supported USPS’s pragmatic approach to pricing ofworkshare discounts that exceed 100 percent due to reductions in the estimated costs avoided (5-Digit Auto flats was worst 120.8%)
Criticized the 69.4% pass-through at the Automation 5-Digit level for (1) sending inefficient signals; and (2) not charging a compensatory price for sorting to the 3-Digit/AADC level;
The continued excessive cost coverage for First-Class Mail indicates a problem with the current system of using “top- down” pricing; and
The Commission should consider applying an incremental cost test in market-dominant mail in the future.
PRC ACD due by end of March

6. UPS Petition: RM2016-2
UPS contends USPS has not attributed costs to Competitive Services properly, and focused on competing in package services while reducing M-D service and seeking above-cap M-D rate increases
Comments
NPPC filed comments in January: stated that if cross-subsidies exist, Presort Mailers are paying the largest share
NPPC took no position on the specific proposals of UPS regarding the attribution of inframarginal costs
NPPC took no position on whether UPS had correctly identified costs that the USPS may have mis-classified as fixed\
Reply comment are due March 25

7. Ex Parte Rules, RM2016-4 PRC rulemaking on its ex parte rules
Would treat informal rulemakings like formal complaints and adjudications
Would in effect foreclose communications before a petition for rulemaking is submitted
Stringent penalty for violations
NPPC likely to join with other mailers in opposing unreasonably restrictive rules and favoring “permit but disclose”

8. Petition re Price Elasticities, RM2014-5
Comments on NOI #1 filed in August
Urged PRC to develop better understanding of how mailers make decisions before re-specifying the econometric model
Awaiting PRC action

9. Dec. 2016 Review of Market-Dominant Rate System
NPPC is gearing up
Retaining economic consultants
Already thinking about possible arguments
Beginning to raise issues in comments that will form basis of comments during the review
This will be a major effort
USPS wants permanent surcharge
Rate design issues

10. USPS – Wants Far More Money Than Current Cap Allows
USPS: as of 9/30/15, liabilities exceed assets by $101 Billion
USPS: owes an additional $51 Billion in unfunded RHB
USPS argued in exigency case for $11 Billion surcharge
USPS is calling for permanent surcharge in legislation

11. Rate Design: Presort Mail Institutional Cost Burden
In FY215 Total System-wide Contribution to Institutional Costs= $28,731.6 billion
FC Presort Letters/Cards: $ billion (Letters $10.44 billion)
In contrast:
FC Single-Piece: $4.740 billion
FC Flats: $0.798 billion
Standard Mail Letters: $5.003 billion
Standard HD/Sat Flats: $0.861 billion
All Competitive Products in total: $4,511.2 billion

12. Current System Allows USPS To Keep Presort Rates High
If a cross-subsidy occurs, NPPC members pay the most of it
FC Presort contribution per piece has increased steadily from 22 cents in 2009 to 26.6 cents in FY15
USPS wants to keep the 5-Digit price high because it is leaving the system more slowly than SP
Since 2009:
FC volume has declined 24.4%
Presort letter volume has declined 15.2 percent
5-Digit Auto letters volume has risen 14.1 percent
2009, SP Letters have fallen 34.2%

13. Aspects of Current System Hurt Presort Mailers
“Linking” Presort/Automation discounts to Single-Piece Rates
Permits inefficiency by allowing pass-through of less than 100 percent of cost savings
“Top-down” pricing of discounts means Presort Mailers do not get full “credit” for cost-saving characteristics
Same cap applicable to SP and Presort allows USPS to raise Presort rates more than by CPI
Current price cap allows USPS to profit from reducing service
No volume discounts?
No destination entry discounts?