Alliance Alert — Alliance and Allies Debunk USPS Exigent Expansion Attempt

July 6, 2015

Today the reply comments were due at the Postal Regulatory Commission (PRC) in the seemingly never-ending attempt by the United States Postal Service (USPS) to increase the amount of above-inflation surcharge revenue it gets from its customers to “compensate” it for mail volume losses due to the 2007-2009 recession. The Alliance of Nonprofit Mailers, along with several other associations representing the mailing industry and customers of USPS, filed comments debunking the latest Postal Service attempt to extend the exigent surcharge.

The PRC is likely to make its decision fairly quickly, probably by the end of July, in the case that was sent back by the court to redo one element—the method for counting lost revenue before the “new normal” was reached.

In its initial comments the USPS once again urged the PRC to redefine the “new normal” even though it has been defeated in this attempt twice before, by the PRC and the court. The Postal Service tried to grossly redefine the “new normal” by ignoring three of the four criteria established by the PRC and by remaking the fourth criterion “in favor of a more amorphous and expansive definition.” The USPS hopes that the redefinition will lead to an increase in the contribution it is allowed to recover from the original PRC order for $2.8 billion to the new USPS goal of $11.4 billion, which at the current surcharge rate of 4.3 percent would take about five more years.

Our comments at the PRC begin and end as follows:

In Order No. 1926, the Commission held that the Postal Service was entitled to an exigent rate increase to compensate for mail volume losses that were due to the 2007-2009 recession. The Commission also held, however, that at some point in time, known as the “new normal,” mail volume losses could no longer be reasonably regarded as “due to” the recession. The Commission set forth four factors for determining when this “new normal” had occurred and the USPS could no longer recover lost contribution through an exigent surcharge: (1) whether macroeconomic indicators had returned to near historic positive trends; (2) the ability of these macroeconomic variables accurately to project change in mail volumes, and whether the predicted rate of change in mail volumes is positive; (3) whether the Postal Service had regained its ability to predict mail volumes; and (4) whether the Postal Service had demonstrated an ability to adjust operations to lower volumes. Order No. 1926 at 86. The Commission, evaluating these factors for each class of mail, found that the “new normal” was achieved by the beginning of FY 2011 for First Class Mail, the beginning of FY 2010 for Standard Mail and Package Services, and the beginning of FY 2012 for Periodicals. Order No. 1926 at 94.

The Postal Service vigorously opposed this approach in the initial phase of this docket, arguing that the effects of the 2007-2009 recession persisted well past these dates, if not forever. In Order No. 1926, the Commission rejected these arguments. The Postal Service challenged the Commission’s decision in the Court of Appeals on the theory that the Commission acted arbitrarily and capriciously in establishing its “new normal” standard as a cutoff for treating mail volume losses as due to the recession. In Alliance of Nonprofit Mailers, et al. v. PRC, 2015 WL 3513394 (D.C. Cir. June 5, 2015) (“ANM”), the Court rejected these arguments. It held that “the Commission acted well within its discretion in starting the date of the new normal separately for each class of mail,” ANM, Slip Op. at 14, and that “the ‘new normal’ rule was well reasoned and grounded in evidence before the Commission.” Id. at 17. Ultimately, the court ruled, the “new normal” standard “comfortably passes deferential APA review.” Id.

Having twice had its arguments rejected, the USPS returns to the well a third time in its Initial Comments. It again seeks to relitigate the “new normal” standard, putting forth many of the same arguments that were raised before and rejected by the Commission in the decision upheld by the D.C. Circuit. Introducing a novel and substantially revised definition of the “new normal,” the USPS proposes that the Commission extend the advent of the “new normal” until the beginning of Fiscal Year 2013. This would allow the USPS to recover more than $11.4 billion through the exigent surcharge—more than four times the amount the Commission attributed to the 2007-2009 recession. Alternatively, the USPS proposes that the Commission extend the recognized onset of the “new normal” for Standard Mail by one year—from the beginning of Fiscal Year 2010 to the beginning of Fiscal Year 2011. This would allow the USPS to recover a total of $5.8 billion from the exigent surcharge. As the mailers urged in their initial comments, the Commission should refrain from even entertaining these arguments.

The court has provided the Commission with clear direction. The Commission need only determine how to account for volume lost to the 2007-2009 recession in the absence of the “count once” rule. Both the Postal Service and the undersigned mailers have presented simple methods for doing so, the only difference between the two being the per-piece contribution figures to be used in the math. With the court’s clear blessing, the Commission can conclude this proceeding quickly and simply by calculating the contribution lost from each class of mail until the already-determined “new normal,” announcing the new exigent authority, and revising the term of the surcharge appropriately. It would be in the best interests of the entire industry, including the Postal Service itself, for the Commission to do so and allow the industry to put its resources towards growth and innovation instead of litigation.
The Postal Service’s latest proposals should be rejected, however, even if the Commission decides to reach their merits. The USPS provides no new information that would warrant revisiting the Commission’s existing definition of the “new normal” standard.
With respect to the appropriate legal standard, the USPS, in the guise of reapplying the Commission’s “new normal” standard, would distort it beyond recognition. First, the USPS would effectively discard three of the four elements of the “new normal” standard, leaving only a one-factor standard based solely on the Postal Service’s ability to adjust to its losses. Second, the USPS would jettison the Commission’s definition of this remaining factor–the point at which the USPS has “begun to adjust to the extraordinary circumstances” (Order No. 1926 at 94 (emphasis added))—in favor of a more amorphous and expansive definition, which the USPS states variously as the point at which the USPS “demonstrated the ability to effectively adjust in response to the level shift” (USPS Comments at 11-12), “could reasonably be expected to show effective results” (id. at 12), or “began to meaningfully improve” the Postal Service’s “fiscal position” (id. at 12-13). Third, the USPS would benchmark the effectiveness of its “response,” “results,” or “improvement” against the Postal Service’s losses from all causes in FY 2008-2012, not just the subset of those losses that were due to the 2007-2009 recession. USPS Initial Comments at 13, 14-17.

The USPS has offered no justification for redefining the “new normal” standard in this fashion. The Commission’s existing definition of the “new normal” reflects a careful balancing of the underlying factual and policy concerns, and has been upheld by the court. And the supposedly “irreconcilable conflict” between the Commission’s definitions of the “due to” and “necessary” clauses of the statute is a Postal Service invention. USPS Comments at 8-9. There is no conflict. The Commission has repeatedly held that the “necessary” standard is subordinate to the “due to” standard, and that losses which satisfy the former but not the latter may not be recovered by the USPS through an exigent rate surcharge. Order No. 1926 at 28-30, aff’d, ANM, slip op. at 13 (the “‘reasonable and equitable and necessary’ test . . . applies only after exigent causation for a loss has been established”) (emphasis in original).
With respect to the facts, the USPS does little more than rehash well known information about its fiscal situation between 2008 and 2013—information the Commission already considered in reaching its conclusions in Order No. 1926. The USPS refers to Commission statements about the Postal Service’s overall financial condition in Financial Analysis Reports—without acknowledging the distinction between the Postal Service’s overall financial condition and the extent to which that condition is “due to” the 2007-2009 recession. And the USPS admits that its finances have seen sustained improvement, even disregarding the effects of the exigent surcharge.

For similar reasons, the Commission should likewise reject the Postal Service’s fallback proposal to double the total allowed exigent recovery to $5.8 billion by delaying the recognized advent of the “new normal” for Standard Mail by one year, until Fiscal Year 2011. The Commission specifically found in Order No. 1926 that the new normal for Standard Mail began at the beginning of Fiscal Year 2010. This finding was amply supported by the record, including the testimony of USPS witness Thress, and was explicitly upheld by the Court of Appeals. The USPS has offered no cogent justification for a different outcome now.”

The Commission issued Order No. 1926 and established an exigent surcharge on Christmas Eve 2013. For the year and a half since then, the industry has operated under a cloud of uncertainty. The pendency of judicial review, and the Postal Service’s filings before the Commission to suspend its obligation to remove the surcharge, left mailers in the dark about how long the exigent surcharge would persist. As each month passed without a decision from the court, mailers became increasingly nervous, wondering whether they would ever again experience the “predictability and stability in rates” promised by the Postal Accountability and Enhancement Act. With the issuance of the court’s opinion, the prospect of a return to stable, CPI-based ratemaking appeared imminent. The Commission’s order on exigency was upheld almost entirely, with only one narrow issue left to be decided. The industry was heartened by the prospect of a final and definite resolution in the near future. It is time for the Commission to grant that certainty by rejecting, quickly and definitively, the Postal Service’s desperate attempt to relitigate its case.”