July 14, 2020
On July 2, the Alliance, along with MPA and PostCom, filed supplemental comments responding to the April 2 PRC order denying our March 23 request that the ten-year rate review be put on hold. In their denial, the regulator promised that “[s]hould any substantive issues develop that would affect the Commission’s evaluation of the revised proposal, the Commission will address those issues at that time.”
Our new filing said: “Now is the time. The postal world (indeed, the entire world) has significantly changed in the nearly four months since the public comment period in this docket closed on March 4. So material is this change that the administrative record in this case must be updated to reflect it.”
We focused in this filing mainly on the density-based surcharge in the PRC ten-year proposal, while keeping all of our other arguments against the full package in place. The density proposal would give USPS more surcharge authority based solely on declines in mail volume relative to delivery points. The density formula did not account for revenue and contribution from mail and packages, which are much more important to USPS finances than mail volume alone.
The surge in package volume, revenue, and contribution are offsetting the financial impact of the drop in mail volume in the first two months of the pandemic. The PRC-proposed formula would allow about 7 percent more rate increase because mail volume is down. The reality of current data makes the density formula obsolete. Administrative law requires that the regulator change the proposal when something so material occurs.
We specifically documented how USPS projections of the impact of the pandemic on its finances have been way off the mark. We went on to demand that the record reflect reality:
While these projections were necessarily based on incomplete information in a rapidly changing environment, they have, like prior projections of liquidity crises, proved inaccurate. Those prior claims, which began shortly after PAEA’s passage, underpin the (illegal) push for above-inflation pricing authority over monopoly postal products. The more recent, COVID-based fears have also not been realized. The administrative record must be renewed to show that these claims were proven inaccurate. The current emergency does not “heighten” the need to reform the market-dominant rate system, as the Postal Service contends. To the contrary, the evidence shows that the Postal Service can weather the current national emergency far better than it told Congress in April due to rising package contributions.
We also emphasized that the very customers that the PRC and USPS seek to hit with massive rate increases have been hurt by the pandemic much more than USPS:
The Postal Service has since walked back its April forecast. But mailers’ fears about how injurious the Commission’s proposals would be to USPS customers have only intensified during the pandemic. Compared with the Postal Service, market-dominant mailers are not withstanding the COVID pandemic nearly as well. Overall, market-dominant mail volume declined by nearly 29 percent year-over-year in May 2020. Marketing Mail volume plummeted by over 40 percent, after falling by 45 percent in April. Single-piece First-Class mail volume dropped by nearly 14 percent, reflecting that our members are experiencing declining subscriptions, membership initiations and renewals, and donations. The declining volumes of Periodicals, First-Class, and Marketing Mail that our members utilize reflect the severe impact that the pandemic has had on the Postal Service’s most loyal customers.
That is not all: magazine publishers have experienced a dramatic reduction in advertising revenues. Nonprofit mailers are suffering through significantly diminished levels of charitable giving and fundraising efficacy. Our members, both for-profit and nonprofit organizations, are implementing layoffs, staff furloughs, and closing physical locations; the USPS is not. Worse yet, as devastating as COVID has been to our members, we still do not know the full impact that it will end up having. It is imperative that the Commission know the full extent of this impact before it acts further.
Our closing request:
For these reasons, as well as those contained in our Phase III initial and reply comments, we urge the Commission to rescind its density-based proposal. That proposal was arbitrary and capricious prior to the COVID pandemic; it is even more so during the pandemic.
Not at all surprisingly, the Postal Service filed its opposition to its customers’ request that the Postal Regulatory Commission take into account the massive impacts of the pandemic in the ten-year regulatory review. It did, of course, ask Congress to take the pandemic into account in its bailout requests.
The USPS persists in the fiction that it would not necessarily use all of the extra pricing “flexibility” if it were granted by the PRC:
At every stage of this proceeding – including in irregular motions and comments – the movants and other mailing-industry stakeholders have persisted in alarmism about the supposed effects of any above-inflation pricing authority resulting from this proceeding; these proffered comments continue that trend. And at every turn, the Postal Service has reminded parties and the Commission of the distinction between price increases, which are statutorily the province of the Postal Service Governors, and pricing authority, the outer bounds of the Governors’ discretion that the Commission establishes in furtherance of the statutory objectives (taking account of various factors).
The Commission’s task here remains what it always has been. It must determine the amount of pricing flexibility that would be sufficient to achieve the statutory criteria. Then, the Governors would fulfill their statutory responsibility to determine, in light of ever-changing market and financial conditions, what price increases may be necessary, and how to balance the mailing industry’s short-term interest in price suppression with its long-term interest in a sustainable postal system. The Postal Service stands ready to fulfill its charge. All that remains is for the Commission to consider the comments that were properly submitted consistent with the Commission’s scheduling order, and to publish a final rule that corrects the deficiencies of the current system.
Because the proffered comments offer no new, relevant information or perspective that could not have been presented in regular comments, the motions for late acceptance should be denied.
It appears that the USPS wants a monopoly on alarmism too! In our case, we firmly believe that the United States Postal Service using all of the price increase authority its possesses is realism, not alarmism.