Alliance Report – January 22, 2024

January 22, 2024


Supreme Court to strike down deference to agencies

According to experts it now appears certain that the U.S. Supreme Court will overturn the 1984 Chevron doctrine. As an article in Government Executive late yesterday says: “Supreme Court appears ready to end deference to federal agency expertise. The conservative majority is skeptical of a longstanding precedent that gives agencies latitude in setting regulations, and legal experts say it will take a ‘miracle’ to save it.”

Why is this important to us? Because Chevron is part of the reason the U.S. Court of Appeals denied our appeal of the new PRC rate rules. The court seemed to agree with the regulatory agency despite the plain language of the 2006 law. On the other hand, a Chevron reversal’s significance may be muted a bit in our case, because the DC Circuit seemed to take the position that Section 3622 was unambiguous: “The Senator’s remarks reinforce the plain meaning of the statutory text: during its ten-year review, the Commission may adopt an alternative system and is not necessarily constrained the price cap.”

It will take a while for the SCOTUS to rule and for the lower courts to establish a process by which they no longer have to defer to administrative agencies.

New regulatory review

In the meantime, the PRC has promised to open an “appropriate proceeding” on the November 2020 regs that allow USPS to add onto the CPI cap that Congress established in 2006. (In our previous Alliance Report we projected that in the July 2024 rate hikes, more than half, or 4.312%, of the expected 7.725% increase will be the PRC “density” add-on which rewards USPS for the 9% volume drop in FY 2023.)

In its Thanksgiving Eve approval of the rate increases just implemented, the PRC made this promise:

“Nonetheless, the Commission acknowledges the range of concerns raised by

commenters about the recent Market Dominant rate changes and the potential effects of

the regulations adopted in Docket No. RM2017-3. At this juncture, the Commission

believes further consideration of these issues is warranted. As a result, the

Commission intends in the near term to initiate an appropriate proceeding pursuant to

39 U.S.C. § 3622(d)(3) to explore such issues.”

The PRC will now be much less confident that a court will defer to it in the case of an appeal. On the other hand, if the PRC changes the rules in our favor, USPS will mount a strong appeal with the same knowledge that the court will not defer to the PRC.

USPS falsely portrays its plan as the only alternative

A January 12 article in the Federal News Network on an employee video by Postmaster General Louis DeJoy said: “To keep up with the goals of its 10-year reform plan, DeJoy said USPS needs to cut costs by about $3 billion over the next 18 months and grow its revenue by at least the same amount.”

Did he say “revenue?” We ask because to close an ongoing $6 billion-plus gap, the Postal Service, in addition to $3 billion in cost reductions would need $3 billion in new contribution or net profit. To get $3 billion in contribution they need about $9 billion in new revenue.

In the recently completed FY 2023, USPS had a decline of $321 million in operating revenue. In its Integrated Financial Plan for FY 2024, the Postal Service projected an increase in revenue of $2.4 billion. Maybe that’s why the PMG said “over the next 18 months” to his employees.

We understand that this was an employee pep talk, but we haven’t seen a plausible pathway to break even.

No alternative

Interestingly, DeJoy always says there is no alternative to his plan. In the FNN article:

“Our journey is complicated and will not be without risk or error. But I know we can push through and succeed if we simply keep working together to rapidly improve and grow our business,” DeJoy said. There is no alternative, and we must move forward with our priorities and our focus.”

One of the Governors said that there were no alternatives to Delivering for America during the last open USPS Board of Governors meeting. It’s one way USPS justifies its strategy. But of course, there always are alternatives.

A more honest way to justify the ten-year plan would be to publish a plausible financial forecast with all the details and initiatives that lead to break-even or better. The degree to which USPS resists being transparent and accountable makes one wonder whether there is a believable pathway to financial stability in the plan.

Demonizing appropriations

Another way USPS is discouraging any consideration of alternatives to its solution is by demonizing the Congressional budget process. The agency for some reason fears the rising chorus in favor of returning to the pre-1980 policy of public money for the public services the agency performs above and beyond what a business would do.

DeJoy’s portrayal to his employees of the evils of receiving public money is a doozy:

“We are laser-focused on transforming our organization because we know the terrible, ultimate consequences of not covering our costs and potentially needing to go to Congress, hat in hand, every year to get our funding through the congressional budget process — for our investments, for our supplies, for our payroll,” DeJoy said.

Threatening their payroll is the ultimate poison pill for employees.


Combination of PRC delay and USPS semi-annual rate schedule dooms Publishers Clearinghouse Negotiated Service Agreement

In the summer we expressed guarded optimism that the regulatory ten-year logjam for Market Dominant Negotiated Service Agreements (NSA) would be broken. To put this into perspective, the majority of USPS package volume is priced through customer negotiations. In the mail of mail, none is negotiated. The reasons are complicated but the most succinct explanation is an overly cautious regulator.

USPS and Publishers Clearinghouse agreed on terms in late July 2023 on a relatively risk-free NSA. The Postal Service moved quickly to obtain Governors’ approval on August 8, 2023, and file with the PRC on August 11, 2023. The parties expected approval by the PRC by October 11, given the legal requirement for a 45-day review and allowing for “reasonable” delays. This would allow time for PCH to plan a prospect mailing for January 2024, and measurable results before the July 2024 expected USPS rate hikes above CPI.

The regulator waited until November 22 to conditionally approve the NSA which did not leave enough time for PCH to pull it off in time to beat the July 2024 unnecessary USPS price increases.

The Postal Service concluded its January 17 filing describing the now muddled outlook for any negotiated pricing for mail in the world’s largest postal system:

“It should also be noted that the Postal Service, in addition to receiving a great

deal of positive industry feedback over the revival of market dominant NSAs, has had

several other customers eagerly awaiting the resolution of the instant docket so that

they could pursue their own market dominant NSA with the Postal Service. This

includes mailers that seek functionally equivalent NSAs to the PCH NSA and others

who seek different types of arrangements. These customers have been in a holding

pattern for multiple months, and now with the failed implementation of the PCH NSA,

must continue to wait to establish an NSA with the Postal Service, and face

considerable uncertainty of their own.

As the Commission ordered, it will “refrain from approving any other NSAs

structured like the PCH NSA until a relevant accepted analytical principle is in place.”

Order No. 6813 at 23. Customers who seek to follow PCH’s lead with a functionally

equivalent NSA are now left in limbo. Moreover, customers who seek more unique NSA

opportunities with the Postal Service for market dominant products are now left to wonder if their NSA will be favorably reviewed by the Commission, and how long that process might take.”

While USPS did a commendable job of foisting the blame for this fiasco on the PRC’s delay, without the unnecessary above-inflation semi-annual rate hike promised in July, negotiated pricing for mail would be on a positive path.


The showdown between the postal regulator and the regulated agency escalates

The Postal Service pushed back hard on the latest information request by the PRC in a scathing 20-page motion for reconsideration. PMG DeJoy appears to have lost patience with the regulator that he regularly lambasts. How the Commission responds will be telling.

The regulator asked for details about several initiatives recently started by USPS to change its processing and delivery network. The Chairman’s Information Request #7 said that the major operational changes “may implicate statutory provisions related to Postal Service costs, service performance, or changes in the nature of service.”

USPS shot back that this request goes way beyond the stated purpose of the public inquiry and the regulatory authority of the PRC. The regulated agency concluded:

“In sum, it is not clear how the extensive level of granular information requested in

ChIR No. 7 would advance the Commission’s general understanding of the Plan or aid

in determining whether further regulatory action is warranted. It is especially difficult to

find the regulatory and probative value in the Commission’s request as we are unaware

of any instances, whether in nature of service cases seeking an advisory opinion, in the

annual compliance review process, or otherwise, where the Commission has relied on

the requested level of detailed information to fulfill its obligations.

Because the burden in responding to this information request would far outstrip

the tangential (if any) relevance of the information to the Commission’s consideration of

the Plan, the Commission should withdraw ChIR No. 7.


ChIR No. 7 requests information outside the stated purpose of these

proceedings, would not advance a legitimate regulatory objective within the scope of the

Commission’s authority, and unjustifiably intrudes on Postal Service managerial

independence. For the reasons stated above, and pursuant to 39 C.F.R. § 3010.165,

the Commission made a material error of law when it issued ChIR No. 7, and the Postal

Service respectfully requests that the Commission reconsider and withdraw the

information request.”

Mailers are in the dark too

Mailers are in a similar boat to the regulator. No one outside the Postal Service has seen a credible roadmap, forecast, or detailed financial plan that demonstrates how the agency is going to achieve financial stability and excellent service from its initiatives. How will the PRC know what the impact on service and costs will be without the details? The fact that USPS is losing almost $13 billion in the first two years that its secretive plan was supposed to deliver breakeven heightens the need for details.

The Postal Service cites its “freedom to act in a business-like manner,” but it doesn’t have the same checks and balances that a private sector business has. The agency also has received $120 billion in federal government largesse since it started the plan.

Surely, USPS realizes that it’s a federal government agency that must share its strategic planning with a regulator and with mailing customers who are being subjected to unprecedented, seemingly counterproductive rate increases for going on four years. And the more it is failing to deliver promised service while improving its finances the more scrutiny it is going to have to endure.

“Leave us alone to operate like a business” will only go so far.