February 13, 2020
On February 3, 2020, the Alliance filed our initial comments in response to Postal Regulatory Commission (PRC) Order No. 5337. This was the Commission’s December 5, 2019 revised proposal to “bust the price cap” and grant the Postal Service significant above-inflation pricing authority over market-dominant mail products. We were joined by eight other associations in this effort, including our fellow nonprofit advocates, the Direct Marketing Association of Washington and the Nonprofit Alliance.
Our comments were supported by three expert declarations written by eminent economists and a notable industry consultant. They also were buttressed by the declarations of six Alliance board members, senior officials at major nonprofit organizations. In addition, well over one hundred nonprofit mailers submitted their own comments opposing the PRC’s plan directly, reflecting the existential threat the proposal poses. We appreciate the excellent response by the nonprofit community at a time when it already is facing major challenges.
Summary of Our Filing
If you would prefer not to wade through all 107 pages of our comments, here is a brief summary:
- We asserted that the PRC’s proposal is illegal in two ways.
- First, the Postal Accountability and Enhancement Act (PAEA) of 2006 makes a CPI-U price cap a requirement of the methodology established by Congress for regulating market-dominant rates. The CPI cap must remain intact, even if other nonmandatory aspects of the system are modified or replaced.
- Second, PAEA requires that the PRC design any new system “as necessary to achieve” nine statutory objectives. These objectives include maximizing USPS incentives to reduce costs and increase efficiency, creating predictable and stable rates, and maintaining just and reasonable rates. The PRC’s proposed new system would do none of these things, and in fact would move us farther away from them. It thus violates the law.
- We also argued that the PRC’s proposed system simply will not work; in fact, it would do more harm than good. The proposal would allow the USPS to raise market-dominant prices 17 percentage points above inflation (29 percentage points above inflation for non-compensatory products, like Marketing Mail Flats and Periodicals) permanently. This amounts to an annuity that would cost mailers approximately $8 billion per year.
Such excessive price increases would surely drive massive volumes out of the mail. And, because the PRC has proposed formulas that would give USPS more pricing authority as mail volumes decline, the Postal Service would get ever-increasing rate authority as mailers leave the system. This is a death spiral in the making.
- We also identified, in great detail, other flaws with the PRC’s proposals. For example, the PRC’s “density” formula effectively overpays the Postal Service: it would give the USPS above-inflation pricing authority even for volume losses that are within the Service’s control. The PRC’s “retirement” authority is an attempt to retroactively recover costs that the USPS failed to recoup since PAEA’s enactment in 2006. And the PRC’s “performance-based” authority is a misnomer. The Postal Service would hardly have to “perform” to get it. In fact, the USPS would receive rate authority for hitting productivity levels far below historical averages, and could easily game the system in order to qualify for above-inflation rate authority in later years.
- Our experts documented that the PRC proposals to change the CPI-based price cap would move in the opposite direction of best practices in monopoly pricing regulation.
- We documented with sworn declarations by senior officials of six major nonprofit organizations that the proposal would severely disrupt their organizations and lead to serious consideration of leaving the mail.
Overall, we used a combination of legal arguments, economic theory, performance data, and common sense to argue that the PRC should withdraw its proposals.
Many other stakeholders submitted comments to the PRC. We are reviewing the most pertinent ones and developing Alliance reply comments, which are due on March 4.
After reply comments, the PRC will take some time to read and analyze all that they have received. If the regulator does move forward with a “final rule,” many expect multiple stakeholders to appeal it at the U.S. Court of Appeals. The court could take some time to reach a decision, meaning that mailers could face a year or two of surcharges in 2021 and 2022, before the appeals are resolved. Even if the final rule were overturned by the court, the damage to our postal system could already be done.