PRC Formally Opens New Regulatory Review of Market-Dominant Ratemaking System (RM2024-4)
In April 2024, the Postal Regulatory Commission officially initiated the rate system review that the Alliance and other mailer associations had been urging for the past two years. The current system has been in place since January 2021, and has allowed the Postal Service to implement five rate increases (three of which were above-inflation) since July 2021.
The magnitude and frequency of the USPS rate increases, their negative effect on mail volumes and the Postal Service’s financial condition, and the Postal Service’s poor service performance appear to have caught the PRC’s attention. The Alliance had warned for years – including in the initial ten-year review – that these consequences would ensue if the Commission gave enhanced pricing power to a monopolist:
- In March 2020 during Phase III of the ten-year review, the Alliance and allied associations predicted that the “Commission’s density-based authority would further exacerbate this vicious cycle by awarding the Postal Service with more and more authority to increase rates as volume declines accelerate.” See ANM et al. Reply Comments, Docket No. RM2017-3 (Mar. 4, 2020) at 13.
- When the Alliance and PostCom petitioned the Commission to initiate a new review of the rate system in April 2022, we explained that “[t]he additional density related rate authority for declining market dominant mail volumes that have been accelerated due to loosened service standards and the expectation of above inflation price increases perpetuates the mail volume declines and creates a downward spiral rather than acting as a solution.” See Petition for Rulemaking of the Association for Postal Commerce and Alliance of Nonprofit Mailers, Docket No. RM2022-5 (April 11, 2022) at 12.
- In the most recent rate case, we observed that the Postal Service’s “pricing strategy – both its frequency and magnitude of market dominant rate increases – is undermining the [DFA] plan’s goal of achieving financial stability” and cautioned that “unless the Commission reins it in, the Postal Service will continue to dig itself into a deeper financial hole.” See ANM Comments, Docket No. R2024-1 (Nov. 6, 2023) at 1.
The Commission’s final order in the R2024-1 rate case acknowledged the Alliance’s (and other commenters’) concerns and previewed the PRC’s intention to evaluate the efficacy of the current rate system “in the near term,” accelerating the timetable that had originally placed the PRC’s review in or around January 2026.
On April 5, 2024, the Commission issued Order No. 7032 as an Advance Notice of Proposed Rulemaking inviting public comment to inform the PRC’s statutory review of the rate system under 39 U.S.C. § 3622. The ANOPR was published in the Federal Register on April 11, 2024.
The PRC’s Order makes clear that mailers’ criticism of the Postal Service’s pricing strategy and service performance was the impetus for its accelerated review:
In recent dockets, commenters have raised a substantial number of concerns related to the effects of the modifications to the ratemaking system adopted in Order No. 5763, including: the magnitude of recent and future price increases, the frequency of rate adjustment proceedings, the Postal Service’s service performance, whether the objectives of 39 U.S.C. § 3622(b) are being achieved, the effects that recent rate adjustments have had on mailers, the Postal Service’s overall finances and financial stability, the Postal Service’s ability to collect adequate data, the Postal Service’s business reputation, and Market Dominant mail volumes declines.
The Commission observed that three years under the new rate system has resulted in substantial market-dominant mail volume declines and a significant percentage of mail products failing to meet on-time service standards. Likely the straw that broke the camel’s back, “the Postal Service’s financial situation has also failed to improve significantly in the years since implementation of the modified ratemaking system.” “[S]takeholder concerns, as well as the deteriorating financial condition accompanied with overall volume declines,” triggered this rate review.