December 7, 2020

Regulator issues final rule

Yes, the postal regulator is done—for now.  In its 484-page ruling, the Postal Regulatory Commission laid out a potential timeline in which the Postal Service would make its surcharge proposal by the end of this month, the PRC would approve it by the end of March, and USPS would be free to implement 90 days later.

The PRC Commissioners aim to help USPS long-term financial stability by making up for past losses and unfunded liabilities and making “non-compensatory” class and product users pay more to fully cover their directly attributable costs to deliver.

We estimate a maximum 5.6 percent for “compensatory” classes and products and 7.6 percent for “non-compensatory” classes and products.  USPS also could add in more than half a percent of CPI cap, and perhaps switch to a regular summer rate increase schedule.  USPS could choose to use only some of the “authority” and bank the rest for future years, and the agency could choose to delay implementation—but that’s not likely.

The authority to levy surcharges above the Consumer Price Index cap will continue for at least five years, through 2025.  At that point, the PRC would engage in another regulatory review.  Presumably, the review would take a while, during which the surcharges would continue. The surcharges are permanent additions to the rate base; not temporary like the 4.3 percent exigent surcharge in 2014-2016 that reduced Nonprofit Marketing Mail volume by almost 10 percent.

Estimated July 2021 USPS Surcharges (plus 0.5-1% CPI)

Compensatory: 5.6%

• First-Class Mail
• USPS Marketing Mail Non-Carrier Route Letters and High-Density/Saturation Mail

Non-Compensatory: 7.6%

• Non-Compensatory Classes
  • Periodicals
  • Package Services
• Non-Compensatory Products in Compensatory Classes
• USPS Marketing Mail Carrier Route
• USPS Marketing Mail Flats
• USPS Marketing Mail Parcels

Many nonprofit mailers do not have the time or need to know how the sausage was made.  We will give a brief overview for those who do.

The total surcharges are the product of four categories, one of which was deferred for a later deliberation.

Mail density metric puts death spiral in place

Basing a surcharge on mail delivery density is the most interesting, and insidious, metric.  It says that the more mail volume falls, and delivery points increase, mail density drops.  The fixed cost of a letter carrier visiting every address six-days a week is then spread over less revenue per delivery.  Because the regulatory agency believes that the numerator and denominator are outside the mail agency’s control, it will be allowed to charge higher rates the next year to make up for its lower productivity and greater losses.

A we know, the pandemic has caused a major drop in mail volume this year.  That, divided by more addresses, multiplied by USPS institutional cost share gives is an estimate of 4.6 percent.

The density authority will have the effect of institutionalizing a death spiral: as volume declines, rates automatically go up higher than inflation, causing more volume declines, etc.

The retirement fleece estimated at 1 percent is intended to enable USPS to raise prices over a 5-year period to cover the expected annual amortization payments on unfunded retirement obligations:

• Civil Service Retirement System: $1.8 billion
• Federal Employees Retirement System: $1.3 billion
• Retiree Health Benefits: $900 million

Performance-based surcharging would be based on USPS making its productivity and/or service goals, but no rate reductions if they miss.   Because we and other intervenors pointed out several logical deficiencies in this surcharge, the regulator put it off for further deliberation.

The non-compensatory soak hopes to bring products not covering their attributable costs above water over time.  It represents capitulation by the regulator in any effort to get USPS costs under control; in other words, make the customers pay for agency inefficiencies and cost overruns.

• Non-Compensatory Classes
  • Optional 2% additional rate authority for each class
• Non-Compensatory Products in Compensatory Classes
  • 2% above class average

Next stop: U.S. Court of Appeals

The remaining options for USPS customers are to appeal the ruling in federal court, and to ask the court for an emergency stay, both of which the Alliance is considering.  We believe we will ultimately prevail, and we will continue to fight for the rights and viability of nonprofit mailers. More to follow.