Washington, DC – The Postal Regulatory Commission today issued its Annual ComplianceDetermination (ACD) evaluating the pricing, service performance, and financial situation of the PostalService in fiscal year (FY) 2012. The ACD is the primary tool established by the Postal Accountability andEnhancement Act (PAEA) to ensure that the Postal Service is accountable for and transparent in its operations and service to the public.

In FY 2012, the Postal Service incurred losses of $15.9 billion: $11.1 billion was due to its Retiree HealthBenefits Fund expense, $2.4 billion resulted from a workers’ compensation liability adjustment, and $2.4 billion was attributed to operating loss under management control.

Ruth Y. Goldway, Chairman of the Commission, said: “The continuing financial losses of the PostalService and the exponential shifts in communications technology raise the value of the Commission’s annual review. Based on our review of information

provided by the Postal Service, the Commission hasdetermined it to be largely in compliance with postal policies and pricing requirements of the PAEA.Nevertheless, nine Market Dominantproducts’ prices failed to raise enough revenue to cover even their

attributable costs, causing losses of $1.5 billion,more than 50 percent of the total operating losses undermanagement control. This ACD highlights the untapped potential of the pricing flexibility available to the Postal Service under the law to addres

s at least some of these losses.”

The Commission’s report did identify some positive resultsby the Postal Service. The Postal Service metits on-time service performance targets for its flagship First-Class letters and cards products and although it did not meet its targets for most

other products, it made significant improvements over the course of the fiscal year.

The Commission’s report was prepared after a 90-day review of the Postal Service’s 2012 Annual Compliance Report and supplemental material, and evaluation of public comments.

The Commission issued a number of directives to the Postal Service throughout the report. A copy of thefull report may be found on the website at:www.prc.gov

Some highlights from the report:

Nine of the Postal Service’s market dominant products failed to generate revenues sufficient to cover attributable costs, losing a total of $1.5 billion, including $642 million from Periodicals and $528 million from Standard Mail Flats.

For Periodicals, the Postal Service should review its operational strategy to assess what cost savings initiatives are working and how they can be improved. The Postal Service should also review its pricing strategy to determine how to incentivize additional mailings that can be efficiently processed by current or planned operations.

For Standard Mail Flats, the Commission finds that the Postal Service has begun to make progress toward addressing the issues raised by the Commission in the 2010 ACD and makes no changes to that directive. The Postal Service should continue with its proposed three-year schedule of above-average price increases and operational changes designed to reduce flats costs.

Sixteen workshare discounts were too large, as the discounts exceeded avoided costs and were not justified by a statutory exception. The Postal Service is directed to either align these discounts with avoided costs in the next market dominant price adjustment or adequately support an applicable statutory exception.

Competitive Products generated a profit amounting to 7.5 percent of the total Postal Service institutional costs.

There were 63 competitive domestic Negotiated Service Agreements (NSAs) all of which appear to have covered their attributable costs and complied with the statutory requirements of section 3633(a)(2). There were 383 competitive international NSAs, of which 379 complied with the statutory requirements.

The Postal Service met its service performance targets for both Single-Piece First-Class letters and cards and Presort First-Class letters and cards, its flagship products.

The Postal Service is also currently unable to identify the majority of Standard Mail pieces by product. This results in service performance for most of Standard Mail volume being reported as mixed product categories.

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