PRC Mark Action’s Separate Views On Postal Rate Decision

acton1In more than seven years’ service as a Commissioner, this is the first instance that I have felt compelled to present separate views regarding a Commission decision. This speaks not only to the deliberative process of the panel and consensus building that occurs among Commissioners, but also to the significance of this decision and gravity of the Postal Service’s current situation.

The Postal Service remains in a state of financial crisis. No one with knowledge of the facts and circumstances can deny that this crisis exists. Liquidity concerns and dire forecasts as to the Postal Service’s financial condition arose before the Great Recession. It appears likely that financial uncertainty will continue its reign into the foreseeable future. Granting the Postal Service some or all of the pricing relief it seeks in this docket may help in the short term, but does not alter that reality. The Postal Service, regardless of the outcome of this exigent rate request, will face liquidity challenges in the near term.The underlying driver in the present situation is that the Postal Service must be enabled to address structural challenges in its business model. Many of these concerns it will be unable to effectively resolve without legislative action. That does not mean, however, that the Postal Service may lawfully move to address unrelated structural concerns by way of a tool ill-suited to the task – the extraordinary or exceptional circumstances rate adjustment. As noted in this record: “[e]xpanding the exigency provision from a limited escape valve into an all-purpose vehicle for recovering losses of all kinds would leave captive mailers without any effective protection at all.”1

The Postal Accountability and Enhancement Act (PAEA) ushered in a host of worthy changes. Central among them was the introduction of the price cap in place of a system that allowed postal rates to be set to recover the cost of service.3 The advent of the price cap and PAEA reforms spurred Postal Service management to improve efficiencies by reducing costs and allowing flexibility to implement best business practices. Simultaneously the price cap provided the Postal Service’s customers with more certainty as to the timing and amount of price increases.

While constructing a system whereby the Postal Service would be incentivized to behave more as a business and control its costs, the law also provided a safety valve, an emergency release to account for certain unusual occurrences. The Postal Service may, due to extraordinary or exceptional circumstances, request rates that pierce the inflation-based price cap. 39 U.S.C. 3622(d)(1)(E). The Commission must then determine if the proposed adjustment is “reasonable and equitable and necessary to enable the Postal Service, under best practices of honest, efficient, and economical management, to maintain and continue the development of postal services of the kind and quality adapted to the needs of the United States.”

In the system of ratemaking, the price cap is the rule, and the exigent rate provision the exception. This exception to the price cap is, and must therefore be, narrow. Order No. 547 at 67.

The Postal Service in this docket endeavors to use an exigent rate request, not as a precise and tailored instrument to make it whole for a discrete set of extraordinary or exceptional circumstances, but as a panacea to ameliorate underlying costs related to fundamental ongoing structural problems. I do not quibble that the Great Recession was an extraordinary or exceptional event. Likewise, I agree with all of my colleagues that the Postal Service was injured by the Great Recession. If I was a member of the Governors, and charged with approving management approaches within my control in an effort to move the Postal Service forward, I may well have voted for this exigent proposal, to request piercing of the price cap by over four percent into perpetuity as a prophylactic remedy. But I am not a Governor. As a Commissioner, I am charged with administering those provisions of title 39 within the Commission’s purview. My responsibility is to uphold the law as it is written, not as some would like it to be.

One of the duties of a Commissioner is to review the Postal Service’s request for an exigent rate adjustment for consistency with 39 U.S.C. 3622(d)(2)(E). With the aid of the Commission’s resources and my professional experience, I am tasked with determining whether the Postal Service’s requested exigent adjustment is “due to” the extraordinary or exceptional circumstances of the Great Recession. Further, I must determine if the proposed adjustment is reasonable, equitable, and necessary under the best practices of honest, efficient, and economical management to maintain and continue the development of postal services of the kind and quality adapted for the needs of the United States.

The Commission previously instructed the Postal Service to “quantify the net financial impact of the exigent circumstances.”4 That quantification is an upper-bound of what the Postal Service may request, and must “factor out the financial impact of non-exigent circumstances.” Id. at 47-48. In this case, the Postal Service’s analysis was not sufficient to “factor out the financial impact of non-exigent circumstances.” With the body of evidence in the record before the Commission, I believe the amount calculated in this Order to be the most supportable quantification of the amount the Postal Service lost due to the discrete occurrence of the Great Recession using the data and methods available in this docket.

I recognize the Postal Service was adversely impacted by the extraordinary or exceptional circumstances of the Great Recession. I am aware too that it would in some sense be a convenient choice to allow the Postal Service to recover billions in additional revenues from mailers from now into eternity to offset a portion of the expense of existing structural constraints within the Postal Service’s business model. The Postal Service proposes a perpetual recovery arrangement that may be revisited as part of the Commission’s mandated 2017 review of the system of ratemaking.

I believe, however, in following the law and limiting what the Postal Service may collect from mailers (who, it is key to note, have suffered also through the Great Recession) to those losses that are justifiably linked by supportable methods to the Great Recession. Further, I believe it is detrimental to the statutory objective of predictability and stability in rates, to tie ultimate resolution of an exigent recovery to a matter not yet before the Commission and unrelated to the discrete occurrence of the Great Recession. The Commission has a record before it, with input from the Postal Service, mailing stakeholders, and a representative of the general public, and it has a duty to resolve the issues presented in this docket within this docket.

There does indeed exist a so-called “new normal” that defines the business environment in the post-Great Recession world. The Postal Service’s future, once it has been lawfully compensated for quantifiable losses due to the Great Recession, lies in its ability to adapt to this “new normal” environment as all sustainable businesses must.

The additional liquidity that the Postal Service so desperately needs cannot be endlessly extracted from mailers under the auspices of a narrow exception to the price cap. Rather, the postal model needs refinement that is beyond the scope of the price cap system (much less the narrow safety valve of the exigent provision). The Postal Service itself recognizes this need, and tacitly acknowledges that legislative reform may “obviate the need” for the exigent increase or mean that exigent rates are no longer “necessary” at some point in the future.
6 Many of the likely adjustments to the system are familiar and being debated: re-amortization of the retiree health benefit liability, change to the frequency or mode of delivery, workforce flexibility, independent management of health benefits, and others.

The determined and bipartisan work of our leaders in Congress makes postal reform a realistic goal. The Commission is a unique resource of postal experience and expertise, and stands ready to continue to support Congress, the Postal Service, and the mailing industry in bringing needed reforms.

__________________________
Commissioner Mark Acton

6 See Renewed Exigent Request at 6, 43; see also Reply Comments of the United States Postal Service, December 6, 2013, at 84.

 

Separate Views Of PRC Mark Action On Postal Rate Decision (PDF)

9 thoughts on “PRC Mark Action’s Separate Views On Postal Rate Decision

  1. This article was written very carefully as not to step on “certain toes” It is a financial nightmare for the postal service to give commercial mailers such deep discounts to begin with! To say “determined and bipartisan work of our leaders in congress makes postal reform a realistic goal” is laughable and shows just how careful words were chosen here. Congress has been kicking this down the hill along with everything else. They have been called possibly the worst congress in history in regards to getting things done! Are you kidding us with that statement?! There’s plenty of palm greasing going on and people are in other people’s back pockets which results in nothing positive going forward. Does hallmark have to ask you Mr. commisioner to raise the price of a birthday card????? What are they now by the way about $7.00 a card?
    There is obvious disassociation from any other contributing factors of this financial crisis by the commisioner which is like saying “hey I can’t do more then one thing at a time! 5.5 Billion dollars a year to pay future retiree health benefits was an enormous blunder by the Bush administration occuring at the same time the economy started tanking. Compare our rate increases to other countries postage rates and it then becomes quite clear we are quite a bargain even with the increases! Mr C none of this would have come to fruition had your praised congress acted on postal reform in a “bipartisan” way when they should have! To just negotiate the riddence of the 5.5 billion $’s each year that was ball & chained to the postal service would have been a major step forward, but not even that could be done. The workers should not have to take pay cuts, or pay more for health insurance, retirement etc; that has all been earned. This is the cowardly way out of trying to solve this problem. The cost of living goes up and is passed down to all of us so lets not take steps backwards in our earnings. The commercial mailing industry receives very healthy discounts that in my opinion exceeds discount standards. It is very difficult for me to feel as remorseful as Mr.C does for the mailers who are crying foul!! They should be focusing their discontent with congress who again can’t put differences aside for the betterment of the American people and agree on a sensible solution for all involved. The postal service has exhausted all focus points of resolve to our decision makers with no results. This is why rates are going up!

  2. The postal service is no longer in a financial crisis. The USPS posted a 600 Million profit in fiscal year 2013 when the prefunding of the healthcare is eliminated from the budget. The postal service upper management is inept and corrupt, there was no need for the draconian measures put into place that closed processing plants. The managers of the postal service never plan for the future of our business. The consolidations that took place recently were irresponsible and will harm our ability to serve our customers going forward, it would have made more sense going forward to acquire new buildings that could have accommodated 2 or more plants into 1 plant rather then all the closures and moving mail well beyond the point of efficiency. The post office has now destroyed the structure that was built and our customers will suffer as a result. As a aside we are also not planning for management’s push into parcels.

  3. The usps should act like a business and expand their business by charging for hold mails, change of addresses and get into the wiring money business. That would put the usps in the black.

  4. YOU SO WRONG SAYS; YOUR STATEMENT IS 1OO% CORRECT. COST WAS IGNORED AS POLITICANS WILL TAKE CARE OF MONATARY LOSS.
    HIGH LEVEL MANAGEMENT CREATED MEANS TO INCREASE THEIR SALARIES. MANAGEMENT POSITIONS INCREASED AS DID SALARIES WHICH MULTIPLED COST FROM HEADQUARTERS,PCES, AREAS, DISTRICT DOWN TO LOCAL OFFICES. POLITICS AND PRESSURE GROUPS ASS U ME D POSTAL SERVICES AND PRODUCTS WOULD BE IN A GROWING COMMAND CREATING REVENUE TO COVER COST.
    THE 21ST CENTURY CHANGED THIS PERCEPT AS ADVANCES IN COMMUNICATION TECHNOLOGY RESULTED IN DRASTICALY DECREASING
    VOLUME CREATING REVENUE LOSSES IN BILLIONS OF DOLLARS. ECONOMIC LAWS OF SUPPLY AND DEMAND WHICH POLITICANS AND POSTAL PRESSURE GROUPS IGNORED. USPS CAN GENERATE REVENUE IN PARCEL DELIVERY AS ONLINE SHOOPING IS RAPIDLY INCREASING. RETAIL SHOPPING HAS DECLINED AND ONLINE SHOPPING INCREASING AS WAS DEMONSTRATED THIS PAST CHRISTMAS SEASON. A MEANS TO OPERATE WITH A PROFIT IF OPERATED COST EFFECTIVE. OT AND V TIME MUST BE DRASTICALLY
    REDUCED FROM PRESENT MODE.

  5. Temporary fix. USPS cannot generate revenue to cover cost.
    Same scenario year after year. Work hour reductions, consolidation-elimination of small post offices that have no reason to exist as service would not be hindered by eliminating many suburban once small rural offices 60 years ago. Changing demographics has created change in geographical layout. Comparable to community general store in farming community in 1950s. The monster waste is 6 day street delivery with decreasing volume creating loss of revenue with cost increasing. Mega dollars could saved on eliminating high level district positions that time and advanced technology has erased the past need.

  6. Gouging mailers is not a good solution, I concur, but it can hardly be considered as such if direct bulk mailers are paying far below what should be a reasonable rate anyway thanks to bribes paid to high level USPS officials who pocket the money and allow the product to be mailed at a loss. It is beyond me why nobody in a position to do something about it has investigated why pizza flyers for example are only 11 cents per piece, when they’re packed with worthless crap and cost far more to deliver than what the USPS brings in.
    Some sort of shady dealing is the only thing that makes sense. Otherwise in a world with a little logic, why would any business or service that’s self reliant on its own income like the USPS willfully and knowingly accept business that was a proven money loser? I’ve been told by certain people who should know that about ten years ago at least these marriage mailings cost the Service 13 billion a year in losses, and that is probably closer to $20 billion a year now. Now what sense is that?

  7. BUT ! Pray tell me, WHO supports the folks at the end receptacle who pay the Mailing Industry’s bills ? Yeah, I know your feet don’t fit no limb ! !

  8. You claim the Postal Accountability act is the treat the Postal Service like a business. The question that was not ask is what kind of internal changes did the United States Postal Services make to prevent any losses.

    The Post office will say we consolidated processing plant and reduced hours at their retail operations. But did they reduce cost? The two changes mention has cost the Postal Service business. It has slowed the mail and pushed customers to other forms of communication. But did management try to reduce cost?

    The answer is no. The PMG and his VP all received pay raises. The managerial structure grew creating more high paying positions. Because of the consolidations the Postal Service is paying more money in overtime and transportation cost.

    So instead of looking at what the Great Recession did to the Postal Service, you have to ask what the postal service didn’t do? The answer is they didn’t run their operation like a business but a government entity who would rely on the community to bail them out for their poor decision making.

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