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In January, 2000, the Postal Service requested a general rate increase designed to raise $2.788 billion per year. This request generated an unprecedented amount of opposition from mailer groups that questioned whether the Service accurately identified its revenue needs. The Postal Rate Commission reviewed both the detailed documentation provided by the Postal Service in support of its request, and the extensive evidence submitted by mail users. The Commission concludes that while the Postal Service does need additional rate revenues, some of the rate increases it sought were excessive.
The most important rate, in terms of postage revenue, is the single piece First-Class rate. The Postal Service asks to increase this rate from 33 cents to 34 cents. The Commission recommends this increase, which by itself will generate approximately $1 billion. However, in order to assure that First-Class does not bear an unreasonably large share of the increase, other rates paid by ordinary citizens and small businesses, such as the postcard rate of 20 cents, and the extra ounce rate applicable to First-Class weighing more than one ounce, will not be increased. In fact, the Commission recommends that the extra ounce rate be reduced from 22 cents to 21 cents.
In this case a consortium of business mailer organizations and large individual business mail users presented wide ranging evidence that persuaded the Commission that some Postal Service expense projections were too high. As a result, the Commission recommends smaller increases for periodicals and other categories of bulk mail than the Postal Service originally requested.
The following table compares the rate increases recommended by the Commission with the increases proposed by the Postal Service.
The Commission's decision reflects several initiatives that warrant special mention. Although the Service filed the request in January, 2000, it based cost projections on fiscal year 1998 data. The Commission immediately asked participants whether fiscal year 1999 data should be substituted. There was broad agreement that projections would be more accurate if more recent data could be used. At the Commission's direction, the Postal Service successfully completed a basic update of its cost projections that incorporated 1999 data while the case was in progress. Participants had an opportunity to offer supplementary evidence adjusting their presentations for this more recent data.
The use of actual 1999 costs had a number of salutary effects. The recommended rates reflect more recent actual operating results, and thus are fairer to both mailers and affected private businesses. Additionally, the update provided the Postal Service with the opportunity to correct earlier longer-range projections, identifying both underestimates and overestimates. The Service acknowledged that it should experience lower costs to process flat-shaped mail than it initially projected. The rates recommended by the Commission reflect these reductions. The Service also identified several recent events, such as increasing fuel prices, that should increase its overall revenue needs. The rates recommended by the Commission also take account of these cost increases.
One aspect of the rate request that generated substantial opposition was the claim that the Postal Service needed $1.680 billion of additional revenue as a cushion against unforeseen events. The statute allows the Postal Service a reasonable provision for contingencies; however, many parties presented evidence that a sum of this size was not reasonable under current circumstances. The Commission has reduced the contingency amount, in part because it has been able to improve the reliability of Postal Service projections through the incorporation of more recent, up-to-date projections and actual cost data. The Commission lowered the contingency provision by $.668 billion.
Another focus of concern was the high rate increases that would fall on mail sent by nonprofit organizations. These increases largely resulted from a statutory formula imposed in 1993. Efforts to amend this law were successfully completed with the signing by the President of new legislation on October 27, 2000. As a result of this legislation, the Commission applied a new formula to calculate rates for so-called preferred mail, reducing the increases that these mailers must pay. These differences are identified with an asterisk on the preceding table showing Average Percent Rate Changes.
The Commission believes that several issues raised during the case warrant Postal Service attention in the months ahead. The accuracy of the Service's data reporting systems is a major source of concern. Two subsystems of the Revenue, Pieces and Weight system produced markedly different Parcel Post volume estimates for the base year of this proceeding. In addition, data collection errors in the In-Office Cost System forced the Postal Service to substantially revise the costs of Media Mail (formerly the book rate). The Commission worries that these errors due to problems other than statistical variation in the basic data collection systems might not be isolated events. The Governors are urged to launch a study of "nonsample" error in the Service's data systems to complement the recent, joint (USPS/GAO/PRC) Data Quality Study that focused on potential sources of statistical error.
The Office of the Consumer Advocate suggested a number of ways to ease the inconvenience and expense associated with frequent adjustments of the rate used for sending correspondence and bill payments. These ideas merit consideration from postal management and consumer groups interested in exploring ways to make the nation's mails more attractive for business and personal correspondence.
Another continuing area of concern is service quality. The Commission heard evidence on poor or uneven quality of service and confusing or misleading advertising for Priority Mail, Express Mail, Certified Mail and Return Receipt Service. These problems affect the value of these services, and the Commission encourages the Service to take appropriate action.
Finally, the Commission notes that the Service provided the basic update along with extensive supporting explanatory materials in a timely fashion; participated in a joint USPS-Periodicals Industry Operations Review Team, and reduced its projected costs to reflect that group's findings; and devised a resolution to a rate eligibility problem raised during the case by In-County Periodicals. The Commission commends the Postal Service for its diligence and cooperative efforts during the course of this case.
 Postal Rate Commission http://www.prc.gov Voice: (202) 789-6800 Fax: (202) 789-6886 prc-admin@prc.gov |
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