10 Year Review, PRC Releases Findings

12/01/2017

The Postal Regulatory Commission was required to initiate a review of the system for regulating rates and classes for Market Dominant products to determine if the ratemaking system has achieved the objectives of 39 U.S.C. 3622(b), taking into account the factors enumerated in 39 U.S.C. 3622(c). On December 20, 2016, the Commission began its review.

Today, December 1, 2017, Chairman Robert Taub hosted a media conference to discuss the Commission’s findings. The Chairman opened with a recap of the requirement and the process that covered 9 objectives and 14 factors of PAEA.

Chairman Taub stated that “This notice is just that — a proposal. Nothing in this proposal will be final until after public comments are received and considered by the Commission and a final rule is adopted.” There will be a 90 day public comment period.

In the announcement he stated that the system has met some, but not all objectives set for it by statute.

Key areas:

CPI Cap: Commission proposal would maintain a price cap system. Maintain a price cap system. The Commission determined that it is necessary to maintain such a mechanism to create predictability and stability. The Commission seeks to build upon, rather than replace, the CPI price cap by providing discrete amounts of additional rate authority.

  • The PRC is also suggesting 2% rate authority over the cap for 5 years, and another 1% as performance-based rate authority.
  • For products that do not cover costs, underwater, the PRC proposes price increases that are 2% higher than other elements of the class.

Workshare: Per Chairman Taub “The 2006 Law tasked the Commission with ensuring that these discounts do not exceed the cost that the Postal Service avoids as a result of workshare activity, unless certain limited exceptions are met. Objective one of the 2006 Law required that the Postal Service, quote, maximize incentives to reduce costs and increase efficiency, end quote. The ratemaking system achieves pricing efficiency when prices adhere as closely as practicable to what is known as efficient component pricing. To adhere to efficient pricing, workshare discounts should be set equal to the costs avoided by the Postal Service when the mailer performs the workshare activity, thus producing what’s termed pass-trough’s of 100 percent. In our review, the Commission finds that the Postal Service, during the past 10 years, set most discounts substantially above or substantially below 100 percent. This is problematic because such discounts send inefficient price signals to mailers, and therefore reduce productive efficiency in the postal sector.”

  • The Commission proposes pass through bands of 75%-125% for Periodicals
  • 85%-115% for all others with a three-year phase-in to bring all existing discounts into compliance

The PRC statement is available on their site as well as the full order.