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Court Ruling Impacts Future Postage Rates

Posted by Mark Fallon on Jun 7, 2015 7:17:02 AM

On Friday, June 5, 2015, the United States Court of Appeals for the District of Columbia Circuit (“the Court”) issued their decision on the Exigent Rate increase approved by the Postal Regulatory Commission (“PRC”) in December, 2013. The decision answered petitions by the United States Postal Service (“USPS”) and mailing industry groups against the PRC’s 2013 order. The USPS argued that the PRC’s exigent rate approval didn’t go far enough, while the mailers argued that the PRC went too far. The Court issued a spilt decision.

Background

In their December 24, 2013 ruling, the PRC found that the USPS experienced financial harm as a result of the Great Recession of 2008 – 2009, and was legally entitled to implement temporary price increases in excess of the CPI cap. The PRC denied the Postal Service’s request to make the increases permanent. It found allowing the increases to remain in effect indefinitely would be inconsistent with fundamental postal policies underlying the price cap.

The PRC determined that the USPS didn’t adequately break out losses due to electronic diversion from the losses due to the recession. The PRC analysis determined that the recession caused the loss of 25.3 billion pieces with a value of $2.8 billion. The exigent rate increase would stay in effect until the USPS recovers the $2.8 billion, with the additional requirement of reporting quarterly on revenues generated by the rate increase. The mailing industry expected the exigent rate increase to expire in late summer of 2015.

Appeals Case and Decision

In early 2014, the USPS and 20 mailing organizations petitioned the Court to review the PRC ruling. Although the petitioners were arguing for different decisions, the cases were consolidated, with oral arguments heard on September 29, 2014. All parties hoped for a ruling before the next rate case, but that was not to happen. The decision was issued 6 days after the new rates went into effect.

The arguments of the USPS centered on their calculations on the volumes lost due to the recession, and that the PRC “new normal” rule was arbitrary. The “new normal” concept means the economic disruption had ended, the rate of change on USPS volumes is positive, the USPS has the ability to predict or project volumes, and the USPS demonstrates the ability to adjust operations to the lower volumes. The Court ruled that the PRC was within its discretion in applying the “new normal” rule, and denied the USPS’s petition on that matter.

However, in determining the mail volumes lost, the PRC applied a “count once” rule. The example in the decision is a worker who was laid off has to cancel her cable and no longer pays that monthly bill. The PRC only counts that change as a difference of 12 pieces, limiting the loss to only the first year. The USPS argued that the change should be extended for as long as it takes the worker to get a new job.

The Court stated that the PRC could have used the “new normal” rule to better determine how long they should have counted lost mail. The “count once” rule was vacated and remanded the decision to the PRC “for proceedings consistent with this opinion.”

The Court denied the mailing organizations’ petition for review. With blunt language, the Court dismissed each of the arguments, including the claim that the PRC confused “correlation” and “causation” with their review of the data impacting the loss of mail volumes. The Court could “see no fatal error in the Commission’s analysis.”

Implications to Mailers

The Court’s decision supports the PRC’s approval of a temporary exigent rate case, while it dismisses the PRC’s calculations of the financial loss suffered by the USPS. This means that the exigent rates will expire, but the PRC will need to review their December 24, 2013 decision, and reassess the number of mail pieces lost and the financial impact of the lost postage.

The Court’s dismissal of the “count once” rule means that the PRC’s $2.8 billion loss estimate is too low. With the many economic variables that must be considered, it will probably be several weeks before the PRC issues a new decision. At this time, the PRC hasn’t indicated what steps they’ll take next. It’s likely that the PRC will extend the period of time the current exigent rate increase stays in effect, well past this coming August. That means mailers should plan on the current postage rates to stay in effect for the remainder of 2015.

 

United States Postal Service

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