DMA COMMENTS ON PRC’S RATE CASE DECISION; PRC RECOMMENDS AVERAGE 9.3% HIKE FOR STANDARD MAILFebruary 26, 2007 — The Postal Regulatory Commission (PRC) earlier today announced its recommended decision on the postal rate case, which the US Postal Service (USPS) filed on May 3, 2006. Today’s announcement followed an administrative proceeding that involved the Direct Marketing Association (DMA), some 60 other mailers, employee organizations, consumer representatives, and competitors. The PRC’s recommendations now go to the presidentially appointed Governors of the USPS for approval. If approved, as expected, the new rates could take effect as early as this May. In its original rate-case filing at the PRC, the USPS had said that, without the requested rate increases, it would lose $5.9 billion in 2008. However, the PRC was able to find additional sources of income that the USPS had not considered when it made its initial request. Therefore, the PRC was able to mitigate some of the requested increases. The PRC’s decision included the following:
According to PRC Chairman Dan G. Blair, “In nearly every category of mail, including nonprofits, the Commission approved rate increases equal to or below the Postal Service’s request, while still meeting the Service’s revenue requirement.” DMA Comments on the PRC’s Recommended Decision DMA expressed its appreciation for the effort made by the PRC to mitigate the impact of proposed rate increases for individual, nonprofit, and commercial mail. However, DMA remains concerned about both the significantly higher postage rates recommended for some classes of mail, as well as the sufficiency of time allowed for large mailers to modify their systems and processes before the new rates take effect. “While higher postage costs are never welcome for the individuals and organizations that use the mail to send messages and packages, we are pleased that the PRC did adjust the Postal Service’s revenue requirement and responded to some of our concerns about the particulars of the rate request,” said DMA President & CEO John A. Greco, Jr. “However, we had hoped that more could have been done to offset the extraordinarily high increases for non-flat machinable and parcel mailings. This is not only the second such increase in two years, but it is also far in excess of the rate of inflation.” According to DMA Senior Vice President for Government Affairs Jerry Cerasale, “DMA supports providing discounts for organizations that use the mail more efficiently, and we understand that a shift from weight- to shape-based rates is needed, given advances in the use of automated systems.” “Our concern is that the Postal Service may be moving too far and too fast, leaving mailers to struggle with higher rates and lengthy and complex new rules that may be imposed too quickly for mailers to adjust their own systems and plan for new and more efficient mailing pieces,” Cerasale said. “We think it would be better to do things right, rather than to do them fast, to help avoid many operational problems and costly errors for both mailers and the USPS.” If, as expected, the Governors approve the PRC’s recommendations sometime in March, the new postage rates will likely go into effect in May 2007. DMA continues to request that the USPS allow at least 90 days for business and nonprofit mailers to prepare for the new rates’ implementation. DMA Nonprofit Federation (DMANF) Executive Director Senny Boone added her concerns about the still-significant increase for non-flat machinable rates. “The dramatically higher rates and minimal timeline for planning would be devastating to the many nonprofit organizations that use ‘front-end premium’ mailings to recruit potential donors.” In looking to the future, DMA also expressed its hope that all future rate-increase requests will be made in accordance with the new rules and procedures outlined in the postal reform legislation that was signed into law by President Bush in December 2006. Among other things, these new rules keep rate increases at or below the rate of inflation. “The rates recommended today by the PRC are designed to carry the Postal Service through the fiscal year ending September 30, 2008, and reflect the full $768 million contingency fund requested by the Postal Service,” said Cerasale. “With the new rate-setting procedures required to be in place by June 30, 2008, there should be no need for another postal rate case to be filed under the current, outdated rules.” Chairman Blair’s Statement The following is an excerpt from PRC Chairman Blair’s statement: Last May, the Postal Service filed a request with the Commission for a recommended decision on proposed changes in postage rates. Between the time of this filing and today’s decision, 60 parties participated in the case. The Commission received 139 pieces of testimony from 99 witnesses during 34 days of hearings. Current ratemaking law grants the Commission 10 months to issue its decision and the record will note we met this statutory deadline with a week to spare. Our decision includes the recommendation that the Postal Service establish the “Forever Stamp.” This proposal is designed to give postal customers the opportunity to purchase a stamp for the price of a First-Class one-ounce letter that will continue to cover the cost of mailing a letter even if the rate should change. Adoption of this proposal is good for the Postal Service, postal customers and our postal system. It stands as an excellent example of where the Postal Service and the Commission can work collegially in benefiting our postal system. Let me commend Postal Service Board of Governors Chairman, James Miller, for his leadership in turning this good idea into reality. Let me share with you other highlights of our decision. We determined the Postal Service will need to increase rates in order to break even next year. We also determined that the rate designs for many postal products can and should be improved. The Service sought an increase in revenues of almost $4 billion to cover costs for the test year of FY 2008. The Commission recommends rates that will provide $77.6 billion per year and also recommends rates which fully fund the requested contingency of $768 million. In nearly every category of mail, including non-profits, the Commission approved rate increases equal to or below the Postal Service’s request, while still meeting the Service’s revenue requirement. Within this framework, we recommend an increase of 2 cents -- rather than 3 cents as proposed by the Postal Service -- for the First-Class one ounce letter. The rate will rise from 39 cents to 41 cents. The Commission also recommends an increase of 2 cents -- instead of 3 cents as proposed by the Postal Service -- in the rate for postcards. That rate would rise from 24 to 26 cents. On average, First-Class Mail rates increase slightly less than 7 percent. This reflects the price of the First-Class stamp generally tracking the increases in the cost of living since the Commission’s first rate decision in 1971. Our decision recommends changes in rates for other classes as well. Generally, we followed the principle of Efficient Component Pricing in recommending these rates. Our intent is to recommend postal rates that accurately reflect costs and send proper price signals. This results in more efficient processing and transportation practices. Our recommendation sends pricing signals to encourage efficient worksharing and changes in the treatment of the shape of mail. For instance, the Commission adopts the Postal Service recommendations that new, separate shape-based rate schedules be added to Standard Mail to better reflect costs. On average, the Commission recommends Standard Mail rates increase by 9.3 percent. We also propose new rate designs for Periodicals, which better reflect costs and send price signals that encourage more efficient mailing practices. The new design draws from separate proposals proffered by the Postal Service and Time Warner, Inc. These recommended rates reflect an intention to moderate impact on mailers, yet are intended to foster more efficient, less costly Periodicals mail. On average, the Commission recommends Periodicals rates increase by 11.8 percent. The recently enacted postal reform legislation, the Postal Accountability and Enhancement Act of 2006, alters significantly the way rates will be set in the future. That law grants the Postal Service wide flexibility to set rates for its competitive products. In recognition of this, the Commission’s recommendations for rate designs for the Postal Service’s competitive products -- Express Mail, Priority Mail and Parcel Post -- largely mirror the Service’s proposals. Additional Information
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