Review of Postal Regulatory Commission (PRC) Section 701 Report

Bob Schimek
Posted by Bob Schimek Senior Director of Postal Affairs Monday, December 19, 2016 - 12:07
Review of Postal Regulatory Commission (PRC) Section 701 Report

In mid-November the Postal Regulatory Commission (PRC) published its Section 701 Report.  It popped up in the postal news feeds for a week or so and then quietly faded into the background.  There are several reasons why the mailing industry needs to take some time and carefully study this report.  

First, this in the PRC’s analysis of the Postal Accountability and Enhancement Act (PAEA) that congress passed back in 2006.  The law requires the PRC to prepare this report to congress every 5 years.  The PRC submitted its first Section 701 Report back in 2011 and Congress did little to act on the list of recommendations.  The list of recommendations in the PRC’s second Section 701 report could carry much more influence than its first report because on December 20, 2016 the PRC will be officially kicking off a mandated 10 year review of the price cap system that went into effect with PAEA.  The PRC is tasked with determining if PAEA is achieving its statutory objectives and if it isn’t, then the PRC is tasked with “make such modification or adopt such alternate system” to achieve the objectives. 

The recently published Section 701 Report and the list of recommendations from the PRC provide insight into what they are thinking as this entire industry heads into the critical 10-year rate review.  A bulleted list of PRC recommendations can be found in Appendix A of the report.  It’s only two pages and everyone involved in the mailing industry should take a few minutes to read through them.  What are the possible impacts that would come from those recommendations? 

Second, the mailing industry would be wise to take the time to carefully read Appendix B.  Appendix B is the USPS official response to the Section 701 Report.  In the same way that the recommendations of the Section 701 Report provide insight into the thinking of the PRC, the USPS response provides insight into their thinking as well.  The USPS will play an active role in the 10-year rate review, and in their letter, they made it very clear that they want the current CPI cap removed.  The Postal Service is looking for Congress to pass postal reform legislation and for the PRC to use the 10-year rate review to effect “the replacement of the current price cap system with a more suitable regulatory structure”.   The Postal Service letter also states “the exigent surcharge should be restored as a policy matter” and “the Postal Service is disappointed that the Commission declined the opportunity to urge the President and Congress to restore the recent expire exigent surcharge”. 

Third, the mailing industry needs to determine what a successful 10-year rate review would look like.  The changes the PRC will ultimately make will impact price changes that the mailing industry will need to deal with for years into the future.  The PRC has some things they are thinking about (Section 701 Recommendation) the Postal Service has stated what they believe success looks like to them (Appendix B letter), and it is probably safe to assume that the Postal Unions will be aligned and focused on the items that will define success for them. 

Setting the larger postal reform legislation aside for the moment.  What are the key issues for the mailing industry?  Not intended to be comprehensive, but some larger topics that need to be given some thought:   

  • Maintaining a cap based rate system
    • Maybe CPI is not the right answer, but there has to be some sort of limit/cap that provides predictable and affordable prices
  • Workshare Discounts:   
    • One of the PRC recommendations was a “soft floor” on worksharing discounts.  What impact would this have?  It could dramatically change the size of workshare discounts with some big winners and losers. 
  • Service Standards:
    • Since the passage of PAEA in 2006 the industry has dealt with network rationalization, the 24 hour processing clock, the loss of almost all overnight service, and load leveling for Standard (Marketing) Mail. 
    • With all that, the Postal Service still struggles to achieve target service standards.  What is the level of service that the mailing industry needs?  Are the current standards acceptable?  What role should the PRC have in this?
  • Exigency:
    • The Postal Service has stated they want it all back.
    • Draft postal reform legislation is proposing to bring back half of exigency.
    • Is this something that the mailing industry could sustain?

The PRC 10-year rate review officially kicks off on December 20, 2016.  Now is the time to be doing our homework and engage with the various industry associations and coalitions you belong to.   We need to ensure that the perspective of the mailing industry is represented in the rate review process.  

The PRC Section 701 Report can be found here.