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THE FIRST A IN PAEA WAS SUPPOSED TO STAND FOR ACCOUNTABILITY
An Op-Ed Piece Written by Michael Plunkett, President & CEO, Association for Postal Commerce
 
On Friday December 1, the Postal Regulatory Commission (PRC) issued its long-anticipated decision in RM2017-3, the Statutory Review of the System for Regulating Rates and Classes for Market Dominant Products. A summary of the ruling is appended at the end of this Bulletin. Those who feel the need for a more complete rendering can find it here.

Given that eight months had passed since comments on the review were filed, it was not a surprise when the PRC concluded that the current system is not meeting all of the objectives of the Postal Accountability and Enhancement Act (PAEA). Nor was it a surprise when shortly thereafter the Postal Service issued a statement agreeing that “that the current CPI price cap does not work and needs to be changed” while continuing to beat the drum that the price cap should be eliminated altogether. This reflects the notion that regulations aren’t necessary because USPS is subject to sufficient competition even on its market dominant products. This notion is patently untrue. That is not to say that USPS does not face existential threats - they do. Electronic diversion and changing media consumption habits will continue to eat away at USPS’ core business. But competition is more than just market pressure, it also implies the availability of alternatives. If I tire of Verizon’s mobile service I can switch to AT&T. If the line at McDonald’s drive thru is too long, there is probably a Taco Bell down the street. But if a business or nonprofit enterprise wants to mail promotional or informational materials to its customers, they are constrained by statute to relying on the USPS. Yes, they could email, or use a bullhorn, or visit in person, but for mail there is no direct competition. One might expect USPS to try to blur this distinction but it was disappointing to see the PRC reach the same conclusion and leave users of the mail vulnerable to a monopoly provider who may soon have no apparent incentive to seek meaningful cost reductions, efficiency gains, or service improvements.
Of course, it could have been worse; the PRC might have given USPS a truly blank check and obliterated the price cap altogether, but the proposed system might have just as devastating an effect given the proposed changes:

  • USPS will have the authority to exceed CPI by 3% per year for the next five years if they meet minimal productivity targets and maintain service standards.
  • Non-compensatory products will be subject to an additional 2% price increase independent of USPS efforts to control costs.
  • The additional pricing authority is scheduled to sunset after five years, virtually ensuring that USPS will have every incentive to maximize that benefit in case sanity prevails five years hence.
Regulation is inherently tricky, and the PRC was presented with a formidable task. They were required to interpret an ambiguous statute, passed in haste that was based on economic assumptions rendered moot by the Great Recession. They are asked to ensure the financial viability of the agency they regulate, consider the interests of stakeholders with competing agendas, and take into account the needs of the legislators who ultimately determine the fate of the postal industry. But from this perspective, too much weight was given to a postal balance sheet that is an unfortunate byproduct of legislative legerdemain, while the real-world impact on businesses and their employees was given short shrift.
 
If the proposed regulatory structure is installed, some Postal Service customers will almost certainly face five years of annual price increases exceeding seven percent. At the end of that period, the PRC proposes to again consider whether the proposed regulatory system is working. The good news – for lack of a better term – is that there will be much less of an industry to worry about.