USPS Board Announces Plans for Next Rate Case

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The U.S. Postal Service Board of Governors decided yesterday that the agency must begin preparing a new rate case to ensure its financial future. The governors also deferred planned capital investments of $1 billion because of a shift in mailing trends in response to a softening of the national economy.

The decision was announced at the board's monthly meeting, which took place in San Antonio, and came after it received a report on the USPS' integrated financial plan.

The plan, which was reported by Richard Strasser, the USPS' chief financial officer, showed that total factor productivity grew by 1.1 percent, which equates to reduced expenses of $217 million, and that Standard Mail volume increased during the most recent reporting period.

But the plan also showed that volumes in most postal core products and services declined, mirroring the downturn in the U.S. economy, and that higher-margin First-Class and Priority Mail have both been hurt by the economy.

The report showed that aggressive cost management programs have been put into place to contain the effect of a shift to less profitable types of mail; that postal management reduced total labor expenses by 6,200 work years in fiscal 2000 and plans a further reduction by 13,200 work years in 2001; and that projects are being deferred to reduce capital requirements by about $1 billion for fiscal 2001.

Board chairman Robert F. Rider said the board recognizes that management has successfully reduced labor costs and achieved record productivity and service improvements.

However, the board directed the USPS to:

• Undertake a thorough review of all programs and projects and curtail or eliminate all nonessential activities.

• Begin preparing a rate case as soon as possible to ensure its continued financial viability.

• Evaluate the USPS' rate-making needs over the long term -- up to five years -- which would allow the USPS to respond to rapidly changing market conditions.

• Review the rules established by the Postal Rate Commission to determine whether changes can be made to ensure a more responsive rate-making process.

• Review all management tools within the present statutory and regulatory framework to aggressively improve its financial integrity.

The board also directed management to reduce its capital commitment budget in fiscal 2001 from $3.6 billion to $2.6 billion; to postpone making future financial capital commitments; and to match future capital commitments to cash flow.

The board unanimously voiced disappointment with the PRC's recommended decision in the most recent rate case and said it hopes the PRC will reconsider the case. In the decision, the PRC cut $1 billion from the revenue requirement, including a $700 million contingency fund. The postal service also continues to experience shrinking margins as costs rise more sharply than revenues.

Finally, the board learned that the USPS has continued to post record service and customer satisfaction levels and productivity improvements.

From Sept. 9 to Dec. 1, 93 percent of First-Class mail with a next-day delivery standard was delivered on time, marking the 13th consecutive quarter at 93 percent or higher delivery performance, as independently measured by PricewaterhouseCoopers.

In a customer satisfaction survey, the Gallup Organization reported that nine of 10 households hold a positive view of the postal service and that more than two-thirds of the nation's households give excellent or very high marks for overall postal performance.

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