USPS Challenges PRC on Contingency Fund

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The debate over the U.S. Postal Service's contingency fund continues to rage even though new postal rates took effect earlier this month.

The USPS filed papers Jan. 19 with the Postal Rate Commission that said the PRC exceeded its authority in the most recent rate case when it reduced the amount of new revenue designated for contingencies from $1.7 billion to $1 billion.

Last month, the USPS Board of Governors allowed under protest the overall 4.6 percent postage increase recommended by the PRC. Though the board backed the 1-cent increase for the price of a First-Class stamp, it said other new rates would not raise enough revenue to cover rising costs.

The board sent the case back to the PRC for reconsideration of the revenue request decreases, which the commission submitted in November. In addition to the contingency fund reduction, the PRC reduced proposed increases in several mail classes.

The USPS said the contingency provision was designed primarily to protect the USPS' finances against unknown adverse occurrences because it cannot accumulate profits or change rates quickly in a financial crisis. These occurrences could include inflation, volume diversion, cost-reduction programs and labor contracts.

In its report, the USPS said, "The future, particularly adverse anomalies, [is] simply not predictable. ... Based on this viewpoint, [we have] concluded that a more traditional but still relatively low level of protection is still necessary."

It also said the level is completely reasonable when compared with the 4 percent to 5 percent contingencies of the 1970s and the 3.5 percent contingencies of the 1980s.

The USPS' report also said that in the absence of specific authority under the Postal Reorganization Act of 1970, the PRC could not override certain actions or decisions by postal governors. The assertion was supported by several federal appeals court rulings dating to 1971 and 1980.

The postal service filed the papers in response to previously filed legal arguments of a mailers' consortium in support of the PRC's actions. The group -- which included large mailers and mailing associations such as the Direct Marketing Association, Advo Inc., the Alliance of Nonprofit Mailers, Inc. and the Association for Postal Commerce -- filed papers with the PRC that said the postal service's approach to contingency funds was inconsistent with long-standing practices. It also said the USPS cannot challenge the practice simply because it does not like the result in this case.

In a joint filing with the Alliance of Nonprofit Mailers, the DMA also urged the PRC to reject the postal service's challenge to the new nonprofit Standard-A rates.

On Dec. 20, the USPS filed formal papers with the PRC that said the agency should reconsider the revenue requirement issues.

The PRC is examining the USPS' results and will either accept or reject them in the next few weeks.

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