**PRC Chairman Says Rate Recommendation Is On Target

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CHICAGO -- Ed Gleiman, chairman of the Postal Rate Commission, made it clear to a packed crowd here at the Graphic Communications Association's 2000 Rate Case Conference that he would probably leave intact the rate recommendation that he and his colleagues made.

The Board of Governors of the U.S. Postal Service announced publicly Tuesday that it will allow the overall 4.6 percent postage increase recommended by the PRC, even though it had been protested.

The board is sending the case back to the PRC for reconsideration of the decreases in the USPS' revenue request recommended by the commission in November. Specifically, the PRC cut the agency's contingency request of $1.7 billion to about $1 billion. This created an opportunity to reduce the USPS' proposed rates in several mail classes.

While there is a possibility that the PRC would send a new recommendation to the board, Gleiman made it clear that this probably would not happen unless the agency can explain why it needs so much money for contingency.

"What was unusual about the request this time was that roughly $1.7 billion of it was for contingency," Gleiman said. "My colleagues and I reduced the revenue request by $700 million, leaving $1 billion for contingency. … They should be quite happy with this."

If the PRC sends the case back to the board with no changes, there is also the possibility that the board could implement new rates over and above the increases recommended. Under law, however, this could only happen if the governors approved it unanimously. Insiders said this is extremely unlikely. However, if the PRC rejects the USPS' reconsideration plea and the board does not unanimously agree to new rates, there is a fairly good possibility that the filing for the next rate case would come sooner than expected -- perhaps in 2001.

John Potter, chief operating officer at the USPS, who also spoke here, said, "The major difference of opinion between the postal service's position on rates and what the rate commission gave back is a matter of money. If you look at what was rendered, our experts believed that we are going to come up about $1 billion short in terms of revenue. The rate commission, however, had a much more positive outlook in terms of growth than the postal service does."

The USPS lost $199 million in fiscal 1999, and this year, prior to receiving the PRC's decision, the postal service projected that it would lose $480 million, Potter said. "Now, with their decision, that projection is likely to be $1.2 billion," he said.

Potter said the USPS is in dire financial straits because of several factors, including rising fuel costs, which are costing the USPS more than $300 million this year; increased healthcare costs; and a slowdown in First-Class mail volume.

"We need to break even, and that's our mandate by law, and we don't feel that the decision that was made by the rate commission will allow us to do that," Potter said.

The USPS expects the rates recommended by the PRC to take effect Jan. 7. There is no timetable for the PRC to reconsider its decision.

The PRC is expected within the next several days to set a time schedule for both oral and written legal arguments on the board's request. Potter said the board has asked the PRC to do an expeditious review of its request for reconsideration.

"We need to bring this to closure. We need to understand where we are going to go long term with the future rates," Potter said.

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