Most PRC rates win USPS Governors' approval

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The Governors of the U.S. Postal Service approved the Postal Regulatory Commission's proposed 7.6 percent rate increase, including an increase in the price of a First-Class stamp to 41 cents, authorizing the issuance of the Forever Stamp, approving shape-based pricing and set May 14 - 57 days from today - as the date for implementation of these changes.

However, the Governors requested reconsideration of the PRC's rate recommendations for Standard mail flats, the Non-Machinable Surcharge for First-Class mail letters and the Priority Mail Flat-Rate Box.

"We are asking the PRC to reconsider certain issues that we believe [need their attention]," said James C. Miller III, chairman of the USPS Board of Governors, in a teleconference earlier today. "It's possible that the commission could change the rates … that you could have a different set of rates than that are presently going into effect."

However, he said that the Board of Governors might be too optimistic with this idea.

"The PRC might say, 'Thank You. I know you have concerns, but we chose not to make any changes,'" he said.

When asked why the Board of Governors chose May 14, Mr. Miller said the board thought the date "offers sufficient advanced warning while making sure that we are not affected by the revenue shortfall [of not implementing the increase]."

The Postal Service proposed new rates May 3, 2006, and the PRC issued its recommendation Feb. 26. The Governors spent considerable time deliberating the PRC's recommendations - meeting six times and rewriting several drafts of their decision over the past 22 days - before voting earlier today. The Board is made up of many new members, five of whom have been sitting less than two years.

The Governors also approved the Forever Stamp, which will sell at the new 41-cent First-Class mail one-ounce letter rate. The value on these stamps will always be the one-ounce letter rate and can be used for any future one-ounce letter mailing without extra postage.

The new prices also reflect differences in the costs of handling letters, large envelopes (flats) and packages, the Governors said. Mailers are encouraged to consider options available to reduce postage costs. For example, if the contents of a First-Class large envelope are folded and placed in a letter-sized envelope, mailers can reduce postage by as much as 39 cents per piece.

Although the following rates will officially go into effect May 14, they have been sent back to the PRC in protest.

-Standard Mail Flats - The Governors are concerned that price increases recommended by the PRC may impose an unnecessary degree of "rate shock" on the catalog industry and small businesses particularly. The recommended increase for some catalog mailers is as much as 40 percent, which is more than double what the Postal Service had proposed.

-Non-Machinable Surcharge - The PRC decision on First-Class two- and three-once letters does not differentiate between machinable and non-machinable. The Governors believe this warrants further analysis to ensure there are incentives for mailers to provide letters that can be processed at lower cost on efficient sorting equipment.

-Priority Mail Flat-Rate Box - The PRC recommended a rate of $9.15 for the Priority Mail Flat-Rate Box, which is $1.05 above the current rate and 35 cents higher than the Postal Service's proposal of $8.80. The Governors believe a rate below $9 would be more appropriate for this popular consumer and business product and would be cost-justified.

The Board of Governors also delayed until July 15 the implementation of the new prices for Periodicals (magazines and newspapers) to allow time for the publishing industry to update computer software and adjust to the complexity of the PRC-recommended rate structure for periodicals. The USPS had proposed a single container charge for periodicals to encourage efficiency, but the PRC recommended 55 different prices based on container type, entry point and level of sortation.

Mike Plunkett, the USPS' acting vice president for pricing and classification, said that the cost to the USPS for such a delay is "$15 million per month."

Whether a new rate case will be field under the current regime was also discussed. Mr. Miller said he "would like to see one more rate case before the new regime begins" mainly because he believes the new regime may limit the USPS' ability to propose rates to better reflect cost.

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