Potter: PAEA is no fix for broken USPS model

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While the U.S. Postal Service is pleased that the legislation enacted Dec. 20, 2006, offers needed flexibility in pricing and product differentiation, it said the legislation does not repair the agency's broken business model, according to Postmaster General John Potter. He spoke last week before the House Subcommittee on Federal Workforce, Postal Service and the District of Columbia.

The packed hearing, held by House Subcommittee Chairman Danny K. Davis, D-IL, was the first called since President Bush signed a law that overhauls postal operations for the first time in 37 years. The legislation, the Postal Accountability and Enforcement Act, strengthens the authority of the renamed Postal Regulatory Commission.

"With the diversion of messages, transactions and packages from the mail, we can no longer depend on volume growing at a rate sufficient to produce the revenue needed to cover the costs of an ever-expanding delivery network," Mr. Potter told the panel. "This is not to say that the new law does not offer opportunities. We are in a better position than ever to respond quickly to market conditions. And we will operate far more nimbly in the expedited and package products sector."

The law grants the USPS more autonomy in setting rates, particularly for its competitive products. However, its ability to increase rates for market-dominant products is limited by changes in the U.S. Consumer Price Index. Moreover, the legislation streamlines the USPS' ability to introduce new postal products.

Mr. Potter said growth is the agency's greatest challenge as it shifts from a transaction-based mail stream to one centered on marketing and advertising. The latter relies heavily on lower-margin Standard Mail.

"The good news is that marketers have learned that direct mail adds to the value of campaigns that also utilize other media, including the Internet," he said. "Overall, direct mail is among the fastest-growing and most effective advertising channels in America today.

"Success under the new law will not be easy. We have never worked under a fixed-rate cap. We have never had to manage our costs by class of mail. Both are extremely challenging."

Mr. Potter said because the USPS has little control over some major costs, including fuel and employee retirement and health benefits, it must maintain an intense focus on managing other costs.

"Keeping our rates under the cap and being able to pay our employees a fair wage requires us to find ways to remove an additional $1 billion in costs each year," he said.

"One way is through the expansion of contract delivery services. It is not our intention to take existing work from our letter carriers or to lay any carriers off. That is something I pledge not to do."

Mr. Potter said contracting work is governed by union labor agreements. He said management and the unions could work together to increase productivity in processing operations, retail and delivery.

"If we do not do that, we will have created a situation that requires additional contracting out," he said. "Stand ready to work with our unions to secure the future of our organization, its people and the people we serve."

However, postal unions led by the National Association of Letter Carriers, have complained to Congress in recent weeks that the USPS has shifted its policy on contractors. For example, instead of using them primarily for long-haul and rural delivery of mail, the agency has decided to use them to deliver mail in urban and suburban settings, NALC president William H. Young testified.

Reportedly, Rep. John M. McHugh, R-NY, asked Mr. Potter whether he would be filing for a stamp increase under the old rules. Mr. Potter said he did not know and was keeping his options open.

James C. Miller III, chairman of the USPS Board of Governors, told Mr. McHugh that the board has not decided how to handle the next case for raising stamp prices but said that it was unlikely a rate case would call for a price rise above inflation.

PRC Chairman Dan Blair, who also testified at the hearing, underscored the challenges facing the commission.

"There is no question that this final rate case would divert postal service and commission resources that, in my view, would be better devoted to developing the new system of regulatory oversight," Mr. Blair said. "The commission is committed to timely performance of all its statutory obligations and to do so in a reasoned and balanced manner."

Mr. Blair said the PRC published an Advance Notice of Proposed Rulemaking on Jan. 30, soliciting public comments on how the PRC can best fulfill its responsibilities and achieve the objectives of the Act. To date, 32 parties have submitted comments.

In addition, it is now consulting with the Departments of Treasury and State, the Federal Trade Commission, the U.S. Customs and Border Protection, the postal Inspector General and the Government Accountability Office, as part of its outreach efforts.

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