PRC Sorts Through Postal Rate Case Testimony

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The Postal Rate Commission and rate case participants are sorting through 70 pieces of testimony they have received from interveners who disagree with the U.S. Postal Service's rate case proposal.


Mailers from all industries are watching the rate case closely this year because the postal service has asked for increases of 15 percent or more for many types of mail categories. The USPS wants the increases to go into effect in January.


For direct marketers, the average increase would be 7.7 percent. The largest increase in this category -- 14 percent -- would be for some automation flats, or catalogs, because of the increased cost of processing flat mail. Direct marketers continue to hope that the requested rates will be lowered.


Interveners' testimony filed by the May 22 deadline included their rebuttal to evidence presented by the USPS earlier this year as well as direct evidence suggesting how the interveners think the PRC should respond. At the same time, the discovery period began during which interveners are filing clarifying, written questions to other objectors.


Interveners' testimony questioned how the USPS:


* Determined its $3.7 billion revenue requirement;


* Decided upon its cost contingency allowance;


* Attributed certain costs to specific subclasses of mail;


* Chose the rate design of the case, which involves how much it should charge for barcoding discounts and presort discounts.


In its testimony, the Direct Marketing Association charged that the USPS is asking for $1.3 billion in revenue it currently does not need. The association argued that the total growth in new revenue sought by the agency should be reduced by at least that amount.


"The Postal Service is simply asking for too much money," said Jerry Cerasale, senior vice president, government affairs at the DMA. "For some reason, postal officials have asked for a 'contingency fee' that is 2.5 percent of its anticipated total costs -- instead of the 1 percent that they asked for in the last rate hike. Bringing that in line alone would save rate payers across all classes of mail $1 billion."


The DMA's testimony also alleged other miscalculations by the USPS that the association said could result in an additional $300 million in savings. These included an underestimation of cost savings from the use of special flat mail automation equipment as well as a flaw in a cost calculation associated with the supervision of clerks, mail handlers and carriers.


"Postal rate increases need to be based on factual data, not subjective measures and erroneous calculations," Cerasale said. "In our view, the total size of this rate hike is at least $1.3 billion too high, and that is simply unacceptable."


Fourteen organizations and companies -- representing dot-coms, parcel shippers, First-Class mail users and a range of media organizations -- have signed on to the DMA's testimony. They include the Alliance of Nonprofit Mailers, American Business Media, Association for Postal Commerce, Association of Priority Mail Users Inc., Florida Gift Fruit Shippers Association, Greeting Card Association, Magazine Publishers of America, Mail Order Association of America, Major Mailers Association, Parcel Shippers Association, ADVO Inc., Amazon.com Inc., Dow Jones & Co. Inc. and Time Warner Inc.


Many of these groups filed their own testimonies as well.


John Haldi, economic counsel for the Alliance of Nonprofit Mailers, Washington, said that during each decade from 1970 to 2000, "the postal service has increased its spending on mechanization and automation, yet total factor productivity has responded in reverse. As technological innovation has improved the speed and sophistication of the equipment available on the market, productivity growth in the postal service has slowed.


"For the categories of mail incurring the above-average increases in reported attributable costs, the productivity changes implied by the postal service cost data have been negative," Haldi said.


He added that this observation was both "discouraging and alarming."


The discovery period on this testimony continues through June 19. Between July 6 and July 21, the postal service will orally cross-examine participants.


On Aug. 14, all participants will be able to file rebuttals to testimony that has already been challenged. Originally, this rebuttal period was to begin on July 31. However, on May 26, PRC Chairman Edward J. Gleiman postponed the date to allow the USPS' actual fiscal 1999 cost data to be incorporated into the debate. The rebuttal period will take place between Aug. 14 and Sept. 1. The PRC then will prepare its recommended decision, which must be completed by Nov. 13. The PRC will present the recommendation to the USPS' Board of Governors.


The decision to incorporate 1999 data into the case stemmed from a controversy that began earlier this year, when the PRC asked postal officials to explain why they relied on 1998 financial data instead of fiscal 1999 information to support the proposed rate increase. The PRC noted that fiscal 1999 ended four months before the USPS filed its increase proposal.
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