*USPS Makes Case for Rate Increase Before the PRC

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The U.S. Postal Service Thursday presented more of its case for a rate increase during a series of public hearings before the Postal Rate Commission in Washington. Direct marketers and magazine publishers continue to have high hopes that the requested rate increase will be lowered.


Under PRC rules, various USPS witnesses began presenting their case to 78 interveners, or objectors, who filed written testimony against the rate case April 11. The agency will continue to present its case through May 5.


On May 22, after absorbing all the information from the USPS, the PRC will begin hearing from interveners. All objecting parties must submit their final briefs by September. The PRC then will prepare its recommended decision, which must be completed by Nov. 13.


Mailers from all industries are watching the case closely this year because the USPS is asking for increases of 15 percent or higher for many types of mail categories by January 2001. For direct marketers, the average proposed increase is 7.7 percent. The largest proposed increase in this category -- 14 percent -- is for some automation flats, or catalogs, because of the increased cost of processing flat mail.


Insiders attending the hearings said that in general the proceedings are more technical than in previous years. In particular, mailers are questioning the Postal Service's cost estimates and its revenue requirement.


Some questioning surrounds new data supplied by the USPS. In the early stages of the rate case, the USPS used 1997-98 data instead of the 1999 data in its filing, ignoring the effects of the billion dollar rate increase of January 1999.


The PRC asked postal officials to explain this oversight, especially since the USPS' fiscal year ended four months before the rate case was filed. Postal officials are required by law to use the total actual accrued costs during the most recent financial year for which they are available "as a base year for its [needed revenue] projections."


The USPS presented evidence to the PRC that its earlier estimates were wrong and provided audited 1999 data as part of its testimony. It also presented new data about the costs of processing flat mail. Some objectors say this combined data equal cost savings of at least $150 million and that the actual rate increase should be halved as a result.


"We've looked at the size of the revenue requirement, and we think there will be some changes made, particularly on cost savings for flat-shaped handling," said Jerry Cerasale, senior vice president of government affairs at the Direct Marketing Association.


The DMA's witnesses will take the stand in July.


Meanwhile, members of the executive board of the Magazine Publishers of America, New York, and its lobbying firm met informally with Congress members earlier this month to discuss their concerns about the proposed rate increase. The MPA, which represents more than 240 domestic publishing companies in the consumer magazine business, has launched a three-year, $10 million advocacy campaign to fight the 15 percent rate increase magazines face and pursue postal reform.


Bruce Heiman, an attorney for a law and lobbying firm that is working with the MPA, said members of Congress, including John McHugh, R-NY, chairman of the House postal subcommittee, have told Postmaster General William J. Henderson that the USPS should implement the cost savings that have been identified.


"We've been receiving widespread support for the proposition that the Postal Service should keep to its commitment, which is to keep the rate increase to a single digit," said Heiman, a partner at Preston Gates Ellis & Rouvelas Meeds LLP, Washington. "The USPS has heard from members of Congress that they should get this down as well, but the ball is in the Postal Service's court."


American Business Press President Gordon Hughes said he is confident that the USPS will reduce its proposed 15 percent rate increase by as much as half.


"There is no question that this increase needs to come down," Hughes said. "In fact, I feel pretty confident that it will. If anyone were to look at the new numbers, the more recent data, it's pretty clear that that sort of increase is just flat out not necessary."
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