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End the USPS' Power to Usurp Rate-Setting Process

No mailer is ever pleased when the U.S. Postal Service seeks higher rates. This is especially true with respect to its filing last week with the Postal Rate Commission. Ever since the 10-month limit on PRC deliberations was enacted in 1976, mailers have known that a filing means higher rates one year later.

The filing allows corporate budgets to be planned in advance, and the rate-setting process entails reasonable fairness and certainty. But just three months ago, the USPS' Board of Governors changed the dynamics and brought home the chilling reality that a request for a rate increase can result in not one, but two rate increases. Using a long dormant provision in the Postal Reorganization Act, the board asserted a power that Congress mistakenly entrusted to it — a power that must be taken back.

On July 1, the postal service raised its rates for the second time this year, less than six months after its previous increase. A casual postal observer might assume that the PRC had approved this second increase, but he would be wrong.

The first increase, implemented Jan. 7, was the product of a 10-month deliberative process. The case involved 78 participants, 178 pieces of testimony and 40 days of hearings. The increase that resulted from this process was painful, but at least the process was arguably fair.

July's increase resulted from a decision by the nine governors to overrule the PRC. They exercised a statutory provision that had lain dormant for 20 years — one authorizing them to raise rates unilaterally when the PRC's rates fail to give the USPS the revenues it requested. The governors manipulated the process by increasing the “requested” revenues after the PRC issued its opinion.

Federal law authorizes the governors to increase the PRC's recommended rates in one narrow circumstance. They must act unanimously and attest that modification of the rates “is in accord with” the record of the PRC's proceedings and the Postal Reorganization Act and that the PRC's rates will not provide sufficient revenues.

Did the PRC recommend rates that would not provide sufficient revenues? Its recommended rates would have covered all of the postal service's estimated costs and much, but not quite all, of the revenues requested by the USPS for unknown “contingencies.” Thus, the only way the board could claim that the PRC's recommended rates resulted in a revenue insufficiency was to assert that the “contingency” allowance was too small.

By the governors' own admission, their original January 2000 filing sought an annual income of $69 billion. The PRC's rates, implemented in January, will raise an estimated $68.8 billion. Only after the PRC had issued its decision did the governors announce that they sought revenues of $69.8 billion and determine that the PRC's rates were inadequate because they would produce $1 billion less than desired.

Where did the $800 million increase come from? It either reflects the USPS' inability to estimate costs accurately, or it reflects its inability to control costs, or both.

Some mailers have bought into the mantra that the rate-making system is broken. The July rate increase is evidence that the system is broken. What it demonstrates, though, is that the postal service already enjoys far too much power over rate setting — not too little. When it can change the revenue request after the record is closed, ignore a 10-month administrative hearing where mailers' input was received and considered, and disregard the opinion of the PRC, the system is indeed broken.

Since Congress enacted the statutory provision that the governors abused, only Congress can stop the postal service from further abuses of this power to raise rates — and thereby preserve its future. The postal service is a government-empowered monopoly. It should not be given more power to set rates and enhance the exploitation of its monopoly.

Congress needs to investigate the USPS' abuse of its power by this last rate increase and repeal the statutory provision that the governors abused. Only in this way can mailers know that last week's request for higher rates will lead to PRC proceedings that have any meaning. If the postal rate-setting mechanism is rigged so that no matter what the PRC determines, the postal service has the raw power to implement rates that serve its self-interest, mailers can have no faith in the rate-setting process.

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