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Exigency’s Exit Is Scripted by the PRC

The Postal Regulatory Commission this week issued an order for the removal of the exigent surcharge, setting down procedures for the U.S. Postal Service to follow in complying with the PRC’s original mandate. In approving the 4.3% emergency rate hike on Christmas Eve 2013 to recapture revenues lost due to the Great Recession, the regulatory body stipulated that that it be pulled back once the Postal Service collected $2.8 billion in “contribution,” or an estimated $3.2 billion in revenue.

The U.S. Postal Service filed a petition to amend that decision with the D.C. Court of Appeals in June, arguing that the recession set in motion “ongoing negative impacts on mail volume” and that, as a result, the exigent increase should be kept in place as part of the base postal rate. The court has yet to release its decision. Meanwhile, the Postal Service rapidly closes in on its exigent contribution limit.

USPS reported that it had collected $1.35 billion in surcharge revenue during the final three quarters of its 2014 fiscal year, ended on September 30. Another quarter has since passed—one including the high-volume holiday season—so additional revenue due to exigency should be approaching or surpassing the $2 billion mark.

The PRC’s plan for the exigent rate’s rollback consists of four orders. The Postal Service must give 45-day notice of the removal of the surcharge. During the quarter in which it anticipates that it will be phased out, the Postal Service must provide biweekly estimates of its accumulation of surcharge revenue. Discounts applied to workshare arrangements must only address the base rate, not the exigent rate as it is removed. Finally, the Postal Service must adjust the exigent surcharge amount to account for anomalies created by the Forever Stamp.

The Postal Service has argued that it should be credited for Forever Stamps purchased before exigency went into effect last January 28, but used afterwards. But mailers counter that the back-end should be considered as well, when stamps purchased at the increased rate are mailed after it’s removed. The final order from the PRC essentially says that both arguments are valid and should be considered in the final reckoning.

Mailers are adamant that they put not one penny more into USPS coffers than the estimated $3.2 billion set down by the original exigency order. By asking USPS for biweekly financial statements as exigency approaches phase-out, the PRC hopes to bring accounts as even as possible when (or if) the actual day arrives that the surcharge is lifted.

In anticipation of the Court of Appeals decision, the Postal Service did not ask for a CPI rate increase this year, but it most assuredly will do so if the court rules against its petition and the 4.3% surcharge is removed. The Postal Service has floated the notion of using its available rate adjustment authority to simultaneously file for a CPI increase at the time it files a notice to remove the surcharge. The Greeting Card Association (GCA), in comments filed with the PRC, stated that there should be a complete separation of the exigent surcharge removal and any accompanying inflation-based increase. The PRC document issued this week orders that the Postal Service may file a CPI rate adjustment request in concert with removal of the surcharge, but that each request must be docketed separately.

Mailers had hoped for a 90-day notice to give them time to plan mailings at the new rate, but the PRC decided that 45 days is consistent with notice requirements for inflation-based adjustments. It added, however, that it encourages the Postal Service to provide as much notice as possible. Historically, the Postal Service has done so.

Fully aware that exigency’s exit could end up as mere fantasy at the whim of appeals court judges, the spirits of mailers nonetheless were buoyed by the PRC’s introduction of a mechanism for its dismantling. “Although we do not agree with every point of the PRC’s order, DMA and its members are pleased that a procedure has been established for the Postal Service to eliminate the exigent postal surcharge,” Direct Marketing Association SVP of Government Affairs Peggy Hudson said in a prepared statement. “We particularly applaud the biweekly reporting requirement on revenues as the time for elimination of the surcharge approaches.”

Hamilton Davison, president and executive director of the American Catalog Mailers Association, said his members are hopeful that exigency’s removal comes to fruition. “They’ve never recovered from the rate increases of 2007. Catalog circulation was 20 billion in 2006 and it’s 13 billion now,” he remarked. “Let’s hope that in 2015 the Postal Service and catalogers agree on a reasonable way to address this. Catalogers want to mail as much as they can, but it’s an affordability issue.”

Your move, D.C. Court of Appeals.

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