PRC Chief Taub Talks About a Postal Service at the Crossroads

URBANSKI:  Hello, everyone, and welcome to DC Direct, where we talk to movers and shakers in Washington about issues facing direct marketers.  I’m Al Urbanski, Senior Editor of Direct Marketing News. Today we have with us Acting Chairman Robert Taub of the Postal Regulatory Commission.  At the end of last year, Mr. Taub was appointed by President Obama to assume the chairmanship vacated by Commissioner Ruth Goldway.  Long involved in postal affairs, Taub helped moved the Postal Accountability and Enhancement Act through Congress as an aide to Representative John McHugh in 2006. Today he’s right back in the heat of things during the first few months of his administration, with several unanswered questions dogging the Postal Service, not the least of which are rate structures, service obligations and what form new postal reform legislation might take.  Mr. Taub, thanks for joining us today to shed light on some of these questions.

TAUB:  Oh, happy to join you, Al.  Always good to catch up.  I trust things are moving and shaking for you in beautiful New York.

URBANSKI:  Absolutely.  The summer, I wish it wouldn’t end, but it will.  We have to get back to reality, right?  You have Congress coming back to a little reality soon.

TAUB:  Amen.  Labor Day’s coming upon us.

URBANSKI:  That’s it.  Well, we had an interesting turn of events this week.  The PRC had acted quickly in addressing the D.C. Circuit Court’s issues with the exigency case, the first petition that the Postal Service filed.  The Commission pretty much gave the Postal Service what it asked for.  You renewed the accounting that — the financial toll took, the Great Recession took on the Postal Service.  You increased the amount that could be collected by the surcharge by $1.2 billion. But a few days ago, the Postal Service filed another petition with the D.C. Circuit Court of Appeals to review your Order 2623, which made those changes.  Is exigency’s final chapter

TAUB:  Well, certainly the story continues.  And since it is now pending appeal before the D.C. Circuit, I can’t discuss it too much at length.  But I would hit a few things from what you had highlighted in your question.  One, indeed, we did act quickly.  We recognized that not only the long, ongoing nature of this, as you described it, chapter — there’s many chapters where — you know, it may be for some approaching a War and Peace level book.

But we recognize the last thing we need is uncertainty out there for the Postal Service, for the mailing consumer and those concerned about how things were proceeding.  So we made sure we issued our order and provided clarity as quickly and efficiently and clearly as possible, which I think we did. You had indicated we had given the Postal Service everything they asked for.  I’m not sure I would describe it that way, although we did find an increase, as you outlined, to be in conformance with the portion of the decision that the court had remanded to us.  You know, the Postal Service had advocated for a wider review and a total contribution loss of $11.4 billion, both of which we declined in our decision.  So just a clarification on that point. But the overall bottom line is, as you highlighted, as is any party’s right, they have petitioned the D.C. Circuit for review of our order, and the process will now unfold.

URBANSKI:  Yeah.  You mentioned Tolstoy.  I’ll mention Hemingway.  It’s kind of still-moveable feast, isn’t it, that exigency — until there’s postal reform legislation– is going to be a ball that’s in the air.

TAUB:  Exactly, exactly.  Fair enough.  That’s good.

URBANSKI:  The way things stand now, it’s possible that there could be no CPI increase in 2016, since the Consumer Price Index has barely moved this year.  I guess you can never make all mailers happy all the time, right?  So some of them are worried about–and it’s kind of amazing that no rate increase might cause them problems–installing operational improvements in certain classes of mail, where there’s not somem not a lot of clarity as to whether these changes changes can be made outside the framework of a total rate change.[?] [Do they have a legitimate concern going into 2016 that maybe some of these operational innovations won’t be ready to go because of this?

TAUB:  Yeah, likewise, Al, I saw those reported, as well, in the postal press, and certainly it’s a legitimate question.  You know, I would point out in the rules that we have in place to implement the 2006 law, we speak of rate adjustment filings that the Postal Service can come forward with.  And obviously, that’s all in the context of ensuring that any rate adjustments don’t exceed the cap. But what that certainly does allow is, the Postal Service could certainly always come through at any time with a rate proposal that is revenue neutral.  So in the event that there is no CPI increase, when it comes to modifying the design or structure of rates or classifications, certainly the Postal Service has the flexibility to increase some rates while reducing others.  And they, if they chose to, could certainly file a rate request that includes tradeoffs with rate decreases that offset rate increases, so there’s no net change in rates at the class level, and hence those issues that you had outlined where there’s concerns about operational needs or adjusting rates to reflect costs, even if there’s no room to increase rates under the price cap, that’s certainly legally doable for the Postal Service to come to the commission with that.  So that’s from that larger question out there.

That being said, beyond the issues of, as you had outlined, operational changes that they might be looking for when there’s normally a change, there’s also the issue with the Postal Service, as we all know, having very little liquidity and its working capital to make those large capital investments, whether it’s the vehicle fleet that they’re trying to modernize and replace their aging vehicle fleet to make sure that their capital projects have the financing available.  As we know, they’ve exhausted their borrowing authority.  So certainly there’s the real-world effect when you’re not seeing inflation and trying to ensure that the working capital is available.

But going back to the earlier point, when it comes to the operational end, certainly under the law, under our rules, the Postal Service, as long as they’re not piercing the cap, even if there is no increase, can certainly at any time file an adjustment.

URBANSKI:  Right.  That’s one of the things that mailers always worry about, though, too, because, of course, they have capital expenditures, too, and equipment and labor.

TAUB:  Yeah.

URBANSKI:  And one of their beefs about  the rate change structure is they don’t get to make any comments, that the Postal Service just says, “Okay, here’s the new price,” and they don’t get any input on it.

TAUB:  Yeah, yeah.  That was one of the fundamental changes to the 2006 law, was, in essence, the Postal Rate Commission, while it was recommending rates, in essence, it was setting the rates.  And that obvious framework has changed in which now it’s onto the Postal Service to do that, and it’s up to the regulator to make sure that those changes in the rate design that they’re implementing doesn’t pierce the price cap and violate the work-sharing rules on the market dominance side.

But all those operational type of issues that might have been working out in a year-long, before-the-fact review of rates at the old Postal Rate Commission, as you highlight, that’s really the responsibility of the Postal Service now working with their customers to ensure that folks understand what’s coming down the pike and are sensitive to how those things change. And so I guess the point being, even if there is an event of not having CPI, I think both the law and the Commission’s regulations that were put in place in ’07 and ’08 were predicated on that.  It certainly could occur, but it wouldn’t stop the Postal Service from coming in and making adjustments to reflect current operational needs as long as, again, it’s not violating a price cap limit, even if that limit is — has to be neutral.

URBANSKI:  Understood.  Let’s talk about the PRC itself, because I know that when we spoke before, I know you’re committed to treating issues in a quick but studied manner of moving business along.  Last week you handed down a decision on first class parcels, denying a request by the Postal Service to reclassify it as competitive versus market-dominant product.

You and Vice Chairman Tony Hammond issued dissenting opinions in a three-to-two vote.  Can you tell us briefly why you disagreed with the majority, and do you expect more such tough decisions to come down the pike for you guys in a period of great change for the Postal Service?

TAUB:  Yeah.  Let me take the second one first.  Certainly, I do expect more complex cases to arise as we continue to evolve.  You know, it hasn’t — we haven’t even hit the nine-year mark since the new law was enacted, and obviously that’s just when the president signed it in December 2006.  Since that time, we’ve had to develop the rules and the regulations, and so many cases that are still coming before us are still cases of first impression, shall we say, of what do these words mean of PAEA, and how do we implement them? And that clearly means that the five commissioners have to come at it and call it as we see it.  And there will be honest disagreements of interpreting the law, and interpreting means judgment.  So there’s no right answer.

So that being said, in that context, on this most recent case, myself and the vice chairman, as you indicated, did dissent.  And we saw our decision — we felt the Commission had the same evidence before it, and that it had three prior parcel transfer cases, and we had found it sufficient in those cases to allow transfers of other types of parcels. We had previously found the parcel market competitive.  We had felt this was very distinguishable from a recent case that we had adjudicated after this one had been filed which was dealing with the broader entertainment delivery market, not the parcel market.  So again, in my view, the Vice Chairman’s view, based on the evidence, we felt the request met the requirements of law and should have been transferred to the competitive products list.

URBANSKI:  Okay thanks.  And finally, the end of summer recess for Congress looms ahead, and the big unanswered question is postal reform legislation.  And throughout the process of looking for new reform, after PAEA, Postal Service management has been pretty forthright in expressing a desire to get control of setting its own rates in any new legislation. And should that happen, that kind of a change could have a profound effect on the Postal Regulatory Commission, formerly the Postal Rate Commission, right?  And the word, though, is that Senator Tom Carper has distributed a draft of a new bill that would grant more power to the PRC in setting the Post Office’s agenda.  Can you tell us anything about this draft, and also your outlook for the hope of postal reform legislation in the year ahead?

TAUB:  Oh, sure.  Well, I certainly am aware that Senator Carper and his staff have been working real hard on legislation.  However, I don’t think it’s appropriate for me to comment on any substantive aspect of the bill before he officially introduces it.  So I don’t want to get out ahead on that.  But I would observe a few things. You know, as you indicated, one of the top priorities that I’ve come in focused on of the three I had — and we talked about that last time — was first and foremost educating the decision-makers in the Senate and the House as to the Postal Regulatory Commission, what we’re about, the expertise we have to offer, the important public policy role we play, particularly when it comes on the market dominant side, in protecting captive customers who, by their very nature, don’t have other alternatives than the Postal Service, and hence require that type of market-dominant regulation.

And so certainly, I think those efforts have been good.  We’ve had new chairmen on both sides of the Hill, and it’s a new Congress, so to the extent that Congress is looking for us to take on more responsibility, we’re here to help, and we’re ready to serve. The only thing I would highlight is, you know, we are a small agency.  Our budget has never been at $15 million or above.  In fact, we were almost at that point the last year we got our budget straight from the Postal Service, fiscal year 2008.  Since then, we’ve been through the appropriation process, and we just have never been close to that again.  So we’re ready to take on any additional responsibilities.  The challenge, of course, will be to make sure we have the resources to do that, and that’ll be a discussion we’ll have to have with the appropriators.

But, you know, my hat’s off to the folks on the hill continuing to work on these issues of reform.  It took us, as you know, 12 years, when I was working for then Congressman McHugh, and so I know some days it might feel, in our literary mode, of Waiting for Godot, so waiting for postal …

URBANSKI:  Oh, now you’ve worked Beckett in…waiting for that second round.

TAUB:  Exactly.  But I’m hopeful all the — everyone’s rowing in the right direction, which is — you know, we all want to make sure the Postal Service is on a sound financial footing to do what it needs to do to meet the needs of the American public.

URBANSKI:  Not in your role at the Postal Regulatory Commission, but calling upon your long experience on the Hill.  It would seem to — and I’m just asking an opinion here…

TAUB:  Yeah.

URBANSKI:  It would seem to me that Postal Reform is kind of something that both sides of the aisle could be, you know, kind of a happy legislation to pass, that they could all be happy with and maybe create jobs or ensure jobs for a long time in the Postal Service.  So in that respect, is it something that could possibly get pushed to a vote sooner than some other legislation?

TAUB:  You know, I’m horrible at trying to give  a crystal ball estimate when it comes to the legislative prospects on Capitol Hill, but I would say my own personal experience with it is, it truly is not only bipartisan, but frankly a nonpartisan issue.  You know, it’s part of the fabric of our nation.  It’s going back to 1775 and Ben Franklin.  So for 240 years, this is a public policy issue that is one of the few that touches all Americans, wherever you are, whether you’re at home or at work, seven days a week, if you’re getting your parcel delivered.

So from that standpoint, I think there’s that commonality that traditionally and historically, and certainly how I’ve always been involved with it, it’s really a nonpartisan issue, and more public policy.  But that all being said, you know, the legislative calendar and the challenges as we enter a presidential election year, trying to get everyone together on the same song sheet to get a bill on the Senate and House floor, I well understand the challenges there.  But, you know, hopefully all the good work will lead to some fruition.

URBANSKI:  Great.  Chairman Taub, we’re out of time.  Thanks for spending some time with us today.  Always great to speak with you.

TAUB:  Likewise.

URBANSKI:  And best of luck to you and the commissioners dealing with the  challenges that lie ahead.

TAUB:  Thank you, Al.

URBANSKI:  That concludes today’s session of D.C. Direct.  Thanks for listening.  Please share the link to today’s podcast with colleagues who might benefit from this valuable information.  Thanks again to Chairman Robert Taub.  This is Al Urbanski signing off for Direct Marketing News.  Have a wonderful day.

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