PRC Cuts USPS' Rate Increases

The Postal Rate Commission last week called for a one-third cut in the U.S. Postal Service's proposed rate increase and recommended that it not be implemented until January.

The PRC said that with a year-to-date surplus of more than $1.3 billion, the postal service seriously misestimated its need for an increase and is unlikely to incur the $1.4 billion loss it predicted for fiscal 1998. The PRC advocates cutting the $2.4 billion increase sought by the USPS to $1.7 billion to reflect the benefits of lower-than-expected inflation since the request was filed last July.

Though the ultimate judgment will be made by the USPS' Board of Governors when it meets June 1-2, the PRC's recommendation was good news for many direct mailers.

“[The PRC] has overburdened the rates in Standard-A mail in the last three cases, and it's about time they finally cut back,” said Charles Howard, vice president of Harte-Hanks, Glen Burnie, MD.

Jerry Cerasale, senior vice president of government affairs for the DMA, said the recommended $745 million reduction would result in a lower overall increase of 2.8 percent vs. the USPS' proposed 4.5 percent average increase. But he urged mailers to look closely at the numbers because the PRC's recommendations were lower for some types of mail and higher for others.

“Within Standard A, the average increase for heavier-weight Standard A is larger than proposed by USPS,” Cerasale said, “[but] the average increase for lighter weight pieces is less. Thus, average rate-change numbers can be very deceiving.”

Some specifics:

* For Standard-A commercial regular mail, the USPS sought an average 1.8 percent increase while the PRC recommended 1.2 percent.

* For Standard-A commercial Enhanced Carrier-Route mail, the USPS sought an average 3 percent increase while the PRC recommended 2.2 percent.

* For parcel post, the USPS sought a 9.2 percent increase while the PRC recommended a 12.3 percent increase on the grounds that the USPS' proposal wouldn't cover the cost or reasonably contribute to overhead costs.

* The PRC agreed with the USPS in recommending a 10-cent surcharge on all Standard-A parcels under 1 pound mailed within a piece-per-pound rate.

* For First-Class bulk mailers, the USPS proposed raising the cost of a 3 oz. bank statement by 1 cent, from 78 to 79 cents, while the PRC recommended dropping it to 77 cents. And, although the USPS proposed charging 24.9 cents for an automation five-digit utility bill, the PRC recommended charging 24.3 cents.

Jim Jellison, executive vice president of the Parcel Shippers Association, Washington, said the PRC wasn't fair to parcel shippers.

“We were very disappointed because we felt the cost study [that the USPS submitted] for parcel post was very weak,” he said.

However, parcel shippers were happy that the PRC accepted the USPS' proposal to institute new worksharing discounts and to deepen the existing ones based largely on new analyses of transportation costs.

The PRC also accepted the USPS' request for a 1-cent increase on a First-Class stamp, which is expected to generate an extra $1 billion a year.

“First-Class mail is really carrying the load since it only accounts for 52 percent of volume but contributes 73.9 percent to institutional costs,” PRC chairman Ed Gleiman said. “To leave the First-Class stamp price unchanged would have triggered unjustifiably large rate increases for all other types of mail, with potentially serious economic consequences for mailers and the postal service.”

Outgoing Postmaster General Marvin Runyon defended the 1-cent stamp increase on NBC's “Today Show” last week.

“What we are doing after four years is raising the price of stamps one penny and that's to keep the good service coming,” Runyon said. “We need to spend a lot of money on new automation and new facilities.”

Gleiman said the PRC recommended that the rate increases not be implemented before January, given the strength of the economy and the upswing in mail volume that traditionally begins in late summer. However, it is rumored that postal executives will pressure the Board of Governors to raise the rates within 90 days of its June meeting.

Now, the governors can accept the recommendation without comment and set a date for the rates to take effect, ask the PRC to reconsider its recommendations or reject the PRC's recommendation in favor of the postal service's original request.

The rate case, known as R-97-1, was the most technically complex case ever filed by the postal service, according to Gleiman. It included 156 pieces of testimony, 449 library reference support documents, and thousands of pages of hearing transcripts offered by 111 expert witnesses and 84 parties.

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