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USPS BOG Approves FY 2007 Plan That Assumes Rate Increase in May

The U.S. Postal Service Board of Governors approved a fiscal year 2007 plan that assumes slower growth in the U.S. economy and postage price increases in May.

The integrated financial plan also includes cost reduction programs of $1.1 billion while maintaining universal service.

“There is a potential for more risk in the achievement of this plan compared to recent years,” H. Glen Walker, USPS chief financial officer and executive vice president, told the board at its September meeting. “The pending rate case, the current labor negotiations with our four largest unions and uncertainties with the economy — including fuel prices — all have the potential to affect actual revenue and expense figures.”

The USPS filed May 3 for an average 8.5 percent rate increase with the Postal Rate Commission. For business mailers, it generally means increases of 7 percent to 18 percent, based on averages for various mail classes. When the USPS files for an increase, it begins a 10-month regulatory process followed by a vote of the governors.

The cost reductions contain a decrease of 40 million work hours from the estimated FY 2006 level. Savings will come from automation improvements and additional “breakthrough productivity” initiatives, Mr. Walker said.

The postal service’s 2007 fiscal year runs Oct. 1, 2006, to Sept. 30, 2007.

The financial plan projects a 3.2 percent increase in revenue and a 2.6 percent rise in expenses over the current year’s forecast, yielding $1.7 billion in net income. However, the estimated $3.3 billion escrow requirement results in a net deficiency after escrow of $1.6 billion. The plan does not include effects from possible passage of postal reform legislation.

Other factors in developing the FY 2007 plan, Mr. Walker said, involve an expected overall mail volume decrease of 0.5 percent — including a 2.8 percent dip in First Class — and continued growth of delivery points, with another 1.9 million expected next fiscal year. The plan also calls for an eighth consecutive year of increases in total factor productivity.

Action on Cap One, Periodicals

Also at the meeting, the board approved a recommended decision by the PRC to extend the negotiated service agreement with Capital One Services Inc. by one year. The NSA was to expire Sept. 1, 2006, but the governors extended it to Sept. 1, 2007.

The NSA gives incentives for increased First Class volume and substitution of electronic notices for actual returns of undeliverable-as-addressed mail. It has produced 150 million new First Class Mail marketing pieces, the postal service said, while Capital One and the USPS benefit from the switch to electronic ACS.

The Capital One NSA was the first implemented by the USPS, taking effect in September 2003. Capital One, McLean, VA, is the postal service’s fourth-largest customer and its largest generator of First Class Mail.

The governors also approved a PRC recommended decision revising the definition of a nominal subscription rate in periodicals. The change aims to ease standards covering when a publication’s circulation counts as paid.

The USPS proposed July 6 that payment of only 30 percent or more of the basic annual subscription price of a magazine — rather than the current 50 percent or more — be required for a subscription to qualify as a legitimate paid subscription.

The proposal affects the definition of a nominal rate subscription but does not alter a requirement that at least 50 percent of a publication’s copies be distributed to people who paid more than a nominal rate. The change lets publishers take advantage of the elimination of a similar nominal rate definition in the bylaws of national audit bureaus, the USPS said.

Two capital investment projects also received approval. One involves funding to buy eight Automated Package Processing Systems. The USPS has said the APPS machine uses advanced technology to automate parcel and bundle sorting and replaces mechanized and manual parcel and bundle operations with a more efficient operation.

The funding would bring the total number of APPS machines deployed to 84. The contract award, expected later this month, will pave the way for the eight machines to be deployed in July 2007.

And the board approved $48.4 million to buy West Valley Logistics and Distribution Center in Phoenix. The facility, now leased, serves as the main parcel and bundle processing center for the Phoenix metropolitan area. Buying the facility lets the USPS perform renovations to expand operations at a cost below that of leasing.

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