USPS Governors accept PRC revised rate recommendations

The Governors of the U.S. Postal Service announced yesterday that they accepted the decision of the Postal Regulatory Commission to modify two of its earlier rate case recommendations, that is, to lower the price of the Priority Mail Flat-Rate Box to $8.95 and to extend the nonmachinable surcharge  which encourages mailing efficiencies  to all single piece and presorted First-Class Mail letters, regardless of weight.

Still pending is the Governors’ request that the PRC reconsider its decision about Standard Mail flats. No date has been announced for that decision. All new rates are scheduled to go into effect May 14, except those for Periodicals – magazines and newspapers – which are scheduled to go into effect July 15.

The Postal Service proposed new rates May 3, 2006, and the PRC issued its recommendation Feb. 26. The Governors of the USPS on March 19 approved the Postal Regulatory Commission’s proposal but requested reconsideration of the PRC’s rate recommendations for the Priority Mail Flat-Rate Box, the Non-Machinable Surcharge for First-Class mail letters and Standard mail flats

The PRC recommended a rate of $9.15 for the Priority Mail Flat-Rate Box, which is $1.05 above the current rate and 35 cents higher than the USPS original proposal of $8.80. The Governors believe a rate below $9 would be more appropriate for this consumer and business product and be cost-justified.

As for the non-machinable surcharge, the PRC’s decision on First-Class two- and three-once letters did not differentiate between machinable and non-machinable. The Governors believed this warranted further analysis to ensure there are incentives for mailers to provide letters that can be processed at lower cost on efficient sorting equipment.

The Governors were also concerned that price increases recommended by the PRC for Standard Mail flats may impose an unnecessary degree of “rate shock” on the catalog industry and small businesses particularly. The recommended increase for some catalog mailers is as high as 40 percent, more than double what the Postal Service had proposed.

Also during the meeting of the agency’s Board of Governors, H. Glen Walker, the USPS chief financial officer and executive vice president, reported that a $925 million net loss was recorded during the second quarter of the fiscal year – which ran from Jan. 1 to March 31 – largely because of expenses relating to the implementation of the Postal Accountability and Enhancement Act, signed into law on Dec. 20, 2006.

Revenue for the second quarter totaled $18.5 billion, a decrease of 0.8 percent from the same period last year. The decrease was driven by a 0.6 percent decrease in mail volume for the second quarter. Expenses totaled $19.4 billion, an increase of $1.6 billion or 9.2 percent over last year’s second quarter expenses. The largest contributor to the expense increase was $1.35 billion for the funding of retiree health benefits required by the new postal law.

Mr. Walker also offered volume performance information during the meeting. Standard Mail had the most volume during the period (53.7 billion pieces) followed by First-Class Mail (49.8 billion) and Periodicals (4.4 billion). Internal mail, however, had the greatest increase over the same period last year, growing 9.6 percent to 452 million pieces. The only other category of mail that saw an increase over SPLY was Standard mail, which increased 1.2 percent.

Walker said he was encouraged that total factor productivity continued its upward trend in the second quarter, increasing 0.6 percent above the same quarter last year. TFP measures the relationship between workload and resource usage.

For quarters three and four, Mr. Walker said the agency is expecting volume to drop 1.7 percent. The agency also expects a net loss of 1.8 percent and revenue of $37.3 billion.

Mr. Walker said there were risks with the outlook, including the state of the economy, potential impact from the May 14 rate increase and labor agreements that are still being negotiated.

The USPS, however, said it has actions implemented to manage risks, including controlling work hours, reducing overtime, fully using the agency’s negotiated labor flexibility and implementing tight cost controls.

In a related financial matter, the Governors approved an addendum to the Postal Service Fiscal Year 2007 Integrated Financial Plan. The addendum incorporates the expected financial impacts from the new law on the FY 2007 financial statements. The revised plan provides for a net loss in FY 2007 of $5.2 billion and a year-end outstanding debt of $3.9 billion. No changes were made to the plan other than reflecting the financial impact of the new law.

The Board of Governors also approved funding to purchase additional Delivery Bar Code Sorter equipment for sorting letter mail in the sequence in which carriers deliver it. The purchase consists of 110 new machines as well as 394 stacker modules for existing Delivery Bar Code Sorters. These Delivery Bar Code Sorters will reduce the manual sorting of letter mail required today for new addresses that have been established since the last Delivery Bar Code Sorter equipment deployments were completed, the USPS said.

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