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USPS Looks to File 5 to 6 Percent Across-the-Board Rate Increase

The U.S. Postal Service is recommending to its Board of Governors that it file a rate case with the Postal Rate Commission for an across-the-board increase of 5 percent to 6 percent.

The news was part of Postmaster General John E. Potter's keynote address yesterday at the National Postal Forum in Nashville, TN.

If the governors approve management's proposal, “our formal filing with the Postal Rate Commission will follow shortly,” he said.

Potter explained how the Civil Service Retirement System Funding Reform Act of 2003 helped the USPS avoid overfunding its Civil Service retirement obligation “by reducing our payments to the program.”

“These reduced payments, combined with our $8.8 billion in cumulative cost savings and five straight years of productivity gains, have allowed us to keep my pledge to hold rates steady until 2006,” Potter said. With an improved revenue picture, plus the aggressive cost reductions of the past three years, “we likely would break even in 2006 and could have put off a rate increase until 2007.”

But that won't happen unless the law is changed, he said.

“Because the 2003 Civil Service Retirement System legislation also called for the establishment of an escrow account beginning in 2006 of $3.1 billion,” Potter said, “use of the money in the escrow account is subject to the direction of the Congress. Were we to be able to use these funds for operating expenses, there would be no rate increase until 2007.”

The proposed 5 percent to 6 percent increase funds the escrow requirement, he said. It would raise the cost of a First-Class stamp by 2 cents, with comparable percentage increases for other classes as well.

Potter also said the agency has discussed management's proposal with mailing industry leaders for several weeks. The USPS thinks it is best for all parties to reach a settlement and avoid the 10-month litigation period that traditionally occurs in rate filings.

“I also want to assure everyone here that our filing is tied to the outcome of any legislation,” he said. “When and if legislation is enacted that mitigates the $3.1 billion escrow requirement — and I remain optimistic that will happen — we will modify our filing.”

Sen. Susan Collins, R-ME, who chairs the Senate Homeland Security and Governmental Affairs Committee, and fellow committee member Sen. Thomas Carper, D-DE, introduced their postal reform bill March 17. It repeals the escrow provision of the 2003 act. The escrow account would require contributions of $78 billion over 60 years. These savings would be used to pay off debt to the U.S. Treasury, fund healthcare liabilities and mitigate rate increases, Collins said.

Rep. John McHugh, R-NY, also introduced a bill repealing the escrow provision this year.

Postal reform bills made it out of their respective House and Senate committees last year for the first time since postal reorganization 34 years ago, Potter said. Both bills last year eliminated the escrow fund.

“Had we taken a more traditional approach to this rate case, we would have filed for a double-digit rate increase with the notion of holding rates stable for two years,” Potter said. “I did not think that was in the best interest of the industry. I know that everyone here is concerned about the impact of the escrow funding.”

Potter discussed other issues, such as his wish to cut by 50 percent the amount of undeliverable-as-addressed mail. Potter also said he envisions:

· A seamless acceptance process “where your electronic manifest is verified online.”

· Annual increases in postal productivity becoming the norm.

· Annual pricing adjustments, to end forever discussions of “rate shock.”

· Creating pricing models that “make sense for you and for us,” he said.

Potter said the agency expects to have its Transformation Plan 2006-2010 ready to distribute to stakeholders by Sept. 30. To obtain ideas for the plan, he said, the agency will reach out to Postal Customer Councils and the Mailers Technical Advisory Committee. Customers can provide feedback to the USPS on www.usps.com, as well as at this week's postal forum.

“The new Transformation Plan will not be just a 'to-do' list etched in stone,” he said. “We'll revise and update it every year to accommodate your changing needs and the changing needs of the mailing industry.”

Potter also offered mail-related success stories.

“Who would have thought that a small company like Netflix would become a major success story by relying on the mail?” he said. “And now, Blockbuster and Wal-Mart are taking the same approach with their DVD rentals: They're using the mail.

“Look at direct mail catalogers who at one time thought they could rely on the Internet exclusively to reach customers. Now, they've found the marriage of mail and the Internet has doubled customer sales.”

Melissa Campanelli covers postal news, CRM and database marketing for DM News and DMNews.com. To keep up with the latest developments in these areas, subscribe to our daily and weekly e-mail newsletters by visiting www.dmnews.com/newsletters

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