Postal Regulator Allows Higher Rates, but Denies USPS Autonomy in Setting Prices

The U.S. Postal Service will continue to face a cap restricting its annual price increases, the agency’s regulators ruled on Friday, dealing a blow to the cash-strapped agency looking to boost its revenue as customer demand for traditional mailing services declines.

The news was not all bad for the Postal Service, as the Postal Regulatory Commission acknowledged the existing inflation-based cap structure failed to bring “increased pricing efficiency” and “has not maintained the financial health of the Postal Service.” PRC proposed to allow USPS to increase its prices in each of its offerings by up to 2 percent more than inflation over the next five years, with an additional 1 percent increase allowable only if the agency meets its operational efficiency and service goals.

Postmaster General Megan Brennan had sought full USPS autonomy in setting postal prices, arguing the inflationary increases did not keep pace with market forces. The Postal Service said the pressure on its business from declining mail volume would itself serve as a sufficient barrier against the agency raising its prices too high. Large mailers and postal customers have posited a regulatory cap remains necessary because USPS enjoys a government-backed monopoly on mail, a sentiment PRC echoed in issuing its decision.

“The Postal Service is provided a statutory monopoly over mailboxes and the delivery of letters,” PRC Chairman Robert Taub said on Friday. “The public interest role of a regulator in this case is clear: A need to protect the captive customers and ensure fair competition.”

Postal management gave the decision a mixed review, agreeing with PRC that the price cap had failed but suggesting the regulatory body did not go far enough to enable the agency to provide prompt and reliable service in a “financially sustainable manner.”

“We are analyzing the commission’s alternative price cap proposal to determine the extent to which it advances this goal,” Brennan said on Friday after the PRC announcement. “We continue to believe that any price cap is unnecessary in the rapidly evolving postal marketplace, for which all of our customers have alternatives to using the mail.”

The price review was required by the 2006 law that created the current cap structure. It was the first review since that law and the current pricing regulations went into effect. In addition to the Postal Service, stakeholders in the mailing industry offered their input to PRC. Most major organizations representing large-scale, private sector mailers urged the regulators to keep the inflation-based caps in place, saying the Postal Service was exaggerating the severity of its financial troubles.

Linda Thomas Brooks, president and CEO of the Association of Magazine Media, said the Postal Service could not be trusted to regulate itself.

“USPS seeks unfettered pricing freedom, with only minimal regulatory oversight,” Thomas Brooks said. “The message of ‘Trust us, we won’t raise your rates too much’ just doesn’t work for a monopoly enterprise.”

Stephen Kearney, president of the Alliance of Non-Profit Mailers, said PRC awarding more freedom to the Postal Service to set its prices would actually hurt business.

“Our nonprofit mailers would be forced to reduce their reliance on mail,” Kearney said. “That would harm their vital missions.”

PRC is also requiring the Postal Service to come closer to covering its cost when offering discounts to mailers that lighten the agency’s workload through actions such as presorting or transporting mail. The regulators have previously found USPS was consistently offering discounts so severe it would have been cheaper for the agency to do the work itself.  

Overall, PRC said the changes to increase prices were necessary as the existing pricing structure had not “achieved necessary objectives.” Despite calling the caps “largely successful,” PRC said USPS has consistently failed to price efficiently, achieve financial stability and maintain high quality service standards.

The Postal Service has shown some improvements to its business in recent years, as ecommerce continues to drive rapid growth in its package and shipping business. Still, fiscal 2017 marked the 11th consecutive year the agency posted a net loss of more than $1 billion. USPS experienced a brief respite from its inflationary price caps in 2014 when PRC granted it temporary permission to raise its rates more significantly. The Postal Service asked for the emergency rate in 2013, citing the effects of the economic recession on its business to justify a 4.3 percent increase. Under the framework created by the 2006 law, USPS can only raise its prices by the rate of inflation except under extraordinary circumstances.

With significant controversy, the Postal Service argued the recession constituted such a circumstance. PRC obliged, but set a cap on the amount of money USPS could bring in as a result of the higher prices. The emergency rates expired in April 2016, forcing the Postal Service to lower prices for only the second time in its history.

USPS suffered a controllable income net loss of $814 million in fiscal 2017, the first such dip into the red by that metric in five years (controllable income does not account for expenses beyond the influence of USPS managers, primarily a congressional mandate to prefund retiree health benefits and adjustments to workers’ compensation costs). Postal officials said if the emergency rates were still in place, the agency would have turned a controllable profit of about $300 million.

PRC will enter its review and recommendations into the Federal Register as a proposed rule. Taub pledged to continue to solicit feedback from stakeholders before the agency finalizes its plan.

“I want to emphasize that the commission looks forward to a robust comment period on this proposal,” he said. “To encourage maximum participation by all interested parties, we will be accepting comments for 90 days, with a further month granted for reply comments.”

Brennan said the Postal Service will continue to fight for the “flexibility to adopt the pricing innovations” necessary to compete “today and in the future.”

“We will continue to work with the commission and our customers to ensure that the mail remains a valued means of commerce and communications,” she said.