Maine Senator Susan Collins R-ME has submitted a letter to the Postal Regulatory Commission outlining her opposition to the US Postal Service’s “exigent” rate request. Collins argues that the USPS’s revenue losses “result from the effects of electronic diversion” rather than the recession, as the USPS claims. Collins says the PAEA law, which she authored, does not allow for an above-CPI rate increase based on electronic diversion, and asks the PRC to reject the request:
Dear Ms. Grove:
I am writing to comment on the Postal Service’s recent attempt to revive in this docket the above-CPI (“exigent”) rate increase that the Postal Service initially sought in 2010. For the reasons I summarize here, 39 U.S.C. § 3622(d)(1)(E), which was added to Title 39 by the Postal Accountability and Enhancement Act of 2006 (“PAEA”), does not authorize rate increases to recover losses caused by electronic diversion of communications from mail to the Internet. As the author of the PAEA, I can speak to the congressional intent of this provision.
Section 3622(d)(1)(E) was intended to allow above-rate increases to recover losses only to the extent that the losses are “due to either extraordinary or exceptional circumstances.”
During the 2007 rulemaking process for the exigent rate case authority, Senator Tom Carper and I sent a letter to the Postal Regulatory Commission (PRC) explaining that the exigent rate authority in the PAEA was intended to be used sparingly (Attached). Specifically, the letter clearly detailed that the “extraordinary or exceptional circumstances” required to initiate an exigent rate case under the PAEA exist only if “terrorist attacks, natural disasters, and other events … cause significant and substantial declines in mail volume or increases in operating costs that the Postal Service cannot reasonably be expected to adjust to in the normal course of business.” This underscores that the central purpose of the ratemaking provision in PAEA is to incentivize the Postal Service to improve its business model and realize maximum efficiencies and cost savings and to provide predictability in rates which is important to many of the Postal Services major customers.
Electronic diversion of mail has been a foreseeable and an ongoing problem for the Postal Service. Raising rates in such a significant manner, as the Postal Service has proposed, will only drive more customers away from the mail system at a more rapid pace. In 2011, the PRC and the Court of Appeals acknowledged that the weak economy could justify an exigent rate increase. They further concluded that the Postal Service had not shown this factor warranted an increase at the time. This still holds true. Electronic diversion and other structural problems have been an ongoing concern of the Postal Service for more than a decade, showing that these predictable circumstances are less than exceptional. An increase in rates is an attempt at an easy out by the Postal Service, rather than maximum efficiencies and cost savings, and will do nothing more than drive customers out of the Postal Service faster than they are already departing.
As the author of PAEA, I certainly did not intend that the provision would be used to recoup revenue lost as a result of electronic diversion and similar long-term trends. Congress was well aware when enacting PAEA in 2005-2006 that electronic diversion was a looming problem for the Postal Service, and could very well explode in the next few years. The authors of PAEA were also well aware of the threat to the Postal Service from electronic diversion. The 2004 Senate committee report on the Senate version of the bill that became PAEA stated:
“It is highly likely that, as Americans become more comfortable conducting commercial transactions over the Internet, the Postal Service will continue to see declines in First Class mail volume….The electronic diversion of mail and its impact on the Postal Service are among the reasons why the Postal Service has been on the Government Accountability Office’s (GAO) ‘‘high-risk’’ list of troubled federal programs in need of reform since 2001.”
Likewise, the House committee report noted the challenges faced by the Postal Service from “decreasing volume, insufficient revenue, mounting debts, and electronic communications alternatives such as Internet advertising, electronic bill payments, emails and faxes.”
Both the Commission and the Postal Service acknowledged during the 2010-2011 exigent rate case that electronic diversion does not qualify as an extraordinary or exceptional circumstance under Section 3622(d)(1)(E).
“The Postal Service is not claiming that either the volume loss attributable to electronic diversion or any statutory provision, including its obligation to prefund the RHBF, qualifies as an extraordinary or exceptional circumstance.”
Likewise, the Commission stated during the reopened phase of Docket No. R2010-4R in 2011:
“When quantifying the net adverse financial impact of the exigent circumstances, the Postal Service must factor out the financial impact of non-exigent circumstances, such as the continuing effects of electronic diversion. This process ensures that an exigent rate adjustment is limited to the adverse effects of the exigent circumstances as opposed to other, non-exigent factors.”
I am therefore troubled by the Postal Service’s latest request for approval of an above-CPI rate increase. While the Postal Service claims that the increase is justified by the 2007-2009 recession, it appears that virtually all of the losses claimed by the Postal Service result from the effects of electronic diversion in Fiscal Year 2012. The outcome of this decision will have significant effect on the $1 trillion mailing industry, which supports approximately 7.5 million jobs nationwide. The proposed rate increases would impose substantial costs on the mailing industry, would hurt small businesses and local newspapers, and undoubtedly would accelerate further decline in mail volume and revenues. The Postal Service will permanently lose business from catalog companies, publishers, and others. Some small newspapers may be forced to completely abandon their relationship with the Postal Service because of the increased costs, coupled with the possible decline in service proposed by the Postal Service.
The PRC’s approval of an exigent rate increase under these circumstances would be inconsistent with the law. The Postal Service is apparently asserting that this electronic diversion was caused by the recession, but seems to offer no evidence of such a causal link. To allow recovery of diversion-related losses in FY 2012 because the Postal Service asserts that the 20072009 recession caused them would be at odds with ongoing changes in Americans’ use of
technology. Allowing the rate increase to go forward would undermine the intent of PAEA to provide predictability and stability in postal pricing.
I appreciate your careful review and consideration of this proposed increase in rates.
Susan M. Collins
United States Senator .