The Postal Regulatory Commission is making changes to how the US Postal Service can raise rates for “market dominant” services. (Note it does not impact rate-setting methodology for “competitive” services such as Priority Mail.) The PRC is keeping a price-cap system based on the Consumer Price Index (CPI) in place but with modifications that would allow the USPS to make higher price increases.
In a FAQ on the PRC.gov website, the Commission stated: “Individual customers and small business users of postal products and services may experience price increases above what the previous CPI-U rate authority provided due to the new categories of additional rate authority.”
“However,” the FAQ noted, “as previously mentioned, the Postal Service’s Governors will continue to set prices for all products and services offered by the Postal Service. As a result, exact future prices are not known at this time.”
The PRC proposed revised rules modifying the system for regulating rates and classes for market dominant products last year.
Today it published its Final Rules to Modify the Rate System for Classes of Market Dominant Products. The Commission said it modified the mechanisms for the supplemental rate authority in order to specifically address two major drivers of the Postal Service’s financial instability—declining density and retirement amortization payments—both of which are largely outside of the Postal Service’s control.
It explained in its press release:
To address the Postal Service’s financial health and target primary drivers of net losses, the Commission implements two mechanisms designed to permit the Postal Service to generate additional revenue to cover costs outside of its control.
1) The first mechanism, designed to address consequences of mail density declines, modifies the price cap to provide additional rate adjustment authority equal to the uncontrollable density-driven portion of increases in average cost-per-piece, as calculated under the Commission’s formula.
2) The second mechanism, designed to address the Postal Service’s retirement amortization payments that are outside of its control, modifies the price cap to provide additional Market Dominant rate adjustment authority equal to the percentage by which total revenue would need to increase (necessarily assuming an equal increase levied on Competitive products) to provide sufficient revenue for the Postal Service to meet its required retirement obligation payments, as calculated under the Commission’s formula.
Postcom noted that, “As implemented, the final rules provide a 5-year review period for a holistic assessment of the effects of the Commission’s rule changes. The Commission retains the flexibility to adjust certain components of the system sooner than that if necessary.”
The full press release is available on the PRC.gov website. Look for experts to weigh in on the ruling and what it means in the coming days.
Update 12/1/2020: Government Executive has a nice piece out about the PRC order.