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Federal regulators on Thursday issued their annual compliance determination (ACD) evaluating the operations of the U.S. Postal Service in fiscal 2012, chiding the cash-strapped agency for not raising rates more aggressively for several classes of its mailing products.

While the Postal Regulatory Commission (PRC) concluded that the Postal Service was "largely in compliance with postal policies and requirements" under statute, the agency could have improved its financial situation with pricing adjustments to several of its monopoly products, such as Standard Mail Flats and periodicals.

"Nine market-dominant products' prices failed to raise enough revenue to cover even their attributable costs, causing losses of $1.5 billion, more than 50 percent of the total operating losses under management control," PRC Chairman Ruth Goldway wrote in an introduction to the report (PDF available here). "This ACD highlights the untapped potential of the pricing flexibility available to the Postal Service under the law to address at least some of these losses."

The report comes amid an ongoing and worsening liquidity crisis at the Postal Service, which reported losses of $15.9 billion in the 2012 fiscal year. Of that, $11.1 billion was an accounting charge for a payment default on money owed to the Retiree Health Benefits Fund, an obligation the Postal Service has been lobbying Congress to address.

Another $2.4 billion of red ink was the result of an adjustment to the Postal Service's obligations under a workers' compensation program, with the remaining $2.4 billion attributable to operating losses.

The PRC's report acknowledged that dire financial situation, driven in part by the continued decline in mail volumes along with the structural obligations relating to the workforce that the agency must meet under current law. The PRC supports efforts in Congress to improve the Postal Service's finances, but argues in its report that the agency could help its own cause by taking greater advantage of the pricing flexibility it is afforded under statute.

USPS spokesman David Partenheimer declined to comment immediately on the PRC's findings, saying that the agency had only received the report Thursday afternoon and was still reviewing it.

The Postal Service, which continues to press Congress for reform legislation, has been moving ahead with a variety of its own efforts to trim costs, including a major downsizing of its network of mail-processing facilities and retail locations. Additionally, the agency has proposed scaling down to five-day weekly delivery service for regular mail later this year, though that announcement drew the ire of some prominent lawmakers, and the Government Accountability Office earlier this month concluded that the Postal Service would require a specific authorization from Congress to make the move.

The PRC's report credited the Postal Service for many of the initiatives it has undertaken to cut costs and roll out new services. It also lauded the Postal Service for improvements in service improvements in nearly every class of mail.

However, in areas where the Postal Service has the authority to raise rates, the report found that it was leaving money on the table. In the Standard Mail Flats product class, for instance, attributable costs eclipsed revenues by $528 million, while periodicals saw a $670 million loss, according to the report.

All told, the nine market-dominant products for which revenues fell short of costs accounted for $1.5 billion of the Postal Service's losses in 2012, the PRC found.

"The Postal Service can increase contribution through adjustments in worksharing arrangements and rates charged for products within a class but it has not yet fully used that flexibility," Goldway wrote.

She criticized the agency for leaving its periodical pricing and worksharing structures unchanged since 2007, noting that per-piece revenues declined in the most recent fiscal year. In Standard Mail Flats, Goldway acknowledged that the Postal Service had taken steps to respond to a previous finding of non-compliance that her agency had made, but that the "pricing strategy continues to result in negative contributions per piece."

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About the author:

Kenneth Corbin is a freelance writer based in Washington, D.C. He has written on politics, technology and other subjects since 2007, most recently as the Washington correspondent for InternetNews.com, covering Congress, the White House, the FCC and other regulatory affairs. He can be found on LinkedIn here.

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