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The Postal Regulatory Commission has issued its annual report determining whether the rates and service standards that the U.S. Postal Service has implemented in the past fiscal year are compliant with its governing policies.

In its compliance determination for fiscal 2011 (available in PDF format here), the PRC was generally approving of the Postal Service's activities, though it took issue with the pricing strategies for two money-losing products: Standard Mail Flats and periodicals.

The agency, which exercises limited regulatory authority over the Postal Service, chided the agency for failing to exercise the pricing options at its disposal to offset the $643 million shortfall in the Standard Mail Flats product, a cost-revenue imbalance that produced what the PRC described as an "intra-class subsidy."

The class of periodicals generated revenues that fell $609 million short of attributable costs, another heavy drag on the beleaguered agency's balance sheet. While the PRC and Postal Service have worked together to address the shortfall in periodical mail, and the Postal Service has indicated that it has been adjusting its policies to address the revenue deficit, the new report notes that losses in fiscal 2011 increased from the previous year.

The PRC's compliance determination comes amid the backdrop of an ongoing financial crisis at the Postal Service, which posted a net loss of $5.1 billion in fiscal 2011. PRC Chairman Ruth Goldway noted that had Congress not moved to defer an obligatory prefunding payment to the Retiree Health Benefit Fund, the Postal Service's losses would have ballooned to $10.6 billion for the year.

"There is little reason to believe the Postal Service situation will improve in the near future," Goldway wrote in the report's introductory letter. "Mail volume continues to decline. More importantly, the Postal Service now faces a cash flow crisis related to the overly ambitious RHBF prefunding requirement."

With so much of the Postal Service's precarious financial situation attributable to the secular decline in mail volume and the hefty personnel costs mandated by federal statute, lawmakers have developed a variety of proposals to provide relief, but so far none has moved.

While Standard Mail Flats and periodicals were the biggest losers, the PRC report noted that 10 market-dominant USPS products generated revenues below their attributable costs.

The commission also evaluated the Postal Service's performance measured against its delivery service standards, finding that it met those standards in the classes of single-piece First Class Mail and Special Services, but fell short in the majority of the categories in which it dominates the market.

The PRC's report warns that absent action from Congress, the Postal Service will not be able to meet its funding obligation for the retiree benefits program by the end of fiscal 2012. Even if it wins relief from that payment, the agency could be unable to make its payroll or fall short on other payments in the near future, according to the report.

David Partenheimer, a spokesman for the Postal Service, said that the agency is still reviewing the PRC's compliance determination and declined to comment until the evaluation is complete.

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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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