Postal Pieces: Ask PRC to Keep the Cap
The Postal Regulatory Commission (PRC) is conducting a ten year review of the rate setting process established by the Postal Accountability and Enhancement Act (PAEA). On March 20, 2017, comments from all interested parties were due. The Saturation Mailers Coalition, the Small Business Legislative Council, and AFCP, IFPA, MFCP, SAPA, MACPA, CPNE, and the state associations for Florida, New York, and Wisconsin, came together to ask the PRC to "keep the cap".

The current rate setting process has limited the Postal Service to annual increases in rates, applied on a class basis, that do not exceed the CPI rate cap. The Postal Service has made it clear that it will be seeking relief from the cap in the rate review process. It is expected that postal labor will also urge the PRC to give the Postal Service authority to raise its rates and prices higher than the rate of inflation. It is anticipated that most mailers, mail associations, mail service providers and businesses that depend on the Postal Service will seek to keep the cap.

The combined comments of SMC, free papers and SBLC argue that the cap is working. Before the cap, the Postal Service could simply announce its revenue requirement and the PRC and stakeholders all were required to "duke it out" in a zero sum game fighting over the rates each type of mail would pay. The comments point out that the type of shared mail programs done by our members are very competitive and price elastic. When a price increase of "X' is passed on to customers, it often leads to a "2X" loss of business. The current rate setting system is achieving the objectives of the law. Our comments stated, "If it ain't broke, don't fix it."

The comments stress that the Postal Service is performing well in terms of its controllable and operating expenses. The unreasonable cost burdens of PAEA, including the pie-in-the-sky pre-funding healthcare requirement, are structural problems with the law that can not and should not be fixed by giving the Postal Service more latitude to raise prices. The comments show support for postal reform and urge the Commission to not try to fix, with greater pricing flexibility or the right for the Postal Service to raise rates, structural problems with the law that are better addressed by Congress.

The Postal Service has announced it will argue that the current system does not give it pricing flexibility. However, the comments point out that the annual pricing calendar and CPI system have worked well. Mailers and advertisers that depend on the mail have come to expect modest annual adjustments. During the calendar year the Postal Service and businesses can discuss, explore, and plan for promotions, operations, or classification changes. This gives the Postal Service flexibility in proposing rule or rule changes, and making rate adjustments, on a faster track than prior law. It is a cycle that works for the Postal Service, its customers, and the many stakeholders that are part of the mailing industry.

SMC and the free papers pointed out that they are unique users of the mail. The rate cap system has helped them win and keep customers in the mail. The comments note that shared mailers and free papers that mail inevitably have postage as the highest fixed cost. These mailers spend anywhere from 20% to 50% of every dollar of gross income on postage. But selling the mail and print is not always easy. The comments state "Our members are constantly fighting the perception that "print is dead" and the "whiz-bang allure of digital." Mailers and free paper publishers are often working against a marketplace bias that mail and print is "old school" or is "too expensive".

In creating and developing the comments, input from SMC members and the members of various free paper associations was taken into account. Comments from contributors stressed the price resistance of big and small advertisers to rate hikes. Large advertisers will simply announce that they have a fixed budget and will not pay more. In the face of a rate increase, large advertisers will adjust their mail mix. The comments warn that any perception of a larger than "average" or market-based price increase can be a catalyst to drive larger advertisers to adjust their media buy to the disadvantage of print and mail.

A compelling comment about small business came from a free paper publisher. The comments note, "For small businesses, advertising expense is generally seen as a discretionary item. When there is a price increase, small business owners see the increase as coming out of their pocket or lifestyle. When choosing between paying more for advertising or lifestyle, lifestyle wins. When price increases are passed on to the small business, the advertising response is predictable." The comments warn that small business advertisers don't pay more; they simply skip an ad, downsize on the size or frequency of advertising, or use this as an excuse to try other media.

The comments conclude that the rate cap mechanism is working exceedingly well to help mailers and mail stakeholders plan their business, stay in business, and remain mail customers. The rate cap mechanism has spurred the Postal Service to make needed changes in its network and work force. It has contributed to efforts to focus on new products, promotions, and efforts to retain customers and volumes that were not seen under the prior "we can charge what we want" rate setting process.

The comments conclude by asking the PRC to find that the current rate-making system is fulfilling the objectives of the law, and that no further rule making or proceedings are needed.
The Commission began considering the comments of all parties after the March 20, 2017 deadline. If the Commission finds that changes in the rate setting process are desirable or warranted, it is expected that a separate formal rule-making proceeding will be announced and that the Postal Service and other stakeholders will have a chance to comment, make suggestions, or oppose suggestions at that time.

Additional updates on the comments filed by others and the status of the proceedings will be covered in future articles.


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