Court backs regulator’s demand for USPS mail product to cover costs

The US Court of Appeals has ruled that regulators do have the power to require the US Postal Service to increase rates for its Standard Mail Flats service to cover its costs. But, the order from the US Court of Appeals for the District of Columbia has asked the Postal Regulatory Commission to go back and clarify exactly what the Postal Service must do to cover the costs of the loss-making product, which includes items like large envelopes, catalogues and circulars from businesses.

The ruling issued on Tuesday (April 17) came following a legal challenge by USPS against an order made at the end of March 2011 for an increase in rates for Standard Mail Flats so that other mailers were not effectively subsidising the customers of the loss-making product.

Income from the flats service was only covering 82% of the costs needed to run the service, but USPS executives are reluctant to increase prices from fear of driving major customers away from using the mail. The Commission found that in 2010, the flats service was making a $577m loss.

The USPS challenge questioned whether the Commission could single out a certain product in demanding cost coverage, or whether US postal law only allowed the regulators to require that a whole class of mail products (in this case Standard Mail) cover its costs.

The Appeals Court this week determined that the Commission did interpret the law correctly in calling for a single product to cover its costs.

“Arbitrary”

However, a second component of the USPS challenge did not go the Commission’s way. USPS had also suggested that because the Commission wasn’t making similar demands on other loss-making mail products like non-machinable flats, which are covering only 78% of their costs, its order was “arbitrary and capricious”.

The Commission had argued that its ruling on Standard Mail Flats had been because of its “extreme” deficiency in cost coverage.

The Appeals Court decided there was some merit in the USPS argument on this point, asking the Commission to go back and clarify its policy on products covering their costs, and what level of cost-coverage deficiency could be considered no longer “extreme”.

Summing up, the Court stated in its ruling: “We think that the Commission acted within its statutory authority but remand for an explanation of the relation between its remedy, on one hand, and its treatment of other products and indeed the bounds of its authority, on the other.”

Following the ruling, the Court will produce a full instructional mandate to the Commission within the next six weeks or so, detailing exactly what is expected of the regulators.

The Commission told Post&Parcel today that it would be waiting to review this expected mandate before deciding on the next step.

Ann Fisher, the director of public affairs and government relations at the Commission, said: “We’re pleased that the Court affirmed our interpretation of the statute. We will wait for the Court’s mandate, which should be issued in approximately 45 days, before deciding what steps to take to clarify, consistent with the court’s opinion, the Commission’s order to remedy Standard Mail Flats rates.”