US regulators told to look again at USPS postal rate rise request

Judges have ordered federal regulators in the United States to go back and look again at how the US Postal Service can use the recent recession as a reason to raise stamp prices above the rate of inflation. The ruling in the so-called “exigent rate case” came this morning from the US Court of Appeals for the District of Columbia Circuit.

It related to a request by the Postal Service, refused last September by the Postal Regulatory Commission, to raise postal rates by 5.6% to help stem multi-billion dollar annual losses resulting from declining mail volumes.

Today, Judge Karen Henderson partially denied, but partially granted the appeal from the US Postal Service against the Commission’s rejection of its price proposals.

However, a spokesman for the Commission told Post&Parcel this afternoon that the regulators are now waiting for a formal mandate from the court detailing exactly what they have to do to comply with the judge’s decision.

CPI Cap

Under US law, the Postal Service cannot raise postal rates for its monopoly postal services by an amount above the rate of inflation, as measured by the Consumer Price Index (CPI) – unless there are exceptional or “exigent” circumstances requiring a bigger price rise.

The Postal Service said last year that the recession, and subsequent impact on mail volumes, represented “exigent” circumstances that should allow an inflation-busting price rise.

The independent Commission, however, said that it wasn’t just the recession that had led to the Postal Service posting multi-billion dollar losses each year.

Today’s verdict from Judge Henderson agreed with the Commission that under the most recent federal postal legislation, the 2006 Postal Accountability and Enhancement Act (PAEA), there did have to be “exceptional circumstances” for the Postal Service to bust its CPI-based annual cap on postal rate increases.

But, the judge said the law was ambiguous on exactly how closely an exigent price rise proposal had to match the financial impact on USPS from the exigent circumstances, and it was now up to the Commission to fill in the gaps in the wording from Congress.

“Incorrect”

Henderson said that the Commission had “incorrectly” suggested that the law required the postal rate rise proposal to exactly match the financial impact on USPS caused by the recession.

The regulators therefore could not have properly rejected the proposed price adjustments, said the judge.

“It would not be incorrect to say that the requested rate increase is ‘due to’ the extraordinary factor simply because it is also ‘due to’ other factors as well,” the judge ruled.

The Commission has now been ordered to determine how closely the amount of the USPS postal rate rise must match the amount of revenue lost by the Postal Service due to the declining mail revenues.

Since 2006, when the last major postal law was adopted, mail volumes in the United States have dropped by about 20% to around 170bn pieces a year.

Postal Regulatory Commission Norm Scherstrom said this afternoon that the regulators were now waiting for the exact instructions from the court on what must be done with the exigent rate proposal. He said the Commission was happy the court had agreed with its view on the causality that must be shown by USPS for an exigent rate rise.

However, he said the legal process meant the Commission would now have to carry out the instructions in the forthcoming mandate from the court, rather than the wording of the judge’s ruling issued this morning.

“We expect to receive something from the court telling us exactly what they want us to do,” he explained. Regarding how long it might take to resolve the issue, he said it depended on exactly what the mandate required, but added: “We will respond to this as expeditiously as we can, but this doesn’t look as though it is an open or shut case.”

Joanne Veto, a spokesperson for the US Postal Service, said this afternoon that USPS was “encouraged” by the court’s opinion.

“We are encouraged by the Court’s decision to return the exigent filing to the PRC for further consideration.

“While we continue to evaluate the Court’s opinion and ruling to understand the full implications and options it presents to the Postal Service, we have renewed confidence that we are entitled to a rate increase under the exigency provision,” the USPS spokesperson added.