PRC: Postage Hike Exceeds Limit on Worksharing Discounts

Although a review by the Postal Regulatory Commission (PRC) of proposed USPS postage increases found that the rate hikes are within the price cap permitted by 2006 postal reform legislation, there was another less publicized — but highly significant — conclusion:

The proposed rates include a worksharing discount that exceeds the limits allowed under the law and amounts to an astounding 557.8 percent of postal savings.

The PRC found that the proposed discount of 1.4 cents for applying a barcode to certain Standard Mail letters would save the Postal Service just 0.3 cents, and instructed the Postal Service to adjust its rates to bring the discount for non-automation machinable mixed AADC Standard Mail letters into compliance with the statute.

Under the Postal Accountability and Enhancement Act (PAEA), worksharing discounts may not exceed the costs saved by the Postal Service when pre-sorting or bar-coding is performed by mailers.

14 Discounts Examined 

During its review of the proposed rates, the PRC sought additional written justification from the Postal Service for 14 workshare discounts. And in the March 17 decision, the PRC promised greater scrutiny of workshare discounts in the future. “The claim of ‘no reliable cost avoidance data’ is not a long-term justification,” the commission wrote. “It is incumbent on the Postal Service to study this issue and obtain usable data.”

“Whenever it files a notice of rate adjustment, the Postal Service must, pursuant to Commission’s rules provide separate justification for all proposed workshare discounts that exceed avoided costs,” the PRC found. In future rate cases “the Postal Service must satisfy the rules and provide a more complete justification for any excess passthroughs.”

The commission noted that in the 2008 rate proposal, the Postal Service identified six standard-mail discounts that exceed 100 percent. They are:

1. Non-automation machinable mixed automated area distribution center (AADC) letters to automation mixed AADC letters, which has a proposed passthrough of 557.8 percent; 

2. Non-automation mixed area distribution center (ADC) flats to automation mixed ADS flats, which has a proposed passthrough of 265.2 percent; 

3. Mixed bulk mail center (BMC) machinable parcels to BMC machinable parcels, which has a proposed passthrough of 115.9 percent; 

4. BMC machinable parcels to 5-digit machinable parcels, which has a proposed passthrough of 116 percent; 

5. The destination delivery unit (DDU) discount for parcels and not-flat machinables (NFMs), which has a proposed passthrough of 123.9 percent; 

6. The barcode surcharge for parcels and NFMs, which has a proposed passthrough of 161.3 percent. 

Discounts that exceed 100 percent also are offered for first-class 5-digit automation letters, as well as media/library mail and bound printed matter mail.

The PRC recommended minor price adjustments to the 557.8 percent discount that would allow the price changes to go into effect as scheduled, on May 12. The commission rejected the USPS assertion that a smaller discount would not encourage mailers to pre-barcode their mail. “If the Postal Service can provide a service at a lower cost than a mailer, it should be the entity providing that service,” the commission wrote.

Outrageous, Misleading 

“The PRC found that the USPS proposal would have offered a discount that is far above the savings the Postal Service would receive from worksharing,” said APWU President William Burrus. “This is an outrageous attempt to subsidize big advertising mailers at the expense of the USPS.

“The 2008 PRC ruling is Exhibit #1 in exposing the unhealthy relationship between postal management and influential large mailers,” Burrus wrote in a message to APWU members.

During the battle over postal reform legislation, the APWU fought to include the limitation on workshare discounts in the new law, which is designed to prevent the Postal Service from favoring large mailers at the expense of individuals and small businesses. The APWU has long asserted that many USPS worksharing discounts are excessive, and that they result in rates for major mailers that are artificially low, and rates for individuals and small businesses that are unnecessarily high.

“We will continue to insist that discounts must be based on sound economic principles — for the good of the Postal Service, for our members, and for the American public,” Burrus said.