SENATOR COLLINS URGES POSTAL REGULATORY COMMISSION TO REJECT PROPOSED RATE HIKES

Senator Collins Says Postal Service Fails to Meet Requirements for Exigent Rate Case

WASHINGTON, D.C. — Senator Susan Collins, Ranking Member of the Senate Homeland Security and Governmental Affairs Committee, is urging the Postal Regulatory Commission (PRC) to reject the U.S. Postal Service's proposed exigent rate case that would increase an array of postal rates.
 
            In a comment filed today with the PRC, Senator Collins wrote that "the Postal Service’s current financial condition is largely the result of its own failure to sufficiently update its business model to adapt to predictable and natural cyclical changes in the economy and mail usage.  The Postal Service’s financial condition is not the result of ‘extraordinary or exceptional circumstances’ required by law to initiate an exigent rate case.”
 
            Senator Collins, author of the Postal Accountability and Enhancement Act which was signed into law in 2006, said the law grants the Postal Service limited authority to file an exigent rate case; however, in its current proposal before the PRC, none of the circumstances listed qualifies as “exceptional or extraordinary.” The exigent rate hikes proposed by the Postal Service would far exceed the rate of inflation, averaging between four and six percent, and would be as high as 23 percent for one class of mail.
 
            Exigent rate cases are intended to address a significant national emergency, such as a terrorist attack, natural disaster or other major event, which would interrupt daily business operations of the Postal Service.
 
            Such emergency situations must “cause significant and substantial declines in mail volume or increases in operating costs that the Postal Service cannot reasonably be expected to adjust to in the normal course of business,” Senator Collins wrote in her letter.  "As the author of the exigent rate authority, I can attest that the provision was not intended to be used under the current circumstances."
 
            The full text of Senator Collins’ letter to the PRC follows; the full letter with attachments is available at the PRC Web site at http://www.prc.gov/Docs/69/69602/Comments_of_Senator_Collins.pdf
 
August 9, 2010
 
Sent via Online Filing at www.prc.gov
 
Ms. Shoshana Grove
Commission Secretary
Postal Regulatory Commission
901 New York Avenue NW, Suite 200
Washington, D.C.  20268-0001
 
RE: Docket No. R2010-4, Rate Adjustment Due to Extraordinary or Exceptional Circumstances
 
Dear Ms. Grove:
 
The purpose of this letter is to comment on the circumstances under which an exigent rate case is authorized under current law.  As the author of the Postal Accountability and Enhancement Act of 2006 (PAEA), which grants the Postal Service the limited authority to file an exigent rate case, I want to make the congressional intent regarding the provision completely unambiguous as the Postal Regulatory Commission considers the pending Postal Service request.  Neither the language nor the legislative history of the PAEA authorizes the United States Postal Service to file an exigent rate case under the current circumstances.
 
During the 2007 rulemaking process for the exigent rate case authority, Senator Tom Carper and I sent a letter to the Postal Regulatory Commission (PRC) explaining that the exigent rate authority in the PAEA was intended to be used sparingly.  (Attachment 1).  Specifically, the letter explained that the “extraordinary or exceptional circumstances” required to initiate an exigent rate case under the PAEA exist only if “terrorist attacks, natural disasters, and other events … cause significant and substantial declines in mail volume or increases in operating costs that the Postal Service cannot reasonably be expected to adjust to in the normal course of business.”
 
This letter lays out the express intent of the legislation, along with supporting legislative history.  I urge the PRC to rely on it as you consider the Postal Service’s request.  As the author of the exigent rate authority, I can attest that the provision was not intended to be used under the current circumstances.  Indeed, the Postal Service’s current financial condition is largely the result of its own failure to sufficiently update its business model to adapt to predictable and natural cyclical changes in the economy and mail usage.  The Postal Service’s financial condition is not the result of “extraordinary or exceptional circumstances” required by law to initiate an exigent rate case.  As such, I urge the PRC to dismiss the case. 
 
Basis of Exigent Rate Case Authority
 
            In 2003, the PAEA created a rate-ceiling mechanism that allows prices for non-competitive products to be adjusted upward within the strict limit of the Consumer Price Index (CPI), averaged over the prior 12 months.  This rate cap was based on a recommendation the President’s Commission on the United States Postal Service (“the Commission”) included in its 2003 report to Congress.  The Commission recommended that the ceiling be set below inflation in order to restrict revenue growth to motivate the Postal Service to pursue a far higher standard of efficiency.  (Attachment 2).  Ultimately, the PAEA set the cap at inflation, but the intent remains clear – the cap, in addition to creating stability and predictability, was set to induce the Postal Service to improve its business model and, ultimately, its effectiveness. 
 
            Recognizing the need for some degree of flexibility in extreme circumstances given the price cap, I included the provisions in the PAEA to allow the Postal Service to file an exigent rate case with the PRC.  This provision, which allows the rates for market-dominant products to exceed CPI, was intended to provide the Postal Service with an extremely limited safety valve.  The exigent rate case authority could only be used under “extraordinary or exceptional circumstances.”  Moreover, even if the strict standard were met, the proposed rate increases also must be “reasonable and equitable and necessary to enable the Postal Service…to maintain and continue the development of postal services to the kind of quality adapted to the needs of the United States.” 
 
            Prior to enactment of the PAEA, I included a similar provision in a 2004 postal reform bill.  See S. 2468 (104th Congress).  As then-PRC Chairman George Omas stated in 2004 testimony before the Senate Governmental Affairs Committee (which I chaired), the availability of exigent rate authority “represents an enormous exception to the general thrust of postal ratemaking reform….”  Chairman Omas further explained why any exigent rate authority granted must be available only under limited circumstances: “A mechanism for regularly exceeding the rate levels around which postal management is expected to make its operational plans could completely undermine this central objective [of ratemaking reform].”  (Attachment 3 (Emphasis Added)).  The Committee report for the 2004 version of the postal reform bill makes clear that exigent rate authority is intended to be used only for unexpected and extraordinary circumstances.  (Attachment 4).  The report further states that “The Committee hopes that these procedures will never be needed; however, it would be unwise not to recognize the potential need for rapid changes to the postal rate structure in the event of a national emergency.”  (Emphasis added).  These were the standards I applied in drafting the 2004 version of postal reform – standards I incorporated when we revisited postal reform in the next Congress.
 
Purpose of Exigent Rate Case Authority
 
            When drafting the exigent rate case authority provision for the PAEA, I intended the provision to be used only in truly “extraordinary or exceptional” circumstances.  As Congress considered postal reform in the 109th Congress, there was significant debate and discussion about the appropriate standard for allowing exigent rate changes.  The Postal Service Board of Governors advocated for a lower standard – a standard similar to the “reasonable and necessary” authority included in a House-passed version of the postal reform bill.  See H.R. 22 (109th Congress).  The Congress ultimately rejected this less demanding standard and adopted the Senate’s more stringent “extraordinary and exceptional circumstances” standard in the bill signed by the President.
 
            Given the adoption of the Senate exigent rate case standard, legislative history before the Committee on Homeland Security and Governmental Affairs (the successor to the Governmental Affairs Committee) is particularly instructive.  During a 2005 hearing before the Committee, the Assistant Secretary of the Treasury for Financial Markets testified in support of the Senate standard, explaining that it establishes a “very high bar to increase rates above CPI.”  (Attachment 5).
 
In 2006, when the exigent rate case authority was included in PAEA, it was intended to provide the Postal Service with an exception to the rate cap only when the Postal Service faces emergency situations.  The standard was set high purposely to avoid excessive use of the flexibility and to prevent use of exigent rate cases as a tool to circumvent the rigid rate cap.  Specifically, I envisioned that this authority would be limited to very few and extreme instances, such as terrorist attacks, the anthrax case, and natural disasters.  For example, the terrorist attacks of September 11, 2001, or the anthrax attacks later that year could serve as the basis for an exigent rate case. These events had profound effects on the Postal Service well outside normal business cycles.  No similar circumstances exist today.
 
Again, quoting former Chairman Omas during a 2004 Senate Governmental Affairs Committee hearing, “…exigent rate requests are appropriate to accommodate only those unanticipated cost increases that are truly extraordinary.  Variances in volume levels and ordinary recurring costs should not qualify as a source of ‘exigent’ circumstances; these are contingencies for which postal management can reasonably be expected to plan, and for which it must be expected to adjust.  Only those kinds of unexpected cost increases for which vigilant management could not reasonably have planned should provide grounds for ‘exigent’ rate requests.”  (Attachment 6). 
 
Application of Exigent Rate Case Authority to Current Circumstances
 
As the author of the PAEA, I can unequivocally state that the law does not provide for an exigent rate case based on the rationale that the Postal Service provides in its current exigency case filing.  The Postal Service attributes its need for an exigent rate increase to electronic diversion of the mail and the struggling economy.  As set forth above, these circumstances fail to meet the “extraordinary or exceptional circumstances” standard clearly specified in the PAEA. 
 
The  Commission recognized in its 2003 report that electronic diversion threatens to accelerate a long-term decline in mail use as communication trends toward electronic alternatives.  The Commission also identified that a weak economy is a cyclical factor that is a contributing threat to the Postal Service’s decline.  These factors are reasonably predictable.  When considering the PAEA over the course of the next three years, Congress was well aware of the fiscal challenges the Postal Service faced due to the cyclical nature of the economy and diversion of mail to electronic alternatives.  Nonetheless, the Committee chose not to cite these predictably challenging circumstances in its explanation of “extraordinary and exceptional circumstances” standard that applies to exigent rate cases.  As such, the legislative history does not support the Postal Service’s broad interpretation of the exigent rate case standard.
 
            Although the language of the PAEA and its legislative history make clear that the Postal Service lacks the authority to pursue this case, I would be remiss if I did not mention the effect such price increases would have on the Postal Service and mailing community.  After all, even if the Postal Service had the authority to pursue its exigent rate case (authority it lacks under these circumstances), the PRC is still required to consider whether the proposed exigent rate increases are “reasonable and equitable and necessary.”  The exigency rate increases proposed by the Postal Service in this case fail to meet these requirements as well.
 
Even as far back as 2003, the Commission recognized that “[f]ar more emphasis must be placed on restoring fiscal stability not by ratcheting up rates or scaling back service, but by aggressively rooting out inefficiencies throughout the Postal Service.”  (Attachment 7).  This exigent rate case defies that direction from the Commission.  Postmaster General John Potter himself acknowledged in a 2005 Homeland Security and Governmental Affairs Committee hearing, that, “Above all, we must have the ability to offer attractive and affordable rates.”  (Attachment 8).  Use of the exigent rate case as proposed by the Postal Service would not create affordable rates, which are essential to the Postal Service’s survival.
 
As you well know, the outcome of this case will have a significant effect on the $1 trillion mailing industry, which supports approximately 7.5 million jobs nationwide.  If approved, the rate increases would impose substantial costs on the mailing industry, would hurt small businesses and local newspapers, and undoubtedly would accelerate further decline in mail volume and revenues.  The Postal Service will permanently lose business from catalog companies, publishers, and others.  Some small newspapers may be forced to completely abandon their relationship with the Postal Service because of the increased costs, coupled with the possible decline in service proposed by the Postal Service. 
 
The PRC’s approval of an exigent rate increase under these circumstances would be inconsistent with the law and would undermine the intent of PAEA to provide predictability and stability in postal pricing.  In light of the express requirements of the statute and its supporting legislative history, I urge you to follow the letter of the law and reject the Postal Service’s exigent rate case proposal.
 
I appreciate your careful review and consideration of these matters. 
 
 
                                                Sincerely,
 
 
 
                                                Susan M. Collins
 
 
 
 
 
 
CC:      The Honorable Ruth Goldway, PRC Chairman
The Honorable Tony Hammond, PRC Vice Chairman
The Honorable Dan Blair, PRC Commissioner
The Honorable Mark Acton, PRC Commissioner
The Honorable Nanci Langley, Commissioner