Links to the resources mentioned in the podcast.
On today’s podcast, I discuss the Oral Arguments from the DC District Court hearing on September 13, a recently published white paper from the OIG on service standards, and the USPS proactive approach to scheduled and somewhat predictable future price increases.
Welcome to the podcast! Even though market dominant prices increased on August 29 with the largest percentage increase in years, we are still awaiting a final determination from the DC District Court on whether or not the PRC had the authority under Title 39, section 3622 to allow the USPS to exceed CPI-U as a price cap per class of mail.
As you may recall, the industry filed a stay of implementation earlier this year that was denied. An appeal was filed, and oral arguments were scheduled for September 13. Well, that recently occurred, and I listened to the roughly one hour and fifteen-minute hearing which included arguments from the industry, represented by Ayesha Kahn from Potomac Law Group, USPS lawyers, and the DOJ representing the decision of the PRC.
The basic summary of the hearing was that industry believes the PRC overstepped its authority under Title 39, section 3622 by effectively removing the CPI-U price cap through the introduction of the additional pricing adders, which I discussed in a prior podcast. The USPS, of course, appreciated the additional pricing authority but argued it didn’t go far enough and wanted even more pricing latitude. And the DOJ, in a somewhat surprising move, effectively said they stand by their position that they had the authority per the langue in Title 39 to exceed CPI and didn’t have any prepared remarks but were happy to answer any questions.
As I’ve noted before, I’m twelve years short of a law degree so I certainly am grossly underqualified to provide a legal position on this. However, I can say that the entire decision here seems to rest solely on a single sentence as part of Title 39, section 3622 d(3). Here is what this section specifically states.
Ten years after the date of enactment of the Postal Accountability and Enhancement Act and as appropriate thereafter, the Commission shall review the system for regulating rates and classes for market-dominant products established under this section to determine if the system is achieving the objectives in subsection (b), taking into account the factors in subsection (c). If the Commission determines, after notice and opportunity for public comment, that the system is not achieving the objectives in subsection (b), taking into account the factors in subsection (c), the Commission may, by regulation, make such modification or adopt such alternative system for regulating rates and classes for market-dominant products as necessary to achieve the objectives.
It is the second sentence in this paragraph that is the main point in all of this. The question for the DC District Court is simply this: Does the language in this Law allow the PRC to adopt an entirely different methodology including uncapped pricing authority as long as the objectives in section b are achieved? Well, let’s look at section b, which includes nine objectives:
- To maximize incentives to reduce costs and increase efficiency.
- To create predictability and stability in rates.
- To maintain high quality service standards established under section 3691.
- To allow the Postal Service pricing flexibility.
- To assure adequate revenues, including retained earnings, to maintain financial stability.
- To reduce the administrative burden and increase the transparency of the ratemaking process.
- To enhance mail security and deter terrorism.
- To establish and maintain a just and reasonable schedule for rates and classifications, however the objective under this paragraph shall not be construed to prohibit the Postal Service from making changes of unequal magnitude within, between, or among classes of mail.
- To allocate the total institutional costs of the Postal Service appropriately between market-dominant and competitive products.
As I’ve shared in a prior podcast, one of the major points of PAEA from the industry’s perspective was for predictability and stability in pricing. However, having a pricing methodology without a cap seems to go against this. Moreover, I am certainly many in the mailing industry would argue that the additional pricing adders provided by the PRC are not necessarily “just and reasonable”. Indeed, one of the positions of the industry is that the PRC’s changes were capricious.
In my opinion, it seems odd to me that Congress would intentionally delegate their authority through the language in 3622 d(3) to the PRC to effectively and completely change the Law of Title 39. If Congress wanted the PRC, after ten-years, to completely eliminate the price cap then perhaps they should have stated it more clearly in this section.
This is a major decision for the court to consider and it could have a significant impact on the entire mailing industry. However, we likely will not know a final decision until early next year. In the meantime, we need to move forward with the new prices including a market competitive increase that goes into effect October 1.
On a related note, though I’m not certain if the timing was tied to the oral arguments on September 13, the USPS filed a notice with the PRC on September 15 outlining a new cadence of price increases for market dominant products. Beginning in July of 2022, the USPS will file price adjustments twice per year in July and January. They are not changing market dominant prices in January of 2022 but will very likely file for a market competitive increase pending a Board of Governors and PRC approval.
Having a predictable cadence of price changes is important for the industry, especially software providers like BCC. It is also important for changes to industry specifications such as Mail.dat and Mail.XML. However, keep in mind that we will still likely have at least one Market Competitive increase as well for the fall mailing season. This gets us back to what I called a state of perpetual update as software providers will need to release at least four major updates each year – two market dominant changes and a roll-on and roll-off change for market competitive prices. So hang on folks, it will be a rollercoaster of releases going forward.
I also wanted to discuss a recent and very timely Primer on Service Standards published by the OIG. It is a brief 20 page paper that does an excellent job of explaining the importance of service standards, how they are determined, and the process for making changes to the standards.
Prior to implementation of the Delivering for America plan, the service standards for each class of mail were:
- Priority Mail: 1 – 3 days
- First-Class Mail: 1 – 3 days
- Marketing Mail: 3 – 10 days
- Periodicals: 3 – 9 days
- Package Services: 2-8 days
If the USPS wants to make changes to these standards, it begins with the Chief Logistics and Process Operations Officer who makes a recommendation to the USPS ELT. The Board of Governors then review and consider it and if they are in agreement, the PRC then offers an advisory opinion. The USPS needs to provide the PRC a 90-day notification before implementing any service standard changes, and indeed we are currently in that period of time with regards to First-Class Mail. The PRC is still considering the changes outlined in the Delivering for America plan. As a reminder, if implemented, serviced standards for First-Class Mail will range from one to five days, which could have a major impact on service level agreements for mail service providers or mail owners with legal requirements such as financial and insurance companies.
Finally, I want to remind everyone that Congress is still working on postal reform legislation. HR3076 in the House and S1720 in the Senate are still active and the House may begin moving forward on their bill soon. As such, it is important to make sure your voice is heard if you are in support of this Legislation and to that end, the National Postal Policy Council is actively working to finalize a draft letter for industry to sign onto showing support for this legislation. If passed, the Postal Reform Act of 2021 would merge USPS healthcare with Medicare and repeal the prefunded retiree requirement and that would in turn remove at least one of the pricing adders that the PRC introduced in their 10-year review. If you would like to know more about what NPPC is doing, I highly encourage you to visit their webpage at www.postalcouncil.org to learn more.
Thank you for listening to today’s podcast, and if you’d like to learn more about mail tracking, or how to better automate your mailing workflows, please visit us at BCCSoftware.com or give us a call. As always, we’d like to know “How can we help?” Thank you for listening to the podcast, and have a great day!