February 2002

R2001-1 Omnibus Rate Case Update — Settlement Agreement Reached

The Postal Service has reached a settlement agreement with 56 out of 62 participants in the pending postal rate case at the Postal Rate Commission (Docket No. R2001-1). The settlement would raise postal rates in late June – three months earlier than originally expected. Parties agreeing to settle include major customers and trade associations, as well as competitors. Only one party has opposed the settlement agreement.

The Board of Governors approved the filing of the omnibus rate case just before the terrorist attacks on September 11 and the subsequent anthrax mailings. The independent Rate Commission suggested settling the case in light of those events, which have combined with a slowing economy to produce a negative impact on the Postal Service’s bottom line. It is estimated that the rate increase under the settlement proposal would generate approximately an additional $1 billion, compared to the revenue generated if the case were fully litigated. The additional revenue would result from implementing the proposed rate changes about three months earlier than possible under the original litigation schedule.

The ratemaking process typically takes more than a year to complete, with 10 months of proceedings at the Commission, during which it considers testimony from customers and others before issuing a recommended decision. When the current proposals were filed by the Postal Service, rates were not expected to increase prior to September 2002. The Commission began hearings to consider the Postal Service’s testimony in December of 2001, but rescheduled appearance of the Postal Service’s witnesses in light of the settlement agreement. As a result of settlement, hearings were substantially shortened. The Commission must still consider opposing testimony, and the settlement agreement remains subject to review and approval by the Commission and the Postal Service’s Governors. If the settlement is followed, the Commission could issue a recommended decision in time to implement rate and fee changes by June 30, 2002.

The settlement agreement adopted most of the rates and fees proposed by the Postal Service when it filed the case. As an example, the single-piece First-Class Mail rate under the settlement agreement would still increase from 34 cents to 37 cents. The settlement incorporated limited changes in the proposals for First-Class Mail letter automation rates, Qualified Business Reply Mail (QBRM) rates, Periodicals Outside-County rates, Standard Mail Enhanced Carrier Route (ECR) rates, and Package Services subclass Parcel Select rates. No changes were made to the rates originally proposed for Priority Mail, Express Mail, or special services. Following is a summary of the revisions embodied in the settlement agreement.

First-Class Mail

As compared to the USPS proposal, automation letter rates would decrease by $0.002 at the 3-digit ($0.294 to $0.292) and 5-digit ($0.280 to $0.278) presort levels, and the 3-digit automation sort would be required. The QBRM letter and card rate would decrease $0.005 from $0.345 to $0.34 and $0.205 to $0.20, respectively.

Periodicals

Separate nonadvertising pound rate discounts for destination delivery unit (DDU), destination sectional center facility (DSCF), destination area distribution center (DADC), and zones 1 & 2 would no longer be proposed. The agreement calls for the nonadvertising pound rate to be a uniform $0.193, regardless of entry.

A new $0.015 destination entry per-piece pallet discount is proposed and would apply to each addressed piece of nonletter mail (flat-size and irregular parcel) prepared in packages on any destination entry pallet of at least 250 pounds of mail. The pallet discount would not be available for pieces in sacks or trays on pallets.

Outside-County Periodicals advertising pound rates would be reduced from the original proposal by $0.001 to $0.002 depending on entry. Piece rates would increase by $0.004 for each presort level.

Standard Mail

The original proposal called for the maximum weight limit for Standard Mail regular automation letters to increase from 3.3 ounces to 3.5 ounces with special rate adjustment for automation letters exceeding 3.3 ounces. As part of the settlement agreement the maximum weight limit for regular and nonprofit ECR saturation and high density letters also would increase from 3.3 ounces to 3.5 ounces.

As compared to the USPS proposal, ECR saturation letter rates would decrease by $0.001 for all entry levels. For ECR piece/pound rates, the per-piece rate would be reduced from the USPS proposal by $0.003, and the per-pound rate would increase by $0.012 as compared to the USPS proposal.

Package Services

Only Parcel Select rates would be impacted as part of the settlement agreement. The settlement calls for all DDU rates to remain at today’s current rates. DSCF rates that were proposed to increase as part of the original proposal would remain at the proposed rates, and DSCF rates that were proposed to decrease would remain at today’s current rates. All destination bulk mail center (DBMC) rates would be reduced by 1.8 percent from the original proposal.

— Pricing and Classification