March 16, 2009

ORDER REVIEWING POSTAL SERVICE MARKET DOMINANT PRICE ADJUSTMENTS - DISSENTING OPINION OF COMMISSIONER GOLDWAY

On February 10, 2009, the Postal Service submitted to the PRC its plan to change rates for all its market dominant products. This is the second time the Commission has reviewed such adjustments under the regulatory authority established by the Postal Accountability and Enhancement Act of 2006 (PAEA). The Commission authorizes all proposed rate adjustments except the new Confirm annual fees for mailing agents to take effect.

PRC Commissioner Ruth Goldway dissented - her remarks, in part, are listed below. Notice that Commissioner Goldway compares USPS financial problems to the banking industry.

DISSENTING OPINION OF COMMISSIONER GOLDWAY

The First-Class Mail prices proposed by the Postal Service fail to comply with the statutorily imposed workshare requirements of 39 U.S.C. § 3622(e), when analyzed under the established analytical methodology. To circumvent this problem, the Postal Service employs a different analytical methodology, which effectively delinks singlepiece
First-Class Mail prices from presort First-Class Mail prices.

This unilateral decision on the part of the Postal Service is far reaching in that it directly influences the design of economically efficient rates, the distribution of hundreds of millions of dollars in workshare discounts, and potentially could lead to Postal Service decisions that place an unequal, and potentially unfair, price burden on single-piece mailers. I believe that major methodological changes should not be made in a vacuum without thorough
review, including the consideration of the view of those that use the mail.

It strikes me that there are close parallels between what is happening to the Postal Service financially, and what has been happening to the banking industry. The banking industry was given wide discretion to lend how and on what terms it chose. The assumption was that this was safe because the managers’ discretion would be bounded by certain basic principles (e.g., that investors would have knowledge of the kind of securities marketed, and the risks would be publicly known either through an SEC filing or prospectus) and accountability would be provided by a diligent board of directors.

It is now clear that these basic principles and institutional safeguards were allowed to become mere window dressing. I fear this to be the direction in which postal regulation is headed. Congress intended that there be a certain economic “rhyme and reason” to both class prices and product discounts; hence, provisions such as section 3622(c)(2) (attributable cost floor) and section 3622(e) (discounts match avoided costs). Are these on the way to becoming window dressing? The uneconomic approach to rate setting can be a factor contributing to the Postal Service slide into financial distress.

NOTE: PRC decision here > http://prc.gov/Docs/62/62705/Order_No_191.pdf

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