PRC Revises Proposals, Modifies Rate System for Classes of Market Dominant Products

The Postal Regulatory Commission (PRC) issued a revised notice of proposed rule-making aimed at modifying the system for regulating rates and classes for Market Dominant products. This revised rule-making takes into consideration comments received after the first rule-making in December 2017, and further consideration by the PRC. The Postal Accountability and Enhancement Act (PAEA) requires the PRC to review the first 10 years of the existing Market Dominant rate and classification system to determine if the system achieved the nine objectives, considering the 14 factors, established by Congress. The objectives reflect the goals of the PAEA to create a flexible, stable, predictable, and streamlined ratemaking system that ensures the Postal Service’s financial health and maintains high-quality service standards and performance. In its first order, the PRC determined that the overall system created by the PAEA had not achieved the objectives taking into account the factors of the PAEA and proposed to amend several parts of title 39 of the Code of Federal Regulations to achieve the objectives of 39 U.S.C. 3622(b).

In this revised rule-making, the PRC proposes new changes to the regulations and modifies and clarifies previous proposals. These revisions are intended to:

• Provide additional rate authority to address costs largely outside of the Postal Service’s control.
• Allow the Postal Service to achieve long-term financial stability and increase operational efficiency while maintaining high-quality service standards.
• Place the Postal Service on the path to having fully compensatory products and classes, as well as improving the financial integrity of the system while allowing for the continued achievement of goals relating to pricing flexibility, and establishing and maintaining just rates.
• Incentivize work share discounts to adhere as closely as possible to Efficient Component Pricing principles in order to help the ratemaking system maximize incentives to increase efficiency.
• Hold the Postal Service accountable for reporting its efforts to reduce costs within its control by establishing new cost reporting requirements. This is to incentivize the Postal Service to reduce costs and increase the transparency of the system.
• Improve the ratemaking process.

The primary revisions to the PRC's proposal include:

• The PRC modifies the proposed supplemental rate authority mechanism to address drivers of the Postal Service’s inability to achieve net income during the PAEA era. Instead of a singular, fixed amount of supplemental rate authority, the revised supplemental authority proposal includes a mechanism that targets two underlying drivers of the Postal Service’s net losses that are largely outside of its direct control: declining mail density and statutorily mandated amortization payments for particular retirement costs.
• The PRC adjusts the performance-based authority to retain the 1 percentage point of rate authority benchmark but modifies how the specific performance-based requirements for operational efficiency and service will be measured.
• The PRC makes revisions to the rules for non-compensatory products and classes, proposing that the use of an additional 2 percentage points of rate authority for non-compensatory classes be optional and removing the requirement that determinations be made in the Annual Compliance Determination proceeding.
• The PRC proposes revised rules for work sharing discounts that dispense with the 3-year grace period. The modifications separately address work share discounts set below avoided costs and work share discounts set above avoided costs and add new requirements that the Postal Service provide information and analysis specific to certain work share costs set excessively above or below avoided cost.
• The PRC proposes new reporting requirements for costs and cost-reduction initiatives in response to commenter concerns and in light of the revised proposals for additional rate authority. These reporting requirements address changes in unit costs, specific cost-reduction initiatives, and Decision Analysis Reports (DARs).
• The PRC proposes additional procedural rules related to planning rate adjustments of general applicability.

Source: Postal Regulatory Commission

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