This past Friday the U.S. Court of Appeals for the District of Columbia issued its long awaited ruling regarding the future of the exigent postage rates. The court agreed with the Postal Regulatory Commission’s (PRC) finding that the emergency rates could not be made permanent. However, it also questioned the PRC’s methodology for calculating the revenue loss that could be attributed to the Great Recession. The result of this ruling is that the exigent rates, which were anticipated to be rolled-back as early as this summer, will likely continue in place into at least early 2016.
A Little Background on Exigent Postage Rates
The PRC determined in December 2013 that the recession constituted extraordinary financial circumstances and that the Postal Service had lost $3.2 billion in revenue “due to” these circumstances. It therefore granted the Postal Service a 4.3% “exigent” (emergency, non CPI-based) rate increase that would remain in effect until the lost revenue was recovered.
Two appeals were filed regarding this PRC decision. The mailing industry argued that the recession didn’t meet the legal definition of an exigent circumstance and opposed granting any increase, while the Postal Service contended that the losses were ongoing and the exigent postage rates should be permanent. The appeals were argued before the court in September 2014. Although an expedited ruling had been requested and expected, it was only last week that the ruling was announced.
The Postal Service has been tracking revenue attributable to the exigent postage rate increase and is expected to reach the allowed amount later this summer. The agency has now filed a request with the PRC to suspend the process for exigent surcharge removal until issues raised in the court’s ruling are resolved.
What the Court Found – “Count Once” Rule is Arbitrary
The court upheld much of the PRC’s original decision, agreeing with the commission that the recession qualified as an exigent circumstance for which an emergency rate increase could be granted. The court also agreed with the PRC’s finding that the emergency rates should not become permanent, but should only cover losses suffered by the USPS until it had time to adjust its operations to the “new normal” of lower volumes.
The court, however, did question the PRC’s methodology for calculating when the Postal Service should have adjusted to the “new normal” and therefore, the amount of loss to be compensated. Specifically, the court took issue with the “count once” rule put forward by the commission. Under the “count once” rule volume loss was only counted in the year in which it occurred, but not in subsequent years. The Postal Service had argued that the calculations should carry forward losses from one year to the next. For example, volume losses suffered in 2008 should be counted again in 2009, as they still constituted lost volume to the agency.
The court’s opinion found that counting volume losses in only the year they occurred was “arbitrary,” especially since the “new normal” rule was “well-reasoned and grounded in the evidence before the Commission.” Based on the “new normal” rule, the court remanded the ruling back to the PRC for the commission to review how long volume and revenue losses should be counted based on when the Postal Service should have adjusted to this “new normal.”
Where Do We Go from Here?
The PRC must now hold proceedings to consider the issues raised in calculating the amount of revenue the Postal Service will be allowed to collect from the exigent postage rates. The minimum amount of additional revenue that could be granted to the Postal Service based on revised calculations is estimated to be about $1.4 billion. This could mean about an eight month additional collection of the current 4.3% surcharge, pushing any roll-back of these rates into the spring of 2016.
It is unclear whether the PRC will be able to complete their reconsideration of the amount of revenue to be allowed the Postal Service before the current surcharge expires. This leaves open the question of whether the commission will choose to leave the current surcharge in place until resolution is reached, or whether the PRC will allow the current surcharge to expire over the summer and re-impose a new surcharge when the new revenue figure is determined.
We strongly encourage the Postal Regulatory Commission to act expeditiously to resolve this situation and to do so with the least rate disruption for all stakeholders. A year of what others have deemed “roller coaster postage rates” is in no one’s interest. For the mailing industry to continue to thrive we need rate stability, not continued uncertainty about what is going to happen next.
Stay tuned to SpeakingDIRECT. We will continue to bring you updates as this saga continues to unfold.
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