1 KENTUCKY PRESS ASSOCIATION Postal Regulatory
Description: 1 KENTUCKY PRESS ASSOCIATION Postal Regulatory Update Mark Acton Vice-Chairman, Postal Regulatory Commission January 21, 2011 Word of Thanks David Thompson, Executive Director Kentucky Press Association 2 Summary of Discussion United States
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slide1. 1 KENTUCKY PRESS ASSOCIATION Postal Regulatory Update Mark Acton
Vice-Chairman, Postal Regulatory Commission
January 21, 2011<br>
slide2. Word of Thanks David Thompson, Executive Director Kentucky Press Association 2<br>
slide3. Summary of Discussion United States Postal Service (USPS) and Postal Regulatory Commission (PRC)
USPS Plan
Envisioning America’s Future Postal Service
Significant Recent PRC Activity
Change in Frequency of Delivery: 6 to 5 days (limited discussion)
Elimination of Saturday delivery
Exigent Rate Case 3<br>
slide4. Summary of Discussion PRC Reports on USPS Workforce Legacy Costs
PRC Review of Postal Service Retiree Health Benefit Fund Liability
PRC Pension Cost Special Study 4<br>
slide5. U.S. Postal Service Self-supporting government enterprise
Linchpin of $1 trillion mailing industry
Workforce of 600,000
Only delivery service that reaches every address in the nation
150 million residences, businesses and post office boxes
Annual revenue more than $67 B
USPS relies on the sale of postage, products and services to fund operations
no taxpayer funding
Delivers nearly 40% of the world’s mail
Retail network of 32,000 locations
usps.com the most frequently visited federal government website
If a private company, would rank 29th in Fortune 500 5<br>
slide6. Postal Regulatory Commission Executive Branch agency charged by the President and Congress to provide independent federal regulatory oversight for the USPS
5 Commissioners, each appointed to a 6-year term by the President and confirmed by the Senate
Agency Chairman designated by President
No more than 3 members of the Commission may be from the same political party 6<br>
slide7. Postal Regulatory Commission Mission: Ensure the transparency and accountability of the Postal Service and foster a vital and effective universal mail system
Develop and maintain regulations for a modern system of rate regulation
Consumer Price Index (CPI) cap
Consult with the Postal Service on delivery service standards and performance measures
Prevent cross-subsidization & other anticompetitive postal practices
Promote transparency & accountability, & adjudicate complaints
Consult with the State Department concerning international postal policies 7<br>
slide8. USPS Plan: Envisioning America’s Future Postal Service March 2, 2010 -- Postal Service unveils plan:
Concerted Government Affairs/Public Relations Initiative
USPS projects mail volume will continue to shrink: 177 B pieces (2009) to 150 B (2020)
Competition (UPS and FedEx)
Economic recession
Electronic diversion 8<br>
slide9. USPS: “Envisioning America’s Future Postal Service” Loss of $8.5 billion in 2010
No action -- cumulative shortfall of $238 billion by 2020
As much as $123 billion in savings during that same time period through aggressive cost cutting and increased productivity
Even so, “Estimated $115 billion shortfall will remain” (USPS) 9<br>
slide10. USPS: “Envisioning America’s Future Postal Service” What is the USPS Action Plan?
Regulatory and legislative relief highlights:
Adjust delivery days to “better reflect current mail volumes and customer habits”
Exigent rate case
Restructure RHB payments and address overpayments to CSRS fund 10<br>
slide11. Change in Delivery Frequency: 6 to 5 days March 30, 2010: USPS filed request with the Commission for an Advisory Opinion for the elimination of Saturday delivery
“A change in frequency, not a change in service”
Discontinue Saturday residential and business delivery/collections
No mail pick-up from blue collection boxes
Post Offices usually open on Saturday remain open 11<br>
slide12. Change in Delivery Frequency: 6 to 5 days PRC is “watchdog agency” protecting USPS’s Universal Service Obligation to Nation
One of the most significant changes the Postal Service has ever presented to the Commission 12<br>
slide13. Change in Delivery Frequency: 6 to 5 days Public, on-the-record PRC hearings and proceedings analyzing and cross-examining USPS proposal and supporting evidence
During the process, mail users and interested members of the public offer supporting or opposing views, both informally and as part of more formal, technical presentations 13<br>
slide14. Change in Delivery Frequency: 6 to 5 days Witnesses for the record regarding impact on rural newspaper delivery
Max Heath, Postal Committee Chairman of the National Newspaper Association
an engaged and informed participant in the postal regulatory process
Al Cross, UK professor & Executive Director of the Institute for Rural Journalism and Community Life 14<br>
slide15. Change in Delivery Frequency: 6 to 5 days The Commission conducted 7 field hearings:
Dallas, Sacramento, Chicago, Memphis, Las Vegas, Rapid City and Buffalo
Field hearings transcripts: Posted at www.prc.gov
Solicited public comments via our website
Response was exceptional – over 12,000 letters and e-mails
Advisory Opinion is nearing completion
No statutory deadline
The exigent rate case took priority 15<br>
slide16. Exigent Rate Case On July 6, 2010 the Postal Service filed with the PRC a request for an exigent rate adjustment
Pierce the rate cap
5.6% average increase
New rates were to have been implemented in January, 2011 16<br>
slide17. Exigent Rate Case USPS proposal must: (39 USC 3622(d)(1)(E))
Describe the “extraordinary or exceptional” exigent circumstances and show why they necessitate the increase,
Show that the proposed rates are reasonable and equitable, and
Describe circumstances under which the increases could be rescinded or reduced 17<br>
slide18. Exigent Rate Case PRC established a docket to provide for public comment and has conducted hearings on the record
Interested parties were encouraged to participate in building the record and suggesting relevant questions to the PRC for the USPS to answer during the course of these hearings
Commission issued its decision September 30, 2010 several days ahead of its October 4 statutory deadline. 18<br>
slide19. USPS Proposed Rates Would Not Remedy “Exigent” Circumstances After a careful review and in a unanimous and bipartisan vote, the Commission found that the Postal Service failed to meet the legal requirements for an exception to the rate cap
Commission found USPS fiscal difficulties a function of an unsustainable business model, not the national economic recession
The Commission’s decision affirmed the fundamental importance of the statutory price cap in protecting postal consumers and promoting Postal Service efficiency 19<br>
slide20. USPS Workforce Legacy Costs PRC Reports PRC Review of USPS Retiree Health Benefit Fund Liability
PRC Special Study (SS2010-1) USPS Civil Service Retirement System (CSRS) Pension Funding 20<br>
slide21. PRC Review of USPS Retiree Health Benefit Fund Liability The need to restructure retiree health benefit prefunding requirement is by far the most important aspect of USPS Action Plan – Joe Corbett, USPS CFO, in testimony before the PRC regarding exigent rate request
Request on June 15, 2009 by Chairman Stephen F. Lynch, Subcommittee on Federal Workforce, Postal Service and the District of Columbia, Committee on Oversight and Government Reform, U.S. House of Representatives:
Consultant was Mercer Health and Benefits LLC
PRC presented its report to the Subcommittee July 30, 2009
OPM: $5.5 billion (present annual USPS expense)
PRC: $3.4 billion ($2.1 billion annual savings)
Annual Payments to Achieve 73% Funded Status 21<br>
slide22. PRC Special Study (SS2010-1) USPS CSRS Pension Funding 39 USC 802(c): The Commission, upon request of USPS, procures service of an actuary qualified to evaluate pension obligations to conduct a review in accordance with generally accepted actuarial practices and principles and provide a report to the Commission containing the results of the review
Per USPS request of February 23, 2010, PRC established Docket SS2010-1 to conduct a review of the Civil Service Retirement System (CSRS) pension liability of USPS 22<br>
slide23. PRC Special Study (SS2010-1) USPS CSRS Pension Funding PRC selected the Segal Company, a certified actuarial firm, to conduct the study
PRC reviewed Segal’s report and on June 30, 2010 submitted our findings to USPS, Congress and OPM
Overpayment to CSRS Funds $50-55 billion
PRC endorsed adoption of a more modern, fair and equitable accounting methodology as promoted by Financial Accounting Standards Board 23<br>
slide24. PRC Special Study (SS2010-1) USPS CSRS Pension Funding Necessary follow-up
Office of Personnel Management (OPM) responsible for calculating the Postal Service’s CSRS pension liability
OPM emphasizes that their methodology is lawful and the need for Congress to direct another approach
Legislation proposed fall 2010
Would have required OPM to recalculate CSRS fund payments, but provides no relief from annual REHB payments mandated by PAEA
New Congress . . . new bill? 24<br>
slide25. Chairman’s Letter, Annual Compliance Determination The Commission looks forward to participating actively with the public and Congress in the exploration of the Postal Service’s retiree healthcare benefit funding, pension funding, strategies to reduce costs and improve customer service, and opportunities to expand products and services. 25<br>
slide26. www.prc.gov 26<br>
Vice-Chairman, Postal Regulatory Commission
January 21, 2011<br>
slide2. Word of Thanks David Thompson, Executive Director Kentucky Press Association 2<br>
slide3. Summary of Discussion United States Postal Service (USPS) and Postal Regulatory Commission (PRC)
USPS Plan
Envisioning America’s Future Postal Service
Significant Recent PRC Activity
Change in Frequency of Delivery: 6 to 5 days (limited discussion)
Elimination of Saturday delivery
Exigent Rate Case 3<br>
slide4. Summary of Discussion PRC Reports on USPS Workforce Legacy Costs
PRC Review of Postal Service Retiree Health Benefit Fund Liability
PRC Pension Cost Special Study 4<br>
slide5. U.S. Postal Service Self-supporting government enterprise
Linchpin of $1 trillion mailing industry
Workforce of 600,000
Only delivery service that reaches every address in the nation
150 million residences, businesses and post office boxes
Annual revenue more than $67 B
USPS relies on the sale of postage, products and services to fund operations
no taxpayer funding
Delivers nearly 40% of the world’s mail
Retail network of 32,000 locations
usps.com the most frequently visited federal government website
If a private company, would rank 29th in Fortune 500 5<br>
slide6. Postal Regulatory Commission Executive Branch agency charged by the President and Congress to provide independent federal regulatory oversight for the USPS
5 Commissioners, each appointed to a 6-year term by the President and confirmed by the Senate
Agency Chairman designated by President
No more than 3 members of the Commission may be from the same political party 6<br>
slide7. Postal Regulatory Commission Mission: Ensure the transparency and accountability of the Postal Service and foster a vital and effective universal mail system
Develop and maintain regulations for a modern system of rate regulation
Consumer Price Index (CPI) cap
Consult with the Postal Service on delivery service standards and performance measures
Prevent cross-subsidization & other anticompetitive postal practices
Promote transparency & accountability, & adjudicate complaints
Consult with the State Department concerning international postal policies 7<br>
slide8. USPS Plan: Envisioning America’s Future Postal Service March 2, 2010 -- Postal Service unveils plan:
Concerted Government Affairs/Public Relations Initiative
USPS projects mail volume will continue to shrink: 177 B pieces (2009) to 150 B (2020)
Competition (UPS and FedEx)
Economic recession
Electronic diversion 8<br>
slide9. USPS: “Envisioning America’s Future Postal Service” Loss of $8.5 billion in 2010
No action -- cumulative shortfall of $238 billion by 2020
As much as $123 billion in savings during that same time period through aggressive cost cutting and increased productivity
Even so, “Estimated $115 billion shortfall will remain” (USPS) 9<br>
slide10. USPS: “Envisioning America’s Future Postal Service” What is the USPS Action Plan?
Regulatory and legislative relief highlights:
Adjust delivery days to “better reflect current mail volumes and customer habits”
Exigent rate case
Restructure RHB payments and address overpayments to CSRS fund 10<br>
slide11. Change in Delivery Frequency: 6 to 5 days March 30, 2010: USPS filed request with the Commission for an Advisory Opinion for the elimination of Saturday delivery
“A change in frequency, not a change in service”
Discontinue Saturday residential and business delivery/collections
No mail pick-up from blue collection boxes
Post Offices usually open on Saturday remain open 11<br>
slide12. Change in Delivery Frequency: 6 to 5 days PRC is “watchdog agency” protecting USPS’s Universal Service Obligation to Nation
One of the most significant changes the Postal Service has ever presented to the Commission 12<br>
slide13. Change in Delivery Frequency: 6 to 5 days Public, on-the-record PRC hearings and proceedings analyzing and cross-examining USPS proposal and supporting evidence
During the process, mail users and interested members of the public offer supporting or opposing views, both informally and as part of more formal, technical presentations 13<br>
slide14. Change in Delivery Frequency: 6 to 5 days Witnesses for the record regarding impact on rural newspaper delivery
Max Heath, Postal Committee Chairman of the National Newspaper Association
an engaged and informed participant in the postal regulatory process
Al Cross, UK professor & Executive Director of the Institute for Rural Journalism and Community Life 14<br>
slide15. Change in Delivery Frequency: 6 to 5 days The Commission conducted 7 field hearings:
Dallas, Sacramento, Chicago, Memphis, Las Vegas, Rapid City and Buffalo
Field hearings transcripts: Posted at www.prc.gov
Solicited public comments via our website
Response was exceptional – over 12,000 letters and e-mails
Advisory Opinion is nearing completion
No statutory deadline
The exigent rate case took priority 15<br>
slide16. Exigent Rate Case On July 6, 2010 the Postal Service filed with the PRC a request for an exigent rate adjustment
Pierce the rate cap
5.6% average increase
New rates were to have been implemented in January, 2011 16<br>
slide17. Exigent Rate Case USPS proposal must: (39 USC 3622(d)(1)(E))
Describe the “extraordinary or exceptional” exigent circumstances and show why they necessitate the increase,
Show that the proposed rates are reasonable and equitable, and
Describe circumstances under which the increases could be rescinded or reduced 17<br>
slide18. Exigent Rate Case PRC established a docket to provide for public comment and has conducted hearings on the record
Interested parties were encouraged to participate in building the record and suggesting relevant questions to the PRC for the USPS to answer during the course of these hearings
Commission issued its decision September 30, 2010 several days ahead of its October 4 statutory deadline. 18<br>
slide19. USPS Proposed Rates Would Not Remedy “Exigent” Circumstances After a careful review and in a unanimous and bipartisan vote, the Commission found that the Postal Service failed to meet the legal requirements for an exception to the rate cap
Commission found USPS fiscal difficulties a function of an unsustainable business model, not the national economic recession
The Commission’s decision affirmed the fundamental importance of the statutory price cap in protecting postal consumers and promoting Postal Service efficiency 19<br>
slide20. USPS Workforce Legacy Costs PRC Reports PRC Review of USPS Retiree Health Benefit Fund Liability
PRC Special Study (SS2010-1) USPS Civil Service Retirement System (CSRS) Pension Funding 20<br>
slide21. PRC Review of USPS Retiree Health Benefit Fund Liability The need to restructure retiree health benefit prefunding requirement is by far the most important aspect of USPS Action Plan – Joe Corbett, USPS CFO, in testimony before the PRC regarding exigent rate request
Request on June 15, 2009 by Chairman Stephen F. Lynch, Subcommittee on Federal Workforce, Postal Service and the District of Columbia, Committee on Oversight and Government Reform, U.S. House of Representatives:
Consultant was Mercer Health and Benefits LLC
PRC presented its report to the Subcommittee July 30, 2009
OPM: $5.5 billion (present annual USPS expense)
PRC: $3.4 billion ($2.1 billion annual savings)
Annual Payments to Achieve 73% Funded Status 21<br>
slide22. PRC Special Study (SS2010-1) USPS CSRS Pension Funding 39 USC 802(c): The Commission, upon request of USPS, procures service of an actuary qualified to evaluate pension obligations to conduct a review in accordance with generally accepted actuarial practices and principles and provide a report to the Commission containing the results of the review
Per USPS request of February 23, 2010, PRC established Docket SS2010-1 to conduct a review of the Civil Service Retirement System (CSRS) pension liability of USPS 22<br>
slide23. PRC Special Study (SS2010-1) USPS CSRS Pension Funding PRC selected the Segal Company, a certified actuarial firm, to conduct the study
PRC reviewed Segal’s report and on June 30, 2010 submitted our findings to USPS, Congress and OPM
Overpayment to CSRS Funds $50-55 billion
PRC endorsed adoption of a more modern, fair and equitable accounting methodology as promoted by Financial Accounting Standards Board 23<br>
slide24. PRC Special Study (SS2010-1) USPS CSRS Pension Funding Necessary follow-up
Office of Personnel Management (OPM) responsible for calculating the Postal Service’s CSRS pension liability
OPM emphasizes that their methodology is lawful and the need for Congress to direct another approach
Legislation proposed fall 2010
Would have required OPM to recalculate CSRS fund payments, but provides no relief from annual REHB payments mandated by PAEA
New Congress . . . new bill? 24<br>
slide25. Chairman’s Letter, Annual Compliance Determination The Commission looks forward to participating actively with the public and Congress in the exploration of the Postal Service’s retiree healthcare benefit funding, pension funding, strategies to reduce costs and improve customer service, and opportunities to expand products and services. 25<br>
slide26. www.prc.gov 26<br>