Court rules on exigent rate increase: Not forever, but for how long?

June 7, 2015

This week the DC Court of Appeals issued its decision on the exigent rate case.  The court affirmed the most significant element of the ruling by the Postal Regulatory Commission back in late 2013, namely, that the increase could not go on forever.  

But the court remanded another aspect of the Commission’s order, and it is now almost certain that the exigent increase will be extended beyond August, when it was expected to end.  Depending on how the Commission does the next round of calculations, the increase could continue into the spring, or perhaps even longer.  (The court's ruling is here.)

In its original order, issued on December 24, 2013, the Commission determined that the Postal Service had lost about $2.8 billion in contribution (profit) due to the recession.  The Commission therefore approved the 4.3 percent increase the Postal Service had requested, but only until the agency had recouped this amount. 

The increase went into effect in January 2014, and as of March 31, 2015, the Postal Service had collected almost 80 percent of the $2.8 billion.  At the current rate of generating contribution — about $150 million a month — the exigent increase would have reached the authorized limit by the end of August.  The court’s ruling, however, means that the Commission will need to do some more calculations for how much additional contribution the Postal Service can take in.

According to the Postal Service's brief to the court (filed on April 15, 2014), even with the court ruling as it has, the agency still deserves somewhere between $1.2 billion and $3.8 billion more.  That would extend the exigent increase anywhere from spring 2016 to fall 2017.  

The mailers will undoubtedly dispute these numbers and argue that the Commission should authorize a much smaller amount.  The parties have waited over fifteen months for the court to issue its decision, but this case is far from over. 

[UPDATE: On June 8, the day after this article was published, the Postal Service submitted a motion to the PRC explaining how the court's ruling means that it is due at least $1.2 billion in additional contribution, and it asks the Commission to keep the exigent increase in place while the issue is reviewed so that rates don't go down and then back up.  There's also a helpful analysis of the court's ruling on Dead Tree Edition.]

 

The issues

At issue in the exigent case were three basic questions: (1) What portion of the lost volume and revenue was “due to” the recession as opposed to other factors, like the Internet, which cannot be considered “extraordinary” circumstances meriting an exigent increase?  (2) How long could the losses be blamed on the recession?  (3) And how should the losses be counted up?

According to the Postal Service's answers to these three questions, the total losses due to the recession were staggering — on the order of 190 billion pieces for 2008 - 2013, with a total contribution loss of $22 billion.  That would have justified a 4.3 percent increase for about twelve years, perhaps longer.  The Postal Service argued that the losses would continue adding up beyond 2013, which would justify making the increase permanent.

In order to calculate losses "due to" the recession, the Postal Service provided a thorough econometric analysis, but the Commission disputed it because it did not provide a satisfactory explanation for losses due to the Internet and other factors.  So the Commission came up with its own method for doing the calculations. 

The court did not want to arbitrate which analysis was better.  It simply said that the Commission had the authority to use its own method so long as it was reasonable.  The Postal Service will not be able to re-argue that its method was more reasonable.

Concerning the second issue, the Postal Service had claimed that even though the recession officially ended in June 2009, its effects on the mail continued long after, so revenue was lost in 2010, 2011, 2012, and beyond.  

The Commission, however, took the position that the Postal Service needed to adjust to the “new normal” of lower volumes and could not claim that the exigent circumstances went on and on.  It said there had to be a "stopping point" when the losses could no longer be blamed on the recession.

On this issue, the court also ruled in favor of the Commission and endorsed the “new normal” rule.  That’s why the exigent increase will not go on forever.

On the third issue, the Commission’s mode of calculation involved counting each year’s loss only once.  For example, if the Postal Service lost 6 billion pieces in 2008, and another 18 billion in 2009, the total loss was 24 billion. 

The Postal Service argued that the calculations should carry over losses from one year to the next.  So the total loss for this example would be 30 billion — 6 billion in 2008, 18 billion in 2009, plus the 6 billion from 2008 that was lost again in 2009.

On this point, the court agreed with the Postal Service, and it remanded the “count once” aspect of the PRC’s original ruling back to the Commission for further consideration.  The Commission will now re-examine its analysis and presumably figure out how to count each year’s losses in subsequent years until the moment when the “new normal” is reached.

Commissioner Goldway issues scathing dissent on PRC's decision to dismiss Careywood appeal

May 28, 2015

The Postal Regulatory Commission has dismissed the appeal on the closing of the contract postal unit in Careywood, Idaho.  It was a terrible decision.  It is illogical and inconsistent with the Commission’s own precedents, and it creates a new precedent that endangers not only all contract post offices, but every post office in the country.

The numerous problems with the Commission’s ruling are discussed in a scathing eight-page dissenting opinion issued by Commissioner Ruth Goldway.  Unlike the majority opinion, the dissent is consistent with Commission precedents, cognizant of the Postal Service’s obligations to the rural public, and respectful of the Commission’s own statutory responsibilities.  

Sadly, Goldway was the lone voice of reason on the Commission.  She was also alone yesterday in a second dissenting opinion when the Commission dismissed a complaint filed by the APWU concerning the Postal Service's failure to meet its new service standards.

The basis for the Commission’s decision to dismiss the Careywood appeal is that the case did not satisfy the “sole source” standard.  That is a reference to a string of previous appeals going back to a 1983 appeals case called Knob Fork, West Virginia.  (Knob Fork and the cases that followed it are discussed in this previous post on Careywood and in comments I filed on behalf of the petitioner.)

In Knob Fork, the PRC ruled that a contract post office did fall within the scope of 39 USC 404(d), meaning that the Postal Service must go through a formal discontinuance process before closing a contract unit — a requirement that the Postal Service has routinely ignored for decades as hundreds of contract units were closed.  The Knob Fork decision also said that the closure of a contract unit could be appealed to the PRC if the unit was the “sole source” of postal services in the community.  

In 2012, the Commission invoked this "sole source" standard when it dismissed the appeal on the closing of a contract unit in Alplaus, New York.  In the Alplaus ruling, the Commission observed that there was another post office just one mile away, and there were more post offices, approved postal providers, and other alternative access points not too far away.  The Alplaus contract unit could therefore not be considered the "sole source" of postal services in the community, so the Knob Fork precedent did not apply, and the appeal was dismissed.

In the case of Careywood, the nearest post office is in Athol, which is 7 miles away, and there are no alternative access options within 20 miles.  The Commission’s ruling nonetheless concludes that the "sole source" standard was met.  It notes that the drive from Careywood to Athol is just seven minutes, only 2 minutes more than the drive to another post office from Alplaus.  

Residents of Careywood pointed out that the drive could be much longer, particularly during the summer tourist season when there's traffic and during the winter when the drive is not simply long but dangerous.  

New USPS service performance reports show significant delays in delivering the mail

May 13, 2015

The Postal Service has released its service performance reports for the second quarter of the fiscal year, January 1 to March 31, 2015.  They show that it's not just your imagination — the mail has been slowing down, and in some cases, by a lot.  The reports can be found on the USPS website here, and a more complete data set can be downloaded from the PRC website here.

This is the first period during which the new service standards were in effect.  These standards, which began on January 5, eliminated overnight delivery and added about a day to most delivery times.  The new reports show that even with slower standards the service performance has gone down compared to both the previous quarter and the same period last year.  The scores also fall well short of the Postal Service’s own targets. 

The results shown in the reports will come as no surprise.  According to a Washington Post article on April 27 by Lisa Rein, “Preliminary internal data shows that the Postal Service did not meet even its lower targets for first-class mail during the first seven weeks of 2015, with letters that are supposed to take three days … arriving on time just 54 percent to 63 percent of the time.” 

As it turns out, in some cases the performance for the full second quarter was even worse than the preliminary data revealed.  For example, for New York, only 44 percent of single-piece First Class mail was successfully delivered within the 3-to-5 day window. That's compared to 82 percent for the same quarter last year.  Two-day delivery performance for New York fell from 93 percent in Q2 2014 to 74 percent for Q2 2015.  (A table comparing Q2 2015 and Q2 2014 for single-piece First Class mail is here.)

Overall, the national score for single-piece mail for the 3-to-5 day service standard went down from 84 percent to 63 percent, a decline of over 21 points — and more than 32 percentage points short of the target.  

As the following table shows, in every category service performance for the second quarter of 2015 was down from the previous period last year, sometimes by a significant amount, and in no case did the score meet the target.  In some cases, it wasn't even close.

In the narrative accompanying the data, the Postal Service provides two explanations for the poor scores — bad winter weather and the operational changes at mail processing plants that went into effect on January 5th.

The weather may explain the performance problems in some places, like Chicago and Boston, where the amount of mail successfully delivered within the 3-to-5-day window was 51 and 53 percent, respectively.  But it can’t explain what happened in places like South Florida and Los Angeles, where only 48 percent of the mail was delivered within the 3-to-5 day service standard.

In most cases, the weather probably wasn't the problem.  The delays were caused by the changes in mail processing operations.  

As the Postal Service acknowledges in each performance report, “The mail processing operational window change that was made as part of the Network Rationalization plan was one of the most significant operational changes since automation implementation. These changes impacted the schedules for nearly all processing and transportation activities nationwide.”

The new reports may be viewed as particularly troublesome because the service standards themselves represent slower delivery times.  Mail that had been delivered overnight now takes two days, and much of the mail that used to take two days now takes three to five.  The latest performance reports show that a significant portion of the mail isn’t even making these more relaxed standards.

The Postal Service says that it is working on “stabilizing operations” in order to meet its new service performance standards.  But at many plants, the consolidation process has not even been fully implemented.  It’s possible that we will see even more delays over the coming months.

Amidst concern about these delays, the APWU will be holding a National Day of Action on May 14.  There's more information about the protests here, and a list of locations where protests will be held can be found here.  For more about how the new service standards are slowing down the mail, see this previous post.

(Photo credit: Mail processing, Washington Post)

DC Court remands barcode case back to PRC

May 12, 2015

Today the U.S. Court of Appeals, District of Columbia, issued a decision on the Postal Service’s challenge to a ruling by the Postal Regulatory Commission involving barcoding and a rate increase.  The ruling is here.

The decision was a mixed bag.  The Court ruled partly in favor of the PRC and partly in favor of the Postal Service, and both sides will probably find something in the decision to be happy about.  But the bottom line is that the case has been remanded back to the Commission for reconsideration.

The origins of the case go back to April 2013, when the Postal Service changed its policies about mail preparation requirements for automation discounts. 

Since 2009, there have been two different Intelligent Mail standards and two different discounted rates.  Basic-service Intelligent Mail requires mailers to affix a barcode to each mailpiece containing some basic information about the shipment.  Full-service Intelligent Mail uses a barcode with more detailed information, as well as other requirements, so it gets a bigger discount.

In spring 2013, the Postal Service changed its policy such that mail pieces prepared according to the basic-service Intelligent Mail standard would no longer be eligible for a discounted rate.

In the fall of 2013, the Postal Service filed a request for a rate increase under the inflation-based price cap rules.  Such increases are typically granted, but in this case things got a little more complicated.

The mailers argued that the change in mail preparation requirements constituted a rate increase that should be counted against the Postal Service’s price cap.

In response, the Postal Service claimed that mail preparation changes which did not actually alter the posted prices should not be seen as “changes in rates” or “classification changes.”   In its view, the changes in policy about barcode requirements were thus excluded from consideration under the price cap, and the Commission had no authority to include the changes in its decision about the price-cap rate increase.

In November 2013, the Commission decided in favor of the mailers.  It approved most elements of the request for a rate increase because they conformed to the price cap limitations, but held that "certain mail preparation requirements were governed by restrictions on rate increases set forth in 39 USC 3622(d)."  

A few weeks later, the Postal Service took the Commission to court.  Now, almost a year and a half later, the Court has issued its decision.

In today’s ruling, the Court says that the Postal Service was wrong about the scope of the Commission’s authority.  According to the Court, the law about rate increases is ambiguous on this issue, and in such cases, it’s necessary to defer to the administrative body charged with implementing the law — in this case, the PRC.

This is called “Chevron deference,” after a 1984 Supreme Court decision which found that even if a court finds that another interpretation of a law is reasonable, deference is due to the agency responsible for administering the law.

While the Court said that the Commission therefore had authority to rule on the issue, it found that the Commission’s decision was “arbitrary and capricious.”  That’s because according to the Commission’s reasoning, all mail preparation requirements could be considered as changes in rates. 

The Commission had assured the Postal Service that it would not “indiscriminately treat all new mail preparation requirements as rate adjustments,” but the Court found the language used by the Commission to define which operational changes would count as rate adjustments was “cryptic, to say the least.”

According to the Court, “the standard enunciated by the Commission to determine when requirements changes are ‘changes in rates’ seems boundless and, thus, unreasonable.”

The Court therefore remanded the case to the Commission “to enunciate an intelligible standard and then reconsider its decision in light of that standard.”  In the meantime, the changes to the Domestic Mail Manual will be held in abeyance pending the outcome of the remand.

(To read more, the relevant documents include PRC Order 1890, the Postal Service's response, and its initial court filing.)

(Image credit: Barcode graphic)

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