June 24, 2015
The Postal Service has released its financial statement for May 2015. There’s some good news and some not so good.
Compared to May 2014, volumes and revenues for First Class, Standard, and Periodicals are all down, generally about 5 percent. For market-dominant mail overall, volumes and revenue are both down 5.2 percent.
That represents a somewhat steeper decline than previous months during this fiscal year, but the Postal Service notes that there was one fewer retail day this May than last, which probably explains at least some of the drop.
The good news is that Shipping and Package Services continue to climb. Compared to last May, volume is up 15.8 percent and revenue is up 12.5 percent.
For year-to-date (the first eight months of FY 2015), volume is down 0.7 percent, and revenue is up 1.7 percent.
For the month of May, the Postal Service posted a small loss of $126 million in Controllable Operating Income (compared to a loss of $70 million last May).
Overall, the Postal Service would continue to show a profit if it weren't for the $5.5 billion it's supposed to be paying to the Retiree Healthcare Benefit Fund (RHBF). For the year-to-date, the Controllable Operating Income is $1.49 billion. That’s up from the same period last year, when there was a profit of $1.28 billion.
Figuring in the RHBF expense ($3.8 billion so far this year) and a worker’s comp adjustment, plus some interest income and expense, the financial statement shows a net loss of $2.778 billion for the year-to-date. That’s better than the same period last year, when the loss was 3.469 billion, but it will probably still be cited as further evidence that the Postal Service is in trouble.
The May financial statement can be found on the PRC website here.
June 23, 2015
The American Postal Workers Union has taken the Postal Regulatory Commission to court over its decision to dismiss the union’s complaint that the Postal Service is failing to meet its service standards.
As explained on the USPS website, these service standards, as set forth under 39 C.F.R. § 121.1, state how long it will take the mail to be delivered, e.g., two days, three to five days, and so on. Since 2012, the Postal Service has relaxed these standards two times as part of its Network Rationalization plan to consolidate processing plants — once in July 2012 (when some overnight mail was eliminated), and again in January 2015 (when the rest of overnight mail ended).
There is mounting evidence that the Postal Service is not meeting even these more relaxed standards, and the APWU has been trying to get the PRC to do something about it. But each time the APWU has filed a complaint, the Commission has dismissed it. Now the APWU is looking to the DC Circuit Court of Appeals for relief.
Complaints and dismissals
The APWU has been filing complaints about the Postal Service's failure to meet its service standards for almost two years. (The materials can be found in PRC Docket No. C2013-10.)
In September 2013, the APWU filed a complaint with the Commission saying that the Postal Service was not meeting the new standards established in July 2012. In November 2013, the Commission dismissed the complaint (in part).
Two days later, the APWU filed a petition challenging the PRC's order with the U.S. Court of Appeals, District of Columbia Circuit. Last week, the APWU followed up with a short “Statement of Issues to Be Raised” that previews the arguments it will make in the case.
These arguments echo points made by Commissioner Ruth Goldway, the former chair of the PRC, in her dissenting opinion on the Commission's order dismissing the complaint. Goldway believed that the Commission should have heard the complaint, and the union will probably be quoting her opinion as it proceeds with its appeal.
June 12, 2015
This week the Postal Service, APWU, and several associations of mailers filed briefs with the Postal Regulatory Commission responding to the DC Court of Appeals’ June 5th ruling on the case of the exigent rate increase.
On Monday the Postal Service filed a motion asking the Commission to suspend the removal of the exigent surcharge, which is due to occur sometime in August. Yesterday the APWU filed comments supporting the motion, while the mailers filed comments urging the Commission to deny it.
The Court of Appeals affirmed most of the Commission’s 2013 order granting a 4.3 percent exigent rate increase, but the court vacated a key part of the order, namely the way it had counted each year’s losses only once.
The court said that the losses should be counted again in the following year(s) until the Postal Service could be expected to have adapted to the “new normal” of lower volumes. (There’s more about the court’s ruling in this previous post.)
The Postal Service's motion argues that since the total amount it will be allowed to take in with the surcharge is inevitably going to be increased substantially, the Commission should allow the surcharge to continue beyond the limit previously authorized, $2.8 billion in contribution (profit).
The Postal Service's motion provides an analysis showing that correcting for the “count once” flaw in the Commission’s order would increase the amount of money lost “due to” the recession by nearly $1.2 billion, bringing the total to about $4 billion in contribution. That would extend the period for the surcharge to next March or April.
The Postal Service's motion also indicates that it intends to argue that the maximum allowed for the exigent increase should be even larger. The motion does not say how much more the Postal Service will be seeking, but in a brief filed during the court case, the Postal Service said that it could deserve as much as $3.8 billion more, which would extend the surcharge for at least two more years.
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.]
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.