![[PostCom logo]](../../graphics/postcom3.gif)
SOME QUOTES FROM THE DECISION:
The Commission recommends the implementation of the Forever Stamp. The Forever Stamp has the potential to benefit all single-piece First-Class Mail users by alleviating the need to purchase stamps at the time of rate changes. This is both convenient for mailers, and economical for the Postal Service as it should reduce the demand for window service when rates change. It could eliminate the need for printing non-denominated stamps, which pose difficulties of their own. The Forever Stamp will have no substantive impact on Postal Service revenues during this rate cycle as it will be sold at the recommended single-piece first-ounce First-Class Mail rate.
The Commission recommends the Postal Service’s proposal of rates that better reflect the mail processing and delivery costs imposed on the postal system by the shape of the mailpiece. Rates that reflect costs send appropriate pricing signals to mailers and lead to a more efficient use of postal resources.
The Commission’s approach to ratemaking in general and rate design in particular has evolved over 36-plus years. Throughout this period, however, the requirement of section 3622(b)(3) that rates recover costs has been the starting point for Commission analysis. Thus, it is fair to say that the Commission has practiced cost-based ratemaking. During this period the Postal Service, with the strong support of the Commission, has implemented innovations such as workshare discounts that have simultaneously recognized economic principles and spurred market growth. In Docket No. MC95-1, the Commission provided a clear rationale for worksharing, explaining why workshare discounts were in the nation’s best interest, and how the amounts of workshare discounts should properly be developed. This rationale was premised on the concept of Efficient Component Pricing (ECP).
Efficient Component Pricing rates are those where the difference between the rates of any two worksharing categories will equal the difference in avoidable worksharing cost between the categories assuming 100 percent passthrough of avoidable cost savings. Similarly, the ECP rate between a non-workshare category and a workshare category will equal the difference in costs due to the specific workshare activity to be recognized in the rate.
The virtue of ECP or an ECP approach beyond worksharing is that it continues to promote productive efficiency. Just as ECP should produce the least cost mail by incentivizing a mailer or third party to workshare if it can perform mail processing or transportation more cheaply than the Postal Service, so too it should provide appropriate incentives to minimize costs in the case of shape and other mail characteristics.
In this recommended decision, the Commission has used ECP to design rates in those subclasses that contain mostly pieces over which the Postal Service has a market dominant position. This should produce fair rates that promote economic efficiency.
In evaluating potential rate levels to achieve the Postal Service’s break-even requirement, the Commission begins its deliberations with the First-Class Mail first-ounce letter (or basic) rate. It has good reason for doing so. Notwithstanding recent First-Class volume declines, the basic rate is essential to meeting the Postal Service’s revenue requirement. That rate is designed in whole integers and all First-Class letter rates are tied to it. A one-cent change in the basic rate equals roughly $750 million.
The record is clear that electronic diversion exists. The parties, however, are not in agreement regarding the extent to which First-Class volumes are being diverted to broadband communications.
A comparison of total contributions over the relevant time period shows, contrary to NAA’s claim, that First-Class Mail’s share has steadily declined while Standard’s mail has risen.
The Commission does not adopt the Postal Service’s proposal to de-link single-piece from worksharing rates within the First-Class Mail Letters and Sealed Parcels subclass.
The Commission evaluates the merits of reducing “controversy” starting with the presumption that the First-Class Mail Letters and Sealed Parcels subclass is a single subclass. The Postal Service has not proposed bifurcation of this subclass. The Commission recognizes that First-Class Mail, and First-Class mailers exhibit diverse characteristics. Considering the interests of diverse mailer populations, and heterogeneous mail characteristics may naturally involve controversy. However, this does not prevent the Commission from developing recommendations that are fair and equitable.
In Docket No. MC95-1, the Commission considered a Postal Service request to replace the Letters and Sealed Parcels subclass and the Postal and Post Cards subclass with an Automation subclass and a Retail subclass. The Commission did not recommend the proposal in the absence of evidence of distinct differences in demand characteristics between the proposed subclasses.
The de-linking methodology allows many costs that are not worksharing related to be avoided by worksharing mailers. The full burden of these costs are shifted to the single-piece mailers. The Commission believes that these non-worksharing-related costs should be shared by all mailers within the subclass.
De-linking the rate design does not fairly and equitably balance the interests of all First-Class mailers within the subclass, does not follow established principles of rate design including Efficient Component Pricing and does not fairly allocate costs unaffected by worksharing. The Commission does not accept the Postal Service’s de-linking proposal.
At recommended rates, the average increase for Regular is 9.3 percent, with a cost coverage of 170.8 percent; the comparable figures for ECR are 6.9 percent and 206.3 percent, respectively.
The Commission finds that based on the facts and circumstances of this case and applying all the factors of the Act, the Postal Service’s proposal does not go quite far enough in raising the institutional cost burden for Standard Regular.
PostCom claims that it is not asking the Commission to dictate operational matters to the Postal Service, yet its proposed classification change may require operations personnel to process heavy letters by seeding them with lighter ones. Absent exceptional circumstances, it is not appropriate for the Commission to dictate how the Postal Service is to process its mail....The Commission is sympathetic to mailers who send items that may be processed without problems on automation equipment, yet are not charged the lower automation rates. However, lines of demarcation between rate categories must be drawn. PostCom needs to work with the Postal Service to try to find mail preparation standards that will allow heavier pieces to be processed on automation equipment without excessive damage.
The Postal Service’s classification proposals for letters are unopposed and the Commission does not independently find any reason to refrain from adopting them. The Commission concludes that the expanded letter rate categories will allow costs to be more accurately reflected.
The Postal Service’s classification proposals for flats are unopposed and the Commission does not independently find any reason not to adopt them. The Commission concludes that the tighter flats definition will more closely reflect operational realities and the enhanced de-averaging of rate categories will encourage efficient mailer behavior.
On this record, there is no evidence that there will be any positive multiplier effect that will increase net contribution to the Postal Service by increasing the weight limit of Standard Mail parcels for Ride-Alongs. All the record contains on this point are statements that a higher weight limit increases the ability to send third-party inserts which might generate additional mail volume. This type of testimony is insufficient to convince the Commission of the existence of an actual positive multiplier effect.
The Postal Service’s classification proposals for parcels are unopposed and the Commission finds that adopting them is in the best interest of the Postal Service.
No participant opposes the Service’s not flat-machinable classification changes. Nonetheless, the NFM category is troublesome, given that there are no cost data for these pieces or reliable volume estimates broken down by mail mix. The reliability of the NFM data is a serious issue for several participants, but is used as the basis for arguments to mitigate NFM rates; not as a rationale for opposing classification changes.
The Commission is clarifying DMCS § 324.6 to include “flat-shaped and parcel-shaped pieces” as those mailpieces subject to the DAL surcharge.
The Commission largely accepts PostCom’s argument that the dropship and presort discounts should be increased to 100 percent passthroughs. Increasing dropship discounts is in line with ECP principles and could effectively encourage co-mailing and potentially increase palletization, although as the Postal Service argues, that is by no means certain. It should, however, at the very least help retain existing mailers who already palletize their mail. – the high probability for discontinuity at the breakpoint and the potential for rate anomalies.
The Commission’s recommended rates for flats reflect Efficient Component Pricing. Mailers should be able to convert lightweight pieces to more efficient, less costly letters if they feel that these cost-based rates are no longer the most cost effective way to send their mailings. Accordingly, the Commission concludes that it is appropriate to recommended ECP rates for flats with the following exception. The Commission finds it appropriate for the differential between the non-automation flat and the automation flat to be greater than 100 percent. The Commission concludes that a higher than 100 percent passthrough is justified....
The Commission largely accepts PostCom’s and PSA’s arguments that the Postal Service’s proposed rates for parcels are “too high” given the demonstrated uncertainty in the data quality and the potential for rate shock. The Commission does not accept PSA’s proposal to limit the increase on Standard parcels to 30 percent.
The Commission largely accepts PostCom’s parcel mitigation technique argument that, where possible, more highly workshared mail should receive lower rate increases than their less workshared counterparts. Adopting this approach will encourage more efficient mail preparation and co-mailing. This results in parcel rates that are slightly higher than the Postal Service proposes at the least workshared level, and lower rates at the more highly workshared levels.
The Commission’s recommended rate design uses a uniform pound rate for letters, flats, NFMs, and parcels, and the Commission again urges the Postal Service to undertake an updated, comprehensive study of weight-related costs by shape.
The Commission recognizes the merits of PostCom and PSA suggestions that the proposed rate increases for NFMs are too large due to rate impact concerns and a high degree of uncertainty surrounding the accuracy of the data used to set NFM rates. However, while the current data are far from perfect, the Commission finds that recommending meaningful rate distinctions between flats, NFMs, and parcels will help the Postal Service gather more accurate cost information with which to base future ratemaking decisions. The Commission does not accept PostCom’s argument that NFM pieces should pay non-automation rates.
The Commission largely accepts PostCom’s argument that, where possible, more highly workshared NFM pieces should receive smaller rate increases than less workshared NFM mailpieces. This rate design will encourage greater overall efficiency in the postal sector. Applying this technique results in rates that are slightly higher than the Postal Service at the least workshared level and lower for more finely workshared NFMs.
The Commission recommends the Postal Service’s proposed DAL surcharge of 1.5 cents.
The Commission recommends rates that reflect Valpak’s suggestion to pass through 100 percent of the cost difference between letters and flats at the basic level.
The Postal Service proposes a transaction-based price structure arguing that the existing structure can not accommodate future enhancements to the Confirm service and will not cover costs. The Commission finds that the Postal Service has not proven that its proposed transaction-based structure can cover costs better than the current subscription-based structure. It observes that the Postal Service’s cost coverage for its proposed structure is unsound because the figures pertinent to the revenue calculation are not justified by any market research or studies.
The Commission is not persuaded that the current structure is too complex by the Postal Service’s unsubstantiated claim that subscribers were unable to estimate their demand for scans and oversubscribed. The Commission finds that increased fees under the current subscription-based price structure will provide adequate revenue to cover Confirm’s costs. To ensure that Confirm covers its costs, the Commission recommends increasing the fee for a Gold subscription 33 percent from $4,500 to $6,000, rather than to $5,200 as proposed by OCA. The Commission recommends the fees proposed by OCA, except for a fee of $6,000 for a Gold subscription. The Commission recognizes that the Postal Service is no longer proposing to eliminate the “start the clock” requirement. It adopts the classification change agreed upon by OCA and the Service to make the electronic notification voluntary with a slight modification to the proposed language so that it conforms to their intent.
The Commission will not adopt the Postal Service’s proposal to rename the Single-Piece BPM rate category as Nonpresort. The Commission’s recommended rates represent an average rate increase of 11.7 percent, corresponding with a cost coverage of 119.4 percent.
PostCom’s proposed coverage for Media Mail yields a unit contribution to institutional costs of $0.0043, a de minimis and unjustifiably low contribution. Hence, the Commission rejects PostCom’s proposal. The Commission is not unsympathetic to PostCom’s attempt to redesign rates. Media Mail apparently is no longer an attractive alternative for many items that meet its statutory and content restrictions. To be sure, for certain eligible pieces such as video or sound recordings destined to a distant zone, Media Mail may be the least cost alternative. That advantage may not exist for either shorter hauls or mailings in bulk.