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USPS Regulator Approves Price Spike but Warns Mail Slowdowns Could Have Worse-Than-Expected Impact

Commission criticizes postal management for faulty assumptions, insufficient testing and disregard for customers.

The U.S. Postal Service’s regulator is warning that the mailing agency’s case for slowing down mail rests upon “unproven assumptions,” suggesting USPS should revise its plan just one day after approving sharp rate increases. 

The Postal Regulatory Commission on Tuesday did not flat out reject Postmaster General Louis DeJoy’s plan to slow down delivery windows for some mail, but suggested the proposal was not fully thought out and its success was far from guaranteed. On Monday, it signed off on the Postal Service’s new pricing structure set to go into effect later this year. It will mark the first time postal management instituted higher-than-inflation rate hikes under a new authority the commission granted the Postal Service last year. 

The slowdowns are expected to impact about 40% of First-Class mail. Postal officials have said USPS can no longer meet the standards it had set and the new windows would more accurately reflect what is already occurring. With the goal of slashing air transportation by 43% for First-Class mail, letters sent within the continental United States will take a maximum of five days under the new plan instead of the current limit of three days. Kristin Seaver, USPS’ chief retail and delivery officer, said earlier this year that 70% of First-Class mail would still be delivered within one-to-three days and the changes concern the “fringes of our network.” 

Industry groups, postal unions, members of the public and some lawmakers have all pushed back against the mail slowdowns, with tens of thousands of individuals and organizations sending comments to the commission during its review. Critics of DeJoy’s plan have said slowing mail delivery while raising prices would accelerate ongoing declines in mail volumes and lead to further losses for the mailing agency. 

The savings the Postal Service expects to realize are “paltry,” PRC Chairman Michael Kubayanda said, which “cast a shadow over the entire proposal.” The overall plan did not violate the mailing agency's legal obligations, the commission concluded, but the agency failed to prove its projections would be borne out. USPS never pilot tested its proposed changes, which the commission found “problematic," and its assumptions regarding the efficiency of its network were "not grounded in reality." Even if events play out as postal management expects, the commission said the benefits may not outweigh the downsides.

“The commission finds that the amount of estimated annual cost savings, even if fully realized, does not indicate much improvement, if any, to the Postal Service’s current financial condition and the estimated cost savings from extending the service standard would be eliminated by additional costs associated with the growth in packages,” PRC wrote in its opinion. “Therefore, it is not clear that the tradeoff between financial viability and maintaining high-quality service standards is reasonable.”

DeJoy is simultaneously consolidating 18 mail processing plants, saying it will allow the Postal Service to allocate more resources toward its growing package business. A 2018 inspector general report found USPS realized just 5% of the $1.6 billion in savings it had projected from consolidations it implemented in the early 2010s. The agency successfully shuttered 141 plants in the first phase of its plan, but pulled the plug on its second phase to close an additional 82 plants when it was halfway through.

The Postal Regulatory Commission has held hearings on the plan in recent months, during which postal officials defended their proposals by promising to realize cost savings and to meet the agency's target of delivering 95% of mail on time for the first time in eight years. Mail delays have particularly plagued USPS over the last year due to the COVID-19 pandemic, policies implemented by DeJoy and other factors, but management has said its new delivery windows would allow the agency to set more predictable outcomes for customers. Officials conceded they had not examined the impact of the proposed changes on rural versus urban populations, low income communities or elderly communities. They said the agency did not solicit feedback on the changes from its customers, though an official added USPS regularly surveys its customers on general matters and therefore understands their needs.

In its opinion, the commission faulted USPS for not incorporating what feedback it did receive from customers regarding its plan. It also criticized the Postal Service for failing to illustrate how slower mail would impact volumes, saying its attempts to show that relationship were insufficient. 

PRC said while the Postal Service's proposal "appears rational," the agency "has not confidently demonstrated that its plans will achieve these goals to the extent suggested in its proposal."

Under federal statute, the Postal Service must receive an advisory opinion from PRC when it seeks to implement reforms that would affect service on a nationwide basis. The opinion does not carry the force of law, however, and even if it had ruled firmly against the plan the agency could have moved forward anyway. 

PRC’s non-binding recommendations called on postal management to set more realistic performance targets, suggesting its promise to deliver 95% of mail on time was, at least initially, unattainable. It called on USPS to come up with new data to support its projections and said the agency should ensure the plan does not emphasize cost savings over adequate service. The commission implored postal management to monitor customer satisfaction to gauge the reaction as the plan is implemented. 

"We are reviewing the recommendations of the Postal Regulatory Commission, and will consider them as we move forward with our plan," said Kim Frum, a USPS spokeswoman.

House Democrats originally sought to stymie DeJoy’s efforts to implement the mail slowdowns in postal reform legislation they introduced earlier this year, but ultimately stripped that language from the measure to win bipartisan backing. The bill now has widespread support in both the House and Senate, but is still awaiting a vote in both chambers.

DeJoy’s plan also called for raising prices in line with the authority PRC granted him in November. The new prices, which are set to go into effect Aug. 29, would raise rates for regular, First-Class mail by 6.8% and by 8.8% for package services. A standard stamp will go from $0.55 to $0.58. DeJoy previously promised to use his authority to raise rates above inflation "judiciously," but predicted USPS would generate between $35 billion and $52 billion over the next 10 years by raising prices. 

Large-scale mail users pushed back on the increases before the PRC, noting it would hurt their organizations and drive users out of the mailing system. The commission disagreed, predicting only positive effects. 

“It is the commission’s expectation that price increases like the ones proposed in this proceeding will enhance the Postal Service’s ability to make investments that increase efficiency and reduce costs, while also narrowing the formidable gap between costs and revenues, thus motivating the Postal Service to take further steps to reduce costs and increase efficiency,” it wrote. 

Ultimately, as it had already granted the authority, PRC’s review amounted to simply checking USPS’ math to ensure its proposals stayed within the parameters of its rate-setting authority. A collection of industry groups is suing the commission over the rate-setting authority, arguing the new price caps do not adhere to federal law. That litigation is ongoing, which PRC highlighted in response to comments it received asking it not to approve the Postal Service’s new prices. 

The “appropriate forum” to resolve the scope of the commission’s legal authority, PRC said, “is the Court of Appeals for the D.C. Circuit in the currently pending appeal and not this proceeding.” The plaintiffs in that group had sought a stay to block the implementation of the new rates, but the court denied it.