Mailers Alliance Fights 'Nonsensical' Price-Cap Ruling

In an attempt to hold down next year’s increase in postage rates, an alliance of mailers today challenged as “nonsensical” an informal ruling issued by a Postal Regulatory Commission lawyer.

Periods of deflation should not be ignored when calculating the price cap for postal rates, the Affordable Mail Alliance argued in its filing with the PRC.

The alliance's interpretation of the PRC’s regulations would set the U.S. Postal Service’s rate authority today at 0.873%, versus 1.447% in the method endorsed yesterday by the PRC’s general counsel, Stephen L. Sharfman. (See Informal Ruling Makes Postage Increase of 1.7% Likely in January.)

If the Postal Service filed for rate increases after September’s Consumer Price Index is released this Friday, the allowed rate increase would be about 1.1% with the alliance's method versus about 1.7% (Oct. 15 update: 1.685%) with the Sharfman method.

“Maintaining the integrity of this [inflation-index price] structure requires that the price cap reflect periods of deflation as well as inflation,” wrote the broad-based industry alliance, which was formed this year in response to USPS’s unsuccessful request for exigent (emergency) rate increases.

Ignoring years when the Consumer Price Index is lower than in the previous year, as happened in 2009, “would allow the Postal Service to ratchet up its prices over time faster than inflation by refraining from rate adjustments following intervals of deflation,” the filing said. “No reviewing court is likely to find this nonsensical outcome consistent with the plain language” of the law or PRC regulations.

“The difference between the two competing interpretations of the Commission’s rules amounts to approximately $360 million in postage and fees per year,” the mailers alliance wrote. “Moreover, postal price levels inflated by the use of an excessive rate adjustment factor would become the base rates for future price cap adjustments; hence, the original overcharge would recur in perpetuity.”

“Recurring periods of deflation are not unlikely in the current economies of the United States and the world. If the economy alternates between periods of inflation and deflation that leave the CPI roughly flat, selective timing of CPI-based price adjustments could result in postal price increases substantially outpacing inflation over time,” the alliance response said.

The alliance also objected to Sharfman’s “informal advice” because it came only six days after the Postal Service requested guidance on how to interpret the rate-cap regulations. The PRC’s rules require interested parties to have seven days to respond in such cases, and Sharfman’s letter was issued even though PRC staff knew the alliance was preparing a response to USPS's request, the alliance claimed.