USPS Seeks Guidance On Its Rate Cap

The U.S. Postal Service is asking for a ruling on something that was supposed to be clear -- how much it can increase rates without getting special permission.

A Postal Service lawyer asked the Postal Regulatory Commission today for guidance regarding how to interpret the price cap on most mail products (including First-Class, Standard, and Periodicals), which is based on changes in the Consumer Price Index (CPI-U).

When the PRC announced its decision last week in the exigent rate case, "some uncertainty was expressed regarding the exact amount of authority that is currently available to the Postal Service to adjust rates under the CPI-U price cap," wrote R. Andrew German, managing counsel for USPS Pricing & Product Development in a letter to the PRC.

The PRC's Web site has a chart suggesting that the current price cap is 1.477%, which is based on the average CPI for the most recent 12 months versus the previous 12 months (that is, September 2009 to August 2010 versus September 2008 to August 2009).

But German noted that "it has been more than 12 months since the Postal Service adjusted rates pursuant to the price cap," which seems to mean that a different calculation method should be used.

German referred to a section of the PRC's regulations regarding rate increases that are more than 12 months apart. My interpretation of that section is that the current rate cap would be based on comparing the average CPI for the most recent 12 months to the average CPI for calendar year 2008, yielding a cap of only 0.864%. But I'm no lawyer, and the wording is far from clear in this case.

"For purposes of developing its own financial plans, the Postal Service needs an interpretation of that rule (or any other applicable  rules) upon which the Postal Service can rely if it were to begin preparation of the requisite documentation for CPI-U rate adjustment," German wrote.

The postal-reform law and the PRCs regulations interpreting that law are clear when things go as envisioned, with the USPS seeking rate increases once a year based on increases in the CPI-U. But no one seemed to anticipate the Consumer Price Index decreasing, which is what it did in 2009 primarily as a result of rapidly declining fuel prices. There was no provision in the law requiring the Postal Service to decrease rates as a result of that deflation and no guidance regarding the baseline period for future rate-cap calculations.