December 15, 2006

It took twelve years, but postal reform legislation is only a Presidential signature away from becoming law. In the late hours of Saturday, December 9, the 109^th Congress was able to finally complete and pass H.R. 6407. This is an historic event, and an amazing effort by all those involved. I personally thought this would not happen during this “lame duck” session of Congress. Perhaps we’re witnessing another Festivus miracle, despite all the airing of grievances!

With the signing of this law, some key changes will occur for the USPS and the mailing industry.

• The military pension obligation will now return back to the Treasury department. This will ultimately save the industry billions of dollars over time and puts the obligation back where it rightfully belongs.
• The escrow payments will continue, but now they will be used to fund long-term retiree healthcare. After about 10 years, this “investment” will pay off for the mailing industry as the payments will be significantly reduced by that time.
• We will now have a Postal Regulatory Commission (PRC) with greater powers than the former Postal Rate Commission. The first act of the new PRC will be to establish a new rate making process. They have 18 months to do this.
• Rate increases for market-dominant products (mail classes with which the USPS enjoys a monopoly) will now be capped using the Consumer Price Index, or CPI. This means no more rate shock to mailers and the opportunity for a more predictable rate increase. Competitive products can be priced as the USPS sees fit and the market will bear.
• The USPS must develop performance standards for their market dominant products and services and measure their performance against these standards, reporting the results publicly.

What this legislation does not do is stop the currently proposed rate case, R2006-1. The USPS made a statement today that they will continue with the current rate case with an anticipated implementation date of May 6, 2007.

President Bush is expected to sign this legislation next week. Once he does, we can then wait and see if the USPS will file one more rate case under the current process sometime in the next twelve months. They may choose to do this in order to establish a rate structure more conducive to the CPI capped rules.