After a long deliberation, the United States Court of Appeals for the DC Circuit finally ruled on two key cases late this spring. While I am not a lawyer, there are some interesting implications for mailers going forward. Let's take a look at each of the cases to see what mailers can expect in the future.
The Exigency Case
History
The Postal Accountability and Enhancement Act of 2006 (PAEA) gave mailers rate predictability by tying rate increases for each Market Dominant class to the Consumer Price Index (CPI). However, a provision in PAEA allowed the Postal Service to request a higher rate increase in "extraordinary and exceptional" circumstances. The USPS first filed for an exigent price increase in 2010. After many years of back and forth, a 4.3% increase was approved by the PRC in 2013 and was first applied in 2014. The PRC limited the exigent surcharge duration by stating that USPS must remove it when it had earned $2.8 billion in profit. USPS opened a case with the court of appeals, believing that the price increase should be permanent.
The Ruling
On June 5, 2015, just months away from USPS reaching its $2.8 billion limit, the appeals court issued their ruling. While it agreed that the exigent surcharge should not be permanent, it disagreed with the methodology used to calculate the profit limit. In the PRC calculation, it used the amount of mail lost, but did not compound the amount when mail was lost over multiple years. This "count once" philosophy limited the amount of revenue USPS could claim. The appeals court agreed with USPS that the "count once" rule didn't make sense, and ordered that the PRC modify their calculations without this rule applied.
What This Means for Mailers
There are two initial takeaways from this ruling. First, the exigent rates will eventually be rolled back. This is great news for mailers whose postage budget is already very tight. However, the new question is when. Depending on how the PRC re-calculates the profit limit, the exigent prices could be around slightly longer than originally planned or for years to come. USPS has requested to keep the 4.3% surcharge in place until the new number is determined by the PRC. If approved, it's unlikely that the rollback will happen in 2015, so mailers thinking about their remaining budget should keep this in mind. Industry is concerned that safe guards be put into place to protect mailers form USPS over collecting on exigent revenue. If the new number is more than what USPS has collected, industry is requesting that it be applied to future CPI. Once the rollback is implemented, it is unlikely that there will be many longstanding effects; ideally, this would bring back some of the mail volume lost due to the increased prices.
The Full-Service Case
History
In September 2013, the Postal Service filed a notice with the Postal Regulatory Commission (PRC) outlining the price and sortation changes they intended to apply in 2014. Along with the usual small mail preparation adjustments that usually accompany a rate increase, USPS noted that they intended to require Full-Service mail preparation for all Automation rate mail. The mailing industry protested that the requirements for Full-Service preparation were too onerous. The PRC ruled just two months later that the Full-Service requirement was equivalent to an additional rate increase, and required USPS to either factor it into the CPI calculation or back down from mandating Full Service. The Postal Service backed down from requiring Full Service, but quickly filed a case in appeals court, claiming that the PRC had overstepped its authority over postal rates, and into the realm of mail preparation.
The Ruling
The US Court of Appeals finally ruled on the case on May 12, 2015. The ruling found that there are some cases where mail preparations could have an impact on the total cost for mailers to prepare that mail. However, the PRC hadn't consistently applied this consideration when evaluating all mail preparation changes. Because the system for evaluating mail preparation changes and prices has not been defined, the appeals court ruled that the PRC must articulate an "intelligible standard" for when mail preparation changes affect rates, and then re-evaluate their ruling using this new standard.
What This Means for Mailers
The PRC has quite a bit of homework ahead of them, and we expect that there will be some back and forth between the PRC, USPS, the mailing industry and other interested parties as they define the line between mail preparation and pricing authority. Once the boundaries have been defined, the Full-Service standard, and perhaps other mail preparation changes, will be re-evaluated. The outcome of these deliberations will determine how the PRC will be able to affect new mailing rules. The scope of possibilities is quite vast. If the PRC is able to review each mail preparation change as a potential rate impact, they will have more authority to shape future rules. This would also give the mailing industry more input into the rule making process, which could extend the review process. After the messy 2015 price increase, the mailing industry would likely appreciate the chance to participate in this process. However, depending on how detailed the line is drawn, it's possible that each preparation change could be a challenge to the line, increasing the churn in defining rules and limiting the Postal Service's rate flexibility. I can't imagine anyone wanting to return to the 10 month price and rule definition process that was in place before the Postal Accountability and Enhancement Act, but mailers have expressed concerns about USPS shifting costs onto mailers in the form of rule changes. The court decision could provide more protection for mailers and a venue to express their concerns regarding these cost shifts in front of the PRC. This addition of oversight authority by the PRC could require a much longer notification and comment period.
Conclusion
While the exigent court ruling has received the majority of press, it's unlikely to have far-reaching implications beyond the next few years. It's interesting that the less noticed ruling has the potential to shape rate and rule changes for mailers for many years to come. The Full-Service story is by no means closed, and now has the potential to impact mail preparation rules across the board.
