ANNUAL REPORT TO THE 

PRESIDENT AND CONGRESS

Fiscal Year 2012

Postal Regulatory Commission

Submitted 1/3/2013 3:41:37 PM

Filing ID: 86069

Accepted 1/3/2013
 POSTAL REGULATORY COMMISSION 1

CHAIRMAN’S MESSAGE, DECEMBER 2012

Patterns of human communication are changing at an accelerating pace. The Postal Service is responding by 

making adjustments to its programs and services, and the Postal Regulatory Commission is active in overseeing 

the Postal Service during these changing times to assure it maintains the levels of service and accountability 

envisioned in the controlling statutes. Recent events, however, demonstrate that old-fashioned mail remains an 

essential communications infrastructure. When Hurricane Sandy devastated whole communities, the Postal 

Service was among the first responders and connected people to each other and their governments when all 

other networks were down. In this year’s Presidential election, more people used the mail to receive ballots to 

vote by mail and to get information about the election than ever before. And as the retail/services market–

which is seventy percent of our economy–shifts to online buying and package delivery, the Postal Service is 

there to absorb the growth.

I am pleased, therefore, to introduce the FY 2012 Annual Report of the Postal Regulatory Commission and its 

part in the postal system of our nation.

The following pages clearly demonstrate the critical role of the Commission in regulating the Postal Service 

and shaping the future of the mail. The Commission responded to an historic number of requests by the 

Postal Service. We rendered advisory opinions on three of the Postal Service’s most ambitious restructuring 

proposals since its inception in 1971. The Commission analyzed and set out for public scrutiny, proposals 

involving reductions to the retail network, to processing plants, to mail delivery standards and to retail hours of 

operations in rural America. The Commission also considered a record number of post office closing appeals, 

rulemakings, complaints, classification changes, negotiated service agreements and rate cases.

The Commission strives to ensure that the average citizen’s needs, postal stakeholders’ interests and legislators’

concerns are balanced with the Postal Service’s obligations to financial solvency, universal service and 

transparency. Our decisions offer expert advice to the Postal Service and challenge it to be more efficient and 

responsive. The merits of our decisions are easily seen in detailed descriptions that comprise the Annual Report 

and in the adjustments the Postal Service has made as a result.

As evidence of the value the public places on mail services, our Consumer Affairs Office received and 

responded to over 5,800 inquiries, comments, suggestions and complaints. The growing number of 

communications we receive from consumers, state and federal governments, business owners and local 

community leaders demonstrates a growing reliance on the Commission.
2 2012 ANNUAL REPORT

As the lead administrator of the Commission, the Chairman can offer certain emphases that express his or her 

special interests or priorities.

Public voices are critical to our process. Initiatives in this area include:

 Expanding the scope of the Commission’s monthly public meetings to provide for a public comment period 

and reports from other agencies whose responsibilities overlap with the Postal Service.

 Undertaking national outreach to community and civic leaders encouraging them to comment on Postal 

Service changes under review by the Commission.

 Developing better analytical tools for identifying service-related trends and other areas of concern among 

the growing number of public commenters to the Commission.

 Supporting a robust Public Representative function that is unique among federal regulatory agencies. An 

attorney administrator, put in place in FY 2011, proved invaluable in FY 2012 when the Commission 

reviewed more than 200 post office closing appeals. Consistent representation and needed resources were 

provided while the special independent role of staff members serving as public representatives was protected.

Employees rely on a modern and supportive infrastructure for the work of the Commission. 

Our emphasis in this area includes:

 Maintaining a workplace environment that clearly identifies staff responsibilities, assesses and rewards staff 

accomplishments and improves employee morale while strictly adhering to administration budget directives. 

The results of this year’s Federal Employees Viewpoint Survey confirm our successful efforts.

 Formulating all office policies in written formats so all reporting requirements are met, activities are carried 

out consistently and IT infrastructure ensures security and stability of key applications.

 Continuing to operate effectively while staying within approved funding levels that have remained flat for 

the past five years.

 Exercising more detailed and precise expenditure controls to assure accountability and limit spending.

 Adhering to Administration guidance on compensation to constrain personnel costs while accommodating 

the increased cost of personnel benefits.

The Postal Service is part of a global system, and we are maximizing the value of our 

international responsibilities.

 Commission participation in the multi-agency delegations to the Universal Postal Union (UPU) headed by the 

State Department has resulted in the adoption of terminal dues exchange rates that will add tens of millions 

of dollars to Postal Service revenues over the next four years.
 POSTAL REGULATORY COMMISSION 3

 Effective Commission participation involves building working relationships with other national posts and 

postal regulators. I have led this initiative by serving as deputy head of delegations at UPU meetings, 

speaking at several conferences, maintaining the annual Postal Regulatory Dialogue begun in 2008 and 

facilitating bilateral meetings with regulators from Portugal, Brazil, China, Russia, and Macedonia.

 The Commission staff gains valuable insights about reform initiatives from these interactions that benefit our 

analyses of Postal Service transformation plans.

I want to offer a personal note of gratitude to our dedicated staff of economists, lawyers, analysts, and 

administrators who have successfully handled a fifty percent increase in workload while operating under the 

tightest of budget constraints. They are among the very best public servants in our federal government.

I would also like to thank Vice Chairman Nanci Langley and Commissioners Mark Acton, Robert Taub, and 

Tony Hammond for their insightful contributions to our deliberations and for the efforts they regularly make to 

reach out to the public and stakeholder organizations.

This report reflects the extent of the restructuring which the Postal Service is undergoing and the importance of 

the role the Commission plays in a positive outcome for that transformation. In particular, I encourage members 

of Congress to carefully review its contents and to use our agency as a resource as it considers postal matters 

and possible reforms.

Ruth Y. Goldway

Chairman
4 2012 ANNUAL REPORT
 POSTAL REGULATORY COMMISSION 5

Table Of Contents

CHAIRMAN’S MESSAGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Chapter I

FY 2012 HIGHLIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Chapter II

ABOUT THE COMMISSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

Staff . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

Mission Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

Guiding Principles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

Commission’s Strategic Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

Chapter III

EFFECTIVENESS OF THE COMMISSION’S RULES IN ACHIEVING THE OBJECTIVES OF THE PAEA 13

Objective 1: Effectiveness of Commission Rules in Maximizing Incentives to Reduce Costs and Increase Efficiency . . . 15

Postal Service Cost Reductions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

Commission Advisory Opinions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

Other Commission Activity Related to Cost Reduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

Objective 2: Assuring Stability and Predictability in Pricing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

Application of the Price Cap. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

Docket No. R2012-3 Rate Adjustment Proceeding. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

Potential Issues with Timing of Rate Adjustments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

Docket No. RM2010-13: First-Class Workshared Benchmark. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

Objective 3: Effectiveness of Rules in Maintaining High Quality Service Standards . . . . . . . . . . . . . . . . . . . . . . . . . 23

Special Study on Non-Contiguous Delivery Performance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

Consultation with the Postal Service. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

Objective 4: Allow Pricing Flexibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

Application of CPI-U Cap at Class Level. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

Experimental Products. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

Promotional Products. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

Market Dominant Negotiated Service Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6 2012 ANNUAL REPORT

Objective 5: Assuring Adequate Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

Declines in Volume Have Exacerbated the Postal Service’s Financial Issues. . . . . . . . . . . . . . . . . . . . . . . . . 29

Objective 6: Reducing Administrative Burden and Enhancing Transparency of Ratemaking Process . . . . . . . . . . . . . 30

Price Adjustments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

Negotiated Service Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

Periodic Reporting Rules. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

Rulemakings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

Enhancing Transparency through the Annual Compliance Determination. . . . . . . . . . . . . . . . . . . . . . . . . . 32

Objective 7: Enhance Mail Security and Deter Terrorism . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

Objective 8: Maintaining a Just and Reasonable Rate Schedule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

Objective 9: Allocating the Total Institutional Costs of the Postal Service 

Appropriately Between Market Dominant and Competitive Products . . . . . . . . . . . . . . . . . . . . . . . . . . 33

COMPETITIVE PRODUCTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

CP2012-2 General Price Adjustment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

RM2012-3 Review of Competitive Products’ Appropriate Share to Institutional Costs. . . . . . . . . . . . . . . . . . 34

Competitive NSA Dockets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

Transfers and Additions to the Competitive Product List. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

Chapter IV

UNIVERSAL SERVICE OBLIGATION AND MAIL MONOPOLY . . . . . . . . . . . . . . . . . . . . . . . . . 37

Estimated Cost of the Universal Service Obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37

Estimated Value of the Monopoly . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39

Chapter V

OTHER LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41

Post Office Appeals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41

Appeal of 2010 ACD Directive on Standard Mail Flats . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42

Commission Rulemakings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43

RM2012-4 Procedural Rules Governing Advisory Opinions in Nature of Service Proceedings. . . . . . . . . . . . 43

Complaints . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43

Docket No. C2011-5 Lopez Complaint. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43

Docket No. C2012-1 Complaint of the Associated Mail and 

Parcel Centers, et al. and Post Office Box Enhancements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43

C2012-2 Complaint of the American Postal Workers Union, AFL-CIO. . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
 POSTAL REGULATORY COMMISSION 7

Chapter VI

INTERNATIONAL ACTIVITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47

Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47

UPU Congress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47

Building Global Relationships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49

Chapter VII

PUBLIC AFFAIRS AND OUTREACH EFFORTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51

Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51

Outreach Activity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51

Consumer Relations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51

Chapter VIII

ADMINISTRATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53

Administration Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53

Employee Engagement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53

Equal Employment Opportunity (EEO) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54

Diversity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54

Training . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54

Transparency and Open Government . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55

Finance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55

Information Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55

Dockets and Records Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56

Appendix A

Technical Description of Price Cap . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
 POSTAL REGULATORY COMMISSION 7

Chapter I

FY 2012 Highlights

In FY 2012, the Commission completed 343 dockets and initiated 20 new dockets that remain in progress. 

The Commission also continued work on six ongoing dockets. Figure I-1 shows how the Commission’s 

workload has grown since FY 2009.

Figure I-1—Commission Dockets 

FY 2009 – FY 2012

0 100 200 300 400

FY12

FY11

FY10

FY09 Post Oce Appeal

Competitive Products

Mail Classication

Rulemaking

Rate

Complaint

Market Test

Public Inquiry

Nature of Service
8 2012 ANNUAL REPORT

FY 2012 HIGHLIGHTS INCLUDE:

 Completion of three advisory opinions related to 

proposed changes in the nature of postal services:

o In N2011-1 (Retail Access Optimization 

Initiative) the Commission advised the 

Postal Service to ensure access to postal 

services in rural communities, explore 

more robust modeling techniques, and 

improve data collection efforts.

o In N2012-1 (Mail Processing Network 

Rationalization) the Commission found that 

the Postal Service could realize substantial 

cost savings while preserving most 

overnight mail delivery.

o In N2012-2 (Post Office Structure 

Plan) the Commission concluded that if 

implemented properly, the realignment of 

retail hours should help balance service 

and cost savings in a manner consistent 

with the law.

 Review of 208 post office appeals—the largest 

number of cases in the Commission’s history.

o Affirmed 162

o Remanded 16

o Dismissed 27

o 3 withdrawn, pending, or another 

action taken

 Issuance of the FY 2011 Annual Compliance 

Determination in which the Commission found that:

o Ten market dominant products and 

services did not generate sufficient 

revenue to cover attributable costs;

o Standard Flats prices were not in 

compliance;

o Three competitive products did not comply 

with 39 U.S.C. 3633(a)(2); and,

o Only First-Class Mail met the delivery 

service performance targets.

 Approval of rates for market dominant and 

competitive products as well as products and 

services in several experimental or promotional 

products, and for negotiated service agreements.

 Participation in the U.S. delegation to the UPU 

Congress, where the Commission:

o Played an active role in formulating and 

advocating positions of the United States 

regarding proposals to amend the Acts of 

the Union to ensure consistency with U.S. 

law and policy, and

o Reviewed over 400 proposals for 

consideration at both the Congress 

and subsequent sessions of the Postal 

Operations Council. The Commission 

found 12 of these proposals inconsistent 

with the Postal Accountability and 

Enhancement of 2006 (PAEA).

 Revision of rules governing appeals of post office 

closings and consolidations in order to simplify the 

process and better reflect current practices.

 Issuance of an Advance Notice of Proposed 

Rulemaking to consider revisions to current 

procedures for reviewing the Postal Service’s 

proposed changes in nature of services.

 Approval of 56 negotiated service agreements 

and 144 Non-Published Rate (NPR) contracts.

 Completion of the Commission’s five year 

strategic plan.

 Receipt of the highest rating from the Department of 

Justice for the Commission’s Freedom of Information 

Act (FOIA) program.

 Response to over 5,800 inquiries, suggestions 

and comments.
 POSTAL REGULATORY COMMISSION 9

Chapter II

About the Commission

The Postal Regulatory Commission is an independent establishment of the executive branch that has exercised 

regulatory oversight over the U.S. Postal Service since its creation by the Postal Reorganization Act of 1970 

(PRA), with expanded responsibilities under the PAEA. The Commission is composed of five Commissioners, 

each appointed by the President, with the advice and consent of the Senate, for a term of six years. The 

Chairman is designated by the President and serves as the head of the agency. A Commissioner may continue 

to serve after expiration of his or her term for up to one year. No more than three members of the Commission 

may be from the same political party.
10 2012 ANNUAL REPORT

Ruth Y. Goldway, Chairman

First appointed as a 

Commissioner on April 7, 

1998. Designated Chairman 

by President Barack Obama on 

August 6, 2009. Term expires 

November 22, 2014. Former 

Manager of Public Affairs for 

the Getty Trust. Former Director of Public Affairs, 

California State University, Los Angeles. Former 

Council Member and Mayor, City of Santa Monica. 

Founder and former Chairperson, Santa Monica Pier 

Restoration Corporation. Former Assistant Director of 

California’s Department of Consumer Affairs. Cofounder of Women in Logistics and Delivery Services.

Nanci E. Langley, 

Vice Chairman

Appointed as a Commissioner 

on June 6, 2008. Served as 

Vice Chairman from January 

2012 to present, and October 

2008 - 2009. Term expires 

November 22, 2012. Former 

Director of Public Affairs and Government Relations, 

Postal Regulatory Commission. Former Deputy Staff 

Director to Senator Daniel K. Akaka (D-HI), U.S. 

Senate Committee on Homeland Security and 

Governmental Affairs’ Subcommittee on Oversight of 

Government Management, the Federal Workforce 

and the District of Columbia. Communications Director 

to former U.S. Senator Spark M. Matsunaga (D-HI). 

Elected as a Fellow of the National Academy of 

Public Administration in 2009. 

Mark Acton

Appointed as a Commissioner 

on August 3, 2006. Term 

expires October 14, 2016. 

Served as Vice Chairman 

from November 22, 2007 to 

October 15, 2008. Served as 

Special Assistant to former Postal 

Rate Commission Chairman George Omas. Former 

Staff Director, Republican National Committee (RNC) 

Counsel’s Office. Former Deputy to the Chairman of 

the 2004 Republican National Convention. Served as 

Special Assistant to the RNC Chief Counsel as well as 

RNC Counsel’s Office Government Relations Officer 

and Redistricting Coordinator. Formerly served as both 

Executive Director, Republican National Convention, 

Committee on Permanent Organization and Deputy 

Executive Director, Committee on Rules. Former 

Executive Director of the RNC Redistricting Task Force. 

Robert G. Taub

Appointed as a Commissioner 

in October 2011. Term expires 

October 14, 2016. Former 

Special Assistant to Secretary 

of the Army, John McHugh. 

Former Chief of Staff to U.S. 

Representative John McHugh. 

Served for 12 years on the House of Representative’s 

Oversight & Government Reform Committee in a series 

of senior positions, including service as Staff Director 

of its former Postal Service Subcommittee. Former 

Senior Policy Analyst with the U.S. Government 

Accountability Office (GAO). Staff member for three 

different Members of Congress, a Member of the 

British Parliament, and state and county officials in 

upstate New York. 
 POSTAL REGULATORY COMMISSION 11

Tony Hammond

Appointed as a Commissioner 

on August 15, 2002. Served 

as Vice Chairman from 2003 

to 2005 and then again from 

2009 to 2010. Sworn in on 

May 1, 2012, for a third term 

as a Commissioner. Term expires 

October 14, 2012. Former owner and managing 

member, T. Hammond Company, LLC. Former Senior 

Consultant to Forbes 2000, Incorporated. Former 

Senior Vice President of the direct marketing firm, 

FL&S. Served as Director of Campaign Operations 

for the Republican National Committee for the 1998 

election cycle. Former Executive Director and Finance 

Director, Missouri Republican Party. Staff to former 

U.S. Representative Gene Taylor (R-MO). 

STAFF

Assisting the Commission is a staff with expertise 

in law, economics, finance, statistics, and cost 

accounting. The Commission is organized into four 

operational offices:

 Accountability and Compliance;

 General Counsel;

 Public Affairs and Government Relations; and

 Secretary and Administration.

The Commission maintains an independent 

office for its Inspector General.

MISSION STATEMENT

Ensure transparency and accountability of the United 

States Postal Service and foster a vital and efficient 

universal mail system.

GUIDING PRINCIPLES

The Commission is committed to and operates 

by the principles of:

 Openness;

 Stakeholder (public) participation;

 Collegiality and multi-disciplinary approaches;

 Timely and rigorous analysis;

 Fairness and impartiality;

 Integrity; 

 Commitment to excellence; and

 Merit.

COMMISSION’S 

STRATEGIC PLAN

The Commission’s Strategic Plan for 2012 – 2016 is 

based upon the Commission’s realistic and forward 

looking assessment of the challenges ahead. As 

the primary regulator of the Postal Service, the 

Commission provides a window on the quality of 

service and the general operations of the Postal 

Service to the Congress, stakeholders and the 

general public. The Strategic Plan begins with the 

Commission’s Mission and Guiding Principles, which 

direct all Commission actions, and it outlines Strategic 

Goals and Implementation Strategies to help the 

Commission fulfill its mission.

The Commission’s mission, as outlined in its Strategic 

Plan, is to: ensure the Postal Service complies with 

title 39; provide transparency and accountability into 

Postal Service operations and finances; and issue 

advisory opinions on changes in the mail that are at 

least substantially nationwide in scope. Additionally, 

the Commissioners meet informally with Office 

Heads, on a quarterly basis, to receive and discuss 

updates related to the strategic goals of the Plan.

The Strategic Plan can be viewed in its entirety on the 

Commission’s website at www.prc.gov
12 2012 ANNUAL REPORT
 POSTAL REGULATORY COMMISSION 13

Chapter III

EFFECTIVENESS OF THE COMMISSION’S RULES 

IN ACHIEVING THE OBJECTIVES OF PAEA

39 U.S.C 3651 requires the Commission to submit an annual report to the President and the Congress that 

includes an analysis of “the extent to which regulations are achieving the objectives under sections 3622 and 

3633” of Title 39. The objectives of section 3622, which pertain to market dominant products, are to:

1. Maximize incentives to reduce costs and increase efficiency;

2. Create predictability and stability in rates;

3. Maintain high quality service standards;

4. Allow the Postal Service pricing flexibility;

5. Assure adequate revenues, including retained earnings, to maintain financial stability;

6. Reduce administrative burden and enhance transparency of the ratemaking process;

7. Enhance mail security and deter terrorism;

8. Establish and maintain a just and reasonable schedule for rates and classifications, without restricting 

the Postal Service’s ability to make changes of unequal magnitude within, between or among classes 

of mail; and

9. Allocate the total institutional costs of the Postal Service appropriately between market dominant and 

competitive products.

For competitive products, the objectives of section 3633 are to:

1. Prohibit the subsidization of competitive products by market dominant products;

2. Ensure that each competitive product covers its attributable costs; and

3. Ensure that all competitive products collectively cover what the Commission determines to be an 

 appropriate share of the institutional costs of the Postal Service.
14 2012 ANNUAL REPORT

Rule 3010.14(7) requires the Postal Service to include 

a discussion in each rate adjustment that demonstrates 

how the planned adjustments help achieve these 

objectives, as well as a discussion of how the planned 

adjustments properly take into account the 14 factors 

listed in section 3622(c). The Commission rules are 

designed to strike a reasonable balance among 

these objectives and embody the PAEA principles of 

flexibility, accountability, and transparency.

The rules are designed to allow the Postal Service 

pricing flexibility by applying the Consumer Price 

Index-Urban (CPI-U) cap at the class level rather 

than at the rate category level.1 Under the law, this 

flexibility is moderated by the separate worksharing 

requirements of section 3622(e)(3) and consideration 

of competing objectives.

Section 3622(e)(2) directs the Commission to ensure 

that workshare discounts do not exceed the costs 

avoided by the Postal Service as a result of the 

workshare activity, unless certain exceptions are met. 

This provision effectively limits the Postal Service’s 

ability to set workshare discounts that exceed 100 

percent of avoided costs. Accordingly, Commission 

rules require the Postal Service to justify any proposed 

workshare discounts that exceed 100 percent of 

avoided costs by explaining how they meet one of 

four exceptions under the PAEA.2

To date, the Commission rules have been effective 

in balancing the Postal Service’s pricing flexibility 

with the statutory requirements related to workshare 

discounts. This has been accomplished through 

adjusting discounts, reviewing Postal Service 

justification of exceptions, or in some cases, 

initiating rulemakings intended to clarify workshare 

1 39 CFR 3010.12 2 39 CFR 3010.14

relationships. The Commission notes that current 

practice by the Postal Service regarding filing notices 

of rate adjustments prior to completion of annual 

compliance determinations may be problematic 

because the discounts will not reflect the data filed in 

the latest compliance determination.

The Commission rules also allow for expeditiously 

reviewing negotiated service agreements (NSA) 

between the Postal Service and individual mailers.3

The Postal Service has further flexibility in offering 

experimental products. If a product is deemed to be 

experimental it is excluded from certain requirements 

of the ratemaking rules.4 Specific limitations on 

experimental products are outlined in the PAEA.

The Commission rules allow even greater flexibility 

to price competitive products.5 The rules allow the 

Commission up to 30 days to determine whether 

the Postal Service’s proposed rates for competitive 

products are meeting the objectives of section 

3633.6 The Commission uses an incremental cost 

test to validate compliance with the cross subsidy 

requirement that revenue generated from competitive 

products equals or exceeds the incremental costs of 

such products.7 In FY 2012, through a rulemaking 

process, the Commission reaffirmed that the 

appropriate share of institutional costs to be borne by 

competitive products is 5.5 percent, subject to revision 

in a future rulemaking proceeding if necessary.8

The statute establishes a tension between the 

restrictions of an inflation-based cap on market 

dominant rate increases and the objective that the 

3 39 CFR 3010.40 4 Id. 5 39 CFR part 3015 6 39 CFR 3015.2 7 39 CFR 3015.7 8 Order No. 1449
 POSTAL REGULATORY COMMISSION 15

Postal Service must be self sufficient and maintain 

financial stability. Further, while the PAEA provided 

incentives in the form of the price cap to reduce 

costs and increase efficiency, it also imposed new 

personnel-related expenses requiring the pre-funding 

of future healthcare costs for retirees. The schedule of 

payments into the Retiree Health Benefits Fund (RHBF) 

ranges from $5 billion to $5.6 billion annually. 

Payments were to begin in FY 2007 and end in FY 

2016 when the schedule would be replaced with 

an actuarial-based system of payments. The Postal 

Service has made three full payments and one partial 

payment into the fund. 

The Postal Service is compelled to reduce costs and 

increase efficiency in order to stay within the price 

cap. Roughly 60 percent of Postal Service costs vary 

directly with volume while the other 40 percent are 

fixed, at least in the short term. When mail volume 

is increasing, as it was when the PAEA was passed 

in 2006, there are more pieces to share the burden 

of the fixed costs. Conversely, when mail volumes 

decline, as they have in recent years, there are 

fewer pieces to share the burden of fixed costs. 

Because fixed costs are difficult to reduce regardless 

of increased efficiency, total unit costs increase as 

volume declines. The Postal Service’s total operating 

expenses have been declining at a faster pace than 

the rate of inflation.9 However, much of this decline 

is due to volume loss. On a unit basis, the Postal 

Service has not been able to keep operating costs in 

line with the CPI-U.

Although much of the Commission’s work implicates 

a number of these nine objectives, the remainder of 

9 Operating expenses do not include payments into the RHBF.

this chapter discusses the impact of the Commission’s 

work on each objective separately.

OBJECTIVE 1: EFFECTIVENESS

OF COMMISSION RULES IN 

MAXIMIZING INCENTIVES TO 

REDUCE COSTS AND 

INCREASE EFFICIENCY 

A primary goal of the CPI-U cap is to provide 

incentive for the Postal Service to increase efficiency 

and reduce costs. As discussed further in section H, 

the Postal Service has not been able to generate 

sufficient revenue through its CPI-U-based price 

increases to cover its overall costs. However, the 

Postal Service has been able to reduce operating 

costs, which do not include payments into the RHBF, 

over the past few years.

The Postal Service has made several adjustments 

to its service in order to reduce costs. When the 

Postal Service determines to make a change in the 

nature of its services that will affect mail users on a 

nationwide or substantially nationwide basis, it must, 

prior to implementation, submit a proposal to the 

Commission requesting an advisory opinion related to 

the proposed changes. After the request is submitted, 

parties are provided an opportunity for a hearing on 

the record in accordance with the provisions of 5 

U.S.C. 556 and 5 U.S.C. 557. 39 U.S.C. 3661(c). 

The Commission rules regarding advisory opinions 

encompass these requirements.10

The rules ensure transparency of Postal Service 

programs that impact nationwide service. This 

transparency allows the public an opportunity to 

provide suggestions on how the Postal Service’s 

10 39 CFR 3001.18
16 2012 ANNUAL REPORT

proposed changes can maximize cost savings and 

improve efficiency. In FY 2012 the Commission 

completed three nature of service advisory opinions. 

These opinions reviewed Postal Service initiatives 

intended to reduce costs and increase efficiency. 

Each advisory opinion included Commission 

suggestions and recommendations. The Commission 

also completed a study on peak load costs.

Postal Service Cost Reductions

Various factors outside of the Postal Service’s direct 

control, such as increased fuel prices and higher 

Federal Employee Retirement System (FERS) premiums, 

make it challenging to assess how well the PAEA 

is working to maximize incentives to reduce costs 

and increase efficiency. The required payments into 

the RHBF impose an approximately $5.5 billion 

annual payment. In addition, declining volumes have 

impacted both the total costs and the unit costs of the 

Postal Service.

As seen in Figure III-1, the Postal Service has been able 

to reduce total operating costs since implementation of 

the price cap regime. It has accomplished this primarily 

through workhour reductions.

Total operating costs in FY 2012 declined 1.1 

percent, or $744 million. Reductions in workhour 

usage enabled the Postal Service to reduce 

compensation and benefits costs by approximately 

$342 million over the past year. Non-personnel 

expenses also declined by $394 million. The Postal 

Service absorbed increases in the cost of fuel in both 

purchased transportation and its own delivery fleet. 

In FY 2011 the RHBF payment was deferred until 

FY 2012. Total expenses increased 14.6 percent in 

FY 2012 because this RHBF expense was carried 

forward and added to that year’s expenses.

Although the Postal Service has been able to reduce 

total operating costs, the combined effects of RHBF 

payments that exceed $5 billion a year and sustained 

volume declines have resulted in an increase in 

the average total unit cost. The average unit cost 

is significant because the Postal Service generates 

revenue almost exclusively from the sale of postage. 

To remain profitable, the average unit revenue must 

increase as average unit cost increases. 

As seen in Figure III-2, the cumulative increase in 

average unit cost, both with and without the RHBF 

payment, has been greater than the cumulative 

increase in average unit revenue since passage of the 

PAEA in FY 2007.

11%

-3%

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

1 2 3 4 5 6

Cum ulat ive Pe r ce nt Change 

Six Fiscal Years Prior to (2000 - 2006)

and After (2007 - 2012) PAEA

Six Years Prior to PAEA (FY 2000 - FY2006) 

Six Years After PAEA (FY2007 - FY 2012) 

Figure III-1—Comparison of Cumulative Change 

in Total Operating Costs Before and After PAEA
 POSTAL REGULATORY COMMISSION 17

Commission Advisory Opinions

In FY 2012, the Commission reviewed three Postal 

Service requests for advisory opinions under 39 

U.S.C. 3661. The Commission completed its review 

of the Retail Access Optimization Initiative (RAOI) 

and the related Post Office Structure Plan (POStPlan). 

The Commission also completed its advisory opinion 

on the Mail Processing Network Rationalization 

(MPNR). In both the RAOI and the MPNR Opinions, 

the Commission found that the Postal Service did 

not take full advantage of available modeling tools 

to determine the optimum alignment of facilities. The 

Commission was also unable to verify the Postal 

Service’s cost savings estimates. In each of its advisory 

opinions the Commission recommended improvements 

to the Postal Service’s planned initiatives.

N2011-1: Retail Access Optimization Initiative

The Commission issued its advisory opinion on the 

Postal Service’s RAOI on December 23, 2011. 

The RAOI was a centrally-directed plan examining 

whether to discontinue approximately 3,650 of the 

more than 32,000 post offices, stations and branches 

in the Postal Service’s retail network. 

The advisory opinion included several critiques of 

the RAOI and advised the Postal Service to use 

the most relevant and robust data available when 

utilizing screening procedures. The Commission also 

expressed concern that for the majority (approximately 

77 percent) of the RAOI facilities, the availability 

of alternate retail access was not considered as 

part of the screening process. In instances where 

alternate access was identified by the Postal Service, 

a significant portion of the alternate facilities did 

not offer a complete range of postal services. The 

Commission advised the Postal Service to add 

a constraint to the screening criteria to ensure 

availability of at least one alternate facility that 

provides full service.

The Commission was concerned that the 

RAOI screening criteria, if separated from the 

discontinuance procedures, may have a disparate 

impact on vulnerable populations. The Commission 

found that in order to provide adequate access, the 

Postal Service should develop alternatives that are 

better tailored for customers in rural or remote areas.

Data quality issues prevented the Commission 

from constructing a reasonably reliable estimate 

of the potential financial effects of the RAOI. The 

Commission recommended several ways for the Postal 

Service to improve the quality of its data for use in 

future operational and strategic decision-making.

Figure III-2—Cumulative Change in Total 

Average Unit Cost and Revenue 

FY 1999—FY 2012

36%

64%

31%

0%

10%

20%

30%

40%

50%

60%

70%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Cumulative Percent Change 

Fiscal Year

Unit Cost Without RHBF Payment

Unit Cost With RHBF Payment

Unit Revenue
18 2012 ANNUAL REPORT

The Commission concluded the RAOI was not an 

optimization initiative in the traditional economic 

sense. A better practice for the Postal Service would 

be to utilize modern optimization techniques that 

consider both consumer access and supplier revenue 

concepts. The Commission suggested that the 

Postal Service use available modeling techniques, 

Geographic Information Systems software and spatial 

modeling tools in the process of selecting facilities 

for discontinuance review, mapping facilities, and 

optimizing the network. The Commission also advised 

the Postal Service to utilize driving distances rather 

than straight line distances in the screening process.

N2012-2: Post Office Structure Plan

The Commission issued its advisory opinion on 

the POStPlan on August 23, 2012. The POStPlan 

initiative was filed in response to the Commission’s 

Advisory Opinion on the RAOI and requests from 

Congress. Unlike the RAOI, this initiative reflected a 

determination by the Postal Service to explore options 

to adjust its retail window hours without closing post 

offices. Under the POStPlan, retail window hours 

of operation at more than 13,000 post offices 

nationwide will be reduced to six, four, or two hours 

per weekday. In approximately 73 locations, hours of 

operation will increase.

The Commission found that the POStPlan was a 

significant improvement over the previous RAOI. The 

Commission also found that the POStPlan’s objective 

of achieving cost savings with limited reductions 

in access and service was consistent with public 

policy. It recognized that the POStPlan may reduce 

retail service and customer convenience at post 

offices by reducing weekday hours of operation. The 

Commission concluded that if implemented properly, 

the POStPlan should help balance service and cost 

savings in a manner consistent with the law.

To further enhance the implementation of the POStPlan, 

the Commission provided recommendations on: 

the Postal Service’s customer preference survey: 

implementing the POStPlan at facilities that will require 

modifications to buildings and/or operations; the 

Postal Service’s instructional memorandum to area 

vice presidents and district managers; data collection 

and review of whether the POStPlan is meeting its 

objectives and goals; and, monitoring and measuring 

changes in revenue at POStPlan post offices. 

N2012-1: Mail Processing Network Rationalization

The Commission issued its advisory opinion on the 

Postal Service’s MPNR initiative on September 28, 

2012. Under the Postal Service’s plan, 80 percent 

of all First-Class Mail would be delayed by at least 

one day and service standards would be modified for 

Periodicals, Standard Mail and Package Services.11

The plan included cost savings from the consolidation 

of 229 of its 461 processing plants. The Commission 

concluded that it was possible for the Postal Service 

to undertake significant network rationalization and 

realize substantial cost savings while preserving most 

current service levels. It advised the Postal Service 

to consider alternatives that would preserve service 

levels before proceeding with full implementation.

As in the RAOI case, the Commission found that 

the Postal Service did not take full advantage of 

its network modeling tools. The Postal Service’s 

modeling effort could be improved by starting with 

a baseline model that is validated against known 

11 In July 2012, the Postal Service proceeded with a phased 

implementation plan that includes interim service standards until 

January 31, 2014, preserving overnight First-Class Mail service (with 

the exception of First-Class Mail that is handled by more than one 

processing facility) and consolidating 140 plants.
 POSTAL REGULATORY COMMISSION 19

conditions, including actual plant productivities. The 

Commission found that the Postal Service should 

review its underlying assumption that larger plants 

process mail less expensively than smaller plants. The 

Commission also found that a network rationalization 

solution that shifts mail processing to plants that 

currently exhibit higher productivities than other plants 

should be considered.

The Commission concluded that in order to capture 

the anticipated $1.6 billion net cost savings upon 

full implementation of the MPNR, the Postal Service 

would have to improve average system-wide 

productivity by over 20 percent. The Commission 

cautioned that improvements of this magnitude are 

ambitious and involve some risk.

The Commission estimated that the MPNR cost 

savings may be as low as $46 million annually 

assuming mail processing productivities remain at 

current levels, or as high as $2 billion annually if all 

proposed assumptions prove correct, and that these 

cost savings may be offset by reduced contribution 

to the bottom line from volume loss by mailers who 

no longer believe the level of service provided meets 

their postal needs.

The Commission encouraged the Postal Service to 

study the effects of the service standard changes 

during the initial implementation phase to inform 

its decisions before going forward with full 

implementation. While these evaluations may not be 

cost free, given the magnitude of service changes 

contemplated, it is important for the Postal Service to 

proceed with accurate information. The Postal Service 

has said it will consider these recommendations 

during Phase I when it finalizes plans for Phase II.

Other Commission Activity

Related to Cost Reduction

The Commission’s advisory opinion on the Postal 

Service’s proposal for the Elimination of Saturday 

Delivery (N2010-1) highlighted the need to consider 

peak load costs if Saturday volume is shifted, as 

the Postal Service suggested, to Monday or Friday. 

The Commission concluded that without a clear 

understanding of how staffing and equipment 

utilization will adapt, the result of the change could 

be capacity issues that impede operations and delay 

service. In August 2011, the Commission issued a 

Request for Proposals (RFP) to help create a model 

to estimate the effect on mail processing labor costs 

of workload fluctuations. George Mason University 

School of Public Policy (GMU) was awarded the 

contract, and in October 2011, submitted their 

“Report on Peak Load Cost Modeling.” It compared 

a linear optimization model with an econometric 

analysis and determined that a linear model with a 

representative sample would be the best method for 

analyzing peak load cost issues.

Peak load costs occur when volume peaks and 

additional processing, delivery, and transportation 

costs are incurred because additional labor, machine, 

and space capacity are needed. The Postal Service’s 

optimal choice is to use peak levels of these resources 

only when they are needed, avoiding excess supply 

of labor and facilities and their associated costs 

during non-peak times. The GMU report uses a linear 

optimization model with constraints to analyze the 

trade-offs between resource use during peak and nonpeak times.12 The GMU model identifies an optimal 

12 The GMU model is a modified version of the one described by Crew, 

Kleindorfer and Smith in their paper “Peak-Load Pricing in the Postal 

Services,” published in the Economic Journal, Vol. 100, (September 

1990) pp. 793-807.
20 2012 ANNUAL REPORT

level that minimizes staffing and equipment costs 

while abiding by the constraints of labor contracts, 

facility capacity, and service standards. The results of 

the model can then be compared to actual results to 

obtain a measure of the efficiency of the model, as 

well as the effectiveness of the Postal Service’s current 

resource allocation. The model can also be used to 

estimate the cost of changes in labor contracts, facility 

capacity and mail service standards by running the 

model with and without each individual constraint.

Objective 2: Assuring Stability 

and Predictability in Pricing

The Commission rules related to application of the 

price cap in rate adjustments are intended to assure 

stability and predictability in pricing while promoting 

efficiency.13 The Commission’s rules on worksharing, 

which embody the statutory requirements of section 

3622(e)(2), also foster stability and predictability 

in rates.14

13 39 CFR 3010.20 14 39 CFR 3010.14

Application of the Price Cap 

The PAEA limits market dominant price adjustments 

by the percentage change in CPI-U, unadjusted for 

seasonal variation, over the previous 12 months. In 

order to promote pricing stability and predictability 

the Commission’s rules adopted a moving average, 

rather than a point-to-point calculation, to determine 

the annual limitation on market dominant price 

adjustments (i.e. the price cap).15 A point-to-point 

approach only compares the percentage change 

in CPI-U on two distinct points in time. The moving 

average approach compares two 12-month averages 

to determine the price cap. Figure III-3 shows the 

stability of using a moving average, opposed to a 

point-to-point approach.

Figure III-3 shows that the moving average method 

moderates swings in inflation. The moving average 

method also responds more slowly to swings 

in monthly inflation rates, which provides more 

predictability and stability in the calculation of the 

price cap.

15 39 CFR 3010.21

Figure III-3—Comparison of Percentage Change in CPI-U with 

Moving Average and Point-to-Point Method

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

Point-to-Point Moving Average

Jan-07

Mar-07

May-07

Jul-07

Sep-07

Nov-07

Jan-08

Mar-08

May-08

Jul-08

Sep-08

Nov-08

Jan-09

Mar-09

May-09

Jul-09

Sep-09

Nov-09

Jan-10

Mar-10

May-10

Jul-10

Sep-10

Nov-10

Jan-11

Mar-11

May-11

Jul-11

Sep-11

Nov-11

Jan-12

Mar-12

May-12

Jul-12

Sep-12

Percentage change in CPI-U

Month-Year
 POSTAL REGULATORY COMMISSION 21

A technical description of the application of the CPI-U 

price cap is found in Appendix A.

Docket No. R2012-3 Rate

Adjustment Proceeding

In order to ensure stability and predictability in rates, 

Commission rule 3010.7 requires the Postal Service 

to maintain a Schedule for Regular and Predictable 

Price Changes (Schedule) with the Commission. 

Commission rule 3010.7(e) requires updates to 

this Schedule, as appropriate. The Commission 

rules allow the Postal Service to file notices of price 

adjustment at its discretion.16 The Postal Service 

filed its initial schedule on February 11, 2008. 

On October 18, 2011, the Postal Service filed an 

update with the Commission stating that the Postal 

Service is expected to implement price changes 

for all market dominant classes on January 22, 

2012.17 Additionally, the Postal Service notified 

the Commission that it expected to implement price 

changes for all market dominant classes annually in 

January with price increases for each market dominant 

class equal, on average, to the applicable price cap 

limitation in that year.

Section 3622(e)(2) directs the Commission to 

ensure that workshare discounts do not exceed the 

costs avoided by the Postal Service, unless certain 

conditions are met. The Commission rules18 require 

the Postal Service to justify any proposed workshare 

discounts that exceed 100 percent of avoided 

costs by explaining how they qualify for one of four 

exceptions permitted under the PAEA.

16 39 CFR 3010.10 17 For details on the amount of these price changes, refer to the Notice 

of Market Dominant Price Adjustment in Docket No. R2012-3. 18 CFR 3010.14

The Commission evaluated the consistency of the 

proposed discounts that would be in effect in FY 

2012 with Section 3622(e) based on FY 2010 

avoided cost estimates because FY 2011 data 

were not yet available. The Commission found that 

the proposed discounts met the Section 3622(e) 

requirements based on FY 2010 cost avoidance data. 

Potential Issues with Timing

of Rate Adjustments

Although having a schedule of price adjustments helps 

create stability and predictability in rates, the timing 

of the FY 2012 adjustment presented challenges in 

calculating workshare discount passthroughs due 

to cost data being 10 months out of date at the 

time of the proceeding. As the Commission noted 

in its Section 701 Report, rate adjustment filings 

in October, November and December mean that 

available cost data are more than one year old.19

Docket No. RM2010-13: 

First-Class Workshared Benchmark

Workshare benchmarks are used to determine the 

cost avoided between levels of worksharing. The 

costs avoided provide a standard for determining 

the maximum size of workshare discounts for that 

mail. Consistent benchmarks foster predictability and 

stability in rates. In Docket No. R2009-2, the Postal 

Service proposed workshare discounts for First-Class 

Mail and Standard Mail that were not based on 

19 For example, when the Postal Service filed its ACR in late December, 

2011, the Commission evaluated FY 2011 workshare discounts, 

which were already obsolete, based on FY 2011 cost data. 

The Commission found that numerous workshare discounts had a 

passthrough above 100 percent and did not qualify for any of the 

exceptions. Because the rate adjustments for FY 2012 had already 

been approved, the workshare discounts could not be adjusted in the 

FY 2012 rates. The Postal Service had adjusted some discounts in the 

FY 2012 notice of rate adjustments to bring them into alignment with 

the costs but other discounts remained out of alignment.
22 2012 ANNUAL REPORT

established workshare cost avoidance methodologies. 

In First-Class, the Postal Service did not use the 

existing benchmark, bulk metered mail, for calculating 

workshare discounts and instead based the discounts 

on presort First-Class Mail delinked from single-piece 

First-Class Mail. In Standard Mail, the Postal Service 

did not use the existing methodology based on costs 

avoided by shape between Basic and High Density, 

and High Density and Saturation.

The Postal Service’s proposals reflected its legal 

view that the cap on the size of workshare discounts 

imposed by section 3622(e) does not apply if 

the services in question are separate products. In 

response, the Commission established Docket No. 

RM2009-3 to determine whether this was a proper 

interpretation of the statute. In Order No. 536, 

the Commission concluded that section 3622(e) 

properly applies to separate products. Specifically, it 

concluded that Presorted First-Class Mail is properly 

viewed as a workshared variant of a portion of 

Single-Piece First-Class Mail.

To determine what portion of Single-Piece First-Class 

Mail best represents mail that is likely to be presorted 

given a sufficient price incentive (i.e., what single-piece 

mail should be viewed as the benchmark for measuring 

the costs avoided by presorting First-Class letter mail), 

the Commission initiated Docket No. RM2010-13. 

The Commission also sought comments on these 

specific activities for which costs should be considered 

avoided when that base group is workshared. 

In Order No. 1320, the Commission concluded 

that the broad metered mail category that includes 

metered, Information-Based Indicia (IBI), and Permit 

Validation Imprint (PVI) letters, best represents singlepiece First-Class Mail that is likely to convert to presort 

First-Class Mail.20 The Commission also determined 

that the metered mail base group should include three 

categories of costs that worksharing avoids: (1) mail 

processing; (2) delivery; and (3) collection.21 The 

Commission further concluded that the costs avoided 

by ancillary mailer activities integral to a worksharing 

activity, such as cleansing pre-barcoded addresses, 

should be reflected in workshare discounts.

In Order No. 1320, the Commission also evaluated 

five technical proposals to modify the First-Class 

Mail presort cost models and two proposals for new 

workshare discounts. The Commission concluded that 

each technical proposal was reasonable, but that 

each needed to be further developed to demonstrate 

that it would be more accurate than using the current 

methodology. The Commission also concluded that 

for the proposed new workshare discounts, the Postal 

Service should work with the petitioners to investigate 

the potential benefits to the Postal Service, as well as 

the mailers, of offering those discounts.22

While Docket No. RM2010-13 was pending before 

the Commission, the Postal Service filed an appeal in 

the District of Columbia Circuit Court of Appeals on 

the Commission’s conclusion in Order No. 536 that 

the cap on workshare discounts applies to separate 

products, and from that order’s tentative conclusion 

that avoided costs should include the cost that 

ancillary but integral workshare characteristics avoid. 

The Court dismissed the Postal Service’s appeal on 

the premise that it was not ripe for review. The Court 

observed that the Commission had not yet indentified 

a benchmark for Presorted First-Class Mail in Docket 

No. RM2010-13. See U.S. Postal Service v. Postal 

20 Commission Order No. 1320 at 10-11. 21 ld. at 19-31. 22 ld. at 32-59
 POSTAL REGULATORY COMMISSION 23

Regulatory Commission, 443 Fed. Appx. 560 (D. C. 

Cir. Oct 21, 2011) (No. 10-1324). On April 20, 

2012, the Commission issued Order No. 1320, 

concluding Docket No. RM2010-13. On May 11, 

2012, the Postal Service filed a petition for review 

of that order in the Circuit Court of Appeals for the 

District of Columbia. See USCA No. 12-1221.

OBJECTIVE 3: 

EFFECTIVENESS OF RULES IN 

MAINTAINING HIGH QUALITY 

SERVICE STANDARDS

Reviewing quality of service allows the Commission 

to assess whether the Postal Service is meeting the 

objective of maintaining the ”high quality service 

standards established under section 3691,” and 

furthers the objective of increasing transparency. 

This review is also important in relation to the rate 

cap requirements of 39 U.S.C. 3622(d)(1)(A) when 

analyzing whether quality of service is impacted 

in order to comply with rate cap requirements. The 

Commission’s service performance reporting rules 

require quarterly reporting of service performance 

at the product level.23 Commission rules regarding 

advisory opinions on changes in nature of service 

add transparency to service standards.

The Annual Compliance Determination (ACD) 

provides reliable insight into the Postal Service’s 

quality of service obligation. In the FY 2011 ACD, 

the Commission concluded that although the Postal 

Service was demonstrating success in meeting its 

service standard goals in the areas of single-piece 

First-Class Mail and Special Services, it experienced 

difficulty meeting its service standard goals for most 

other market dominant products. FY 2012 was 

23 39 CFR 3055.31

the first complete year that the Postal Service has 

reported service performance results for the majority 

of its market dominant products. The Commission will 

review the FY 2012 service performance results in the 

upcoming FY 2012 ACD.

The level of Full Service Intelligent Mail participation 

continued to impact the reliability of many service 

performance results. The level of Full Service Intelligent 

Mail participation is an essential determinant of the 

effectiveness of the hybrid system used for service 

performance measurement. The Commission’s 

monitoring of the internal measurement system 

throughout FY 2012 found that for many products 

the volume in measurement was still low. The 

Postal Service has expanded its efforts to increase 

measurements in FY 2012 and has announced plans 

for full implementation in FY 2013.

Figure III-4—Percent of Pieces in Measurement 

FY 2012

24.5%

29.6% 31.0%

32.1%

11.4%

15.4% 16.2% 15.9%

9.3%

11.9% 12.0%

13.0%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

FY 2012

Quarter 1

FY 2012

Quarter 2

FY 2012

Quarter 3

FY 2012

Quarter 4

First-Class Mail (Total Presort, Flats)

Standard Mail (HDSL, HDSF&P, Carrier Route, Letters, Flats, Not Flat)

Periodicals(In-County, Outside-County)
24 2012 ANNUAL REPORT

Commission rules add an additional element of 

transparency to service performance review when 

changes in the nature of postal services have a 

nationwide affect. Rule 3001.74 stipulates that all 

information submitted as part of a request for an 

advisory opinion must include information “necessary 

and appropriate to fully inform the Commission and 

the parties of the nature, scope, significance and 

impact of the proposed change in the nature of postal 

services and to show that such change in the nature 

of postal service is in accordance with and conforms 

to the policies established under the Act.” In the 

MPNR case, the Commission reviewed and analyzed 

the Postal Service’s request to change service 

standards. The Commission’s review and analysis led 

it to conclude that the Postal Service could preserve 

most of its current levels of service and still realize 

substantial cost savings from network rationalization. 

Special Study on Non-Contiguous

Delivery Performance

39 CFR 3055.7 requires the Postal Service to 

submit, as part of the Annual Compliance Report, 

a biennial special study on delivery performance, 

by class of mail, to non-contiguous areas of the 

United States. This rule is intended to ensure that 

noncontiguous areas receive adequate service. 

The first report, issued as part of the FY 2011 

Annual Compliance Report, evaluated final delivery 

service performance to the remote locations of 

Alaska, Honolulu and Caribbean Districts as 

compared to service performance at the gateway 

cities of Anchorage, Honolulu, and San Juan. The 

Commission found no compelling evidence that 

service performance in the rural/remote areas 

of noncontiguous locations is distinctively lower 

than the gateway cities. However, in most cases 

the noncontiguous locations have among the 

lowest performance in the nation. The Commission 

recommended the Postal Service review processing 

operations and service standards in these areas.

Consultation with the Postal Service

39 U.S.C. 3652(a)(2)(B) requires that the Postal 

Service, in consultation with the Commission, 

establish modern service standards for market 

dominant products. The Commission has monitored 

the Postal Service’s progress toward compliance with 

PAEA provisions through regular monthly consultations. 

In particular, the Commission has monitored service 

performance measurements. The Commission has 

continued the monthly consultations to monitor the 

Postal Service’s progress in implementing systems for 

measuring Postal Service performance in meeting the 

agreed upon service standards.

OBJECTIVE 4: ALLOW 

PRICING FLEXIBILITY

The Commission rules related to application of the 

CPI-U price cap, introduction of new products, 

and implementation of promotional offerings, 

are designed to encourage the pricing flexibility 

envisioned in the PAEA.24 The CPI-U price cap, which 

is applied at the class level, rather than at the product 

or rate category level, allows the Postal Service 

flexibility in pricing within a particular class. This 

flexibility is balanced by other statutory mandates. 

The Commission rules embody the statutory language 

allowing experimental products as a means for 

evaluating potential new product offerings.25

24 CFR 3010.20 – 3010.29 and 39 CFR 3020.32 25 39 CFR 3020.13
 POSTAL REGULATORY COMMISSION 25

Promotional products and negotiated service 

agreements allow the Postal Service to offer limited 

time products and services and negotiated rates.

Application of CPI-U Cap at Class Level

In FY 2012 the Postal Service exercised its pricing 

flexibility under the price cap by applying non-uniform 

price increases to products, including above average 

price increases for many products that did not cover 

their costs in FY 2010. For example, Standard Mail 

Flats, which had an 81.8 percent cost coverage in FY 

2010, received a 2.209 percent price increase. This 

was consistent with the Commission’s FY 2010 ACD 

directives. FY 2010 ACD at 106-07.

Figure III-5 compares the average rate increases by 

product with the percentage increase allowed under 

the CPI-U cap.

Experimental Products

To qualify as an experimental product under 39 U.S.C. 

3641 the offering must (1) be significantly different 

from all products offered by the Postal Service within 

a two year period; (2) not result in undue market 

disruption, especially for small businesses; and (3) 

be correctly categorized as market dominant or 

competitive. In FY 2012, the Commission reviewed 

and approved one new experimental product and the 

addition of two permanent products, one of which had 

been a market test.

Figure III-5—Docket No. R2012-3 Price Adjustments by Product

10%

8%

6%

4%

2%

0

Percentage Increase

Price Cap 2.13%

BPM Flats

Single-Piece Letters and Cards

Presorted Letters and Cards

Flats

Parcels

FCM International

Outside County

Within County

Letters

Flats

Marketinig Parcels * High Density and Saturation Letters

High Density and Saturation Flats and Parcels

Carrier Route

Single-Piece Parcel Post

BPM Parcels

Media Mail/Library Mail

Inbound Surface Parcel Post

* Previously Standard Mail NFMs and Parcels. 1st Class Mail Periodicals Mail Standard Mail Package Services
26 2012 ANNUAL REPORT

Every Door Direct Mail-Retail

The Postal Service first began offering Every Door 

Direct Mail—Retail (EDDM—R) as an experimental 

product pursuant to Commission authorization 

of a market test in Docket No. MT2011-3. In 

January 2012, the Commission granted the Postal 

Service’s request for an exemption from the $10 

million annual revenue limitation for EDDM-R.26 The 

effect of the exemption was to increase the annual 

revenue limitation to $50 million pursuant to 39 

U.S.C. 3641(e)(2). Subsequently, the Postal Service 

requested a modification to the Mail Classification 

Schedule (MCS) by adding Every Door Direct Mail–

Retail (EDDM-R) to the market dominant product 

list.27 The Commission found that the Postal Service’s 

request met the statutory requirements and issued 

Order No. 1460 on September 7, 2012 approving 

the Postal Service’s request.

Picture Permit Imprint Indicia

In Order No. 1324, the Commission approved the 

Postal Service’s request to add picture permit imprint 

indicia as a new price category for First-Class Mail 

Presorted Letters and Postcards and Standard Mail 

High-Density and Saturation Letters, Carrier Route, and 

Letters. Picture permit indicia allow certain images to 

be placed in the permit indicia area of those FirstClass and Standard Mail products. The price for the 

new category is one-cent per piece for First-Class Mail 

and two-cents per piece for Standard Mail.

26 Commission Order No. 1164. 27 Request of the United States Postal Service to Add Every Door Direct 

Mail–Retail to the Mail Classification Schedule, July 10, 2012 

(Request). On July 18, 2012, the Postal Service filed a correction to 

its Request. United States Postal Service Notice of Errata to Request 

of the United States Postal Service to Add Every Door Direct Mail – 

Retail to the Mail Classification Schedule, July 18, 2012.

First-Class Tracer

The Commission approved the proposed experimental 

product identified as First-Class Tracer (Tracer) on 

December 9, 2011. Tracer is a barcode that the 

mailer affixes to a mailpiece. The mailer keeps a 

portion of the label that includes a tracking number 

and a QR code, which enables the mailer to go to 

the USPS.com website and check the status of the 

respective mailpiece by either entering the tracking 

number or by scanning the QR code with a mobile 

device. The approval included a data collection 

plan as a requirement of the Postal Service’s 

implementation of the Tracer product market test. To 

date, the Postal Service has not filed data collection 

results with the Commission.

Promotional Products

In FY 2012, the Commission approved two mobile 

barcode promotions. The first was approved in Order 

No. 1296.

28 This program requires First-Class and 

Standard mailers to place a two-dimensional barcode 

on or inside a mailpiece to qualify for a two percent 

discount. A qualifying barcode must lead the recipient 

to a mobile-optimized webpage that either (1) allows 

the recipient to purchase a product or service; or (2) 

includes content unique to the individual recipient. The 

promotion was in effect from July 1, 2012, through 

August 31, 2012.

In FY 2012, the Postal Service requested an 

additional mobile barcode promotion that would 

be in effect from November 7, 2012, through 

November 21, 2012. This promotion, known as the 

Mobile Shopping Promotion, provides a two percent 

discount on First-Class and Standard mailpieces 

28 This promotion was similar to the mobile barcode promotion offered 

in FY 2011. See Docket No. R2011-5.
 POSTAL REGULATORY COMMISSION 27

displaying a mobile barcode linking to a mobile 

optimized shopping website that allows the recipient 

to purchase a product. The Mobile Shopping 

Promotion also includes a one percent rebate on 

First-Class and Standard Mail if a portion of the 

mailer’s orders are fulfilled via Priority Mail between 

November 9, 2012, and December 31, 2012.

The Commission was concerned that the Mobile 

Shopping Promotion may potentially violate the 39 

U.S.C. 3633 prohibitions against cross-subsidization 

of competitive products if a mailer is eligible for 

rebates on First-Class Mail and Standard Mail 

based on its use of Priority Mail. To ensure no crosssubsidization occurred, the Commission required the 

Postal Service to treat the rebate as an advertising cost 

to Priority Mail when determining competitive products’ 

incremental costs in its Annual Compliance Report.

Market Dominant Negotiated

Service Agreements

Since the passage of the PAEA, the Postal Service 

has requested approval of two market dominant 

negotiated service agreements (NSAs) with 

commercial mailers. The first was in FY 2011, with 

Discover Financial Services (Discover), and the 

second was in FY 2012 with Valassis, Inc. (Valassis). 

The Commission approved both.

In Order No. 1428, the Commission approved the 

Postal Service’s request for its NSA with Valassis. 

The Commission found that the NSA complied with 

all relevant statutory authority because, among 

other things: the prices offered by the Postal Service 

to Valassis are compensatory, and therefore the 

agreement is not anti-competitive; the NSA would 

benefit consumers and the Postal Service, and not 

unreasonably harm the marketplace; and similar 

agreements would be available to other mailers on 

reasonable terms.

The Newspaper Association of America (NAA) 

has filed an appeal of the Commission’s decision 

with the U.S. Court of Appeals for the District of 

Columbia Circuit (NAA v. PRC) (No. 12-1367) 

which is pending.29

OBJECTIVE 5: ASSURING 

ADEQUATE REVENUES

The Postal Service’s current financial challenges 

demonstrate that it is at risk of failing to meet the 

objectives of section 3622(b)(5), which include 

assuring adequate revenues, including retained 

earnings, to ensure financial stability. Ten years 

after enactment of the PAEA, 39 U.S.C. 3622(d)

(3) requires the Commission to review the system 

for regulating rates and classes for market dominant 

products to determine if the system is achieving the 

objectives of 3622(b). The tenth anniversary will 

occur in December 2016.

Since FY 2006, the Postal Service has reported 

financial losses totaling over $41 billion. In that 

same period, the funding schedule for the RHBF has 

required total payments of $33 billion. The price 

cap regulations prohibit the Postal Service from 

increasing rates higher than an inflation-based index. 

Annual average increases under this index have 

ranged from 0 percent to 3.8 percent. Despite the 

Postal Service’s efforts to significantly reduce costs, 

the revenue generated from these increases has not 

been enough to cover the funding requirements and 

operating expenses.30 For example, in FY 2012 

the Postal Service lost $15.9 billion, or 10 cents 

per mail piece, including $11.2 billion in RHBF 

29 On August 24, 2012, NAA petitioned the court for an Emergency 

Motion for a stay of the Valassis NSA pending the outcome of the 

appeal. The court denied NAA’s motion on September 25, 2012. 30 The Commission has advocated adjustments to the funding of retiree 

health benefits in the report to Congress in response to a Postal 

Service Inspector General report on retiree health benefit funding and 

also in the Commission’s Section 701 report to the Congress.
28 2012 ANNUAL REPORT

expenses. In FY 2012 the average revenue per piece 

was 40.8 cents. For the Postal Service to break 

even, the average revenue per piece would have to 

increase to 50.8 cents. This equates to a 24 percent 

average increase in revenue per piece. To cover 

only operating costs, without the RHBF payment, a 

seven percent increase in revenue would have been 

necessary to break even. The actual CPI-U capped 

average rate increase was 2.133 percent.

The revenue losses over the last four years have 

strained the Postal Service’s ability to maintain cash 

balances sufficient to fund operations. The level of 

outstanding debt has increased significantly since 

FY 2007 and has reached the $15 billion statutory 

limit. Although the Postal Service is allowed by law to 

Figure III-6—Net Revenue Per Piece

-14

-12

-10

-8

-6

-4

-2

0

2

4

2007 2008 2009 2010 2011 2012

Ce nt s pe r Pie ce

Fiscal Year

Net Revenue per Piece w/o RHBF Net Revenue Per Piece with RHBF

Figure III-7—Postal Service Financial Situation Jeopardizes Operations

Available Annual

Cash Balance EOY Borrowing Limit Total Funds Available EOY

FY 2007 FY 2008 FY 2009 FY 2010 FY 2011 FY 2012

Debt Limit ($15 Billion)

Dollars (in Billions)

0

3

6

9

12

15

Total Debt Outstanding

Debt Available
 POSTAL REGULATORY COMMISSION 29

borrow $3 billion a year, it cannot exceed the overall 

debt limit. Consequently, the funds available to the 

Postal Service on an annual basis, including cash on 

hand and short-term debt, have dwindled.

In FY 2012, the Postal Service, for the first time, 

defaulted on payments due to the U. S. Treasury for 

the Retiree Health Benefit Fund because of insufficient 

cash and liquidity.31 The continued losses in revenue 

may seriously hamper the Postal Service’s ability to pay 

for basic operations in the very near future. Allowing 

the Postal Service to reduce the retiree health benefits 

funding schedule would provide the most immediate 

beneficial effects in financial condition. Table 1 shows 

the Postal Service’s cash flows over the last six years, 

since the enactment of the PAEA.

Declines in Volume Have Exacerbated the

Postal Service’s Financial Issues

Sustained declines in mail volumes have exacerbated 

the Postal Service’s financial losses. Since FY 2006, 

31 The Postal Service was responsible for making two payments into the 

Retiree Health Benefits Fund. The first payment of $5.5 billion was the

FY 2011 payment deferred by the Congress to August 1, 2012. The 

second payment of $5.6 billion was due on September 30, 2012.

when volume peaked, total volume has declined by 

over 53 billion pieces. The bulk of the volume losses 

were in market dominant products, specifically FirstClass Mail, which has declined by almost 29 billion 

pieces, and Standard Mail, which has lost almost 

23 billion pieces. The loss of 29 billion pieces of 

First-Class Mail, the most profitable product, resulted 

in institutional cost contribution declines of almost $6 

billion since FY 2006, and the Standard Mail volume 

losses resulted in losses of institutional cost contribution 

of almost $1.5 billion. If volume had remained at 

2006 levels the combined $7.5 billion in contribution 

to institutional cost would have been enough to pay 

the $5.6 billion due to the RHBF at the end of 

FY 2012 and would have offset most of the $3.5 

billion operating loss incurred in FY 2012.

Competitive products, which are not constrained by 

the price cap, have received average price increases 

that were approximately five percent per year. Despite 

higher prices, volumes have increased over the past 

three years. These products are not yet a significant 

part of total Postal Service volumes, and constitute 

Table1—Cash Flow 

FY 2007—FY 2012

FY

2007

FY

2008

FY

2009

FY

2010

FY

2011

FY

2012

Net Income/(Loss) (5,142) (2,806) (3,794) (8,505) (5,067) (15,906)

Non-Cash Items and Other Cash Flows 2,539 2,367 5,367 5,213 5,561 15,474

Cash Flows from Investing Activities 500 (1,938) (1,806) (1,323) (1,053) (557)

Cash Flows from Financing Activities 2,005 2,910 2,890 1,687 886 1,820

Net Increase/(Decrease) in Cash (98) 553 2,657 (2,928) 327 831

Cash Balance BOY 997 899 1,432 4,089 1,161 1,488

Cash Balance EOY 899 1,432 4,089 1,161 1,488 2,319

Debt Outstanding 4,200 7,200 10,200 12,000 13,000 15,000
30 2012 Annual REPORT

only about one percent of total volumes, however, 

they have provided an increasing revenue stream 

and have the potential to offset the losses in market 

dominant products to some degree in the future.

Objective 6: Reducing

Administrative Burden

and Enhancing

Transparenc y of

Ratema king Process

The Commission rules are designed to balance 

reducing administrative burden with enhancing 

transparency.32 The Commission rules accomplish this 

balance by facilitating 45-day generally applicable 

rate adjustments, but requiring detailed financial 

data in the Postal Service’s Annual Compliance 

Report.33 The Commission rules pertaining to NSAs 

and periodic reporting have also balanced the need 

for decreased administrative burden and increased 

transparency.34 In FY 2012, the Commission also 

initiated new rulemakings designed to reduce the 

administrative burden related to the post office closing 

appeals process.

Price adjustments

The Commission’s review of price adjustment focuses 

on three areas: (1) ensuring prices do not violate 

the price cap; (2) ensuring workshare discounts are 

consistent with, or justified by an exception to, the 

workshare discount limitation in 39 U.S.C. 3622(e); 

and (3) ensuring preferential prices satisfy 39 U.S.C. 

3626. In addition, the Postal Service typically 

requests, and the Commission reviews, modifications 

32 39 CFR 3031.10 – 3031.12 33 39 CFR 3031.11 34 39 CFR 3010.43 and 39 CFR 3050.2

to the mail classification schedule in conjunction with 

proposed price adjustments.

While the PAEA limited the Commission’s review of 

market dominant price adjustments to 45 days, the 

Commission further reduced the review period to 

34 days, including 20 days for interested parties 

to comment on the Postal Service’s request.35 Since 

the passage of the PAEA the Commission has 

expeditiously reviewed the Postal Service’s four market 

dominant price adjustments. The Commission has 

completed its review of each of these requests well 

under the 45-day statutory deadline.

Negotiated Service Agreements

While there is no defined review period mandated 

for the Commission’s evaluation of a new market 

dominant NSA, the Commission endeavors to review 

the proposed NSAs as expeditiously as possible. 

The review process is intended to minimize the 

administrative and economic burden of implementing 

agreements while still requiring submission of relevant 

data supporting statutory compliance of the NSA. The 

Commission’s regulations are intended to streamline 

the review of market dominant NSAs, especially 

functionally equivalent market dominant NSAs. 

However, the Postal Service has not requested a 

functionally equivalent NSA with a similarly situated 

mailer since the passage of the PAEA in 2006.

For competitive NSAs the statute and the Commission 

rules contemplate a 15-day review.36 Such 

agreements are evaluated for compliance with the 

statutory requirements applicable to competitive 

products. 39 U.S.C. 3633(a). While many NSAs 

require prior Commission approval, certain NSAs 

35 39 CFR 3010.13 36 39 CFR 3015.5
 POSTAL REGULATORY COMMISSION 31

need not be evaluated prior to implementation. The 

Commission has structured these agreements, known 

as Non-Published Rates (NPR) contracts, to reduce 

administrative burden and provide the Postal Service 

with more flexibility so long as these contracts meet 

the Commission’s pre-approved price and cost 

coverage requirements. The need for the Commission 

to review the individual contracts pre-implementation 

is effectively eliminated.

Periodic Reporting Rules

Under 39 U.S.C. 3652(a)(1) of the PAEA, 

the Commission has responsibility for selecting 

appropriate input data and analytical methods 

to be used by the Postal Service to demonstrate 

compliance with the requirements of the PAEA.37 The 

Commission rules for changing methods for collecting 

and analyzing these data are based on informal 

rulemakings under section 553 of the Administrative 

Procedure Act (APA).

The Commission’s rules approach analytical issues 

through a process that is intended to be highly 

flexible, and vary according to the complexity of the 

proposed change and the level of documentation 

supporting it.38 The rules identify separate procedures 

for strategic rulemakings, discrete issue rulemakings, 

and expedited rulemakings.39

37 39 U.S.C. 3652(a) states:

(a) COSTS, REVENUES, RATES, AND SERVICE.—Except as provided 

in subsection (c), the Postal Service shall, no later than 90 days after 

the end of each year, prepare and submit to the Postal Regulatory 

Commission a report (together with such nonpublic annex to the report 

as the Commission may require under subsection (e))—

(1) which shall analyze costs, revenues, rates, and quality of service, 

using such methodologies as the Commission shall by regulation 

prescribe, and in sufficient detail to demonstrate that all products 

during such year complied with all applicable requirements of this title. 38 39 CFR part 3050 39 See Order No, 589

Twenty of the 21 proposals 40 initiated by the Postal 

Service in FY 2012 to make changes to its costing 

models were approved by the Commission.41 The 

one remaining and recently initiated Postal Service 

proposal is still pending before the Commission.42

39 CFR 3050.11 describes the procedures by 

which the Commission may, on its own behalf or 

in response to a petition by the Postal Service, a 

public representative, or any other interested person, 

change an accepted analytical principle. In the last 

quarter of FY 2012, Pitney Bowes Inc. (Pitney Bowes) 

filed a petition to initiate an informal rulemaking to 

change the analytical principle that establishes the 

set of worksharing relationships that are presumed 

to exist between the various presort rate categories 

of presorted First-Class letter mail.43 The Commission 

granted Pitney Bowes’ petition44 and established 

Docket No. RM2012-6. In doing so, the Commission 

rejected the Postal Service’s general argument that 

selecting an appropriate benchmark for determining 

the costs avoided by a particular form of worksharing 

does not constitute an analytical principle that the 

Postal Service must follow in preparing its periodic 

reports to the Commission.

40 At the time the Annual Report for FY 2011 was issued (November 

2011), in anticipation of the 2011 ACR, the Postal Service had 

submitted 15 proposed changes to its costing methodologies. Eight 

of these submitted in FY 2011 were approved prior to the Postal 

Service’s 2011 ACR filing with the Commission. The remaining 

seven proposals submitted in November 2011, were approved in 

January 2012, after the 2011 ACR was filed. Consequently, they are 

included in the 21 FY 2012 proposals to change costing methods. 41 As approved, one of these proposals incorporated a modification 

proposed by Time, Inc. 42 See Docket No. RM2012-8. 43 Petition of Pitney Bowes Inc. for the Initiation of a Proceeding to 

Consider Proposed Changes in Analytic Principle, July 12, 2012. 44 PRC Order No. 1510, October 23, 2012.
32 2012 ANNUAL REPORT

Rulemakings

Strategic rulemaking

In FY 2012, work continued in Docket No. RM2011-

3, the longer-term strategic rulemaking initiated by 

the Commission the year before. The Commission 

initiated this docket to systematically evaluate the 

Postal Service’s need to update and improve upon the 

data and analytical methods that it uses to report on 

the costs, volumes, revenues, and service quality of its 

products under 39 U.S.C. 3652(a) of the PAEA. This 

docket is designed to reduce administrative burden 

and enhance transparency by involving the Postal 

Service, its stakeholders, and the public in the early 

stages of the evaluation process. The objective is to 

agree on priorities assigned to various areas of future 

research and the nature of the data and analytical 

methods that future research should employ.

The Commission held a technical conference open to 

the public on January 12, 2012. It focused primarily 

on the possibility of the Postal Service performing 

a street time pilot study, the data that such a study 

would require, and the form the pilot study should 

take. The Postal Service filed a Scoping Study in 

May that further explored those issues. A public 

technical conference was held on August 15, 2012, 

addressing that study. This docket is pending.

Rules Applicable to Appeals of Post Office Closings

The Commission has revised its rules governing 

appeals of post office closings and consolidations

in order to simplify them and better reflect current 

practices.45 The Commission’s previous rules had 

been adopted more than 30 years ago and were 

complex. The new rules provide more streamlined 

procedures and simplify the appeals process, 

45 39 CFR part 3025

particularly for the majority of petitioners who are 

not represented by legal counsel. The new rules 

identify options for filers without access to the Internet, 

eliminate delays in the filing of the administrative 

record, comport with Postal Service rule changes, 

and accelerate the procedural schedule for 

appeals.46 They also allow interested persons to file 

comments without first formally intervening.47

The Commission deferred action on several more 

controversial proposals to a later date, allowing for 

additional research and analysis.

Enhancing Transparency Through the

Annual Compliance Determination

A key tool for achieving transparency in Postal 

Service operations is the annual review of information 

provided by the Postal Service to the Commission, 

in accordance with regulations adopted by the 

Commission. The Postal Service has 90 days after the 

close of the fiscal year to collect, audit, and submit 

data that the Commission determines necessary. The 

Commission has an additional 90 days to solicit 

comments from the public, evaluate the data, and 

provide a written determination of Postal Service 

compliance with applicable statutory policies.

On March 28, 2012, the Commission issued its 

2011 ACD report. This report, the fifth since enactment 

of the PAEA, assessed the financial and service 

performance of the Postal Service during FY 2011.

The Commission concluded that the Postal Service’s 

financial condition continued to deteriorate. 

Moreover, the Commission found that the Postal 

Service faces significant challenges, placing the 

46 39 CFR 3025.11; 39 CFR 3025.21; 39 CFR 3025.43 47 39 CFR 3025.14
 POSTAL REGULATORY COMMISSION 33

Postal Service’s ability to fulfill its universal service 

obligation at risk.

The Commission identified 10 market dominant 

products and services that did not generate sufficient 

revenues to cover attributable costs in FY 2011. Of 

those products, the Commission again found the rates 

for the Standard Mail Flats product not in compliance 

with the PAEA, as it did in the 2010 ACD. On April 

27, 2011, the Postal Service petitioned for judicial 

review of the 2010 ACD. The United States Court of 

Appeals for the District of Columbia Circuit upheld the 

Commission’s finding of noncompliance but asked the 

Commission for clarification as to the standard used to 

determine noncompliance. The Commission provided 

clarification in Order No. 1427. See Chapter V for 

further discussion.

The Commission also determined that three competitive 

products—Global Plus 2A Contracts, International 

Expedited Services, and International Money Transfer 

Services-Inbound—did not comply with 39 U.S.C. 

3633 (a)(2). Accordingly, the Commission ordered the 

Postal Service to take corrective action.

The Commission also concluded that reported service 

performance met the delivery service standards for 

the Single-Piece First-Class Mail and Special Services 

products. The Postal Service is demonstrating success 

in meeting its service standard goals in the areas of 

single-piece First-Class Mail and Special Services. 

However, the Postal Service did not meet its delivery 

service standard target for the majority of market 

dominant products in FY 2011.

OBJECTIVE 7: ENHANCE 

MAIL SECURITY AND DETER 

TERRORISM

The Commission rules do not impact this objective.

OBJECTIVE 8: MAINTAINING A 

JUST AND REASONABLE RATE 

SCHEDULE

The Commission’s rules related to providing 

predictability and stability in rates, allowing pricing 

flexibility, and enhancing transparency facilitate a 

just and reasonable rate schedule.48 In addition, the 

Commission’s complaint rules are designed, in part, 

to maintain a just and reasonable rate schedule and 

adequate service.49 The complaint rules enable the 

Commission to hear and resolve complaints in a 

streamlined and efficient manner, while providing due 

process for all participants. There were no new rate 

related complaints filed in FY 2012.

OBJECTIVE 9: ALLOCATING 

THE TOTAL INSTITUTIONAL 

COSTS OF THE POSTAL SERVICE 

APPROPRIATELY BETWEEN 

MARKET DOMINANT AND 

COMPETITIVE PRODUCTS

Objective 9 is closely related to the three statutory 

requirements found in 39 U.S.C. 3633(a).

Competitive Products

The Commission’s review of rate adjustments and mail 

classifications for competitive products is governed by 

39 U.S.C. 3633(a), which establishes three statutory 

requirements, incorporated into the Commission’s 

rules, applicable to competitive products.

First, competitive products may not be crosssubsidized by market dominant products. The 

Commission uses an incremental cost test to validate 

compliance with the cross-subsidy requirement that 

48 39 CFR part 3010 and 39 CFR part 3015 49 39 CFR part 3030
34 2012 ANNUAL REPORT

compliance with the cross-subsidy requirement that 

revenue generated from competitive products equals 

or exceeds the incremental costs of such products.

Second, each competitive product must cover its 

attributable cost. The Commission reviews each 

product in its ACD and when the Postal Service files 

notices of competitive price changes to ensure this 

requirement is being met.

Finally, competitive products must collectively cover an 

appropriate share of the Postal Service’s institutional 

costs. The Commission has determined that the 

minimum contribution must be 5.5 percent of the 

Postal Service’s total institutional cost. As seen in 

Figure III-8, since the first ACD in FY 2007, the Postal 

Service has met the contribution minimum.

Within the constraints of these statutory requirements, 

the Commission’s rules provide the Postal Service 

with the flexibility to develop prices for its competitive 

products.50 The Commission has 30 days to determine 

whether the Postal Service’s proposed rates for 

competitive products satisfy the requirements of section 

3633 and the Commission’s implementing regulations.

CP2012-2 General Price Adjustment

On November 22, 2011, the Postal Service filed 

notice with the Commission concerning changes in 

rates of general applicability for competitive products. 

In Order No. 1062, the Commission determined 

that the rate adjustments met the requirements of 39 

U.S.C. 3633(a). The approved rates went into effect 

on January 22, 2012.

The Commission also found that the Postal Service 

met the conditions outlined in Order No. 689 

concerning the transfer of commercial Standard Mail 

parcels from the market dominant product list to the 

Parcel Select product on the competitive product 

list under the name Lightweight Parcel Select. Since 

commercial Standard Mail parcels previously did 

not cover their attributable costs, as a condition of 

approving the request, Order No. 689 required the 

Postal Service to demonstrate that planned prices 

for Parcel Select (including Lightweight Parcel Select) 

covers attributable costs.

RM2012-3 Review of Competitive Products’ 

Appropriate Share to Institutional Costs

The PAEA directs the Commission to promulgate 

a regulation to ensure that competitive products, 

collectively, bear an “appropriate share” of the Postal 

Service’s institutional costs. See 39 U.S.C. 3633(a)

50 39 CFR 3015.2

Figure III-8—Competitive Products Contribution 

FY 2007 – FY 2011

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

FY2008 FY2009 FY2010 FY2011 FY2012

5.7%

5.5%

6.8%

7.1%

7.8%

Competitive Contribution

Competitive 

Contribution

Contribution 

Requirement
 POSTAL REGULATORY COMMISSION 35

“all relevant circumstances, including the prevailing 

competitive conditions in the market, and the degree 

to which any costs are uniquely or disproportionately 

associated with any competitive products.” Id. 

The Commission conducted its first review of the 

competitive products’ appropriate share of the Postal 

Service’s institutional costs and considered whether the 

appropriate share rule should be modified.

In Order No. 1449, the Commission left the 

appropriate share rule unchanged. The Commission’s 

review included consideration of the following relevant 

circumstances: the lack of evidence of a Postal Service 

competitive advantage; a market share analysis; 

changes to the market and competitors; historical 

competitive contribution levels; changes to competitive 

product offerings and the mail mix; and uncertainties.

The Commission noted that the statute allows it to 

initiate a proceeding to change the competitive 

contribution’s appropriate share at any time. Parties 

may also petition the Commission to initiate such a 

proceeding when circumstances warrant. Thus, if 

any significant uncertainties materialize and result in 

meaningful changes to the Postal Service finances as 

it pertains to section 3633(b), the Commission will be 

in a position to evaluate the effects of such changes 

on the appropriate share contribution level.

Competitive NSA Dockets

In FY 2012, the Commission reviewed competitive 

NSAs in 55 docketed proceedings. These NSAs 

consist of negotiated prices for both competitive 

domestic and international mail services. Examples of 

competitive NSAs include the following: Domestic—

Express Mail, Priority Mail, and Parcel Select, and 

Priority Mail–Non-Published Rates (Priority Mail–NPR); 

International—Global Direct Contracts, Global Plus 

Contracts, and Global Expedited Package Services–

Non-Published Rates (GEPS–NPR). Table III-2 shows 

the number of competitive domestic and international 

NSAs, and total NSAs, approved during the past five 

fiscal years (FY 2008 – FY 2012).

Since FY 2010, there has been a reduction in 

the total number of agreements approved by 

the Commission. This decrease largely reflects 

implementation of the NPR procedures. 

Table III-3 shows the number of GEPS–NPR and 

Priority Mail–NPR contracts filed by the Postal Service 

with the Commission since the NPR contracts were 

introduced in FY 2011. During FY 2012, there were 

141 GEPS–NPR contracts and three Priority Mail–

NPR contracts filed with the Commission

Transfers and Additions to 

the Competitive Product List 

39 U.S.C. 3642 permits a product to be transferred 

from the market dominant product list to the competitive 

product list and vice versa. In determining whether to 

allow a product transfer, the Commission must consider 

Table III-2—Negotiated Service Agreements 

Dockets Approved by the Commission

Competitive NSAs FY 

2012 

FY 

2011

FY 

2010

FY 

2009

FY 

2008

Total 

Competitive 

Domestic

32 14 13 31 2

Total 

Competitive 

International

23 50 111 32 19

Total 

Competitive NSAs 55 64 124 63 21
36 2012 ANNUAL REPORT

Transfers and Additions to

the Competitive Product List

39 U.S.C. 3642 permits a product to be transferred 

from the market dominant product list to the competitive 

product list and vice versa. In determining whether to 

allow a product transfer, the Commission must consider 

the Postal Service’s market power with respect to the 

product, as well as whether the product is covered by 

the postal monopoly. The Commission must also give 

due regard to the availability and nature of private 

sector enterprises engaged in delivering the product, the 

views of those using the product, and the likely impact 

on small business concerns. In addition, the Commission 

must ensure that the product covers its attributable cost. 

39 U.S.C. 3633(a)(2).

MC2012-13 Transfer of Parcel Post

The Postal Service proposed to (1) remove Single-Piece 

Parcel Post from the market dominant product list; (2) 

add “Parcel Post,” a nearly identical product, to the 

competitive product list; and (3) leave Alaska Bypass 

Service 51 on the market dominant product list.

In Order No. 1411, the Commission conditionally 

granted the Postal Service’s requested transfer. The 

Commission determined that the proposed transfer 

51 Alaska Bypass Service allows shippers to send shrink-wrapped pallets 

of goods within Alaska at Parcel Post rates from designated “hub 

points” to designated “bush points.”

satisfied 39 U.S.C. 3642. However, the Commission’s 

financial analysis indicated that the rates for the 

proposed Parcel Post competitive product would not 

cover its attributable costs, and would violate 39 

U.S.C. 3633(a)(2). The Commission authorized the 

transfer subject to the following conditions: (1) the 

Postal Service must file a notice of competitive price 

adjustment for Parcel Post rates that demonstrates such 

rates satisfy 39 U.S.C. 3633(a) and 39 CFR part 

3015; (2) the Commission must make a finding that the 

competitive Parcel Post rates satisfy 39 U.S.C. 3633(a) 

and 39 CFR part 3015; and (3) the Parcel Post 

transfer does not become effective until the effective 

date of prices found by the Commission to satisfy 39 

U.S.C. 3633(a) and 39 CFR part 3015. By the end 

of FY 2012, the Postal Service had not yet met the 

conditions necessary for the transfer to occur.

MC2012-44 Transfer of

First-Class Mail International

The Postal Service filed a request to transfer a subset 

of Outbound Single-Piece First-Class Mail International 

from the market dominant product list to the competitive 

product list. At the time of the filing, Outbound SinglePiece First-Class Mail International encompassed five 

categories of mail: (1) letters; (2) postcards; (3) large 

envelopes (flats); (4) packages (small packets); and (5) 

rolls. The Postal Service proposed to transfer two of 

these categories, packages and rolls, to the competitive 

product list under the name First-Class Package 

International Service (FCPIS). In Order No. 1461, the 

Commission approved the Postal Service’s proposed 

transfer. The Commission found that the proposal 

satisfied 39 U.S.C. 3642 and 39 U.S.C. 3633. The 

Commission also noted that the remaining Outbound 

Single-Piece First-Class Mail International product, which 

only contained letters, postcards, and large envelopes, 

should continue to cover its attributable costs.

Table III-3—Non-Published Rates Contracts 

Filed With the Commission

Non-Published Rates (NPR) Contracts FY 2012 FY 2011

GEPS-NPR1 141 168

Priority Mail-NPR 3 3

Total NPR Contracts 144 172

1 The GEPS–NPR figures reflect the number of contracts filed under 

both the GEPS–NPR 2 and GEPS–NPR 3 products. No contracts 

were filed under the GEPS–NPR 1 product. 
 POSTAL REGULATORY COMMISSION 37

Chapter IV

UNIVERSAL SERVICE OBLIGATION 

AND MAIL MONOPOLY

Estimated Cost of the Universal Service Obligation

The PAEA requires the Commission to provide annual updates on the estimated cost to the Postal Service for 

providing universal service. The law requires estimates for three separate elements: (1) the cost of providing 

service to areas of the Nation that would not receive service but for the universal service obligation (USO); 

(2) the revenue foregone by providing free or reduced rates for postal services as required by 39 U.S.C. 

2401(c); and (3) other public services or activities related to the universal service obligation.

The Commission estimate of the first element includes the cost of maintaining small post offices, which are 

generally located in rural or remote areas, the Alaska air subsidy, and Group E post office boxes. Small post 

offices are those classified under Cost Ascertainment Groups (CAG) K and L.1 The Alaska air subsidy is the 

difference in cost of flying mail to remote areas and the average cost of highway transportation. Group E post 

office boxes are offered free of charge to postal patrons who do not receive delivery.2

The second element is calculated as the difference in revenue between mail that receives a statutorily defined 

discount and the revenue that would have been received if these pieces were not discounted. It also includes 

the losses on market dominant products that are offered at CPI-U-capped prices that do not cover the costs of 

providing the products.3

1 The Postal Service uses CAG classifications (A – L) to categorize post offices by the amount of revenue generated. CAG K and L represent the 

smallest revenue generating post offices. 2 The Postal Service offers Group E Post Office Box Service for free to address potential discrimination issues (Docket No. RM2011-9). 3 The USO cost of losses on market dominant products includes only losses on Periodicals. Because of constraints imposed by the PAEA, the Postal 

Service cannot effectively use price cap flexibility to fully recover Periodicals costs.
38 2012 ANNUAL REPORT

The final element includes the estimated cost of 

delivering mail six days a week rather than five days 

a week, and the estimated lost revenue from un-zoned 

rates in Package Services and First-Class. Figure 1 

shows the proportion of the total cost of the USO due 

to each element.

As seen in Table IV-1 the estimated cost of providing 

universal service has increased since FY 2008.4

For fiscal years 2008 and 2009, the USO cost 

of six-day delivery is based on the George Mason 

University method used in previous annual reports. 

For fiscal years 2010 and 2011, it has been 

updated to reflect the Commission’s findings in 

N2010-1, Advisory Opinion on the Elimination of 

Saturday Delivery. These updates consist of additional 

4 The data necessary to compute the costs of the USO for a given year 

is not available until after the Commission’s Annual Report for that year 

is published. Therefore, the cost estimates use data from the previous 

fiscal year.

components, including mail processing and 

transportation related USO costs of six-day delivery 

and other refinements, such as improvements in 

calculating average wage rates and overhead costs. 

The changes account for the majority of the increase 

over FY 2009. Without these refinements the cost of 

six-day delivery would have been $2.1 billion in FY 

2010 and $2.2 billion in FY 2011.5 In addition, the 

George Mason University method has been further 

5 These cost estimates do not include the loss in revenue that may 

result from lower demand for post services. In the N2010-1 advisory 

opinion, the Commission estimated this amount to be $587 million.

Figure IV—1 FY 2012 Proportion of Total Cost 

of Universal Service by Element 

14%

Service to

areas not

otherwise 

served

36%

Revenue not received

(Impact of Nonprot 

Mail Discounts Net of Costs 

&

Losses on Market

Dominant Products)

Other Services

(six day delivery, uniform

rates for First-Class, unzoned 

Package Service rates)

50%

Maintaining Small Post Oces, Alaska Air Subsidy,

& Group E Post Oce Box Service

Table IV-1—Estimated Cost of Universal 

Service Obligation 

($ in Billions)

Mandate

FY

2011

FY

2010

FY

2009

FY

2008

Six-Day Delivery 

Instead

of Five-Day Delivery 

2.480 2.427 2.08 2.16

Nonprofit Mail 

Discounts 1.329 1.284 1.322 1.223

Unzoned Media/

Library Rates 0.115 0.098 0.096 0.094

Losses on Market

Dominant Products 0.609 0.611 0.642 0.437

Maintaining Small 

Post Offices 0.583 0.566 0.536 0.549

Alaska Air Subsidy 0.123 0.118 0.121 0.124

Uniform Rates for 

First-Class Mail 0.122 0.078 0.081 0.212

Group E Post Office 

Box Service 0.036 0.038 0.037 N/A

Total Cost of 

Universal 

Service Obligation 

5.397 5.220 4.915 4.799
 POSTAL REGULATORY COMMISSION 39

updated to include the cost of providing Group E post 

office box service as a cost component of the USO.6

The Postal Service provides statutorily discounted 

rates for the nonprofit rate categories in Periodicals 

and Standard Mail. Additionally, statutory discounts 

are given to Periodicals, Classroom and Science of 

Agriculture and to Library Rate. The Postal Service 

also provides free postage for blind and disabled 

persons, and balloting materials under the Uniform 

and Overseas Citizens Absentee Voting Act. 

Table IV-2 presents the Commission’s estimates of 

revenue foregone by the Postal Service in providing 

discounted rates to preferred categories of mail for 

fiscal years 2008-2011.

Estimated Value of

the Monopoly

The Commission updated its combined and mailbox 

monopoly values for the present year using the base 

assumptions and methodology outlined in its 2008 

Report on Universal Postal Service and the Postal 

Monopoly. The value of the monopoly estimates the 

profit lost by the Postal Service if potential competitors 

were allowed to enter and compete in the Postal 

Service’s letter monopoly (stemming from the Private 

Express Statutes) and the mailbox monopoly. In other 

words, if the Postal Service’s combined monopolies 

(letter monopoly and mailbox monopoly) and, 

6 The Commission approved a change in analytical principles to 

treat the costs associated with Group E Post Office Box Service 

(mainly facility-related costs) as institutional rather than as part of the 

attributable costs of Post Office Box Service in Docket No. RM2011-

9, Order No. 744. In this order, the Commission concluded that

treating Group E attributable costs as institutional represents a more 

equitable distribution of the costs of universal service. Id at 4. The 

Commission also concluded that this treatment is analogous to and 

consistent with the treatment of intra-Alaska air transportation. Id at 

4. To be consistent, the costs of providing Group E post office box 

service has been added to the cost of the USO. The Order accepting 

this change in analytical principle was issued on June 9, 2011; 

estimates for prior years are included for comparison purposes.

separately, the mailbox monopoly were eliminated, 

the value of the monopoly would be the reduction in 

the Postal Service’s profit for each case.

The base case assumptions applying to competitors 

in the present analysis include: (1) full diversion of 

local contestable mail when discounting existing 

Postal Service rates by at least 10 percent; (2) 

competitors incur only delivery costs and deliver three 

times a week under the combined monopoly, and 

once a week under the mailbox monopoly; and (3) 

competitors are 10 percent more cost efficient than 

the Postal Service. Other than differences in delivery 

frequency, mail subject to diversion under the mailbox 

monopoly is much more restricted in scope compared 

to the combined monopoly, as explained in the 

Commission’s USO report.

Table IV-2—Estimated Revenue Not Received 

($ in Billions)

Mail Class

FY

2011

FY

2010

FY

2009

FY

2008

Standard Mail

Nonprofit 0.893 0.989 1.001 0.969

Nonprofit – ECR 0.073 0.085 0.097 0.072

Total Standard Mail 0.966 1.074 1.098 1.041

Periodicals

Nonprofit 0.106 0.012 0.013 0.011

Classroom 0.006 0.001 0.001 0.001

Total Periodicals 0.112 0.013 0.014 0.012

Library Rate 0.0002 0.001 0.001 -0.001

Free-for-the-Blind Mail 0.051 0.066 0.054 0.052

Total 1.129 1.154 1.167 1.104
40 2012 ANNUAL REPORT

The method employed to estimate each monopoly 

value is much the same as last year’s approach. The 

Commission’s model estimates competitor profits for all 

routes based on contestable volumes, discounted rates 

and delivery costs. Entry occurs only on routes where 

the entrant would earn positive profits. The monopoly 

value is estimated as the sum of the contribution lost 

to the Postal Service from routes that competitors find 

profitable and from which they capture volume. The 

updated and previous year values are shown in Table 

IV-3. The monopoly valuation model continues to 

incorporate separate unit variable and non-delivery 

costs for city and rural routes.

7

7 There are six contestable products for the Combined Monopoly:FirstClass Presort Letters; First-Class Presort Cards; Periodicals; Enhanced 

Carrier Route; Standard Letters, Flats, Parcels; and Parcel Post. The 

first two and the fourth products are not considered contestable in the 

Mailbox Monopoly case because they are delivered to mailboxes.

The updated “base case” monopoly values reported 

below are slightly higher than last year’s values. The 

FY 2010 estimate of the Combined Monopolies fell 

approximately $600 million, primarily due to the 

reduction in mail volume. The values of the Combined 

and Mailbox Monopoly for FY 2011 are respectively 

$1.66 billion and $0.91 billion, slightly higher than 

last year’s values.

The Commission’s estimates are incomplete in several 

respects. As described in the 2008 USO report, it is 

possible that entry would only occur on profitable colocated routes that benefit from economies of density. 

The Commission’s model evaluates entry for each 

route regardless of the extent of route clustering. The 

Commission’s model also does not capture the cost of 

any carrier route sorting required by potential entrants 

for five-digit sorted letter mail entering the system at 

the plant or delivery unit level. Including these costs 

would lower the extent of entry. In addition, the model 

does not include switching costs or brand loyalty, 

both of which could also reduce the extent of entry.

Table IV-3: Estimated Value of the Monopoly 

($ in Billions)

Mandate FY2011 FY2010 FY2009 FY2008

Mailbox Monopoly 0.91 0.69 0.79 1.07

Combined 

Monopolies 1.66 1.55 2.11 2.96
 POSTAL REGULATORY COMMISSION 41

Chapter V

OTHER LEGAL PROCEEDINGS

The Office of the General Counsel supports the Commission in the timely and efficient adjudication of matters 

filed under the provisions of the PAEA. Increasing transparency of the Postal Service’s pricing, classification, 

and service policies is a primary objective for the initiation of rulemakings to support relevant statutory 

objectives as well as the legal review of the Postal Service’s products and services for compliance with 

statutory requirements. These dockets are available for public review and comment. 

POST OFFICE APPEALS

The Commission’s authority to review post office closings is provided by 39 U.S.C. 404(d)(5). That section 

requires the Commission to review the Postal Service’s determination to close or consolidate a post office on 

the basis of the record that was before the Postal Service. The Commission is empowered by section 404(d)(5) 

to set aside any determination, findings, and conclusions that it finds to be (a) arbitrary, capricious, an abuse 

of discretion, or otherwise not in accordance with the law; (b) without observance of procedure required 

by law; or (c) unsupported by substantial evidence on the record. Should the Commission set aside any 

such determination, findings, or conclusions, it may remand the entire matter to the Postal Service for further 

consideration. Section 404(d)(5) does not, however, authorize the Commission to modify the Postal Service’s 

determination by substituting its judgment for that of the Postal Service.

In FY 2012 there were an unprecedented number of post office closings and subsequent appeals to the 

Commission and adjudicating this large volume of appeals was a major undertaking. It required collaboration 

between the Commission’s technical staff from the Office of Accountabilty and Compliance and attorneys from 

the Office of the General Counsel, the participation of a large number of Public Representatives, supervised by 

the Attorney Administrator, and the contribution of resources from all the Commission’s departments.
42 2012 ANNUAL REPORT 

On December 15, 2011, the Postal Service advised 

the Commission that it would “delay the closing 

or consolidation of any Post Office until May 15, 

2012.”1 The Postal Service further indicated that it 

would “proceed with the discontinuance process 

for any Post Office in which a final determination 

was already posted as of December 12, 2011, 

including all pending appeals” Id. It stated that the 

only “Post Offices” subject to closing prior to May 

16, 2012, are those that were not in operation on, 

and for which a Final Determination was posted as 

of, December 12, 2011. Id. It affirmed that it would 

“not close or consolidate any other Post Office prior 

to May 16, 2012.” Id. at 2. Lastly, the Postal Service 

requested the Commission “to continue adjudicating 

appeals as provided in the 120-day decisional 

schedule for each proceeding.” Id.

The Commission considered 208 post office closing 

appeals in FY 2012.2 207 of those cases have 

concluded.3 In approximately 78 percent (162) of 

those concluded cases the Commission affirmed 

the Postal Service.4 The Commission dismissed 

approximately 13 percent (27) and remanded 

approximately 8 percent (16).5

APPEAL OF 2010 ACD DIRECTIVE 

ON STANDARD MAIL FLATS

On April 17, 2012, the United States Court of 

Appeals for the District of Columbia Circuit left 

1 United States Postal Service Notice of Status of the Moratorium on 

Post Office Discontinuance Actions, December 15, 2011, at 1 

(Notice). 2 81 of those cases were filed in FY 2011 and the Commission 

disposed of the cases in FY 2012. 3 One case filed in FY 2012 remains open. 4 133 of those cases were decided by a tie vote. In the absence of a 

majority vote the status quo is maintained and for purposes of post 

office closing appeals, Postal Service determinations are affirmed. 5 One case was closed as it was duplicative of an earlier appeal.

intact the Commission’s Fiscal Year 2010 Annual 

Compliance Determination (FY2010 ACD). United 

States Postal Service v. Postal Regulatory Commission,

676 F.3d 1105 (D.C. Cir. 2012). At issue were the 

Commission’s finding that the rates for Standard Mail 

Flats were in violation of 39 U.S.C. 101(d) and the 

remedy requiring the Postal Service to “increase the 

cost coverage of the Standard Mail Flats product 

through a combination of above-average price 

adjustments and cost reductions until such time that the 

revenues for this product exceed attributable costs.” 

FY2010 ACD at 106.

The Court upheld the Commission’s finding that 39 

U.S.C. 3622(c)(14) authorizes the Commission 

to consider the policies of the PAEA, at least in 

extreme circumstances, when conducting its annual 

compliance review of market dominant products, 

specifically section 101(d) which requires that “[p]

ostal rates shall be established to apportion the 

costs of all postal operations to all users of the 

mail on a fair and equitable basis.” 676 F.3d at 

1108. However, the Court questioned whether the 

Commission’s determination was consistent with 

its treatment of other market dominant products 

having comparable, or lower, cost coverages and 

whether it would continue to be appropriate if the 

attributable cost coverage of Standard Mail Flats 

were to improve. Id. The Court therefore remanded 

the case to the Commission for a further explanation 

of the circumstances triggering section 101(d) and 

the appropriateness of the prescribed remedy for 

Standard Mail Flats.

On August 9, 2012, the Commission issued its 

Order on Remand. Docket No. ACR2010-R, Order 

on Remand, August 9, 2012. In that Order, the 

Commission reviewed the factors which, together, 
 POSTAL REGULATORY COMMISSION 43

constituted “extreme circumstances” authorizing 

Commission action. Id. at 8-10. The Commission also 

explained why the remedy it imposed in the 2010 

ACD was appropriate for Standard Mail Flats and 

consistent with its treatment of other market dominant 

products. Id. at 10-20.

COMMISSION RULEMAKINGS

RM2012-4 Procedural Rules Governing

Advisory Opinions in Nature of

Service Proceedings

On April 10, 2012, the Commission issued an 

Advance Notice of Proposed Rulemaking in Docket 

No. RM2012-4 to consider potential revisions to 

its current procedures under 39 U.S.C. Section 

3661 for reviewing Postal Service proposals for 

a “change in the nature of postal services which 

will generally affect service on a nationwide, or 

substantially nationwide basis....” 39 U.S.C. 

3661(b). This docket was initiated in response to the 

Postal Service’s expressed need for more expeditious 

hearing processes in light of its present financial 

situation. See, e.g., Docket No. N2012-1, Request 

of the United States Postal Service for an Advisory 

Opinion on Changes in the Nature of Postal Services, 

December 5, 2011 at 13. Procedural revisions must 

be consistent with 39 U.S.C. 3661(c) requiring an 

opportunity for hearing on the record under section 

556 and 557 of title 5. The Commission solicited 

comments on the issues of: (1) whether changes to 

the current procedures and regulations are warranted 

and (2) if so, what procedural changes should be 

implemented. Eight initial comments and four reply 

comments were filed by interested parties. If the 

Commission advances this rulemaking, it will issue a 

Notice of Proposed Rulemaking with an opportunity 

for further comments.

COMPLAINTS

Docket No. C2011-5 Lopez Complaint

On July 12, 2011, Ramon Lopez filed a complaint 

alleging that the Postal Service refused to deliver mail 

to his residence, and the Postal Service responded 

that it had been suspended because his home was 

found to be vacant. The Commission dismissed the 

case based on that explanation, and reopened it on 

voluntary remand after Mr. Lopez appealed. After 

considering subsequent filings from Mr. Lopez and 

the Postal Service, the Commission again dismissed 

the complaint because it failed to present a claim 

upon which relief could be granted. Mr. Lopez has 

appealed, and the case is pending.

Docket No. C2012-1 Complaint of the

Associated Mail and Parcel Centers, et al. 

and Post Office Box Enhancements

On March 15, 2012, organizations representing 

Commercial Mail Receiving Agencies (CMRAs), 

National Association of Letter Carriers witness Professor Michael Crew.
44 2012 ANNUAL REPORT 

businesses which operate private mail box stores, 

filed a complaint with the Commission. The 

Complainants claimed that the Postal Service, by 

offering customers certain enhanced services at 

competitive Post Office Box service locations without 

first obtaining Commission approval, ran afoul of 

sections 3633, 3642, and 3661 of title 39. The 

enhanced services are: (1) the option to receive 

electronic notification when mail is delivered to the 

post office box; (2) the option to use the post office 

street address and a “#” designation rather than a 

“P.O. Box” address designation; and (3) for customers 

who elect to use the post office street address, the 

option to receive packages from private carriers.

The Postal Service moved to dismiss the complaint. 

In its Motion to Dismiss, the Postal Service did 

not challenge the allegation that it is offering the 

enhanced services. Rather it moved to dismiss the 

complaint on the ground that the enhanced services 

had already been resolved by the Commission 

in prior proceedings to transfer Post Office Box 

service to the competitive product list (Docket No. 

MC2011-25) and to adjust rates and classifications 

(Docket No. CP2012-2).

On June 13, 2012, the Commission issued an 

order granting the Motion to Dismiss as to the 

Complainants’ claim under 39 U.S.C. 3661 

and denying the Motion to Dismiss as to the 

Complainants’ claims under 39 U.S.C. 3633 

and 3642. The Commission found that although 

the introduction of the enhanced services does not 

implicate section 3661, the enhanced services were 

not at issue in the prior proceedings and therefore 

the Complainants could not be faulted for failing to 

object to the enhanced services in those proceedings. 

The Commission found that it was unclear whether 

the Complaint raises material issues of law or fact. 

Because the Postal Service had not submitted a filing 

describing the nature and implementing rules for the 

enhanced services, the Commission determined that 

it could not accurately evaluate their impact. In the 

interests of efficiency and to afford the Complainants 

and the Postal Service a venue to air their views, the 

Commission established Docket No. MC2012-26. 

The Commission gave the Postal Service the option to 

make an elective filing in that docket under 39 CFR 

3020.30 to inform the Commission and the public of 

Commission Public Hearing.
 POSTAL REGULATORY COMMISSION 45

the nature, scope, and significance of the enhanced 

services to the competitive Post Office Box service.

In response to the Commission’s order, the Postal 

Service made an elective filing to provide the 

Commission with additional information to complete 

its review of the enhanced services at competitive Post 

Office Box service locations.

A decision in Docket No. MC2012-26 is pending.

C2012-2 Complaint of the American Postal

Workers Union, AFL-CIO

On June 13, 2012, the American Postal Workers 

Union, AFL-CIO filed a complaint alleging that Postal 

Service actions in a pending Advisory Opinion 

request (Docket No. N2012-1, Mail Processing 

Network Rationalization Service Changes) violated 

39 U.S.C. 3661 and 3691.

The alleged section 3661 violations consisted of 

the Postal Service’s implementation of changes 

before receipt of the Commission’s advisory opinion; 

failure to file a separate request for the changes 

announced after the advisory opinion request was 

filed; and, given the absence of such filing, failure 

to file a request a reasonable time prior to their 

implementation. The alleged section 3691 violation 

stemmed from the Postal Service’s purported failure 

to address the impact of the proposal in terms of 

statutory factors and objectives.

The Commission dismissed the Complaint. It found 

that the plain language of section 3661 does not 

require the Postal Service to “receive” a Commission 

decision before implementing proposed service 

changes. It found that the Postal Service had filed its 

advisory opinion request a reasonable time prior to 

implementation of proposed changes, and therefore 

satisfied section 3661 requirements with respect to 

timing. The Commission further found that the Phase 

I changes were lesser-included changes within the 

context of the Docket No. N2012-1 filing, and did 

not have to be the subject of a separate section 3661 

advisory opinion request. With respect to section 

3691, the Commission found that the appropriate 

forum for the alleged deficiencies was in the pending 

advisory opinion docket, not the Complaint.
46 2012 ANNUAL REPORT 
 POSTAL REGULATORY COMMISSION 47

Chapter VI

International Activities

AUTHORITY

39 U.S.C. 407 establishes an ongoing role for the Commission in international postal matters. Section 407(b)

(2)(A) addresses one aspect of this authority by generally requiring the Secretary of State, in exercising foreign 

policy authority with respect to international postal-related matters, to coordinate with other agencies as 

appropriate and, in particular, to give full consideration to authority vested by law in several named agencies, 

including the Postal Regulatory Commission. 

More specifically, sections 407(c)(1) and 407(c)(2) address a more specific issue: namely, the Commission’s 

role and the Secretary of State’s obligations with respect to aspects of international treaties, conventions, or 

amendments that concern market dominant rates or classifications. Section 407(c)(1) requires the Secretary, 

before concluding any treaty, convention, or amendment that establishes a rate or classification for a product 

subject to subchapter I of chapter 36 [a market dominant product] to request the Commission to submit its view 

on the consistency of such rate or classification with standards and criteria the Commission has established 

under section 3622. Section 407(c)(2) further provides that the Secretary shall ensure that each treaty, 

convention or amendment is consistent with the views of the Commission, except pursuant to the Secretary’s 

written determination that it is not in the foreign policy or national security interest of the United States to ensure 

consistency with the Commission’s views. 

UPU CONGRESS 

In FY 2012, the Commission devoted considerable effort to preparing for the Universal Postal Union, 25th 

Congress in Doha, Qatar which was held from September 24 to October 15, 2012. The Universal Postal 
48 2012 ANNUAL REPORT

Union (UPU) is a United Nations technical agency 

that facilitates the exchange of mail through a global 

universal postal network made up of its 192 member 

countries, including the United States. The Congress is 

the UPU’s supreme authority that meets every four years 

to adopt a new global postal strategy and amend the 

Union’s international treaty, which governs such issues 

related to the exchange of mail as remuneration, 

technical standards, and product features. Over 

2,200 postal operators, regulators, government 

representatives, private sector members and other 

stakeholders attended the 25th UPU Congress.

The Department of State, by law, has lead 

responsibility for international postal policy and 

therefore led the U.S. delegation to the UPU 

Congress. The Commission played an active role in 

formulating and advocating positions for over 250 

proposals to amend the Acts of the Union to ensure 

consistency with U.S. law and policy, working in 

close coordination with the Department of State, other 

U.S. government agencies and the private sector. 

Many of these proposals were the culmination of four 

years of work by various UPU working groups and 

committees in which the Commission participated. 

The Commission contributed its analytical and policy 

expertise to the UPU Terminal Dues Working Group, 

as part of the U.S. delegation, to develop proposals 

that were ultimately adopted at the 25th Congress. 

These newly adopted proposals will provide the 

U.S. Postal Service with an annual increase of 13 

percent in inbound terminal dues revenue from 2014 

to 2017 while minimizing terminal dues increases on 

outbound mail that could impact U.S. mailers. The 

increases in inbound terminal dues should allow the 

Postal Service to cover costs for handling and delivery 

of inbound international mail by 2017 and add tens 

of millions of dollars in needed revenue to the Postal 

Service over that time.

39 U.S.C. 407(c)(1) requires the Secretary of State 

to seek the Commission’s views on whether any 

amendment to an international treaty or convention 

that will impact a rate or classification for a market 

dominant product is consistent with 39 U.S.C 3622, 

which addresses development of a modern system 

of ratemaking for market dominant products. On 

August 28, 2012, the Secretary of State sought the 

Commission’s views on whether any proposals to 

amend the Acts of the UPU and establish a rate or 

classification for a market dominant product at the 

25th UPU Congress would be inconsistent with 39 

U.S.C. 3622. The Commission reviewed over 400 

proposals for consideration at both the Congress and 

subsequent session of the Postal Operations Council 

in early 2013. On September 10, it provided a 

written response to Nerissa Cook, Deputy Assistant 

Secretary for Global and Economic Affairs, Bureau of 

International Organization Affairs, U.S. Department of 

Allison Levy, Senior International Policy Advisor to the Postal Regulatory Commission.
 POSTAL REGULATORY COMMISSION 49

State, outlining its views on those proposals that were 

inconsistent with 39 U.S.C. 3622.

In advance of providing its views to the Department of 

State, on July 30, 2012, the Commission established 

Docket No. PI2012-1 to solicit input from the public 

on principles that should guide the Commission in 

providing its views to the Department of State. The 

Commission received eight initial comments and 

four reply comments. The Commission reviewed and 

considered these comments in providing its views to 

the Department of State. On September 14, 2012, 

the Commission notified the public through its website 

that the Department of State had requested the 

Commission’s views in accordance with 39 USC 

407(c)(1) and that the Commission had fulfilled its 

statutory responsibility by providing its views to the 

Commission in writing on September 12, 2012.

BUILDING GLOBAL 

RELATIONSHIPS

In addition to its active involvement in the UPU, in 

FY 2012 the Commission continued to strengthen 

relationships with other postal regulators and build 

information on regulatory best practices. In May 

2012, Chairman Goldway participated in the 4th 

annual Global Regulatory Dialogue in Brazil. The 

Dialogue, which the Commission initiated in 2009, 

is a forum for international postal regulators to share 

information and best practices in postal regulation to 

enable each country to better adjust to the changing 

postal market and better facilitate global mail 

delivery. Participants included postal regulators from 

Brazil, China, Ecuador, the European Commission, 

Germany, the Postal Union of the Americas, Spain 

and Portugal. Chairman Goldway, along with her 

counterparts, gave presentations on the modernization 

of the postal network, postal reform in the United 

States, the competitive environment for postal services 

in the United States and priority issues for the UPU 

Congress, which were followed by in-depth debate 

and discussion. In FY 2012, the Commission also 

hosted bilateral meetings with senior postal regulators 

from Brazil and the former Yugoslav Republic of 

Macedonia to discuss at a more technical level with 

Commissioners and Commission staff such issues as 

quality of service, cost accounting, rate setting, and 

complaint handling.

U.S. Delegation to the 25th Congress of the Universal Postal Union in Doha, Qater
50 2012 ANNUAL REPORT

Lastly, the Commission continued to support broader 

U.S. government initiatives to promote free trade and 

commercial ties with other countries, particularly in 

the area of postal and express delivery services. At 

the request of the U.S. Department of Commerce, 

Chairman Goldway participated in the Fifth Annual 

U.S.–China Symposium on Postal Reform and Express 

Delivery in Nanning, China, where she gave a 

presentation on developments in postal reform in the 

United States.

(L to R): Patricia Lacina, Director, Office of Global Systems, U.S. Department of State; Dennis M. Delehanty, Director of Postal Affairs, Office of Global Systems, U.S. 

Department of State; Ruth Y. Goldway, Chairman, Postal Regulatory Commission; Susan L. Ziadeh, U.S. Ambassador to the State of Qatar, U.S. Department of State; and 

Patrick R. Donahoe, Postmaster General and Chief Executive Officer, U.S. Postal Service, at 25th Congress of the Universal Postal Union.

© 2012 Lois Elvey
 POSTAL REGULATORY COMMISSION 51

Chapter VII

Public Affairs and Outreach Efforts

OVERVIEW

The Commission’s Office of Public Affairs and Government Relations (PAGR) is a significant resource 

both in support of public outreach and education, media relations and liaison with the U. S. Congress, 

the Administration, the Postal Service and other government agencies. This office informs and advises 

Commissioners and Commission staff on legislative issues and policies related to the Commission and the 

Postal Service in addition to coordinating the preparation of both congressional testimony and responses to 

congressional inquiries concerning Commission policies and activities. PAGR coordinates media requests and 

provides assistance to the general public.

OUTREACH ACTIVITY

In its normal course of activities, the Commission routinely hears from members of the public involved in or 

representing the mailing industry as well as members of Congress. The Commission performed public outreach 

activities to engage citizens and other stakeholders as a key part of its statutory responsibilities.

The Commission affords public comment on rulemakings, complaints, mail classification cases, public inquiries, 

rate cases and other matters. There is an opportunity for both formal and informal comment and both initial 

and reply comments.

CONSUMER RELATIONS

During FY 2012, the Commission received over 5,800 inquiries, suggestions and comments. This decrease 

in inquiries relative to the 10,093 received last year was due in part to over 5,000 inquiries received for 
52 2012 ANNUAL REPORT 

Docket N2010-1, the Postal Service’s proposal for a 

change from Six-day to Five-day delivery. Consumer 

inquiries were received largely by mail, and through 

the Commission’s website link, “Contact PRC.”

Of the inquiries received in FY 2012, 5,227 

comments were from consumers, 14 from 

business owners, 256 from postal employees and 

organizations, 214 from Federal, State and local 

governments, 94 from the media, and 18 from 

mailers. Approximately half of the comments were for 

Docket N2011-1, nature of service inquiry on the 

Postal Service’s Retail Access Optimization Initiative to 

consider closing approximately 3,700 post offices.

In addition to this outpouring of opinions, other 

top consumer issues included 596 comments and 

suggestions on the Postal Service’s financial situation, 

concerns about Missing Mail (211), Undelivered Mail 

(137), Delayed Mail (94), and 1,053 comments 

about the Postal Service’s Area Mail Processing 

reviews, representing a substantial increase from the 

80 comments received in FY 2011.

Commission Order No. 195 established that 

rate and service inquiries forwarded to the Postal 

Service’s Office of the Consumer Advocate require 

a response by the Postal Service within 45 days, a 

goal consistently met by the USPS. In FY 2012, the 

Commission forwarded 938 rate and service inquiries 

to the Postal Service. The Order also requires the 

Postal Service to file a monthly report summarizing the 

general nature of these inquiries. The reports are filed 

on the Commission’s website under “What’s New” 

and with Postal Service Periodic Reports.

Table VII-1—Consumer Inquiries

Method of Contact FY 2012 FY 2011 FY 2010 FY 2009

Email 151 204 123 225

FAX 35 48 15 244

Mail 2702 1848 374 199

Website 2387 2777 5021 421

Phone 601 771 339 253

Representatives affected by the closing of mail processing plants voicing their concerns at a PRC Monthly Public Meeting.
 POSTAL REGULATORY COMMISSION 53

Chapter VIII

Administration

ADMINISTRATION OVERVIEW

The Commission’s Office of the Secretary and Administration (OSA) ensures that the Commission has the 

physical, financial, information technology and human capital infrastructures needed to accomplish its mission. 

OSA provides financial management, records management, organizational support, planning and human 

capital resources for the Commission. The Commission’s administrative staff identifies and proposes process 

improvements, implements strategic plans, and provides support to ensure the success of the Commission’s 

mission.

The Commission completed its 5-year Strategic and Human Capital Plans and is committed to implementing 

the strategies. As part of the Commission’s commitment to its workforce as outlined in the Strategic Plan, the 

Commission continues to provide a safe work environment for its employees. The Commission ended FY 2012 

accident-free with no on-the-job injuries or lost workdays. In line with the President’s guidance, the Commission 

continued to support its Flexible Work Program to include alternate work schedules and telework opportunities. 

During FY 2012, 66 percent of employees participated in the Flexible Work Program. All Commission 

employees are allowed to participate in the Ad hoc telework program.

Employee Engagement

In FY 2012 the Commission again participated in the Federal Employee Viewpoint Survey (FEVS). The 

Commission’s response rate was the third highest of all government small agencies at 89.1 percent, and 

compares favorably to our FY 2011 response rate of 80 percent and the FY 2012 government-wide response 

rate of 46 percent. The Commission is committed to developing actionable plans based on the feedback 
54 2012 Annual Report

received in the FEVS. In response to employee 

feedback in the FY 2011 survey, the Commission 

implemented key initiatives for employees. As a result 

of these initiatives, the FY 2012 Employee Viewpoint 

Survey revealed:

 Employee Engagement Index positive responses 

were 73 percent compared to 66 percent for all 

small agencies

 Supervisor Index positive responses were 77 

percent compared to 73 percent for all small 

agencies

 Intrinsic Work Experience Index positive responses 

were 81 percent compared to 71 percent for all 

small agencies

 Leadership and Knowledge Management Index 

positive responses were 65 percent compared to 

60 percent for all small agencies

 Results Oriented Performance Culture Index positive 

responses were 65 percent compared to 57 

percent for all small agencies

The FY 2012 Federal Employee Viewpoint Survey 

also highlighted opportunities and challenges for the 

Commission. We experienced a decrease in the 

positive responses to questions regarding pay and 

workload. Over the last several years, the Commission 

has experienced a rapidly increasing workload while 

adhering to the federal pay freeze. In response to 

these challenges the Commission has developed 

programs for training and professional development 

directed at employee engagement and retention.

Equal Employment

Opportunity (EEO)

During FY 2012, the Commission had no formal EEO 

complaint filings and provided the required EEO and 

Notification and Federal Employee Anti-discrimination 

and Retaliation Act of 2002 (No FEAR) training to 

our employees.

Diversity 

In FY 2012, the Commission made measurable 

progress in our commitment to support initiatives to 

recruit, develop and retain a skilled, high-achieving, 

and diverse workforce. Fifty percent of our executive 

positions are filled by women and minorities. Women 

and minorities also represent 65 percent of the 

Commission’s overall workforce. The Commission 

provided internship opportunities to aid in the 

recruitment and development of professionals with 

diverse backgrounds, and will continue to monitor 

and to capture opportunities for diverse new hires, 

including the use of formal recruitment channels such 

as organizations that target under-represented groups.

Training

The Commission has an existing training program 

available to all employees that allows for skills 

training, professional development and student loan 

reimbursement. As part of our 2012—2016 Human 

Capital Plan and training goals, the Commission is Commission staff participating in the Feds Feed Families Campaign. 
 POSTAL REGULATORY COMMISSION 55

developing an enhanced leadership development 

program that includes mentoring, coaching and 

competency development.

Transparency and Open 

Government

The Commission continued its commitment to 

transparency, accountability and openness through 

our Freedom of Information Act (FOIA) program. 

In FY 2012 we received the highest rating on the 

Assessment of Agency Progress from the Department 

of Justice.

As part of its mission of ensuring transparency, 

accountability and openness, the Commission 

continued to provide live audio-casts of hearings, 

technical conferences and public meetings. In FY 

2012, we increased the capability of the system to 

allow more people to access live audio-casts. These 

audio-casts are available at www.prc.gov.

Finance

In response to the 2009 Presidential Memoranda 

regarding government contracting, and in line with 

the President’s subsequent Executive Order 13576 

– Delivering an Efficient, Effective, and Accountable 

Government, the Commission continued to improve 

its contracting policy, process and procedures, 

resulting in increased accountability and cost savings 

to the Commission.

The Commission has successfully partnered with 

women and minority-owned businesses. In FY 

2012, 40 percent of Commission contracts were 

awarded to women and minority owned businesses. 

The Commission continues to work within budget, 

and improvements in accounting and contracting 

processes to be cost effective and efficient.

Information Technology

The Commission made improvements to its Dockets 

infrastructure to facilitate public access and ease 

of use and to maintain the integrity of Commission 

records. The Commission also updated its physical 

network (servers, cabling) and its essential network 

systems applications and software to ensure 

security and stability of the Information Technology 

infrastructure as well as employee productivity. The 

Commission revised its website to include expanded 

information on the Public Representative program, 

thus continuing its commitment to openness and 

transparency. As part of its mission of ensuring 

transparency, accountability and openness, the 

Commission provides live broadcasts of hearings, 

technical conferences and public meetings and 

archives these broadcasts to its public website.

Commission staff’s children participating in Bring Your Child to Work Day. 
56 2012 Annual Report

Dockets and Records 

Management

The Commission transitioned Records Management to 

the Office of the Secretary and Administration (OSA). 

It submitted an updated record schedule to National 

Archives and Records Administration (NARA) and 

completed a Records Management evaluation to 

ensure compliance with Administration guidance. The 

Commission received a score of 87 out of 100 points 

on the FY 2012 NARA Annual Assessment, moving it 

from high to moderate risk.

The Commission’s Health and Safety Team.
 POSTAL REGULATORY COMMISSION 57

Pursuant to 39 U.S.C. 3622(d) and 39 CFR 

3010.20 et seq. the annual limitation (price cap) is 

equal to the percentage change in the CPI-U between 

the most recent average 12-month and the preceding 

12-month period when notices of price adjustments 

are 12 months apart or more.

The Commission publishes the 12-month average 

change in CPI-U on its website at 

http://www.prc.gov/PRC-DOCS/home/CPI.pdf.

In FY 2012, the Postal Service filed Docket No. 

R2012-3 only 9 months after Docket No. R2011-2. 

Therefore, the Commission applied rule 3010.22, 

which was designed for notices of price adjustments 

less than 12 months apart.

When notices of price adjustments are less than 12 

months apart the price cap is calculated in two steps. 

First, the average of the preceding 12 months of CPI-U 

is calculated, which is called the “recent average”. 

Second, the recent average is divided by the recent 

average of the most recent previous notice of price 

adjustment (“previous recent average”) and one is 

subtracted from the quotient. The result is expressed 

as a percentage. Table A-1 Illustrates the calculation 

of the price cap in Docket No. R2012-3.

Appendix A 

TECHNICAL DESCRIPTION 

OF PRICE CAP

Table A-1—Illustration of Docket No. R2012-3 Partial Year Price Cap

Description Rule Result

Recent Average: simple average of the 12 most recent CPI-U values (September 

2010 through August 2011) 3010.22(b) 222.4

Previous Recent Average: the recent average from the most recent previous 

notice of rate adjustment 3010.22(b) 217.8

The Price Cap: Recent Average divided by the Previous Recent Average minus 

one (expressed as a percentage) 3010.22(b) 2.133%
901 New York Avenue NW, Suite 200

Washington, DC 20268 - 0001