ANNUAL REPORT

TO THE PRESIDENT 

AND CONGRESS

FISCAL YEAR 2017

Postal Regulatory Commission

Submitted 1/26/2018 8:55:46 AM

Filing ID: 103595

Accepted 1/26/2018
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TABLE OF CONTENTS | 1

TABLE OF CONTENTS

CHAIRMAN’S LETTER...................................... 5

CHAPTER I | Fiscal Year 2017 in Review.......... 7

CHAPTER II | About the Commission.............. 9

Commission Leadership................................... 10

Staff and Office Structure ................................ 12

Commission Strategic Plan.............................. 13

Office of Public Affairs

 and Government Relations............................. 13

Office of the Secretary and Administration..... 15

CHAPTER III | FY 2017 Proceedings ............. 19

Statutory Review of Market Dominant 

Rate System..................................................... 20

Notice of Proposed Rulemaking ...................... 22

Other Rulemakings.......................................... 24

Rulemakings Amending Commission 

Regulations ................................................. 24

Mail Preparation Changes 

and the Price Cap ................................... 24

Ethics...................................................... 25

Freedom of Information Act................... 25

Proposals to Change Analytical Principles .. 26

Annual Reports................................................ 28

Annual Compliance Determination............. 28

Analysis of Performance Goals.................... 30

Financial Analysis Report............................ 30

Rate Changes .................................................. 31

Market Dominant Products

Rates of General Applicability ................ 32

Rates Not of General Applicability 

 (NSAs) ................................................... 33

Competitive Products ................................. 34

Rates of General Applicability ................ 35

Rates Not of General Applicability.......... 35

Other Proceedings........................................... 37

Public Inquiries................................................ 39

City Carrier Costs......................................... 39

Service Performance................................... 39

Post Office Closing Appeals............................. 40

Court of Appeals Cases.................................... 41

First-Class Mail Parcels Transfer.................. 41

Changes Concerning Attributable Costing .....41

Complaint of Ramon Lopez......................... 42

Other Pending Court Appeals..................... 42

International Postal Policy............................... 43

CHAPTER IV. | Universal Service Obligation 

 and Postal Monopoly................................... 45

Background ..................................................... 45

Estimated USO Cost ................................... 46

Postal Services to Areas of the Nation the 

 Postal Service Would Not Otherwise Serve..47

Maintaining Small Post Offices............... 48

Alaska Air Subsidy .................................. 50

Group E Post Office Boxes ...................... 50

Free or Reduced Rates................................ 51

Preferred Rate Discounts Net of Costs ... 51

Periodicals Losses................................... 52

Other Public Services or Activities.............. 52

Six-Day Delivery ...................................... 52

Uniform Rates......................................... 53

Value of the Postal Monopoly ......................... 54

COVER PHOTO BY M DOGAN
Acronyms

ACD | Annual Compliance Determination

ACR | Annual Compliance Report

C.F.R. | Code of Federal Regulations

CAG | Cost Ascertainment Group

CHIR | Chairman's Information Requests

CIR | Commission Information Request

CPI | consumer price index

CY | Calendar Year

EXFC | External First-Class Measurement

FERS | Federal Employees Retirement System

FY | Fiscal Year

GEPS | Global Expedited Package Service

NPR | non-published rates

MCS | Mail Classification Schedule

NPR | Notice of Proposed Rulemaking

NSA | negotiated service agreement

PAEA | Postal Accountability and Enhancement Act

RHBF | Retiree Health Benefits Fund

RRM | Return Receipt for Merchandise

TFP | total factor productivity

U.S.C. | United States Code

UPU | Universal Postal Union

USO | Universal Service Obligation

2 | POSTAL REGULATORY COMMISSION • FY 2017 ANNUAL REPORT
Guiding Principles

The Commission is committed to and 

operates by the principles of:

Openness

Public participation

Integrity

Fairness and impartiality

Timely and rigorous analysis

Merit

Commitment to excellence

Collegiality and multi-disciplinary

approaches

Adaptability

Proactive response to the rapidly 

changing postal environment

MISSION STATEMENT | 3

Mission Statement

Ensure transparency and accountability of the United 

States Postal Service and foster a vital and efficient 

universal mail system.

Vision Statement

To be an independent regulator respected for effectively 

engaging postal stakeholders to promote a robust 

universal mail system through objective, accurate, 

and timely regulatory analyses and decisions.

We will look to achieve our vision by:

• Taking a multi-disciplinary and integrated 

approach to work

• Monitoring the environment and anticipating 

changes to enhance agility

• Utilizing rigorous evaluative methods

• Optimizing stakeholder engagement through 

an appropriate and clearly-defined public 

involvement process

• Developing staff expertise to ensure that the 

Commission is a center for excellence in postal 

regulatory matters

• Ensuring that the Commission is an employer of choice

• Ensuring efficient stewardship of resources

PRC | Mission, Vision, and Guiding Principles PHOTO BY MIKE FLIPPO PHOTO BY ROB CRANDALL
4 

| POSTAL REGULATORY COMMISSION • FY 2017 ANNUAL REPORT

PHOTO BY KAMIRA
CHAIRMAN’S MESSAGE | 5

Chairman’s Letter

JANUARY 2018

On behalf of the Postal Regulatory Commission, I am pleased to submit the Commission’s Fiscal 

Year 2017 Annual Report to the President and Congress. This report summarizes the Commission’s 

key accomplishments and activities over the past year. It also provides information required 

under the Postal Accountability and Enhancement Act of 2006 (PAEA) on the operations of the 

Commission, including the extent to which regulations are achieving the law’s objectives. 

The Commission worked hard to complete one of its critical responsibilities mandated by the 

PAEA – a 10-year review of the system for regulating rates and classes for Market Dominant 

products. At a Commission public meeting on September 1, 2016, plans were outlined for a 

review that would allow full and open opportunities for public participation, while balancing 

the aim of completing the Commission findings and beginning any necessary rulemaking in an 

efficient and effective manner. We delivered on those plans. On December 20, 2016, exactly 

10 years from the 2006 law’s date of enactment, the Commission began its review. Following a 

90-day comment period, which ended in the Spring of 2017, the Commission issued its findings 

and proposed rules in late Fall 2017.

In addition, the Commission continued its work on other matters with an ambitious schedule 

that included rulemakings, reviewing and approving postal rates, adjudicating formal and 

informal complaints, examining proposals for new products and services, and ensuring Postal 

Service compliance with the law. Also, by implementing the Commission’s 5-year Strategic Plan 

for 2017-2022, the Commission moved forward with continual improvement in operational 

quality and efficiency.

The Commission is efficient and effective in carrying out its mission as measured by budget 

savings and timeliness of work. The Commission employees’ satisfaction and engagement 

is strong, as evidenced by the Federal Employee Viewpoint Survey results. The Commission 

remains a frequently sought resource for postal expertise. I want to thank the entire staff of the 

Commission, and my fellow colleagues, for a highly productive year. It is a privilege to lead the 

work of this talented team of professionals, so dedicated to fulfilling our mission of ensuring 

transparency and accountability of the Postal Service, and fostering a vital and efficient 

universal mail system.

With best wishes, I am

 Sincerely yours,

 Robert G. Taub

 CHAIRMAN
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CHAPTER I | 7

1. The Commission published five major reports in FY 2017:

• The Annual Report to the President and Congress (Annual 

Report) described the Commission’s accomplishments 

and activities as the regulator of the Postal Service.

• The Annual Compliance Determination (ACD) reviewed 

the Postal Service’s compliance with statutory pricing 

and service requirements.

• The Financial Analysis of United States Postal Service 

Financial Results and 10-K Statement Fiscal Year 2016

provided an in-depth analysis of the Postal Service’s 

financial condition. 

• The Analysis of the Postal Service’s FY 2016 Annual 

Performance Report and FY 2017 Annual Performance 

Plan evaluated whether the Postal Service met its 

performance goals as required under 39 U.S.C. § 

3653(d). 

• Section 701 Report: Analysis of the Postal Accountability 

and Enhancement Act of 2006 (PAEA) recommended 

to the President and Congress legislation and other 

ways to improve the effectiveness and efficiency of the 

United States’ postal laws.

The Postal Regulatory 

Commission (Commission) 

achieved the following 

significant accomplishments 

in Fiscal Year (FY) 2017 that 

support its mission to ensure 

transparency and accountability 

of Postal Service operations 

and foster a vital and efficient 

universal mail system.

PHOTOS BY ORHAN CAM

CHAPTER I | Fiscal Year 2017 in Review

Top left: US Capitol Building

Top right: Thomas Jefferson Memorial
8 | POSTAL REGULATORY COMMISSION • FY 2017 ANNUAL REPORT

2. Throughout the fiscal year, the Commission 

dedicated a majority of its resources to the 

statutorily mandated review of the system 

for regulating rates and classes for Market 

Dominant products that was first established 

in 2006 by the PAEA (Current System) as 

required by 39 U.S.C. § 3622(d)(3). In early 

FY 2018, the Commission issued Order No. 

4257 finding that the Current System as a 

whole has not achieved the objectives of the 

PAEA. See Chapter 3, infra. That same day, 

the Commission issued a Notice of Proposed 

Rulemaking (NPR) proposing changes to the 

Current System that would address the issues 

identified by the Commission in its review. 

This rulemaking is currently pending before 

the Commission.

3. The Commission presided over several other 

rulemaking proceedings in FY 2017. The 

Commission:

• Issued a revised NPR that would require 

the Postal Service to publish all mail 

preparation changes in a publicly-available 

single source and affirmatively designate 

whether a mail preparation change requires 

compliance with Commission price cap 

rules.

• Initiated a rulemaking to evaluate the 

institutional cost contribution requirement 

for Competitive products.

• Issued two sets of proposed and final rules 

on Commission ethics and supplemental 

standards of ethical conduct applicable to 

Commission employees.

• Considered 12 proposals by the Postal 

Service to change various accepted 

analytical principles. Final orders were 

issued for 10 of the proposals. The 

remaining two proposals are currently 

pending before the Commission. 

4. The Commission reviewed the Postal Service’s 

proposed rate changes for Market Dominant 

and Competitive products in FY 2017

Highlights include: 

 • Issuing an order addressing issues on 

remand concerning the Postal Service’s 

request to transfer First-Class Mail Parcels 

from the Market Dominant product list 

to the Competitive product list. The 

Commission conditionally approved the 

Postal Service’s request and later approved 

related rate and Mail Classification Schedule 

(MCS) changes.

• Approving rates of general applicability 

for First-Class Mail, USPS Marketing Mail 

(formerly called Standard Mail), Periodicals, 

Package Services, and Special Services.

• Approving rates of general applicability 

for several domestic and international 

Competitive products.

• Approving 316 Competitive negotiated 

service agreements (NSA) (208 domestic, 

108 international).

5. In other proceedings, the Commission 

considered two public inquiry dockets relating 

to city carrier costs and service performance, 

adjudicated two post office closing appeals, 

and conducted activities with respect to its 

international postal policy responsibilities. 

6. Other Commission activities included:

• Testifying before the U.S. House Oversight 

and Government Reform Committee

• Processing more than 3,866 inquiries, 

questions, suggestions, and comments from 

the general public which primarily involved 

undelivered, delayed, misdelivered, and 

missing mail

• Hosting several open public meetings 

providing transparency of Commission 

activities
CHAPTER II | 9

The Commission is an independent establishment 

of the Executive Branch of the United States 

Government. It has exercised regulatory oversight 

over the Postal Service since its creation by the 

Postal Reorganization Act of 1970, with expanded 

responsibilities under the PAEA. It has five 

commissioners, each appointed by the president, by 

and with the advice and consent of the Senate, for a 

term of 6 years. A commissioner may continue to serve 

after the expiration of his or her term until a successor 

is confirmed, except that a commissioner may not 

continue to serve for more than 1 year after the 

date on which his or her term would have otherwise 

expired. Not more than three of the commissioners 

may be adherents of the same political party.

CHAPTER II | About the Commission

Pictured left to right: 

Vice Chairman Mark Acton, 

Chairman Robert Taub, 

Commissioner Nanci Langley, 

Commissioner Tony Hammond
10 | POSTAL REGULATORY COMMISSION • FY 2017 ANNUAL REPORT

Mark Acton | VICE CHAIRMAN

Commissioner Mark Acton was reappointed to the Postal Regulatory 

Commission by President Barack H. Obama on December 12, 2016 for a 

third term of continued public service extending until October 14, 2022. 

Commissioner Acton was confirmed by the United States Senate on 

December 10, 2016. Commissioner Acton was nominated by President 

Barack H. Obama on May 12, 2011 for a second term of office through 

October 14, 2016. Commissioner Acton was confirmed by the United 

States Senate for his second term of office on September 26, 2011. 

President George W. Bush first nominated Mr. Acton as a Postal Rate 

Commissioner on November 7, 2005, and he was confirmed by the Senate 

on August 3, 2006. Prior to that appointment, Mr. Acton served as Special 

Assistant to the Chairman of the Postal Rate Commission and assisted in 

managing all aspects of agency operations.

Commission Leadership

Robert G. Taub | CHAIRMAN

Chairman Robert G. Taub is serving a second term on the Commission, 

having been twice confirmed by the United States Senate, following his 

respective nominations by the president. His current term expires on 

October 14, 2022. Before his designation by the president as chairman, he 

was acting chairman from December 2014 to December 2016, and vice 

chairman for 2013. Chairman Taub has more than 30 years of experience 

in public service. When first appointed as a commissioner in October 

2011, Mr. Taub was the Special Assistant to Secretary of the Army John 

M. McHugh. As an Army senior executive, he was one of the principal 

civilian advisors to Secretary McHugh, helping him lead a workforce of 

more than 1.2 million people, and manage an annual budget exceeding 

$200 billion. He was awarded the Army’s Decoration for Distinguished 

Civilian Service. His previous public service include chief of staff to U.S. 

Representative John McHugh (R-NY); 12 years in senior positions on the 

House of Representative’s Committee on Oversight and Government Reform, 

including staff director of its former Postal Service Subcommittee; senior 

policy analyst with the U.S. Government Accountability Office; and staff 

member for three members of Congress, a member of the British Parliament, 

and state and county officials in upstate New York. He is a Fellow of the 

National Academy of Public Administration.
CHAPTER II | 11

Tony Hammond | COMMISSIONER

Mr. Hammond was reappointed as a commissioner on December 10, 2014, 

and has been elected to three separate terms as vice chairman during 

his tenure. His term expires October 14, 2018. Commissioner Hammond 

served on the Postal Regulatory Commission and its predecessor agency, 

the Postal Rate Commission, from 2002 to 2011, as an appointee of 

President George W. Bush. He was reappointed by President Barack Obama 

for an additional term from 2012 to 2013. Before joining the Commission, 

Mr. Hammond was the owner and managing member of T. Hammond 

Company, LLC; senior consultant to Forbes 2000, Incorporated; senior 

vice president of FL&S, a direct marketing firm; director of campaign 

operations for the Republican National Committee; executive director and 

finance director of the Missouri Republican Party; and served 10 years on 

the staff of former U.S. Representative Gene Taylor (R-MO).

Nanci E. Langley | COMMISSIONER

 Ms. Langley was reappointed as a commissioner on December 10, 2014. Her 

term expires November 22, 2018. She was first appointed as a commissioner 

on June 6, 2008; that term expired on November 22, 2013. She also served as 

the Commission’s vice chairman from October 2008 to October 2009, January 

to December 2012, and January to December 2016. Her previous positions 

include director of the Office of Public Affairs and Government Relations 

at the Commission; 17 years as a senior adviser to U.S. Senator Daniel K. 

Akaka (D-HI), including 9 years as a deputy staff director on the U.S. Senate 

Committee on Homeland Security and Governmental Affairs Subcommittee 

on Oversight of Government Management, the Federal Workforce, and the 

District of Columbia; and communications director to U.S. Senator Spark M. 

Matsunaga (D-HI). She was elected as a fellow of the National Academy of 

Public Administration in 2009.
12 | POSTAL REGULATORY COMMISSION • FY 2017 ANNUAL REPORT

Commission staff has expertise in law, economics, finance, statistics, and cost accounting. 

The Commission is organized into four operating offices:

• Accountability and Compliance. The Office of Accountability and Compliance is responsible for 

technical analysis and formulating policy recommendations for the Commission on domestic and 

international matters. 

• General Counsel. The Office of the General Counsel ensures the Commission fulfills its statutory 

and regulatory obligations by providing legal guidance on matters involving the Commission’s 

responsibilities. 

• Public Affairs and Government Relations.The Office of Public Affairs and Government Relations 

facilitates prompt and responsive communications with the public, Congress, Federal agencies, 

the Postal Service, and media.

• Secretary and Administration. The Office of the Secretary and Administration records the 

Commission’s official actions; manages the Commission’s records, human resources, budget and 

accounting, and information technology; and provides other support services. 

The Commission maintains an independent Office of the Inspector General. It conducts, supervises, 

and coordinates audits and investigations relating to Commission programs and operations, and 

identifies and reports fraud and abuse in these programs and operations.

Figure II-1 displays the Commission’s FY 2017 organizational structure.

Staff and Office Structure

Figure II-1: Commission’s FY 2017 Organizational Structure

Jack Callender

Office of the

Inspector General

Deputy Director

Matthew Robinson

Deputy Director

JP Klingenberg

Deputy Secretary

Ruth Ann Abrams

Deputy General 

Counsel

Christopher Laver

Deputy General 

Counsel

Anne Siarnacki

Office of

Accountability

& Compliance

Margaret Cigno

Office of Public

Affairs & Government

Relations

Ann Fisher

Office of the

General Counsel

David Trissell

Office of the Secretary

& Administration

Stacy Ruble

Mark Acton

Vice Chairman

Nanci Langley

Commissioner

Robert Taub

Chairman

Tony Hammond

Commissioner

Vacant

Commissioner
CHAPTER II | 13

Commission Strategic Plan

The Commission began implementation of its Strategic Plan (Plan) for fiscal years 2017 through 2022. 

The Plan outlines the Commission's core Mission and Vision over the next 5 years, the key strategic 

goals to help the Commission fulfill its Mission and Vision, and the strategies to meet the statutory 

requirements of the PAEA. These strategies implemented will help to ensure transparency and 

accountability of the Postal Service and foster a vital and efficient universal mail system, 

Over the next 5 years, the Commission will focus its activities on the following four strategic goals:

Goal 1: Deliver accurate and objective analyses and decisions to ensure transparency and 

accountability of the Postal Service.

Goal 2: Actively engage with Congress and stakeholders in support of a dynamic postal system.

Goal 3: Provide an optimal internal infrastructure to support management of priorities, 

workload, and emerging requirements.

Goal 4: Recruit, develop, and retain a diverse, high-performing workforce.

The Plan can be viewed or downloaded from the Commission’s website, www.prc.gov.

Office of Public Affairs and Government Relations

The Commission’s Office of Public Affairs and 

Government Relations (PAGR) is a significant 

resource in support of public outreach and 

education, complaint processing, 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 is the primary office assisting 

the general public. 

PHOTO BY SEAN PAVONE

Interior of the Library of Congress in Washington, DC.
14 | POSTAL REGULATORY COMMISSION • FY 2017 ANNUAL REPORT

Congressional Testimony 

On February 7, 2017, Chairman Taub testified 

before the U.S. House Oversight & Government 

Reform Committee at a hearing entitled 

“Accomplishing Postal Reform in the 115th 

Congress – H.R. 756, The Postal Service Reform 

Act of 2017.” The hearing was the result of 

bipartisan legislation introduced by thenChairman Chaffetz, Ranking Member Cummings, 

Subcommittee Chairman Meadows and Ranking 

Member Connolly, and Representatives Ross and 

Lynch. Discussions included “the significance and 

potential implications of the Commission’s review 

of the Market Dominant rate system.” Chairman 

Taub’s testimony primarily emphasized the 

significant financial obstacles facing the Postal 

Service, an overview of the Commission’s 701 

Report, and the structure of the 10-year Market 

Dominant rate review. 

The Commission held a series of open public 

meetings in FY 2017 to keep postal stakeholders 

and the public abreast of Commission operations, 

activities, and decisions. In accordance with 

the Sunshine Act, the date, timing, and agenda 

items for each public meeting were noticed in the 

Federal Register and posted on the Commission’s 

website, www.prc.gov.

Open Public Meetings

Consumer Relations - Comments and Inquiries

INQUIRIES BY SOURCE

During FY 2017, PAGR received 3,866 inquiries, 

questions, suggestions, and comments. 

Approximately 72 percent of consumer inquiries 

were submitted online through “Contact PRC” 

on the Commission website. Of the remaining 

inquiries, 19 percent were submitted by phone 

and 7 percent by mail. 

Commission Order No. 195 directs the Postal 

Service to respond to rate and service inquiries 

forwarded to its Office of the Consumer Advocate 

within 45 days. In FY 2017, the Commission 

forwarded 368 such inquiries. The order also 

requires the Postal Service to file a monthly 

report summarizing the general nature of these 

inquiries. The reports are available on the 

Commission’s website.

INQUIRIES BY ISSUE

As in past years, the predominant types of 

inquiries the Commission received from business 

owners were undelivered mail (mail not being 

delivered), and delayed mail (outgoing mail not 

being picked up by the carrier, or mail being 

delivered late in the day or after the close of 

business).

Service continues to be the highest inquiry 

category. The Commission received 3,120 

inquiries regarding delivery service. 
CHAPTER II | 15

Office of the Secretary and Administration

The Office of the Secretary and Administration 

(OSA) provides management and staff support 

to the Commission’s operational offices 

(including the Office of the Inspector General), 

the Commission’s Strategic Plan, and various 

initiatives of the Executive Branch. OSA 

ensures that the Commission has the physical, 

financial, technological, and human capital 

infrastructure needed to accomplish its mission. 

Responsibilities include financial management, 

records management, administrative and 

organizational support, human resources 

management, workforce planning, and 

information technology management. 

Figure II-2: Overview of FEVS Results, FY 2017

The Commission is committed to enhancing a 

system that fosters recruitment, development, 

and retention of a talented, skilled, diverse, and 

adaptable workforce as part of its Human Capital 

in the Strategic Plan. In FY 2017, the Commission 

participated in the annual Federal Employee 

Viewpoint Survey (FEVS). The agency’s FY 2017 

response rate of 83 percent was higher than the 

FY 2016 response rate, and significantly higher 

than the government-wide rate of 45 percent. 

Figure II-1 shows an overview of key Commission 

FEVS ratings on the Office of Personnel 

Management (OPM) indices when compared with 

the Federal Government as a whole.

Employee Engagement and Training 

PRC Response

Government-Wide 

Response

Global 

Satisfaction

Overall 

Response

Employee 

Engagement

Response 

Rate

2008 2009

GovernmentWide

83 81 71 100

Postal 

Regulatory 

Commission

46 65 61

0

25

50

75

100

Response 

Rate

2008 2009

GovernmentWide

83 81 71 100

Postal 

Regulatory 

Commission

46 65 61

0

25

50

75

100

Response 

Rate

2008 2009

GovernmentWide

83 81 71 100

Postal 

Regulatory 

Commission

46 65 61

0

25

50

75

100

Response 

Rate

2008 2009

GovernmentWide

83 81 71 100

Postal 

Regulatory 

Commission

46 65 61

0

25

50

75

100

86% 85%

73%

45%

67%

64%
16 | POSTAL REGULATORY COMMISSION • FY 2017 ANNUAL REPORT

OPM has aggregated the results of the FEVS 

into two indices. “Employee Engagement” 

ranks employees’ perceptions of the leadership 

within their agency, their supervisors, and the 

overall work experience; “Global Satisfaction” 

measures employees’ satisfaction with four 

aspects related to work: job, pay, organization, 

and whether they would recommend their 

organization as a good place to work. 

Compared to responses with Federal employees 

government-wide, Commission staff had a 

higher degree of satisfaction with their work 

and office environment: 85 percent positive 

rating in “Employee Engagement” versus the 

government-wide positive rating of 67 percent, 

and a 73 percent positive rating in “Global 

Satisfaction” versus the government-wide rating 

of 64 percent. The Commission is committed 

to developing actionable plans based on the 

confidential feedback received from employees 

through this survey.

To further address employees’ work-life balance, 

this year the Commission revised and expanded 

its policy on the Flexible Work Program, which 

includes alternate work schedules (AWS) 

and telework opportunities. Telework is an 

integral part of the Commission’s continuity 

of operations plan, particularly situational or 

ad-hoc telework, to ensure the Commission’s 

continued operations during government 

closure or delay. During FY 2017, 69 percent of 

Commission staff participated in situational 

telework, compared to 70 percent in FY 2016. 

Almost half (49 percent) of employees are 

teleworking on a regularly scheduled basis. 

In 2017, the Commission continued to offer 

extended telework to eligible employees and 

4 percent of the workforce used this increased 

flexibility to telework more than three days 

per week. Thirty percent of Commission staff 

participated in the AWS program in FY 2017.

The Commission’s investment in its employees 

remains a top priority. In FY 2017, the 

Commission offered training and professional 

development opportunities designed to increase 

employee knowledge, engagement and retention. 

The Commission also ensured that employees 

were in compliance with mandatory training 

requirements in all areas including cybersecurity, 

ethics, and records management. All employees 

attended at least one optional training, 

47 percent of employees chose to participate 

in off-site training, and 39 percent attended inhouse professional development training. 

Equal Employment Opportunity and Diversity 

In FY 2017, the Commission continued its 

commitment to equal employment opportunity 

(EEO) in its initiatives to recruit, develop, and 

retain a skilled, high-achieving, and diverse 

workforce. Women and minorities accounted 

for 59 percent and 31 percent, respectively, of 

the workforce. Women filled 40 percent of the 

agency’s executive positions; minorities filled 

10 percent. Over the course of FY 2017, the 

Commission had no EEO complaints filed. 

The Commission provides internship 

opportunities to aid in the recruitment and 

development of professionals with diverse 

backgrounds. The Commission will continue 

to monitor and offer opportunities to increase 

diversity, including the use of formal recruitment 

channels such as local universities, veterans’ 

groups, and other comparable organizations 

and groups that target under-represented 

populations. To further address this issue, during 

FY 2017 the Commission revised and updated its 

reasonable accommodation policy.
CHAPTER II | 17

Transparency and Open Government

The Commission is committed to transparency, 

accountability, and open government. In 

compliance with the Freedom of Information 

Act (FOIA), the Commission completed all 

FY 2017 requests within statutory limits. The 

Commission expects to receive a favorable 

review in the Department of Justice’s FY 2017 

Assessment of Agency Progress. 

The Commission continued to provide live audio 

webcasts of hearings, technical conferences, and 

public meetings, and expanded these capabilities 

to provide for video webcasting of public 

meetings and technical conferences. Recordings 

of the webcasts are available on the Commission’s 

website, www.prc.gov. 

Budget and Finance 

The Commission’s Total Obligation Authority 

for FY 2017 was $16,200,000. These funds were 

used to maintain staffing levels of 75 full-time 

employees and for operating expenses. Salaries 

and benefits accounted for $11,761,544 

(73 percent) of the Commission expenditures, 

the remaining $4,438,456 was allocated for 

operating expenses.

Figure II-3 displays the Commission’s actual 

expenditures for FY 2017: “Rent” goes toward 

the agency’s commercial office and storage 

space, and “Other Operating Expenses” includes 

information technology, training, and consulting. 

The Commission is also implementing a revised 

budget formulation and forecasting process 

to further enhance budget development. The 

Commission also successfully partnered with 

women and minority-owned business for a total 

of 21 percent of all Commission contracts.

The Commission continues to work within its 

budget and improve accounting and contracting 

processes making them more cost-effective and 

efficient. In response to the 2009 presidential 

memorandum regarding government contracting, 

and in line with Executive Order 13576, 

“Delivering an Efficient, Effective, and Accountable 

Government” (2011), the Commission continued 

to improve its contracting policy and standard 

operating procedures, resulting in increased 

accountability and cost savings.

Figure II-3: FY 2017 Actual Expenditures

Personnel Compensation

Rent

Supplies & Services

Other Operating Expenses

73%

14%

11%

2%
18 | POSTAL REGULATORY COMMISSION • FY 2017 ANNUAL REPORT

In FY 2017, the Commission had zero incidents 

to report to the Department of Homeland 

Security (DHS) United States Computer 

Emergency Readiness Team (US-CERT), and 

did not experience any breaches of personally 

identifiable information. 

During this past year, the Commission took 

several steps to improve the overall security 

and performance of its IT infrastructure, 

increase Federal Information Security 

Management Act (FISMA) compliance, and 

sharpen the emphasis on cybersecurity crossagency priority goals. The primary focus for FY 

2017 was the modernization and optimization 

of the entire IT infrastructure and legacy 

applications. The Commission also completed 

its Managed Trusted Internet Protocol Service 

(MTIPS) implementation. The time and 

resources invested in system testing, readiness, 

and cybersecurity training during FY 2017 is a 

testament to the Commission’s commitment to a 

secure and reliable IT presence. 

Information Technology (IT)

In FY 2017, the Commission began developing 

a new Electronic Document and Records 

Management System (EDRMS). The EDRMS will 

manage the agency’s entire records life-cycle 

by providing all current electronic records 

repositories with a shared common interface. 

Notably, this system will include the electronic 

transfer of the Commission’s records to the 

National Archives and Records Administration, 

creating a more streamlined and efficient 

recordkeeping system. The Commission aims to 

have EDRMS in place by the end of FY 2018. 

Records Management
CHAPTER III | 19

The Commission is required by the 

PAEA1 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 section 3622 of 

title 39 of the U.S. Code.2 In FY 2017 

and early FY 2018, the Commission 

reviewed the system of ratemaking for 

Market Dominant products that was 

developed pursuant to section 3622 to 

determine if it achieved the objectives 

established by Congress during the 10 

years following the enactment of the 

PAEA (PAEA era). The Commission’s 

review is discussed in detail under the 

Statutory Review of Market Dominant 

Rate System section. As a result of that 

review, the Commission determined that 

the Current System as a whole has not 

achieved the objectives of the PAEA.

CHAPTER III | FY 2017 Proceedings

James A. Farley post office building

in New York City.

In accordance with 39 U.S.C. § 3622(d)(3), if the 

Commission determines that the Current System 

has not achieved the objectives of the PAEA, the 

Commission may, by regulation, make modifications 

or adopt an alternative system as necessary to achieve 

the objectives. As a result, the Commission also issued 

an NPR that included proposed changes to the Current 

System.3 The proposed changes to the regulations 

are discussed in detail under the Notice of Proposed 

Rulemaking section. The Commission anticipates that 

future Annual Reports will provide in-depth analysis 

of how well the system in place, after completion of the 

final rules, is achieving the objectives of section 3622.

In addition to the analysis of the extent to which 

regulations are achieving the objectives under 39 

U.S.C. § 3622, the Commission is required by 39 U.S.C. 

§ 3651(a) to analyze the extent to which its regulations 

are achieving the objectives of section 3633 of title 39 

of the U.S. Code. The Commission’s regulations in 39 

C.F.R. part 3015 support the requirements under 39 

U.S.C. § 3633, which are discussed below under the 

Rate Changes - Competitive Products section. This 

chapter also describes the Commission’s major orders, 

reports, and proceedings during FY 2017.

3 Docket No. RM2017-3, Notice of Proposed Rulemaking for the System for 

Regulating Rates and Classes for Market Dominant Products, December 1, 

2017 (Order No. 4258).

1 Postal Accountability and Enhancement Act, Pub. 

L. 109-435, 120 Stat. 3198 (2006). 2 39 U.S.C. § 3651(a).

PHOTO BY ERIKA CROSS
20 | POSTAL REGULATORY COMMISSION • FY 2017 ANNUAL REPORT

When enacting the PAEA, Congress intended that 

the Current System achieve the nine objectives in 

39 U.S.C. § 3622(b):

1. Maximize incentives to reduce costs and 

increase efficiency.

2. Create predictability and stability in rates.

3. Maintain high quality service standards 

established under 39 U.S.C. § 3691.

4. Allow the Postal Service pricing flexibility.

5. Assure adequate revenues, including retained 

earnings, to maintain financial stability.

6. Reduce the administrative burden and 

increase the 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 

prohibiting the Postal Service from making 

changes of unequal magnitude within, 

between, or among classes of mail.

9. Allocate the total institutional costs of the 

Postal Service appropriately between Market 

Dominant and Competitive products.

Congress also required the Commission to 

review the Current System 10 years after the 

PAEA was enacted “to determine if the [Current 

System] is achieving the objectives in [39 U.S.C. 

§ 3622] (b), taking into account the factors in 

[39 U.S.C. § 3622] (c).”4 In accordance with this 

statutory mandate, the Commission initiated its 

review of the Current System by establishing 

Docket No. RM2017-3 and issuing an Advance 

Notice of Proposed Rulemaking on December 

20, 2016, to establish a framework for its review 

of the Current System and provide notice and 

an opportunity for comments. In response, the 

Commission received 82 sets of comments5 from 

interested persons.

After considering comments received, the 

Commission issued Order No. 4257 containing 

its findings and determination of its review 

of the Current System.6 First, the Commission 

clarified the scope and framework of its review 

and interpreted relevant statutory language in 

39 U.S.C. § 3622.7 It determined that all aspects 

of the Current System outlined in section 3622, 

including workshare discounts, are appropriately 

incorporated into the review.8

Second, the Commission discussed the 

evolution to the Current System from the 

former ratemaking system under the Postal 

Reorganization Act.9 The Commission stated that 

when enacting the PAEA, Congress anticipated 

that the consumer price index for all urban 

consumers (CPI-U) price cap would enable the 

Postal Service to achieve sufficient revenues to 

cover all of its operating costs and statutorily 

mandated obligations while simultaneously 

motivating the Postal Service to cut costs, 

increase efficiency, and fund network expansion 

and necessary capital improvements.10

Statutory Review of Market Dominant Rate System

4 39 U.S.C. § 3622(d)(3). 5 Docket No. RM2017-3, Advance Notice of Proposed Rulemaking on the Statutory Review of the System for Regulating Rates and Classes for Market Dominant Products, December 20, 2016 (Order No. 3673). 6 Docket No. RM2017-3, Order on the Findings and Determination of the 39 U.S.C. § 3622 Review, December 1, 2017 (Order No. 4257). 7 Order No. 4257 at 8-23. The Commission stated that it resolved the Postal Service’s petition “to clarify the scope of the statutory review” in Order No. 

3673. See id. at 11 n.15 (citing Order No. 3673 at 2 n.4; Docket No. RM2016-9, Petition of the United States Postal Service for the Initiation of a Proceeding 

to Clarify the Scope of the Review of the System for Regulating Market-Dominant Rates and Classes, April 7, 2016). 8 Order No. 4257 at 12. 9 Postal Reorganization Act, Pub. L. 91-375, 84 Stat. 719 (1970). 10 Order No. 4257 at 32, 37.
CHAPTER III | 21

However, the Commission explained that the 

Great Recession occurred shortly after the PAEA 

was enacted, which, in concert with emergent 

technological trends, had a substantial negative 

impact on Postal Service volumes and revenues.11

The Commission concluded that these quick and 

dramatic changes to the operating environment 

on which the PAEA was designed made it 

challenging for the Current System to achieve the 

PAEA’s goals as intended.12

Third, the Commission found that the nine 

objectives in 39 U.S.C. § 3622(b) reflect the 

PAEA’s goals “to create a flexible, stable, 

predictable, and streamlined ratemaking system 

that ensures the Postal Service’s financial health 

(in significant part through rate adjustments, 

cost reductions, and increased efficiency) and 

maintains high quality service standards and 

performance.”13 The Commission identified 

three principal areas of the Current System 

that encapsulate the nine objectives: (1) the 

structure of the ratemaking system, (2) the 

Postal Service’s financial health, and (3) service.14

The Commission applied each objective “in 

conjunction with the others” as required by 

section 3622(b) by evaluating each principal 

area to determine whether the PAEA’s goals were 

achieved during the PAEA era.15

In its review of the structure of the ratemaking 

system, the Commission found that the Current 

System was largely successful in achieving 

the PAEA’s goals by creating rate adjustments 

that were just, predictable, and stable. The 

Commission also found that the Current System 

achieved a streamlined ratemaking process that 

reduced the administrative burden, increased 

transparency, and provided the Postal Service 

pricing flexibility. However, the Commission 

concluded that the Current System has not 

resulted in increased pricing efficiency during 

the PAEA era.16

In its review of the Postal Service’s finances, 

the Commission found that the Current System 

has not maintained the financial health of the 

Postal Service as intended by the PAEA.17 The 

Commission explained that while the Postal 

Service has generally achieved short-term 

financial stability, both medium- and longterm financial stability measures have not 

been achieved because total revenues were 

not sufficient to cover total costs, and the 

Postal Service was unable to generate retained 

earnings.18 The Commission also found that 

while some cost reductions and efficiency gains 

occurred during the PAEA era, the incentives 

were not maximized in a way that allowed the 

Postal Service to achieve financial stability.19

The Commission concluded that although 

the Current System contained a mechanism 

to appropriately allocate institutional costs 

and provided sufficient funds to maintain 

safeguards to protect the mail system and 

deter terrorism, there was not an adequate 

11 Id. at 38. 12 Id. at 45. 13 Id. at 17. 14 Id. 15 Id. at 21-22. 16 Id. at 48, 142-46. 17 Id. at 148, 249. 18 Id. at 165-72. 19 Id. at 248.
22 | POSTAL REGULATORY COMMISSION • FY 2017 ANNUAL REPORT

mechanism to maintain reasonable rates because 

some products and classes failed to cover their 

attributable costs, further threatening the 

financial health of the Postal Service.20

When reviewing service, the Commission 

determined that high quality service standards 

have not been maintained during the PAEA era. 

The Commission concluded that while the ACD has 

been and continues to be the proper vehicle for 

addressing issues related to service performance, 

the Current System did not effectively encourage 

the maintenance of high quality service standards 

as intended by the PAEA.21

Taken together, the Commission’s analysis of 

each of the three principal areas of the PAEA led 

it to conclude that some aspects of the Current 

System have worked as intended.22 However, 

based on its review of the objectives in section 

3622(b), taking into account the factors in 

section 3622(c), the Commission found that the 

Current System as a whole has not achieved the 

objectives of the PAEA.23

Notice of Proposed Rulemaking

As a result of the Commission finding that 

the Current System as a whole has not achieved 

the objectives, the Commission issued an 

NPR concurrently with Order No. 4257 to 

address the issues identified by the Commission 

in its review.24

First, the Commission discussed its legal 

authority to promulgate new regulations under 

39 U.S.C. § 3622(d)(3). The Commission found 

that the PAEA provides the Commission broad 

authority to promulgate regulations that modify 

or replace the Current System as necessary to 

achieve the PAEA’s objectives.25

Second, the Commission proposed changes that 

would address key issues with the Current System. 

In Order No. 4257, the Commission found that 

the Current System has not achieved mediumand long-term financial stability.26 To address 

this issue, the Commission found that additional 

pricing authority is necessary to achieve the 

PAEA’s objectives.27 The Commission proposed 

a two-pronged solution that would complement, 

rather than replace, the CPI-U price cap by 

providing discrete, clearly-defined amounts of 

additional rate authority to put the Postal Service 

on the path toward generating positive net income 

and retained earnings.28 To put the Postal Service 

on a path to medium-term financial stability, the 

proposed rules would provide the Postal Service 

supplemental rate authority to generate additional 

revenue to cover the Postal Service’s obligations.29

Under the proposed rules, the Postal Service 

would receive an additional 2 percentage points 

of rate authority per mail class each calendar year 

(CY) during each of the first five full CYs after 

the effective date of these rules, after which this 

additional rate authority would expire.30

20 Id. at 248-49, 274-275. 21 Id. at 250, 273. 22 Id. at 5. 23 Id. at 5, 275. 24 See Order No. 4258. 25 Id. at 19. 26 Order No. 4257 at 172, 178, 247. 27 Order No. 4258 at 34. 28 Id. 29 Id. at 38. 30 Id. at 26, 38, 42, 45.
CHAPTER III | 23

To put the Postal Service on a path to long-term 

financial stability, the proposed rules would 

provide the Postal Service performance-based 

rate authority to generate retained earnings 

and fund adequate levels of capital investment 

while providing meaningful incentives to 

increase operational efficiency and maintain 

high quality service standards.31 Under the 

proposed rules, the Postal Service would receive 

up to 1 percentage point of performancebased rate authority per mail class each CY as 

long as the Postal Service meets or exceeds 

an operational efficiency-based standard and 

adheres to service standard quality criteria.32

Of this rate authority, 0.75 percentage points 

would be allocated for meeting or exceeding 

an operational efficiency-based standard (total 

factor productivity (TFP)) and 0.25 percentage 

points would be allocated for meeting or 

exceeding service standard quality criteria.33

In Order No. 4257, the Commission found that 

non-compensatory products are not reasonably 

or efficiently priced and threaten the Postal 

Service’s financial integrity.34 Revenues for 

non-compensatory products and classes do 

not cover their attributable costs. To address 

these issues, the proposed rules would prohibit 

reducing rates for non-compensatory products 

and would require price increases to improve 

cost coverage.35 For non-compensatory products 

that are part of compensatory classes, the 

proposed rules would require the Postal Service 

to increase rates for any non-compensatory 

product by a minimum of 2 percentage points 

above the percentage increase for the class.36

Moreover, to address a non-compensatory 

class, which occurs if the attributable cost for 

an entire class exceeds the revenue for the 

class, the proposed rules would provide the 

Postal Service with an additional 2 percentage 

points of rate authority each CY for the noncompensatory class.37 The proposed rules would 

not mandate immediate full cost coverage for 

non-compensatory products and classes, but 

rather seek to narrow the coverage gap and 

move prices toward full cost coverage over time 

to achieve reasonable and efficient rates as the 

PAEA envisioned.38

Workshare discounts are rate discounts the 

Postal Service provides to mailers for presorting, 

prebarcoding, handling, or transporting mail.39

In Order No. 4257, the Commission found that 

the Current System has not increased pricing 

efficiency because the Postal Service failed to set 

most workshare discounts as close as practicable 

to avoided costs despite the Postal Service’s ability 

to do so under the price cap.40 To increase pricing 

efficiency, the proposed rules would establish two 

bands—ranges with upper and lower limits—

for workshare discount passthroughs: between 

75 percent and 125 percent for Periodicals, 

and between 85 and 115 percent for all other 

classes.41 All workshare discount passthroughs 

that fall outside of the applicable band would be 

noncompliant, subject to a 3-year grace period.42

31 Id. at 38-39, 53. 32 Id. at 26, 39, 55-57. 33 Id. at 26, 61, 64, 70-71, 73. 34 Order No. 4257 at 139-42, 234-35. 35 Order No. 4258 at 76-77, 85. 36 Id. at 77, 80. 37 Id. at 84. 38 Id. at 78, 80-81, 87. 39 39 U.S.C. § 3622(e)(1). 40 Order No. 4257 at 145. 41 Order No. 4258 at 93. Passthroughs represent the relationship between the amount of the workshare discount and the avoided cost as a percentage. 

Id. at 89 n.91. 42 Id. at 95-96.
24 | POSTAL REGULATORY COMMISSION • FY 2017 ANNUAL REPORT

The NPR also proposes other changes to 

the rate adjustment process that would 

increase visibility into future planned rate 

adjustments.43 Proposed changes would include 

enhancing requirements for the schedule for 

regular and predictable rate adjustments 

and extending the notification period for 

planned rate adjustments from 45 days to 90 

days.44 The proposed regulations would also 

restructure the Market Dominant regulations 

in 39 C.F.R. part 3010 to promote readability 

and simplicity.45

This rulemaking is currently pending before the 

Commission. Before any rule changes may be 

finalized, the public will have the opportunity to 

submit comments by March 1, 2018, and reply 

comments by March 30, 2018.46

Other Rulemakings

The Commission considered several other rulemaking proceedings during FY 2017.

Rulemakings Amending Commission Regulations

MAIL PREPARATION CHANGES AND THE PRICE CAP

On January 22, 2016, the Commission issued 

Order No. 3047, which articulated a standard 

for determining when mail preparation changes 

have rate effects that implicate the price cap 

rules.47 That same day, the Commission initiated 

an NPR proposing procedural rules that required 

the Postal Service to properly account for the 

rate effects of mail preparation changes in 

accordance with Order No. 3047.48 The proposed 

rules allowed interested parties to file a motion 

with the Commission if the Postal Service failed 

to recognize or account for a mail preparation 

change that affected the price cap rules.49

The Postal Service appealed Order No. 3047 

and a related order to the U.S. Court of Appeals 

for the District of Columbia (D.C. Circuit).50

On March 27, 2017, after considering comments 

received, the Commission issued a revised 

NPR.51 The Commission revised the proposed 

rules to require the Postal Service to publish all 

mail preparation changes in a publicly-available 

single source and affirmatively designate 

whether a mail preparation change requires 

compliance with the Commission's price 

cap rules.52

43 Id. at 27. 44 Id. at 98-99, 104. 45 Id. at 107-110. 46 Id. at 130, 13. 47 See Docket No. R2013-10R, Order Resolving Issues on Remand, January 22, 2016 (Order No. 3047). 48 Docket No. RM2016-6, Notice of Proposed Rulemaking on Motions Concerning Mail Preparation Changes, January 22, 2016, at 1-2 (Order No. 3048). 49 Order No. 3048 at 3, 7. 50 See n. 197, infra. 51 Docket No. RM2016-6, Revised Notice of Proposed Rulemaking, March 27, 2017, at 2 (Order No. 3827). 52 Order No. 3827 at 2, 13-14.
CHAPTER III | 25

On April 11, 2017, the Postal Service moved to 

suspend the rulemaking until the D.C. Circuit 

resolved the Postal Service’s appeal.53 The 

Commission denied the motion, finding that the 

Postal Service did not provide any justification 

to suspend proceedings.54 This rulemaking is 

currently pending before the Commission.

ETHICS

The Commission established Docket No. RM2017-

4 to consider changes to the Commission’s ethics 

rules to reflect the Commission’s regulatory 

role under the PAEA. The proposed changes 

were intended to protect the integrity of the 

Commission’s programs and processes, maintain 

public confidence that Commission employees 

are fulfilling their duties impartially and 

objectively, and reflect lessons learned through 

the Commission’s experiences with the existing 

ethics policies and procedures.55

On May 19, 2017, the Commission issued 

an NPR to amend the Commission’s ethics 

rules in 39 C.F.R. part 3000, subpart A.56 The 

proposed rules treated employees’ and former 

employees’ interactions with the Postal Service 

substantially the same as if those interactions 

were with entities that are not part of the 

Federal Government.57

That same day, the Commission, jointly with 

the Office of Government Ethics, issued another 

NPR to amend the supplemental standards of 

ethical conduct in 5 C.F.R. part 5601 that apply to 

Commission employees.58 The proposed changes 

clarified requirements concerning prohibited 

financial holdings, disqualification when 

seeking non-federal employment, and outside 

employment.59 After considering comments 

received, the Commission adopted both sets of 

proposed rules without substantial changes.60

The revised ethics rules and supplemental 

standards of ethical conduct went into effect 

on November 30, 2017 and December 1, 2017, 

respectively.61

53 Docket No. RM2016-6, Motion of the United States Postal Service to Suspend Proceedings, April 11, 2017. 54 Docket No. RM2016-6, Order No. 3879, Order Denying Motion, April 28, 2017. 55 Docket No. RM2017-4, Notice of Proposed Rulemaking on Amendments to Supplemental Standards of Ethical Conduct for Employees of the Postal 

Regulatory Commission, May 19, 2017, at 3 (Order No. 3906); Docket No. RM2017-4, Notice of Proposed Rulemaking on Amendments to Ethics Rules, 

May 19, 2017, at 5 (Order No. 3907). 56 See Order No. 3907. 57 Id. at 1-2. 58 See Order No. 3906. 59 Id. at 1. 60 Docket No. RM2017-4, Order No. 4177, Order Amending Supplemental Standards of Ethical Conduct for Employees of the Postal Regulatory Commission, 

October 25, 2017; Docket No. RM2017-4, Order No. 4178, Order Amending Ethics Rules, October 25, 2017. 61 82 Fed. Reg. 50319 (October 31, 2017); 82 Fed. Reg. 50493 (November 1, 2017). 62 Docket No. RM2017-2, Order No. 3671, Notice of Proposed Rulemaking to Revise Procedures for the Freedom of Information Act, December 19, 2016. 63 Docket No. RM2017-2, Order No. 3812, Order Adopting Final Rules Revising Procedures for the Freedom of Information Act, March 1, 2017.

FREEDOM OF INFORMATION ACT

On December 19, 2016, the Commission issued 

an NPR to propose revisions to its regulations 

governing requests for agency records made 

under the FOIA.62 These changes were necessary 

to comply with the FOIA Improvement Act of 

2016. After considering comments received, the 

Commission adopted final rules incorporating 

commenters’ suggested revisions, as well 

as several other changes to reflect guidance 

published by the Department of Justice.63
26 | POSTAL REGULATORY COMMISSION • FY 2017 ANNUAL REPORT

The Commission’s rules allow any interested 

person, including the Postal Service and Public 

Representative, to petition the Commission to 

initiate proceedings to consider proposals to 

change accepted analytical principles.64 These 

proceedings, which are filed in rulemaking 

dockets, are intended to improve the quality, 

accuracy, or completeness of data or data 

analysis in the Postal Service’s annual periodic 

reports to the Commission.65

During FY 2017, the Commission considered 

12 Postal Service proposals to change various 

accepted analytical principles. The Commission 

issued final orders for 10 of the proposals. 

The remaining two proposals are currently 

pending before the Commission. Several of these 

proposals are discussed below.

On August 22, 2016, the Postal Service filed 

a proposal to change the methodology for 

calculating attributable purchased highway 

transportation costs.66 It proposed to implement 

this change by incorporating a new method of 

calculating the variability of purchased highway 

transportation capacity with respect to volume, 

as calculated by a newly developed econometric 

model, when calculating attributable costs for 

purchased highway transportation.67

The Commission approved this proposal with 

respect to the calculation of variabilities 

applicable to transportation accounts associated 

with regular routes only.68 The Commission 

did not approve the proposal with respect to 

emergency and Christmas transportation routes 

because the Postal Service did not provide 

sufficient empirical support for updating 

variabilities for accounts associated with 

these routes.69

On June 30, 2017, the Postal Service filed a 

proposal seeking to establish a procedure 

to be used annually to update the estimated 

proportion of city carrier letter route time 

spent delivering parcels.70 After considering 

comments received, the Commission approved 

the proposal because it found that the proposed 

modifications would improve the accuracy of 

the Postal Service’s costing methodology for the 

estimated proportion of city carrier letter route 

time spent delivering parcels.71 The Commission 

directed the Postal Service to provide supporting 

materials in its Annual Compliance Report (ACR) 

to help ensure that the Postal Service reports 

accurate data concerning city carrier letter 

route street time evaluations.72

On July 31, 2017, the Postal Service filed a 

proposal relating to rates for Nonprofit USPS 

Marketing Mail.73 USPS Marketing Mail has 

different rates for Nonprofit and Commercial 

mail. The PAEA requires that the estimated 

average revenue per piece the Postal Service 

Proposals To Change Analytical Principles

64 39 C.F.R. § 3050.11(a). The Commission, acting on its own behalf, may also initiate a proceeding to change an accepted analytical principle. Id. 65 Id. 66 Docket No. RM2016-12, Petition of the United States Postal Service for the Initiation of a Proceeding to Consider Proposed Changes in Analytical Principles 

(Proposal Four), August 22, 2016 (Docket No. RM2016-12 Petition). 67 Docket No. RM2016-12 Petition at 1. 68 Docket No. RM2016-12, Order on Analytical Principles Used in Periodic Reporting (Proposal Four), June 22, 2017, at 2, 40-41 (Order No. 3973). 69 Order No. 3973 at 40-41. 70 Docket No. RM2017-8, Petition of the United States Postal Service for the Initiation of a Proceeding to Consider Proposed Changes in Analytical Principles 

(Proposal Four), June 30, 2017. 71 Docket No. RM2017-8, Order on Analytical Principles Used in Periodic Reporting (Proposal Four), December 1, 2017, at 22 (Order No. 4259). 72 Order No. 4259 at 21-22. 73 Docket No. RM2017-12, Petition of the United States Postal Service for the Initiation of a Proceeding to Consider Proposed Changes in Analytical Principles 

(Proposal Eight), July 31, 2017 (Docket No. RM2017-12 Petition).
CHAPTER III | 27

receives from Nonprofit mail must equal, 

as nearly as practicable, 60 percent of the 

estimated average revenue per piece the Postal 

Service receives from Commercial mail.74 This 

requirement is called the 60 Percent Rule, which 

the Postal Service has applied to USPS Marketing 

Mail at the class-level since filing its first Market 

Dominant rate case in FY 2008.

The Postal Service proposes to apply the 60 

Percent Rule below the class-level separately 

to the Nonprofit price categories for USPS 

Marketing Mail Regular and USPS Marketing 

Mail Enhanced Carrier Route price categories.75

The Postal Service asserts that this approach is 

consistent with the language of the PAEA and 

will help address the ongoing issue of Nonprofit 

mail revenues consistently failing to reach 60 

percent of the average per piece revenues for 

Commercial mail.76 The Commission received 

over 100 sets of comments. This proceeding is 

currently pending before the Commission.

The Commission approved several other 

proposals it found would improve the quality, 

accuracy, or completeness of financial data 

or data analysis. The proposals included 

initiatives to update and improve data sources 

for existing cost and revenue systems that 

either streamline data production or improve 

data quality. For example, the Commission 

approved Postal Service proposals to revise 

the reporting methodology for measuring the 

national totals of revenue, pieces, and weight 

in the Revenue, Pieces, and Weight Report for 

certain mailpieces77 and to revise the reporting 

methodology for insured, Collect on Delivery, and 

Registered Mail extra services associated with 

domestic mailpieces bearing PC Postage indicia.78

74 39 U.S.C. § 3626(a)(6)(A). 75 Docket No. RM2017-12 Petition at 1. 76 Id. at 1, 3. 77 Docket No. RM2017-7, Order No. 4066, Order on Analytical Principles Used in Periodic Reporting (Proposal Three), August 24, 2017 78 Order No. 3827 at 2, 13-14. PHOTO BY CARL SOUTHERLAND
28 | POSTAL REGULATORY COMMISSION • FY 2017 ANNUAL REPORT

Annual Reports

Each year, the Commission receives the Annual Compliance Report (ACR) from the Postal Service and 

issues three related reports: (1) the ACD, (2) the Analysis of Postal Service Performance Goals and 

Performance Plan, and (3) the Financial Analysis Report. In FY 2017, these three reports were issued 

in Docket No. ACR2016 and respectively: (1) assessed the Postal Service’s compliance with statutory 

pricing and service requirements, (2) evaluated whether the Postal Service met its performance 

goals, and (3) analyzed the Postal Service’s overall financial position.

The ACD is an important tool for enhancing 

transparency and determining whether the 

Postal Service complies with statutory pricing 

and service requirements. Under the PAEA and 

Commission regulations, the Postal Service has 

90 days after the fiscal year ends to prepare 

and submit its ACR to the Commission. The 

ACR analyzes costs, revenues, rates, and 

quality of service for Market Dominant and 

Competitive products.79 The ACR must also 

include information about mail volumes, 

service performance, and customer satisfaction 

for Market Dominant products, as well as 

information on workshare discounts and market 

tests.80

After receiving the ACR, the Commission has 

90 days to solicit public comment and determine 

whether: (1) any rates or fees in effect during 

the fiscal year did not comply with applicable 

laws, and (2) the Postal Service met its service 

standards in effect during the fiscal year.81 The 

Commission publishes its analysis of the ACR in 

the ACD.

On March 28, 2017, the Commission issued 

the FY 2016 ACD and made several principal 

findings and directives.82 First, when reviewing 

Market Dominant products for compliance with 

statutory pricing policies, the Commission found 

that 21 workshare discounts did not comply with 

39 U.S.C. § 3622(e). For 16 workshare discounts, 

the Commission directed the Postal Service to 

either align workshare discounts with avoided 

costs during the next Market Dominant price 

adjustment or specify an applicable statutory 

exception.83

Second, for the Periodicals class, the Commission 

found that the Postal Service meaningfully 

addressed the FY 2015 ACD directives to 

report on the cost and contribution impact of 

worksharing incentives offered for 5-Digit and 

Carrier Route presortation and progress in 

improving pricing efficiency. The Commission 

directed the Postal Service to continue reporting 

on Periodicals pricing issues in its FY 2017 ACR.84

Third, the Commission identified 11 noncompensatory Market Dominant products that 

did not generate sufficient revenue to cover 

their attributable costs: (1) Periodicals InCounty, (2) Periodicals Outside County, (3) 

USPS Marketing Mail Flats, (4) USPS Marketing 

Annual Compliance Determination

79 39 U.S.C. § 3652(a)(1). 80 Id. § 3652(a)(2), (b), (c). 81 Id. § 3653(a), (b). 82 Docket No. ACR2016, Annual Compliance Determination Report Fiscal Year 2016, March 28, 2017 (FY 2016 ACD). 83 Id. at 1. 84 Id. at 2.
CHAPTER III | 29

Mail Parcels, (5) Media Mail/Library Mail, (6) 

Inbound Letter Post, (7) Stamp Fulfillment 

Services, (8) Money Orders, (9) Collect on 

Delivery, (10) Stamped Envelopes, and (11) 

Market Dominant negotiated service agreement 

with PHI Acquisitions, Inc.85 For Periodicals InCounty, Periodicals Outside County, and USPS 

Marketing Mail Flats, the Commission found that 

additional transparency was necessary to hold 

the Postal Service accountable. The Commission 

stated it would initiate a strategic rulemaking 

to develop proposed reporting requirements 

related to flats operational cost and service 

issues.86 For other non-compensatory products, 

the Commission issued specific directives 

to the Postal Service such as implementing 

above-average price increases in future Market 

Dominant price adjustments to improve cost 

coverage and reporting on the volume and 

mail mix forecasts for the remainder of the PHI 

Acquisitions, Inc. NSA.87

Fourth, the Commission found that 16 

Competitive products did not cover their 

attributable costs as required by 39 U.S.C. 

§ 3633(a)(2). The Commission directed the 

Postal Service to take corrective action, such as 

reporting on an investigation of cost estimates, 

reporting on the status of contract negotiations, 

and taking remedial action on NSAs with 

revenues not covering attributable costs.88

Fifth, the Commission found that the majority 

of products failed to meet their service 

performance targets for FY 2016. In particular, 

service performance results for all First-Class 

Mail products, both Periodicals products, most 

products in USPS Marketing Mail, Bound Printed 

Matter Flats, and Post Office Box Service did 

not meet their targets despite Postal Service 

initiatives to improve performance. The 

Commission requested that the Postal Service 

provide additional transparency by reporting 

specific information on First-Class Mail SinglePiece Letters/Postcards metrics within 90 days 

after the FY 2016 ACD was issued and as part of 

the FY 2017 ACR.89

Sixth, the Commission noted its ongoing concern 

with the increasing number of postal retail 

facilities under suspension. The Commission 

required the Postal Service to significantly 

reduce the number of suspended facilities in FY 

2017 and provide updated information after the 

close of each fiscal quarter.90

Seventh, the Commission found that the Postal 

Service appears to lack a comprehensive plan 

to measure, track, and report flats cost and 

service issues. The Commission stated it would 

initiate a strategic rulemaking to develop 

proposed reporting requirements related to flats 

operational cost and service issues.91

85 Id. at 3. On November 15, 2016, the Commission approved the Postal Service’s request to change the name of “Standard Mail” to “USPS Marketing Mail.” 

Docket No. R2017-1, Order on Rate Adjustments for First-Class Mail, Standard Mail, Periodicals, and Package Services Products and Related Mail 

Classification Changes, November 15, 2016, at 39 (Order No. 3610). Although both “Standard Mail” and “USPS Marketing Mail” were used during FY 2017, 

this Annual Report uses “USPS Marketing Mail” throughout. 86 See Docket No. RM2018-1, Advance Notice of Proposed Rulemaking to Develop Data Enhancements and Reporting Requirements for Flats Issues, October 4, 

2017 (Order No. 4142). 87 FY 2016 ACD at 2, 59, 61, 63, 74.

88 Id. at 3, 78. 89 Id. at 3 90 Id. at 3, 151. 91 Id. at 4; see Order No. 4142.
30 | POSTAL REGULATORY COMMISSION • FY 2017 ANNUAL REPORT

Analysis of Performance Goals

Each year, the Commission must evaluate 

whether the Postal Service met the performance 

goals established in its Annual Performance 

Report and Performance Plan.92 The 

Commission may also provide the Postal Service 

recommendations related to protecting or 

promoting public policy objectives in title 39.93

On April 27, 2017, the Commission issued a 

detailed analysis of the Postal Service’s progress 

during FY 2016 toward its four performance 

goals: (1) Deliver High-Quality Service, (2) 

Provide Excellent Customer Experiences, (3) 

Ensure a Safe Workplace and Engaged Workforce, 

and (4) Sustain Controllable Income.94

The Commission found that the FY 2016 

Annual Performance Report and FY 2017 

Performance Plan complied with all but one 

of the requirements in 39 U.S.C. §§ 2803 

and 2804. However, the Commission noted 

that these documents as submitted lacked 

sufficient information for the Commission 

to determine compliance with applicable 

statutory requirements, and that the issuance of 

Chairman’s Information Requests (CHIRs) was 

necessary to obtain the required information. 

The Commission directed the Postal Service 

to include all information necessary to show 

compliance with 39 U.S.C. §§ 2803 and 2804 

in future annual performance plans and 

performance reports. The Commission also 

provided further guidance on how the Postal 

Service can fully comply with 39 U.S.C. § 

2803(a).95

The Commission’s analysis further found that the 

Postal Service partially met each performance 

goal in FY 2016.96 The Commission provided 

an appendix of its complete findings and 

recommendations for each performance goal to 

help the Postal Service meet its goals and better 

assess its performance in future years.

On March 31, 2017, the Commission issued its 

Financial Analysis of United States Postal Service 

Financial Results and 10-K Statement.

97 The 

Commission analyzed the Postal Service’s overall 

financial position and evaluated relationships 

between the essential components of the Postal 

Service’s financial statements to assess the Postal 

Service’s viability, and stability. The Commission 

also described volume, revenue, and cost trends 

for Market Dominant and Competitive products 

and analyzed the Postal Service's financial status 

using financial ratios.

In summary, the Commission’s analysis showed 

that in FY 2016, the Postal Service generated its 

third consecutive fiscal year of operating income 

despite an increase in operating expenses and 

the expiration of the exigent surcharge in April 

2016. In FY 2016, net operating income was $0.6 

billion, which was due in part to revenue from 

Financial Analysis Report

92 39 U.S.C. § 3653(d). 93 Id. 94 Docket No. ACR2016, Analysis of the Postal Service’s FY 2016 Annual Performance Report and FY 2017 Performance Plan, April 27, 2017. 95 Id. at 9-22. 96 Id. at 23. 97 Docket No. ACR2016, Financial Analysis of United States Postal Service Financial Results and 10-K Statement Fiscal Year 2016, March 31, 2017.
CHAPTER III | 31

Market Dominant and Competitive products rate 

increases, the exigent rate surcharge during the 

first half of FY 2017, and the continuing growth 

in Competitive products volume. However, net 

operating income excludes the Postal Service’s 

payment to the Retiree Health Benefits Fund 

(RHBF), the supplemental contribution to the 

Federal Employees Retirement System (FERS) 

annuity, the non-cash adjustments to the workers’ 

compensation liability, and any one-time expense 

or revenue adjustments. After adjusting for these 

expenses, the Postal Service incurred a total net 

loss of $5.6 billion largely due to a $1.5 billion 

increase in overall compensation and benefits 

costs and an increase in non-cash workers' 

compensation expense of $0.9 billion caused by a 

decrease in the discount rate.98

The Commission found that at the end of FY 2016, 

net liabilities primarily consisted of RHBF missed 

payments, workers’ compensation liability, and 

the total net debt owed to the Federal Financing 

Bank. Current liabilities, consisting largely of 

RHBF obligations and short-term borrowing, 

contributed to a large portion (67.3 percent) of the 

$81.2 billion in total liabilities. The Postal Service 

had not paid the RHBF statutory requirement for 

FY 2011 through FY 2016, which accounted for 

$33.9 billion of current liabilities.99

Furthermore, the Commission’s report noted 

that at the end of FY 2016, the Postal Service 

recorded a $55.9 billion net deficiency resulting 

from several years of net losses starting in FY 

2007. Although the Postal Service generated 

operating income during the past three fiscal 

years, the slow replacement of fully depreciated 

capital assets and high personnel related 

liabilities led to the continued erosion of 

financial sustainability.100

98 Id. at 1, 6. 99 Id. at 23. 100 Docket No. RM2016-12, Petition of the United States Postal Service for the Initiation of a Proceeding to Consider Proposed Changes in Analytical Principles 

(Proposal Four), August 22, 2016 (Docket No. RM2016-12 Petition). 101 39 C.F.R. § 3001.5(u). 102 39 C.F.R. § 3010.1(g). 103 39 C.F.R. § 3001.5(r).

There are two types of postal rates: (1) rates of general applicability, and (2) rates not of general 

applicability. Rates of general applicability are available to all mailers equally on the same terms and 

conditions.101 These rates are available to the general public; examples include Forever Stamps and 

Priority Mail Flat Rate boxes. Rates not of general applicability are offered by the Postal Service to 

specific mailers through NSAs.102 NSAs are written contracts, effective for a defined period of time, 

between the Postal Service and a mailer, that provide for customer-specific rates, fees, or terms of 

service according to the terms and conditions of the contract.103

In FY 2017, the Commission reviewed the Postal Service’s proposed changes to rates of general 

applicability and rates not of general applicability for both Market Dominant and Competitive 

products. Each is discussed below.

Rate Changes
32 | POSTAL REGULATORY COMMISSION • FY 2017 ANNUAL REPORT

The PAEA allows the Postal Service to 

change rates of general applicability for 

Market Dominant products as long as the 

rate adjustments meet certain statutory and 

regulatory requirements:

• Rate adjustments for each Market Dominant 

mail class must not exceed the annual rate of 

inflation, as determined by the Consumer Price 

Index for All Urban Consumers.104

• Workshare discounts must not exceed the 

Postal Service’s avoided costs unless a 

statutory exception applies.105

• Preferred rates must be set consistent with 

statutory preferences.106

The rate adjustments must also comply with the 

Commission’s rules in 39 C.F.R. part 3010.

In early FY 2017, the Postal Service proposed 

changing rates of general applicability by filing 

a notice of inflation-based rate adjustments 

affecting most Market Dominant domestic 

and international products and services, along 

with numerous proposed MCS changes.107 The 

Commission evaluated the Docket No. R2017-1 

Notice for compliance with applicable laws. The 

Docket No. R2017-1 Notice and initial supporting 

documentation contained several errors and 

inconsistencies.108 Consequently, nine CHIRs 

and one Commission Information Request 

(CIR) were issued to clarify the proposed rate 

adjustments and MCS changes and ensure the 

record contained accurate and complete data.109

The Commission held a technical conference to 

discuss issues presented in the CHIRs and to 

clarify certain rate adjustment calculations.110

After analyzing the filings and considering 

comments received, the Commission approved 

the Postal Service’s proposed rate adjustments 

and MCS changes for First-Class Mail, USPS 

Marketing Mail, Periodicals, and Package 

Services, finding that they complied with 

applicable legal requirements.111 The Commission 

also approved the Postal Service's request to 

change the name of “Standard Mail” to “USPS 

Marketing Mail.”112

Because of delays in receiving necessary 

information, the Commission analyzed proposed 

Special Services rate adjustments and MCS 

changes in a separate order. The Commission 

approved these proposed rate adjustments in 

Order No. 3670, finding that they complied with 

applicable laws.113 However, the Commission 

denied the Postal Service’s proposed Collect on 

Delivery MCS change because it was a significant 

change that exceeded the scope of the rate 

adjustment proceeding.114

Market Dominant Products

RATES OF GENERAL APPLICABILITY

104 39 U.S.C. §§ 3622(d)(1)(A), (d)(2)(A) 105 39 U.S.C. § 3622(e)(2); see Docket No. RM2009-3, Order No. 536, Order Adopting Analytical Principles Regarding Workshare Discount Methodology, 

September 14, 2010, at 18. 106 39 U.S.C. § 3626. 107 See Docket No. R2017-1, United States Postal Service Notice of Market Dominant Rate Adjustment, October 12, 2016 (Docket No. R2017-1 Notice). 108 Order No. 3610 at 4. 109 Id. at 4-5. 110 Id. at 5; see Docket No. R2017-1, Order No. 3566, Order Scheduling Technical Conference, October 14, 2016. 111 Order No. 3610 at 55-56. 112 Id. at 39. 113 Docket No. R2017-1, Order on Rate Adjustments for Special Services Products and Related Mail Classification Changes, December 15, 2016, at 8, 16 

(Order No. 3670). 114 Order No. 3670 at 10-11, 16. 
CHAPTER III | 33

On June 30, 2017, the Postal Service proposed 

another change in rates of general applicability 

by filing a notice of Market Dominant rate 

adjustment and proposed MCS changes related 

to the Move Update assessment charge.115 The 

Postal Service proposed to increase the Move 

Update assessment charge from 7 cents to 8 

cents, amend the Move Update MCS language in 

the MCS, and extend the Full-Service Address 

Correction Service fee to non-Full-Service 

Mailpieces for mailers that meet specific 

criteria.116 After considering comments received, 

the Commission approved the Postal Service 

proposed rate adjustments and MCS changes, 

finding them reasonable and consistent with 

applicable laws.117

For Market Dominant products, the Postal 

Service sets rates not of general applicability 

by entering into NSAs with mailers or foreign 

postal operators.118 The Commission reviews 

these NSAs to ensure they either improve 

the Postal Service’s net financial position or 

enhance the performance of various operational 

functions.119 The NSAs must also not cause 

unreasonable harm to the marketplace and 

be available on public and reasonable terms 

to similarly situated mailers.120 This review 

also ensures that the NSAs comply with the 

Commission’s rules in 39 C.F.R. part 3010, 

subpart D.

In FY 2017, the Postal Service filed four NSAs 

with foreign postal operators: (1) Korea Post, (2) 

China Post, (3) Australia Post, and (4) Hong Kong 

Post.121 The Commission found that these NSAs 

complied with applicable laws and approved 

them for inclusion within the product Inbound 

Market Dominant Multi-Service Agreements with 

Foreign Postal Operators 1.122

The Postal Service also filed a change in rates not 

of general applicability with its request to add 

Inbound Market Dominant PRIME Tracked Service 

Agreement to the Market Dominant product list.123

This product is a multilateral agreement between 

RATES NOT OF GENERAL APPLICABILITY (NSAs)

115 Docket No. R2017-7, United States Postal Service Notice of Market Dominant Rate Adjustment and Classification Changes, June 30, 2017 

(Docket No. R2017-7 Notice). 116 Docket No. RM2016-12 Petition at 1. 117 Docket No. R2017-7, Order No. 4059, Order Approving Rate Adjustment and Classification Changes Related to Move Update Assessment, 

August 23, 2017, at 19-20. 118 39 C.F.R. § 3010.7. 119 See 39 U.S.C. § 3622(c)(10). 120 See 39 U.S.C. § 3622(c)(10). 121 The Commission previously approved requests to extend the predecessor contracts for Hong Kong Post, China Post, and Korea Post until March 31, 2017.

See Docket No. R2015-5 and CP2015-136, Order No. 3620, Order Approving Modification One to Agreement and Denying as Moot Motion for Temporary 

Relief, November 17, 2016 (Hong Kong Post); Docket No. R2015-6, Order No. 3618, Order Approving Modification to Existing Agreement, November 16, 2016 

(China Post); Docket No. R2016-1, Order No. 3617, Order Approving Modification to Existing Agreement, November 16, 2016 (Korea Post). 122 Docket No. R2017-2, Order No. 3742, Order Approving Inbound Market Dominant Multi-Service Agreement with Foreign Postal Operators 1 Negotiated 

Service Agreement with Australia Post, January 10, 2017; Docket No. R2017-4, Order No. 3809, Order Approving Inbound Market Dominant Multi-Service 

Agreement with Foreign Postal Operators 1 Negotiated Service Agreement (with China Post Group), March 1, 2017; Docket No. R2017-5, Order No. 3811, 

Order Approving Inbound Market Dominant Multi-Service Agreement with Foreign Postal Operators 1 Negotiated Service Agreement (with Hong Kong Post), 

March 1, 2017; Docket No. R2017-6, Order No. 3810, Order Approving Inbound Market Dominant Multi-Service Agreement with Foreign Postal Operators 1 

Negotiated Service Agreement (with Korea Post), March 1, 2017. 123 Docket Nos. MC2017-71 and R2017-3, Request of United States Postal Service to Add Inbound Market Dominant PRIME Tracked Service Agreement to the 

Market Dominant Product List, Notice of Type 2 Rate Adjustment, and Application for Non-Public Treatment, December 23, 2016 (Docket Nos. MC2017-71 

and R2017-3 Request).
34 | POSTAL REGULATORY COMMISSION • FY 2017 ANNUAL REPORT

The Commission reviews the Postal Service’s 

proposed rates for Competitive products to 

ensure they comply with three statutory 

requirements in 39 U.S.C. § 3633(a):

1. Competitive products must not be crosssubsidized by Market Dominant products.127

The Commission uses incremental costs 

to test whether Competitive products are 

being cross-subsidized by Market Dominant 

products.128 There is no cross-subsidy if the 

Commission finds that Competitive product 

revenues as a whole are equal to or exceed 

total incremental costs.

2. Each Competitive product must cover its 

attributable costs, which are “the direct and 

indirect postal costs attributable to such 

product through reliably identified causal 

relationships.”129

3. All Competitive products must collectively 

cover what the Commission determines to be 

an appropriate share of the Postal Service’s 

institutional costs.130 The Commission 

previously determined that the contribution 

from Competitive products as a whole must be 

at least 5.5 percent of the Postal Service’s total 

institutional costs.131

The Commission also reviews proposed rates 

for Competitive products to ensure compliance 

with the Commission’s rules in 39 C.F.R. part 

3015. In FY 2017, the Commission reviewed the 

Postal Service’s proposed changes to both rates 

of general applicability and rates not of general 

applicability for Competitive products. There 

were also several other proceedings related to 

Competitive products. Each is discussed below.

Competitive Products

124 Docket No. MC2017-71 and R2017-3 Request at 1. 125 Docket Nos. MC2017-71 and R2017-3, Order No. 3755, Order Adding Inbound PRIME Tracked Service Agreement to Market Dominant Product List, January 

17, 2017. 126 Docket Nos. MC2016-168 and R2016-6, Order No. 3799, Order Acknowledging Revised Version of Inbound Market Dominant Registered Service Agreement, 

February 22, 2017; Docket No. R2017-5 and CP2017-130, Order No. 3868, Order Approving Modification to an Inbound Market Dominant Multi-Service 

Agreement with Foreign Postal Operators 1 Negotiated Service Agreement and an Inbound Competitive Multi-Service Agreement with Foreign Postal Operators 1 Negotiated Service Agreement, April 24, 2017; Docket Nos. R2017-4 and CP2017-131, Order No. 3884, Order Approving Modification to an Inbound 

Market Dominant Multi-Service Agreements with Foreign Postal Operators 1 Negotiated Service Agreement and an Inbound Competitive Multi-Service 

Agreement with Foreign Postal Operators 1 Negotiated Service Agreement, May 3, 2017; Docket No. R2016-6, Order No. 4016, Order Approving Modifications of PRIME Registered Agreement, July 26, 2017; Docket No. R2011-6, Order No. 4015, Order Approving Modifications of Exprès Service Agreement, July 

26, 2017. 127 39 U.S.C. § 3633(a)(1). 128 39 C.F.R. § 3015.7(a). 129 39 U.S.C. §§ 3633(a)(2), 3631(b). The Commission calculates a Competitive product’s attributable costs as the sum of its volume-variable costs, product-specific costs, and those inframarginal costs calculated as part of the product’s incremental costs. 39 C.F.R. § 3015.7(b). 130 39 U.S.C. § 3633(a)(3). 131 39 C.F.R. § 3015.7(c); Docket No. RM2012-3, Order Reviewing Competitive Products’ Appropriate Share Contribution to Institutional Costs, August 23, 2012 

(Order No. 1449). The Commission is currrently reviewing the institutional cost contribution requirement for Competitive products in Docket No. RM2017-1. 

See Docket No. RM2017-1, Advance Notice of Proposed Rulemaking to Evaluate the Institutional Cost Contribution Requirement for Competitive Products, 

November 22, 2016 (Order No. 3624). Docket No. RM2017-1 is discussed under the Other Proceedings section, infra.

postal operators concerning the exchange of Letter 

Post items weighing up to 2 kilograms, tendered as 

PRIME Tracked items and branded with a common 

logo.124 The Commission approved the request and 

rate adjustment on January 17, 2017.125

Also, the Commission approved modifications 

to several international Market Dominant 

NSAs.126
CHAPTER III | 35

132 Docket No. CP2017-20, Notice of the United States Postal Service of Changes in Rates of General Applicability for Competitive Products Established in 

Governors’ Decision No. 16-7, October 19, 2016 133 Docket No. CP2017-20, Order Approving Price Adjustments for Competitive Products, November 18, 2016, at 8, 13 (Order No. 3622). 134 Order No. 3622 at 13. 135 Docket No. CP2017-230, Notice of the United States Postal Service of Changes in Rates of General Applicability for a Competitive Product, Established in 

Governors' Decision No. 16-9, July 28, 2017. 136 See Court of Appeals Cases section, infra. 137 Docket No. CP2017-230, Order Approving Price Adjustment for First-Class Package Service Product, August 9, 2017, at 1, 4-5 (Order No. 4032).

RATES OF GENERAL APPLICABILITY

In FY 2017, the Postal Service filed two notices 

proposing to change rates of general applicability. 

First, on October 19, 2016, the Postal Service filed 

a notice of changes in rates of general applicability 

for several domestic and international Competitive 

products, along with related MCS changes.132

The Commission approved these proposed rate 

adjustments in Order No. 3622, finding that they 

complied with applicable laws.133 The Commission 

also approved the proposed MCS changes except 

for those related to Market Dominant Collect On 

Delivery and permit fees.134

On July 28, 2017, the Postal Service proposed 

rates of general applicability for additional 

services to be added to the First-Class Package 

Service product, along with MCS changes.135

These rates relate to the Commission’s order 

conditionally approving the transfer of the 

First-Class Mail Parcels Retail (Single-Piece) 

price category from the Market Dominant to 

the Competitive product list.136 The Commission 

approved the proposed rates and MCS changes, 

finding that they complied with applicable 

laws.137

RATES NOT OF GENERAL APPLICABILITY

Negotiated Service Agreements. For Competitive 

products, the Postal Service sets rates not of 

general applicability by entering into NSAs 

with specific mailers. These NSAs require prior 

Commission review for compliance with 39 U.S.C. 

§ 3633(a) and 39 C.F.R. part 3015. In FY 2017, 

the Commission reviewed and approved 316 

Competitive NSAs: 208 were domestic and 108 

were international. Table III-1 shows the number 

of NSAs the Commission approved between FY 

2012 and FY 2017.

Table III-1: Competitive NSAs Approved by the Commission

FY 2012 through FY 2017

Competitive NSAsa FY 2017 FY 2016 FY 2015 FY 2014 FY 2013 FY 2012

Domestic 208 186 81 40 52 32

International 108 95 58 36 29 22

Total 316 281 139 76 81 54

a

This table shows approved NSAs the Postal Service filed as new products or as functionally equivalent to the baseline 

agreement of existing products. This table does not include NSA modifications or amendments.
36 | POSTAL REGULATORY COMMISSION • FY 2017 ANNUAL REPORT

Products with non-published rates enable the 

Postal Service to enter into contracts featuring 

negotiated rates without prior Commission 

approval. These non-published rate contracts 

must comply with applicable filing and 

regulatory requirements, including pre-approved 

pricing formulas, minimum cost coverage, and 

documentation. The absence of prior review 

streamlines the approval process, providing the 

Postal Service with additional flexibility.

Table III-2 shows the number of non-published 

rate contracts implemented by the Postal Service 

between FY 2012 and FY 2017. 

Table III-2: Non-Published Rate Contracts Implemented by the Postal Service 

FY 2012 through FY 2017

Non-Published 

Rate Producta

Number Non-Published Rate Contracts

FY 2017 FY 2016 FY 2015 FY 2014 FY 2013 FY 2012 Total

Global Expedited 

Package Services–

Non-Published Rate 1–12

393 244 91 124 129 141 1,122

Priority Mail–

Non-Published Rate 121 207b 0 1 2 3 334

Total 514 451 91 125 131 144 1,456

a Table III-2 lists all 12 Global Expedited Package Services—Non-Published Rate products as a single line item.

b On December 28, 2016, the Postal Service notified the Commission that it had entered into several hundred Priority Mail-NonPublished Rate contracts during CY 2016. Docket No. CP2011-51, Customer Contract Filing Notice for Priority Mail—Non-Published 

Rates Serial Number Ending: 0010 through 0247, December 28, 2016. The Postal Service acknowledged that most of these contracts 

were not filed in a timely manner. For this reason, these Priority Mail-Non-Published Rate contracts were not included in the FY 

2016 Annual Report. Docket No. CP2011-51, Motion for Late Acceptance of Customer Contract Filing Notice for Priority Mail—NonPublished Rates Serial Number Ending: 0010-0247, December 28, 2016.

Inbound Parcel Post (at Universal Postal Union

(UPU) rates). Inbound Parcel Post (at UPU rates) 

is a Competitive product that relates to the 

acceptance and delivery of inbound packages from 

foreign postal operators at air rates, surface rates, 

and e-commerce parcel (ECOMPRO) rates. Rates 

for Inbound Parcel Post (at UPU rates) are rates 

not of general applicability because they are only 

available to designated foreign postal operators.

Under UPU regulations, the Postal Service and 

other designated postal operators may qualify 

for semi-annual increases to their “base” rates for 

inbound air parcels if they provide certain valueadded services. These rate increases are applied to 

the base rates effective January 1 and July 1 of each 

year. During FY 2017, the Postal Service proposed 

two changes in rates for Inbound Parcel Post (at 

UPU rates).138 The Commission issued two orders 

acknowledging revised rates for this product.139

138 Docket Nos. MC2017-58 and CP2017-86, Notice of the United States Postal Service of Filing Changes in Rates Not of General Applicability for Inbound Parcel Post 

(at UPU Rates), Change in Mail Classification Schedule, and Application for Non-Public Treatment, December 19, 2016 (Docket Nos. MC2017-58 and CP2017-86 

Notice); Docket No. CP2017-214, Notice of the United States Postal Service of Filing Changes in Rates Not of General Applicability for Inbound Parcel Post 

(at UPU Rates), and Application for Non-Public Treatment, June 16, 2017. 139 Docket Nos. MC2017-58 and CP2017-86, Order No. 3716, Order Acknowledging Changes in Prices for Inbound Parcel Post (at UPU Rates), December 30, 2016; 

Docket No. CP2017-214, Order No. 3985, Order Acknowledging Changes in Prices for Inbound Parcel Post (at UPU Rates), June 29, 2017.
CHAPTER III | 37

The Postal Service also requested Commission 

approval to add ECOMPRO as part of the Inbound 

Parcel Post (at UPU rates) product.140 After 

reviewing supplemental financial workpapers, 

the Commission approved the addition of 

ECOMPRO at Inbound Air Parcel Post prices.141

Later, the Postal Service proposed, and the 

Commission approved, ECOMPRO prices.142

140 Docket Nos. MC2017-58 and CP2017-86 Notice at 5. 141 Docket Nos. MC2017-58 and CP2017-86, Order No. 3748, Order Approving in Part Classification Changes for Inbound Parcel Post (at UPU Rates), January 11, 

2017. 142 Docket No. CP2017-267, Notice of the United States Postal Service of Filing Changes in Rates Not of General Applicability for Certain Inbound Parcel Post (at 

UPU Rates), and Application for Non-Public Treatment, August 15, 2017; Docket No. CP2017-267, Order No. 4070, Order Approving Changes in Prices Not of 

General Applicability for Certain Inbound Parcel Post (at UPU Rates), August 28, 2017. 143 See Order No. 3624. 144 39 U.S.C. § 3633(a)(3). 145 39 C.F.R. 3015.7(c); Docket No. RM2007-1, Order Establishing Ratemaking Regulations for Market Dominant and Competitive Products, October 29, 2007, 

3040-47 (Order No. 43); see Docket No. RM2007-1, Errata Notice Concerning Order No. 43, October 31, 2007. 146 39 U.S.C. § 3633(b). When making its determination, the Commission must consider “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. 147 Order No. 1449 at 2, 27. 148 See Order No. 3624. 149 The Postal Service must correctly categorize an experimental product as either Market Dominant or Competitive for purposes of a market test. 39 U.S.C. § 

3641(b)(3).

Other Proceedings

In FY 2017, there were several other proceedings 

concerning Competitive products. These 

addressed the institutional cost contribution 

requirement, market tests, and assumed federal 

income tax on Competitive products income.

Institutional cost contribution requirement. On 

November 22, 2016, the Commission initiated 

a rulemaking to evaluate the institutional cost 

contribution requirement for Competitive 

products.143 The PAEA requires that the 

Commission’s regulations “ensure that all 

[C]ompetitive products collectively cover what 

the Commission determines to be an appropriate 

share of the institutional costs of the Postal 

Service.”144 In its initial rulemaking establishing 

regulations under the PAEA, the Commission 

set the minimum contribution level for 

Competitive products at 5.5 percent of total 

institutional costs.145

The PAEA directs the Commission to revisit the 

institutional cost contribution requirement for 

Competitive products every 5 years to determine 

whether to retain it in its current form, or 

to modify or eliminate it.146 The Commission 

conducted its first 5-year review in FY 2012, 

where the Commission decided to retain the 

minimum contribution level of 5.5 percent.147 The 

Commission initiated its second 5-year review in 

Docket No. RM2017-1 on November 22, 2016, and 

invited interested persons to submit initial and 

reply comments.148 This rulemaking is currently 

pending before the Commission.

Market tests. In FY 2017, the Postal Service 

conducted two Competitive market tests of 

experimental products under 39 U.S.C. § 3641.149

The Commission evaluated two Postal Service 

requests related to these market tests.
38 | POSTAL REGULATORY COMMISSION • FY 2017 ANNUAL REPORT

First, the Global eCommerce Marketplace (GeM) 

Merchant market test allows participating 

domestic online merchants to offer their 

international customers the ability to estimate 

and prepay customs duties and taxes to foreign 

countries when purchasing items.150 The Postal 

Service offers GeM Merchant to a limited 

number of online merchants through NSAs.151

The Commission authorized the market test to 

proceed for 2 years.152

On August 22, 2017, the Postal Service filed a 

motion asking the Commission to acknowledge 

that customer agreements executed during 

the second year of the GeM Merchant market 

test may expire after the market test ends to 

enable full performance of these agreements.153

Alternatively, the Postal Service asked the 

Commission to extend the market test for 

another year.154 After reviewing the record 

and considering comments received, the 

Commission authorized a limited extension of 

the GeM Merchant market test to satisfy oneyear customer agreements executed during the 

second year of the market test.155 The market test 

is scheduled to expire on June 26, 2019.156

Second, the Customized Delivery market test 

allows the Postal Service to deliver groceries 

and other prepackaged goods to customers.157

Total revenues anticipated or received by the 

Postal Service from the Customized Delivery 

market test must not exceed $10 million in any 

fiscal year, as adjusted for inflation, unless the 

Commission grants an exemption.158 On April 

4, 2017, the Postal Service filed a request for an 

exemption from the $10 million annual revenue 

limitation.159 After evaluating the filing and 

considering comments received, the Commission 

approved the request for exemption, finding it 

consistent with applicable legal requirements.160

Assumed federal income tax on Competitive 

products. Each year, the Postal Service is 

required to calculate its assumed federal income 

tax on Competitive products income and to 

transfer this amount from the Competitive 

Products Fund to the Postal Service Fund.161

The Postal Service filed this calculation for FY 

2016 on January 12, 2017.162 After reviewing the 

filing and comments received, the Commission 

approved the Postal Service’s calculation of 

the FY 2016 assumed Federal income tax on 

Competitive products income.163

150 Docket No. MT2016-1, Order Authorizing Market Test of Global eCommerce Marketplace (GEM) Merchant, May 25, 2016, at 2 (Order No. 3319). 151 Order No. 3319 at 2. 152 Id. at 26. 153 Docket No. MT2016-1, United States Postal Service Motion for Clarification of Order No. 3319, or, in the Alternative, for Extension of Market Test Time 

Period, August 22, 2017, at 1 (Docket No. MT2016-1 Motion). 154 Docket No. MT2016-1 Motion at 3.155 Docket No. T2017-1, Notice of The United States Postal Service of Submission of the Calculation of the FY 2016 

Assumed Federal Income Tax on Competitive Products, January 12, 2017. 155 Docket No. MT2016-1, Order Authorizing Limited Extension of Global eCommerce Marketplace (GeM) Merchant Market Test, October 12, 2017, at 1, 7 

(Order No. 4158). 156 Order No. 4158 at 7. 157 Docket No. MT2014-1, Order No. 3543, Order Approving Extension of Customized Delivery Market Test and Updating Data Collection Plan, September 28, 

2016, at 2. 158 39 U.S.C. §§ 3641(e)(1) and (g); 39 C.F.R. § 3035.15(b). 159 Docket No. MT2014-1, Request of the United States Postal Service for Exemption from Revenue Limitation on Market Test of Experimental Product – 

Customized Delivery, with Portions Filed Under Seal, April 4, 2017. 160 Docket No. MT2014-1, Order No. 3905, Order Approving Request for Exemption, May 18, 2017, at 4, 11. 161 39 U.S.C. § 3634; see 39 C.F.R. § 3060.40 et seq. The Competitive Products Fund was created by the PAEA to serve as a repository for competitive 

products’ revenues, returns on investments, and other amounts directly related to Competitive products. See 39 U.S.C. § 2011; Docket No. ACR2012, 

Annual Compliance Determination Report Fiscal Year 2012, May 7, 2013, at 174. The Postal Service Fund is available to the Postal Service “to carry out the 

purposes, functions, and powers authorized [by title 39] (other than any of the purposes, functions, or powers for which the Competitive Products Fund is 

available).” 39 U.S.C. § 2003(a). 162 Docket No. T2017-1, Notice of The United States Postal Service of Submission of the Calculation of the FY 2016 Assumed Federal Income Tax on 

Competitive Products, January 12, 2017. 163 Docket No. T2017-1, Order No. 3773, Order Approving the Calculation of the FY 2016 Assumed Federal Income Tax on Competitive Products, 

February 6, 2017.

 
CHAPTER III | 39

In FY 2016, the Commission issued an order 

approving the Postal Service’s proposal to update 

the model for developing estimates of city carrier 

street time costs.164 In that order, the Commission 

directed the Postal Service to investigate several 

issues, including the steps required to collect 

daily volume measurements that necessitated 

certain special studies and the feasibility of 

updating the cost model used to assign the costs 

of Sunday delivery hours and parcel routes.165

On May 31, 2017, the Commission initiated a 

public inquiry to ascertain the Postal Service’s 

progress to update its city carrier cost models 

and data collection capabilities as required by 

the Commission.166 The Commission received five 

sets of comments. This proceeding is currently 

pending before the Commission.

Public Inquiries

City Carrier Costs

The PAEA requires the Postal Service to 

measure service performance for Market 

Dominant products using an objective external 

performance measurement system unless it 

obtains Commission approval for use of an 

internal measurement system.167 On January 29, 

2015, the Commission established Docket No. 

PI2015-1 to consider a Postal Service request for 

the Commission to approve an internal service 

performance measurement system to replace 

the External First-Class (EXFC) Measurement 

system predominately used to measure the 

service performance of Single-Piece FirstClass Mail.168 The Postal Service’s request also 

proposes to replace components of EXFC used 

in the measurement of service performance for 

presorted First-Class Mail, Periodicals, USPS 

Marketing Mail, and Package Services mailpieces.

The Commission issued an interim order, Order 

No. 2544, which noted that the measurement 

system was still under development and outlined 

the Commission’s expectations of what would 

be required to complete a review of the Postal 

Service Performance

164 See Docket No. RM2015-7, Order Approving Analytical Principles Used in Periodic Reporting (Proposal Thirteen), October 29, 2015 (Order No. 2792). 165 Order No. 2792 at 65-66. 166 Docket No. PI2017-1, Order No. 3926, Notice and Order Establishing Docket Concerning City Carrier Special Purpose and Letter Route Costs and to Seek 

Public Comment, May 31, 2017 167 39 U.S.C. § 3691(b)(1)(D), (b)(2). “Internal” service performance measurement systems are under the direct control of the Postal Service, while “external” 

service performance measurement systems are under the direct control of an independent third party. Docket No. PI2015-1, Notice of Request for Comments and Scheduling of Technical Conference Concerning Service Performance Measurement Systems for Market Dominant Products, January 29, 2015, 

at 1 n.1 (Order No. 2336).168 Docket No. RM2016-12, Order on Analytical Principles Used in Periodic Reporting (Proposal Four), June 22, 2017, at 2, 40-41 

(Order No. 3973). 168 Order No. 2336 at 1-2. EXFC is an external sampling measurement system for First-Class Mail managed by an independent contractor. FY 2016 ACD at 92.

PHOTO BY USPS
40 | POSTAL REGULATORY COMMISSION • FY 2017 ANNUAL REPORT

Service’s proposal.169 It directed the Postal 

Service to provide certain information and run 

the proposed measurement system in parallel 

with the current EXFC measurement system “for 

sufficient time to ensure the internal system is 

operational and verifiable.”170

At the request of the Postal Service, the 

Commission hosted three off-the-record 

technical conferences. The Postal Service also 

began filing preliminary service performance 

data from the proposed internal measurement 

system during this timeframe.171 On July 14, 

2017, the Commission issued Order No. 4002 

describing the progress the Postal Service made 

thus far.172 It raised concerns about the data 

generated by the proposed measurement system, 

including the lack of audited data and significant 

differences between results obtained using 

the current EXFC measurement system.173 The 

Commission reiterated its goal of obtaining four 

consecutive quarters of data free of all major 

issues and directed the Postal Service to continue 

running the proposed internal measurement 

system in parallel with the EXFC measurement 

system.174 This proceeding is currently pending 

before the Commission.

Post Office Closing Appeals

The Commission adjudicated two post office 

closing appeals in FY 2017. Both were dismissed 

for lack of jurisdiction. First, the Commission 

considered an appeal of the Postal Service’s 

decision to relocate retail postal services from 

the Grand Island, Nebraska main post office to a 

nearby mail processing facility. The Commission 

granted the Postal Service’s motion to dismiss 

because the Commission lacks appellate 

jurisdiction over post office relocations.175

Second, the Commission considered an appeal 

of the Postal Service’s decision to close the 

Rio Nido, California contract post office. The 

Commission has jurisdiction over appeals to 

close or consolidate contract post offices only 

if the contract post office is the sole source of 

postal services to the affected community.176 

Because the Commission was unable to conclude 

that the Rio Nido contract post office was the 

sole source of postal services to the community, 

the Commission dismissed the appeal for lack of 

jurisdiction.177

169 Order No. 2544 at 4. 170 Id. 171 See Postal Regulatory Commission, Annual Report to the President and Congress Fiscal Year 2016, January 12, 2017, at 31 (FY 2016 Annual Report); Docket 

No. PI2015-1, Order No. 3813, Order Scheduling Technical Conference to Review the Audit Plan, March 2, 2017.172 Docket No. RM2016-12 Petition at 1. 172 Docket No. PI2015-1, Second Interim Order Concerning Service Performance Measurement Systems for Market Dominant Products, July 14, 2017 

(Order No. 4002). 173 Order No. 4002 at 4. 174 Id. at 4-5. 175 Docket No. A2017-1, Order No. 3963, Order Granting Motion to Dismiss, June 15, 2017, at 5 176 Docket No. A2017-2, Order Affirming Determination, September 1, 2017, at 8-9 (Order No. 4088). 177 Order No. 4088 at 1, 11-12.

PHOTO BY DANIEL M. SILVA
CHAPTER III | 41

Court of Appeals Cases

The following cases were before the D.C. Circuit during FY 2017.

First-Class Mail Parcels Transfer

In FY 2015, the Commission issued an order 

denying the Postal Service’s proposal to transfer 

First-Class Mail Parcels from the Market 

Dominant to the Competitive product list.178

The Postal Service appealed the Commission’s 

decision to the D.C. Circuit.179 On December 

6, 2016, the Court remanded the case to the 

Commission for further consideration.180

On July 20, 2017, the Commission issued an order 

addressing the issues raised by the court.181 

The Commission reviewed and distinguished 

three prior parcels transfer cases identified 

by the court.182 It reiterated its conclusion that 

additional information was necessary to support 

transferring First-Class Mail Parcels to the 

Competitive product list.183 Additionally, the 

Commission explained how it will evaluate market 

power as applicable to 39 U.S.C. § 3642(b)(1) in the 

future for product list assignment cases.184

In response to a CHIR issued by the Commission, 

the Postal Service provided additional 

information in support of its original transfer 

proposal. Using this information, the Commission 

was able to reanalyze the Postal Service’s 

transfer proposal in light of the new information 

and find that the proposed transfer met 

applicable legal requirements.185 The Postal 

Service’s request to transfer the First-Class Mail 

Parcels Retail (Single-Piece) price category was 

conditionally approved pending the proposal, 

review, and approval of rates.186 On July 28, 

2017, the Postal Service filed a notice with the 

Commission proposing rates, along with related 

MCS changes.187 The Commission approved the 

proposed rates and MCS changes, finding that 

they complied with applicable laws.188

Changes Concerning Attributable Costing

On December 1, 2016, the Commission issued an 

order adopting final rules on attributable costs.189

United Parcel Service, Inc. (UPS) appealed 

this order to the D.C. Circuit on December 12, 

2016.190 The D.C. Circuit consolidated this case 

with UPS’s appeal of Order No. 3506, which 

reviewed UPS's three proposals asking the 

Commission to consider changes to postal costing 

methodologies.191 The consolidated appeal is 

currently pending before the court.

178 Docket No. MC2015-7, Order No. 2686, Order Denying Transfer of First-Class Mail Parcels to the Competitive Product Category, August 26, 2015; see FY 2016 

Annual Report at 58. 179 First-Class Mail Parcels included two subcategories: (1) Single-Piece Parcels, and (2) Keys and Identification Devices. The Postal Service only challenged the 

Commission’s decision concerning the Single-Piece Parcels subcategory. 180 United States Postal Service v. Postal Regulatory Commission, 842 F.3d 1271 (D.C. Cir. 2016). 181 Docket No. MC2015-7, Order Conditionally Approving Transfer, July 20, 2017 (Order No. 4009). 182 Order No. 4009 at 14-27. 183 Id. at 2, 27. 184 Id. at 27, 29. 185 Id. at 29-40. 186 Id. at 40. 187 See n. 135, supra. 188 Order No. 4032 at 1, 4-5. 189 Docket No. RM2016-13, Order No. 3641, Order Adopting Final Rules on Changes Concerning Attributable Costing, December 1, 2016. 190 United Parcel Service, Inc. v. Postal Regulatory Commission, No. 16-1419 (D.C. Cir. filed December 12, 2016). 191 United Parcel Service, Inc. v. Postal Regulatory Commission, Nos. 16-1354 and 16-1419 (D.C. Cir. Order, January 23, 2017); see FY 2016 Annual Report at 34.
42 | POSTAL REGULATORY COMMISSION • FY 2017 ANNUAL REPORT

Complaint of Ramon Lopez

In FY 2011, Ramon Lopez filed a complaint with 

the Commission under 39 U.S.C. § 3662 alleging 

that the Postal Service had wrongly suspended 

mail delivery to his home in Florida.192 He asked 

that the Commission direct the Postal Service 

to restore mail service to his home address and 

claimed at least $2,500 in damages.193 Because 

the Postal Service represented that it resumed 

delivery to Lopez’s house, the Commission 

dismissed the complaint as moot and denied 

Lopez’s claim for damages.194

In FY 2012, Ramon Lopez appealed the 

Commission’s order dismissing his complaint 

to the D.C. Circuit.195 The D.C. Circuit ultimately 

dismissed Lopez’s appeal as moot, but 

transferred the claim for damages to the District 

Court for the Southern District of Florida.196

Other Pending Court Appeals

The following appeals are also pending before 

the D.C. Circuit

• Statutory Review of Market Dominant 

Rate System197

• Mail Preparation Changes and the Price Cap198

• Return Receipt for Merchandise Service199

• Complaint of Frederick Foster200

192 Docket No. C2011-5, Complaint of Ramon Lopez, July 12, 2011. 193 Id. at 2. 194 Docket No. C2011-5, Order No. 1392, Order Dismissing Complaint, July 3, 2012. 195 Ramon Lopez v. Postal Regulatory Commission, No. 12-1341 (D.C. Cir. filed August 3, 2012). 196 Ramon Lopez v. Postal Regulatory Commission, No. 12-1341 (D.C. Cir. December 11, 2017) (unpublished per curiam). 197 National Postal Policy Council v. Postal Regulatory Commission, No. 17-1276 (D.C. Cir. filed December 29, 2017). 198 United States Postal Service v. Postal Regulatory Commission, No. 16-1284 (D.C. Cir. filed August 11, 2016); see FY 2016 Annual Report at 29. 199 United States Postal Service v. Postal Regulatory Commission, No. 16-1412 (D.C. Cir. filed November 30, 2016); see FY 2016 Annual Report at 59. 200 Frederick Foster v. Postal Regulatory Commission, No. 15-1339 (D.C. Cir. filed September 23, 2015).

PHOTO BY MICHAL KALASEK
CHAPTER III | 43

The Secretary of State is responsible for 

formulating, coordinating, and overseeing 

international postal policy, including concluding 

postal treaties such as those involving the 

UPU.201 Headquartered in Bern, Switzerland, 

the UPU is an international treaty organization 

responsible for facilitating high-quality universal 

mail service at affordable rates. Although the 

State Department has primary authority over 

international postal policy, it must request the 

Commission’s views on whether any treaty, 

convention, or amendment that establishes a rate 

or classification for a Market Dominant product 

is consistent with the PAEA’s modern system of 

ratemaking for Market Dominant products.202

The State Department must ensure that each 

treaty, convention, or amendment concluded is 

consistent with the Commission’s views unless 

there is a foreign policy or national security 

concern.203

On November 29, 2016, the Commission provided 

the Secretary of State with its views on specific 

proposals to amend the Regulations of the 

UPU Convention that were to be discussed 

at the December 2016 session of the UPU 

Postal Operations Council.204 These proposals 

established rates or classifications for Market 

Dominant products, and were the consequence of 

proposals amending the UPU Convention that the 

UPU Congress approved in September 2016.

On September 22, 2017, the Commission 

published a study commissioned to Copenhagen 

Economics discussing the impact of terminal 

dues on financial transfers among designated 

UPU postal operators.205 Terminal dues rates 

are the prices paid between designated UPU 

postal operators for the acceptance, processing, 

and delivery of letter post items weighing up 

to 4.4 pounds. This report updated two earlier 

reports by Copenhagen Economics that the 

Commission published in September 2014 

and December 2015.206 In its 2017 Report, 

Copenhagen Economics updated its estimates of 

the net financial transfers that result from the 

UPU terminal dues system to reflect the new 

terminal dues rates that will go into effect in 

2018. Copenhagen Economics found that the new 

rates would only have a minor impact on the total 

value of financial transfers created by the UPU 

terminal dues system.

In FY 2017, the Commission continued its 

participation in UPU and interagency discussions 

on rates and classifications for Market Dominant 

products and international postal policy issues. 

The Commission also continued its role as an 

active member of the State Department’s Federal 

Advisory Committee on International and Postal 

Delivery Services.

International Postal Policy

201 39 U.S.C. § 407. 202 39 U.S.C. § 407(c)(1). 203 39 U.S.C. § 407(c)(2). 204 Letter from Robert G. Taub, Acting Chairman, Postal Regulatory Commission, to the Honorable Bathsheba N. Crocker, Assistant Secretary for International 

Organization Affairs, United States Department of State, November 29, 2016; see Docket No. IM2016-1, Notice of Posting Views, December 16, 2016. 205 Copenhagen Economics, Terminal Dues: Impact on Financial Transfers Among Designated Postal Operators of the Universal Postal Union 2018-2021 Cycle 

Agreements, September 22, 2017 (2017 Report). 206 Copenhagen Economics, Economics of Terminal Dues, September 30, 2014 (2014 Report), published January 14, 2015; Copenhagen Economics, 

Quantification of Financial Transfers Caused by Universal Postal Union Terminal Dues, November 3, 2015 (2015 Report), published November 18, 2015. 

The 2014 Report found that the UPU system of terminal dues potentially created specific market distortions. The 2015 Report quantified net financial

transfers among postal operators as a result of the UPU terminal dues system. Financial transfers between designated postal operators occur in cases 

where the sending postal operator overpays or underpays for last-mile delivery in the destination country by paying terminal dues instead of domestic 

postal rates. An underpayment for delivery implies a financial transfer from the receiving postal operators to the sending one. An overpayment for 

delivery implies a financial transfer from the sending postal operator to the receiving one.
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CHAPTER IV | 45

PHOTO BY B BROWN

CHAPTER IV | Universal Service Obligation 

 and Postal Monopoly

Background

In this chapter, the Commission provides its annual estimates of the cost of the Universal Service 

Obligation (USO) and the value of the postal monopoly. In its Report on Universal Postal Service 

and the Postal Monopoly, the Commission stated that the overarching USO of the Postal Service 

is set forth in 39 U.S.C. § 101(a), which states that the Postal Service must “provide postal 

services to bind the Nation together through the personal, educational, literary, and business 

correspondence of the people. It shall provide prompt, reliable, and efficient services to patrons 

in all areas and shall render postal services to all communities.” The USO has seven principal 

attributes: (1) geographic scope, (2) product range, (3) access, (4) delivery, (5) pricing, (6) 

service quality, and (7) an enforcement mechanism.207

The postal monopoly is the Postal Service’s exclusive right to carry and deliver certain types of 

mail and deposit mail into mailboxes.208 Unlike the cost of the USO (USO Cost), the Commission is 

not required to estimate the value of the postal monopoly. The Commission provides estimates 

for both the USO Cost and the value of the postal monopoly to present a balanced perspective.

In 2008, the Commission estimated the USO Cost and the value of the postal monopoly in the 

USO Report. The Commission updates these estimates each year in the Annual Report.

207 Postal Regulatory Commission, Report on Universal Postal Service and the Postal Monopoly, December 19, 2008, at 18 (USO Report) 208 USO Report at 10 n.1.
46 | POSTAL REGULATORY COMMISSION • FY 2017 ANNUAL REPORT

The PAEA requires the Commission to estimate 

the costs incurred by the Postal Service in 

providing three types of public services or 

activities:209 

• Postal services to areas of the nation the Postal 

Service would not otherwise serve

• Free or reduced rates for postal services as 

required by title 39

• Other public services or activities the Postal 

Service would not otherwise provide but for the 

requirements of law.

The USO Cost is the total amount of costs 

incurred by the Postal Service in providing these 

public services or activities. Table IV-1 illustrates 

the estimated USO Cost for the last 5 fiscal years, 

FY 2012 to FY 2016.

*FY 2012 through FY 2014 figures differ from past Annual Reports because the Commission recalculated the costs of maintaining small 

post offices. See Maintaining Small Post Offices section, infra. The sum of row components may not equal total due to rounding.

In this chapter, the Commission provides estimates of the costs incurred by the Postal Service in 

providing the public services or activities under 39 U.S. C. § 3651(b)(1), describes related statutory 

requirements, and explains the methodologies used to estimate these costs.210

Table IV-1: Estimated USO Cost ($ Billions)

FY 2016 FY 2015 FY 2014 FY 2013 FY 2012

Postal Services to Areas of the Nation the 

Postal Service Would Not Otherwise Serve* 0.39 0.35 0.51 0.61 0.77

Estimated Revenue Not Received 1.64 1.63 1.62 1.65 1.64

Other Public Services or Activities 2.37 2.26 2.21 2.39 2.43

TOTAL* 4.40 4.24 4.34 4.65 4.84

209 39 U.S.C. § 3651(b)(1) 210 See 39 U.S.C. § 3651(b)(2).

Estimated USO Cost
CHAPTER IV | 47

The Commission must estimate the costs 

incurred by the Postal Service in providing

postal services to areas of the Nation where,

in the judgment of the Postal Regulatory 

Commission, the Postal Service either would 

not provide services at all or would not 

provide such services in accordance with the 

requirements of this title if the Postal Service 

were not required to provide prompt, reliable, 

and efficient services to patrons in all areas 

and all communities, including as required 

under the first sentence of [39 U.S.C.] section 

101(b)[.]211

The Commission determines these costs by 

combining the estimated costs of maintaining 

small post offices, the Alaska Air Subsidy, and 

Group E Post Office Boxes. Table IV-2 compares 

the costs of each one from FY 2012 to FY 2016. 

Postal Services to Areas of the Nation the Postal Service 

Would Not Otherwise Serve

Table IV-2: Estimated Costs of Providing Postal Services to Areas of the 

Nation the Postal Service Would Not Otherwise Serve ($ Millions)

FY 2016 FY 2015 FY 2014 FY 2013 FY 2012

Maintaining Small Post Offices* 245 209 366 468 610

Alaska Air Subsidy 113 107 112 114 122

Group E Post Office Boxes 34 33 33 31 34

TOTAL* 392 349 511 613 766

*FY 2012 through FY 2014 figures differ from past Annual Reports because the Commission recalculated the costs of maintaining small 

post offices. See Maintaining Small Post Offices section, infra.

As shown in Table IV-2, the estimated cost of providing postal services to areas of the nation the 

Postal Service would not otherwise service declined between FY 2012 and FY 2015. This decline was 

due primarily to the large reductions in the cost of maintaining small post offices, as described below. 

However, between FY 2015 and FY 2016, the cost of maintaining small post offices increased due to 

the increase in clerk costs. 

211 U.S.C.§ 3651(b)(1)(A). 39 U.S.C. § 101(b) requires the Postal Service to “provide a maximum degree of effective and regular postal services to rural areas, 

 communities, and small towns where post offices are not self-sustaining.” Id. § 101(b).
48 | POSTAL REGULATORY COMMISSION • FY 2017 ANNUAL REPORT

The Postal Service maintains small post offices, 

which are generally located in rural or remote 

areas, as part of its duty “to establish and 

maintain postal facilities of such character and in 

such locations, that postal patrons throughout the 

Nation will, consistent with reasonable economies 

of postal operations, have ready access to essential 

postal services.”212 The Postal Service uses Cost 

Ascertainment Group (CAG) classifications A to 

L to categorize post offices based on volume of 

revenue generated.213 Small post offices are those 

that fall within CAG K and L classifications.214

The Commission determines the cost of 

maintaining small post offices by estimating the 

amount the Postal Service would save if rural 

carriers on the street provided the same services 

as those provided at small post offices, as well 

as the amount of revenue lost from existing CAG 

K and L Post Office Boxes. The Commission uses 

the Rural Mail Count to estimate the cost of rural 

carriers providing retail services and for new 

delivery service to those who would no longer 

have a CAG K and L Post Office Box.215

Table IV-2 lists the estimated costs of 

maintaining small post offices from FY 2012 to 

FY 2016. Some of these costs differ from those 

in past Annual Reports because the costs of 

maintaining small post offices were recalculated 

to account for recent changes in the staffing 

of small post offices. The recalculated costs 

incorporate all of the categories of employees 

who may perform functions that were previously 

performed primarily by postmasters to more 

completely identify those costs associated with 

this element of the USO Cost.216

Table IV-3 disaggregates the cost of maintaining 

small post offices by component and illustrates 

the recent large shifts between these 

components. It also illustrates changes in 

employee categories staffing CAG K and L post 

offices. Total Postmaster salary cost (along 

with overhead and other personnel and nonpersonnel related costs) have dropped sharply 

since FY 2013, while the total cost of other 

employees assuming postmaster duties have had 

corresponding increases. 

Total Postmaster direct and indirect costs 

decreased from $587 million in FY 2012 to $25 

million in FY 2016. Conversely, in FY 2013 and 

FY 2014, total CAG L leave replacement costs 

were more than double what they were in 

FY 2012. However, starting in FY 2015, total 

CAG L leave replacement costs have dropped 

sharply. Beginning in FY 2015, CAG K clerk costs 

have increased substantially, over $100 million, 

in FY 2016. 

MAINTAINING SMALL POST OFFICES

212 39 U.S.C. § 403(b)(3). 213 Docket No. RM2015-19, Order Approving Analytical Principles Used in Periodic Reporting (Proposal Ten), November 24, 2015, at 1 n.2 (Order No. 2837).. 214 See USO Report, Appendix F, Section 3 (Robert H. Cohen and Charles McBride, “Estimates of the Current Costs of the USO in the U.S.” at 26). 215 The Rural Mail Count classifies all remunerable activities of rural carriers as either post office or street activities. However, some post office activities can 

occur on the street. For example, even though it occurs on the street, parcel acceptance is considered a post office activity because it can substitute for a 

customer sending a parcel at a post office window. 216 See FY 2016 Annual Report at 42.

PHOTO BY RADOSLAW LECYK 
CHAPTER IV | 49

Table IV-3: Estimated Cost Savings from Closing CAG K and L Post Offices

Derivation of Updated Costs of Maintaining Small Post Offices ($ Millions)

Selected CAG K and L Post Offices Annual 

Operating Costs FY 2016 FY 2015 FY 2014 FY 2013 FY 2012

CAG K and L Postmastersa 25 26 228 332 587

CAG L Leave Replacements 29 102 216 219 105

CAG K Clerks 289 176 13 6 5

Total Potential Operating Costs Saved 

(If CAG K and L Post Offices Closed) 343 304 457 558 698

Annual Estimated Cost Saving Adjustments 

(If CAG K and L Post Offices Closed) FY 2016 FY 2015 FY 2014 FY 2013 FY 2012

Rural Carrier Now Provides Retail Services Costsb 18 17 16 16 16

Rural Carrier Now Provides Delivery Service (CAG K 

and L Post Office Boxes No Longer Available)c 42 42 41 41 40

CAG K and L Post Office Boxes Revenue Foregoned 37 36 33 33 32

Total Annual Cost Savings Adjustment 97 96 91 89 88

Updated Costs of Maintaining Small Post Offices FY 2016 FY 2015 FY 2014 FY 2013 FY 2012

(Potential Operating Costs Saved Less Cost Savings 

Adjustments) 245 209 366 468 610

Note: The sum of individual row components may not equal totals due to rounding

a Consistent with the USO Report, previous Annual Reports used the approximated total CAG K and L postmaster salary costs (along with 

overhead and other personnel and non-personnel related costs) to represent the total potential operating costs saved if CAG K and L post 

offices closed. Postmaster costs at CAG K and L post offices were derived by using the postmaster salary costs from the Postmaster Position 

Schedule CAG group proportions to distribute total postmaster (less CAG L leave replacements) costs to the CAG K and L group. However, 

due to recent staffing changes at small post offices, the costs of maintaining small post offices shown in Table IV-2 were recalculated to 

also include the CAG L leave replacement (postmaster relief employees) and CAG K clerk costs in addition to the postmasters costs in the 

potential operating costs saved total. The costs of maintaining small post offices in the FY 2012 and FY 2013 Annual Reports inadvertently 

listed the unadjusted total potential CAG K and L postmaster operating costs saved. 

b

 The annual number of CAG K and L retail transactions was approximated using the most currently available data: the FY 2010 retail 

transactions per revenue dollar and the FY 2013 POStPlan revenues in Docket No. N2012-1. The annual number of CAG K and L retail 

transactions was approximated to be about 142 million and was used in this calculation for the fiscal years shown in the table. 

c

 FY 2010 CAG K and L Post Office Box volumes were used to estimate the number of new delivery points (for those CAG K and L Post Office 

Boxes no longer available). 

d The FY 2010 CAG K and L Post Office Box volumes were used with the respective current fiscal year Post Office Box unit revenue (billing 

determinants) to estimate fiscal year CAG K and L Post Office Boxes revenue foregone. 

SOURCES: 

Postmaster Position Schedule CAG Group Proportions: Library Reference 32 in Docket Nos. ACR2012, ACR2013, ACR2014, ACR2015, and 

ACR2016 (CRA “B” Workpapers, “I-Forms” workbook, “I-CS01.0.2” tab). 

Postmasters, CAG L Leave Replacement and Clerks CAG K costs: Library Reference 5 in Docket Nos. ACR2012, ACR2013, ACR2014, ACR2015, 

and ACR2016 (Cost Segments and Components Reconciliation to Financial Statement and Account Reallocation, “seg 1” and “seg 4” tabs in 

workbook).

Rural Mail Count: Library Reference 40 in Docket Nos. ACR2012, ACR2013, ACR2014, ACR2015, and ACR2016.
50 | POSTAL REGULATORY COMMISSION • FY 2017 ANNUAL REPORT

Alaska Bypass Service allows mailers to 

ship goods such as food and other cargo on 

pallets directly to rural customers in Alaska. 

Commercial airline carriers deliver goods on 

pallets to hub airports in either Anchorage 

or Fairbanks. Smaller airline companies or 

independent pilots then break down these pallets 

and deliver the goods to remote communities 

accessible only by air, which are commonly called 

bush sites. The shipped goods “bypass” the Postal 

Service’s network.

With Alaska Bypass Service, the Postal Service 

pays for the cost of air transportation from hub 

airports to bush sites. The difference between 

this cost of air transportation from hub airports 

to bush sites and the average cost of ground 

transportation if it were available is called the 

Alaska Air Subsidy. The Commission previously 

concluded that the Alaska Air Subsidy is part 

of the USO.217 The Alaska Air Subsidy increased 

slightly from $107 million in FY 2015 to $113 

million in FY 2016.

ALASKA AIR SUBSIDY

Group E Post Office Boxes are provided free of 

charge to postal customers who do not receive 

mail delivery. The Postal Service provides this 

service to address potential discrimination 

issues arising from instances where customers 

do not receive carrier delivery.218 In FY 2011, 

the Commission approved treating the cost 

of providing Group E Post Office Boxes as an 

institutional cost to more equitably distribute 

the USO Cost. The Commission also concluded 

that this treatment was analogous to, and 

consistent with, the treatment of the Alaska 

Air Subsidy.219 Consequently, the Commission 

approved including the cost of Group E Post 

Office Boxes, which are primarily facilityrelated, in estimating the USO Cost. In FY 2016, 

Group E Post Office Boxes cost approximately 

$34 million.

GROUP E POST OFFICE BOXES

217 USO Report at 139. 218 Docket No. RM2011-9, Order Concerning Analytical Principles Used in Periodic Reporting (Proposal One), June 9, 2011, at 2 (Order No. 744). 219 Order No. 744 at 4.

PHOTO BY ASPEN ROCK
CHAPTER IV | 51

The Commission must estimate the costs incurred by the Postal Service in providing “free or 

reduced rates for postal services as required by [Title 39.]”220 The Commission estimates these costs 

by combining preferred rate discounts net of costs and the negative contribution of Periodicals 

(Periodicals Losses). Table IV-4 shows the estimated revenue not received as a result of preferred rate 

discounts and Periodicals Losses between FY 2012 to FY 2016. 

Free or Reduced Rates

Table IV-4: Estimated Revenue Not Received Due to Free or Reduced Rates ($ Millions)

FY 2016 FY 2015 FY 2014 FY 2013 FY 2012

Preferred Rate Discounts Net of Costs 1,105 1,116 1,114 1,130 974

Periodicals Losses 537 512 509 521 670

TOTAL 1,642 1,628 1,623 1,651 1,644

PREFERRED RATE DISCOUNTS NET OF COSTS

39 U.S.C. § 3626 requires the Postal Service 

to provide reduced rates for preferred rate 

categories in Standard Mail, Periodicals, and 

Library Mail.221 The Commission determines 

estimated revenue not received by quantifying 

the difference in revenue between mail that is 

statutorily required to receive a discount and the 

revenue the Postal Service would have received 

if those mail pieces were not discounted. This 

increase in revenue is adjusted for potential 

decreases in costs. If not discounted, rates for 

these mail pieces would be higher, resulting in a 

loss of volume and, consequently, lower costs. 

220 39 U.S.C. § 3651(b)(1)(B). The Postal Service provides free postage for blind and disabled persons and for overseas voting. Id. §§ 3403, 3406. The Postal 

Service receives appropriated funds reimbursing it for providing free postage. Id. § 2401(c). For this reason, the cost of providing free postage is not 

included in the USO Cost. 221 FY 2016 ACD at 41.

PHOTO BY USPS
52 | POSTAL REGULATORY COMMISSION • FY 2017 ANNUAL REPORT

SIX-DAY DELIVERY

Since 1984, appropriations bills have included 

a provision requiring the Postal Service to 

continue providing Six-Day Delivery.228 The cost 

of providing Six-Day Delivery is measured as 

PERIODICALS LOSSES

Periodicals Losses are the annual amount by 

which Periodicals attributable cost exceeds 

revenue.222 The PAEA’s price cap does not allow the 

Postal Service to fully recover Periodicals Losses 

through rate increases.223 It is assumed that, if not 

for the price cap, the Postal Service would raise 

Periodicals rates to the level necessary to cover 

attributable cost. Accordingly, the Commission 

considers these losses to be part of the USO Cost. 

Table IV-4 illustrates that although there was 

some variation year-to-year, Periodicals losses 

declined significantly between FY 2012 and FY 

2014 but increased in FY 2015 and FY 2016. 

During the 5-year period shown, FY 2012 had the 

largest overall loss at $670 million.

The Periodicals class has not covered its 

attributable cost since the PAEA was enacted.224

In Order No. 4258, the Commission has proposed 

changes to the Current System that would 

address this issue by providing the Postal 

Service an additional 2 percentage points of rate 

authority per calendar year.225

222 In this Annual Report, attributable cost means incremental cost. See Docket No. RM2016-2, Order Concerning United Parcel Service, Inc.’s Proposed 

Changes to Postal Service Costing Methodologies (UPS Proposals One, Two, and Three), September 9, 2016, at 125 (Order No. 3506). The attributable cost 

for years before FY 2016 reflect the accepted methodology for those years and has not been recalculated. 39 U.S.C. § 3622(c)(2) defines attributable cost 

as the “direct and indirect postal costs attributable to each class or type of mail service through reliably identified causal relationships plus that portion 

of all other costs of the Postal Service reasonably assignable to such class or type[.]” In Order No. 3506, the Commission revised the methodology for 

determining attributable cost to include inframarginal costs, developed as part of the estimation of incremental costs. Before that order, attributable cost 

only included the sum of volume-variable costs, which rise as volume increases and fall as volume decreases, and product-specific fixed costs, which are 

costs caused by a specific product, but do not vary with volume. See FY 2016 Financial Analysis Report at 37. 223 Periodicals is a preferred class of mail and receives several statutory discounts such as a 5 percent discount for nonprofit and classroom publications. 

These losses were initially called “Losses on Market Dominant Products” in past Annual Reports. The Commission later clarified that the USO Cost only includes Periodicals Losses. Postal Regulatory Commission, Annual Report to the President and Congress Fiscal Year 2012, January 3, 2013, at 37 n.3. Losses 

on other unprofitable Market Dominant products are not included because those products are in classes that were profitable overall. USO Report at 134. 224 FY 2016 ACD at 42. 225 Order No. 4258, Notice of Proposed Rulemaking for the System for Regulating Rates and Classes for Market Dominant Products, December 1, 2017

at 26, 84. 226 39 U.S.C. § 3651(b)(1)(C). 227 The Commission previously issued an order interpreting “other public services or activities” under 39 U.S.C. § 3651(b)(1)(C). Docket No. PI2014-1, 

Order No. 2820, Order Interpreting 39 U.S.C. § 3651(b)(1)(C), November 17, 2015. The Commission continues to conclude that no new public services 

or activities should be added at this time. See FY 2016 Annual Report at 47. 228 See, e.g., Consolidated Appropriations Act, 2017, Pub L. No. 115-31, 131 Stat. 135, 369 (2017) (“6-day delivery and rural delivery of mail shall continue at 

not less than the 1983 level”).

Other Public Services or Activities

The Commission must estimate the costs incurred 

by the Postal Service in providing “other public 

services or activities which, in the judgment of 

the Postal Regulatory Commission, would not 

otherwise have been provided by the Postal Service 

but for the requirements of law.”226 Currently, these 

costs include the costs of providing Six-Day Delivery 

and uniform rates for First-Class Mail and Media 

Mail/Library Mail.227 Table IV-5 shows the costs of 

providing these public services or activities from 

FY 2012 to FY 2016.
CHAPTER IV | 53

UNIFORM RATES

Rates for First-Class Mail must be uniform 

throughout the United States.230 To determine 

the cost of uniform First-Class Mail rates, the 

Commission estimates the increased contribution 

that the Postal Service would earn if dropship 

discounts were allowed for workshared FirstClass Mail. Table IV-5 shows the cost of uniform 

First-Class Mail rates. In FY 2016, the cost of 

uniform First-Class Mail rates declined from $86 

million in FY 2015 to $78 million in FY 2016.

Media Mail/Library Mail rates must be 

uniform for mail of the same weight and must 

not vary with the distance transported.231

The Commission estimates the cost of the 

distance component by assuming that without 

this requirement, Media Mail/Library Mail 

would provide the unit contribution of Bound 

Printed Matter, a proxy that does not have this 

restriction. The Commission estimates the 

additional unit contribution by determining the 

difference between the unit contributions of 

Bound Printed Matter and Media Mail/Library 

Mail. Media Mail/Library Mail total volumes are 

then multiplied by the estimated additional unit 

contribution to produce an estimate of the total 

additional contribution if Media Mail/Library 

Mail rates were not uniform. 

In FY 2016, the estimated cost of providing 

uniform Media Mail/Library Mail rates was 

approximately $102 million, similar to the 

FY 2015 cost of $101 million. The substantial 

increase in cost between FY 2014 and FY 2015 

was due primarily to the large decrease in the 

unit contribution of Media Mail/Library Mail.232

229 The current cost of Six-Day Delivery methodology differs from the USO 2008 methodology as it reflects refined and more comprehensive costs based on 

the Commission’s findings in its Advisory Opinion on Elimination of Saturday Delivery. See Docket No. N2010-1, Advisory Opinion on Elimination of Saturday Delivery, March 24, 2011; Postal Regulatory Commission, Annual Report to the President and Congress Fiscal Year 2011, December 21, 2011, at 41. 230 39 U.S.C. § 404(c). 231 39 U.S.C. § 3683. 232 The large decrease in the unit contribution of Media Mail/Library Mail was due to the 26 percent increase in the unit attributable cost for Media Mail/

Library Mail in FY 2015. See Financial Analysis of the United States Postal Service Financial Results and 10-K Statement, March 29, 2016, at 67-68.

Table IV-5: Other Public Services or Activities the Postal Service 

Would Not Provide But for Legal Requirements ($ Millions)

Public Service or Activity FY 2016 FY 2015 FY 2014 FY 2013 FY 2012

Six-Day Delivery 2,191 2,074 2,080 2,212 2,240

Uniform First-Class Mail Rates 78 86 93 109 117

Uniform Media Mail/Library Mail Rates 102 101 37 70 71

TOTAL 2,371 2,261 2,210 2,391 2,428

the estimated savings the Postal Service would 

achieve by providing residential delivery service 

5 days a week instead of 6 days a week. Table 

IV-5 shows the cost of Six-Day Delivery from 

FY 2012 to FY 2016.229
54 | POSTAL REGULATORY COMMISSION • FY 2017 ANNUAL REPORT

The postal monopoly is the Postal Service’s 

exclusive right to carry and deliver certain 

types of mail and deposit mail into mailboxes. 

The mailbox monopoly is the Postal Service’s 

exclusive right to deliver to and collect from 

mailboxes.233 The letter monopoly is the Postal 

Service's exclusive right to carry and deliver most 

addressed, paper-based correspondence.234

The value of the postal monopoly is an estimate 

of the profit that the Postal Service would lose 

if both the mailbox and letter monopolies were 

lifted, and the Postal Service were subject to 

competition for mail currently covered by the 

postal monopoly. 

Table IV-6 shows the values of the postal and 

mailbox monopolies from FY 2012 to FY 2016. 

Subtracting the value of the mailbox monopoly 

from the value of the postal monopoly does not 

yield the value of the letter monopoly because 

there is an overlap in the contestable mail 

and a different frequency of delivery by the 

competitor. A separate estimate of the value of 

the letter monopoly alone (retaining the mailbox 

monopoly) is not provided. Without access to 

mailboxes, it is unlikely that the competitor could 

successfully capture mail directed to a specific 

person or address because those mail pieces are 

delivered to and collected from mailboxes.

The increase in the estimated value of the 

postal monopoly from FY 2013 to FY 2016 is 

largely due to increases in the percentage of 

mail that is considered contestable.235 The value 

of the mailbox monopoly is estimated based 

on contestable mail volumes in Periodicals, 

Standard Mail ECR, and Parcel Select. Changes in 

the volume of contestable mail affect the number 

of profitable routes the competitor could deliver 

to and the amount of contribution the Postal 

Service would lose if the competitor captured the 

contestable mail on those routes.

Value of the Postal Monopoly

Table IV-6: Values of the Postal and Mailbox Monopolies ($ Billions)

FY 2016 FY 2015 FY 2014 FY 2013 FY 2012

Postal Monopoly 5.68 5.45 4.61 3.93 3.28

Mailbox Monopoly 1.24 1.03 0.77 0.81 0.70

233 18 U.S.C. § 1725. 234 The letter monopoly is codified in the Private Express Statutes. See 18 U.S.C. §§ 1693–1699 and 39 U.S.C. §§ 601–606. 235 Contestable mail is mail that is dropshipped to the processing facility or delivery unit closest to its destination. The competitor would need to perform little 

or no mail processing to prepare it for delivery.
CHAPTER IV | 55

The Commission uses the model described in 

the USO Report to update current estimates.236

The model assumes that the competitor will 

“win” or “skim” all of the contestable mail on a 

route if the revenue it would earn from these 

mail volumes is greater than the fixed and 

attributable costs related to the volumes. The 

model also assumes the competitor would deliver 

only local and regional mail to focus on the most 

profitable delivery routes and avoid the need for 

significant capital to establish a processing and 

transportation network. 

Even with the postal monopoly, competitors 

still deliver material (e.g., newspapers’ 

weekly advertising supplements) that might 

otherwise be sent via the Postal Service. If 

the mailbox monopoly alone were lifted, 

competitors could deliver and deposit into 

mailboxes products that fall outside of the 

letter monopoly, such as Periodicals, unaddressed 

saturation mail, catalogs over 24 pages, and 

letters over 12.5 ounces. The letter monopoly 

prevents competitors from delivering certain 

mail that is directed to a specific person or 

address, such as First-Class Presorted Letters/

Postcards and Standard Mail Letters. If the 

letter monopoly were also lifted, this restriction 

would not apply. 

The key variables for estimating the values 

of the postal and mailbox monopolies are the 

competitor’s delivery frequency, the cost of 

entry to the competitor, the rates charged by the 

competitor, and the volume of the contestable 

mail. The model assumes that the competitor is 

10 percent more efficient than the Postal Service, 

but needs to offer a 10 percent discount to entice 

customers to switch from the Postal Service. 

Because this discount offsets the competitor’s 

efficiency advantage, reducing delivery 

frequency is the only way for the competitor 

to lower delivery costs below that of the Postal 

Service.237

The model currently evaluates the competitor’s 

entry for each route regardless of the extent 

of route clustering. Focusing on routes in 

the same cluster or area would reduce the 

competitor’s fixed costs.238 Also, because the 

model assumes that the competitor does not 

incur mail processing costs, values of the postal 

and mailbox monopolies do not reflect the cost 

of sorting to carrier routes, which is necessary 

to deliver mail presorted to the 5-digit ZIP Code. 

The model also does not account for mailers’ 

switching costs or brand loyalty.239 In addition, 

bulk parcels, which are Competitive products, 

are considered contestable mail. 

236 See USO Report at 143-52. 237 The current model assumes the competitor will deliver mail 3 days a week under the postal monopoly and 1 day a week under the mailbox monopoly. 238 The Commission would need route-level geographic-specific data to account for clustering. Further improvements could be made by assuming the 

competitor would design routes to more efficiently deliver the contestable mail. However, this would require information about volume delivered to each 

stop that is not currently available. 239 Although the model assumes a 10 percent discount would be necessary to entice customers to switch, brand loyalty, inertia, the need to prove quality, 

and other factors affect the pace at which customers would switch from the Postal Service to a competitor. The model assumes a competitor would 

capture 100 percent of the contestable mail on routes that are skimmed. See USO Report at 149. However, some customers may not switch to a 

competitor even if a discount were offered.
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