Testimony of 

The Honorable Dan G. Blair, Chairman

On Behalf of the 

Postal Regulatory Commission 

Before the

U.S. House of Representatives 

Committee on Oversight and Government Reform

Subcommittee on Federal Workforce, 

Postal Service, and the District of Columbia 

May 8, 2008
Thank you Chairman Davis, Ranking Member Marchant, and members of the 

Subcommittee. I am always pleased to update the Subcommittee on the activities of the 

Postal Regulatory Commission. As you know, the Postal Accountability and 

Enhancement Act (PAEA or Act) significantly strengthened the Commission’s oversight 

and regulatory responsibilities. Congress envisioned an effective regulator, and through 

its various initiatives and actions over the past 17 months, the Commission has marked its 

transformation to regulator from ratemaker. 

It has been just over two months since I testified before the Subcommittee’s last 

postal oversight hearing on February 28. During this nine week period, the Commission 

verified the lawfulness of the Postal Service rate adjustments for market dominant and 

competitive products; issued its determination of compliance for fiscal year 2007 postal 

operations and finances; completed work on mail classification matters, including a 

negotiated service agreement; continued consultation with the Postal Service on service 

performance measurement issues; initiated proceedings to obtain public input involving 

the Postal Service’s universal service obligation and the cooperative mail rule; and 

testified before this panel on April 3 and April 24, as well as at a March 5 hearing before 

the Senate Postal Subcommittee. We also launched our redesigned website. 

The Postal Regulatory Commission’s role is to ensure transparency and 

accountability in postal operations, services, and finances. We are the window by which 

Congress and the American public have an unvarnished view of the Postal Service. Our 

mission is clear: we provide a regulatory environment to foster a robust postal system. 

 

The Commission is proud of its efforts to complete those requirements of the Act 

by specific deadlines. One of our most time-sensitive and critical mandates was 

establishing new ratemaking systems for market dominant and competitive products. We 

finished this task eight months ahead of the statutory deadline, which allowed the Postal 

Service to move forward with inflation-based rate adjustments.

 

RECAP OF 2007 COMMISSION ACTIVITIES

Having these rules in place on October 29, 2007, allowed the Postal Service to use 

the flexibility provided by the PAEA to adjust rates under the new system as opposed to 

filing under the 1970 law. Both market dominant and competitive filings were explored 

and resolved within the timeframes we established. Although the Commission found that 

one workshare discount needed adjustment; this was done without delaying or disrupting 

the process. 

Implementing the new ratemaking systems ahead of schedule was just one of the 

significant Commission accomplishments achieved in 2007. We also finished the 

following activities during the first year of the PAEA: 

 

• The Commission consulted with the Postal Service regarding the development of

modern service standards for market dominant products. To guarantee public 

participation in the process, the Commission held three field hearings outside of

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Washington, DC, where witnesses shared their expectations for service standards 

and ratemaking regulations. In addition, we solicited written comments from 

mailers and consumers to assure a broad cross-section of opinion informed our 

input. The Postal Service issued new standards in December 2007. 

 

• On February 26, 2007, the Commission issued its opinion and recommended 

decision on postal rate and fee changes in the last omnibus rate case considered 

under the old Postal Reorganization Act of 1970. Related to this action, was the 

completion and issuance of Recommended Decisions on three requests for 

reconsideration as part of the R2006-1 omnibus rate case. 

• In addition to final action on the R2006-1 case, we completed other pending cases 

under the old law, such as rendering a final decision on the classification for 

stamped stationery and our decision affecting Repositionable Notes classifications 

and rates; and the Commission’s decision in approving a Negotiated Service 

Agreement (NSA) with Bank of America. 

• We completed the first new budget submission cycle, which was required by the 

PAEA to insulate the Commission, as the Postal Service’s regulator, from the 

regulated entity. We are now a part of the President’s budget proposal and 

authorized through the annual congressional budget and appropriations process. 

 

• To better align staff and resources with the new law, the Commission examined 

its internal structure. We reorganized the Commission by establishing an Office 

of Public Affairs and Government Relations and added a new Auditing and 

Costing Division to the revamped Office of Accountability and Compliance. We

also met the deadline imposed by the Act in creating a new Office of the Inspector 

General. 

• The Commission also began work on its newly redesigned webpage last year. 

Unveiled last month, the new site offers timely and better transparency of postal 

data and developments in the postal community. As the Commission implements 

its new responsibilities under the PAEA, our website will be the focal point of 

information for postal customers on our progress and that of the Postal Service to 

the users of the mail system. 

We are now building on these achievements to ensure future success in 

implementing the PAEA. As the Subcommittee may recall from my testimony two 

months ago, the Commission has an extremely full agenda in 2008. 

RATE ADJUSTMENTS

As I previously stated, in early February, the Postal Service filed rate increases for 

market dominant products, which put into motion the regulations finalized last October. 

Following a public comment period, the Commission unanimously verified on March 17, 

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2008, that the increases for market dominant products were, on average, under the rate of 

inflation for all classes of mail (R2008-1). 

 

As we were completing work on the market dominant filing, we were also 

considering the Postal Service’s request for rate adjustments for competitive products. 

Following a period for public comment, the Commission verified the price changes 

sought by the Postal Service for its competitive products, which include Priority Mail,

Express Mail, Parcel Select, Parcel Return Service, and selected international mail 

offerings. Our review determined that the filing met the statutory and regulatory 

requirements that each competitive product must recover its direct costs; that competitive 

products, as a group, must pay their share of institutional costs, which the Commission 

set at 5.5 percent; and that market dominant products do not cross-subsidize competitive 

products. 

 

Planned adjustments for both market dominant and competitive products will 

become effective on May 12, 2008. 

 

ANNUAL COMPLIANCE DETERMINATION

Further, the Commission issued on March 27, 2008, its first Annual Compliance 

Determination on the performance of the Postal Service for fiscal year 2007. This 

Determination was prepared after a 90-day review of the Postal Service’s Annual 

Compliance Report and supplemental material, evaluation of public comments, and an 

assessment of data and information provided during technical conferences. Our 

Determination gives a clear picture of the Service’s financial data, which in turn will 

assist the Commission to improve the quality and timeliness of data filed by the Postal

Service with the Commission. 

Our Compliance Determination found that while the Postal Service’s revenue 

increased, its volume decreased. This underscores the need for more robust performance 

measurement reporting by the Postal Service in the future. Our report may be found on 

the Commission’s website, www.prc.gov. 

 

I would like to share with the Subcommittee a few of our Principal Findings: 

 

• The Postal Service had a $1.6 billion profit on operations; however, statutory 

funding requirements for retiree health benefits resulted in a net loss of $5.1 

billion. 

 

• Total First-Class Mail volume declined by 1.6 percent and First-Class singlepiece volume dropped 4.5 percent to continue a nine-year decline. 

 

• Five market dominant postal services did not cover their attributable costs: 

Periodicals; Single-Piece Parcel Post; Media/Library Mail; Registered Mail; and 

First-Class Mail International (inbound). 

 

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• Two competitive postal services did not cover their attributable costs: Parcel 

Return Service and International Surface Parcel Post at non-Universal Postal 

Union (UPU) rates (inbound). 

 

• Competitive products, as a group, slightly exceeded the requirement that they 

contribute at least 5.5 percent of Postal Service institutional costs. 

 

• The five current market dominant Negotiated Service Agreements (NSAs) 

provided a $2.5 million contribution. 

• Our assessment discusses service performance in some detail. For fiscal year 

2007, the data reported service performance for less than 20 percent of the mail. 

This will be improved as planned new performance measurement systems are 

implemented. 

The annual compliance determination process should serve as an action-forcing 

mechanism in shedding light on postal operations, services, and finances. To assist the 

process, the Commission plans to propose Periodic Reporting Rules to help us prepare 

the annual compliance determination. These rules will specify what information the 

Postal Service must report to the Commission on a regular basis – monthly, quarterly, and 

annually – to enable us to carry out our broad oversight responsibilities. Given the 

current economic downturn, the Commission will be watching postal finances carefully. 

This and future compliance determinations should provide Congress with the appropriate 

information it requires in order to conduct meaningful oversight in assessing potential 

risks to the long-term health of the Postal Service. 

UNIVERSAL SERVICE OBLIGATION AND POSTAL MONOPOLY STUDY

Another critical undertaking this year by the Commission is our work on the 

Universal Service Obligation study (§ 702 of the PAEA), which I know is of interest to 

Members of this Subcommittee. The Commission’s review will allow us to evaluate 

whether to recommend on any changes to universal service and the postal monopoly. 

 

Last summer, Commission staff began developing the framework of our Request 

for Proposals (RFP) seeking a consultant to assist us in gathering information for this 

study. As part of a public competition, the Commission received three proposals in 

response to its RFP issued last November. The Commission selected the George Mason 

University School of Public Policy to support completion of the study due to the 

President and Congress by the end of the year. 

 

On April 18, 2008, we initiated a proceeding to solicit the views of the Postal 

Service and other federal agencies, commercial mailers, and other interested parties for 

their expectations of universal postal service, postal monopoly, and the mailbox 

monopoly. 

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Like the public field hearings we conducted last summer, we have scheduled 

similar field hearings outside of Washington, DC to solicit views. We will visit Flagstaff,

Arizona; St. Paul, Minnesota; and Portsmouth, New Hampshire over the next two 

months. We will augment our public hearings with an assessment of the needs and 

expectations of the general public concerning universal postal service, especially singlepiece mailers, small nonprofit mailers, and small business mailers. We are also reaching 

out to the Washington-based mailing and postal community through an open workshop 

on June 12 at the Commission. 

 

We are mindful that the Postal Service is a key stakeholder in this study. We 

have been working with them through our monthly consultation process since Congress 

tasked the Commission to look at possible changes to the universal service obligation and 

the postal monopoly. 

NETWORK REALIGNMENT

Of great interest to Congress is the Postal Service’s upcoming report on its 

network realignment plans and how the plans will help it meet its service performance 

goals. The PAEA requires the Service to consult with the Commission before submitting 

this plan to Congress by June 20, 2008 (§ 302 of the PAEA). We have also met with the 

Government Accountability Office, which has reviewed this aspect of postal operation 

and management extensively. We are also relying on the Commission’s 2006 advisory 

opinion (N2006-1) issued in the evolutionary network development proceeding that 

provided suggestions for improving this process, especially in the area of public 

participation. 

SERVICE STANDARDS/PERFORMANCE GOALS

Adjunct to network realignment is the Commission’s consultation on service 

standards and performance measurements and goals. We are now in the second phase of 

our consultation – establishing goals for performance measures and network 

reorganization that are due to Congress this June. The adoption of performance 

measurements and goals will allow mailers to better gauge service against the 

performance standards. Our consultations have focused on varied topics, but one area of 

great importance is the timely implementation of and mailer acceptance of the Postal 

Service’s Intelligent Mail Barcode (IMB) standards. The Postal Service has sought the 

Commission’s formal approval to utilize a hybrid measurement system to track its 

progress in meeting its performance goals. 

COMPLAINT PROCESS

Other regulations that the Commission is working on are those regarding 

complaints. Our existing complaint system will become better aligned with the PAEA 

(39 U.S.C. § 3662), which requires the Commission to act within 90 days of receiving a 

complaint. Failure to act within 90 days will be treated as if the Commission had denied 

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the complaint. We anticipate issuing the proposed rules on complaints this summer, as 

well as proposed rules on our new subpoena power and rules for confidentiality. 

 

ACCOUNTING PRINCIPLES

The Commission is also reviewing public comments on the recommendations 

made by the U.S. Department of Treasury in its report on accounting principles and 

practices in the operation of the Competitive Products Fund and the assumed Federal Tax 

liability (39 U.S.C. § 2011(h)(1)(B)). Our review will be followed by a rulemaking 

proceeding to develop regulations governing the Fund and establish rules for determining 

the assumed Federal income tax on competitive products income. Competitive postal 

products offered in competition with private firms, such as Federal Express and United 

Parcel Service, make up only about one percent of postal volume, and yet contribute 

approximately 11 percent of Postal Service revenues. These regulations are to be 

completed by this December unless the Commission and the Postal Service agree to a 

later date. 

PERIODICALS STUDY

The PAEA also requires the Commission to conduct a number of studies, 

including two studies of interest to the Subcommittee and Committee. We have initiated 

discussions with the Postal Service on a joint Commission-Postal Service review of

Periodicals costs that is required by the PAEA (§ 708 of the PAEA). Although the Act 

did not establish a deadline for this study, I believe it is justified to undertake the review 

now. 

 

COOPERATIVE MAIL STUDY

As the Chairman knows, the Commission is reviewing the operation of the 

cooperative mail rule and its fundraising exception. Through the PAEA, Congress asked 

the Commission to look into whether sufficient safeguards exist to protect against abuse 

and deception of consumers (§ 711 of the PAEA). Since the April 24 hearing before this 

Subcommittee, the Commission has received additional correspondence from the Postal 

Service. In addition, on April 22, we issued a notice (PI2008-4) seeking public comment 

on the cooperative mail rule and its fundraising exception. 

INTERNATIONAL MAIL

Another important change mandated by the PAEA enhances the Commission’s 

role regarding international postal arrangements. The Commission has participated in the 

Universal Postal Union working groups and committees for many years, but our role has 

been statutorily strengthened. We are coordinating very closely with the Department of 

State, the Postal Service and other agencies such as the Department of Commerce and the 

Office of the U.S. Trade Representative. 

 

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We are also engaging the private sector to hear their concerns on international 

postal issues. On March 25, the Commission participated in the first meeting of the 

Federal Advisory Committee on International Postal and Delivery Services. The 

Department of State established this Committee to provide advice and input as it sets the 

United States international postal policy. The Commission is represented along with 

other key officials representing public and private sector interests. 

 

Lastly, we are busy forging stronger channels of communication with other postal 

regulators. Last month, the Commission hosted postal regulators from the European 

Commission, which proposes and implements policies for the European Union, to discuss 

our respective experiences in postal reform. The Commission will be represented at the 

UPU Congress this summer, where important decisions on terminal dues and initiatives 

to improve quality of service will be decided. 

In summary, the Commission understands and appreciates that these are 

challenging times. The Postal Service faces declining volume and a tough economy that 

has hit hard at some of the Service’s key economic sectors. This reinforces the need for 

an effective regulator to provide the transparency and accountability mandated by the 

PAEA. 

I would be happy to respond to any questions the Subcommittee may have. 

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