United States Senate

Committee on Governmental Affairs

Testimony of Commissioner George A. Omas

Vice Chairman, Postal Rate Commission

May 15, 2001

_______________________

Thank you Mr. Chairman.

My name is George Omas. With me today are my fellow Commissioners, Danny

Covington, Ruth Goldway, and Trey Le Blanc. As you know, the position of Chairman

of the Postal Rate Commission is currently vacant. I was elected Vice Chairman by my

colleagues, and have been performing the administrative functions of the Chairman

since February.

This morning I will focus my remarks on three topics. First, the Postal Rate

Commission recently concluded Docket No. R2000-1, the most recent omnibus rate

case. I will review that case and discuss several ways in which our experience in that

case is relevant to postal issues under discussion before Congress. All of us are very

concerned with the recent rapid deterioration of Postal Service finances. I will attempt

to provide the Commission’s perspective on recent Postal Service operating results as

my second topic. Finally, I will offer some suggestions intended to alleviate the causes

of the current crisis atmosphere.

In early March of this year, the Postal Service Governors addressed letters to the

President and Congressional Leaders indicating that a comprehensive review and

overhaul of the nation’s postal laws was necessary. They focused on two particular

aspects of the current law, the process established for developing postal rates, and the

“collective bargaining followed by compulsory arbitration” system for establishing

wages.
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I will address only the first of those issues—how postal rates are set. I have

been involved in reviewing postal issues since the 1970s, and I have served as a

member of the Postal Rate Commission while the two most recent omnibus rate cases,

R97-1 and R2000-1, were under consideration. During my time on the Commission I

have seen ample evidence of why an independent review of the rate and classification

changes that the Postal Service might seek to impose upon the mailing public is

essential.

The Existing Ratemaking Process

The Postal Service is a vast network that is woven into the fabric of American

business and personal relationships. A reliable, efficient Postal Service is one of the

bedrock strengths of the American economy. It is appropriate for Congress to

investigate when the Postal Service Governors issue a call for a comprehensive review

of existing law, and suggest that absent major improvements, the system the American

people have come to know and trust may be at risk. I would suggest to you, however,

that the current ratemaking system achieves an effective balancing of the needs and

interests of the many segments of our society most affected by postal rates.

In fact, I think a dispassionate observer might easily conclude that the

ratemaking system established by the Postal Reorganization Act, as amended in 1976,

has been a singular success. That Act enunciated three primary rate policies. First,

rates were to be high enough to enable the Postal Service to break even. Second,

rates for each subclass and service were to be high enough to recover the direct costs

of providing service to that mail. Third, rates were to be fair and equitable. Each of

these goals has been met.

In the 30 years since reorganization the Postal Service has collected some $976

billion of revenue. Over that time, the Service has experienced a net loss of only $4.3

billion, or to put it another way, revenues have recovered 99.6 percent of costs. The

Postal Service essentially has broken even since reorganization.
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The Commission and the Postal Service have also adhered to the policy that the

revenue from rates for each type of mail should recover its costs. Extensive work has

been done to identify what categories of mail cause various types of postal costs, and

the costs attributed to each subclass and service serves as its rate floor. Both mail

users and private firms that compete with the Postal Service for delivery of products not

subject to the postal monopoly understand that this statutory prohibition against cross

subsidy is rigorously enforced through the Commission’s independent review of the

Postal Service’s rate proposals.

I would also point out that twice in the past ten years Congress has seen fit to

enact minor amendments to the Postal Reorganization Act to fine tune the formula for

developing rates for mail sent by qualifying non-profit organizations. This provides an

example of the benefit of having a national Postal Service. Congress is able to review

the impact of postal rates on various segments of society and make adjustments

deemed consistent with public policy.

The final goal, that postal rates be fair and equitable, is obviously somewhat

subjective, and no one individual can provide a definitive evaluation of how well that

standard has been met. Nonetheless, review of the Postal Service’s rate and

classification proposals by an independent agency with no stake in the outcome is the

most likely way that I can think of to assure that Congressional policies are faithfully

carried out.

The Act details numerous public policies, including nine factors specifically

applicable to developing postal rates. Rates are set in an open, public proceeding

during which all interested segments of society have the opportunity to show how those

policies relate to specific types of mail, to present evidence verifying their concerns, and

to test the validity of arguments presented by other stakeholders. Then the Commission

must fully explain, in writing, the basis for each of its decisions. Its decisions must be
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based on the public, evidentiary record, and appellate review of its written decisions is

available to all parties, including the Postal Service.

Recent Rate Case Experience

Over the years, an extensive cross-section of American businesses have seen fit

to present their views before the Postal Rate Commission. Small businesses as well

as high volume mailers benefit from the existence of an independent agency that

reviews Postal Service proposals. For example, in my first case on the Commission, a

group of small business shippers found themselves faced with a 220 percent increase in

the Special Handling fee. The Commission asked the Postal Service to provide support

for its proposal, and the Service was unable to do so. As a result, the proposed

increase was not recommended.

That case also was notable because the Postal Service proposed to increase

rates even while it was generating substantial profits. Some mailers contended that the

Commission should have rejected the Postal Service request outright. Instead, the

Commission recognized both the profits from recent positive Postal Service operating

results and the added costs of newly planned computer upgrades, and scaled back the

proposed increases to be consistent with the evidentiary record. Additionally, the

Commission urged the Board of Governors to defer implementation of the new, higher

rates until the Service actually needed an infusion of additional cash. The Board

delayed implementation of the higher rates approximately six months.

The most recent omnibus rate case, Docket No. R2000-1, was just completed.

Our decision in that case has become quite controversial because of unanticipated

events that occurred after the case was all but over. The Governors asked the

Commission to reconsider its decision twice, and just a week ago the Governors

announced that they found it necessary to modify the Commission’s decision to

generate additional revenues.
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Some may suggest that this outcome provides an indication that a fundamental

change in the ratesetting process is necessary. I would suggest just the opposite. In

many ways, this case has provided an example of why open, public proceedings are

beneficial when establishing rates for an essential monopoly service.

The Postal Service submitted a request for a Commission decision in

January, 2000. That request was accompanied by a full explanation of why the Service

believed rate increases were necessary, and separate justifications to support its

proposed increases for each of the classes of mail. Seventy intervenors appeared in

this case, many of which were industrywide associations representing hundreds of

mailers.

The intervenors were able to examine the justifications offered in support of the

requested rate increases and to present facts and arguments supporting different

results. Many intervenors took advantage of Commission rules to submit testimony and

arguments jointly.

Mailers are not the only interests to intervene before the Commission. Private

businesses that compete against the Postal Service also are allowed to present

evidence to the Commission. Everyone is aware that parcel delivery firms such as

United Parcel Service are active before the Commission, but other industries that are

not so financially robust, such as door-to-door delivery firms, also take advantage of the

opportunity to appear before the Commission if they believe proposed rate changes are

unreasonable or anti-competitive.

Businesses that depend on the Postal Service also have the opportunity to be

heard. For example, in Docket No. R2000-1 firms that had developed electronic

postage systems and greeting card manufacturers presented evidence. Other

intervening interests were represented by labor unions, individual citizens, and potential

suppliers. Finally, the law provides for an independent representative of the interests of
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the general public, a function performed by the Commission’s Office of the Consumer

Advocate.

All of these groups may focus on different aspects of the evidence offered by the

Postal Service as justification for its rate proposals. Taken together, they present the

totality of the complex interrelating interests that effect the Postal Service. Participants

frequently suggest new approaches to rate or classification issues, and their ideas often

influence final Commission recommendations. On occasion, an intervenor will focus on

an issue that had been completely overlooked by postal management, such as the

example from Docket No. R97-1 that I mentioned.

It would be a mistake to assume that mailers that use the same class of mail

have identical interests. On occasion, large circulation publications and small

circulation publications have had directly contrary interests. Similarly, high density

advertising mailers and targeted advertising mailers often have completely different

concerns. Shippers of heavy parcels and light parcels also may offer conflicting

testimony. The Commission’s role is to sort out the merits of these conflicting claims in

an open public proceeding.

I have emphasized the benefit of an open public forum several times. Let me

give you an actual example of why process can be so important. When the

Commission first began to evaluate the evidence provided in support of the Postal

Service’s request it focused on the rapidly increasing costs of processing the flatshaped mail often sent by periodical publications and advertising mailers. The

Commission’s early analysis showed that since 1993, the costs for processing flats had

been increasing well above the cost of inflation, even as new automated equipment for

handling this mail was being added.

The Commission directed the Postal Service to review this problem and present

testimony from knowledgeable witnesses who could explain the causes of this
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phenomenon. The Postal Service provided testimony by two witnesses; however, these

individuals could not explain why flats processing costs were skyrocketing.

A coalition of intervenors concerned with the impact of out of control flats

processing costs on rates presented evidence on numerous steps that the Postal

Service could take to rein in flats processing costs. This testimony referred to analyses

done by a joint Industry-Postal Service task force. The Postal Service had not

incorporated in its rate request any of the potential savings identified by the task force.

Faced with a public record describing costs rapidly escalating for unknown

reasons, and numerous potential opportunities for achieving savings, the Postal Service

determined to implement several of the suggestions developed by the task force. As a

result it was able to adjust its projections of future expenses, and support substantially

smaller rate increases for flats mailers than it had initially requested.

From my vantage point on the Commission, it seemed clear that the Postal

Service would have demanded the large increases it initially proposed had it not been

for the public focus on its poor record for restraining flats processing costs. It also

seems clear to me that the expertise developed by the Commission over time allowed

the early identification of the magnitude of the problem with escalating flats processing

costs.

The most controversial aspect of the Commission’s decision in Docket No.

R2000-1 was its determination that the Postal Service had failed to justify its request for

$1.7 billion for unidentified “contingency” expenses.

Let me put that request in the context that it was presented to the Commission.

The Service analyzed all of its expected operating and non-operating costs for fiscal

year 2001, and determined that it needed to raise rates. In total, the Postal Service

asked for rate changes to generate an additional $2.8 billion. Of that amount, slightly

over $1 billion was to cover estimated cost increases in 2001. The remainder, $1.7
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billion, or 60 percent, was requested as a contingency fund to cover potential

misestimates and unforeseeable events.

Never before had the Postal Service asked for a rate increase that was intended

primarily to generate funds for contingencies. By definition, the contingency fund is

intended to provide insurance against unexpected adversities that are completely

speculative. It is to cushion against misestimates and unforeseeable events. Such

events are just as likely to help the Postal Service as to hurt it.

Not surprisingly, a number of mailers vehemently objected to the Postal Service’s

request to raise rates to provide so much money to guard against the potential for a

negative unforeseeable event. In fact, 25 participants sponsored testimony that was

sharply critical of increasing rates to provide for such a large provision for

contingencies. They pointed out that while the Postal Service had presented

voluminous evidence in support of its request for rate increases, only three pages of

testimony was offered in support of the need for a $1.7 billion contingency fund. The

evidence presented by mailers’ representatives also pointed out that the limited Postal

Service testimony was focused almost entirely on the potential for misestimates. The

chief “unforeseeable” event identified by the Service was the potential for adverse

legislation, and it did not present any analysis of the frequency and impact of

unforeseen events that had occurred over the past thirty years.

Mailer witnesses pointed out that after thirty years of projecting costs in support

of rate increases, the Postal Service had become far more proficient at predicting the

impact of cost change factors on its operating expenses. They contended that over this

time the Service also should have gained experience that would enable it to predict how

frequently unforeseeable events would be likely to affect the Service’s bottom line, and

how large a provision for contingencies was needed to protect against such events.

Some of these witnesses contended that in the absence of probative evidence, the

Commission should reject the entire portion of Postal Service request for rate increases

that was to fund the provision for contingencies.
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The Commission found that the evidence before it did not support a $1.7 billion

provision for contingencies. The Commission was persuaded that an analysis of the

frequency and impact of unforeseeable events was feasible by testimony that cited the

practices of regulated insurance companies that must perform this type of analysis on a

continuing basis.

 The Commission criticized the Service for failing to analyze its past experience

and develop some justification for its contingency request. However, the Commission

refused to disallow the Service’s entire contingency fund request. The Commission

recognized that in the previous case, Docket No. R97-1, it had allowed one percent of

the Service’s projected annual expenses as an appropriate contingency fund.

Additionally, it noted that the Postal Service had indicated that certain projected cost

savings were somewhat speculative. Therefore, the Commission allowed a fund for

contingencies equal to 1 1⁄2 percent of projected total annual expenses, or slightly more

than $1 billion.

Last week the Governors modified the Commission’s recommended rates. They

announced that they would implement new higher rates. I will not attempt to critique

that Decision. I will, however, highlight a few points that I view as particularly pertinent

to the subject of today’s hearings.

The Governors justify their action by arguing that the Commission exceeded its

authority when it determined that the Postal Service failed to justify its proposed $1.7

billion contingency fund. They recognize that in this case intervenors argued, and the

Commission found, that the Postal Service had failed entirely to explain a rational basis

for selecting its proposed 2 1⁄2 percent contingency. But they contend that the size of

the contingency is unreviewable so long as one or more reasons why some contingency

might be necessary have been identified, and some attempt to explain the Service’s

proposal has been offered. They also gloss over the Commission’s finding that a

contingent field reserve can not be allocated among mailers as a recognizable expense.
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 The Governors and the Commission disagree about one aspect of the current

law. I think it is fair to say that the Governors believe that it is their responsibility to

establish how much revenue the Postal Service will need, and that rates should be set

high enough to provide whatever revenue the Governors think they might need. The

Commission believes that mailers, particularly captive mailers of monopoly products,

should not have to pay higher rates unless the Postal Service shows that its request for

additional revenue is reasonable.

I do not know whether this conflict will be the subject of a judicial challenge to the

Governors’ recent action. Regardless of what a court may or may not decide, I

sincerely hope that in future cases the Postal Service will not request revenues without

providing adequate supporting justification. Mailers have a right to know why their rates

are being increased.

There is another aspect of Docket No. R2000-1 that bears special mention.

When the Postal Service filed its Request, its cost estimates were based on historical

costs incurred before more recent rates and classifications were put into effect. For this

reason, its cost estimates were questionable. Therefore, after obtaining comments from

all participants, the Commission instructed the Postal Service to update its request to

reflect its most recent year of actual cost data. At the same time, the Commission

invited the Postal Service to revise any of its projections of costs, volumes, and

revenues to reflect its most recent intelligence.

The Postal Service presented updated cost data in July, 2000, and its witnesses

supported these changes during hearings in August, 2000. Let me interject at this point

that this was a major project for the Postal Service, and the Commission commends the

Service for their effort and cooperation.

The Commission used this updated cost data in the R2000-1 decision. The more

recent cost data improved the Commission’s expense projections and resulted in

recommended rates that more accurately reflected Postal Service operating experience.
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Initially, the Postal Service opposed use of updated cost data. Nonetheless, the Postal

Service provided new estimates for many cost items in its July submission.

For example, the Service predicted $192 million of additional annual expenses as

a result of changes in the cost of living index.

It increased its estimates of annual transportation costs by $49 million to reflect

the increases in fuel costs that occurred in the Spring of 2000.

The Service even anticipated that the labor contracts it would conclude during

fiscal year 2001 would be more expensive than it had estimated when it submitted its

original filing, and it asked for $261 million to cover these additional projected expenses.

It also predicted that new productivity programs would reduce costs in certain

areas, and it identified potential new sources of revenue. However, in total, the July

2000 revisions, after corrections and supplementary explanations, increased the Postal

Service’s projected revenue needs by $587 million. The Commission recommended

rates sufficient to cover all of these adjusted cost projections, although a new contingent

field reserve was not separately funded, but was treated as justifying a larger

contingency allowance than otherwise would have been approved.

Postal Service witnesses presented their final financial testimony on August 31,

2000. At that time the Postal Service was predicting that it would lose $325 million in

fiscal year 2000. The evidentiary record before the Commission was closed in early

September, participants submitted briefs and reply briefs analyzing the record, and the

Commission’s decision was issued in early November, 2000. Also in early November,

the Postal Service announced that its loss for fiscal 2000 was only $199 million, a better

result than it forecast just two months before.
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Postal Service Post-rate Case Projections

At the same time that the Service announced that its fiscal 2000 loss was smaller

than it had predicted on the R2000-1 record, the Postal Service suddenly began to

trumpet the possibility of huge deficits for fiscal year 2001. The Postal Service

referenced these expected deficits in supporting the Governors’ request for

reconsideration. These potential deficits, however, were never mentioned in the

evidence presented to the Commission.

When the Commission received the Governors’ requests for reconsideration, it

invited the Postal Service to update the record with evidence explaining its new, more

pessimistic estimates. Such evidence could have supported adjusted rate

recommendations. However, the Postal Service expressly declined to present any

evidence explaining its new, post hearing financial projections.

The letter inviting me to testify here today asked whether I concur with the Postal

Service’s projection of a $2 to $3 billion deficit. The short answer is that I cannot

evaluate that estimate.

Initially, it was hypothesized that the projected deficit resulted from volume

declines caused by the growth of electronic communications. But volumes were not

declining. Then it was suggested that the mix of mail had changed, and that the Service

is now delivering less expensive mail. But from the data currently available to the

Commission, it appears that the major causes of current operating losses are expenses

that are much higher than the Postal Service expected.

The Postal Service has not provided any systematic explanation of its multibillion dollar loss projections. In fact, a major part of its estimate is a potential $1 billion

loss that is never associated with any cost or revenue category. This $1 billion can best

be characterized as a potential loss “if whatever is going wrong continues to get worse.”

This is not analysis.
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The imprecision of these forecasts makes it impossible to evaluate their

reliability. The Postal Service may have detailed analyses that justify at least some

portion of these forecasts. I hope so. It would be embarrassing to think that the

management of a $70 billion organization had no clue about why it was suddenly

incurring far higher costs than it forecast to the Commission. But any analyses the

Postal Service may have prepared, have not been made public.

The Postal Rate Commission’s primary function is to respond to Postal Service

requests for rate and classification decisions. When the Postal Service asks the

Commission to recommend rates, it provides detailed cost data to support its request.

After the Commission provides its recommendations, it does not have access to data

that would enable it to know where postal costs are diverging from projections, or

whether the Postal Service is implementing its promised cost savings programs. At this

point, the Commission cannot determine with any precision what portions of the Postal

Service’s rate case cost projections were misestimated. Therefore, the Commission

cannot evaluate whether the Service is taking effective steps to halt its growing deficit.

The Commission has examined the limited, preliminary cost reports released by

the Postal Service. We have annualized the results of the first six accounting periods of

2001 data published by the Postal Service and compared those figures with the annual

expense projections estimated for fiscal year 2001 in the R2000-1 case. This

comparison is quite revealing.

Comparing just seven important cost elements, the Commission finds that if

current cost patterns continue, the Postal Service is likely to incur $1.8 billion more

costs in 2001 than it estimated to the Commission in July, 2000. To me this result

undermines many of the arguments suggesting that radical reform of the price setting

mechanism is necessary.

 Skyrocketing costs are not the result of volume losses to electronic

messaging.
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 Skyrocketing costs are not the result of mailers doing more worksharing or

switching to less expensive postal products.

 Skyrocketing costs are not the result of a failure to rapidly bring new products

to the marketplace.

The table below shows the seven cost elements, and how inaccurate the Postal

Service’s cost projections may have been. One interesting area is that expenses for

clerks and mailhandlers are running below projected levels. Hopefully, this reflects

cost savings resulting from additional mailer worksharing. But it might indicate that

work formerly performed by clerks is now being done by carriers. As I said, we do not

have sufficient information to evaluate these possibilities.

Decrease in Net Income Due to Expense Increases

Summary of Largest Cost Differences

Current Annualized Estimate vs. R2000-1 PRC Estimate

FY 2001 Estimate ($ Millions)

Current * R2000-1** Difference

City Carriers 14,142 13,580 562

Rural Carriers 4,637 4,095 542

Clerks & Mailhandlers 19,024 19,396 (372)

Workers Compensation 1,025 855 170

Purchased Transportation 5,231 4,649 582

Vehicle Maintenance 480 338 142

Long-Term Debt Interest 382 252 130

Total Difference 1,755

* Annualized costs based on six (6) accounting periods of data

** Estimates submitted July 7, 2000
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Matching Problems with Solutions

The two questions that need attention are these:

• What can be done to fix the problem of rapid, unexpected increases in postal

costs?

• What can be done to prevent that problem from reoccurring?

I think the other witnesses on this panel are giving a great deal of attention to

fixing the problem of unexpected cost increases, and I am sure that they will find

solutions. I do have some thoughts on how to prevent the problem from reoccurring.

I mentioned earlier that during the R2000-1 rate case the Commission identified

a continuing negative trend in the costs of processing flat shaped mail. The

Commission was both surprised and dismayed that the Postal Service had not

recognized that trend and taken corrective action more promptly.

The Commission came across a similar problem with regard to the costs for

processing media mail. Media mail is the new name for parcels sent by book and

record clubs, among other things. Toward the end of our proceeding it became

apparent that media mail was also experiencing a continuing negative trend in

processing costs. The Commission asked the Postal Service to provide a witness to

answer questions on the potential causes of this trend, and again, it appeared that the

Postal Service had not been aware of the trend, and had not begun to take corrective

action.

These two situations lead me to suggest that the Postal Service, and the whole

mailing community, would benefit if the Commission was tasked with the function of

performing an annual performance review of postal operations, and reporting its findings

to the Congress to assist it in its oversight responsibilities. I am not suggesting yet

another audit of Postal Service data systems. I suggest that the Commission provide
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an independent review of operating results, and evaluate operating trends, including the

success of new processing, transportation, and delivery initiatives. The Commission

could identify areas where cost results were unexpected, and could focus attention on

potential problem areas. As a natural complement of this effort, the Commission could

review how well the Postal Service is meeting its service commitments, not just to

overnight First Class mail, but to all classes of mail.

The recent slowing of economic growth in this country might explain sluggish

growth in postal revenues. To this point, I have seen nothing that explains the rapid

increase in Postal Service operating costs. Having a separate, independent agency

with postal expertise regularly reviewing the Postal Service’s performance results

should provide Congress, mailers, and the Postal Service itself with an early warning

system to identify negative trends before those trends get out of hand. Furthermore, a

continuing public report would provide a sound foundation for evaluating proposals for

major structural change.

It is almost a truism that one needs to know what the problem is, before one can

develop an effective solution. Informative annual performance reviews would help all

interested segments of the postal community to understand what problems are most

pressing, and it would provide a factual basis for cooperative efforts to fashion

remedies.

Another benefit of an annual performance report would be that it could be part of

an integrated program that would lead to more effective, and perhaps less time

consuming, rate cases. Participants in rate cases could use the annual reports as a

reference. Additionally, the development of an annual report would require regular,

timely data submissions from the Postal Service. I am not suggesting new data

collection systems. I envision the Postal Service making already collected data

available on a more regular, periodic basis so that trends could be more quickly

identified and analyzed. Having this data available in advance of a rate filing should

reduce the time intervenors need to develop their evidence.
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One of the main reasons that rate cases take ten months is that the Postal

Service frequently withholds its most recent operating data compilations from the public

during the final stages of rate case preparation. Thus, the Commission and interested

participants must start from ground zero to analyze the materials the Postal Service

provides in support of its rate requests. Often these materials reflect new, unexplained

cost allocation procedures. Furthermore, because certain types of relevant data are not

available on a quarterly basis, it is quite difficult to identify trends quickly, without wading

through the large amount of data the Postal Service files with its requests. I understand

that it takes resources to prepare final versions of relevant data reports; however, by

failing to use its resources to provide these data the Postal Service allows its critics to

speculate that the Service withholds this information from the public as a litigating

strategy, to make it more difficult for the public to participate economically in rate cases.

We have all heard that the Postal Service is considering whether to file a rate

case this July. The Commission and mailers would be able to respond far more quickly

and effectively to such a filing if the Service had already published its fiscal 2000 Cost

and Revenue Analysis Report, its Cost Segments and Components Report, and the

breakout of billing determinant data.

I am aware that certain critics have suggested that the postal ratemaking process

is too lengthy and too inflexible. The current process for setting postal rates is not

without flaws. I suggest, however, that part of the Postal Service’s frustration with the

system is the result of its failure to take advantage of currently available options.

While the Postal Service might prefer a system that would allow it to change

rates unilaterally following notice in the Federal Register, absolving the Service from

having to justify rate increases would remove a major incentive for the Service to

operate efficiently. Furthermore, over the last thirty years the Postal Service has

consistently sought to increase the share of institutional costs imposed on captive
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monopoly users. If freed from the discipline of formal rate cases, the Service might shift

an ever increasing share of total costs onto captive users.

In recent rate cases the Commission has allowed itself barely six weeks to

evaluate the participants’ arguments and develop its recommendations. The vast

majority of a ten-month rate case is allotted to giving participants the opportunity to

understand and challenge the justifications for rate increases presented by the Postal

Service. Parties have repeatedly told the Commission that they had barely enough time

to participate effectively.

Nonetheless, I believe that opportunities exist for the Postal Service to expedite

the process. Recently, the Service has estimated that it takes six months to prepare a

case for filing with the Commission. This apparently assumes that each case must be

started from scratch. I cannot understand why management does not have the outlines

of a pro forma case available at all times.

The Postal Service should have been able to request rate relief as soon as it

began to believe that it would incur significant losses in fiscal 2001. The Commission

invited the Service to use portions of the record made in Docket No. R2000-1 to support

a prompt request for any necessary emergency relief. The Service’s preference for

developing an entirely new Request was a matter of choice, not an obligation imposed

by the statute.

Under current law the Postal Service has almost unlimited discretion to develop

rate change proposals. The current statute is very clear that only the Postal Service

may initiate rate changes. The Postal Service may request large increases or small

ones; simultaneous increases for all classes or targeted rate changes for individual

subclasses; experimental rates of fixed duration or phased rates to be implemented

over time; peak load rates or seasonal rates. During my tenure as a Commissioner, the

Postal Service has offered several innovative rate proposals. The Commission

seriously reviewed each one, and none was found unlawful.
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Throughout the decade of the 1980s some people believed that the law

prevented the Postal Service from experimenting with new services even though the

Commission had adopted rules for hearing requests for experiments. Finally, a joint

Postal Service/Postal Rate Commission task force suggested a number of ways to

facilitate interaction between the two agencies. Recently, the Postal Service has

requested a number of experiments and the Commission has provided expedited

consideration of those requests.

A somewhat similar situation existed with regard to negotiated service

agreements. For a number of years many people thought they were impermissible.

However, the Postal Service has recently proposed a number of classification changes

which essentially implemented negotiated service agreements. Again, these proposals

were found to be consistent with the policies of the act, and have been approved by the

Commission and the Governors.

I urge the Postal Service to continue to be innovative, and to take advantage of

the wide latitude permitted by current law. Ideas that have proven appealing in other

monopoly industries, such as phased increases, peak load rates and seasonal rates

can be explored. The Postal Service should not assume that new ideas will be treated

with hostility.

I hope that the Commissioners and the Governors can start to meet more

regularly to discuss problems and explore new initiatives. These meetings could be

preceded by an exchange of items of interest for discussion and might include a limited

number of senior staff members. If it appears necessary, consideration could be given

to establishing a new joint Postal Service/Postal Rate Commission Task Force to

explore in depth opportunities for improved interaction. The Commission and the Postal

Service can and should work as partners to assure that the nation’s mailers have the

opportunity to participate in an open, effective, and efficient rate setting process.

This concludes my testimony. I would be pleased to answer any questions.