Testimony of Ruth Y. Goldway 

Chairman 

Postal Regulatory Commission 

before the 

U.S. Senate Committee on Homeland Security 

and Governmental Affairs 

September 19, 2013 

Chairman Carper, Ranking Member Coburn, and members of the Committee, 

thank you for the opportunity to testify today. I am pleased to represent the Postal 

Regulatory Commission and to share its views on the important topic of postal reform. 

We appreciate your leadership in shaping the debate on what must be done to assist 

the United States Postal Service and ensure its sustainable future. 

The Postal Service has an impact on the everyday lives of virtually every citizen 

in the Nation and will continue to do so well into the future. Even in this age of digital 

communications, a healthy, viable Postal Service remains an essential part of our 

Nation’s infrastructure. A sizable portion of the U.S. population still depends on the mail 
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to help manage their lives, and to communicate with businesses, governments, and 

social institutions. 

In 2012, the Federal Communications Commission (FCC) reported that in rural 

areas, nearly a quarter of the population —14.5 million people—lack access to fixed 

broadband service at threshold speeds, while in tribal areas, nearly one-third of the 

population do not have access. In total, approximately 19 million Americans—6 percent 

of the population—lack access. The FCC also found that even in those areas where 

broadband is available, approximately 100 million Americans do not subscribe. 

The fact is that mail remains the one universal service connecting all American 

people. And Americans place great trust in the Postal Service. In Ponemon Institute’s 

Most Trusted Companies for Privacy Study, the Postal Service was ranked fourth, and it 

has been named the “Most Trusted Government Agency” for seven years in a row. The 

Commission is proud of its role in ensuring that the Postal Service functions as an open, 

transparent agency that is accountable to the public it serves. 

The Committee has convened this hearing to explore how the Postal Service can 

be renewed and reformed to thrive in this changing environment, and to examine the 

solutions set forth in S. 1486. The Committee asks that the Commission’s testimony 

focus on postal services, particularly regarding delivery schedules, delivery standards, 

and post office services. It also requests that the Commission’s testimony address 

possible changes to the ratemaking system and innovation at the Postal Service, 

including new products and services. My testimony emphasizes the importance of 

transparency and accountability in the efficient provision of postal services and 

addresses the Commission’s experience and views. 
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Key Elements of Renewal and Reform

There is broad agreement that legislative changes are needed to place the 

Postal Service on more sound financial footing. However, the Postal Accountability and 

Enhancement Act (PAEA) contained numerous reforms that were a positive force for 

change toward modernizing the Postal Service and that provide a solid foundation for 

the future. In many respects, the PAEA has been largely successful in improving postal 

policy and accomplishing a number of laudable Congressional goals. Efforts to renew 

and reform the Postal Service need not, and should not, replace the many positive 

provisions included in the PAEA. 

The PAEA sought to increase the transparency and accountability of the Postal 

Service. The Postal Service is required to file periodic financial reports with the Postal 

Regulatory Commission within 90 days of the end of each fiscal year. The Commission 

is required to review the Postal Service’s Annual Compliance Report and public 

comments. The Commission must publish its findings and, if any violations are found, 

order remedial action. This public process has significantly improved the transparency 

and accountability of the Postal Service. 

Another important improvement made by the PAEA was to increase the accuracy 

and integrity of the Postal Service’s internal controls over financial reporting. The PAEA 

implemented this goal by requiring the Postal Service to comply with certain SarbanesOxley Act’s reporting requirements and submit such reports to the Commission. 

Compliance with these requirements has aided in the standardization and streamlining 

of the Postal Service’s business practices, processes, and systems. It also has enabled 
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timely identification and remediation of weaknesses, increased accountability, and 

fostered ownership of controls. The strengthening of controls over business mail 

processes, including the prevention of lost revenue, has produced substantial indirect 

financial benefits. 

Delivery Schedules

The Commission’s experience with potential changes to the Postal Service’s 

delivery schedules has occurred as a part of a Postal Service request to the 

Commission for an advisory opinion on a change in the nature of postal services. In 

Docket No. N2010-1, the Commission reviewed a Postal Service request to discontinue 

delivery of mail to street addresses on Saturdays. Based on extensive public 

contributions, the Commission provided advice to the Postal Service highlighting the 

impact of the proposal on rural, remote, and non-contiguous areas, and the importance 

of retaining delivery of prescription medications. The Postal Service has taken these 

concerns into account in developing its most recent proposals for altering delivery 

schedules. 

This demonstrates the value of examination by an independent third party of a 

public record that includes comments from both senders and recipients of mail. This 

process contributes significantly toward ensuring that far reaching changes to postal 

services are consistent with the public need and avoid unintended negative 

consequences to those dependent on the Postal Service. 
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The current process is not without flaws. There was valid criticism that the quasijudicial process used to conduct this and other Commission advisory opinion cases 

could be too time consuming, and that Commission advice would be more useful if it 

could be provided in a more timely manner. The Commission is responding to these 

concerns. We issued a Notice of Proposed Rulemaking requesting comments on 

procedures designed to condense the time for Commission analysis and decision 

making to three months. The final date for comments was August 28, 2013. We have 

received many thoughtful comments and suggestions relating to our proposal and have 

been actively evaluating them. Consistent with our other responsibilities, we plan to 

establish new rules that streamline the process in the near future. 

Delivery Standards

The Commission’s experience with potential changes to the Postal Service’s 

delivery standards has occurred in two areas. First, the PAEA provided the 

Commission with a role to increase the Postal Service’s accountability and transparency 

regarding service performance and measurement. Second, the Commission has 

conducted an advisory opinion proceeding regarding a Postal Service request to alter its 

delivery standards on a nationwide or substantially nationwide basis.

The PAEA sought to place a new emphasis on service performance and 

measurement to ensure that the Postal Service’s quality of service does not deteriorate 

under the CPI price cap system. Degrading service is not an acceptable means of 

saving costs to offset lower revenue from price cap requirements. The PAEA 
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implemented this goal by requiring the Postal Service to greatly enhance service 

measurement and reporting. It also required the Commission to review these reports as 

part of its Annual Compliance Determination. 

Consistent with the aphorism “what is measured is what is fixed,” the Postal 

Service’s reports of on-time performance have shown improvement since the passage 

of the PAEA. 

The Commission has found in its Annual Compliance Determinations that service 

performance for most market dominant products has been moving toward meeting their 

respective annual on-time targets. The fourth quarter of FY 2011 was the first quarter 

that the Postal Service reported service performance results for the majority of its 

market dominant products. In its FY 2011 ACD, the Commission noted that the level of 

Full Service Intelligent Mail participation was impacting the reliability of many service 

performance results but that it appeared the Postal Service was having difficulty 

meeting its service standard goals for most market dominant products. The 

Commission stated that it regards low performance results for speed of delivery an 

important issue the Postal Service must resolve. 

In its FY 2012 ACD, the Commission found that most market dominant products 

showed improvement toward meeting annual on-time targets. The majority of FirstClass Mail products, Special Services products, and Package Services products either 

approached or exceeded annual service performance targets. Although many Standard 

Mail products did not meet annual on-time targets, service performance improved 

throughout the fiscal year. 
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As of the third quarter of FY 2013, both First-Class Single-Piece and Presort 

Letters and Cards are meeting the service performance targets. Standard Mail products 

have continued to make strides toward meeting their on-time targets. Both Standard 

High-Density and Saturation Letters and Flats are meeting their targets and Standard 

Letters is achieving 88.4 percent on-time performance, within 2 percentage points of its 

90 percent target. 

The Postal Service and the Commission are continuing to work together to 

improve the Postal Service’s service performance measurement systems. As 

measurement systems become more robust, the Postal Service should become better 

able to quickly identify and resolve service problems.

In Commission Docket No. N2012-1, the Postal Service requested an advisory 

opinion on a proposal to consolidate mail processing and transportation operations that 

were expected to result in changes to its service standards for First-Class Mail, 

Periodicals, Package Services and Standard Mail. The evidence submitted by 

participants in the Commission’s public proceeding identified potential service and 

efficiency problems with the proposal. The Commission found that network 

rationalization, if implemented properly, could realize substantial cost savings while 

preserving most current service levels. It recommended the Postal Service add more 

structure to its phased approach. This would allow the Postal Service to evaluate the 

success of each phase prior to implementing subsequent phases in order to incorporate 

lessons learned from earlier phases.
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Post Office Services

The Commission’s experience with potential changes to the Postal Service’s 

retail services has occurred in connection with several Postal Service requests for 

advisory opinions regarding changes in the nature of postal services and the numerous 

appeals filed following one of those proposals. In Commission Docket No. N2009-1, the 

Postal Service requested an advisory opinion on a proposal to close thousands of its 

station and branch retail facilities. Through a transparent and open public process, the 

Commission provided guidance, identifying weaknesses of the proposal and making 

constructive recommendations to improve the Postal Service’s retail facility optimization 

plans and discontinuance processes. Subsequent Postal Service retail facility 

optimization plans submitted to the Commission for review, including the most recent 

efforts known as “POStPlan,” incorporated this prior Commission advice by allowing 

Post Offices to remain in operation with modified retail hours and implementing 

improved procedures to obtain public input before closing retail facilities. 

The proposed legislation clarifies that patrons served by stations and branches 

can appeal to the Commission when their post office is closed. This resolves a longstanding disagreement between the Postal Service and the Commission and should 

eliminate confusion on this point. 
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Ratemaking System

The Commission has significant experience regarding implementation of a 

modern system of rate regulation for postal services. A major focus area of the PAEA 

was postal ratemaking. It sought to end the Postal Service’s reliance on unpredictable 

price increases and concerns that the Postal Service was passing along the costs of 

less than optimally efficient operations to mailers through cost-of-service ratemaking. 

The PAEA achieved these goals by introducing a regulatory price cap regime for Postal 

Service products over which it enjoys a statutory monopoly or possesses market power. 

The Postal Service’s rate adjustments for these so-called market dominant products are 

now completed at predictable intervals, and rate increases for each class of mail are 

capped at the rate of inflation. 

This rate cap approach has had positive impacts in many areas. Most 

importantly, it has protected ratepayers from large, unpredictable rate increases that 

were permissible under the old law. This ability to accurately budget for rate increases 

has reduced disruption to mailer operations and permitted mailers to plan their mail 

programs with regular reliability. 

Moreover, the requirement that the Postal Service justify price increases based 

on extraordinary or exceptional circumstances to an independent, impartial regulatory 

body has guarded customers from unwarranted exigent price increases. This protection 

is particularly important in a government mandated monopoly environment.

The PAEA sought to eliminate the lengthy and expensive rate case litigation that 

occurred under prior law. The PAEA implemented this goal by providing the Postal 
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Service with increased flexibility to set prices within the bounds of the inflation-based 

price cap regime, and requiring the Commission to design and implement a modern 

system of rate regulation. The Commission developed a simplified process that 

replaced the 10-month adversarial proceeding required under prior law. The new 

process has made rate cases relatively uncontroversial and has significantly decreased 

litigation-related expenses for both the Postal Service and the mailers and organizations 

that formerly participated in rate cases. 

Since passage of the PAEA the Commission has reviewed rate adjustment 

proposals to assure compliance with the law promptly and efficiently. Negotiated 

service agreement reviews have taken an average of only 18 days. Excluding the one 

exigent rate case, rate requests were completed, on average, in 37 days. The 

Commission completed its one exigent rate request in 86 days. No mailer has filed a 

complaint related to a rate reviewed and approved by the Commission. 

The PAEA also sought to modernize postal ratemaking by placing the Postal 

Service on a more level playing field with respect to its private sector competitors in 

those areas where it faces direct competition. To implement this goal, the PAEA 

divided Postal Service products into market dominant and competitive categories, and 

tasked the Commission with maintaining an accurate division between these categories 

as the Postal Service’s product mix changes. This system has provided the Postal 

Service with significant flexibility to price its competitive products at market rates. The 

Postal Service has taken advantage of this increased flexibility and the growth in the 

package delivery industry to increase its revenues. In the first nine months of FY 2013, 
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the Postal Service’s shipping and package product revenue increased by 7.5 percent 

and volume increased by 5.7 percent. 

The price cap also has successfully motivated the Postal Service to implement 

extensive cost-cutting strategies and increases in efficiency. 

One of the largest contributors to Postal Service cost savings are reductions in 

employee workhours. While some of these reductions are related to the declines in 

Postal Service volumes, they also reflect improved total factor productivity. 

The recent history of wage negotiation also seems likely to have been strongly 

influenced by the PAEA’s strict limitations on allowing the Postal Service to increase 

prices above the rate of inflation. During the first three quarters of FY 2013, the Postal 

Service took advantage of flexibilities negotiated with its employee organizations, and 

reduced career employee workhours by approximately 41 million hours (equivalent to 

the work of over 34,000 employees) while increasing non-career employee workhours 

by approximately 30 million hours. Similarly, during FY 2012, the Postal Service 

reduced total employee workhours by approximately 27 million hours, or 2.3 percent 

from 2011. 

In addition to workhour savings, the Postal Service reports that it realized other 

significant cost savings during the first three quarters of FY 2013 through consolidation 

of 104 mail processing facilities; a reduction in operating hours at 7,397 Post Offices as 

part of the Postal Service’s “POStPlan;” and the consolidation or reduction of 1,156 

delivery routes. 

Between 2006 and 2012, the Postal Service closed more than 180 mail 

processing facilities, disposed of nearly 4,000 pieces of equipment, reduced city 
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delivery routes by 21,000, and decreased its career employee rolls by more than 

110,000. As of June 30, 2013, the Postal Service’s career workforce size is at a level 

last seen in 1966. 

Innovation

The Commission’s experience with Postal Service innovation has occurred 

through the Postal Service requests for approval of market tests of experimental 

products. 

The PAEA provided the Postal Service with streamlined authority to introduce 

experimental products, allowing the Postal Service to innovate to make its products 

more valuable to customers. Since the passage of the PAEA, the Commission has 

reviewed and approved nine market tests under applicable statutory requirements 

allowing for comment by interested persons, mailers, and other stakeholders in the 

postal community. Through this process, the Commission, the Postal Service, and the 

mailing community have worked cooperatively and expeditiously to facilitate market 

tests of experimental products as envisioned by the PAEA while preserving proper 

safeguards to protect both customers and competitors. 

The statutory authority and rules governing market tests of experimental products 

have worked well, providing the Postal Service with the appropriate level of flexibility to 

develop and conduct market tests of new postal products. To further encourage 

innovation, in its Section 701 Report, the Commission recommended allowing the 

Postal Service to experiment with larger market tests by raising the maximum revenue 
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limitation. Section 302 of S. 1486 would provide this statutory authorization. This 

should allow the Postal Service to advance more ideas aimed at increasing the Postal 

Service's revenue streams. 

S. 1486 would allow the Postal Service to offer new, nonpostal services in 

addition to those grandfathered nonpostal services allowed under the PAEA. If 

Congress decides to allow the Postal Service to offer such services, it should include 

adequate safeguards to reduce the potential for unprofitable nonpostal business 

ventures. In addition, such safeguards should ensure that the Postal Service’s entry 

into nonpostal markets will not distort private markets or divert Postal Service resources 

from its core responsibilities. Toward that end, the Commission recommends that if the 

Postal Service is allowed to offer certain new, nonpostal services, these services be 

subject to the regulatory review established by the PAEA. Adding these regulatory 

review and oversight mechanisms for new nonpostal services will help ensure that the 

Postal Service offers profitable, new nonpostal services. This will minimize the 

likelihood of a repeat of the problems of nonpostal service offerings in the late 1990s 

and early 2000s when the Commission had no regulatory review or oversight of 

nonpostal services. 

Financial Condition

The financial wellbeing of the Postal Service has broad consequences for the 

U.S. economy. According to Direct Communications Group’s March 2011 Mailing 

Industry Job Study, the Postal Service is at the core of an approximately $1 trillion 
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industry that employs approximately 8 million Americans. The entire economy benefits 

from a healthy and viable Postal Service. Printing and mailing services allow the 

targeted delivery of news and commercial information. Individuals and small 

businesses rely on the Postal Service for timely delivery of millions of check payments, 

letters, and packages. 

This is a critical time for the Postal Service. Due in large part to changing 

technologies and electronic diversion, the Postal Service suffered a net loss of $3.9 

billion through the end of the third quarter of FY 2013. These losses have occurred 

despite the Postal Service’s efforts to increase productivity and lower its costs. The 

overly optimistic schedule of payments to the Retiree Health Benefits Fund is a principal 

reason for the multi-billion dollar losses in recent years. The Committee will be 

addressing issues related to the manner in which the Postal Service funds its 

obligations relating to pensions and healthcare in a hearing later this month. 

As a consequence of the Postal Service’s deteriorating financial condition, it has 

had to restrain its capital spending well below average historical levels. The Postal 

Service’s most recently filed 10-K report shows that as of September 30, 2012, capital 

commitments (consisting of building improvements, equipment and sustaining 

infrastructure investments) totaled $644 million. This marks the lowest level of Postal 

Service capital commitment since 1988. Similarly, the Postal Service’s most recent 

10-Q report shows that, as of June 30, 2013, commitments to acquire capital assets 

were down even further to $535 million. 

These periodic reports, required to be filed with the Commission, revealed that 

inadequate capital investment may be putting postal operations at risk. For example, 
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the Postal Service is currently operating within the confines of aging facilities, 

equipment, and transportation fleets and does not have funds for investing in 

technology improvements. This could inhibit its ability to deliver high-quality services, 

and meet the communication needs of the American public. 

Timely, heightened awareness of situations such as these is valuable for all 

decision makers with responsibilities involving postal issues. 

Lessons and Accomplishments

As a result of the reforms enacted in the PAEA, the Postal Service and the 

mailing industry are in a better position than they would have been under the governing 

standards of the previous postal law, the Postal Reorganization Act of 1970. The 

Commission has been an integral part in carrying out the requirements of the PAEA and 

making it an effective piece of legislation. The Commission’s role was not to make 

policy, but rather to enforce many of the Congressional policies embodied in the statute. 

It also was given the responsibility to review certain types of policies developed and 

proposed by Postal Service management to ensure consistency with those standards 

established in the law. 

An independent expert organization serves to uphold the integrity of the law by 

functioning as an unbiased arbiter to ensure that Congressional policy is being followed. 

The Postal Service plays the chief role in implementing postal policy, but without 

dedicated independent oversight, there will be justifiable concern that expedience may 

cause Congressional postal policies to not be as strictly enforced. 
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There are many innovative ideas being circulated for improving the Postal 

Service and its business model. In considering and debating those proposals, it is 

important not to lose sight of the fact that prompt, meaningful and focused legislative 

action is essential. The Commission is pleased that important issues raised in the 

Commission’s first periodic report to the President and Congress on how well the PAEA 

is operating and our recommendations to improve the effectiveness and efficiency of 

postal laws have been addressed in S. 1486. 

The Commission stands ready to assist stakeholders, the Postal Service, and 

members of this Committee as necessary to ensure the Postal Service can meet its 

challenges now and well into the future. When postal reform is enacted, the 

Commission will swiftly and responsibly implement the new law to ensure the Postal 

Service remains an effective part of the overall American communications network. 

Thank you again for providing me the opportunity to testify today. I would be 

pleased to respond to any questions Committee members may have.