FISCAL YEAR 2018

ANNUAL REPORT

TO THE PRESIDENT 

AND CONGRESS

Postal Regulatory Commission

Submitted 1/10/2019 12:48:04 PM

Filing ID: 108025

Accepted 1/10/2019
PRC Mission, Vision, and Guiding Principles.... 3

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

CHAPTER I | Fiscal Year 2018 in Review.......... 7

CHAPTER II | About the Commission............ 11

Commission Leadership................................... 12

Staff and Office Structure ................................ 14

Commission Strategic Plan.............................. 15

CHAPTER III | FY 2018 Proceedings.............. 17

Rulemakings Amending Commission 

 Regulations.................................................... 18

Statutory Review of Market Dominant 

Rate System ................................................ 18

Review of Institutional Cost Requirement .. 19

Mail Preparation Changes and the Price Cap..20

Amendments to Ethics Rules...................... 21

Amendments to Rules Relating to Non-Public 

 Information ............................................... 22

Periodic Reporting Rules............................. 23

Flats Data Enhancements and Reporting 

 Requirements............................................ 24

Amendments to Market Test Rules............. 24

Annual Reports................................................ 25

Annual Compliance Determination............. 25

Financial Analysis Report............................ 27

Analysis of Performance Goals.................... 28

Rate Changes .................................................. 29

Market Dominant Products

Rates of General Applicability ................ 29

Rates Not of General Applicability ......... 30

Competitive Products ................................. 30

Rates of General Applicability ................ 31

Rates Not of General Applicability.......... 31

Public Inquiries................................................ 32

Service Performance................................... 32

Other Public Inquiry Dockets...................... 33

Proposals to Change Analytical Principles....... 35

Other Proceedings........................................... 38

Court of Appeals Cases.................................... 39

Changes Concerning Attributable Costing .....39

Return Receipt for Merchandise Service .......40

Complaint of Frederick Foster..................... 41

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

International Postal Policy............................... 42

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................................ 50

Preferred Rate Discounts Net of Costs ... 51

Periodicals Losses................................... 51

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

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

Uniform Rates......................................... 52

Value of the Postal Monopoly ......................... 53

CHAPTER V | Public Affairs............................ 55

Open Public Meetings..................................... 55

Consumer Relations—Comments and

 Inquiries........................................................ 55

Inquiries by Source...................................... 55

Inquiries by Issue ........................................ 55

CHAPTER VI | Administration ....................... 57

Financial Management.................................... 57

Records Management ..................................... 58

Transparency and Open Government ........ 58

Human Resources Management................. 59

Equal Employment Opportunity and 

 Diversity .................................................... 59

Information Technology .............................. 59 

TABLE OF CONTENTS • 1 COVER PHOTO BY ORHAN CAM

TABLE OF CONTENTS
2 • POSTAL REGULATORY COMMISSION • FY 2018 ANNUAL REPORT

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

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

RHB | Retiree Health Benefits

RRM | Return Receipt for Merchandise

U.S.C. | United States Code

UPU | Universal Postal Union

USO | Universal Service Obligation
PRC MISSION • 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

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 multidisciplinary approaches

ADAPTABILITY

Proactive response to the 

rapidly changing postal 

environment

PRC | Mission, Vision, and Guiding Principles

PHOTO BY CVANDYKE
4 

• POSTAL REGULATORY COMMISSION • FY 2018 ANNUAL REPORT

PHOTO BY DAVID EVISON
CHAIRMAN’S LETTER • 5

Chairman’s Letter

JANUARY 2019

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

Year 2018 Annual Report to the President and Congress. This report details the Commission’s main 

activities over the past year and provides information required under the Postal Accountability 

and Enhancement Act of 2006 (PAEA) on the Commission’s operations, including the extent to 

which regulations are achieving the law’s objectives.

The last fiscal year was marked by significant accomplishment at the Commission. In addition 

to continuing the work on the 10-year review of the system for regulating rates and classes for 

Market Dominant products, the Commission had an increasingly active role in international 

postal policy. On August 23rd, the President issued to the Commission Chairman, as well as other 

various components of the Executive Branch, a Memorandum on Modernizing the Monetary 

Reimbursement Model for the Delivery of Goods through the International Postal System and 

Enhancing the Security and Safety of International Mail. This will entail ongoing, and extensive, 

financial analysis of terminal dues by Commission staff. 

The Commission continued its second review, since 2012, of the appropriate share of the Postal 

Service’s institutional costs as directed by the PAEA, which requires the Commission revisit 

the appropriate share regulation every 5 years to determine if the contribution requirement 

should be “retained in its current form, modified, or eliminated.” Throughout the year, the 

Commission issued rulemakings evaluating the institutional cost contribution requirement for 

Competitive products, proposing a formula-based approach to calculate the minimum amount 

that Competitive products as a whole are required to contribute to institutional costs annually, 

and allowing a period for public comment. The Commission’s final rulemaking on this matter 

was issued January 3, 2019. 

The Commission also provided President Trump’s Task Force on the United States Postal System 

with extensive data and background as the task force worked to develop its administrative and 

legislative recommendations to return the Postal Service to a sustainable economic path.

The Commission will continue working with Congress and the Administration to ensure that users 

of the postal system have a vibrant and efficient universal mail system for many years to come. 

With best wishes, I am

 Sincerely yours,

 Robert G. Taub

 CHAIRMAN
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CHAPTER I • 7

1. The Commission published four major reports in FY 2018:

» The Annual Report to the President and Congress 

described the Commission’s accomplishments and 

activities as the regulator of the Postal Service.

» The Annual Compliance Determination 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 2017

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

financial condition. 

» The Analysis of the Postal Service’s FY 2017 Annual 

Performance Report and FY 2018 Annual Performance 

Plan evaluated whether the Postal Service met its 

performance goals as required under 39 U.S.C. § 3653(d). 

CHAPTER I | FY 2018 in Review

The Postal Regulatory 

Commission (Commission) 

achieved the following 

significant accomplishments 

in Fiscal Year (FY) 2018 

that support its mission to 

ensure transparency and 

accountability of Postal 

Service operations and 

foster a vital and efficient 

universal mail system. 

These accomplishments are 

discussed in Chapter 3, infra.

PHOTO BY

 KRISTI BLOKHIN

PHOTO BY TADAMICHI
8 • POSTAL REGULATORY COMMISSION • FY 2018 ANNUAL REPORT

2. The Commission dedicated significant 

resources to the statutorily mandated 

review of the system for regulating rates 

and classes for Market Dominant products 

(Market Dominant Rate System) that was 

first established in 2006 by the Postal 

Accountability and Enhancement Act (PAEA) 

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

early FY 2018, the Commission issued Order 

No. 4257 finding that the Market Dominant 

Rate System as a whole has not achieved 

the objectives of the PAEA. That same day, 

the Commission issued a Notice of Proposed 

Rulemaking (NPR) proposing changes to 

the Market Dominant Rate System that 

would address the issues identified by the 

Commission in its review (Order No. 4258). 

This rulemaking is currently pending before 

the Commission.

3. The PAEA directs the Commission to revisit 

the institutional cost contribution requirement 

for Competitive products in 39 U.S.C. § 3633(a)

(3) every 5 years to determine whether to 

retain it in its current form, or to modify 

or eliminate it. This year, the Commission 

issued an NPR proposing that a formula be 

used to calculate the minimum amount that 

Competitive products as a whole are required 

to contribute to institutional costs annually. 

After considering comments received, the 

Commission issued a revised NPR proposing 

modifications to its formula-based approach, 

along with revisions to the proposed rules. 

On January 3, 2019, the Commission issued 

final rules adopting a formula-based approach 

to annually calculate Competitive products’ 

appropriate share of institutional costs.

4. The Commission presided over several other 

rulemaking proceedings in FY 2018. The 

Commission:

» Issued final rules, an NPR, and 

an Advanced Notice of Proposed 

Rulemaking (ANPR) related to the 

impact of mail preparation changes 

on the price cap. 

» Adopted final rules amending the 

Commission’s ethics rules and 

supplemental standards of ethical 

conduct applicable to Commission 

employees to reflect the Commission’s 

regulatory role under the PAEA.

» Adopted final rules related to non-public 

treatment of certain materials filed by 

the Postal Service and other persons. 

» Adopted final rules revising periodic 

reporting requirements.

» Issued an ANPR to develop reporting 

requirements to measure, track, and 

report cost and service performance 

issues related to flat-shaped mailpieces.

» Issued an NPR proposing to amend 

current market test rules to ensure that 

the rules better reflect modern practice.

5. The Commission reviewed the Postal 

Service’s planned rate changes for Market 

Dominant and Competitive products in FY 

2018. Highlights include:

» Approving changes in rates of general 

applicability for Market Dominant 

products, workshare discounts, and 

related mail classification schedule 

changes.
CHAPTER I • 9

» Approving changes in rates of general 

applicability for several domestic and 

international Competitive products 

and related mail classification schedule 

changes.

» Approving 290 competitive negotiated 

service agreements (205 domestic, 85 

international).

6. The Commission approved new internal 

service performance measurement systems 

for several Market Dominant products, 

including products within domestic FirstClass Mail, Periodicals, USPS Marketing Mail, 

and Package Services.

7. The Commission presided over two public 

inquiry dockets relating to Inbound Letter 

Post and city carrier costs. 

8. The Commission considered 13 proposals by 

the Postal Service to change various accepted 

analytical principles. 

9. In other proceedings, the Commission:

» Issued an order modifying the 

parameters of the Global eCommerce 

Marketplace Merchant market test to 

reflect its delayed activation.

» Established proceedings to provide 

reports regarding the Office of Personnel 

Management’s calculations of the Postal 

Service’s Civil Service Retirement System 

and Retiree Health Benefits liabilities.

» Reviewed the Postal Service’s calculation 

of the FY 2017 assumed Federal income 

tax on Competitive products.

10. The Commission was also involved in 

several key international postal policy issues 

by providing the Secretary of State with 

Commission views on Universal Postal Union 

proposals and participating in Universal 

Postal Union and interagency discussions 

on rates and classifications for Market 

Dominant products.

11. Other Commission activities included:

» Processing thousands of questions, 

suggestions, and comments from the 

general public which primarily involved 

undelivered, delayed, misdelivered, and 

missing mail. 
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CHAPTER II • 11

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 of 2006. 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: 

Commissioner Mark Acton, 

Chairman Robert Taub, 

Commissioner Nanci Langley, 

Vice Chairman Tony Hammond
12 • POSTAL REGULATORY COMMISSION • FY 2018 ANNUAL REPORT

Tony Hammond | VICE CHAIRMAN

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

and has been elected to four separate terms as vice chairman during his 

tenure. His term expired 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).

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 • 13

Nanci E. Langley | COMMISSIONER

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

for a second term, which expired on November 22, 2018.* She was first 

confirmed by the U.S. Senate to the Postal Regulatory Commission 

on June 4, 2008, and has been elected to three separate terms as vice 

chairman. Ms. Langley brings over 30 years of federal public service, 

including 24 years as a senior legislative and policy advisor to two U.S. 

Senators from her home state of Hawaii. For 17 years, she was a senior 

advisor to U.S. Senator Daniel Akaka, nine of which were as his deputy 

staff director on postal, government management and federal workforce 

subcommittees of the U.S. Senate Committee on Homeland Security 

and Governmental Affairs. She was communications director for U.S. 

Senator Spark Matsunaga for seven years. Prior to her appointment and 

confirmation, she was the first director of the Office of Public affairs 

and Government Relations at the Commission. Ms. Langley is an elected 

Fellow of the National Academy of Public Administration.

Mark Acton | COMMISSIONER

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.

*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.
14 • POSTAL REGULATORY COMMISSION • FY 2018 ANNUAL REPORT

Staff and Office Structure

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 calendar 

year 2018 organizational structure.

Figure II-1: 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

Commissioner

Nanci Langley

Commissioner

Robert Taub

Chairman

Tony Hammond

Vice Chairmain

Vacant

Commissioner
CHAPTER II • 15

Commission Strategic Plan 

In FY 2016, the Commission developed its 

2017–2022 Strategic Plan following a vigorous 

and inclusive process that incorporated input 

from all Commission employees. The Plan 

outlines the agency’s vision to promote a 

robust universal mail system through 

objective, accurate, and timely regulatory 

analyses and decisions. 

The Commission focuses 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 Commission takes seriously its commitment 

to regularly track individual department and 

agency progress in meeting the four goals. This 

plan also steers our commitment of Commission 

resources, ensuring we utilize our small budget 

and personnel complement prudently.

To assist the Commission in measuring the success 

of its Strategic Plan efforts, the Commission 

participated in the annual Federal Employee 

Viewpoint Survey (FEVS). The agency’s FY 

2018 response rate of 87 percent was higher 

than the FY 2017 response rate of 83 percent, 

and significantly higher than the expanded 

participation government-wide rate of 40 percent. 

One prime measure is the Employee Engagement 

index, which ranks employees’ perceptions 

of the leadership within their agency, their 

supervisors, and the overall work experience. 

Compared to responses with Federal employees 

government-wide, Commission staff had a higher 

degree of satisfaction with their work and office 

environment: 79 percent rating in “Employee 

Engagement” versus the government-wide rating 

of 68 percent. The Commission is committed 

PHOTO BY ANDREA IZZOTTI
16 • POSTAL REGULATORY COMMISSION • FY 2018 ANNUAL REPORT

to developing actionable plans based on the 

confidential feedback received from employees 

through the FEVS.

During FY 2018, Chairman Taub met twice 

quarterly with office heads to review progress, 

accomplishments, and challenges related to each 

strategic goal and performance metric. 

Key discussion points included the following:

» Ongoing prioritization of workload for legal 

and analytical staff

» Commission publication of non-public 

information rules to streamline access to 

and consideration of outside parties’ formal 

submissions to the Commission, as well as 

ensure accountability and transparency in 

Commission proceedings

» Ongoing consideration of comments received 

in response to the Commission’s Notice of 

Proposed Rulemaking in the 10-year docket

» Need for adequate budget resources 

and workload for continuation of the 

Commission’s 10-year review of the existing 

statutory system for regulating rates 

and classes of mail for Market Dominant 

products 

» Joint department collaboration in handling of 

FOIA requests, internal policy development, 

Commission ethics program, employment 

and hiring matters

» Development of media, congressional and public 

outreach plans for key Commission notices

» Review of Commission staff responses to 

congressional inquiries

» Progress updates regarding efforts to 

increase cybersecurity for IT systems

» Extent to which Commission met Equal 

Employment Opportunity target employee 

recruitment goals

» Timeliness of Commission response to 

service related consumer inquiries

» Ongoing communication between 

Commission and Postal Service staff in effort 

to streamline filing process for documents 

and reports

» Robust discussion regarding Commission 

employee responses to certain FEVS 

questions are specifically linked to the 

Strategic Plan. Noteworthy positive or 

negative changes in employee feedback were 

carefully assessed by the Chairman and 

senior management

» Continued efforts to develop an improved 

records and docket management capability, 

including a modernized docketing system

» Proposed schedule for development of 

updated Commission Human Capital Plan in 

FY 2019 

The Commission’s Strategic Plan, in its entirety, 

can be viewed or downloaded at www.prc.gov.
CHAPTER III • 17

The Annual Report must analyze the extent to which 

regulations are achieving the objectives under section 3622, 

which relate to Market Dominant products. The modern 

system for regulating rates and classes for Market Dominant 

products (Market Dominant Rate System) must be designed 

to achieve the following 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.

CHAPTER III | FY 2018 Proceedings

The Postal Accountability and 

Enhancement Act (PAEA)1

requires the Commission to 

submit an annual report to the 

President and the Congress 

(Annual Report) that includes 

an analysis of “the extent to 

which regulations are achieving 

the objectives under sections 

3622 and 3633” of title 39 

of the United States Code.2

These sections contain laws 

related to Market Dominant 

and Competitive products, 

respectively. Postal Service 

products are characterized 

as either Market Dominant or 

competitive.3 Market Dominant 

products are those products 

over which the Postal Service 

“exercises sufficient market 

power that it can effectively set 

the price[s] of such product[s] 

substantially above costs, 

raise prices significantly, 

decrease quality, or decrease 

output, without risk of losing 

a significant level of business 

to other firms offering similar 

products.” 4 Competitive products 

consist of all other products.5

1 Postal Accountability and Enhancement Act, Pub. L. 109-435, 120 Stat. 3198 (2006).

2 39 U.S.C. § 3651(a).

3 39 U.S.C. § 3642(b)(1). “Product” means “a postal service with a distinct cost or 

market characteristic for which a rate or rates are, or may reasonably be, applied[.]” 

39 U.S.C. § 102(6).

4 39 U.S.C. § 3642(b)(1). Examples of Market Dominant products include products in 

the First-Class Mail, USPS Marketing Mail, and Periodicals classes.

5 Id. Examples of Competitive products include Priority Mail, Priority Mail Express, and 

First-Class Package Service.

PHOTO BY USPS
18 • POSTAL REGULATORY COMMISSION • FY 2018 ANNUAL REPORT

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.6

The Commission established the Market 

Dominant Rate System in 2007 shortly after 

the PAEA was enacted.7 In FY 2017 and early 

FY 2018, the Commission reviewed the Market 

Dominant Rate System to determine if it is 

achieving the objectives established by Congress 

in 39 U.S.C. § 3622(b). The Commission’s review 

is discussed below under the “Statutory Review 

of Market Dominant Rate System” section.

The Annual Report must also analyze the extent 

to which regulations are achieving the objectives 

under 39 U.S.C. § 3633 relating to Competitive 

products.8 The Commission’s regulations in 39 

C.F.R. part 3015 support the requirements of 

section 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 2018.

Rulemakings Amending Commission Regulations

Statutory Review of Market Dominant Rate System

When enacting the PAEA, Congress intended that 

the Market Dominant Rate System achieve the 

nine objectives in 39 U.S.C. § 3622(b). Congress 

also required the Commission to review the 

Market Dominant Rate System 10 years after the 

PAEA was enacted “to determine if the system 

is achieving the objectives in [39 U.S.C. § 3622] 

(b), taking into account the factors in [39 U.S.C. 

§ 3622] (c).”9 In accordance with this statutory 

mandate, the Commission established Docket 

No. RM2017-3 and issued an Advanced Notice 

of Proposed Rulemaking (ANPR) to establish a 

framework for its review and provide notice and 

an opportunity for comments.10 After considering 

the 82 sets of comments received, the 

Commission issued Order No. 4257 containing its 

findings and determination of its review of the 

Market Dominant Rate System.11

Order No. 4257 identified three principal areas of the 

Market Dominant Rate System that encapsulate the 

nine objectives: (1) the structure of the ratemaking 

system, (2) the Postal Service’s financial health, 

and (3) service.12 The Commission evaluated each 

principal area to determine whether the PAEA’s 

goals were achieved during the PAEA era.13 The 

Commission found that the Market Dominant Rate 

System has been largely successful in achieving the 

goals related to the structure of the ratemaking 

system, but has not effectively encouraged the 

Postal Service to reduce costs, increase efficiency, 

or maintain high quality service standards.14 The 

Commission also found that the Market Dominant 

Rate System has not maintained the Postal Service’s 

6 39 U.S.C. § 3622(b). 7 Docket No. RM2007-1, Order Establishing Ratemaking Regulations for Market Dominant and Competitive Products, October 29, 2007 (Order No. 43); 

see Docket No. RM2007-1, Errata Notice Concerning Order No. 43, October 31, 2007. 8 39 U.S.C. § 3651(a). 9 39 U.S.C. § 3622(d)(3). 10 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). 11 Docket No. RM2017-3, Order on the Findings and Determination of the 39 U.S.C. § 3622 Review, December 1, 2017 (Order No. 4257). This order was 

appealed to the United States Court of Appeals for the District of Columbia. See “Other Court Appeals” section, infra. 12 Order No. 4257 at 17. 13 Id. at 22-23. 14 Id. at 4-5, 142-46, 222, 226, 248, 250, 264, 269, 273-74.
CHAPTER III • 19

financial health as the PAEA intended.15 The 

Commission concluded that although some aspects 

of the Market Dominant Rate System have worked 

as intended, the Market Dominant Rate System as a 

whole has not achieved the objectives of the PAEA.16

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

the Commission determines that the Market 

Dominant Rate System has not achieved the 

objectives, taking into account the factors, of the 

PAEA, the Commission may, by regulation, make 

modifications or adopt an alternative system as 

necessary to achieve the objectives. As a result 

of its findings and determinations in Order No. 

4257, the Commission issued a Notice of Proposed 

Rulemaking (NPR) that included proposed 

changes to the Market Dominant Rate System.17

The proposed rules made changes designed to 

address key issues with the Market Dominant 

Rate System by providing the Postal Service 

additional pricing authority that complements 

rather than replaces the price cap.18 The 

proposed rules provided the Postal Service 

supplemental rate authority to generate 

additional revenue to cover its obligations, 

as well as performance-based rate authority 

upon meeting standards based on operational 

efficiency and high quality service.19 They 

also expanded pricing authority for noncompensatory classes and prohibited reducing 

rates for non-compensatory products.20 To 

increase pricing efficiency, the proposed rules 

established bands—ranges with upper and lower 

limits—for workshare discount passthroughs.21

The NPR also proposed other changes to the rate 

adjustment process that increased visibility into 

future planned rate adjustments.22 In response to 

the NPR, the Commission received more than 200 

sets of comments.23 This rulemaking is currently 

pending before the Commission.

Review of Institutional Cost Requirement

Postal costs are classified as either attributable 

or institutional.24 The PAEA requires that the 

Commission’s regulations “ensure that all 

Competitive products collectively cover what the 

Commission determines to be an appropriate 

share of the institutional costs of the Postal 

Service.”25 “Appropriate share” means the 

minimum amount that Competitive products as a 

whole are required to contribute to institutional 

costs annually.26 In its initial rulemaking 

establishing regulations under the PAEA, the 

Commission set the minimum contribution 

15 Id. at 4, 148, 171-72, 247, 249 16 Id. at 5, 275. 17 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). 18 Id. at 34. 19 Id. at 38-45, 46-73. 20 Id. at 76-77, 84-85. 21 Id. at 93-96. 22 Id. at 27, 98-106. 23 Docket No. RM2017-3, Order Granting Motion for Early Termination of the Non-Public Status of Appendices A and G and Providing Limited Extension 

of Comment Deadline, April 13, 2018, at 4 (Order No. 4574). 24 Docket No. RM2017-1, Notice of Proposed Rulemaking to Evaluate the Institutional Cost Contribution Requirement for Competitive Products, 

February 8, 2018, at 2 (Order No. 4402). Institutional costs are residual costs that cannot be specifically attributed to either Market Dominant or 

Competitive products through reliably identified causal relationships. Id. Examples of institutional costs include the Postmaster General’s salary, 

building project expenses, and area administration expenses. Id., n.4. 25 39 U.S.C. § 3633(a)(3). 26 Order No. 4402 at 2.
20 • POSTAL REGULATORY COMMISSION • FY 2018 ANNUAL REPORT

level for Competitive products at 5.5 percent 

of total institutional costs.27 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.28 The Commission conducted its first 

5-year review in FY 2012 and decided to retain 

the minimum contribution level of 5.5 percent.29

The Commission initiated its second 5-year 

review in Docket No. RM2017-1 and invited 

interested persons to submit initial and reply 

comments.30

After considering comments received, the 

Commission issued an NPR responding to 

comments and proposing that a formula be 

used to calculate the minimum amount that 

Competitive products as a whole are required to 

contribute to institutional costs annually (i.e., the 

appropriate share).31 The Commission explained 

that a formula-based approach would account for 

“each of the considerations required by 39 U.S.C. 

3633(b): the prevailing competitive conditions 

in the market; the degree to which any costs are 

uniquely or disproportionately associated with 

Competitive products; and all other relevant 

circumstances.”32 The NPR proposed that the 

formula adjust annually to reflect changes 

in market conditions.33 The NPR provided 

interested persons with the opportunity to 

submit comments.34

On August 7, 2018, in response to comments 

received, the Commission issued a revised 

NPR proposing modifications to its formulabased approach, along with revisions to the 

proposed rules.35 The revised NPR provided an 

opportunity for interested persons to submit 

comments on the revisions.36 On January 3, 2019, 

the Commission issued final rules adopting a 

formula-based approach to annually calculate 

Competitive products’ appropriate share of 

institutional costs.37 

Mail Preparation Changes and the Price Cap

Order No. 3047 articulated a standard for 

determining whether mail preparation changes 

have rate effects that implicate the price cap 

rules.38 In conjunction with Order No. 3047, the 

Commission initiated a separate rulemaking 

proceeding in Docket No. RM2016-6 to develop 

a procedural rule to ensure the Postal Service 

properly accounts for the rate effects of mail 

preparation changes according to the standard 

articulated in Order No. 3047.39

27 39 C.F.R. 3015.7(c); Order No. 43 ¶¶ 3040-47. 28 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. 29 Docket No. RM2012-3, Order Reviewing Competitive Products’ Appropriate Share Contribution to Institutional Costs, August 23, 2012, at 2, 27 

(Order No. 1449). 30 Docket No. RM2017-1, Advance Notice of Proposed Rulemaking to Evaluate the Institutional Cost Contribution Requirement for Competitive 

Products, November 22, 2016, at 3 (Order No. 3624). 31 See Order No. 4402. 32 Id. at 53. 33 Id. 34 Id. at 100. 35 Docket No. RM2017-1, Revised Notice of Proposed Rulemaking, August 7, 2018 (Order No. 4742). 36 Id. at 59. 37 Docket No. RM2017-1, Order Adopting Final Rules Relating to the Institutional Cost Contribution Requirement for Competitive Products, 

January 3, 2019 (Order No. 4963). 38 Docket No. R2013-10R, Order Resolving Issues on Remand, January 22, 2016 (Order No. 3047). 39 Docket No. RM2016-6, Notice of Proposed Rulemaking on Motions Concerning Mail Preparation Changes, January 22, 2016, at 1-2

(Order No. 3048).
CHAPTER III • 21

On January 25, 2018, after considering comments 

received, the Commission adopted a final 

procedural rule concerning mail preparation 

changes.40 The final rule required the Postal 

Service to provide published notice of all 

mail preparation changes in a single source 

and affirmatively designate whether a mail 

preparation change requires compliance with 

the Commission’s price cap rules.41 The Postal 

Service appealed this final rule to the United 

States Court of Appeals for the District of 

Columbia (D.C. Circuit).42

On April 6, 2018, the D.C. Circuit issued a 

decision vacating the Commission’s standard 

in Order No. 3047.43 As a result of this decision, 

the Commission and the Postal Service filed 

a joint motion to remand the appeal of the 

final procedural rule back to the Commission 

for further proceedings.44 On August 9, 2018, 

in response to the D.C. Circuit’s decision, the 

Commission issued an NPR setting forth a 

proposed rescission to the final rule creating 

procedures for mail preparation changes.45

On October 11, 2018, after consideration of 

comments, the Commission issued a final rule 

rescinding portions of the procedural rule 

that were dependent on the existence of a 

substantive standard.46 The final rule retained 

the publication requirement for all mail 

preparation changes.47

In response to the D.C. Circuit’s decision vacating 

the standard set forth in Order No. 3047, the 

Commission also issued an ANPR that requested 

proposals for a new standard and process to 

determine when a mail preparation change 

requires price cap compliance.48 This rulemaking 

is currently pending before the Commission.

Amendments to Ethics Rules

The Commission established Docket No. 

RM2017-4 to consider changes to its ethics 

rules and supplemental standards of ethical 

conduct 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.49

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.50 The proposed rules treated 

current 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.51

40 Docket No. RM2016-6, Order Adopting Final Procedural Rule for Mail Preparation Changes, January 25, 2018 (Order No. 4393). 41 Id. at 22-23. 42 Petition for Review, United States Postal Service v. Postal Regulatory Commission, No. 18-1059 (D.C. Cir. filed February 26, 2018). 43 United States Postal Service v. Postal Regulatory Commission, 886 F.3d 1253 (D.C. Cir. 2018). 44 Unopposed Motion to Remand Case, United States Postal Service v. Postal Regulatory Commission, No. 18-1059 (D.C. Cir. filed May 10, 2018). 45 Docket No. RM2016-6, Notice of Proposed Rulemaking, August 9, 2018, at 3-4 (Order No. 4751). 46 Docket No. RM2016-6, Order Adopting Final Rule for Mail Preparation Changes, October 11, 2018 (Order No. 4850). 47 Id. at 9. 48 Docket No. RM2018-11, Advance Notice of Proposed Rulemaking, August 9, 2018 (Order No. 4750). 49 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). 50 See Order No. 3907. 51 Id. at 1-2.
22 • POSTAL REGULATORY COMMISSION • FY 2018 ANNUAL REPORT

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.52 The proposed changes 

clarified requirements concerning prohibited 

financial holdings, disqualification when 

seeking non-federal employment, and outside 

employment.53 After considering comments 

received, the Commission adopted both sets of 

proposed rules without substantial changes.54 The 

revised ethics rules and supplemental standards 

of ethical conduct went into effect on November 

30, 2017 and December 1, 2017, respectively.55

Amendments to Rules Relating to Non-Public Information

The Commission’s rules in 39 C.F.R. part 3007 

establish a procedure for non-public treatment 

of certain materials filed by the Postal Service 

and other persons under 39 U.S.C. §§ 503 and 

504. These rules allow the Postal Service and 

other persons to seek non-public treatment of 

commercially sensitive and other confidential 

materials by filing them under seal.56 The 

rules also allow persons to request access to 

non-public materials, subject to protective 

conditions, to meaningfully participate in 

Commission proceedings.57

Practice before the Commission has developed 

since the Commission adopted the rules relating 

to non-public materials in FY 2009.58 To ensure 

that the non-public information rules better 

reflect modern practice, the Commission 

established Docket No. RM2018-3 and issued 

an NPR proposing changes to the Commission’s 

rules relating to non-public materials provided 

to the Commission.59 The proposed rules sought 

to amend 39 C.F.R. part 3007 to provide clear 

pathways for the Commission’s procedures 

to submit, request access to, or seek public 

disclosure of non-public materials provided to 

the Commission by the Postal Service or any 

other person.60 The NPR proposed amendments 

to clarify that 39 C.F.R. part 3007 applies to all 

non-public materials provided to the Commission 

regardless of whether those materials were 

provided through a formal filing.61 The 

NPR proposed to move and make clarifying 

amendments to the rules regarding information 

requests.62 The NPR also proposed conforming 

changes to the Commission’s Freedom of 

Information Act rules to reflect that 39 C.F.R. part 

3007 applies to all instances where the Postal 

Service or any other person provides materials to 

the Commission that they reasonably believe are 

exempt from public disclosure.63

After considering comments received, the 

Commission issued an order adopting final rules 

relating to non-public information on June 27, 

2018.64 The Commission addressed comments 

regarding the expiration of non-public treatment 

of materials.65 The final rules maintained the 

52 See Order No. 3906. 53 Id. at 1. 54 Docket No. RM2017-4, Order Amending Supplemental Standards of Ethical Conduct for Employees of the Postal Regulatory Commission, October 25, 

2017 (Order No. 4177); Docket No. RM2017-4, Order Amending Ethics Rules, October 25, 2017 (Order No. 4178). 55 82 Fed. Reg. 50319 (October 31, 2017); 82 Fed. Reg. 50493 (November 1, 2017). 56 Docket No. RM2018-3, Notice of Proposed Rulemaking Relating to Non-Public Information, February 13, 2018, at 2 (Order No. 4403). 57 Id. at 2. 58 See Docket No. RM2008-1, Final Rule Establishing Appropriate Confidentiality Procedures, June 19, 2009 (Order No. 225). 59 See Order No. 4403. 60 Id. at 6. 61 Id. at 6-7. 62 Id. at 10. 63 Id. at 10, 36. 64 Docket No. RM2018-3, Order Adopting Final Rules Relating to Non-Public Information, June 27, 2018, at 3 (Order No. 4679). 65 Id. at 2-18.
CHAPTER III • 23

10-year default period for protecting non-public 

materials and incorporated other changes to 

facilitate procedures for publically disclosing 

materials for which non-public treatment has 

expired.66 The final rules incorporated other 

commenter suggestions, but retained the 

substance of the proposed rules and their effect 

on interested persons.67

Periodic Reporting Rules

In FY 2018, the Postal Service filed a request for the 

Commission to initiate a rulemaking proceeding to 

consider several changes to the periodic reporting 

rules in 39 C.F.R. part 3050.68 First, the Postal 

Service asked the Commission to adjust the filing 

deadlines for several reports to align them with 

other financial reporting deadlines.69 Second, 

the Postal Service sought to modify the format 

of the Monthly Summary Financial Report to 

make it more consistent with the Postal Service’s 

quarterly and annual financial reports.70 Third, 

the Postal Service asked that the Commission 

consider eliminating or modifying any reporting 

requirements that have become unnecessary or 

irrelevant since the current periodic reporting rules 

were first implemented in 2009.71

In response, the Commission established 

Docket No. RM2018-2 and issued an ANPR 

inviting comments on the Postal Service’s 

proposed changes.72 After reviewing the current 

periodic reporting rules and considering 

comments received, the Commission issued 

an NPR proposing several changes to the 

periodic reporting rules.73The proposed rules 

incorporated the Postal Service’s proposal to 

adjust the filing deadline for several reports and 

changed the format of the Monthly Summary 

Financial Report with some modifications.74 The 

proposed rules also made changes to 39 C.F.R. 

§ 3050.21, which contains requirements for the 

Annual Compliance Report (ACR), to streamline 

and decrease the administrative burden for both 

the Postal Service and Commission during the 

Annual Compliance Determination (ACD) process.75

One of these proposed changes required the 

Postal Service include in the ACR Inbound Letter 

Post revenue, volume, attributable cost, and 

contribution data aggregated by country group 

and shape for the current year and each of the 

four preceding fiscal years.76

After considering comments received, the 

Commission issued final rules revising the 

periodic reporting requirements in 39 C.F.R. part 

3050.77 The final rules maintained the substance 

of the proposed rules while incorporating some 

commenter suggestions and making other 

minor changes.78 The final rules adjusted the 

filing deadlines for certain reports as proposed 

as well as the format of the Monthly Summary 

Financial Report with minor changes.79 They also 

66 Id. at 7, 17. 67 Id. at 3. 68 Docket No. RM2018-2, United States Postal Service Petition for Rulemaking on Periodic Reporting, December 27, 2017. 69 Id. at 1-6. These reports are the quarterly Revenue, Pieces, and Weight report, the Quarterly Statistics Report, the quarterly Billing Determinants 

report, and the monthly National Consolidated Trial Balance and the Revenue and Expense Summary report. Id. 70 Id. at 1, 6-8. 71 Id. at 1, 9-10. 72 Docket No. RM2018-2, Advance Notice of Proposed Rulemaking to Revise Periodic Reporting Requirements, January 5, 2018 (Order No. 4347). 73 Docket No. RM2018-2, Notice of Proposed Rulemaking to Revise the Periodic Reporting Requirements, July 12, 2018 (Order No. 4706). 74 Id. at 8-12. 75 Id. at 13-19; See also Docket No. RM2018-2, Order Amending Rules for Periodic Reporting, September 25, 2018, at 3-5 (Order No. 4836). 76 Order No. 4706 at 16-18. 77 See Order No. 4836. 78 Id. at 23. 79 Id. at 3, 10-12.
24 • POSTAL REGULATORY COMMISSION • FY 2018 ANNUAL REPORT

addressed commenter concerns about requiring 

the Postal Service to provide Inbound Letter 

Post data.80 The final rules adopted the proposed 

changes to ACR requirements in 39 C.F.R. § 

3050.21 with some modifications to reflect 

comments received.81

Flats Data Enhancements and Reporting Requirements

The Postal Service has faced significant 

challenges in processing and delivering flatshaped mailpieces (flats) profitably during the 

PAEA era.82 In the FY 2015 ACD, the Commission 

identified and analyzed six “pinch points” that 

contribute to cost and service issues for flats.83

To identify solutions for improving cost and 

service efficiency for flats, the Commission 

directed the Postal Service to provide a report on 

flats issues addressing each pinch point.84 After 

reviewing this report, issuing a Commission 

Information Request (CIR), and holding an offthe-record technical conference, the Commission 

determined that further steps were necessary 

to better understand the data collected by 

the Postal Service and the capabilities of the 

systems collecting that data.85 Accordingly, the 

Commission established Docket No. RM2018-

1 and issued an ANPR to explore potential 

enhancements to the Postal Service’s data 

systems and to facilitate the development of 

consistent reporting requirements.86 These data 

enhancements and reporting requirements will 

be used to measure, track, and report flats cost 

and service performance issues.87

Two CIRs were issued seeking additional 

information about certain data systems and 

reports.88 After reviewing responses to these 

CIRs, the Commission issued a Notice of Inquiry 

inviting commenters to identify specific data 

systems, reports, metrics, or other detailed 

recommendations that will address flats cost and 

service performance issues.89The Commission is 

considering comments and responses received. 

This rulemaking is pending before the Commission.

Amendments to Market Test Rules

The PAEA authorizes the Postal Service to conduct 

market tests of experimental products.90 The 

Commission adopted rules in 39 C.F.R. part 3035 to 

establish procedures for conducting market tests.91

Practice before the Commission has developed 

since these rules were adopted. To ensure that the 

market test rules better reflect modern practice, 

the Commission established Docket No. RM2018-12 

and issued an NPR proposing to amend the market 

test rules.92 The amendments proposed revising 

rules concerning market test revenue limitations 

and requests to add a non-experimental product or 

80 Id. at 12-25. 81 Docket No. ACR2015, Annual Compliance Determination Report, Fiscal Year 2015, March 28, 2016, at 160 (FY 2015 ACD). 83 Id. at 165. These pinch points are bundle processing, low productivity on automated equipment, manual sorting, productivity and service issues in 

allied operations, increased transportation time and cost, and last mile/delivery. Id. 84 Id. at 181. 85 Docket No. RM2018-1, Advance Notice of Proposed Rulemaking to Develop Date Enhancements and Reporting Requirements for Flats Issues, October 

4, 2017, at 2-4 (Order No. 4142). 86 Id. at 1. 87 Id. 88 Docket No. RM2018-1, Commission Information Request No. 1, October 4, 2017; Docket No. RM2018-1, Commission Information Request No. 2, 

March 28, 2018. 89 Docket No. RM2018-1, Notice of Inquiry No. 1, August 17, 2018. 90 39 U.S.C. § 3641. 91 Docket No. RM2013-5, Order Adopting Final Rules for Market Tests of Experimental Products, August 28, 2014 (Order No. 2173). 92 Docket No. RM2018-12, Notice of Proposed Rulemaking to Amend Market Test Regulations, September 13, 2018 (Order No. 4822).
CHAPTER III • 25

price category based on an experimental product to 

the Market Dominant or Competitive product list.93

The Commission is currently considering 

comments received.

Annual Reports

The PAEA requires the Postal Service to prepare 

and submit its ACR to the Commission within 

90 days after the fiscal year ends.94 The ACR 

analyzes costs, revenues, rates, and quality of 

service for Market Dominant and Competitive 

products.95 The ACR also includes information 

about mail volumes, service performance, and 

customer satisfaction for Market Dominant 

products, as well as information on workshare 

discounts and market tests.96

Each year, the Commission analyzes the ACR and 

issues three related reports: (1) the ACD, (2) the 

Financial Analysis Report, and (3) the Analysis of 

Postal Service Performance Goals and Performance 

Plan. In FY 2018, these three reports were issued in 

Docket No. ACR2017 and respectively: (1) assessed 

the Postal Service’s compliance with statutory 

pricing and service requirements, (2) analyzed 

the Postal Service’s overall financial position, and 

(3) evaluated whether the Postal Service met its 

performance goals. Each report is discussed below.

Annual Compliance Determination

The ACD is an important tool for enhancing 

transparency and determining whether the Postal 

Service complies with statutory pricing and 

service requirements. 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.97

The Commission publishes its analysis of the ACR 

in the ACD.

On March 29, 2018, the Commission issued the 

FY 2017 ACD and made several principal findings 

and directives.98 First, the Commission evaluated 

Market Dominant products for compliance with 

statutory pricing policies.99 The Commission found 

that rates and fees that were in effect during FY 

2017 complied with the price cap and preferred 

rate requirements in 39 U.S.C. §§ 3622(d)(2)(A) and 

3626.100 For workshare discounts, the Commission 

determined that 20 of 42 workshare discounts did 

not comply with 39 U.S.C. § 3622(e) because they 

exceeded avoided costs and did not qualify for a 

statutory exemption.101 No action was required for 

7 of the 20 workshare discounts because recent rate 

changes aligned the discounts with avoided costs or 

eliminated the discount.102 The Commission directed 

the Postal Service to either align the remaining 13 

non-compliant workshare discounts with avoided 

costs or specify an applicable statutory exception in 

the next Market Dominant rate adjustment.103

93 Id. at 1. 94 39 U.S.C. § 3652(a). 95 39 U.S.C. § 3652(a)(1). 96 Id. §§ 3652(a)(2), (b), (c). 97 Id. §§ 3653(a), (b). 98 Docket No. ACR2017, Annual Compliance Determination Report Fiscal Year 2017, March 29, 2018 (FY 2017 ACD). 99 Id. at 14-43. 100 Id. at 14, 43. 101 Id. at 1. 102 Id. 103 Id.
26 • POSTAL REGULATORY COMMISSION • FY 2018 ANNUAL REPORT

Second, the Commission identified the following 

non-compensatory Market Dominant products 

that did not generate sufficient revenue to cover 

their attributable costs in FY 2018: Periodicals 

In-County, Periodicals Outside County, USPS 

Marketing Mail Flats, USPS Marketing Mail 

Parcels, Media Mail/Library Mail, Inbound Letter 

Post, Stamp Fulfillment Services, Money Orders, 

and International Ancillary Services.104 The 

Commission also found that one international and 

one domestic Market Dominant negotiated service 

agreement (NSA) did not meet the criteria of 39 

U.S.C. § 3622(c)(10).105 Because of concerns with 

the Postal Service’s inability to quantify the cost 

savings of initiatives to reduce costs for flats, the 

Commission found that additional transparency 

was necessary to hold the Postal Service 

accountable for Periodicals In-County, Periodicals 

Outside County, and USPS Marketing Mail Flats.106

The Commission stated that it will continue to 

explore cost and service issues related to flats in 

Docket No. RM2018-1.107 For Money Orders, the 

Commission directed the Postal Service to continue 

investigating debit card fee attribution and update 

the Commission on its progress and any potential 

corresponding methodological changes.108 For 

other non-compensatory products, the Commission 

either found that the Postal Service was taking 

appropriate steps to improve cost coverage or 

directed the Postal Service to take specific actions 

such as pursuing compensatory Universal Postal 

Union (UPU) terminal dues and improving bilateral 

agreements with foreign postal operators.109

Third, the Commission evaluated Competitive 

products for compliance with 39 U.S.C. § 3633(a) 

in FY 2017.110 The Commission found that 

Competitive products complied with sections 

3633(a)(1) and (3) because Market Dominant 

products did not subsidize Competitive products, 

and Competitive products collectively covered 

an appropriate share of the Postal Service’s 

institutional costs.111 The Commission also 

determined that revenues for 7 Competitive 

products did not cover their attributable costs 

and, therefore, did not comply with 39 U.S.C. § 

3633(a)(2).112 The Commission directed the Postal 

Service to take corrective action, such as increase 

prices during the next rate adjustment.113

Fourth, the Commission evaluated FY 2017 

service performance for each Market Dominant 

product and found that despite improvements 

in service performance results in FY 2017 

compared to FY 2016 for some products, 

most products failed to meet their service 

performance targets in FY 2017.114 Specifically, 

the Commission noted that for the third 

consecutive year, no First-Class Mail product 

met its percentage on-time service performance 

target.115 The Commission directed the Postal 

Service to improve service performance results 

for First-Class Mail Single-Piece Letters/

Postcards in FY 2018 and continue reporting 

specific information on this product within 90 

days after the FY 2017 ACD was issued and as 

part of its FY 2018 ACR.116

104 Id. at 2. 105 Id. at 2, 75, 78. 106 Id. at 2, 50, 59-60. 107 Id. at 182; see “Flats Data Enhancements and Reporting Requirements” section, supra. 108 FY 2017 ACD at 64. As a result of this investigation, the Postal Service filed a proposal to change the methodology for assigning costs related to 

debit card transactions, which the Commission approved. Docket No. RM2018-7, Petition of the United States Postal Service for the Initiation of a 

Proceeding to Consider Proposed Changes in Analytical Principles (Proposal Four), June 25, 2018, at 3; see n.222, infra. 109 FY 2017 ACD at 2, 63, 69. 110 Id. at 81-93. 111 Id. at 81-82, 92-93. 112 Id. at 2-3, 81. These products were International Money Transfer Service—Outbound, International Money Transfer Service—Inbound, International 

Ancillary Services, and four domestic NSAs. 113 Id. at 87-88 114 Id. at 3, 96, 143-62. 115 Id. at 143, 147. 116 Id. at 3, 147-49.
CHAPTER III • 27

Fifth, the Commission explored flats cost and 

service issues and found that the Postal Service 

does not have a comprehensive plan to measure, 

track, and report these issues.117 To address flats 

cost coverage and service performance issues, the 

Commission stated that it will develop proposed 

reporting requirements related to flats operational 

cost and service issues in Docket No. RM2018-1.118

Financial Analysis Report

On April 5, 2018, the Commission issued its 

Financial Analysis of the United States Postal 

Service Financial Results and 10-K Statement.

119

The Commission analyzed the Postal Service’s 

overall financial position by evaluating the 

Postal Service’s financial statements to assess 

the Postal Service’s viability and stability.120 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.121

In summary, the Commission’s analysis showed 

that in FY 2017, the Postal Service recorded its 

first net loss from operations since FY 2013.122 The 

$1.3 billion net loss from operations was largely 

due to the expiration of the exigent surcharge, 

declining Market Dominant mail volume, and 

higher operating expenses.123 The $1.3 billion net 

loss from operations was a difference of nearly 

$2.0 billion when compared to the $0.6 billion 

net income from operations in FY 2016. However, 

when non-operating expenses were included,124

the FY 2017 total net loss was $2.7 billion—an 

improvement of $2.8 billion compared to FY 

2016.125 This improvement resulted from a $4.8 

billion decrease in the retiree health benefits 

expense and a $3.4 billion decrease in the workers’ 

compensation expense, offset by $2.4 billion in 

increased expenses that resulted from unfunded 

retirement benefit costs.126

At the end of FY 2017, the Postal Service recorded 

a $58.7 billion net deficit resulting from several 

years of net losses starting in FY 2007.127

Financial sustainability continued to erode due 

to large personnel related liabilities, the slow 

replacement of fully depreciated capital assets, 

and insufficient current assets to cover current 

liabilities.128 Although the Postal Service’s cash 

position was at the highest level since FY 2007, 

improvements in liquidity were hampered by 

significant balance sheet liabilities and offbalance sheet unfunded liabilities for pension 

and annuitant health benefits.129

In FY 2017, overall Market Dominant mail and 

services revenue declined 7.7 percent from FY 

2016.130 First-Class Mail revenue declined by 6.7 

percent, USPS Marketing Mail revenue declined 

by 5.7 percent, and Periodicals revenue declined 

by 8.8 percent.131 However, Package Services 

revenue increased by 0.3 percent compared to 

117 Id. at 3, 182. 118 Id. at 3-4, 182. 119 Docket No. ACR2017, Financial Analysis of United States Postal Service Financial Results and 10-K Statement Fiscal Year 2017, April 5, 2018. 120 Id. at 7. 121 Id. at 35-84. 122 Id. at 3, 10. Net income or loss from operations is also referred to as net operating income (loss). Id. at 3 n.1. 123 Id. at 3, 10. 124 They include all non-cash workers’ compensation costs, accruals to retirement accounts, and one-time adjustments. Id. at 3 n.2. 125 Id. at 3, 10. 126 Id. at 4. 127 Id. at 6, 29. 128 Id. at 6. 129 Id. 130 Id. at 12. 131 Id.
28 • POSTAL REGULATORY COMMISSION • FY 2018 ANNUAL REPORT

FY 2016.132 Market Dominant mail and services 

revenue declined in FY 2017 because of two 

main factors: (1) rate increases under the price 

cap were not sufficient to offset the decline 

in mail volume, and (2) the expiration of the 

exigent surcharge reduced additional revenue 

received from the surcharge.133 By contrast, 

overall revenue for Competitive products 

increased by $2.2 billion in FY 2017.134 The 

primary drivers of the additional revenue were 

the competitive product price increases that 

were effective January 22, 2017, the transfer 

of First-Class Mail Retail Single-Piece from 

the Market Dominant product list, and higher 

Competitive products volumes.135

Analysis of Performance Goals

Each year, the Commission must evaluate 

whether the Postal Service met the performance 

goals established in the Postal Service’s annual 

performance report and performance plan.136 The 

Commission may also provide the Postal Service 

with recommendations related to protecting or 

promoting public policy objectives in title 39.137

On April 26, 2018, the Commission issued a 

detailed analysis of the Postal Service’s progress 

during FY 2017 toward its four performance 

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

Customer Experiences, (3) Safe Workplace and 

Engaged Workforce, and (4) Financial Health.138

In its analysis, the Commission evaluated 

whether the FY 2018 Annual Performance Plan 

(FY 2018 Plan) and FY 2017 Annual Performance 

Report (FY 2017 Report) complied with 39 U.S.C. 

§§ 2803 and 2804.139 The Commission found 

that the FY 2018 Plan complied with 39 U.S.C. § 

2803 for the first time, and the FY 2017 Report 

met most of the requirements of 39 U.S.C. § 

2804.140 The Commission also found that the FY 

2018 Plan and FY 2017 Report had improved 

significantly compared to past years because 

they contained almost all the information 

necessary to show compliance with 39 U.S.C. §§ 

2803 and 2804.141 The Commission noted that 

the Postal Service made significant efforts to 

address the issues identified in past Commission 

analyses and adopted some of the Commission’s 

recommendations.142 The Commission 

recommended the Postal Service retain these 

changes in future annual performance plans and 

annual performance reports.143

The Commission also evaluated whether the 

Postal Service met each performance goal in FY 

2017, finding that the Postal Service either did 

not meet or only partially met each performance 

goal in FY 2017.144 The Commission provided 

related observations and recommendations for 

each performance goal to help the Postal Service 

meet the goal and better assess its performance 

in future years.145

132 Id. 133 Id. at 14. 134 Id at 15. 135 Id. 136 39 U.S.C. § 3653(d). 137 Id. 138 See Docket No. ACR2017, Analysis of the Postal Service’s FY 2017 Annual Performance Report and FY 2018 Performance Plan, April 26, 2018. 139 Id. at 6-19. 140 Id. at 9, 12-18. 141 Id. at 8-9. 142 Id. at 8. 143 Id. at 9. 144 Id. at 20. 145 Id. at 20-66.
CHAPTER III • 29

Rate Changes

One of the Commission’s major statutory 

responsibilities is to ensure that rate changes 

for Market Dominant and Competitive products 

comply with applicable statutory and regulatory 

requirements. 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.146 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.147 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.148

In FY 2018, the Commission reviewed the Postal 

Service’s planned changes to rates of general 

applicability and rates not of general applicability 

for both Market Dominant and Competitive 

products. Each is discussed below.

Market Dominant Products

RATES OF GENERAL APPLICABILITY

The PAEA allows the Postal Service to change 

rates of general applicability for Market 

Dominant products as long as the rate changes 

meet certain statutory and regulatory 

requirements:

» Rate changes for each Market Dominant 

mail class must not exceed the price cap, an 

annual limitation based on the Consumer 

Price Index for All Urban Consumers.149

» Workshare discounts must not exceed the 

Postal Service’s avoided costs unless a 

statutory exception applies.150

» Preferred rates must be set consistent with 

statutory requirements.151

The rate changes must also comply with the 

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

In early FY 2018, the Postal Service filed 

notice of its planned changes in rates of 

general applicability and related Mail 

Classification Schedule (MCS) changes 

for Market Dominant products.152 The 

Commission reviewed the planned rate 

changes for compliance with applicable laws. 

After analyzing the filings and considering 

comments received, the Commission found 

that the planned rate changes complied with 

the requirements of title 39, the Commission’s 

regulations appearing in 39 C.F.R. part 3010, 

and other applicable legal requirements.153

The Commission found that the planned 

146 39 C.F.R. § 3001.5(u). 147 39 C.F.R. § 3010.1(g). 148 39 C.F.R. § 3001.5(r). 149 39 U.S.C. §§ 3622(d)(1)(A), (d)(2)(A). 150 39 U.S.C. § 3622(e)(2). 151 39 U.S.C. § 3626. 152 Docket No. R2018-1, Notice of Market Dominant Price Adjustment, October 6, 2017. 153 Docket No. R2018-1, Order on Price Adjustments for First-Class Mail, USPS Marketing Mail, Periodicals, Package Services, and Special Services

Products and Related Mail Classification Changes, November 9, 2017, at 1-2 (Order No. 4215).
30 • POSTAL REGULATORY COMMISSION • FY 2018 ANNUAL REPORT

workshare discounts were consistent 

with, or justified by an exception to, the 

workshare discount requirements in 39 U.S.C. 

§ 3622(e).154 The Commission also concluded 

that the related MCS changes were consistent 

with applicable laws.155

RATES NOT OF GENERAL APPLICABILITY

For Market Dominant products, the Postal 

Service sets rates not of general applicability by 

entering into NSAs with mailers or foreign postal 

operators.156 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.157

The NSAs must also not cause unreasonable 

harm to the marketplace and be available on 

public and reasonable terms to similarly situated 

mailers.158 This review also ensures that the 

NSAs comply with the Commission’s rules in 39 

C.F.R. part 3010, subpart D.

In FY 2018, the Postal Service terminated a 

domestic NSA with PHI Acquisitions, Inc.159 For 

international NSAs, the Postal Service filed a notice 

concerning the inbound portion of a bilateral 

agreement with Canada Post Corporation, a foreign 

postal operator.160 After analyzing the filings and 

considering comments received, the Commission 

found that this NSA complied with applicable 

laws and approved its inclusion within the 

product Inbound Market Dominant Multi-Service 

Agreements with Foreign Postal Operators 1.161 The 

Commission also acknowledged modifications to 

several international Market Dominant NSAs.162

Competitive Products

The Commission reviews the Postal Service’s 

planned rate changes 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.163

The Commission uses incremental costs 

to test whether Competitive products are 

being cross-subsidized by Market Dominant 

products.164 There is no cross-subsidy 

if 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.”165

154 Id. 155 Id. at 2, 59-61. 156 39 C.F.R. § 3010.7. 157 See 39 U.S.C. § 3622(c)(10). 158 Id. 159 Docket Nos. MC2014-21 and R2014-6, Notice of The United States Postal Service of Termination of Agreement, June 19, 2018. 160 Docket No. R2018-2, Notice of United States Postal Service of Type 2 Rate Adjustment, and Notice of Filing Functionally Equivalent Agreement, 

November 17, 2017, at 1. 161 Docket No. R2018-2, Order Approving Inbound Market Dominant Multi-Service Agreement with Foreign Postal Operators 1 Negotiated Service

Agreement (With Canada Post Corporation), December 4, 2017, at 2, 9 (Order No. 4263). The Inbound Market Dominant Multi-Service Agreements 

with Foreign Postal Operators 1 product provide prices for acceptance, transportation within the United States, and delivery of Inbound Letter 

Post tendered by foreign postal operators. MCS § 1602.3.1 162 Docket No. R2011-6, Order Acknowledging Revised Version of Inbound Market Dominant Exprès Service Agreement 1, November 17, 2017 

(Order No. 4223); Docket No. R2017-2, Order Acknowledging Modification One to an Inbound Market Dominant Multi-Service Agreement with Foreign 

Postal Operators 1 Negotiated Service Agreement, November 30, 2016 (Order No. 4249 ) (Australia Post Corporation); Docket No. R2018-2, Order 

Acknowledging Modification One to an Inbound Market Dominant Multi-Service Agreement with Foreign Postal Operators 1 Negotiated Service 

Agreement, December 18, 2017 (Order No. 4285) (Canada Post Corporation). 163 39 U.S.C. § 3633(a)(1). 164 39 C.F.R. § 3015.7(a). 165 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).
CHAPTER III • 31

3. All Competitive products must collectively 

cover what the Commission determines to be 

an appropriate share of the Postal Service’s 

institutional costs.166 In Order No. 4963, the 

Commission adopted a formula-based approach 

to annually calculate Competitive products’ 

appropriate share of institutional costs.167

The Commission also reviews planned rate 

changes for Competitive products to ensure 

compliance with the Commission’s rules in 39 

C.F.R. part 3015. In FY 2018, the Commission 

reviewed the Postal Service’s planned changes to 

both rates of general applicability and rates not 

of general applicability for Competitive products. 

Each is discussed below.

RATES OF GENERAL APPLICABILITY

On October 6, 2017, the Postal Service filed a 

notice of changes in rates of general applicability 

for several domestic and international 

Competitive products.168 The Postal Service 

also proposed related changes to the MCS.169

After reviewing the notice, CHIR responses, and 

comments received, the Commission approved 

the planned rate and MCS changes, finding that 

they complied with 39 U.S.C. § 3633(a).170

RATES NOT OF GENERAL APPLICABILITY

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 2018, the Commission reviewed and 

approved 290 Competitive NSAs: 205 were 

domestic and 85 were international. Table III1 shows the number of NSAs the Commission 

approved between FY 2013 and FY 2018.

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. FY 2017 and FY 2016 numbers differ slightly from past 

Annual Reports because they were counted based on the date of Commission approval rather than the contract effective date.

Competitive NSAs FY 2018 FY 2017 FY 2016 FY 2015 FY 2014 FY 2013

Domestic 205 211 187 81 40 52

International 85 104 97 58 36 29

TOTAL 290 315 284 139 76 81

Table III-1: Competitive NSAs Approved by the Commissiona

FY 2013 through FY 2018

166 39 U.S.C. § 3633(a)(3). 167 39 C.F.R. § 3015.7(c); Order No. 4963 at 19-20. The docket reviewing Competitive products’ appropriate share of institutional costs is discussed under 

the “Review of Institutional Cost Requirement” section, supra. 168 Docket No. CP2018-8, Notice of Changes in Rates of General Applicability for Competitive Products Established in Governors’ Decision Nos. 16-8 and 

16-10, October 6, 2017. 169 Id., Part B. 170 Docket No. CP2018-8, Order Approving Price Adjustments for Competitive Products, November 7, 2017 (Order No. 4208)
32 • POSTAL REGULATORY COMMISSION • FY 2018 ANNUAL REPORT

Products with non-published rates enable the 

Postal Service to enter into contracts featuring 

negotiated rates without prior Commission 

approval of the rates specific to each contract. 

The Commission reviews the prices for the 

product as a whole for compliance with statutory 

standards, rather than the prices for each 

contract before implementation. These nonpublished 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 of specific contract rates 

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 2013 and FY 2018.

171 Available at www.prc.gov; hover over “References” and follow “Negotiated Service Agreements Statistics” link. 172 39 U.S.C. § 3691(b)(1)(D) 173 39 U.S.C. § 3691(b)(2).

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

FY 2013 through FY 2018

Non-Published Rate Product FY 2018 FY 2017 FY 2016 FY 2015 FY 2014 FY 2013

Global Expedited Package Services 

Non-Published Rates 1-14 478 393 244 91 124 129

Priority Mail – Non-Published Rates 145 121 207 0 1 2

TOTAL 623 514 451 91 125 131

The Commission updates NSA statistics monthly on its website.171

Public Inquiries

Several public inquiry dockets were before the 

Commission in FY 2018 that dealt with issues 

related to service performance, Inbound Letter 

Post, and city carrier costs.

Service Performance

Service performance for Market Dominant 

products is measured using external or internal 

performance measurement systems. External 

measurement systems are under the direct 

control of an independent contractor. Internal 

measurement systems are under the direct control 

of the Postal Service. The PAEA requires the 

Postal Service to measure service performance 

for Market Dominant products using an objective 

external performance measurement system.172

However, “with the approval of the Postal 

Regulatory Commission, an internal measurement 

system may be implemented instead of an 

external measurement system.”173
CHAPTER III • 33

On July 5, 2018, the Commission issued Order No. 

4697 approving new internal service performance 

measurement systems for several Market Dominant 

products, including products within domestic FirstClass Mail, Periodicals, Marketing Mail, and Package 

Services.174 These systems replace the External 

First Class (EXFC) measurement system that had 

been run by an independent contractor.

The new measurement systems measure 

the service performance of live mail (actual 

mailpieces entered by Postal Service customers) 

and use Postal Service personnel (instead of 

EXFC personnel) to report the final date of 

delivery. The Postal Service may begin reporting 

service performance based on data generated 

from the new measurement systems as soon as 

the first quarter of FY 2019.

On November 5, 2018, the Commission issued an 

order approving modifications to the internal 

service performance measurement systems 

approved in Order No. 4697.175 The most 

noteworthy change is modifying the start-theclock date of measurement for First-Class Mail, 

USPS Marketing Mail, and Periodicals letters, 

cards, and flats from the acceptance day to the 

date following the applicable acceptance day 

for mailpieces that are entered into the postal 

system on Non-Airlift Days.176 This change may 

increase the number of days (by one) that it 

takes for mail to reach its destination on up to 

four (holiday) dates per year and still allow the 

mailpieces to meet applicable service standards. 

Changes were also approved that focus on 

correcting areas of the Service Performance 

Measurement plan to reflect current operations. 

These include removing references to certain 

parcels products that were recently moved from 

the Market Dominant to the Competitive product 

list, a product name change, and operational and 

other conforming changes.

Other Public Inquiry Dockets

Two other public inquiry dockets were pending 

before the Commission in FY 2018. Docket No. 

PI2018-1 examines the classification of the 

Inbound Letter Post product. Docket No. PI2017-

1 evaluates the Postal Service’s city carrier cost 

models and data collection capabilities.

Inbound Letter Post consists of international 

mail that originates in foreign countries and 

is delivered in the United States.177 Foreign 

postal operators reimburse the Postal Service 

for delivering Inbound Letter Post items at 

rates, called terminal dues, which are set by the 

UPU.178 In recent proceedings, including the FY 

2017 ACD proceeding, the Postal Service has 

claimed that Inbound Letter Post is subject to 

competition.179 These claims raised the issue of 

whether Inbound Letter Post should be wholly or 

partially transferred from the Market Dominant 

product list to the Competitive product list.180 To 

evaluate this issue, the Commission established 

Docket No. PI2018-1 to examine “issues related 

to the classification of the Inbound Letter Post 

product and parts thereof.”181 Two CIRs and 

174 Docket No. PI2015-1, Order Approving Use of Internal Measurement Systems, July 5, 2018 (Order No. 4697); Docket No. PI2015-1, Errata to 

Order No. 4697, August 21, 2018 (Order No. 4771). 175 Docket No. PI2018-2, Order Conditionally Approving Modifications to Market Dominant Service Performance Measurement Systems, November 5, 

2018 (Order No. 4872). 176 Non-Airlift Days are days on which limited air lift is available for transportation of mail to mail processing points due to a holiday. 177 FY 2017 ACD at 65. 178 Id. 179 Docket No. PI2018-1, Notice and Order Initiating Public Inquiry on the Classification of the Inbound Letter Post Product, July 12, 2018, at 6 n.13 

(Order No. 4708). 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. Id. 180 Id. at 7. 181 Id.
34 • POSTAL REGULATORY COMMISSION • FY 2018 ANNUAL REPORT

one CHIR were issued to better understand the 

Inbound Letter Post product and the market in 

which it resides.182 This docket is pending before 

the Commission.

Another public inquiry docket concerning 

city carrier costs was also pending before 

the Commission in FY 2018. In FY 2017, the 

Commission established Docket No. PI2017-

1 to evaluate the Postal Service’s progress in 

its ongoing efforts to update its city carrier 

cost models and data collection capabilities 

as required by the Commission.183 This docket 

has focused on the feasibility of a top-down, 

single-equation model to improve the Postal 

Service’s variability estimates of city carrier cost 

drivers.184 The Commission issued several CHIRs 

and provided an opportunity for interested 

persons to comment.185

On November 2, 2018, the Commission issued an 

interim order in this proceeding. The Commission 

stated that based on the Postal Service’s CHIR 

response and comments received, additional 

data are necessary to evaluate whether the 

Postal Service’s city carrier costing models can 

be improved.186 Accordingly, the Commission 

directed the Postal Service to provide an 

expanded dataset of city carrier delivery 

data, as well as report quarterly on the status 

of developing the expanded dataset.187 This 

proceeding is currently pending before 

the Commission.

PHOTO BY USPS

13, 2018; Docket No. PI2018-1, Chairman’s Information Request No. 1, November 2, 2018. 183 Docket No. PI2017-1, Notice and Order Establishing Docket Concerning City Carrier Special Purpose and Letter Route Costs and to Seek Public 

Comment, May 31, 2017 (Order No. 3926). 184 Docket No. PI2017-1, Interim Order, November 2, 2018, at 5 (Order No. 4869). 185 Id. at 2-5. 186 Id. at 1, 16. 187 Id. at 1, 16-17.

182 Docket No. PI2018-1, Commission Information Request No. 1, July 12, 2018; Docket No. PI2018-1, Commission Information Request No. 2, September
CHAPTER III • 35

Proposals to Change Analytical Principles

Analytical principles are theories or assumptions 

the Postal Service applies when producing 

reports it submits to the Commission each 

year.188 In these reports, the Postal Service must 

only use accepted analytical principles, which are 

analytical principles the Commission applied in 

the most recent ACD unless a different analytical 

principle is approved through a Commission 

proceeding.189 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 an accepted analytical 

principle.190 These proceedings, which are filed in 

rulemaking dockets, are intended to improve the 

quality, accuracy, or completeness of data or data 

analysis in the reports the Postal Service submits 

each year to the Commission.191

During FY 2018, the Commission considered 

13 Postal Service proposals to change various 

accepted analytical principles. The Commission 

issued final orders for 12 of the proposals. One 

proposal is pending before the Commission.192

Several of these proposals are discussed below.

City carrier costing. The Commission approved 

three Postal Service proposals to change various 

accepted analytical principles related to city 

carrier costing. First, 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.193 After considering 

comments received, the Commission approved 

the proposal because it found that the proposed 

modifications will improve the accuracy of the 

Postal Service’s costing methodology for the 

estimated proportion of city carrier letter route 

time spent delivering parcels.194 The Commission 

directed the Postal Service to provide supporting 

materials in the ACR to help ensure that the 

Postal Service reports accurate data concerning 

city carrier letter route street time evaluations.195

Second, the Postal Service filed a proposal 

seeking to update the methodology used to divide 

accrued city carrier costs between the letter 

route and special purpose route groups in the 

In-Office Cost System (IOCS).196 After considering 

comments received, the Commission approved a 

modified version of this proposal that uses Cost 

Ascertainment Group (CAG)-specific adjustment 

factors to adjust the current IOCS cost weighting 

factors, instead of the systemwide adjustment 

factors the Postal Service had proposed, for 

the letter route and special purpose route 

cost pools.197 The Commission explained that 

using quarterly CAG-group specific factors will 

provide a more significant improvement to the 

Postal Service’s methodology than the proposed 

quarterly systemwide adjustment factors.198

188 39 C.F.R. § 3050.1(c). 189 39 C.F.R. §§ 3050.1(a), 3050.10. 190 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. 191 Id. 192 Docket No. RM2018-5, Petition of the United States Postal Service for the Initiiation of a Proceeding to Consider Proposed Changes in Analytical 

Principles (Proposal Two), May 25, 2018. 193 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. 194 Docket No. RM2017-8, Order on Analytical Principles Used in Periodic Reporting (Proposal Four), December 1, 2017, at 22 (Order No. 4259). 195 Id. at 21-22. 196 Docket No. RM2017-9, Petition of the United States Postal Service for the Initiation of a Proceeding to Consider Proposed Changes in Analytical 

Principles (Proposal Five), June 30, 2017. City carrier costs are developed in the Cost and Revenue Analysis for two route groups: (1) regular letter 

routes, and (2) special purpose routes. Id., Proposal Five at 1. Special purpose routes are generally located in dense, urban areas and primarily deliver 

parcels and collect mail from collection boxes. 197 Docket No. RM2017-9, Order on Analytical Principles Used in Periodic Reporting (Proposal Five), February 6, 2018, at 1-2 (Order No. 4399). 198 Id. at 14.
36 • POSTAL REGULATORY COMMISSION • FY 2018 ANNUAL REPORT

Third, the Postal Service filed a proposal 

to change the current City Carrier Cost 

System methodology for estimating Delivery 

Point Sequence volume proportions.199

After considering comments received, the 

Commission approved the proposal because it 

found that the proposed changes will improve 

the quality, accuracy, and completeness of the 

Postal Service’s mail characteristics data for 

Delivery Point Sequence mail used in the City 

Carrier Cost System.200

Nonprofit USPS Marketing Mail. The Commission 

considered a proposal relating to rates for 

Nonprofit USPS Marketing Mail.201 USPS 

Marketing Mail has different rates for Nonprofit 

and Commercial mail. The PAEA requires that 

the estimated average revenue per piece the 

Postal Service receives from Nonprofit mail 

equal, as nearly as practicable, 60 percent of the 

estimated average revenue per piece the Postal 

Service receives from Commercial mail.202 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 proposed 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.203 The Postal Service asserted 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.204

The Commission received over 100 sets of 

comments. After considering comments received, 

the Commission issued a final order rejecting the 

proposed changes based on three factors.205 First, 

the Commission found that the Postal Service 

had not shown that the current methodology 

is significantly inaccurate and a change in 

methodology is necessary.206 Second, the Postal 

Service had not shown that the proposed 

approach was a significant improvement in the 

Postal Service’s accounting methodology.207

Third, the Commission found that the change was 

not necessitated by public interest and in fact, 

the public interest militated against the adoption 

of the proposal because of the potential of rate 

shock to nonprofit mailers.208

International mail costs. On June 26, 2018, the 

Postal Service filed a petition requesting that the 

Commission initiate a rulemaking proceeding 

to consider a change to the analytical principles 

relating to the development of international mail 

costs.209 The Postal Service proposed to replace 

the current methodology with the development 

of separate inbound costs for letters and flats and 

for bulky letters and small packets.210 The Postal 

Service stated that the International Cost and 

Revenue Analysis Report format will not change, 

but the aggregated costs shown on the individual 

report lines will be the sum of the separately199 Docket No. RM2017-13, Petition of the United States Postal Service for the Initiation of a Proceeding to Consider Proposed Changes in Analytical 

Principles (Proposal Nine), September 29, 2017. 200 Docket No. RM2017-13, Order on Analytical Principles Used in Periodic Reporting (Proposal Nine), December 15, 2017 (Order No. 4278). 201 See 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). 202 39 U.S.C. § 3626(a)(6)(A). 203 Docket No. RM2017-12 Petition, Proposal Eight at 1. 204 Id. at 1, 3. 205 Docket No. RM2017-12, Order on Analytical Principles Used In Periodic Reporting (Proposal Eight), February 7, 2018, at 7 (Order No. 4400). 206 Id. 207 Id. 208 Id. at 7, 16. 209 Docket No. RM2018-8, Petition of the United States Postal Service for the Initiation of a Proceeding to Consider Proposed Changes in Analytical 

Principles (Proposal Five), June 26, 2018 (Docket No. RM2018-8 Petition). 210 Docket No. RM2018-8 Petition, Proposal Five at 1-3.
CHAPTER III • 37

developed costs for letters/flats and bulky 

letters/small packets.211 According to the Postal 

Service, this proposal also responds to the UPU’s 

implementation of terminal dues based on shape 

for letters/flats and bulky letters/small packets, 

effective January 2018.212 Under the previous 

terminal dues system, the same terminal dues 

applied to all UPU letter post formats.213

The Commission approved this proposal on 

September 21, 2018.214 The Commission found 

that the proposal will improve the accuracy 

and completeness of the Postal Service’s annual 

periodic reporting by providing reliable estimates 

of revenues, volumes, and costs of inbound letters, 

cards, flats, bulky letters, and small packets, 

disaggregated by shape-based categories.215 In 

addition, the Commission noted that because the 

Postal Service will provide shape-based data, 

which are currently not reported, more accurate 

and complete information will be obtained for 

letter/flats and bulky letters/small packets under 

the proposed methodology.216 These more detailed 

data will allow for analysis of the impacts of the 

new UPU terminal dues structure.217

Other proposals. The Commission approved 

several other proposals it found will improve the 

quality, accuracy, or completeness of financial 

data or data analysis. These proposals included 

initiatives to update and improve data sources

for existing cost and revenue systems that either 

streamline data production or improve data 

quality. These proposals concerned:

» Incremental costing procedures218

» Classification of clerks and mail handler 

costs219

» Processing and transportation cost models for 

Parcel Select/Parcel Return Service mail220

» Workshare discount passthroughs for 

dropshipped USPS Marketing Mail221

» Rural carrier costs222

» Treatment of debit card expenses223 and 

International Indemnity expenses224

211 Id. at 3. 212 Id. at 3-4. 213 Id. 214 Docket No. RM2018-8, Order on Analytical Principles Used in Periodic Reporting (Proposal Five), September 21, 2018 (Order No. 4827). 215 Id. at 5 n.26, 15. 216 Id. at 15. 217 Id. 218 Docket No. RM2018-6, Order on Analytical Principles Used in Periodic Reporting (Proposal Three), July 19, 2018 (Order No. 4719). 219 Docket No. RM2018-10, Order on Analytical Principles Used in Periodic Reporting (Proposal Seven), October 12, 2018 (Order No. 4855). 220 Docket No. RM2017-10, Order on Analytical Principles Used in Periodic Reporting (Proposal Six), November 20, 2017 (Order No. 4228). 221 Docket No. RM2017-11, Order on Analytical Principles Used in Periodic Reporting (Proposal Seven), November 20, 2017 (Order No. 4227). 222 Docket No. RM2018-4, Order on Analytical Principles Used in Periodic Reporting (Proposal One), July 13, 2018 (Order No. 4712). 223 Docket No. RM2018-7, Order on Analytical Principles Used in Periodic Reporting (Proposal Four), August 13, 2018 (Order No. 4757). 224 Docket No. RM2018-9, Order on Analytical Principles Used in Periodic Reporting (Proposal Six), August 28, 2018 (Order No. 4798).

PHOTO BY USPS
38 • POSTAL REGULATORY COMMISSION • FY 2018 ANNUAL REPORT

Other Proceedings

Several other proceedings were before the 

Commission in FY 2018. 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.225 The 

Postal Service offers GeM Merchant to a limited 

number of online merchants through NSAs.226 In 

FY 2016, the Commission authorized the Postal 

Service to proceed with a 2-year market test of the 

GeM Merchant experimental product effective June 

27, 2016.227 On October 12, 2017, the Commission 

authorized a limited 12-month extension of the 

market test to permit the Postal Service to satisfy 

1-year customer NSAs signed during the second 

year of the 2-year market test.228

On June 7, 2018, the Postal Service filed a motion 

requesting that the Commission modify the 

parameters of the market test by allowing the 

Postal Service to sign and fully perform new 

NSAs with 1-year terms during the extension 

period.229 Alternatively, the Postal Service asked 

the Commission to authorize the Postal Service 

to sign new customer NSAs during the extension 

period with terms that end when the market test 

expires.230 The Postal Service explained that this 

modification was necessary because of delayed 

activation of the market test.231 Although the 

market test effective date was identified as June 

27, 2016, the first customer NSA was not signed 

until November 2017, more than 1 year later.232

On June 21, 2018, the Commission issued an 

order modifying the parameters of the market 

test to reflect its delayed activation, finding that 

such modification was consistent with applicable 

statutory and regulatory requirements.233 The 

Commission confirmed that nothing on the record 

contradicts a finding that the GeM Merchant 

market test was inactive until November 6, 

2017.234 To reflect this delay in activating the 

market test, the duration of the GeM Merchant 

market test was modified to begin on November 

7, 2017 and end on November 6, 2020.235 The 

Commission directed that all customer NSAs 

offering the GeM Merchant experimental product 

must end by November 6, 2020.236

While acknowledging the Postal Service’s 

representations about the delays in implementing 

the market test, the Commission noted that 

the delay was a unique circumstance.237The 

Commission stated that if a similar circumstance 

happens again, it “expects the Postal Service to be 

diligent in informing the Commission and public of 

such issues and the solutions it is pursuing” and that 

the Postal Service should notify the Commission as 

soon as issues arise to keep the public informed of 

material changes to the market test.238

225 Docket No. MT2016-1, Order Authorizing Market Test of Global eCommerce Marketplace (GEM) Merchant, May 25, 2016, at 2 (Order No. 3319). 226 Id. 227 Id. at 26; Docket No. MT2016-1, United States Postal Service Response to Order No. 3319 Concerning Effective Date of GeM Merchant Solution Market 

Test, June 8, 2016. 228 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). 229 Docket No. MT2016-1, United States Postal Service Motion for Modification of Order No. 4158, June 7, 2018, at 1, 4-5. 230 Id. at 4-5. 231 Id. at 2. 232 Id. at 2-3. 233 Docket No. MT2016-1, Order Modifying the Parameters of the Global eCommerce Marketplace (GeM) Merchant Market Test, June 21, 2018, at 1, 3, 7 

(Order No. 4661). 234 Id. at 4. 235 Id. at 4, 7-8. 236 Id. at 4. 237 Id. at 6. 238 Id.
CHAPTER III • 39

Second, in FY 2018, the Commission established 

proceedings to provide reports regarding the Office 

of Personnel Management’s (OPM’s) calculations of 

the Postal Service’s Civil Service Retirement System 

(CSRS) and Retiree Health Benefits (RHB) liability. 

OPM’s calculation of the CSRS and RHB liabilities 

are subject to a review by the Commission if the 

Postal Service requests one.239 If the Commission 

receives such a request, it must procure an actuary 

to conduct a review, prepare a report, and submit it 

to the Postal Service, OPM, and Congress.240

The Postal Service filed requests asking that 

the Commission review OPM’s calculation of 

the Postal Service’s CSRS and RHB liabilities.241

The Commission contracted with actuaries to 

prepare reports and submit them to the Postal 

Service, OPM, and Congress as required by law.242

Third, the Commission reviewed Postal Service 

calculations related to Competitive products 

income. Each year, the Postal Service must 

calculate the assumed Federal income tax on 

Competitive products income.243 On January 

12, 2018, the Commission established Docket 

No. T2018-1 to review the calculations of the 

assumed Federal income tax for FY 2017 and 

supporting documentation.244 After providing 

interested persons an opportunity to comment, 

the Commission approved the Postal Service’s 

calculation of the FY 2017 assumed Federal 

income tax on Competitive products.245

Court of Appeals Cases

The following cases were before the D.C. Circuit during FY 2018.

Changes Concerning Attributable Costing

The PAEA requires the Commission to promulgate 

regulations that ensure each Competitive product 

covers its attributable costs. 39 U.S.C. § 3633(a)

(2). In FY 2015, United Parcel Service, Inc. (UPS) 

submitted proposals under 39 C.F.R. § 3050.11 

requesting the Commission consider changes to 

the method for attributing costs to Competitive 

products.246 After considering the proposed 

changes, the Commission issued a final order on 

the proposals.247 Although the Commission did 

not adopt the proposals, it found it appropriate 

to change the attributable costing methodology 

to better reflect general economic principles. The 

Commission initiated a rulemaking to consider 

conforming changes to its rules that define or 

describe attributable costs.248 On December 1, 

2016, the Commission issued a final order making 

these changes.249

239 PAEA § 802(c)(1); 5 U.S.C. § 8909a(d)(5)(A). 240 Id. 241 Docket No. SS2018-1, Request of the United States Postal Service for Review of the Office of Personnel Management’s Determination Regarding Civil 

Service Retirement System Liability, November 13, 2017; Docket No. SS2018-2, Request of the United States Postal Service for the Commission to 

Conduct a Review of the Office of Personnel Management’s Determination Regarding Retiree Health Benefits Liability, January 30, 2018. 242 Docket No. SS2018-1, Transmittal of the Civil Service Retirement System Demographic and Salary Assumptions Report, June 11, 2018; Docket No. 

SS2018-2, Transmittal of the Retiree Health Benefit Fund Liability Examination Report, August 8, 2018. 243 39 U.S.C. § 3634; see 39 C.F.R. § 3060.40 et seq. 244 Docket No. T2018-1, Notice and Order Concerning the Review of the Calculation of the Assumed Federal Income Tax on Competitive products,

January 12, 2018. (Order No. 4368). 245 Docket No. T2018-1, Order Approving the Calculation of the FY 2017 Assumed Federal Income Tax on Competitive products, February 7, 2018 

(Order No. 4401). 246 Docket No. RM2016-2, Petition of United Parcel Service, Inc. for the Initiation of Proceedings to Make Changes to Postal Service Costing 

Methodologies, October 8, 2015. 247 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 (Order No. 3506); see Docket No. RM2016-2, Notice of Errata, October 19, 2016. The proposals and the Commission’s order are discussed in the Commission’s FY 2016 Annual Report. Postal Regulatory Commission, Annual Report to the President and Congress 

Fiscal Year 2016, January 12, 2017, at 34. 248 Docket No. RM2016-13, Notice of Proposed Rulemaking on Changes Concerning Attributable Costing, September 9, 2016 (Order No. 3507). 249 Docket No. RM2016-13, Order Adopting Final Rules on Changes Concerning Attributable Costing, December 1, 2016 (Order No. 3641).
40 • POSTAL REGULATORY COMMISSION • FY 2018 ANNUAL REPORT

UPS appealed both orders to the D.C. Circuit, 

which consolidated the appeals into one 

case.250 On May 22, 2018, the D.C. Circuit 

issued its decision dismissing the appeals.251

The D.C. Circuit found that the Commission’s 

interpretations of “attributable costs,” 

“institutional costs,” and “indirect postal costs” 

were reasonable.252 The D.C. Circuit concluded 

that the Commission’s exercise of its authority 

was “reasonable and reasonably explained” 

and that the Commission “settl[ed] on a costattribution methodology that implements its 

statutory mandate and falls well within the scope 

of its considerable discretion.”253

Return Receipt for Merchandise Service

Return Receipt for Merchandise Service (RRM 

Service) is a product that allows retail and 

commercial mailers to obtain a mailing receipt 

and a physical return receipt postcard for 

packages containing merchandise.254 In FY 2015, 

the Commission issued an order conditionally 

approving the Postal Service’s request to remove 

RRM Service from the list of Special Services on the 

Market Dominant product list.255 The Commission 

found that removing RRM Service complied with 

requirements for modifying the Market Dominant 

and Competitive product lists under 39 U.S.C. § 

3642 and the Commission’s regulations.256 The 

Commission also found that removing RRM Service 

represented a rate adjustment that is subject to 

other statutory and regulatory requirements, 

including the price cap.257 As a result, the Postal 

Service could either remove RRM Service and 

adjust the price cap or retain RRM Service with no 

impact on the price cap.258

The Postal Service subsequently notified the 

Commission that it would indefinitely defer 

removing RRM Service from the Market Dominant 

product list.259 On February 18, 2015, the Postal 

Service appealed the Commission’s order to 

the D.C. Circuit.260 On June 5, 2015, the Postal 

Service and the Commission filed a joint motion 

to return the case to the Commission for further 

proceedings in light of a decision from a separate 

panel of the court.261 The court granted the motion 

and remanded the matter to the Commission 

for further proceedings.262 On October 31, 2016, 

the Commission issued a final order resolving 

issues on remand.263 The Commission found 

that removing RRM Service from the Market 

Dominant product list represented a classification 

change with rate effects that require adjusting 

the Postal Service’s price cap authority.264 On 

November 30, 2016, the Postal Service appealed 

the Commission’s order to the D.C. Circuit by filing 

a petition for review.265

250 Petition for Review, United Parcel Service, Inc. v. Postal Regulatory Commission, No. 16-1354 (D.C. Cir. filed October 7, 2016); Petition for Review, 

United Parcel Service, Inc. v. Postal Regulatory Commission, No. 16-1419 (D.C. Cir. filed December 12, 2016); see United Parcel Service, Inc. v. Postal 

Regulatory Commission, Nos. 16-1354 and 16-1419 (D.C. Cir. Order filed January 23, 2017). 251 United Parcel Service, Inc. v. Postal Regulatory Commission, 890 F.3d 1053 (D.C. Cir. 2018). 252 Id. at 1062-63. 253 Id. at 1069 (quoting United States Postal Service v. Postal Regulatory Commission, 785 F.3d 740, 750 (D.C. Cir. 2015)). 254 Docket No. MC2015-8, Order Conditionally Approving Removal of Return Receipt for Merchandise Service from Mail Classification Schedule, January 

15, 2015, at 2 (Order No. 2322). 255 See id. 256 Id. at 14; see 39 C.F.R. part 3020, subpart B. 257 Order No. 2322 at 6, 15. 258 Id. at 14-15. 259 Docket No. MC2015-8, Response of the United States Postal Service to Order No. 2322, January 28, 2015. 260 Petition for Review, United States Postal Service v. Postal Regulatory Commission, No. 15-1037 (D.C. Cir. filed February 18, 2015). 261 Joint Motion to Remand Order of the Postal Regulatory Commission, United States Postal Service v. Postal Regulatory Commission, No. 15-1037

(D.C. Cir. filed June 5, 2015). 262 United States Postal Service v. Postal Regulatory Commission, No. 15-1037 (D.C. Cir. Order filed June 15, 2015). 263 Docket No. MC2015-8R, Order Resolving Issues on Remand, October 31, 2016 (Order No. 3597). 264 Id. at 1-2, 14. 265 Petition for Review, United States Postal Service v. Postal Regulatory Commission, No. 16-1412 (D.C. Cir. filed November 30, 2016).
CHAPTER III • 41

In FY 2018, the D.C. Circuit issued its opinion 

granting the petition for review and vacating 

the Commission’s prior orders in this case.266

The court held that the Commission lacked 

statutory authority to treat a product 

removal as a rate change subject to price cap 

requirements.267 The court concluded that the 

Commission’s authority to limit rate changes 

under the price cap does not apply when the 

Commission reviews requests to change the 

Market Dominant and Competitive product 

lists under 39 U.S.C. § 3642.268

Complaint of Frederick Foster

In FY 2015, Frederick Foster filed a complaint 

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

against the Postal Service, Pitney Bowes, Inc. 

(Pitney Bowes), and the Postal Service Office of 

Inspector General.269 Foster alleged violations of 

sections 401, 403(c), and 404a of title 39, as well 

as violations of various criminal and antitrust 

statutes.270 He claimed that after submitting 

a secure digital delivery service (Virtual P.O. 

Box) idea to the Postal Service, both the Postal 

Service and Pitney Bowes misappropriated his 

idea and colluded to create similar services.271

The Postal Service and Pitney Bowes each filed 

a motion to dismiss the complaint,272 to which 

Foster filed a response.273

On August 26, 2015, the Commission issued an 

order granting the motions and dismissing the 

complaint in its entirety.274 The Commission

found that it lacked jurisdiction over some 

claims and dismissed the remaining claims on 

other grounds.275

On September 23, 2015, Foster appealed this 

order to the D.C. Circuit by filing a petition 

for review.276 Several procedural motions and 

orders were filed during FY 2016 and FY 2017. 

On August 22, 2018, the D.C. Circuit denied the 

petition, finding that Foster had not shown any 

error or abuse of discretion in the Commission’s 

dismissal of his complaint.277

266 United States Postal Service v. Postal Regulatory Commission, 886 F.3d 1261, 1273 (D.C. Cir. 2018). 267 Id. at 1262, 1273. 268 Id. at 1268. 269 Docket No. C2015-3, Complaint of Frederick Foster, June 24, 2015 (Docket No. C2015-3 Complaint). 39 U.S.C. § 3662 permits any interested person, 

including the Public Representative, to file a complaint with the Commission if they believe the Postal Service is not complying with certain statutory 

and regulatory requirements. 39 U.S.C. § 3662(a). 270 Docket No. CP2015-3 Complaint at ¶¶ 1-2, 358-406. 271 Id. ¶¶ 10-12, 35. 272 Docket No. C2015-3, Pitney Bowes Inc.’s Motion to Dismiss the Complaint of Frederick Foster, July 8, 2015; Docket No. C2015-3, United States Postal 

Service Motion to Dismiss the Complaint of Frederick Foster, July 14, 2015. 273 Docket No. C2015-3, Plaintiff’s Response to Defendants’ Motions to Dismiss, August 13, 2015. 274 Docket No. C2015-3, Order Dismissing Complaint, August 26, 2015, at 21 (Order No. 2687). 275 Id. at 16-21. 276 Petition for Review, Frederick Foster v. Postal Regulatory Commission, No. 15-1339 (D.C. Cir. filed September 23, 2015). 277 Frederick Foster v. Postal Regulatory Commission, No. 15-1339, 2018 WL 4610725 (D.C. Cir. Judgment August 22, 2018) (unpublished).

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42 • POSTAL REGULATORY COMMISSION • FY 2018 ANNUAL REPORT

Other Court Appeals

Two other court appeals were before the D.C. 

Circuit in FY 2018. The D.C. Circuit considered an 

appeal filed by the National Postal Policy Council 

(NPPC) of the Commission’s order containing 

its findings and determination of its statutory 

review of the Market Dominant Rate System.278

NPPC filed an unopposed motion to hold this 

appeal in abeyance until the rulemaking in 

Docket No. RM2017-3 was completed.279 The D.C. 

Circuit granted the motion and held the appeal in 

abeyance pending further order of the court.280

It directed the parties to file status reports with 

the court in 90-day intervals.281

The D.C. Circuit also issued a decision concerning 

a Commission order articulating a standard for 

determining whether mail preparation changes 

have rate effects that implicate the price cap 

rules.282 This decision is discussed under the 

“Mail Preparation Changes and the Price Cap” 

section, supra.

International Postal Policy

The Secretary of State is responsible for 

formulating, coordinating, and overseeing 

international postal policy, including concluding 

postal treaties such as those involving the 

UPU.283 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 Market Dominant Rate 

System.284 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.285

On April 13, 2018, the Commission provided 

the Secretary of State with its views on a 

specific proposal to amend the Regulations of 

the Universal Postal Convention that was to be 

discussed at the April 2018 session of the UPU 

Postal Operations Council.286This proposal 

established a rate for a Market Dominant product.

Pursuant to 39 U.S.C. § 407(c)(1), the Secretary of 

State requested that the Commission provide its 

views on “the consistency of proposals to amend 

rates or classifications for Market Dominant 

products or services within the Universal Postal 

Convention for the Extraordinary UPU Congress 

with the standards and criteria established 

by the Commission under 39 U.S.C. § 3622.”287

The Extraordinary UPU Congress took place 

September 3-7, 2018, in Ethiopia. Pursuant to 39 

278 Petition for Review, National Postal Policy Council v. Postal Regulatory Commission, No. 17-1276 (D.C. Cir. filed December 29, 2017); see “Statutory 

Review of Market Dominant Rate System” section, supra. 279 Response to Motion to Hold In Abeyance, National Postal Policy Council v. Postal Regulatory Commission, No. 17-1276 (D.C. Cir. filed February 1, 2018). 280 National Postal Policy Council v. Postal Regulatory Commission, No. 17-1276 (D.C. Cir. Order filed February 15, 2018). 281 Id. 282 See n.42, supra. 283 39 U.S.C. § 407(b)(1). 284 39 U.S.C. § 407(c)(1). 285 39 U.S.C. § 407(c)(2). 286 Letter from Robert G. Taub, Chairman, Postal Regulatory Commission, to the Honorable Kevin E. Moley, Assistant Secretary for International

Organization Affairs, United States Department of State, April 13, 2018; see Docket No. IM2016-1, Notice of Posting Views, April 23, 2018. 287 See Letter from Nerissa J. Cook, Deputy Assistant Secretary, U.S. Department of State, Bureau of International Organization Affairs, on behalf of the 

Secretary of State, March 27, 2018.
CHAPTER III • 43

C.F.R. § 3017.3(a), the Commission established 

Docket No. IM2018-1 to “solicit comments on 

the general principles that should guide the 

Commission’s development of views on relevant 

proposals, in a general way, and on specific 

relevant proposals, if the Commission is able to 

make these available.”288

The Commission received comments 

representing a broad array of stakeholder 

interests. The Commission provided its views 

to the Secretary of State on July 24, 2018, 

and supplemental views on July 24, 2018 and 

September 4, 2018. Consistent with the 39 C.F.R. 

§ 3017.3(b), these views were posted on the 

Commission’s website.289

In FY 2018, the Commission continued its 

participation in UPU and interagency discussions 

on rates and classifications for Market Dominant 

products and international postal policy issues. 

On August 23, 2018, the White House issued a 

Presidential Memorandum for the Secretary of 

State, Secretary of the Treasury, Secretary of 

Homeland Security, Postmaster General, and 

Chairman of the Postal Regulatory Commission 

on “Modernizing the Monetary Reimbursement 

Model for the Delivery of Goods Through the 

International Postal System and Enhancing 

the Security and Safety of International 

Mail (Presidential Memorandum).”290 In this 

Presidential Memorandum, the President 

affirmed the policy of the executive branch 

to support efforts that further a system of 

unrestricted and undistorted competition 

between the United States and foreign 

merchants. This system should include, inter 

alia, ensuring that rates charged for the 

delivery of foreign-origin mail containing 

goods do not favor foreign mailers over 

domestic mailers or postal operators over nonpostal operators.291 This Memorandum also 

resulted in a Statement by the White House 

Press Secretary on October 17, 2018, regarding 

UPU rates.292 In this statement, the President 

concurred with the Department of State’s 

recommendation for the United States to adopt 

self-declared rates no later than January 1, 

2020.293 The State Department notified the UPU 

of United States withdrawal in one year, during 

which time it would seek to negotiate bilateral 

and multilateral agreements to resolve the 

issues identified in the August 23, 2018, 

Presidential Memorandum. The statement also 

noted that the United States would be willing 

to rescind its notice of withdrawal if these 

negotiations are successful.

288 Docket No. IM2018-1, Notice and Order Establishing Section 407 Proceeding, April 5, 2018, at 2 (Order No. 4567). 289 Docket No. IM2018-1, Notice of Posting of Views, September 10, 2018. 290 Available at https://www.whitehouse.gov/presidential-actions/presidential-memorandum-secretary-state-secretary-treasury-secretary-homeland-security-postmaster-general-chairman-postal-regulatory-commission/. 291 Presidential Memorandum, Section 2(d)(i). 292 Available at https://www.whitehouse.gov/briefings-statements/statement-press-secretary-38/. 293 See id.

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CHAPTER IV • 45

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.294

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

and deposit mail into mailboxes.295 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.

294 Postal Regulatory Commission, Report on Universal Postal Service and the Postal Monopoly, December 19, 2008, at 18 (USO Report) 295 USO Report at 10 n.1.

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46 • POSTAL REGULATORY COMMISSION • FY 2018 ANNUAL REPORT

Estimated USO Cost

The PAEA requires the Commission to estimate 

the costs incurred by the Postal Service in 

providing three types of public services or 

activities: 296

» 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 2013 to FY 2017.

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

FY 2017 FY 2016 FY 2015 FY 2014 FY 2013

Postal Services to Areas of the Nation the 

Postal Service Would Not Otherwise Serve* 0.46 0.39 0.35 0.51 0.61

Estimated Revenue Not Received Due

to Free or Reduced Rates 1.71 1.64 1.63 1.62 1.65

Other Public Services or Activities 2.35 2.37 2.26 2.21 2.39

TOTAL* 4.53 4.40 4.24 4.34 4.65

*FY 2013 and 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.297

296 39 U.S.C. § 3651(b)(1) 297 See 39 U.S.C. § 3651(b)(2).
CHAPTER IV • 47

Postal Services to Areas of the Nation the Postal Service 

Would Not Otherwise Serve

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)[.]298

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 2013 to FY 2017. 

FY 2017 FY 2016 FY 2015 FY 2014 FY 2013

Maintaining Small Post Offices* 309 245 209 366 468

Alaska Air Subsidy 114 113 107 112 114

Group E Post Office Boxes 34 34 33 33 31

TOTAL* 458 392 349 511 613

*FY 2013 and 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.

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

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

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 2013 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 2017, the cost of maintaining small post 

offices increased due primarily to the increase in 

clerk costs. 

298 39 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 2018 ANNUAL REPORT

MAINTAINING SMALL POST OFFICES

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.”299 The Postal Service uses Cost 

Ascertainment Group (CAG) classifications A to 

L to categorize post offices based on volume of 

revenue generated.300 Small post offices are those 

that fall within CAG K and L classifications.301

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.302

Table IV-2 lists the estimated costs of 

maintaining small post offices from FY 2013 to 

FY 2017. 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.303

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 non-personnel related costs) overall 

has 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 $332 

million in FY 2013 to $25 million in FY 2016 

and increased slightly in FY 2017 to $30 million. 

Conversely, in FY 2013 and FY 2014, total CAG L 

leave replacement costs were more than double 

what they were in FY 2012.304 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 and nearly $70 million in FY 2017. 

299 39 U.S.C. § 403(b)(3). 300 Docket No. RM2015-19, Order Approving Analytical Principles Used in Periodic Reporting (Proposal Ten), November 24, 2015, at 1 n.2

(Order No. 2837). 301 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). 302 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. 303 See FY 2016 Annual Report at 42. 304 See Postal Regulatory Commission, Annual Report to the President and Congress Fiscal Year 2017, January 16, 2018, at 49.

WOODSTOCK, VIRGINIA POST OFFICE. PHOTO BY USPS
CHAPTER IV • 49

303 See FY 2016 Annual Report at 42.

304 See Postal Regulatory Commission, Annual Report to the President and Congress Fiscal Year 2017, January 16, 2018, at 49.

305 USO Report at 139.

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

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

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 2013 Annual Report 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. ACR2013, ACR2014, ACR2015, ACR2016 and 

ACR2017 (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. ACR2013, ACR2014, ACR2015, ACR2016 

and ACR2017 (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. ACR2013, ACR2014, ACR2015, ACR2016 and ACR2017.

Selected CAG K and L Post Offices 

Annual Operating Costs FY 2017 FY 2016 FY 2015 FY 2014 FY 2013

CAG K and L Postmastersa 30 25 26 228 332

CAG L Leave Replacements 21 29 102 216 219

CAG K Clerks 358 289 176 13 6

Total Potential Operating Costs Saved (If 

CAG K and L Post Offices Closed) 408 343 304 457 558

Annual Estimated Cost Saving 

Adjustments (If CAG K and L Post 

Offices Closed)

FY 2017 FY 2016 FY 2015 FY 2014 FY 2013

Rural Carrier Now Provides Retail 

Services Costs b 18 18 17 16 16

Rural Carrier Now Provides Delivery 

Service (CAG K and L Post Office Boxes 

No Longer Available)c

42 42 42 41 41

CAG K and L Post Office Boxes 

Revenue Foregone d 38 37 36 33 33

Total Annual Cost Savings Adjustment 99 97 96 91 89

Cost of Maintaining Small Post Offices

(Potential Operating Costs Saved Less 

Cost Savings Adjustments)

309 245 209 366 468
50 • POSTAL REGULATORY COMMISSION • FY 2018 ANNUAL REPORT

ALASKA AIR SUBSIDY

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.305 The Alaska Air 

Subsidy increased slightly from $113 million in FY 

2016 to $114 million in FY 2017.

GROUP E POST OFFICE BOXES

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.306 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.307 Consequently, the Commission 

approved including the cost of Group E Post 

Office Boxes, which are primarily facilityrelated, in estimating the USO Cost. In FY 2017, 

Group E Post Office Boxes cost approximately 

$34 million.

Free or Reduced Rates

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.]”308 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 2013 to FY 2017. 

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

FY 2017 FY 2016 FY 2015 FY 2014 FY 2013

Preferred Rate 

Discounts Net of Costs 1,104 1,105 1,116 1,114 1,130

Periodicals Losses 608 537 512 509 521

TOTAL 1,712 1,642 1,628 1,623 1,651

305 USO Report at 139. 306 Docket No. RM2011-9, Order Concerning Analytical Principles Used in Periodic Reporting (Proposal One), June 9, 2011, at 2 (Order No. 744). 307 Order No. 744 at 4. 308 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.
CHAPTER IV • 51

PREFERRED RATE DISCOUNTS NET OF COSTS

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

to provide reduced rates for preferred rate 

categories in USPS Marketing Mail, Periodicals, 

and Library Mail.309 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. 

PERIODICALS LOSSES

Periodicals Losses are the annual amount by 

which Periodicals attributable cost exceeds 

revenue.310 The PAEA’s price cap does not allow 

the Postal Service to fully recover Periodicals 

Losses through rate increases.311 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 

were about half a billion dollars each year 

between FY 2013 and FY 2015 and increased 

from $537 million in FY 2016, to $608 million in 

FY 2017. 

The Periodicals class has not covered its 

attributable cost since the PAEA was enacted.312

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.313 The Commission 

is also exploring cost and service issues for 

Periodicals and other flat-shaped mail in Docket 

No. RM2018-1.314

309 FY 2017 ACD at 42-43. 310 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. 311 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. 312 FY 2017 ACD at 44-45. 313 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. 314 See Order No. 4142, Advance Notice of Proposed Rulemaking to Develop Data Enhancements and Reporting Requirements for Flats Issues, October 4, 2017.

PHOTO BY USPS
52 • POSTAL REGULATORY COMMISSION • FY 2018 ANNUAL REPORT

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.”315 Currently, these costs include the costs 

of providing Six-Day Delivery and uniform rates 

for First-Class Mail and Media Mail/Library 

Mail.316 Table IV-5 shows the costs of providing 

these public services or activities from FY 2013 

to FY 2017.

315 39 U.S.C. § 3651(b)(1)(C). 316 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. 317 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”). 318 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. 319 39 U.S.C. § 404(c).

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

Would Not Provide But for Legal Requirements ($ Millions)

Public Service or Activity FY 2017 FY 2016 FY 2015 FY 2014 FY 2013

Six-Day Delivery 2,204 2,191 2,074 2,080 2,212

Uniform First-Class 

Mail Rates 52 78 86 93 109

Uniform Media Mail/

Library Mail Rates 99 102 101 37 70

TOTAL 2,355 2,371 2,261 2,210 2,391

SIX-DAY DELIVERY

Since 1984, appropriations bills have included a 

provision requiring the Postal Service to continue 

providing Six-Day Delivery.317 The cost of providing 

Six-Day Delivery is measured as 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 2013 to FY 2017. 318

UNIFORM RATES

Rates for First-Class Mail must be uniform 

throughout the United States.319 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 2017, the cost of 

uniform First-Class Mail rates declined from $78 

million in FY 2016 to $52 million in FY 2017.
CHAPTER IV • 53

Media Mail/Library Mail rates must be 

uniform for mail of the same weight and must 

not vary with the distance transported.320

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 2017, the estimated cost of providing uniform 

Media Mail/Library Mail rates was approximately 

$99 million, a slight decrease from the estimated 

FY 2016 cost of $102 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.321

Value of the Postal Monopoly

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.322 The letter monopoly is the Postal 

Service’s exclusive right to carry and deliver most 

addressed, paper-based correspondence.323

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 was 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 2013 to 

FY 2017. 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.324 In FY 2017, a decrease 

in the volume of Marketing Mail Letters and the 

expiration of the exigent surcharge resulted in a 

slight decrease in the estimated value of the postal 

monopoly. The value of the mailbox monopoly is 

estimated based on contestable mail volumes in 

Periodicals, select USPS Marketing Mail prepared 

in carrier route sequence, 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.

320 39 U.S.C. § 3683. 321 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. 322 18 U.S.C. § 1725. 323 The letter monopoly is codified in the Private Express Statutes. See 18 U.S.C. §§ 1693–1699 and 39 U.S.C. §§ 601–606. 324 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.
54 • POSTAL REGULATORY COMMISSION • FY 2018 ANNUAL REPORT

The Commission uses the model described in 

the USO Report to update current estimates.325

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.326

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.327 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.328 In addition, bulk parcels, 

which are Competitive products, are considered 

contestable mail. 

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

FY 2017 FY 2016 FY 2015 FY 2014 FY 2013

Postal Monopoly 5.34 5.68 5.45 4.61 3.93

Mailbox Monopoly 1.35 1.24 1.03 0.77 0.81

325 See USO Report at 143-52. 326 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. 327 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. 328 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.
CHAPTER V • 55

CHAPTER V | Public Affairs

Open Public Meetings

The Commission holds open public meetings 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 are 

noticed in the Federal Register and posted on the Commission’s 

website, www.prc.gov.

Consumer Relations — Comments and Inquiries

INQUIRIES BY SOURCE

During FY 2018, PAGR received thousands of inquiries, questions, 

suggestions, and comments through the online “Contact PRC” 

link on the Commission’s website. The remaining inquiries were 

submitted by phone, fax, email, and hardcopy 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 2018, the Commission forwarded 

448 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, service continues to be the highest inquiry 

category. The predominant types are misdelivered mail, 

undelivered mail (mail not being delivered), and delayed mail.

PHOTO BY TOSHE OGNJANOV

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. 
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CHAPTER VI • 57

The Office of the Secretary 

and Administration (OSA) 

provides management and staff 

support to the Commission’s 

operational offices. OSA 

ensures that the Commission 

has the physical, financial, 

technological, and human 

capital infrastructure needed 

to accomplish its mission. 

CHAPTER VI | Administration

Financial Management 

The Commission continues to work within its budget and 

improve accounting and contracting processes making 

them more cost-effective and efficient. The Commission’s 

FY 2018 appropriation of $15,200,000 was used to 

maintain staffing levels of 74 full-time employees and 

for operating expenses. Salaries and benefits accounted 

for 79 percent of the Commission expenditures, while 

the remaining 21 percent was allocated for operating 

expenses. The Commission successfully partnered with 

women and minority-owned businesses for a total of 21 

percent of all Commission contracts. Figure VI-1 displays 

the Commission’s actual expenditures for FY 2018. 

PHOTO BY KAMIRA
58 • POSTAL REGULATORY COMMISSION • FY 2018 ANNUAL REPORT

Records Management 

In FY 2018, the Commission continued to improve 

its records management program through two 

key initiatives: an updated record schedule, 

submitted to the National Archives and Records 

Administration (NARA), and the continuing 

development of 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 manage the 

records in accordance with the proposed new 

records schedule, and will include the electronic 

transfer of the Commission’s records to the 

NARA, creating a more streamlined and efficient 

electronic recordkeeping system.

Transparency and Open Government

The Commission is committed to transparency, 

accountability, and open government through 

its administration of its Dockets program, 

Freedom of Information Act (FOIA), and offering 

live webcasts of the Commission’s public 

proceedings. The Commission opened 551 

new dockets and processed 3,788 documents 

in FY 2018. The Commission received 52 FOIA 

requests this year, and provided responses to all 

within statutory deadlines. 

Figure VI-1: FY 2018 Annual Budget Expenditures

Personal 

Compensation 

79%

Other Operating Expenses

7.5%

Supplies and Services

1.7%

Facility Lease

11.8%

Personal 

Compensation

Supplies 

and Services

Other Operating 

Expenses

Facility Lease
CHAPTER VI • 59

The Commission continued to provide live audio 

webcasts of hearings, technical conferences, and 

public meetings, and expanded these capabilities 

to provide for video recordings and webcasting 

of public meetings and technical conferences. 

Recordings of the webcasts are available on the 

Commission’s website, www.prc.gov. 

Human Resources Management

The Commission’s investment in its employees 

remained a top priority in FY 2018. The 

Commission ensured that employees complied 

with mandatory training requirements in all 

areas including cybersecurity, equal employment 

opportunity, ethics, and records management.

To address employees’ work-life balance this 

year, the Commission revised its Flexible Work 

Program policy (which includes alternate work 

schedules (AWS) and telework.) 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 functioning during government 

closure or delay. During FY 2018, 69 percent 

of Commission staff participated in situational 

telework, compared to 30 percent in FY 2017. 

More than half (56 percent) of employees 

telework on a regularly scheduled basis. In 2018, 

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. Thirtysix percent of Commission staff participated in 

the AWS program in FY 2018.

Equal Employment Opportunity and Diversity 

In FY 2018, 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 56 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 2018, the Commission had zero EEO 

complaints (formal and informal) filed. 

Information Technology 

During this past year, the Commission continued 

to make cost-effective improvements to the overall 

security and performance of its information 

technology (IT) infrastructure, following 

cybersecurity best practices to sharpen the 

emphasis on cybersecurity cross-agency priority 

goals and increase Federal Information Security 

Management Act (FISMA) compliance (e.g. the 

Commission was the first small agency to complete 

implementation of the Continuous Diagnostic 

and Mitigation program offered through the 

Department of Homeland Security (DHS)). 

As new security threats emerge, the Commission 

continually monitors and enhances its security 

practices and policies to better protect sensitive 

information and to educate employees about the 

importance of safeguarding the Commission’s IT 

infrastructure, applications, and data.

In FY 2018, the Commission had zero incidents 

to report to the DHS United States Computer 

Emergency Readiness Team (US-CERT), and 

did not experience any breaches of personally 

identifiable information.
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