CHAPTER III | A

Annual Report

to the President

and Congress

FISCAL YEAR 2016

Postal Regulatory Commission

Submitted 1/12/2017 1:45:28 PM

Filing ID: 98653

Accepted 1/12/2017
TABLE OF CONTENTS | 1

Table of Contents

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

CHAPTER I | Fiscal Year 2016 in Review ......... 7

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

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

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

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

Office of Public Affairs and 

 Government Relations .......................................................... 15

Office of the Secretary and Administration ............ 19

CHAPTER III | Effectiveness of Commission

Rules in Achieving PAEA Objectives ................. 23

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

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

 Analysis of Performance Goals .................................... 26

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

Rate and Classification Cases of Note .......................... 28

 Market Dominant Price Adjustment ....................... 28

 Removal of Exigent Surcharge ..................................... 28

 IMb Remand ............................................................................... 29

 Market Tests .............................................................................. 30

 Product List and Mail Classification 

 Schedule Changes ............................................................. 30

Service Performance Measurement 

 and Reporting ........................................................................... 31

 Proposed Service Performance 

 Measurement System .................................................. 31

 Enhancing Service Performance 

 Reporting Requirements ............................................ 32

Rulemakings ..................................................................................... 32

 Mail Preparation Changes and the Price Cap ............ 32

 Proposals to Change Analytical Principles ............ 33

 UPS Proposals One, Two, and Three ...................... 34

 Price Elasticities and Internet Diversion ............... 34

Competitive Products ............................................................... 35

 Changes in Rates of General Applicability .......... 35

 Changes in Rates Not of General 

 Applicability: NSAs ............................................................ 36

 Review of Calculation of Assumed Federal 

 Income Tax on Competitive Products ............... 37

CHAPTER IV | Universal Service Obligation 

and Postal Monopoly .................................................. 39

Background ...................................................................................... 39 

Estimated USO Cost ................................................................... 40

 Postal Services to Areas of the Nation the Postal 

 Service Would Not Otherwise Serve .................. 41

 Maintaining Small Post Offices .......................... 42

 Alaska Air Subsidy ....................................................... 44

 Group E Post Office Boxes .................................... 44

 Free or Reduced Rates ...................................................... 44

 Preferred Rate Discounts Net of Costs ........ 45

 Periodicals Losses ........................................................ 45

 Other Public Services or Activities ............................ 46

 Six-Day Delivery ............................................................ 46

 Uniform Rates ................................................................ 47

 Other Public Services or Activities .................. 47

Value of the Postal Monopoly ........................................... 48

CHAPTER V | Other Proceedings 

and Actions ......................................................................... 51

Public Inquiries .............................................................................. 52

 Section 701 Report ............................................................... 52

 Scope of Public Service or 

 Activity Cost Reporting ................................................ 52

 Jurisdiction over Post Office Closings 

 and Consolidations .......................................................... 52

 Service Performance ........................................................... 52

Rulemakings on Commission Procedures ................. 53

 Ex Parte Rules ........................................................................... 53

 Amendments to Commission Publishing Rules ............. 54

 Product Lists and Mail 

 Classification Schedule ................................................. 54

Post Office Closing Appeals ................................................. 55

Goodman Complaint ................................................................. 55

Court Appeals ................................................................................. 56

 Remand of Exigent Price Adjustment .................... 56

 Round-Trip Mailer ................................................................. 57

 Complaint of the American Postal 

 Workers Union ................................................................... 57

 First-Class Mail Parcels Transfer ................................. 58

 Complaint of the Center for Art 

 and Mindfulness ............................................................... 58

 Removal of Return Receipt for 

 Merchandise Service ..................................................... 59

 Pending Court Appeals ...................................................... 59

Commission’s Role in International Postal Policy ........ 60

COVER PHOTO BY M DOGAN
2 | POSTAL REGULATORY COMMISSION • FY 2016 ANNUAL REPORT

Acronyms

ACD ..................................... Annual Compliance Determination

ACR...................................... Annual Compliance Report

C.F.R. ................................... Code of Federal Regulations

CAG...................................... Cost Ascertainment Group

CPI ....................................... consumer price index

DSCF .................................... destination sectional center facility

FSS ....................................... Flats Sequencing System

FY......................................... Fiscal Year

GEPS .................................... Global Expedited Package Service

IMb ...................................... Intelligent Mail barcode

IBRS ..................................... International Business Reply Service

IOCS..................................... In-Office Cost System

NPR...................................... non-published rates

MCS ..................................... Mail Classification Schedule

NOI ...................................... Notice of Inquiry

NSA...................................... negotiated service agreement

PAEA.................................... Postal Accountability and Enhancement Act

RHBF ................................... Postal Service Retirement Health Benefits Fund

RRM..................................... Return Receipt for Merchandise

RTM..................................... Round-Trip Mailer

TACS .................................... Time and Attendance Collection System

U.S.C. ................................... United States Code

UPU ..................................... Universal Postal Union

USO...................................... Universal Service Obligation
Guiding Principles

The Commission is committed to and 

operates by the principles of:

Openness

 • Public participation

Integrity

 • Fairness and impartiality

 • Timely and rigorous analysis

Merit

 • Commitment to excellence

 • Collegiality and multi-disciplinary 

 approaches

Adaptability

 • Proactive response to the rapidly 

 changing postal environment

MISSION STATEMENT | 3

PRC | Mission, Vision, and Guiding Principles

PHOTO BY SEAN PAVONE

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

Potomac River with Lincoln Memorial, Washington 

Monument, and Arlington Memorial Bridge.
4 | POSTAL REGULATORY COMMISSION • FY 2016 ANNUAL REPORT

PHOTO BY KAMIRA

Interior of the Library of Congress 

in Washington, DC.
CHAIRMAN’S MESSAGE | 5

Chairman’s Letter

JANUARY 2017

On behalf of the Postal Regulatory Commission, I am pleased to present our Annual Report 

to the President and Congress. This report details the key activities over the past year in the 

Commission’s area of regulatory oversight and includes information required under the Postal 

Accountability and Enhancement Act of 2006 (PAEA) on the operations of the Commission, 

including the extent to which regulations are achieving the objectives outlined in the PAEA.

As mandated by the statute, the Commission also recently issued a report discussing how well 

the PAEA is operating and making recommendations for legislation or other measures necessary 

to improve the effectiveness and efficiency of the Nation’s postal laws. The Commission’s report 

stressed the need to address the volatile financial condition of the Postal Service.

In the coming year, the Commission will focus a significant portion of its resources and 

expertise to conducting a comprehensive evaluation of the current system for regulating rates 

and classes for Market Dominant products. The PAEA mandates this important review and 

requires the Commission to determine whether the law’s objectives are being achieved. If the 

Commission finds that the objectives are not being met, it has the authority to either propose 

rules that modify the system or adopt an alternative system to achieve the objectives.

Recognizing the effect the outcome of the review may have on the Postal Service’s stressed 

financial condition, the Commission has set an aggressive agenda to complete its review in the 

most efficient and effective manner possible without compromising the integrity of the process 

or the outcome. The Commission will work diligently to complete this duty in conjunction with 

its other responsibilities of reviewing and approving Postal Service rates, adjudicating formal 

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

Postal Service complies with Title 39. 

During my time as agency head, the Commission has become even more efficient and effective in 

carrying out its mission as measured by budget savings and timeliness of work. The Commission 

has achieved improvements in its employees’ satisfaction and engagement, as evidenced by the 

Federal Employee Viewpoint Survey results. The Commission has become a more frequently 

sought resource for postal expertise, particularly to the Congress. I hope to build upon these 

accomplishments to achieve further improvements in staff achievement, the timeliness and 

quality of work products, and the efficiency and effectiveness of agency operations.

On behalf of my fellow Commissioners and the entire hard working agency staff, I extend a 

welcome to the new Congress and Administration. I look forward to a productive dialogue on 

how to ensure the integrity of a universal mail system for 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 2016:

• The Annual Report to the President and Congress 

(Annual Report) described the Commission’s 

accomplishments and activities as the regulator of the 

U.S. Postal Service.

• The Annual Compliance Determination (ACD) reviewed 

the Postal Service’s compliance with pricing and 

service standards.

• The Analysis of Postal Service Financial Results and 10-K 

Statement for Fiscal Year 2015 provided an in-depth 

analysis of the Postal Service’s financial condition. 

• The Review of Postal Service FY 2015 Performance 

Report and FY 2016 Performance Plan evaluated 

whether the Postal Service met its performance goals 

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

• In early FY 2017, the Commission also issued the 

Section 701 Report Analysis of the Postal Accountability 

and Enhancement Act of 2006, recommending to the 

President and Congress legislation and other ways to 

improve the effectiveness and efficiency of the United 

States postal laws.

The Postal Regulatory 

Commission (Commission) 

achieved the following 

significant accomplishments 

in Fiscal Year (FY) 2016 that 

support its mission to ensure 

transparency and accountability 

of Postal Service operations 

and foster a vital and efficient 

universal mail system.

PHOTOS BY ORHAN CAM

CHAPTER I | Fiscal Year 2016 in Review

Top left: US Capitol Building

Top right: Thomas Jefferson Memorial
8 | POSTAL REGULATORY COMMISSION • FY 2016 ANNUAL REPORT

2. The Commission presided over several rate 

and classification cases in FY 2016. It:

• Reviewed and approved two proposals to 

adjust Market Dominant prices.

- Approved five temporary promotional 

discount proposals related to First-Class 

Mail and Standard Mail.

- Approved six First-Class Mail and Standard 

Mail promotional discount proposals to 

be offered during calendar year 2017, and 

increased prices to correct an anomaly 

within First-Class Mail Parcels.

• Approved the Postal Service’s planned 

removal of the exigent surcharge.

• Announced a standard for determining 

whether a mail preparation change has 

rate effects that impact the price cap. A 

Postal Service petition for reconsideration 

and clarification of the application of the 

standard is currently pending before the 

U. S. Court of Appeals for the District of 

Columbia Circuit.

• Reviewed and approved the Global 

eCommerce Marketplace (GeM) market 

test and the extension of the Customized 

Delivery market test.

• Approved a Postal Service request to 

remove Global Direct Contracts from the 

Competitive product list.

3. The Commission issued several orders 

approving classification changes. It: 

• Approved material Mail Classification 

Schedule (MCS) changes related to Priority 

Mail International Flat Rate Envelopes and 

Small Flat Rate Boxes.

• Issued two orders approving minor 

classification changes to the Country Price Lists 

for International Mail in Part D of the MCS.

4. The Commission considered issues related 

to service performance measurement and 

reporting in two key dockets. The Commission:

• Hosted two off-the-record technical 

conferences to discuss the Postal Service’s 

statistical design plan for internal service 

performance measurement. This case 

remains open pending the Postal Service’s 

filing of more information.

• Issued a final order enhancing the reporting 

requirement of service performance 

measurement data that requires the Postal 

Service to regularly provide descriptions 

of current methodologies used to verify 

accuracy, reliability, and representativeness 

of data for each measurement system.

5. The Commission conducted several 

rulemakings related to rate and costing issues.

• Currently pending before the Commission 

are proposed rules for regulating mail 

preparation changes that affect the price cap.

• The Commission also considered 16 

petitions proposing to change various 

accepted analytical principles. Proposals 

were submitted by the United Parcel 

Service (UPS), the Postal Service, and other 

interested parties.

6. The Commission considered several postal 

rate adjustment and MCS requests by the 

Postal Service for domestic and international 

Competitive products.

7. The Commission approved 281 Negotiated 

Service Agreements (NSAs) for Competitive 

products (186 domestic, 95 international).

8. The Commission reviewed and approved the 

Postal Service’s calculation of FY 2015 assumed 

Federal income tax on Competitive products.
CHAPTER I | 9

9. Several public inquiry dockets were initiated 

by the Commission to solicit comments on the 

development of the Section 701 Report, Scope 

of Public Service or Activity Cost Reporting, 

Commission Jurisdiction Over Post Office Closings 

and Consolidations, and Service Performance. 

10. The Commission finalized three rulemakings 

 that updated its rules of practice and 

 procedures. The Commission:

• Revised and reorganized rules concerning 

ex parte communications

• Considered amendments to publishing 

rules concerning the Market Dominant and 

Competitive product lists

• Reviewed and adopted rules proposing 

to replace existing regulations governing 

product lists and the MCS

11. In other proceedings, the Commission:

• Adjudicated two post office closing appeals.

• Reviewed and dismissed a complaint 

alleging violations of postal regulations and 

policies by the Postal Service.

• Issued an order that resolved issues on remand 

related to the Exigent price adjustment.

• Denied a Postal Service request to add RoundTrip Mailer to the Competitive product list.

• Dismissed a complaint by the American Postal 

Workers Union (APWU) alleging that the Postal 

Service failed to adhere to the service standards 

established as a result of the Mail Processing 

Network Rationalization initiative. APWU filed 

a petition for review before the U.S. Court of 

Appeals for the District of Columbia (D.C. 

Circuit) which was recently denied.

• Dismissed a complaint concerning the sale 

and closure of the Atlantic Street Station 

post office in Stamford, Connecticut.

• Issued an order resolving issues on remand 

concerning a Postal Service request to remove 

Return Receipt for Merchandise Service 

from the list of Special Services in the MCS.

12. With respect to international postal policy 

 responsibilities, the Commission:

• Continued its active role in the Universal 

Postal Union (UPU) Letters and Parcels 

Remuneration Groups on international letter 

mail and parcel delivery rates by chairing 

the UPU Regulatory Issues Project Group on 

behalf of the U.S. government

• Continued collaboration on international 

postal issues with other government 

agencies such as the Department of State 

through its Federal Advisory Committee on 

International Postal and Delivery Services

• Adopted final rules describing general 

procedures related to the Commission’s views 

on proposals submitted for consideration at 

UPU Congresses that could affect a Market 

Dominant rate or classification

• Provided views to the Secretary of State 

on whether certain proposals for the 26th 

Congress of the UPU are consistent with 

the standards and criteria for modern rate 

regulation established by the Commission 

under 39 U.S.C. § 3622 

13. Other activities performed by the 

 Commission include:

• Testimony before the U.S. Senate Committee 

on Homeland Security and Governmental 

Affairs and the U.S. House Oversight and 

Government Reform Committee 

• The development of the Commission’s fiveyear Strategic Plan for fiscal years 2017-2022

• The processing of more than 5,500 inquiries, 

questions, suggestions, and comments from 

the general public which primarily involved 

undelivered, delayed, misdelivered, and 

missing mail

• Further website enhancements addressing 

navigation and 508 compliance
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CHAPTER II | 11

The Commission is an independent agency that has 

exercised regulatory oversight over the Postal Service 

since its creation by the Postal Reorganization Act of 

1970, with expanded responsibilities under the Postal 

Accountability and Enhancement Act of 2006. The 

Commission is composed of five commissioners, each 

of whom is appointed by the President, by and with 

the advice and consent of the Senate, for a term of six 

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 3 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, 

Vice Chairman Nanci Langley, 

Commissioner Tony Hammond

PHOTO BY PRC STAFFER MAX SCHNIDMAN
12 | POSTAL REGULATORY COMMISSION • FY 2016 ANNUAL REPORT

Nanci E. Langley | VICE CHAIRMAN

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

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

commissioner on June 6, 2008; that term expired on November 22, 2013. 

She also served as the Commission’s vice chairman from October 2008 to 

October 2009, January to December 2012, and January to December 2016. 

Her previous positions include director of the Office of Public Affairs and 

Government Relations at the Commission; 17 years as a senior adviser to 

Senator Daniel K. Akaka (D-HI), including 9 years as a deputy staff director 

on the U.S. Senate Committee on Homeland Security and Governmental 

Affairs Subcommittee on Oversight of Government Management, the 

Federal Workforce, and the District of Columbia; and communications 

director to former U.S. Senator Spark M. Matsunaga (D-HI). She was elected 

as a fellow of the National Academy of Public Administration in 2009.

Commission Leadership

Robert G. Taub | CHAIRMAN

Mr. Taub was designated Chairman upon his reappointment as a 

commissioner on December 12, 2016, for a second term, following his 

nomination by President Barack Obama and confirmation by the United 

States Senate. At the time of his designation and reappointment, he had been 

serving as acting chairman since December 4, 2014. He was originally sworn 

in as a commissioner in October 2011 following his nomination and Senate 

confirmation. The Commission elected him vice chairman for the calendar 

year 2013. His more than 30 years of previous public service include special 

assistant to Secretary of the Army John McHugh; 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 was awarded the 

Army's Decoration for Distinguished Civilian Service, and is a Fellow of the 

National Academy of Public Administration.
CHAPTER II | 13

Tony Hammond | COMMISSIONER

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

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

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

served on the Postal Regulatory Commission and its predecessor agency, 

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

President George W. Bush, and 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).

Mark Acton | COMMISSIONER

Mr. Acton was appointed as a commissioner on August 3, 2006; his term expired 

on October 14, 2016. He served as Commission vice chairman from 2007 to 

2008, 2011 to 2012, and 2014 to 2015, and as special assistant to former Postal 

Rate Commission Chairman George Omas. His other positions have included 

staff director of the Republican National Committee Counsel’s Office; deputy 

to the chairman of the 2004 Republican National Convention; special assistant 

to the Republican National Committee chief counsel and Counsel’s Office 

government relations officer and redistricting coordinator; executive director, 

Republican National Convention, Committee on Permanent Organization, and 

deputy executive director, Committee on Rules; and executive director of the 

Republican National Committee Redistricting Task Force.
14 | POSTAL REGULATORY COMMISSION • FY 2016 ANNUAL REPORT

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

The Commission is organized into four operating offices:

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

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

international matters. 

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

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

responsibilities. 

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

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

Postal Service, and media.

• Secretary and Administration. The Office of 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 current organizational structure.

Staff and Office Structure

Figure II-1: Commission’s Current 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 Secretary

& Administration

Stacy Ruble

Mark Acton

Vice Chairman

Nanci Langley

Commissioner

Robert Taub

Chairman

Tony Hammond

Commissioner

Vacant

Commissioner
CHAPTER II | 15

PRC Public Meeting

Commission Strategic Plan

In FY 2016, the Commission developed its 2017–2022 Strategic Plan following a vigorous and inclusive 

process which 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.

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

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

 accountability of the Postal Service.

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

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

 workload, and emerging requirements.

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

The Commission’s Strategic Plan can be viewed or downloaded at www.prc.gov.

Office of Public Affairs and Government Relations

The Commission’s Office of Public Affairs and 

Government Relations is the primary office 

providing assistance to the general public. 

It supports public outreach and education, 

responds to inquiries and informal complaints, 

engages with the media, and liaises with 

Congress, presidential administrations, the 

Postal Service, and other government agencies. 

It informs and advises commissioners and 

Commission staff on legislative issues and 

policies related to the Commission and the 

Postal Service, and coordinates the preparation 

of congressional testimony and responses to 

congressional inquiries concerning Commission 

policies and activities. 

Another of its critical functions is to respond to 

inquiries, informal complaints, questions, suggestions, 

and comments from the public, business owners, 

government bodies, and other stakeholders.

PHOTO BY PRC STAFFER MAX SCHNIDMAN
16 | POSTAL REGULATORY COMMISSION • FY 2016 ANNUAL REPORT

On January 21, 2016, Acting Chairman Robert 

Taub testified on behalf of the Commission at 

a hearing held by the U.S. Senate Committee 

on Homeland Security and Governmental 

Affairs. The hearing was entitled, “Laying out 

the Reality of the U.S. Postal Service.” The 

purpose of the hearing, according to Committee 

Chairman Ron Johnson, was to develop a better 

understanding of the financial realities facing 

the U.S. Postal Service. Commission rules require 

that Postal Service financial reports be filed 

with the Commission on a monthly, quarterly 

and annual basis. The Commission analyzes 

these reports and for the third year in a row, 

issued a Financial Analysis report to provide 

greater clarity and transparency of the Postal 

Service’s financial data. Acting Chairman Taub’s 

statement focused upon the findings contained 

within the Commission’s Financial Analysis 

report for FY 2014. His testimony also covered 

some preliminary observations based on the 

Commission’s review of FY 2015 data. At the 

Committee’s request, Acting Chairman Taub also 

discussed the continuing decline in total mail 

volume, personnel related costs, and the impact 

of legislative and regulatory requirements upon 

the U.S. Postal Service.

On May 11, 2016, Acting Chairman Taub testified 

on behalf of the Commission at a hearing held 

by the U.S. House Oversight and Government 

Reform Committee. The hearing was entitled, 

“Reforming the Postal Service: Finding a Viable 

Solution.” Acting Chairman Taub highlighted 

the Commission’s observations and conclusions 

from its FY 2015 Financial Analysis report, 

making clear the Postal Service faces significant 

financial obstacles. Aside from the financial 

pressure of generating sufficient funds to remain 

solvent, he noted that the Postal Service is also 

responsible for funding $4 billion in universal 

service obligations (as calculated annually by 

the Commission). At the Committee’s request, 

Acting ChairmanTaub briefly touched upon the 

Commission’s statutorily required December 

2016 rate review.

Senate Briefings and Congressional Testimony

Consumer Relations — Comments and Inquiries

INQUIRIES BY SOURCE

During FY 2016, the Office of Public Affairs and Government Relations received 5,572 inquiries, 

informal complaints, questions, suggestions, and comments. Approximately 82 percent of consumer 

inquiries were submitted online through “Contact PRC” on the Commission website. Of the remaining 

inquiries, 13 percent were submitted by phone and 4 percent by mail. Table II-1 shows the number of 

inquiries from Postal Service stakeholders for FY 2011 to FY 2016.
CHAPTER II | 17

Source/Stakeholder 

Fiscal Year

2016 2015 2014 2013 2012 2011

Consumer 5201 7,783 8,919 4,058 5,227 4,663

Business Owner 287 468 482 224 67 81

Postal Employee 46 77 151 92 250 427

Federal/State/Local 

Government 20 39 47 72 214 223

Mailer 3 16 21 16 18 53

Media 15 14 54 48 94 132

Postal Organization 0 5 3 6 6 69

TOTAL 5,572 8,402 9,677 4,516 5,876 5,648

Table II-1: Inquiries Submitted to the Office of Public Affairs and Government Relations

INQUIRIES BY LOCATION

The Postal Service’s geographic landscape is divided into seven Area offices. In FY 2016, the 

number of comments and inquiries received was consistent with previous years. Table II-2 shows 

the FY 2016 breakdown by Area office, top issues reported, and the total number received.

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 2016, the Commission 

forwarded 462 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.

Table II-2: Comments and Inquiries by Area Office

Area Office

Top Issues

FY 2016

Delayed Missing Misdelivered Undelivered Rudeness

Southern Area 215 185 129 134 28 1,056

Capital Metro 133 142 94 93 18 820

Western Area 137 139 83 84 14 751

Northeast Area 131 105 102 175 32 858

Pacific Area 82 70 57 66 6 462

Eastern Area 91 58 67 54 19 518

Great Lakes 10 3 6 9 0 498
18 | POSTAL REGULATORY COMMISSION • FY 2016 ANNUAL REPORT

INQUIRIES BY ISSUE

As in past years, the predominant types of 

inquiries the Commission received from business 

owners were undelivered mail (mail not being 

delivered), delayed mail (mail not being picked 

up by the carrier, or being delivered late in the 

day or after close of business), misdelivered mail 

(mail being delivered to the wrong address), and 

the carrier not attempting to deliver packages. 

Service continues to be the highest inquiry 

category. The Commission received 4,721 

inquiries regarding delivery service. There 

were 311 service-related inquiries regarding 

the carrier not making an initial attempt to 

deliver a package; 838 reports of mail being 

misdelivered or delivered to nearby addresses; 

738 reports of undelivered mail or mail not being 

delivered to residences; 972 reports of mail and 

packages delayed or missing in the mail; and 

197 reports of mail not being forwarded. There 

were 255 inquiries regarding employee behavior, 

including 139 reports of rudeness by Postal 

Service employees. Table II-3 shows inquiries 

categorized by top 10 issues for FY 2016.

Table II-3: Comments and Inquiries by Issue

Issue 2016 2015 2014 2013 2012 2011 2010

Delayed Mail 972 1,590 1,513 469 94 89 39

Misdelivered Mail 838 1,151 1,192 393 76 51 52

Undelivered Mail 738 1,127 1,651 520 137 107 71

Missing Mail 646 843 1,023 601 211 159 129

Return to Sender 234 321 410 139 64 47 22

Change of Address 197 296 334 180 54 20 6

Mail Damage 167 288 345 149 30 37 24

Rudeness 139 278 378 207 43 21 22

Hold Mail 78 139 110 45 13 14 6

Post Office Box 68 65 113 81 55 16 21
CHAPTER II | 19

Office of the Secretary and Administration

The Office of the Secretary and Administration 

(OSA) provides management and staff support 

to the Commission’s operational offices 

(including the Office of the Inspector General), 

the Commission’s Strategic Plan, and various 

initiatives of the Executive Branch. OSA 

ensures that the Commission has the physical, 

financial, technological, and human capital 

infrastructure needed to accomplish its mission. 

Responsibilities include financial management, 

records management, administrative and 

organizational support, human resources 

management and workforce planning, and 

information technology support. 

Figure II-2: Overview of FY 2016 FEVS Results

The Commission is committed to enhancing a 

system that fosters recruitment, development, 

and retention of a talented, skilled, diverse, and 

adaptable workforce as part of its Human Capital 

Plan within the 2012–2016 Strategic Plan. In FY 

2016, the Commission participated in the annual 

Federal Employee Viewpoint Survey (FEVS). 

The Commission’s response rate of 83 percent 

was significantly higher than the governmentwide rate of 46 percent. Figure II-2 shows an 

overview of the Commission’s ratings on the 

Office of Personnel Management (OPM) indices 

when compared with the Federal government as 

a whole.

Employee Engagement and Training 

PRC Response

Government-Wide 

Response

Response 

Rate

2008 2009

GovernmentWide

83 81 71 100

Postal 

Regulatory 

Commission

46 65 61

0

25

50

75

100

Global 

Satisfaction

Overall 

Response

Employee 

Engagement

Response 

Rate

2008 2009

GovernmentWide

83 81 71 100

Postal 

Regulatory 

Commission

46 65 61

0

25

50

75

100

Response 

Rate

2008 2009

GovernmentWide

83 81 71 100

Postal 

Regulatory 

Commission

46 65 61

0

25

50

75

100

Response 

Rate

2008 2009

GovernmentWide

83 81 71 100

Postal 

Regulatory 

Commission

46 65 61

0

25

50

75

100
20 | POSTAL REGULATORY COMMISSION • FY 2016 ANNUAL REPORT

OPM has aggregated the results of the FEVS 

into two indices. “Employee Engagement” ranks 

employees’ perceptions on the leadership within 

their agency, their supervisors, and the overall 

work experience. “Global Satisfaction” measures 

employees’ satisfaction about four aspects related 

to work: job, pay, organization, and whether 

they would recommend their organization as a 

good place to work. Compared to responses with 

Federal employees government-wide, Commission 

staff had a higher degree of satisfaction with 

their work and office environment: an 81 percent 

rating in “Employee Engagement” versus the 

government-wide rating of 65 percent, and a 71 

percent rating in “Global Satisfaction” versus 

the government-wide rate of 61 percent. The 

Commission is committed to developing actionable 

plans based on the confidential feedback received 

from employees through this survey as part of the 

Commission’s new 2017–2022 Strategic Plan.

Commission leadership’s investment in its 

employees remains a top priority. In FY 2016, the 

Commission offered training and professional 

development opportunities designed to increase 

employee knowledge, engagement, and retention. 

The Commission also ensured that employees 

were in compliance with mandatory training 

requirements in all areas including cybersecurity, 

the Hatch Act, ethics, and records management. 

All employees participated in the training 

program; 46 percent of employees chose to 

participate in off-site training, and the remainder 

attended in-house professional development and 

other Commission-provided training sessions. 

This year, the Commission revised and expanded 

its policy on the Flexible Work Program, which 

includes alternate work schedules (AWS) and 

telework opportunities. Employee participation in 

the AWS program remained static at 41 percent, 

and the number of employees teleworking on an 

ongoing basis increased to 44 percent. In 2016, 

the Commission offered extended telework to 

eligible employees, and 9 percent of the workforce 

used this increased flexibility to telework more 

than three days per week. Telework is an integral 

part of the Commission’s continuity of operations 

plan, particularly situational or ad-hoc telework, 

to ensure the Commission’s continued operations 

during government closure or delay situations 

(including inclement weather or events that deter 

or delay regular commuting into downtown 

Washington). During FY 2016, 70 percent of 

Commission staff participated in such situational 

telework, up from 62 percent last year. 

In FY 2016, 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 63 percent and 32 percent of the workforce, 

respectively. Women filled 40 percent of the 

Commission’s executive positions; minorities 

filled 10 percent. During FY 2016, the 

Commission had no formal EEO complaints filed.

The Commission provides internship 

opportunities to aid in the recruitment and 

development of professionals with diverse 

backgrounds. The Commission will continue 

to monitor and offer opportunities to increase 

diversity, including the use of formal recruitment 

channels such as local universities, veterans’ 

groups, and comparable organizations and groups 

that target under-represented populations.

Over the fiscal year, the Commission revised 

and updated its workplace harassment policy 

and provided EEO and Notification and Federal 

Employee Antidiscrimination and Retaliation 

Act (NoFEAR Act) training for all employees, 

supervisors, and managers. 

Equal Employment Opportunity and Diversity
CHAPTER II | 21

2007 2008 2009 2010

Region 1 77 12 5 5

The Commission’s Total Obligation Authority 

for FY 2016 was $15,200,000. These funds were 

used to maintain staffing levels of 72 full-time 

employees and for operating expenses. Salaries 

and benefits accounted for $10,846,504 (77%) 

of the Commission expenditures, the remaining 

$4,353,496 was allocated for operating expenses.

Figure II-3 displays the Commission’s actual 

expenditures for FY 2016: “Rent” goes toward 

the agency’s commercial office and storage 

space, and “Other Operating Expenses” 

includes information technology, training, 

supplies, printing, and consulting services. The 

Commission is also implementing a revised 

budget formulation and forecasting process 

to further enhance budget development. The 

Commission also successfully partnered with 

women and minority-owned businesses for a 

total of 49 percent of all Commission contracts.

In response to the 2009 presidential 

memorandum regarding government 

contracting, and in line with Executive Order 

13576, “Delivering an Efficient, Effective, and 

Accountable Government” (2011), the Commission 

is in the process of updating our procurement 

policy and process. The new policy is centered 

on strengthening the Commission’s commitment 

to best value and promoting a fair and equitable 

procurement opportunity for all vendors. 

Budget and Finance

The Commission is committed to transparency, 

accountability, and open government. In 

compliance with the Freedom of Information Act 

(FOIA), the Commission completed all 

FY 2016 FOIA requests within statutory time 

limits. The Commission received a favorable 

review in the Department of Justice’s FY 2016 

Assessment of Agency Progress. The Commission 

also began a comprehensive review and 

revision of its FOIA regulations in line with the 

FOIA Improvement Act of 2016. 

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. 

Transparency and Open Government

Figure II-3: FY 2016 Actual Expenditures

Personnel Compensation

Rent

Supplies & Services

Other Operating Expenses

77%

5%

13%

5%
22 | POSTAL REGULATORY COMMISSION • FY 2016 ANNUAL REPORT

In FY 2016, the Commission invested 

significantly in its IT infrastructure. 

Investments included continued improvements 

to the Commission website, ensuring a userfriendly and Section 508 compliant interface. 

The Commission’s IT team upgraded security 

and infrastructure to improve the overall 

integrity of the Commission’s network and 

to comply with new and on-going initiatives 

related to network security. The IT team 

worked closely with the Records Management 

team on developing projects to comply 

with records management directives and 

Commission policy. These improvements 

continue to build on the Commission’s 

commitment to openness and transparency. 

Information Technology (IT)

In FY 2016, the records management team 

continued its work in compliance with the 

directive from the Office of Management and 

Budget (OMB) and the National Archives and 

Records Administration (NARA) on managing 

government records. The Commission updated 

its records management policy and began work 

on an electronic records management system. 

The records management team worked closely 

with IT to issue an update on email records 

use and retention. The Commission continues 

to move forward with initiatives designed to 

meet the deadlines outlined in the OMB/NARA 

directive. The Commission received positive 

ratings from NARA for proceeding with and 

expanding its records management program. 

Records Management
CHAPTER III | 23

The objectives applicable to Market Dominant 

products are listed in 39 U.S.C. § 3622(b):

1. Maximize incentives to reduce costs and 

increase efficiency.

2. Create predictability and stability in rates.

3. Maintain high-quality service standards 

established under 39 U.S.C. § 3691.

4. Allow the Postal Service pricing flexibility.

5. Assure adequate revenues, including retained 

earnings, to maintain financial stability.

6. Reduce the administrative burden and increase 

the transparency of the ratemaking process.

7. Enhance mail security and deter terrorism.

8. Establish and maintain a just and reasonable 

schedule for rates and classifications; however, 

this objective does not prohibit 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. 

The Commission is required by 39 U.S.C. 

§ 3651 to submit an annual report to the 

President and the Congress that includes an 

analysis of the extent to which regulations are 

achieving the objectives under section 3622 

of Title 39 of the U.S. Code. In FY 2017, the 

Commission will review the current system 

of ratemaking that was developed pursuant 

to section 3622 to determine if it is achieving 

the objectives established by Congress.1

 If 

the Commission determines that the system 

is not achieving the objectives, taking into 

account the factors, the Commission may, by 

regulation, make modifications or adopt an 

alternative system as necessary to achieve the 

objectives. Id. Consequently, the Commission 

anticipates that future Annual Reports will 

provide in-depth analysis of how well the 

system in place upon completion of the 

review is achieving the objectives.

PHOTO BY M DOGAN 1

 39 U.S.C. 3622(d)(3).

CHAPTER III | Effectiveness of Commission Rules 

 in Achieving PAEA Objectives

Old Post Office building with Benjamin Franklin 

Statue in Washington, DC.
24 | POSTAL REGULATORY COMMISSION • FY 2016 ANNUAL REPORT

Section 3622(b) establishes a tension between 

the restrictions of an inflation-based price cap 

on Market Dominant price increases and the 

objective that the Postal Service must assure 

adequate revenues and retained earnings to 

maintain financial stability. Furthermore, 

although the PAEA provides incentives via the 

price cap to reduce costs and increase efficiency, 

it also imposes personnel-related expenses 

requiring the Postal Service to pre-fund future 

healthcare costs for its retirees.

The Commission’s rules for applying the price 

cap and the application of those rules help to 

achieve several objectives of the PAEA. For 

example, enforcing the limitation that price 

increases for each class of mail do not exceed 

inflation incentivizes the Postal Service to reduce 

costs and increase efficiency (objective 1). The 

Commission applies the price cap at the class level, 

which allows the Postal Service pricing flexibility 

(objective 4) because there are few restrictions 

on the prices the Postal Service sets within each 

class. In FY 2016, the Commission approved 

promotional rates for certain Market Dominant 

products, which furthered objectives 1 and 4.

The Commission’s review of Postal Service 

requests to add products or NSAs to the Market 

Dominant or Competitive product lists helps 

maintain a just and reasonable schedule for rates 

and classifications (objective 8). 

Each year, the Commission analyzes the Postal 

Service’s rates and service performance and 

reports its findings in the Annual Compliance 

Determination (ACD). The Commission’s rules 

for reviewing potential changes to the methods 

underlying the development of data the Postal 

Service reports help promote accuracy and 

reliability. Accurate, reliable cost estimates are 

essential to appropriately allocate the Postal 

Service’s total institutional costs between Market 

Dominant and Competitive products (objective 9).

In FY 2016, the Commission continued its 

practice of analyzing the Postal Service’s 

financial results and performance goals in 

expanded reports separate from the ACD. 

This helps increase the transparency of the 

ratemaking process (part of objective 6). The 

Commission’s analysis of the Postal Service’s 

financial results evaluates the Postal Service’s 

financial stability, which promotes objective 5.

In FY 2016, the Commission reviewed the Postal 

Service’s service performance and related reporting 

requirements. It also considered the Postal Service’s 

proposal to replace an existing external service 

performance measurement system with an internal 

system. These analyses help maintain highquality service standards (objective 3).

The Commission did not develop any rules or 

review any cases with a direct effect on mail 

security or terrorism (objective 7) in FY 2016.

The requirements applicable to Competitive 

products are contained in 39 U.S.C. § 3633(a):

1. Prohibit Market Dominant products from 

subsidizing Competitive products.

2. Ensure each Competitive product covers its 

attributable costs.

3. Ensure all Competitive products collectively 

cover what the Commission determines to be 

an appropriate share of the Postal Service’s 

institutional costs.

The Commission evaluated Competitive products 

for compliance with these requirements 

during FY 2016. First, in the FY 2015 ACD, the 

Commission reviewed Competitive products to 

determine whether any rates or fees in effect 

during FY 2015 were not in compliance with 

39 U.S.C. § 3633(a). Second, the Commission 

analyzed changes in rates of general applicability 

for Competitive products as well as NSAs 

proposed by the Postal Service. Third, the 

Commission evaluated proposed changes to the 

Postal Service’s costing methodologies. 

The following sections describe the 

Commission’s major orders, reports, and 

proceedings during FY 2016.
CHAPTER III | 25

The ACD is an important tool for enhancing 

transparency and determining whether the 

Postal Service complies with statutory pricing 

and service requirements. Under the PAEA and 

Commission regulations, the Postal Service has 

90 days after the fiscal year ends to prepare 

and submit its Annual Compliance Report (ACR) 

to the Commission. The ACR analyzes costs, 

revenues, rates, and quality of service for 

Market Dominant and Competitive products. 

39 U.S.C. § 3652(a). After receiving the ACR, 

the Commission then has 90 days to solicit 

comments from the public and determine (1) 

whether rates or fees in effect during the fiscal 

year complied with applicable provisions and 

(2) whether the Postal Service met its service 

standards in effect during the fiscal year. Id. § 

3653(a) and (b). The Commission publishes its 

analysis of the ACR in the ACD.

On March 28, 2016, the Commission issued 

the FY 2015 ACD and made several principal 

findings and directives.2

 First, when reviewing 

Market Dominant products for compliance with 

statutory pricing policies, the Commission found 

that 24 workshare discounts did not comply with 

39 U.S.C. § 3622(e), which prohibits workshare 

discounts from exceeding avoided costs except 

under specific circumstances. The Commission 

directed the Postal Service to either align 

workshare discounts with avoided costs during 

the next Market Dominant price adjustment or 

specify an applicable statutory exception.

Second, the Commission found that for the 

Periodicals class, the Postal Service failed 

to meaningfully address the FY 2014 ACD 

directives to report on the cost and contribution 

impact of worksharing incentives offered for 

5-Digit and Carrier Route presortation and 

progress in improving pricing efficiency. The 

Commission directed the Postal Service to 

provide further information within 120 days 

after the FY 2015 ACD was issued.

Third, the Commission identified seven Market 

Dominant products that did not generate 

sufficient revenues to cover their attributable 

costs: Periodicals In-County, Periodicals Outside 

County, Standard Mail Flats, Standard Parcels, 

Media Mail/Library Mail, Inbound Letter Post, 

and Stamp Fulfillment Services. The Commission 

directed the Postal Service to take appropriate 

action for some products.

Annual Compliance Determination

Annual Reports

PHOTO BY GREG K CA 2

 Docket No. ACR2015, Annual Compliance Determination, March 28, 2016 (FY 2015 ACD).

A fleet of United States Postal Service mail delivery vehicles in Franklin Park, Illinois.
26 | POSTAL REGULATORY COMMISSION • FY 2016 ANNUAL REPORT

Fourth, the Commission found that six Competitive 

products did not cover their attributable costs as 

required by 39 U.S.C. § 3633(a)(2). The Commission 

directed the Postal Service to take corrective 

action for each product found out of compliance. 

Such corrective action was directed to the specific 

circumstances surrounding the non-compliance 

and included amending or terminating contracts, 

reporting on the status of contracts or negotiations, 

and identifying obstacles to exiting or renegotiating 

international agreements.

Fifth, the Commission found that most products 

failed to meet their service performance targets 

for FY 2015. It also found that the Postal Service’s 

plans to improve service performance results were 

inadequate to address service performance issues. 

The Commission directed the Postal Service to file 

additional service performance information within 

120 days after the FY 2015 ACD was issued. 

Sixth, the Commission discussed the recent 

dramatic decline of service performance for 

First-Class Mail Single-Piece Letters/Postcards 

with a 3-5-Day service standard. As a result, 

the Commission determined that First-Class 

Mail Single-Piece Letters/Postcards were not 

in compliance. It directed the Postal Service 

to improve service for this product in FY 2016 

and provide a detailed, comprehensive plan for 

improving service performance. It required the 

Postal Service to explain in the FY 2016 ACR 

specific efforts to improve service performance 

for this product. It directed the Postal Service to 

provide certain information disaggregated by 

district level and service standard.

Seventh, the Commission discussed the Postal 

Service’s long term difficulties processing and 

delivering flats in a timely and cost effective 

manner. It found that due to the lack of 

comprehensive data, the Postal Service cannot 

measure the impact or success of initiatives 

designed to improve flats cost and service issues. 

Consequently, the Commission directed the 

Postal Service to submit a report on flats issues 

and provide further information regarding 

options for improving cost and service efficiency. 

This report was required to quantify the main 

drivers of significant and ongoing service 

failures and cost shortfalls and include a plan to 

address each of the main drivers. 

Each year, the Commission must evaluate 

whether the Postal Service met the performance 

goals established in its Annual Performance 

Report and Performance Plan. 39 U.S.C. 

§ 3653(d). The Commission may also provide 

the Postal Service recommendations related to 

protecting or promoting public policy objectives 

in Title 39. Id. 

On May 4, 2016, the Commission issued its Analysis 

of the Postal Service’s FY 2015 Annual Performance 

Report and FY 2016 Performance Plan.3

 The 

Commission provided an in-depth analysis of the 

Postal Service’s four performance goals: Deliver 

High-Quality Services, Provide Excellent Customer 

Experiences, Ensure a Safe Workplace and Engaged 

Workforce, and Sustain Controllable Income. 

The Commission found that the FY 2015 Annual 

Performance Report and FY 2016 Performance Plan

complied with most statutory requirements. Also, 

the Commission found that in FY 2015, the Postal 

Service partially met the Sustain Controllable 

Income performance goal, but did not meet the 

other three goals. For each performance goal, the 

Commission provided recommendations to help 

the Postal Service meet the goal and better assess 

its performance in future years. 

Analysis of Performance Goals

3

 Docket No. ACR2015, Analysis of the Postal Service’s FY 2015 Annual Performance Report and FY 2016 Performance Plan, May 4, 2016.
CHAPTER III | 27

On March 29, 2016, the Commission issued its 

Financial Analysis of United States Postal Service 

Financial Results and 10-K Statement for FY 

2015.4 In this report, the Commission evaluated 

the Postal Service’s financial status; analyzed 

volume, revenue, and cost trends for each 

mail class; and reviewed the Postal Service’s 

sustainability, liquidity, and solvency. 

The Commission acknowledged the Postal 

Service’s significant efforts to reduce operating 

expenses and improve efficiency to better align 

expenses with mail volumes. The Commission 

found that in FY 2015, the Postal Service generated 

an annual net operating income of $1.2 billion due 

to the Market Dominant exigent rate surcharge 

and increases in Competitive product volume 

and revenue. However, it stated that operating 

expenses also grew during FY 2015, resulting in 

increased work hours and career employees.

The Commission found that the Postal Service’s 

liquidity continued to improve compared to FY 

2013. Despite this improvement, the Commission 

observed that the Postal Service faces significant 

financial challenges such as the statutorilyrequired payments to the Retiree Health 

Benefits Fund. 

Financial Analysis Report

PHOTO PROVIDED BY THE USPS 4

 Docket No. ACR2015, Financial Analysis of United States Postal Service Financial Results and 10-K Statement Fiscal Year 2015, March 29, 2016 (Financial Analysis).
28 | POSTAL REGULATORY COMMISSION • FY 2016 ANNUAL REPORT

In FY 2016, there were several important rate and classification cases before the Commission. 

Rate and Classification Cases of Note

The Commission approved two Postal Service 

proposals to adjust Market Dominant prices. 

First, on November 16, 2015, the Postal Service 

sought approval of five temporary promotional 

discounts to be offered during FY 2016.5

 These 

promotions applied to First-Class Mail and 

Standard Mail products. After considering 

comments received, the Commission found that 

these temporary promotional discounts were 

consistent with 39 U.S.C. § 3622(d) and could 

take effect as planned.6

Second, on May 16, 2016, the Postal Service sought 

approval of six First-Class Mail and Standard 

Mail promotional discounts to be offered during 

calendar year 2017.7 The Postal Service also asked 

to increase prices to correct an anomaly within 

First-Class Mail Parcels. Id. at 1. After considering 

comments received, the Commission concluded 

that the proposed price adjustments were 

consistent with the price cap under 39 U.S.C. § 

3622(d), the reduced rates requirements under 39 

U.S.C. § 3626, and the annual limitation calculated 

under 39 C.F.R. § 3010.21.8

Market Dominant Price Adjustments

5

 Docket No. R2016-2, United States Postal Service Notice of Market-Dominant Price Adjustment, November 16, 2015.

6

 Docket No. R2016-2, Order No. 2861, Order on Price Adjustments for Market Dominant Products and Related Mail Classification Changes, December 10, 2015, at 7. 7

 Docket No. R2016-5, United States Postal Service Notice of Market-Dominant Price Adjustment, May 16, 2016.

8

 Docket No. R2016-5, Order No. 3373, Order on Price Adjustments for Market Dominant Products, June 16, 2016, at 1.

9

 Docket No. R2013-11, Order Granting Exigent Price Increase, December 24, 2013 (Order No. 1926).

10 Docket No. R2013-11R, Order Resolving Issues on Remand, July 29, 2015 (Order No. 2623); see also Order No. 1926; Alliance of Nonprofit Mailers v. Postal 

Regulatory Commission, 790 F.3d 186 (D.C. Cir. June 5, 2015). These orders and the court’s decision are discussed in more detail in Chapter V, infra. 11 Order No. 2623 at 62; see Docket No. R2013-11, Order No. 2319, Order on Exigent Surcharge Removal, January 12, 2015. 12 Docket No. R2013-11, Notice of the United States Postal Service of Removal of the Exigent Surcharge, February 25, 2016. 13 Docket No. R2013-11, Order No. 3103, Notice and Order on Removal of Exigent Surcharge, February 26, 2016. 14 Docket No. R2013-11, Order No. 3186, Order on Removal of the Exigent Surcharge and Related Changes to the Mail Classification Schedule, March 29, 2016.

In FY 2014, the Commission granted the Postal 

Service's request for an exigent price adjustment 

under 39 U.S.C. § 3622(d)(1)(E).9 In FY 2015, 

the Commission authorized the Postal Service 

to collect a total of $3.957 billion in after-rates 

contribution by imposing an exigent surcharge 

on existing Market Dominant rates.10

To monitor and prevent over-collection, the 

Commission directed the Postal Service to provide 

notice of its intent to remove the exigent rate 

surcharge 45 days before reaching the surcharge 

revenue limitation.11 On February 25, 2016, the 

Postal Service filed notice that it intended to 

remove the exigent surcharge on April 10, 2016.12

The Commission established a 20 day public 

comment period and ordered the Postal 

Service to continue to file bi-weekly estimates 

of surcharge revenue.13 On March 29, 2016, 

the Commission approved the Postal Service’s 

planned removal of the exigent surcharge.14

Removal of Exigent Surcharge
CHAPTER III | 29

15 Implementation of Full-Service Intelligent Mail Requirements for Automation Prices, 78 Fed. Reg. 23137 (Apr. 18, 2013). 16 Docket No. R2013-10, United States Postal Service Notice of Market-Dominant Price Adjustment, September 26, 2013. 17 Docket No. R2013-10, Order on Price Adjustments for Market Dominant Products and Related Mail Classification Changes, November 21, 2013, at 2, 13-14, 

36 (Order No. 1890). 18 Docket No. R2013-10, Response of the United States Postal Service to Order No. 1890, November 29, 2013, at 2; United States Postal Service v. Postal 

Regulatory Commission, No. 13-1308 (D.C. Cir. filed Dec. 20, 2013). 19 United States Postal Service v. Postal Regulatory Commission, 785 F.3d 740, 754-56 (D.C. Cir. 2015). 20 Docket No. R2013-10R, Order Resolving Issues on Remand, January 22, 2016 (Order No. 3047). 21 Docket No. RM2016-6, Notice of Proposed Rulemaking on Motions Concerning Mail Preparation Changes, January 22, 2016 (Order No. 3048). 22 Docket No. R2013-10R, Motion for Reconsideration of Order No. 3047, February 22, 2016 (Motion for Reconsideration). 23 Docket No. R2013-10R, Order No. 3441, Order Resolving Motion for Reconsideration of Commission Order No. 3047, July 20, 2016. 24 United States Postal Service v. Postal Regulatory Commission, No. 16-1284 (D.C. Cir. filed Aug. 11, 2016).

In FY 2008, the Postal Service introduced 

Intelligent Mail barcoding (IMb) as a requirement 

for automation rates at two different discount and 

service levels: basic and full service. 

In FY 2013, the Postal Service announced plans 

to require certain mailpieces to bear Full Service 

IMbs to qualify for an automation discount 

(pieces with Basic IMbs would pay a higher 

non-automation rate).15 In the Postal Service’s 

September 26, 2013 notice of planned price 

adjustments for Market Dominant products, 

the Postal Service did not alter the price cap 

calculation to account for the Full Service IMb 

requirement for any Market Dominant class 

except Package Services.16 The Commission 

subsequently found that the Full Service IMb 

requirement constituted a classification change 

with rate implications, concluding that the Postal 

Service’s implementation of the Full Service IMb 

requirement simultaneously with its planned 

rate adjustment would violate the price cap.17

The Postal Service deferred implementation of 

the Full Service IMb requirement and appealed 

the Commission’s order to the D.C. Circuit.18

In FY 2015, the D.C. Circuit affirmed the 

Commission’s authority to regulate mail 

preparation changes, but remanded the decision 

for the Commission to enunciate a standard for 

when a mail preparation change would have a 

rate effect with price cap implications and then 

reconsider its decision in light of that standard.19

On January 22, 2016, in Order No. 3047, the 

Commission, following an opportunity for public 

comment, announced a standard for determining 

whether a mail preparation change has rate 

effects that impact the price cap.20 Under that 

standard, a mail preparation change has rate 

effects when the change results in either the 

deletion or the redefinition of a rate cell. Id. at 

20. The Commission also established Docket 

No. RM2016-6 to consider proposed procedural 

rules relating to this standard.21

On February 22, 2016, the Postal Service moved 

for reconsideration and clarification of the 

application of the standard set forth in Order 

No. 3047.22 On July 20, 2016, the Commission 

issued an order resolving the Motion for 

Reconsideration and maintaining its holding set 

forth in Order No. 3047.23

On August 11, 2016, the Postal Service appealed 

Order No. 3047 and the Commission’s order 

resolving the Motion for Reconsideration to the 

D.C. Circuit.24 The petition is currently pending 

before the court.

IMb Remand

PHOTO PROVIDED BY THE USPS
30 | POSTAL REGULATORY COMMISSION • FY 2016 ANNUAL REPORT

The Postal Service may conduct market tests of 

experimental products under 39 U.S.C. § 3641. 

During FY 2016, the Commission authorized one 

new market test and an extension of an existing 

market test. 

On May 25, 2016, the Commission approved the 

Postal Service’s request to conduct the Global 

eCommerce Marketplace (GeM) Merchant 

market test.25 Customers mailing items to 

foreign countries must pay duties and taxes to 

the foreign country’s customs agency when the 

item arrives. Order No. 3319 at 2. GeM Merchant 

allows participating domestic online merchants 

to offer their international customers the ability 

to estimate and prepay these duties and taxes 

when purchasing the item. Id. The Postal Service 

will offer GeM Merchant to a limited number of 

merchants through NSAs. Id. The Commission 

found that the GeM Merchant market test 

met applicable statutory and regulatory 

requirements and authorized the market test to 

proceed for 2 years. Id. at 26. 

Under the Customized Delivery market test, 

the Postal Service delivers groceries and other 

prepackaged goods to customers.26 The market 

test was scheduled to expire on October 31, 

2016. Order No. 3543 at 2. On September 28, 

2016, the Commission authorized the extension 

of the Customized Delivery market test for an 

additional 12 months. Id. at 15. The Commission 

directed the Postal Service to continue providing 

advance notice at least 10 days before expanding 

the market test into other geographic areas. Id. 

at 11. It also updated the data collection plan for 

the market test. Id. at 12-13.

Market Tests

The Postal Service may request that the 

Commission add, remove, or transfer products 

from the Market Dominant and Competitive 

product lists. 39 U.S.C. § 3642; 39 C.F.R. part 

3020, subpart B. On October 28, 2015, the 

Commission approved the Postal Service’s 

request to remove Global Direct Contracts from 

the Competitive product list.27

The Commission's rules also enable the Postal 

Service to make material changes or minor 

corrections to the MCS by filing notice with 

the Commission. 39 C.F.R. part 3020, subpart 

E. During FY 2016, the Commission issued 

several orders approving MCS changes. First, the 

Commission approved material MCS changes 

related to Priority Mail International Flat Rate 

Envelopes and Small Flat Rate Boxes.28 Second, 

the Commission issued two orders approving 

minor classification changes to the Country Price 

Lists for International Mail in Part D of the MCS.29

Product List and Mail Classification Schedule Changes

25 Docket MT2016-1, Order Authorizing Market Test of Global eCommerce Marketplace (GeM) Merchant, May 25, 2016 (Order No. 3319). 26 Docket MT2014-1, Order Authorizing Extension of Customized Delivery Market Test and Updating Data Collection Plan, September 28, 2016, at 2 (Order No. 3543). 27 Docket No. MC2016-7, Order No. 2788, Order Approving Removal of Global Direct Contracts from the Competitive Product List, October 28, 2015. Requests 

to add new Competitive NSAs are discussed in the "Competitive Products" section below. 28 Docket No. MC2016-118, Order No. 3250, Order Approving Changes to the Mail Classification Schedule Related to Priority Mail International Flat Rate 

Envelopes and Priority Mail International Small Flat Rate Boxes, April 19, 2016. 29 Docket No. MC2016-10, Order No. 3458, Order Approving Minor Classification Changes, November 9, 2015; Docket No. MC2016-172, Order No. 2808, 

Order Approving Minor Classification Change, August 8, 2016.
CHAPTER III | 31

There were two key dockets, in addition to the ACD, in FY 2016 where the Commission considered 

issues related to service performance measurement and reporting.

Service Performance Measurement and Reporting

Service performance must be measured by an 

objective external performance measurement 

system unless the Commission approves the 

use of an internal or a hybrid measurement 

system. 39 U.S.C. § 3691(b)(2). In FY 2016, 

the Commission continued discussions with 

the Postal Service in Docket No. PI2015-1 

regarding its proposal to develop a new internal 

service performance measurement system for 

several Market Dominant products, including 

products within First-Class Mail, Standard Mail, 

Periodicals, and Package Services.

The Commission hosted two off-the-record 

technical conferences in FY 2016. First, on 

October 28, 2015, the Commission hosted a 

technical conference to discuss the Postal 

Service's statistical design plan for internal 

service performance measurement.30 Second, 

on August 26, 2016, the Commission hosted 

a technical conference where Postal Service 

officials discussed the implications of the FY 

2016 Quarters 2 and 3 service performance 

results that were produced by the proposed 

measurement system.31 This docket remains 

open pending the Postal Service’s filing of further 

information, including two more quarters of 

service performance results produced by the 

proposed measurement system.

Proposed Service Performance Measurement System

30 Docket No. PI2015-1, Order No. 2733, Order Scheduling Technical Conference Concerning the Statistical Design Plan, September 28, 2015. 31 Docket No. PI2015-1, Order No. 3459, Order Scheduling Technical Conference to Review Internal Service Performance Data, August 11, 2016.

PHOTO PROVIDED BY THE USPS
32 | POSTAL REGULATORY COMMISSION • FY 2016 ANNUAL REPORT

On September 30, 2015, the Government 

Accountability Office published a report 

recommending that the Commission hold a public 

proceeding to address how the Postal Service 

may improve the quality and completeness of its 

service performance data.32 Accordingly, Docket 

No. PI2016-1 was established to invite public 

comments on potential issues related to the 

quality and completeness of service performance 

data measured by the Postal Service.33 The 

GAO also recommended that the Commission 

provide service performance data and analyses 

in a more readily available format. Id. at 26, 

31. In response, the Commission updated its 

website to allow instantaneous access to service 

performance related reports and dockets under 

the tab “Reports/Data Service Reports.”

On August 26, 2016, the Commission issued a 

final order that enhanced reporting of service 

performance measurement data by requiring the 

Postal Service to regularly provide descriptions 

of the current methodologies used to verify the 

accuracy, reliability, and representativeness of 

data for each service performance measurement 

system.34 The Commission also required the 

Postal Service to provide regular, detailed 

information concerning mailpieces included and 

excluded from measurement and explain why 

mailpieces are excluded from measurement. 

Order No. 3490 at 2.

Enhancing Service Performance Reporting Requirements

Rulemakings

In FY 2016, the Commission conducted several rulemakings addressing rate and costing issues.

On January 22, 2016, the Commission initiated 

Docket No. RM2016-6 to consider proposed rules 

for regulating mail preparation changes that affect 

the price cap. See Order No. 3048. The proposed 

rules’ primary purpose is to ensure that the Postal 

Service properly accounts for the rate effects 

of mail preparation changes under 39 C.F.R. § 

3010.23(d)(2) in accordance with the Commission’s 

standard articulated in Order No. 3047.35 

The proposed rules are intended to standardize 

the procedure and timeframe for interested parties 

to file motions with the Commission when they 

contend that a mail preparation change affects 

compliance with the price cap. Id. at 2.

The Commission received five sets of comments. 

This rulemaking is currently pending before the 

Commission.

Mail Preparation Changes and the Price Cap

32 United States Government Accountability Office, U.S. Postal Service: Actions Needed to Make Delivery Performance Information More Complete, Useful, and 

Transparent, GAO-15-756, at 22 (September 2015). 33 Docket No. PI2016-1, Order No. 2791, Notice Establishing Docket Concerning Service Performance Measurement Data, October 29, 2015. 34 Docket No. PI2016-1, Order Enhancing Service Performance Reporting Requirements and Closing Docket, August 26, 2016, at 1-2 (Order No. 3490). 35 Id. at 1-2. Order No. 3047 is discussed in the “IMb Remand” section above. 

PHOTO PROVIDED BY THE USPS
CHAPTER III | 33

The Commission’s rules allow any interested 

person, including the Postal Service and public 

representative, to petition the Commission to 

initiate proceedings to consider proposals to 

change accepted analytical principles. 39 C.F.R. 

§ 3050.11(a). These proceedings are intended to 

improve the quality, accuracy, or completeness 

of data or data analysis in the Postal Service’s 

annual periodic reports to the Commission. Id. 

During FY 2016, the Commission considered 16 

petitions proposing to change various accepted 

analytical principles. Several of these proposals 

are discussed below.

On October 8, 2015, United Parcel Service (UPS) 

submitted three proposals asking the Commission 

to consider changes in cost attribution concerning 

inframarginal costs, “hidden” variable costs, 

and the minimum contribution of Competitive 

products to institutional costs. These proposals 

are discussed in detail in the "UPS Proposals One, 

Two, and Three" section on the following page.

The Commission also considered several proposals 

filed by the Postal Service. The Postal Service 

filed two proposals relating to city carrier costing. 

First, the Postal Service asked the Commission to 

consider Proposal Nine, which sought to utilize 

the Time and Attendance Collection System to 

decompose city carrier accrued costs into office 

costs (cost segment 6) and street costs (cost 

segment 7), replacing the current methodology 

that uses the In-Office Cost System.36 The 

Commission rejected Proposal Nine on September 

22, 2016, because of insufficient documentation 

that conflicts with other information on record 

and contains unexplained procedures.37

Second, the Postal Service asked the Commission 

to consider Proposal Thirteen, which proposed 

an update to the city carrier street time model 

used to determine the attributable street time 

costs of city carriers.38 The Commission issued 

an order approving the Postal Service’s proposal 

on October 29, 2015.39

On November 24, 2015, the Commission approved 

a proposal to combine Cost Segments 3 and 4, the 

costs for Post Office Clerks in Cost Ascertainment 

Groups (CAG) A-J and K-L.40 In doing so, however, 

the Commission also directed the Postal Service 

to report the costs for CAGs K-L separately in 

order to estimate accurately the costs of the 

universal service obligation. Order No. 2837 at 11.

On August 22, 2016, the Postal Service filed 

a proposal to develop an econometric model 

to determine the relationship between 

transportation capacity and mail volume, which 

was previously assumed to be 100 percent 

proportional.41 This relationship is used in 

developing the attributable costs for purchased 

highway transportation. This proposal is 

currently pending before the Commission.

The Commission approved several other 

proposals it found would improve the quality, 

accuracy, and completeness of financial data 

or data analysis. The proposals included 

initiatives to update and improve data sources 

for existing cost and revenue systems that either 

streamline data production or improve data 

quality. For example, the Commission approved 

an econometric model for determining the cost 

variability of call centers, once sufficient data are 

available for a robust estimation.42

Proposals to Change Analytical Principles

36 Docket No. RM2015-2, Petition of the United States Postal Service for the Initiation of a Proceeding to Consider Proposed Changes in Analytical Principles 

(Proposal Nine), October 31, 2014. 37 Docket No. RM2015-2, Order No. 3526, Order Denying Changes in Analytical Principles Used in Periodic Reporting (Proposal Nine), September 22, 2016 38 Docket No. RM2015-7, Petition of the United States Postal Service for the Initiation of a Proceeding to Consider Proposed Change in Analytical Principles 

(Proposal Thirteen), December 11, 2014. 39 Docket No. RM2015-7, Order No. 2792, Order Approving Analytical Principles Used in Periodic Reporting (Proposal Thirteen), October 29, 2015. 40 Docket No. RM2015-19, Order Approving Analytical Principles Used in Periodic Reporting (Proposal Ten), November 24, 2015 (Order No. 2837). 41 Docket No. RM2016-12, Petition of the United States Postal Service for the Initiation of a Proceeding to Consider Proposed Changes in Analytical Principles 

(Proposal Four), August 22, 2016. 42 Docket No. RM2015-5, Order No. 2826, Final Order on Analytical Principles Used in Periodic Reporting (Proposal Twelve), November 19, 2015.
34 | POSTAL REGULATORY COMMISSION • FY 2016 ANNUAL REPORT

On October 8, 2015, UPS submitted three proposals 

asking the Commission to consider changes in cost 

attribution concerning inframarginal costs, “hidden” 

variable costs, and the minimum contribution of 

Competitive products to institutional costs.43

Proposal One recommended that the Postal Service 

calculate and attribute inframarginal costs to 

individual products. Proposal Two recommended 

that the Commission include “hidden” variable 

costs when calculating attributable costs. Proposal 

Three recommended that the Commission 

increase the minimum contribution required from 

Competitive products under 39 U.S.C. § 3633(a)(3) 

from 5.5 percent to 24.6 percent.

On September 9, 2016, the Commission issued 

its order on these proposals.44 Proposals One 

and Two were not adopted because they failed to 

demonstrate that inframarginal costs and “hidden” 

variable costs can be attributed to products 

through “reliably identified causal relationships.” 

Order No. 3506 at 2-3. The Commission declined 

to consider Proposal Three because it is required 

under 39 U.S.C. § 3633(b) to review the Competitive 

products' appropriate share requirement every 

5 years. Id. at 124. The Commission stated it will 

conduct this review as required by section 3633(b). 

Id. In early FY 2017, UPS petitioned the D.C. Circuit 

for review of the Commission’s order.45 The appeal 

is currently pending before the court.

While not adopting the UPS proposals, the 

Commission found it appropriate to change the 

Postal Service's costing methodology to better reflect 

general economic costing principles. Order No. 

3506 at 123. Specifically, the Commission redefined 

attributable costs to mean the incremental costs of 

a product or service. Id. at 123-24. The Commission 

initiated a rulemaking to consider conforming 

changes to its rules that define or describe 

attributable costs.46 In FY 2017, the Commission 

issued a final order making these changes.47

UPS Proposals One, Two, and Three

In response to a petition filed by interested 

persons, the Commission explored possible 

improvements to the Postal Service’s econometric 

demand model and associated factors relating to 

price elasticity estimates and internet diversion 

in Docket No. RM2014-5.48 The Commission held 

a technical conference, issued a notice of inquiry, 

and considered comments received.49

On February 26, 2016, the Commission issued a 

final order closing this docket.50 The Commission 

stated that while the commenters’ observations 

and comments were helpful, they did not provide 

analytical approaches that could be directly 

incorporated into a postal demand model. Order 

No. 3100 at 8-9. The Commission also noted that 

the Postal Service had already implemented a 

number of changes to its demand and forecasting 

methodology. Id. at 10. For these reasons, the 

Commission declined to issue a notice of proposed 

rulemaking based on these proceedings. Id. at 9, 

12. The Commission requested that the Postal 

Service annually apprise the Commission of its 

progress to more accurately model the impact of 

diversion on mail volumes. Id. at 12.

Price Elasticities and Internet Diversion

43 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 (Petition). Proposals One, Two, and Three are attached to the Petition. 44 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 2, 4 (Order No. 3506). 45 United Parcel Service, Inc. v. Postal Regulatory Commission, No. 16-1354 (D.C. Cir. filed October 7, 2016). 46 Id. at 124; see Docket No. RM2016-13, Order No. 3507, Notice of Proposed Rulemaking on Changes Concerning Attributable Costing, September 9, 2016. 47 Docket No. RM2016-3, Order No. 3641, Order Adopting Final Rules on Changes Concerning Attributable Costing, December 1, 2016. 48 Docket No. RM2014-5, Petition to Improve Econometric Demand Equations for Market-Dominant Products and Related Estimates of Price Elasticities and 

Internet Diversion, May 2, 2014. 49 Docket No. RM2014-5, Order No. 2117, Notice and Order Scheduling Technical Conference, July 9, 2014; Docket No. RM2014-5, Notice of Inquiry No. 1, June 12, 2015. 50 Docket No. RM2014-5, Order Closing Docket, February 26, 2016, at 2-3 (Order No. 3100).
CHAPTER III | 35

Competitive Products

The Commission reviews Competitive product 

rates to ensure compliance with three statutory 

requirements:

1. 39 U.S.C. § 3633(a)(1). Competitive products 

must not be cross-subsidized by Market 

Dominant products. The Commission uses 

incremental costs to test whether Competitive 

products are being cross-subsidized; there is 

no cross-subsidy where the Commission finds 

that Competitive product revenues as a whole 

are equal to or exceed total incremental costs.

2. 39 U.S.C. § 3633(a)(2). Each Competitive 

product must cover its attributable costs. In 

the ACD and in response to a Postal Service 

notice of change in Competitive product 

prices, the Commission reviews whether 

revenues for each Competitive product exceed 

its attributable costs to determine compliance 

with this objective.

3. 39 U.S.C. § 3633(a)(3). This requires 

Competitive products to collectively cover 

an appropriate share of institutional costs. 

A Commission review determined that the 

contribution from Competitive products as 

a whole must be at least 5.5 percent of the 

Postal Service’s total institutional costs.51

Within the constraints of these statutory 

criteria, Commission rules provide flexibility to 

the Postal Service to set prices for Competitive 

products.52 For Competitive products featuring 

“rates of general applicability” (i.e., products 

available to the general mailing public), the 

Commission completes its review within 30 days. 

For Competitive products featuring “rates not of 

general applicability” (i.e., products with rates 

offered only to specific mailers), the Commission 

completes its review within 15 days.

Changes in Rates of General Applicability

On October 16, 2015, the Postal Service filed 

notice of changes in rates of general applicability 

for several domestic and international 

Competitive products.53 The Postal Service 

also proposed related changes to the MCS. 

The Commission found that the new rates for 

Competitive products and related classification 

changes complied with 39 U.S.C. 

§ 3633(a).54

The Postal Service also proposed a change in 

rates for Inbound Parcel Post (at UPU rates).55

Under UPU regulations, the Postal Service and 

other designated postal operators may qualify 

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

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

to the base rates effective January 1 and July 1 

of each year. The Commission issued an order 

acknowledging revised rates for this product.56

51 Docket No. RM2012-3, Order No. 1449, Order Reviewing Competitive Products’ Appropriate Share Contribution to Institutional Costs, August 23, 2012. 52 See 39 C.F.R. part 3015. 53 Docket No. CP2016-9, Notice of the United States Postal Service of Changes in Rates of General Applicability for Competitive Products Established in 

Governors’ Decision No. 15-1, October 16, 2015. 54 Docket No. CP2016-9, Order No. 2814, Order Approving Changes in Rates of General Applicability for Competitive Products, November 13, 2015, at 8-9. 55 Docket No. CP2016-207, Notice of the United States Postal Service of Filing Changes in Rates Not of General Applicability for Inbound Parcel Post (at UPU 

Rates) and Application for Non-Public Treatment, June 14, 2016. 56 Docket No. CP2016-207, Order No. 3404, Order Acknowledging Changes in Rates For Inbound Parcel Post (At UPU Rates), June 30, 2016.
36 | POSTAL REGULATORY COMMISSION • FY 2016 ANNUAL REPORT

During FY 2016, the Commission approved new 

Competitive NSAs in 281 docketed proceedings. 

Table III-1 shows these NSAs, as well as those 

the Commission approved during each of the 

prior 6 fiscal years.57 These NSAs required prior 

Commission approval for compliance with the 

statutory criteria.58

Changes in Rates Not of General Applicability: NSAs

Table III-1: Competitive NSAs Approved by the Commission

Competitive NSAs FY 2016 FY 2015 FY 2014 FY 2013 FY 2012 FY 2011 FY 2010

Domestic 186 81 40 52 32 13 13

International 95 58 36 29 22 48 111

Total 281 139 76 81 54 61 124

The Commission completed its review of each 

Competitive NSA within an average of 13 days. 

Of the NSAs approved in FY 2016, 186 involved 

domestic shipping services, including Priority 

Mail Express, Priority Mail, Parcel Select, Parcel 

Return Service, and First-Class Package Service. 

The Commission determined that the negotiated 

rates for each NSA request complied with 39 

U.S.C. § 3633(a).

The remaining 95 were Competitive 

international NSAs. The Commission reviewed 

the Postal Service’s requests concerning the 

following products in FY 2016:

Inbound services:

• International Business Reply Service 

Competitive Contracts 3

• Inbound Competitive Multi-Service Agreements 

with Foreign Postal Operators 1

Outbound services:

• Global Expedited Package Services (GEPS) 3

• GEPS 5

• GEPS 6

• GEPS 7

• Global Plus 1C

• Global Plus 1D

• Global Plus 2C

• Global Plus 3

• Global Reseller Expedited Package (GREP) 

Contracts 2

• GREP Contracts 3

• GREP Contracts 4

• Priority Mail International Regional Rate Boxes 

Contract 1

In addition, non-published rates (NPR) products 

authorize the Postal Service to enter into 

contracts featuring negotiated rates without 

prior Commission approval. Such NPR contracts 

must comply with Commission classification 

and regulatory requirements, including preapproved pricing formulas, minimum cost 

coverage, and documentation. The absence of 

pre-implementation review streamlines the 

approval process, providing the Postal Service 

with additional flexibility. The Commission has 

approved 14 NPR products since their inception 

in FY 2011. See Table III-2 on following page.

57 Specifically, Table III-1 shows approved NSAs that were filed as new products to be added to the MCS and/or functionally equivalent to a baseline 

agreement in a previously approved MCS product. 58 Since the enactment of the PAEA, the Commission has approved all requested Competitive NSAs filed by the Postal Service.
CHAPTER III | 37

Table III-2 also shows the number of NPR contracts included in these NPR products.59 The Priority 

Mail – NPR product is the only Competitive domestic NPR product currently in effect; the other 13 are 

Competitive international NPR products.

Table III-2: NPR Contracts Implemented by the Postal Service by Product

NPR Products

Number of Contracts

FY 2016 FY 2015 FY 2014 FY 2013 FY 2012 FY 2011 Total

GEPS–NPR 1–10 243 91 124 129 141 168 896

IMRS-FPO 1 and 2 0 0 N/A N/A N/A N/A 0

Priority Mail–NPR 0 0 1 2 3 3 9

Priority Mail International 

Regional Rate Boxes–NPR 0 0 0 0 N/A N/A 0

Total 243 91 125 131 144 171 905

Review of Calculation of Assumed Federal Income Tax on Competitive 

Products

To further enhance transparency, the 

Commission established a proceeding to review 

the Postal Service’s calculation of the FY 2014 

assumed Federal income tax on Competitive 

products. Before FY 2014, the Commission had 

included this review as part of the ACD. On 

January 20, 2016, the Commission established 

Docket No. T2016-1 to separately review the 

calculations of the FY 2015 assumed Federal 

income tax on Competitive products and 

supporting documentation, appointed a Public 

Representative, and invited comments from 

interested parties.60 On March 30, 2016, the 

Commission approved the Postal Service’s 

calculation of the FY 2015 assumed Federal 

income tax on Competitive products.61

59 For display purposes, Table III-2 lists all 10 GEPS—NPR products and both IMRS-FPO products as single line items. 60 Docket No. T2016-1, Order No. 3038, Notice and Order Concerning the Review of the Calculation of the Assumed Federal Income Tax on Competitive 

Products, January 20, 2016. 61 Docket No. T2016-1, Order No. 3196, Order Approving the Calculation of the FY 2015 Assumed Federal Income Tax on Competitive Products, March 30, 2016.

• GEPS – NPR 1

• GEPS – NPR 2

• GEPS – NPR 3

• GEPS – NPR 4

• GEPS – NPR 5

• GEPS – NPR 6

• GEPS – NPR 7

• GEPS – NPR 8

• GEPS – NPR 9

• GEPS – NPR 10

• International Merchandise Return Service 

 Agreements with Foreign Postal Operators 

 (IMRS-FPO) 1

• IMRS-FPO 2

• Priority Mail – NPR

• Priority Mail International Regional Rate Boxes 

 – NPR
38 

| POSTAL REGULATORY COMMISSION • FY 2016 ANNUAL REPORT

PHOTO PROVIDED BY THE USPS
CHAPTER IV | 39

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: geographic scope, product range, access, delivery, pricing, service quality, 

and an enforcement mechanism.62

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

types of mail and deposit mail into mailboxes.63 Unlike the cost of the USO (USO Cost), the 

Commission is not required to estimate the value of the postal monopoly. Nevertheless, 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. 

62 Postal Regulatory Commission, Report on Universal Postal Service and the Postal Monopoly, December 19, 2008, at 18 (USO Report). 63 Id. at 10 n.1.

PHOTO PROVIDED BY THE USPS

CHAPTER IV | Universal Service Obligation 

 and Postal Monopoly
40 | POSTAL REGULATORY COMMISSION • FY 2016 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:

• 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 

legal requirements 

39 U.S.C. § 3651(b)(1)

The USO Cost is the total costs incurred by the 

Postal Service in providing these three types of 

public services or activities. Table IV-1 illustrates 

the estimated USO Cost for the last 5 fiscal years, 

FY 2011 to FY 2015. 

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

FY 2015 FY 2014 FY 2013 FY 2012 FY 2011

Postal Services to Areas of the Nation the 

Postal Service Would Not Otherwise Serve* 0.35 0.51 0.61 0.77 0.83

Estimated Revenue Not Received 1.63 1.62 1.65 1.64 1.94

Other Public Services or Activities 2.26 2.21 2.39 2.43 2.49

TOTAL* 4.24 4.34 4.65 4.84 5.26

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

providing the public services or activities under section 3651(b)(1), describes related statutory 

requirements, and explains the methodologies used to estimate these costs.64 The Commission also 

estimates the value of the postal monopoly.

64 See 39 U.S.C. § 3651(b)(2).

* FY 2011 through FY 2014 figures differ from past Annual Reports because the Commission recalculated the costs of 

maintaining small post offices. See “Maintaining Small Post Offices” section below.
CHAPTER IV | 41

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)[.]65

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 2011 to FY 2015.

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

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

FY 2015 FY 2014 FY 2013 FY 2012 FY 2011

Maintaining Small Post Offices* 209 366 468 610 673

Alaska Air Subsidy 107 112 114 122 123

Group E Post Office Boxes 33 33 31 34 36

TOTAL* 349 511 613 766 832

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

Postal Service would not otherwise serve declined at an accelerated pace between FY 2011 and FY 

2015. This decline was due primarily to the large reductions in the cost of maintaining small post 

offices as described on the following page. 

65 Id. § 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).

* FY 2011 through FY 2014 figures differ from past Annual Reports because the Commission recalculated the costs of 

maintaining small post offices. See “Maintaining Small Post Offices” section below.

PHOTO BY DELPIXEL
42 | POSTAL REGULATORY COMMISSION • FY 2016 ANNUAL REPORT

The Postal Service maintains small post offices, 

which are generally located in rural or remote 

areas, as part of its duty “to establish and 

maintain postal facilities of such character 

and in such locations, that postal patrons 

throughout the Nation will, consistent with 

reasonable economies of postal operations, 

have ready access to essential postal services.”66

The Postal Service uses CAG classifications A 

to L to categorize post offices based on amount 

of revenue generated. Order No. 2837 at 1 n.2. 

Small post offices are those that fall within CAG 

K and L classifications; they have higher unit 

transaction costs than larger post offices and 

lower levels of annual revenue.67

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.68

On November 24, 2015, the Commission approved 

a Postal Service proposal to change an accepted 

analytical principle by combining Cost Segments 3 

and 4, the costs for post office clerks in CAGs A to L. 

Order No. 2837 at 12. The Postal Service submitted 

this proposal to account for recent changes in the 

staffing of small post offices resulting largely from 

the Postal Service’s implementation of the Post 

Office Structure Plan (POStPlan) and a related 

arbitration ruling. Id. at 2, 11. 

Table IV-2 lists the estimated costs of maintaining 

small post offices from FY 2011 to FY 2015 using 

a modified methodology. The modifications are 

an effort to incorporate all of the categories of 

employees who perform functions that were 

previously performed primarily by postmasters, 

and to accurately identify those costs associated 

with this element of the USO Cost.

Table IV-3 disaggregates the cost 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. Postmaster salary costs (along 

with overhead and other personnel and 

non-personnel related costs) have dropped 

sharply since FY 2013, while the costs of other 

employees assuming postmaster duties have had 

corresponding increases. Postmaster direct and 

indirect costs decreased from $659 million in 

FY 2011 to $26 million in FY 2015. Conversely, in 

FY 2013 and FY 2014, CAG L leave replacement 

costs were more than double typical fiscal year 

annual costs. Also, CAG K clerk costs increased 

significantly in FY 2015. 

MAINTAINING SMALL POST OFFICES

66 39 U.S.C. § 403(b)(3).

67 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).

68 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.

STILLWATER, MN/USA PHOTO BY KEN WOLTER
CHAPTER IV | 43

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

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

Selected CAG K and L Post Offices Annual 

Operating Costs FY 2015 FY 2014 FY 2013 FY 2012 FY 2011

CAG K and L Postmastersa 26 228 332 587 659

CAG L Leave Replacements 102 216 219 105 96

CAG K Clerks 176 13 6 5 4

Total Potential Operating Costs Saved 

(If CAG K and L Post Offices Closed) 304 457 558 698 759

Annual Estimated Cost Saving Adjustments 

(If CAG K and L Post Offices Closed) FY 2015 FY 2014 FY 2013 FY 2012 FY 2011

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

Rural Carrier Now Provides Delivery Service (CAG K 

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

CAG K and L Post Office Boxes Revenue Foregoned 36 33 33 32 30

Total Annual Cost Savings Adjustment 96 91 89 88 87

Updated Costs of Maintaining Small Post Offices FY 2015 FY 2014 FY 2013 FY 2012 FY 2011

(Potential Operating Costs Saved Less Cost Savings 

Adjustments) 209 366 468 610 673

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

a

 Consistent with the USO Report, previous Annual Reports used CAG K and L postmaster salary costs (along with overhead and other personnel and nonpersonnel related costs) to represent the total potential operating costs saved if CAG K and L post offices closed. Postmaster costs at CAG K and L post 

offices were derived by using the postmaster salary costs from the Postmaster Position Schedule CAG group proportions to distribute total postmaster (less 

CAG L leave replacements) costs to the CAG K and L group. However, due to recent staffing changes at small post offices, the costs of maintaining small 

post offices shown in Table IV-2 were recalculated to also include the CAG L leave replacement (postmaster relief employees) and CAG K clerk costs in 

addition to the postmasters costs in the potential operating costs saved total. The costs of maintaining small post offices in the FY 2012 and FY 2013 Annual 

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

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

dollar and the FY 2013 POStPlan revenues in Docket No. N2012-1. The annual number of CAG K and L retail transactions was approximated to be about 142 

million and was used in this calculation for the fiscal years shown in the table. C

 FY 2010 CAG K and L Post Office Box volumes were used to estimate the number of new delivery points (for those CAG K and L Post Office Boxes no longer available). d

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

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

Sources: 

Postmaster Position Schedule CAG Group Proportions: Library Reference 32 in Docket Nos. ACR2011, ACR2012, ACR2013, ACR2014, and 

ACR2015 (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. ACR2011, ACR2012, ACR2013, ACR2014, and 

ACR2015 (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. ACR2011, ACR2012, ACR2013, ACR2014, and ACR2015.
44 | POSTAL REGULATORY COMMISSION • FY 2016 ANNUAL REPORT

Alaska Bypass Service allows mailers to 

ship goods such as food and other cargo on 

pallets directly to rural customers in Alaska. 

Commercial airline carriers deliver goods on 

pallets to hub airports in either Anchorage 

or Fairbanks. Smaller airline companies or 

independent pilots then break down these 

pallets and deliver the goods to remote 

communities accessible only by air, which are 

commonly called bush sites. The shipped goods 

“bypass” the Postal Service’s network.

With Alaska Bypass Service, the Postal Service 

pays for the cost of air transportation from 

hub airports to bush sites. The Alaska Air 

Subsidy is 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. The Commission previously 

concluded that the Alaska Air Subsidy is part of 

the USO.69 The Alaska Air Subsidy has declined 

since FY 2011 from $123 million to $107 million 

in FY 2015.

ALASKA AIR SUBSIDY

Group E Post Office Boxes are provided free of 

charge to postal customers who do not receive mail 

delivery.70 The Postal Service provides this service 

to address potential discrimination issues arising 

from instances where customers do not receive 

carrier delivery. 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.71 Consequently, the Commission 

approved including the cost of Group E Post Office 

Boxes, which are primarily facility-related, in 

estimating the USO Cost. In FY 2015, Group E Post 

Office Boxes cost $33 million.

GROUP E POST OFFICE BOXES

69 USO Report at 139.

70 Docket No. RM2011-9, Order No. 744, Order Concerning Analytical Principles Used in Periodic Reporting (Proposal One), June 9, 2011, at 2.

71 Id. at 4. 72 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.

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.]”72 The Commission estimates the 

costs of providing free or reduced rates for postal 

services 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 2011 to FY 2015. 

Table IV-4: Estimated Revenue Not Received ($ Millions)

FY 2015 FY 2014 FY 2013 FY 2012 FY 2011

Preferred Rate Discounts Net of Costs 1,116 1,114 1,130 974 1,329

Periodicals Losses 512 509 521 670 609

TOTAL 1,628 1,623 1,651 1,644 1,938
CHAPTER IV | 45

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

to provide reduced rates for preferred rate 

categories in Standard Mail, Periodicals, 

and Library Mail. FY 2015 ACD at 41. 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. In that case, rates for these 

mail pieces would be higher, resulting in a loss of 

volume and, consequently, lower costs. 

PREFERRED RATE DISCOUNTS NET OF COSTS

The PAEA’s price cap does not allow the Postal 

Service to fully recover Periodicals Losses 

through rate increases.73 It is assumed that, if not 

for the price cap, the Postal Service would raise 

Periodicals rates to the level necessary to cover 

attributable costs. Accordingly, the Commission 

considers these losses to be part of the USO Cost. 

Periodicals Losses are the annual amount by which 

Periodicals attributable cost exceeds revenue.

Table IV-4 illustrates that although there was 

some variation year-to-year, overall Periodicals 

Losses declined. During the 5-year period 

shown, FY 2012 had the largest overall loss at 

$670 million, while in FY 2015, the overall loss 

increased slightly to $512 million over the FY 

2014 loss of $509 million.

Figure IV-1 shows the trend of Periodicals Losses 

and volumes from FY 2011 to FY 2015. The 

largest loss in FY 2012 was due to the largest 

increase in attributable cost per piece for the 

period and a slight decrease in revenue per piece 

between FY 2011 and FY 2012.74 In FY 2015, 

a slight increase in revenue per piece was not 

sufficient to offset the increase in cost per piece. 

Consequently, contribution per piece decreased, 

resulting in a slight increase in Periodicals 

Losses between FY 2014 and FY 2015.75

PERIODICALS LOSSES

73 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. 74 See FY 2014 ACD at 34. 75 See FY 2015 ACD at 43.

Figure IV-1: Periodicals Losses of Contribution and Volumes

Volume (Right Scale)

Negative Contribution 

(Left Scale)
46 | POSTAL REGULATORY COMMISSION • FY 2016 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.”76 Currently, these costs include the costs 

of providing Six-Day Delivery and uniform rates 

for First-Class Mail and Media Mail/Library 

Mail. Table IV-5 shows the costs of providing 

these public services or activities from FY 2011 

to FY 2015.

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

Would Not Provide But for Legal Requirements ($ Millions)

Public Service or Activity FY 2015 FY 2014 FY 2013 FY 2012 FY 2011

Six-Day Delivery 2,074 2,080 2,212 2,240 2,250

Uniform First-Class Mail Rates 86 93 109 117 122

Uniform Media Mail/Library Mail Rates 101 37 70 71 115

TOTAL 2,261 2,210 2,391 2,428 2,487

SIX-DAY DELIVERY

Since 1984, appropriations bills have included 

a provision requiring the Postal Service to 

continue providing Six-Day Delivery.77 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 

2011 to FY 2015. The cost of Six-Day Delivery 

declined from $2.25 billion in FY 2011 to $2.07 

billion in FY 2015. 

For FY 2008 and FY 2009, the Commission 

estimated the cost of providing Six-Day Delivery 

based on the methodology described in the USO 

Report. For FY 2010 to FY 2015, the Commission 

updated its methodology to reflect its findings in 

its Advisory Opinion on Elimination of Saturday 

Delivery.78 The update included additional 

components, such as the costs of mail processing 

and transportation; improvements in calculating 

average wage rates and overhead costs; and 

more disaggregated methods of estimating mail 

processing, transportation, and delivery costs. 

76 39 U.S.C. § 3651(b)(1)(C).

77 See, e.g., Consolidated Appropriations Act, 2016, Pub L. No. 114-113, 129 Stat. 2242, 2464 (2015) (“6-day delivery and rural delivery of mail shall continue 

at not less than the 1983 level”). 78 Docket No. N2010-1, Advisory Opinion on Elimination of Saturday Delivery, March 24, 2011.
CHAPTER IV | 47

UNIFORM RATES

Rates for First-Class Mail must be uniform 

throughout the United States.79 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 2015, the cost of 

uniform First-Class Mail rates declined from $93 

million in FY 2014 to $86 million in FY 2015.

Media Mail/Library Mail rates must be 

uniform for mail of the same weight and must 

not vary with the distance transported.80

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 2015, the estimated cost of providing 

uniform Media Mail/Library Mail rates was $101 

million. The substantial increase in cost between 

FY 2014 and FY 2015 is due primarily to the 

large decrease in the unit contribution of Media 

Mail/Library Mail.81

79 39 U.S.C. § 404(c).

80 Id. § 3683. 81 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. 82 Docket No. PI2014-1, Order No. 2820, Order Interpreting 39 U.S.C. § 3651(b)(1)(C), November 17, 2015.

OTHER PUBLIC SERVICES OR ACTIVITIES

On November 17, 2015, the Commission issued 

an order interpreting “other public services or 

activities” under 39 U.S.C. § 3651(b)(1)(C).82 

The Commission interpreted “public services 

or activities” to comprise statutorily-required 

offerings and actions by the Postal Service that 

are “public facing.” They must also relate to the 

USO and be similar in type to the services or 

activities enumerated under 39 U.S.C. §§ 3651(b)

(1)(A) and (B). The Postal Service must have an 

active role in offering, supplying, or performing 

“public services or activities.” 

For each public service or public activity, 

the Commission must determine whether a 

hypothetical profit-maximizing Postal Service 

would provide it absent statutory requirements. 

If a hypothetical profit-maximizing Postal Service 

would not provide a public service or activity 

absent statutory requirements, the Commission 

would report the full cost of the public service 

or activity in the Annual Report. If it were 

determined that a hypothetical profit-maximizing 

Postal Service would provide all of a public 

service or activity absent statutory requirements, 

the cost would not be reported. If it were 

determined that a hypothetical profit-maximizing 

Postal Service would provide only part of a public 

service or activity absent statutory requirements, 

the Commission would conduct a separate cost 

analysis to determine how much of the cost of the 

public service or activity should be reported. 

The Commission stated it would apply the 

interpretation set forth in its order if it 

determines that the costs of other public services 

or activities should be included in the Annual 

Report. The Commission has determined that no 

new public services or activities should be added 

at this time. 
48 | POSTAL REGULATORY COMMISSION • FY 2016 ANNUAL REPORT

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.83 The letter monopoly is the Postal 

Service's exclusive right to carry and deliver 

most addressed, paper-based correspondence.84

The value of the postal monopoly is an estimate 

of the profit that the Postal Service would lose 

if both the mailbox and letter monopolies were 

lifted, and the Postal Service were subject to 

competition for mail currently covered by the 

postal monopoly. 

Table IV-6 shows the values of the postal and 

mailbox monopolies from FY 2011 to 

FY 2015.85 The increase in the estimated value 

of the postal monopoly from FY 2013 to FY 2015 

is largely due to increases in the percentage of 

mail that is considered contestable.86 The value 

of the mailbox monopoly is estimated based 

on contestable mail volumes in Periodicals, 

Standard Mail ECR, and Parcel Select. Changes in 

the volume of contestable mail affect the number 

of profitable routes the competitor could deliver 

to and the amount of contribution the Postal 

Service would lose if the competitor captured the 

contestable mail on those routes.

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

FY 2015 FY 2014 FY 2013 FY 2012 FY 2011

Postal Monopoly 5.45 4.61 3.93 3.28 3.34

Mailbox Monopoly 1.03 0.77 0.81 0.70 0.91

The Commission used the model described in the 

USO Report to update current estimates.87 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 

83 18 U.S.C. § 1725.

84 The letter monopoly is codified in the Private Express Statutes. See 18 U.S.C. §§ 1693–1699 and 39 U.S.C. §§ 601–606. 85 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. 86 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. 87 See USO Report at 143-52.
CHAPTER IV | 49

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.88

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.89 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.90 In addition, 

bulk parcels, which are Competitive products, 

are considered contestable mail. 

88 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.

89 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. 90 Although the model assumes a 10 percent discount would be necessary to entice customers to switch, brand loyalty, inertia, the need to prove quality, and 

other factors affect the pace at which customers would switch from the Postal Service to a competitor. The model assumes a competitor would capture 100 

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

discount were offered.
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CHAPTER V | 51

In addition to dockets that directly relate to various objectives, the 

Commission initiates orders and performs work on other matters. 

These matters include rules, regulations, and procedures on rates, mail 

classifications, service standards, public inquiries, rulemakings, formal 

complaints, and post office closing appeals.

In FY 2016, the Commission:

• Conducted five public inquiry dockets to seek public input on 

important issues

• Initiated three rulemaking dockets to clarify its regulations and 

procedures

• Adjudicated two post office closing appeals and one formal complaint

• Assisted the Department of Justice with the defense of Commission 

orders appealed to the D.C. Circuit

• Provided views to the United States Department of State (State 

Department) on international postal policy issues

PHOTO BY JOE RAVI

CHAPTER V | Other Proceedings and Actions

United States Supreme Court.
52 | POSTAL REGULATORY COMMISSION • FY 2016 ANNUAL REPORT

Public Inquiries

Section 701 Report

Section 701 of the PAEA requires the Commission 

to submit a report to the President and Congress 

at least every 5 years (Section 701 Report). In 

this report, the Commission must describe how 

PAEA amendments are operating and recommend 

legislation or other measures to improve the 

effectiveness or efficiency of postal laws.91

The Commission issued its first Section 701 

Report in FY 2011.92 On April 14, 2016, the 

Commission established Docket No. PI2016-3 

to obtain public comment on its second Section 

701 Report.93 After considering comments 

received, in FY 2017, the Commission issued its 

second Section 701 Report.94 It is available on the 

Commission’s website at www.prc.gov.

Scope of Public Service or Activity Cost Reporting

In the Annual Report, the Commission must 

include, among other things, an estimate of the 

Postal Service’s costs incurred 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.” 39 U.S.C. § 3651(b)(1)(C). As described in 

detail in Chapter IV, the Commission issued an 

order interpreting this statutory provision on 

November 17, 2015. See Order No. 2820.

91 Pub L. 109-435, 120 Stat. 3198 (2006), section 701(a). 92 Postal Regulatory Commission, Section 701 Report, Analysis of the Postal Accountability and Enhancement Act of 2006, September 22, 2011. 93 Docket No. PI2016-3, Order No. 3238, Notice and Order Seeking Comments on Report to the President and Congress Pursuant to Section 701 of the Postal 

Accountability and Enhancement Act, April 14, 2016. 94 Postal Regulatory Commission, Section 701 Analysis of the Postal Accountability and Enhancement Act of 2006, November 14, 2016. 95 Docket No. PI2016-2, Order No. 2862, Notice and Order Seeking Comments on Commission Jurisdiction Over Postal Service Determinations to Close or 

Consolidate Post Offices, December 10, 2015. 96 Docket No. PI2016-2, Order No. 3456, Order Concluding Proceeding, August 8, 2016.

Jurisdiction over Post Office Closings and Consolidations

The Commission is authorized to review appeals 

of Postal Service decisions to “close or consolidate 

any post office.” 39 U.S.C. § 404(d)(5). On 

December 10, 2015, the Commission established 

a proceeding to solicit comments on issues 

related to the Commission’s jurisdiction under 

section 404(d).95 The Commission considered the 

comments received and stated that they will be 

helpful when deciding future cases and preparing 

the second Section 701 Report. The Commission 

concluded that no further action was necessary 

and closed the docket.96

Service Performance

The Commission considered issues related 

to service performance measurement and 

reporting in two public inquiry dockets. First, in 

Docket No. PI2015-1, the Commission continued 

discussions with the Postal Service regarding 

its proposal to develop a new internal service 

performance measurement system for several 

Market Dominant products. Second, in Docket 

No. PI2016-1, the Commission issued a final 

order enhancing the Postal Service's reporting of 

service performance measurement data. These 

dockets are discussed in detail in Chapter III.
CHAPTER V | 53

Rulemakings on Commission Procedures

Ex Parte Rules

On January 8, 2016, the Commission initiated a 

rulemaking to revise and reorganize its rules 

concerning ex parte communications.97 These 

rules apply to all verbal, written, and electronic 

interactions between Commission decisionmaking personnel and the Postal Service or 

public stakeholders in matters before the 

Commission. The Commission provided several 

reasons for revising the existing rules, such as 

removing redundant regulations, clarifying 

who qualifies as Commission “decision-making 

personnel,” removing references to rate and 

classification cases that the PAEA eliminated, and 

providing guidance on ex parte communications 

outside of nature of service cases, post office 

closings appeals, and complaints.

After considering comments received, the 

Commission issued an order adopting final rules 

for ex parte communications on June 22, 2016.98

The final rules contained requirements for all 

proceedings before the Commission with specific 

exceptions. They set forth a permit-but-disclose 

approach to ex parte communications and 

clarified when penalties for violating ex parte 

communication rules apply.

PHOTO BY EDDTORO 97 Docket No. RM2016-4, Order No. 3005, Notice of Proposed Rulemaking Regarding Ex Parte Communications, January 8, 2016. 98 Docket No. RM2016-4, Order No. 3379, Order Adopting Final Rules for Ex Parte Communications, June 22, 2016.

A postal carrier delivering mail in the Bronx, New York.
54 | POSTAL REGULATORY COMMISSION • FY 2016 ANNUAL REPORT

Product Lists and Mail Classification Schedule

On April 6, 2016, the Commission initiated 

a rulemaking proposing to replace existing 

regulations governing product lists and the MCS.102

On June 8, 2016, after considering comments 

received, the Commission adopted the proposed 

rules as final rules with one minor clarification.103

The final rules codify the current practice of 

publishing the MCS on the Commission’s website, 

noticing changes to the product lists in the Federal 

Register, and publishing product lists in the Code 

of Federal Regulations.

99 Docket No. RM2016-5, Order No. 3039, Notice of Proposed Rulemaking Regarding Minor Amendments to Commission Rules Regarding Proposed 

Modifications to the Mail Classification Schedule, January 20, 2016. 100 The Postal Service is statutorily required to independently notice its requests to change the product lists in the Federal Register. See 39 U.S.C. § 3642(d)(1). 101 Docket No. RM2016-5, Order No. 3356, Order Closing Docket, June 7, 2016. 102 Docket No. RM2016-8, Notice of Proposed Rulemaking Concerning Product Lists and the Mail Classification Schedule, April 6, 2016 (Order No. 3213). 103 Docket No. RM2016-8, Order No. 3360, Final Rule Concerning Product Lists and the Mail Classification Schedule, June 8, 2016. The final rules clarified that 

the Commission will update the MCS in accordance with its regulations.

PHOTO BY ANDREY POPOV

Amendments to Commission Publishing Rules

On January 20, 2016, the Commission initiated 

a rulemaking to consider amendments to the 

Commission’s rules concerning the Market 

Dominant and Competitive product lists.99 The 

proposed amendments were designed to reduce 

duplicative efforts and streamline the process 

for reviewing Postal Service requests filed under 

39 C.F.R. part 3020.100

After considering comments received, the 

Commission determined to make no changes 

to the rules at this time.101 The Commission 

expects the Postal Service to file hundreds of 

requests annually. The Commission will continue 

to explore ways to improve efficiency without 

sacrificing transparency or accountability. 

For example, Commission startup and Federal 

Register notices now combine all Postal Service 

NSA requests and notices filed on a given day.
CHAPTER V | 55

Post Office Closing Appeals

The Commission adjudicated two post office 

closing appeals in FY 2016. First, the Commission 

dismissed an appeal of the Westbrookville, New 

York post office closing.104 The Commission 

considered the appeal moot because the Postal 

Service executed a permanent contract with 

a new supplier to provide continued postal 

services to the community.

Second, the City of Winchester, Illinois appealed 

the Postal Service’s decision to temporarily 

suspend operations at the Winchester post office. 

A few days later, the City of Winchester moved 

to dismiss the appeal because the Postal Service 

executed a lease for the post office, permitting it 

to remain open. For this reason, the Commission 

dismissed the appeal as moot.105

Goodman Complaint

In FY 2015, James and Rosalyn Goodman filed a 

complaint alleging that the Postal Service violated 

postal regulations and policies and other federal 

laws by suspending delivery to Rosalyn Goodman’s 

residence.106 On July 15, 2015, the Commission 

found that the Postal Service’s regulations were 

reasonable and dismissed the complaint.107

On October 16, 2015, Goodman moved to 

vacate the Commission's order dismissing 

the complaint,108 which the Postal Service 

answered.109 The Commission denied the motion 

to vacate because no new arguments of fact or law 

were presented.110

104 Docket No. A2016-1, Order No. 3364, Order Dismissing Appeal, June 14, 2016. 105 Docket No. A2016-2, Order No. 3357, Order Granting Motion to Dismiss, June 7, 2016. 106 Docket No. C2015-2, First Amended Complaint of James D. Goodman and Rosalyn Goodman Regarding Failure and Refusal to Deliver Mail by the US Postal 

Service to 1600 Entre Colinas Place, Pomona California, April 23, 2015. 107 Docket No. C2015-2, Order No. 2585, Order Granting Motion to Dismiss, July 15, 2015. 108 Docket No. C2015-2, Motion to Vacate Order Granting Motion to Dismiss and Other Relief, October 16, 2015. 109 Docket No. C2015-2, United States Postal Service Answer in Opposition to Complainants’ Motion to Vacate Order Granting Motion to Dismiss and Other 

Relief, October 23, 2015. 110 Docket No. C2015-2, Order No. 2850, Order Denying Motion to Vacate Order Granting Motion to Dismiss and Other Relief, December 4, 2015.

PHOTO PROVIDED BY THE USPS
56 | POSTAL REGULATORY COMMISSION • FY 2016 ANNUAL REPORT

Court Appeals

Remand of Exigent Price Adjustment

In FY 2014, the Commission granted the Postal 

Service's request for an exigent price adjustment 

under 39 U.S.C. § 3622(d)(1)(E). Order No. 1926 

at 193. The Commission found that the Postal 

Service was entitled to collect $2.766 billion in 

2014 after-rates contribution as a result of losses 

it incurred due to the Great Recession. Id. at 106. 

The Postal Service petitioned the D.C. Circuit for 

review of the Commission’s order.111 The court 

largely affirmed the Commission’s order, but 

vacated the Commission’s method for counting 

mail volume losses due to the Great Recession. 

790 F.3d at 196. It remanded the case to the 

Commission for further proceedings. Id. at 197.

Responding to the court’s decision, the 

Commission initiated Docket No. R2013-11R 

to establish procedures on remand and solicit 

comments.112 On June 29, 2015, after considering 

comments received, the Commission issued 

Order No. 2623 that resolved issues on remand. 

The Commission accepted the Postal Service’s 

methodology for counting mail volume losses 

due to the Great Recession. Order No. 2623 

at 41-46. It found that the Postal Service was 

entitled to recover $1.191 billion in additional 

contribution. Id. at 62. 

The Postal Service petitioned the D.C. Circuit 

for review of Order No. 2623.113 The court held 

oral argument on September 20, 2016. On 

November 15, 2016, the court issued its decision 

dismissing the Postal Service’s appeal for lack of 

jurisdiction.114

The following cases were before the D.C. Circuit during FY 2016.

PHOTO BY EUROBANKS

111 United States Postal Service v. Postal Regulatory Commission, No. 14-1010 (D.C. Cir. filed Jan. 23, 2014). 112 Docket No. R2013-11R, Order No. 2540, Notice and Order Establishing Procedures on Remand and Suspending the 45-Day Notice Requirement for 

Removing the Exigent Surcharge, June 12, 2015. 113 United States Postal Service v. Postal Regulatory Commission, No. 15-1297 (D.C. Cir. filed Aug. 28, 2015). 114 United States Postal Service v. Postal Regulatory Commission, No. 15-1297, 2016 WL 6694950 (D.C. Cir. Nov. 15, 2016).

District of Columbia Court of Appeals building with Abraham Lincoln statue.
CHAPTER V | 57

In FY 2013, the Postal Service filed a request to 

add a new product, Round-Trip Mailer (RTM), 

to the Competitive product list.115 The proposed 

RTM featured equal prices for letter-shaped and 

flat-shaped round-trip DVD mail. The Postal 

Service intended for the RTM to replace existing 

Market Dominant product offerings for roundtrip DVD mail.

On December 23, 2014, the Commission issued 

an order denying the request because the Postal 

Service failed to demonstrate that RTM met the 

requirements for inclusion on the Competitive 

product list under 39 U.S.C. § 3642(b).116 The 

Commission found that the Postal Service failed 

to provide sufficient evidence to demonstrate 

that it did not exercise “sufficient market 

power” to “effectively set the price of [the 

Round-Trip Mailer] 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.” Order No. 2306 at 

2-3. The Commission denied the request without 

prejudice to the filing of a new, adequately 

supported request. Id. at 3.

On January 21, 2015, the Postal Service petitioned 

the D.C. Circuit to review the Commission’s 

order.117 On March 22, 2016, the D.C. Circuit denied 

the petition for review.118 The court affirmed 

the Commission’s decision as “more than just 

reasonable; its decision seems rather compelling.” 

Id. at 886. The court also identified flaws with 

the Postal Service’s arguments. For example, the 

court noted that the Postal Service failed to show 

that it lacked market power in the DVD-by-mail 

distribution market. Id. at 886-87.

In FY 2013, the American Postal Workers Union 

(APWU) filed a complaint alleging that the Postal 

Service failed to adhere to the service standards 

established as a result of the Mail Processing 

Network Rationalization initiative.119 The 

Commission granted the Postal Service’s motion 

to dismiss the APWU complaint.120

Subsequently, APWU filed a motion for 

reconsideration, which the Commission granted, 

vacating its previous order dismissing the 

complaint.121 The Commission, however, found 

that service standards outlined in 39 C.F.R. 

§ 121.1 represent expectations that cannot be 

violated per se. Rather, the Commission assesses 

service performance by determining whether 

the Postal Service met its performance goals. 

The Commission stated that it already evaluated 

the Postal Service’s compliance with its service 

standards and directed the Postal Service to 

take remedial action. For these reasons, the 

Commission dismissed the complaint.

Complaint of the American Postal Workers Union

Round-Trip Mailer

115 Docket No. C2009-1R, Request of the United States Postal Service Under Section 3642 to Create Round-Trip Mailer Product, July 26, 2013. 116 Docket Nos. MC2013-57 and CP2013-75, Order Denying Request, December 23, 2014 (Order No. 2306). 117 United States Postal Service v. Postal Regulatory Commission, No. 15-1018 (D.C. Cir. filed Jan. 21, 2015). 118 United States Postal Service v. Postal Regulatory Commission, 816 F.3d 883 (D.C. Cir. 2016). 119 Docket No. C2013-10, Complaint of American Postal Workers Union, AFL-CIO Regarding Violations of 39 U.S.C. 3661 and 3691, September 5, 2013. 

See also Docket No. C2013-10, Amended Complaint of American Postal Workers Union, AFL-CIO Regarding Violations of 39 U.S.C. § 3691 and 39 C.F.R. § 

121.1, December 13, 2013. 120 Docket No. C2013-10, Order No. 2000, Order Dismissing Complaint, February 27, 2014. 121 Docket No. C2013-10, Order No. 2512, Order Granting Motion for Reconsideration and Granting Motion to Dismiss, May 27, 2015.
58 | POSTAL REGULATORY COMMISSION • FY 2016 ANNUAL REPORT

On May 29, 2015, APWU filed a petition for 

review before the D.C. Circuit.122 In FY 2017, 

the court denied the petition for review.123 The 

court found that the Commission’s method 

for evaluating when service standards have 

been violated was reasonable. It also found 

the Commission’s interpretation that service 

standards should be measured with separately 

defined performance goals was reasonable 

and entitled to deference. The court stated that 

the Commission logically construed APWU’s 

amended complaint and that dismissing the 

complaint was not arbitrary or capricious. 

On November 14, 2014, the Postal Service filed 

a request with the Commission to transfer 

the First-Class Mail Parcels product from the 

Market Dominant product list to the Competitive 

product list (merging the new offering into the 

existing First-Class Package Service product).124

For a Market Dominant product to be transferred 

to the Competitive product list, the Postal Service 

must demonstrate compliance with 39 U.S.C. 

§ 3642(b), which includes criteria relevant to 

market power, the postal monopoly, and other 

additional considerations. The Commission found 

that the Postal Service did not provide sufficient 

evidence to demonstrate that it lacks market 

power and denied the Postal Service’s request.125

On September 22, 2015, the Postal Service filed 

a petition for review before the D.C. Circuit.126

In FY 2017, the court granted the petition for 

review, stating that the Commission did not 

adequately distinguish the First-Class Mail 

Parcels transfer case from previous parcel 

transfer cases.127 It remanded the case to the 

Commission for further proceedings and the case 

is currently pending before the Commission.

First-Class Mail Parcels Transfer

In FY 2015, the Center for Art and Mindfulness, 

Inc. and Norton Hazel (Complainants) filed a 

complaint concerning the sale and closure of the 

Atlantic Street Station post office in Stamford, 

Connecticut.128 The Postal Service filed a motion to 

dismiss,129 which the Commission granted on March 

4, 2015. On April 1, 2015,130 Complainants filed a 

motion for reconsideration of the Commission’s 

order.131 On April 23, 2015, the Commission denied 

the motion for reconsideration.132

Complaint of the Center for Art and Mindfulness

122 American Postal Workers Union, AFL-CIO v. Postal Regulatory Commission, No 15-1156 (D.C. Cir. filed May 29, 2015). 123 American Postal Workers Union, AFL-CIO v. Postal Regulatory Commission, No. 15-1156, 2016 WL 6956668 (D.C. Cir. Nov. 29, 2016). 124 Docket No. MC2015-7, Request of the United States Postal Service to Transfer First-Class Mail Parcels to the Competitive Product List, November 14, 2014. 125 Docket No. MC2015-7, Order No. 2686, Order Denying Transfer of First-Class Mail Parcels to the Competitive Product Category, August 26, 2015. 126 United States Postal Service v. Postal Regulatory Commission, No. 15-1338 (D.C. Cir. filed Sept. 22, 2015). 127 United States Postal Service v. Postal Regulatory Commission, No. 15-1338, 2016 WL ^ (D.C. Cir. December 6, 2016). 128 Docket No. C2015-1, Complaint of Center for Art and Mindfulness, Inc. and Norton Hazel, December 29, 2014. 129 Docket No. C2015-1, United States Postal Service Motion to Dismiss the Complaint of the Center for Art and Mindfulness, Inc. and Norton Hazel, January 

20, 2015. 130 Docket No. C2015-1, Order No. 2377, Order Granting Motion to Dismiss, March 4, 2015. 131 Docket No. C2015-1, Brief in Support of Motion for Reconsideration of Commission Order of Center for Art and Mindfulness, Inc. and Norton Hazel, April 1, 2015. 132 Docket No. C2015-1, Order No. 2460, Order Denying Reconsideration of Commission Order No. 2377, April 23, 2015.
CHAPTER V | 59

On January 15, 2015, the Commission issued 

an order conditionally approving the Postal 

Service’s request to remove Return Receipt for 

Merchandise Service from the list of Special 

Services in the MCS.137 The Postal Service 

subsequently notified the Commission that it 

decided to indefinitely defer removing this Special 

Service from the MCS.138

On February 18, 2015, the Postal Service appealed 

the Commission’s order to the D.C. Circuit.139

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.140

The court granted the motion on June 15, 2015, 

and remanded the matter to the Commission.141

In FY 2017, the Commission issued a final order 

resolving issues on remand.142

Removal of Return Receipt for Merchandise Service

The following appeals are pending before the D.C. Circuit:

 • IMb Remand143

 • UPS Proposals One, Two, and Three144

 • Complaint of Ramon Lopez145

 • Complaint of Frederick Foster146

Pending Court Appeals

133 Center for Art and Mindfulness v. Postal Regulatory Commission, No 15-1079 (D.C. Cir. filed Apr. 3, 2015). 134 Center for Art and Mindfulness v. Postal Regulatory Commission, No. 15-1079 (D.C. Cir. filed Jan. 4, 2016). 135 Center for Art and Mindfulness v. Postal Regulatory Commission, No. 15-1079 (D.C. Cir. filed Feb. 2, 2016). 136 Center for Art and Mindfulness v. Postal Regulatory Commission, No. 15-1079 (D.C. Cir. filed Mar. 3, 2016). 137 Docket No. MC2015-8, Order No. 2322, Order Conditionally Approving Removal of Return Receipt for Merchandise Service from Mail Classification 

Schedule, January 15, 2015. 138 Docket No. MC2015-8, Response of the United States Postal Service to Order No. 2322, January 28, 2015. 139 United States Postal Service v. Postal Regulatory Commission, No. 15-1037 (D.C. Cir. filed Feb. 18, 2015). 140 United States Postal Service v. Postal Regulatory Commission, No. 15-1037 (D.C. Cir. filed Jun. 5, 2015). 141 United States Postal Service v. Postal Regulatory Commission, No. 15-1037 (D.C. Cir. filed Jun. 15, 2015). 142 Docket No. MC2015-8R, Order No. 3597, Order Resolving Issues on Remand, October 31, 2016. 143 United States Postal Service v. Postal Regulatory Commission, No. 16-1284 (D.C. Cir. filed Aug. 11, 2016). This case is discussed in Chapter III, supra. 144 United Parcel Service, Inc. v. Postal Regulatory Commission, No. 16-1354 (D.C. Cir. filed October 7, 2016). This case is discussed in Chapter III, supra. 145 Ramon Lopez v. Postal Regulatory Commission, No. 12-1341 (D.C. Cir. filed Aug. 3, 2012). 146 Frederick Foster v. Postal Regulatory Commission, No. 15-1339 (D.C. Cir. filed Sep. 23, 2015).

On April 3, 2015, Complainants appealed the 

Commission’s order dismissing their complaint 

to the D.C. Circuit.133 The Commission moved 

to dismiss the petition on the grounds that the 

order appealed by Complainants was not a final 

order subject to judicial review. On January 4, 

2016, the court granted the motion to dismiss.134

On February 2, 2016, Complainants filed a 

petition for rehearing,135 which the court denied 

on March 3, 2016.136
60 | POSTAL REGULATORY COMMISSION • FY 2016 ANNUAL REPORT

Commission’s Role in 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. 39 U.S.C. § 407. Headquartered in Bern, 

Switzerland, the UPU is an international treaty 

organization tasked with facilitating highquality universal mail service at affordable rates. 

Although the State Department has primary 

authority over international postal policy, it 

requests the Commission’s views on whether any 

treaty, convention, or amendment that establishes 

a Market Dominant rate or classification is 

consistent with the PAEA’s modern system of 

ratemaking for Market Dominant products. Id. 

§ 407(c)(1). The State Department ensures that 

relevant United States positions in the UPU are 

consistent with the Commission’s views unless 

there is a foreign policy or national security 

concern. Id. § 407(c)(2).

In FY 2016, the Commission chaired the 

Regulatory Issues Project Group and continued 

its active role in the UPU Letters and Parcels 

Remuneration Groups on international letter 

mail and parcel delivery rates, as well as in 

several other UPU project groups. Also, the 

Commission continued its role as an active 

member of the State Department’s Federal 

Advisory Committee on International and Postal 

Delivery Services.

On December 30, 2015, the Commission adopted 

final rules describing general procedures 

related to the Commission’s views on proposals 

submitted for consideration at UPU Congresses 

that could affect a Market Dominant rate or 

classification.147 The purpose of the new rules 

was to facilitate public participation in, and 

promote the transparency of, the development of 

Commission views.

Under the new rules, the Commission will 

establish a docket for each UPU Congress. The 

Commission will seek 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.” 

39 C.F.R. 3017.3(a). Comment deadlines will be 

established on a case-by-case basis to ensure 

the Commission’s views are submitted to the 

Secretary of State in a timely manner.

The Commission applied these rules for the first 

time when the Secretary of State requested the 

Commission’s views on proposals for the 26th 

UPU Congress. Specifically, the Secretary of State 

asked the Commission whether these proposals 

were consistent with the standards and criteria 

for modern rate regulation established by the 

Commission under 39 U.S.C. § 3622.148 The 

Commission established Docket No. IM2016-1 to 

solicit comments.149 The Commission received 

comments from 19 interested individuals and 

parties representing a broad array of postal 

stakeholders.

After considering comments received, the 

Commission provided its views to the Secretary 

of State on August 31, 2016, and supplemental 

views on September 19, 2016. Consistent with 

the Commission’s new rules, these views were 

posted on the Commission’s website in Docket 

No. IM2016-1.150

147 Docket No. RM2015-14, Order No. 2960, Order Adopting Final Rules on Procedures Related to Commission Views, December 30, 2015. 148 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, April 1, 2016. See also Letter from Acting Chairman Robert G. Taub, on behalf of the Commission, April 14, 2016. 149 Docket No. IM2016-1, Order No. 3253, Notice and Order Establishing Section 407 Proceeding, April 20, 2016. 150 Docket No. IM2016-1, Notice of Posting of Views, October 7, 2016.
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