Testimony of 

The Honorable Dan G. Blair, Chairman 

On Behalf of the 

Postal Regulatory Commission 

Before the 

U.S. Senate 

Committee on Homeland Security 

and Governmental Affairs 

Subcommittee on Federal Financial Management, 

Government Information, Federal Services, 

and International Security 

March 5, 2008
 Thank you Chairman Carper, Ranking Member Coburn, and members of the 

Subcommittee. I appreciate this opportunity to review with you the activities of the 

Postal Regulatory Commission since the enactment of the Postal Accountability and 

Enhancement Act (PAEA) on December 20, 2006, and my last appearance before the 

Subcommittee on August 2, 2007. 

 It has been an exciting and challenging fourteen months as the Commission 

transitioned into its role as the strengthened regulator from the former rate maker. Just a 

year ago, on February 26, 2007, we issued our recommended decision on the last 

omnibus rate case to be considered under the old Postal Reorganization Act of 1970. 

Less than a month later, at a joint Commission-Postal Service forum on the PAEA, I 

asked the attendees if they would like to see new ratemaking systems in place before the 

June 2008 statutory deadline. Fueled by an enthusiastic response favoring regulations 

“sooner, rather than later,” the Commission beat the deadline by eight months. Our hard 

work set the stage for the first rate increase under the PAEA and resulted in the Postal 

Service foregoing one final rate case under the old law. 

 Completing the ratemaking regulations ahead of schedule is just one of the many 

tasks we undertook last year. In addition to establishing a new ratemaking process, the 

Act requires the Postal Service – in consultation with the Commission – to develop 

modern service standards for all market dominant products by the end of 2007. To 

guarantee public participation in the process, we solicited written comments from mailers 

and consumers and held three field hearings outside of Washington, DC, where witnesses 

shared their expectations for service standards and ratemaking regulations. We are now 

in the second phase of our consultation – establishing goals for performance measures 

and network reorganization, which is due to Congress in June. 

 To further our commitment to a primary cornerstone of the new law – 

accountability and transparency – we reorganized the Commission. A comprehensive 

management review aided in the identification of key strategic goals, which allowed us to 

align our goals and office functions with the Commission’s multiple mandates of the 

PAEA. We also began a complete redesign of our agency’s website to ensure greater 

public accessibility and ease of use that will be completed this spring. A complementary 

activity is the upgrading of our Information Technology systems. We also appointed an 

Inspector General, as required by the law, who has provided the first semi-annual report 

to Congress. 

 I am also pleased to report that the Commission has formally released its first 

Strategic and Operational Plan detailing the agency’s vision and goals over the next five 

years. The Plan outlines the strategies and activities that the Commission will use to help 

ensure transparency and accountability of the Postal Service and to foster a vital and 

efficient universal mail system. By emphasizing the operational work that must be 

accomplished over the next five years, the Commission can evaluate its progress and 

performance on the strategic goals outlined in the Plan. 
 In addition, the PAEA directs a new funding process for the Commission. Prior 

to enactment of the new law, the Commission submitted its annual funding requests 

directly to the Governors of the Postal Service, which in turn, directed the Postal Service 

to fund the Commission’s budget from the Postal Service Fund. The Act sought to 

ensure the Commission’s independence through the appropriations process by having 

Congress instruct the Postal Service to fund the Commission’s budget from the Fund. 

 I am extremely proud of our accomplishments last year. However, the 

Commission will be even busier this year. As you know, the Postal Service filed rate 

increases for market dominant products with us on February 11, 2008. This filing puts 

into motion the regulations we finalized last October. Interested parties had until 

March 3, 2008, to submit comments to the Commission regarding the rate increases that 

will become effective on May 12, 2008. Now that the public comment period has ended, 

the Commission has 14 days to review the comments, decide if the rate changes meet the 

requirements of the PAEA, with particular focus on satisfying the CPI-based cap, and 

issue an order. Although the PAEA ensures a minimum of 45 days advance notice, the 

Postal Service is providing 90 days notice. 

 At the same time that the Commission is reviewing the first market dominant rate 

increase, we are also completing our first Annual Compliance Report. Work is underway 

to analyze the Postal Service’s costs, revenues, and service data from fiscal year 2007. 

We have held two technical conferences regarding changes proposed by the Postal 

Service for Periodicals cost models, and we have asked for public comments on all 

aspects of the Service’s Compliance Report filed with us at the end of 2007. This annual 

review, required by the PAEA, is due by March 27, 2008. Successfully managing these 

two responsibilities simultaneously, and within a compressed timeframe, demonstrates 

the Commission’s ability to balance its resources and staff effectively. I would like to 

note that this year’s compliance analysis will report on rate increases under the old costof-service system, which did not separate postal products. Future reports will analyze 

data for the two categories of mail established by the PAEA – market dominant and 

competitive products. 

 It is our obligation to develop, with input from the Postal Service and the mailing 

community, rules to ensure that the Postal Service provides sufficient reliable data to 

enable the Commission to prepare accurate and informative reports and studies as 

required by the PAEA. Good data is the foundation that supports meaningful 

transparency and allows for careful and conscientious analysis, and reports that provide 

real accountability. 

 We are engaging in other critical activities related to PAEA mandates, including 

the development of accounting principles and methods to calculate the “assumed” 

Federal income tax on competitive products. Our final rules will be issued no later than 

December 20, 2008, and will have the benefit of recommendations made to the 

Commission by the Department of Treasury at the end of 2007, in addition to public 

comments, which are being solicited now. 
 I wish to note that applying an assumed Federal income tax on competitive 

products is a unique requirement of the PAEA. Approximately 10 percent of the Postal 

Service’s revenues are generated by products, such as Priority Mail and Express Mail, 

which are offered in competition with private firms. By law, the Postal Service must 

compute an approximation of the Federal income tax it would pay on its competitive 

products to ensure fair competition with the private sector. We will have final rules by 

the end of 2008. 

 We are currently working on our report to Congress on the universal service 

obligation (USO) and the postal monopoly, due by December 20, 2008. Commission 

staff, assisted by a contractor, will review the history of the postal monopoly, including 

the Mail Box rule, universal service in the United States and other countries, and the 

varied needs of individuals and businesses. To ensure active public participation, we 

plan to hold field hearings early this summer as well as solicit public comments. We are 

also asking the Postal Service, which is conducting its own review of the USO, to provide 

the Commission with the benefit of its recommendations and observations prior to 

releasing our final report to Congress. Further, we look forward to consulting with the 

Postal Service, as required by the PAEA. 

 We have also initiated discussions with the Postal Service on a joint CommissionPostal Service review of Periodicals costs that is required by the PAEA. Although the 

Act did not specify a completion date for this report to the President and the Congress, 

we believe that comments made during a House hearing justify the undertaking of the 

review now. 

 Mr. Chairman, I have laid out how the Commission moved quickly over the past 

14 months to meet its responsibilities under the new law. We have shaped the new postal 

regulatory environment, and we are meeting our newly mandated responsibilities well. 

As part of this new environment, we are mindful that the Commission’s strengthened 

regulatory authority includes our ability to issue subpoenas, order remedial actions, and 

levy fines in instances of noncompliance with applicable postal laws. We are formulating 

a new formal complaint system to strengthen the Commission’s existing process to 

ensure even greater transparency and accountability. Work has begun on drafting new 

regulations, and we are instituting a system to process and track informal consumer 

concerns. Because so many consumer inquiries to the Commission are outside our scope 

of responsibilities and relate to postal delivery service issues and operational matters, our 

Office of Public Affairs and Government Relations works closely with the Postal 

Service’s Office of Consumer Advocate to ensure more timely and responsive actions. 

 I would like to address one final issue before I conclude my written remarks. I 

wish to discuss the future of agreements between the Postal Service and individual 

mailers, commonly referred to as Negotiated Service Agreements (NSAs). Up until very 

recently, the Postal Service operated as a tariff industry – offering products on the same 

terms to all its customers. However, in 2002, the Postal Service began negotiating 

contracts with specific mailers. 
 The PAEA codifies the use of NSAs as one of the factors of the Act, and 

contemplates an expedited review process that we interpreted through our ratemaking 

regulations. The law is very specific, and our regulations directly reference section 

3622(c)(10), among other provisions, as the basis for the Commission’s review of NSAs. 

This section requires that market dominant NSAs must either improve the net financial 

position of the Postal Service or enhance the performance of operational functions. In 

addition, NSAs may not harm others in the marketplace and must be available to 

similarly situated mailers. Competitive product NSAs must cover attributable costs. 

 I wish to assure the Chairman that we will review NSA filings from the Postal 

Service in this light. Moreover, reviewing the data behind these filings will be a critical 

component of the Commission’s Annual Compliance Report to Congress. I understand 

many stakeholders may have questions about the Commission’s review of NSAs under 

the new rules and the guidelines and criteria the Postal Service uses in evaluating a 

potential agreement. To address these questions, the Commission looks forward to 

working with the Postal Service in an effort to explore ways of resolving stakeholder 

questions and issues on how to best utilize NSAs. 

 In closing, I wish to thank the Subcommittee Members for their continued support 

of the Commission and our activities. I also wish to thank the Members for their work in 

bringing about postal reform. Moving from the lengthy, highly litigious rate cases in 

favor of annual rate increases capped at the CPI allows businesses to foresee their mailing 

costs. The predictability of rate increases and the transparency of the data behind cost 

adjustments will bring more value to the mail. 

 Thank you, and I will be more than happy to answer any questions the 

Subcommittee may have.