BEFORE THE UNITED STATES SENATE

COMMITTEE ON GOVERNMENTAL AFFAIRS

Testimony of Shelley Dreifuss,

Director of the Office of the Consumer Advocate

Postal Rate Commission

March 9, 2004

Thank you for the opportunity to testify before this distinguished Committee on

Governmental Affairs regarding the recommendations of the President’s Commission on

the U.S. Postal Service. It is an honor and privilege to share my views with you.

Postal reform is a matter of great importance to our economy, and of vital interest

to the users of postal services. This includes, of course, the many large mailers and

their associations and representatives who have and will continue to regularly present

their views to you; but users of postal services also include the hundreds of millions of

consumer and small business mailers who depend on regular mail delivery to their

residences and places of businesses. In addition, consumer and small business

mailers rely on easy access to the purchase of vital postal services through retail

facilities and other means. Above all else, they seek affordable and high quality postal

services.

Role of the Consumer Advocate Currently and Under Postal Reform

As Director of the Office of the Consumer Advocate at the Postal Rate

Commission, I am charged with representing the interests of senders and recipients of

mail who otherwise would not be represented in Commission rate, classification, and

complaint proceedings. While individuals and small businesses generate or receive

nearly 80% of postal volume (approximately 160 billion pieces of mail in 2002), their
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individual expenditures for postage and other services – on the order of $7/month – are

likely to be too small a percentage of their household and business budgets either to

cause them to participate individually in Postal Regulatory Board proceedings, or,

alternatively, to associate as a group to represent their interests. This has certainly

been the case in the three and a half decades since the Postal Reorganization Act was

passed by Congress. There is every reason to believe that this condition will persist

after postal legislative reform.

In enacting the Postal Reorganization Act of 1970, your predecessors had the

foresight to assure participation by an “officer of the Commission who shall be required

to represent the interests of the general public.” The requirement for such participation

eventually led the Commission to establish an office – the Office of the Consumer

Advocate – to always be on the ready to protect individuals and small businesses in the

conduct of regularly filed major and minor classification cases and periodically filed

omnibus rate cases and complaint cases set for hearings.

On July 12, 1999, the Commission adopted a Mission Statement that clarified the

role of the Office of the Consumer Advocate. According to the terms of that Statement,

my office has the following responsibilities:

• Be a vigorous, responsive, effective advocate for reasonable and equitable

treatment for the general public in Postal Rate Commission proceedings

• Give a strong voice to consumers, especially those whose interests are not

otherwise represented in Commission proceedings

• Present evidence and arguments on behalf of consumers in Commission

proceedings

• Promote fair competition between the Postal Service and its competitors for the

ultimate benefit of consumers
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I must emphasize that the Office of the Consumer Advocate at the Postal Rate

Commission is the only entity in the nation that represents the distinct interests of

consumers and small businesses before the Postal Rate Commission. In numerous

proceedings before the Postal Rate Commission, the Office of the Consumer Advocate

has litigated on behalf of low-volume mailers to ensure their access to benefits

proposed only for high-volume mailers. I will describe two examples. In 1999, the

Postal Service requested that the Postal Rate Commission issue a recommended

decision for a new, low-cost Bulk Parcel Return Service. The Postal Service proposed

a mailer threshold of 50,000 pieces annually. Before entering into a settlement with the

Postal Service to conclude the proceeding without hearings, the Office of the Consumer

Advocate convinced the Postal Service to allow mailers that were one-fifth the size of

those originally targeted by the Postal Service to participate, thereby securing access to

the service by the small business community.

Recently, in the Negotiated Service Agreement (“NSA”) case that the Postal

Service and Capital One brought before the Postal Rate Commission, at the insistence

of the Office of the Consumer Advocate, the Postal Service agreed to establish a formal

process allowing First-Class Mailers smaller than Capital One to negotiate NSAs along

the same lines as the Capital One agreement. Without Consumer Advocate

representation of small mailer interests, it is doubtful that this process would have been

put in place.

 The President’s Commission Report contains no explicit recommendation for a

statutorily required consumer/small business representative, with funds for

representation provided by postal revenues. However, the current Postal
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Reorganization Act does so provide, and it is my position that the Office of the

Consumer Advocate (or a similar office) should be designated explicitly in postal reform

legislation. I should add that the Postal Rate Commission addressed the need for

consumer representation in Comments submitted to this distinguished Committee on

November 19, 2003. The Commission stated that there might be sound policy reasons

for ensuring a meaningful role for “captive customers,” especially in those instances

when the Postal Service might seek increases in captive customer rates above the rate

of an inflation-based cap. As explained earlier, meaningful participation on behalf of

captive customers will only be possible with a statutorily designated, postal funded

consumer advocate. Of course, the role of the consumer advocate in the postal reform

environment should parallel the role of the Postal Regulatory Board. In the new era, the

consumer advocate should represent captive mailer interests in proceedings to increase

their rates; proceedings to change or add new mail classifications; and proceedings to

define postal service standards and level of performance. In addition, the consumer

advocate should be given the power to file complaints about unauthorized rate

increases; cross-subsidization by them of other non-captive classes of mail; and

possible degradation in the quality of postal services.

The Postal Service’s Mission: to Fulfill Consumer and Small Business

(as Well as Large Business) Needs for Postal Services

The President’s Commission recognized the importance of the Postal Service to

consumers and small businesses. In Recommendation B-2, the President’s

Commission recommended that the mission of the Postal Service be “to provide highquality, essential postal services to all persons and communities by the most cost-
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effective and efficient means possible at affordable and, where appropriate, uniform

rates.” This is an excellent summary of what the Postal Service means to consumer

and small business users of the Postal Service.

Traditional, Core Postal Services. The first distinct element of the President’s

Commission recommendation is to limit the activities of the Postal Service to core,

traditional activities. These are the accepting, collecting, sorting, transporting, and

delivering of letters, newspapers, magazines, advertising mail, and parcels. I am in full

agreement with this limitation.

At the time of Postal Reorganization in 1970, Congress was comfortable in

delegating its constitutional power to provide postal services to the nation in a form, and

within the limits, known to it at that time. The Postal Service had not yet embarked on a

course of competition with providers of electronic communication services in the private

sector. Examples of partially electronic services that the Postal Service now claims are

outside the jurisdiction of the Postal Rate Commission or any agency are ebill-Pay, a

bill-paying service that members of the public may use to have their bills paid

electronically or by mailed checks, and Netpost Card Store, a service available through

the Postal Service’s website that consists of greeting card purchases made by typing in

the message for the card, paying by credit card, and eventually having a private

company print and mail the greeting card for processing, transportation, and delivery by

the U.S. Postal Service. Both of these products are in direct competition with private

sector services.

GAO reports issued in the last five years indicate that the Postal Service is not an

effective competitor in areas outside its traditional expertise. As a representative of
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consumer interests, I do not see any benefit in having the Postal Service compete with

efficient, innovative entrepreneurs in the private sector. The harm done to consumers

when the Postal Service ventures into new, unfamiliar commercial activities is to force

captive consumers to fund money-losing experiments that discourage efficient,

innovative private companies from offering comparable services. In the absence of the

distortions in the marketplace produced by a government monopolist cross-subsidizing

experimental commercial ventures, the forces of competition should work to produce

high quality, inexpensive, innovative products that may be purchased by individual

consumers and small businesses.

The clearest evidence of my commitment to this view is the role my office played

to support the efforts of a San Francisco-based organization, Consumer Action, to

petition the Postal Rate Commission to clarify its jurisdiction over non-traditional

services and, at the least, to establish detailed accounting and reporting rules for any

non-traditional commercial activities (such as all-electronic communications products)

that the Postal Service claims are not subject to the authority of the Postal Rate

Commission. In response to the Consumer Action petition, the Postal Rate Commission

commenced two new rulemaking proceedings: the first proposes a definition of

services subject to Postal Rate Commission jurisdiction; and the second proposes the

institution of new accounting and reporting requirements for non-jurisdictional products

and services.

In comments on the Postal Rate Commission's proposed rulemaking to define

postal services, the Association for Postal Commerce (“PostCom”) wrote that the

addition of the word “physical,” as in physical delivery, acceptance, collection, sortation,
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and transportation of mail would make it very plain that the Postal Service has not been

given license to engage in electronic communication services. I agree that the addition

of the word “physical” would be a crucial addition because it would keep the Postal

Service out of marginally related and non-related commercial activities.

In the November 19 Comments submitted to this Committee by the Postal Rate

Commission, the Commission stated that clarifying national policy on appropriate areas

of Postal Service business would answer vexing policy questions and reduce (or

eliminate) contentious Postal Rate Commission proceedings on the Postal Service’s

authority to enter into non-traditional commercial areas. I fully agree with the Postal

Rate Commission that clear guidelines in postal reform legislation would resolve this

unsettled legal question.

Just two weeks ago, a complaint was filed with the Postal Rate Commission by a

small business called DigiStamp. DigiStamp has been an early provider of electronic

time/date stamps for electronic files. DigiStamp is very concerned about a nearly

identical, new, U.S. Postal Service product called Electronic Postmark. DigiStamp

voiced understandable concerns that a $70 billion enterprise, with captive customer

revenues, can compete unfairly with DigiStamp. The Postal Service claims that

Electronic Postmark is outside the Commission’s jurisdiction and has resisted attempts

to make a full accounting for the costs of developing and operating this service. If the

Postal Service is cross-subsidizing Electronic Postmark with captive customer

revenues, a small startup company like DigiStamp may easily be driven out of business

unfairly; and captive customers will sustain a double injury: they may be crosssubsidizing Electronic Postmark to their disadvantage as mailers, and they may be
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deprived of innovative, high quality, low cost private sector services that cannot

compete with a $70 billion monopoly-funded enterprise.

I agree with the President’s Commission that the Postal Service should not be

permitted to continue such non-traditional competitive forays in the future. The

President’s Commission’s recommendation for resolution of the question, i.e., to limit

the Postal Service to its traditional postal activities, is the best way to prevent such

conflict in the future.

The President’s Commission also recommends a Postal Regulatory Board

complaint mechanism that would allow members of the public to file complaints with the

Postal Regulatory Board on the ground that the Postal Service is engaging in activities

that fall outside its core mission. In my opinion, a statutorily designated consumer

representative should be among those who may file such a complaint.

Universal Service. While I would limit the Postal Service to traditional postal

activities, I believe that the interests of consumers, particularly those living in non-urban

regions of the United States, are best served if the Postal Service is obliged to provide

delivery services and to continue to offer the sale at retail of letter, package, and

ancillary special services. Rural consumers may not have ready access to the private

delivery services that are more plentiful in densely populated areas. Even urban

consumers may be unable to gain ready access to private delivery services. For this

reason, it is important to preserve consumer and small business access to postal letter,

package, and ancillary special services.

Consumers, small and large businesses, and federal, state, and local

governments all need regular, timely delivery to their home and business addresses. In
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view of the great need for retail and delivery services across the nation, I support the

President’s Commission recommendation that the Postal Service continue to be

charged with a universal service obligation.

Governmental Services. The second element of the President’s Commission

recommendation on an appropriate mission for the Postal Service is to allow the Postal

Service to engage in one additional set of limited activities: providing other

governmental services when in the public interest and where the Postal Service is able

to recover the appropriately allocated costs of providing such services. At the time of

Postal Reorganization, Congress regularly enlisted the aid of the Post Office to furnish

services to the public through postal retail facilities. The Post Office was uniquely

positioned to provide such assistance. A postal historian from Oxford University, Gerald

Cullinan, explains the reason for giving the Post Office (later the Postal Service)

this role. In the “Nonpostal Functions” section of his historical account,1

 Cullinan states

that “because of its ubiquity in American life” the Post Office “was called upon to

perform a bewildering number of nonpostal functions pro bono publico.” Also, Mr.

Cullinan explains, “there has been a steady accretion of minor federal functions . . .

mainly because, in many communities, the post office is the only federal office in town

and the center of local activities.” These included the sale of Liberty bonds and war

savings certificates; registration of aliens; sale of U.S. savings bonds; sale of

documentary stamps; notary public services; and accepting passport applications.

 

1 The United States Postal Service (1973 ed., Praeger Publishers) at pages 196 – 199.
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I concur with the President’s Commission’s formulation of a suitable role for the

Postal Service in providing governmental services to the public on behalf of other

governmental agencies, and commend the President’s Commission for couching this

role in terms of governmental services. The use of “nonpostal” in the Postal

Reorganization Act has produced widespread confusion and contention in the postal

community, particularly since the Postal Service has used the term in a manner the

legislative history indicates was never contemplated by your predecessors in 1970, i.e.,

to engage in a wide range of nonmail, non-traditional, nongovernmental activities that

are in competition with the private sector.

The Scope of the Postal Monopoly

The President’s Commission recommends maintaining the current postal

monopoly over written, personal and business mail correspondence, and preserving

sole Postal Service access to customer mailboxes. However, the President’s

Commission envisions giving the Postal Regulatory Board the duty to clarify and review

periodically the scope of the monopoly and sole access to mailboxes. Most importantly,

the President’s Commission would transfer the power to redefine the monopoly to the

Postal Regulatory Board.

Over time, the President’s Commission foresees a gradual narrowing of the

monopoly with a corresponding opening up for private businesses. This is a worthy

goal that, in many ways, will increase access to innovative, efficient alternative service

providers. I have one important concern about a shrinking monopoly, however. The

President’s Commission recommended a full set of interdependent recommendations.
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The shrinking of the monopoly, in particular, is highly dependent on dramatic new

opportunities to reduce postal costs. If the efficiencies and cost reductions predicted by

the President’s Commission are not realized, then I fear that a shrinking monopoly will

put increasing pressure on those captive mailers who remain in the monopoly to fund

the universal service obligation. In other words, as a growing amount of postal volume

is no longer subject to the monopoly, the captive customer volume subject to the

monopoly becomes smaller. If costs do not experience a corresponding reduction, then

those fewer mailers who are still subject to the monopoly (e.g., citizens of rural

communities) will have to bear a higher cost per piece. I would ask this distinguished

Committee to prevent such a result.

New Approach to Setting Rates

The President’s Commission recommends dramatic changes to the system of

changing rates. The newly established Postal Regulatory Board would construct a

framework for rate increases along new lines.

Non-competitive products. Rates for non-competitive products – identified as

First-Class Mail, Standard Mail, Periodical Mail, Media Mail, Library Mail, and Bound

Printed Matter – will be set initially in a baseline rate case, probably applying the current

pricing criteria of the Postal Reorganization Act. In view of the fact that First-Class Mail,

Media Mail, and Library Mail are all heavily used by consumers and small businesses, I

ask the distinguished Committee to provide explicitly for protection of these interests by

a consumer representative, possibly the Office of the Consumer Advocate.
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As part of the baseline case, the Postal Regulatory Board will devise an

incentive-based scheme for non-competitive rates to rise, largely at the discretion of the

Postal Service. The President’s Commission envisions an escalator that will be

comprised of an inflation factor that will allow the rates to rise, but with a productivity

deflator that will moderate the inflationary impact. The President’s Commission expects

that the established rate ceilings will drive postal management in the direction of

controlling costs and realizing new efficiencies, both laudable objectives. In addition,

current Postal Reorganization Act-style rate hearings will be supplanted by highly

streamlined new procedures that will give postal management the ability to increase

rates within a small fraction of the current length of time expended in an omnibus rate

case.

One scenario that is not specifically considered by the President’s Commission is

that the incremental costs of a particular non-competitive product may rise even faster

than the escalator allows. Eventually the costs of the non-competitive product may

exceed its revenues, and the deficit might grow even larger over time. I recommend

that provision be made for an emergency rate request by the Postal Service to the

Postal Regulatory Board to increase rates to a level that would cover the costs of the

non-competitive product. If this correction is not made, then other non-competitive

products might be forced to cross-subsidize the deficient non-competitive product, a

condition that the President’s Commission has found to be uneconomic and

undesirable.

From time to time, the Postal Service may find that its costs have increased

above the aggregate level of revenues allowed under the non-competitive product
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escalator. In such cases, the President’s Commission recommends an advance review

by the Postal Regulatory Board of rate increases proposed by the Postal Service. It is

not clear whether such requests must be granted. Under the current Postal

Reorganization Act, following a request by the Postal Service, the Postal Rate

Commission must always recommend rate increases for specific mail classes to be high

enough to allow the Postal Service to break even. Would this still be the case after

postal reform? As before, I recommend statutorily designated representation of

consumer and small business interests.

Due Process in Postal Regulatory Board Proceedings. When rate increase cases

take place before the Postal Regulatory Board, it is imperative that mailers who will be

subject to rate increases be accorded full due process. Under the Postal

Reorganization Act, requests by the Postal Service to increase rates or add new

classifications are conducted under the provisions of the Administrative Procedure Act.

Although the President’s Commission does not raise the matter of due process, almost

certainly this distinguished Committee will want to carry over the former due process

guarantees from the Postal Reorganization Act into postal reform legislation. If that is

the case, it is doubtful that the sixty-day proceedings recommended by the President’s

Commission can furnish due process to those who will be disadvantaged by Postal

Service actions.

The Administrative Procedure Act requires agencies such as the Postal

Regulatory Board to give all interested litigants the opportunity for submission of

documentary or oral direct evidence, rebuttal evidence, cross-examination, and the

submission of arguments. Furthermore, in most cases involving postal rate increases,
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the Postal Service will be in sole possession of much of the material needed to dispute

the Postal Service’s request. Opponents of the Postal Service’s position will need

sufficient time to obtain this information through discovery. Once the record has been

fully developed by the litigants, and arguments have been submitted, the Commission

will then need time to consider the parties’ evidentiary presentations and arguments.

Completion of all of these essential procedural activities will require more than the sixty

days recommended by the President’s Commission. Rushing through a case in sixty

days is likely to result in a denial of due process.

If the Postal Regulatory Board is given strong, comprehensive powers to require

the collection and reporting of financial data necessary for an evaluation of the request

for additional revenues, and these data are filed regularly with the Board, it may be

possible to make some reduction in the length of time for a request for rate increases

above and beyond the established price cap. This truncation of the rate increase

proceeding may avert a denial of due process to litigants only if the Board, and the

public, are kept fully and currently informed about the Postal Service’s financial position.

The only reason that it may be possible to make some reduction in the length of time for

Postal Regulatory Board proceedings, as compared to Postal Rate Commission

proceedings, is that the public availability of relevant data should shorten the time

needed both by the Postal Service to prepare requests and by mailers to evaluate them.

Nevertheless, it is impossible to imagine that due process can be fully accorded litigants

in sixty days. I am confident that this distinguished Committee can strike the proper

balance between providing additional revenues quickly for the Postal Service while
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preserving due process for those mailers who will be faced with the imposition of higher

rates.

Competitive products. Competitive products would include the current postal

products of Express Mail, Priority Mail, and Parcel Post. (It is unclear whether Standard

Mail packages, i.e., those less than 16 ounces, would be in the competitive or

noncompetitive group). Changes in the rates of competitive products should be made

at the discretion of the Postal Service, according to the President’s Commission. The

Postal Regulatory Board, however, would be charged with ensuring that aggregate noncompetitive products do not cross-subsidize competitive products and that individual

non-competitive and competitive products are not being cross-subsidized by other, noncompetitive products. Furthermore, competitive products should be required to make a

meaningful contribution toward overhead.

A complaint mechanism would provide for the filing of complaints from members

of the public on the grounds that the rate of a non-competitive product exceeds its

ceiling or that a competitive product is being cross-subsidized. To protect captive

customers, the complaint procedure should also be available to those who have reason

to believe that particular non-competitive products are being cross-subsidized by other

non-competitive products. Consistent with my earlier suggestions, I would include a

statutory provision authorizing a consumer representative to lodge such complaints. In

addition, I would ask that this distinguished Committee establish a timeframe for such

proceedings that ensures full due process to the litigants.

Cost Allocation. The President’s Commission recommends that the Postal

Regulatory Board take strong measures to ensure thorough, accurate cost allocation.
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One of the key tools for obtaining such information is subpoena power for the Postal

Regulatory Board. Subpoenas are necessarily available only for information that the

Postal Service has previously collected. Unless specific, this power may not always

ensure that all of the information necessary to allocate costs appropriately will be

collected. I am of the opinion that Congress should confer explicitly on the Postal

Regulatory Board the power to establish rules for the collection and reporting of the type

of information required to discharge the allocation duty effectively.

In addition, the President’s Commission urges the Postal Service to comply

voluntarily with Securities and Exchange Commission (“SEC”) reporting requirements.

There are two distinct virtues of such voluntary compliance: 1) SEC reporting is well

understood by the public, and 2) SEC reporting allows a ready comparison between the

Postal Service’s financial reports and those in the private sector. However, the Postal

Regulatory Board should not be limited to SEC documents to fulfill its mission. It must

have authority to require periodic reporting of needed data to meet the abbreviated

timelines suggested by the President’s Commission.

Retained Earnings. The President’s Commission recommends that the Postal

Service be permitted to retain earnings up to a limit established by the Postal

Regulatory Board. The President’s Commission contemplates the accrual of retained

earnings both from non-competitive and competitive products. The ability to retain

earnings will reduce the need for management to seek emergency rate increases. Only

after exhausting retained earnings could management justify an emergency rate

increase.
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Service Standards and Performance. Forces such as declining First-Class

volumes, a narrowed monopoly, and price caps may combine to put the Postal Service

in a position that makes it difficult for the Postal Service to meet established service

standards. The natural tendency of any monopoly service provider in straitened

circumstances is to allow its performance to deteriorate.

While the President’s Commission recommends a mechanism for Postal

Regulatory Board review of sweeping national changes in service standards, it does not

propose a role for the Postal Regulatory Board to establish service standards for postal

non-competitive products, require specified levels of performance, require the Postal

Service to measure performance, and finally, require the Postal Service to submit the

performance metrics to the Postal Regulatory Board for public dissemination. These

powers should be granted the Postal Regulatory Board in order to ensure that the public

has the level of postal services it needs.

I further request that a consumer representative, designated by statute, also be

given a role in defining service standards to meet consumer needs. The consumer

representative should be given the additional power to lodge complaints about service

when the metrics show that performance has fallen below Postal Regulatory Board

standards. Postal Regulatory Board powers and consumer representation are

imperative to ensure high quality services by a monopoly provider like the Postal

Service. When, by law, the Postal Service is the only entity empowered to provide

personal and business correspondence services, it can risk a serious deterioration in

quality of service because it can count on retaining most of its monopoly volume.
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Service Standards and Performance for Noncompetitive Products. The best

method for ensuring adequate service standards and high levels of performance is to

give the Postal Regulatory Board the power to: (1) define and establish service

standards for non-competitive products, (2) set minimum performance requirements, (3)

require the Postal Service to measure its performance, (4) require the Postal Service to

report the performance results to the Postal Regulatory Board, and (5) give the Postal

Regulatory Board the power to initiate its own investigation of service and performance

issues. These powers should be augmented by the power to subpoena any records in

the possession of the Postal Service that are relevant to these measurements.

A model for the establishment of such service standards and measures may be

found in the Postal Directive of the European Union. Under the directive, 85% of crossborder letter mail must be delivered in three days, and 97% must be delivered in five

days.

At the present time, the Postal Service collects and reports performance

information on First Class through two major data collection efforts: the Origin

Destination Information System (“ODIS”) and the External First Class measurement

system (“EXFC”). ODIS data are filed regularly with the Postal Rate Commission under

the Commission’s rules. The Commission makes these data available to the public at

its website. EXFC has a limited release by the Postal Service. Both of these data

systems collect mail statistics chiefly on collection box mail, and the Postal Service is to

be commended for doing so.

The Postal Service has elected not to collect information on much of the bulk

business mail that it handles, including bulk First Class and Standard Mail, and
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Periodicals. I am the recipient of weekly e-mailed reports of a planet-code tracking

company called Mail Trak. Mail Trak collects the tracking information made available

from Postal Service barcode readers at Processing and Distribution Center facilities

through a new service called Confirm that the Postal Service offers. Purchasers of

Confirm service, generally bulk First-Class Mailers and Standard Mailers, use the Mail

Trak company to collect tracking information and relay it to them in a user-friendly form.

Mail Trak aggregates performance information from its customers and distributes the

aggregate results in a weekly newsletter. In the past year, Mail Trak reports that

approximately 23% of Standard Mail letters were being delivered later than the service

standard window of 7 – 10 days. This is valuable information that Mail Trak is able to

provide only for its customers’ mailings. The Postal Service, on the other hand, could

collect and report tracking information for all postal Confirm customers. A Postal

Regulatory Board power to require such collection and reporting could make important

performance information available to the Postal Service’s Standard Mail (and bulk First

Class) customers.

The Postal Service does not regularly collect or report information on special

services that are ancillary to the provision of non-competitive postal services like First

Class. Certified Mail with Return Receipt serves as an important example. The Postal

Service does not collect information on the percentage of Certified Mail pieces that

actually carry the recipient’s signature – the key feature of the service. In the case of

Return Receipts, the Postal Service does not measure and report the average length of

time for Return Receipt cards to be mailed to the recipient; and the Postal Service does

not measure the percentage of such cards actually returned to recipients. These are
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the essential features of the service being purchased, but the purchaser does not have

a clear idea of how often the promised service is actually provided. The Postal

Regulatory Board should be given the power to define the essential elements (or

service standards) for each special service ancillary to non-competitive products, to

require measurement of the performance of the service standard, require submission of

the data collected, and to disseminate the performance results to the public.

Performance of the Universal Service Obligation. Other types of information

relating to the universal service obligation should also be required of the Postal Service

through the Postal Regulatory Board. Examples of this type of information are the

length of time a typical mailer waits on line at a retail facility, how quickly a postal agent

responds to a complaint, the number and placement of collection boxes in a community,

the frequency of collection and collection times for such boxes, and the hours for access

to services at postal retail facilities and alternative access in other retail businesses.

Defining service standards and minimal service performance levels should be

added to the Postal Regulatory Board’s powers to prevent service deterioration from

becoming a recourse against declining volumes and growing pressure to reduce costs.

Since the Postal Service will have a statutory monopoly on most of the noncompetitive

mailpieces, the only way to ensure high quality performance is to have it regulated by

the Postal Regulatory Board.

Service Quality for Competitive Products. In general, the Postal Regulatory

Board will have no role in defining or monitoring quality of service for competitive

products. The Postal Service is expected to compete in the marketplace on quality as

well as price. However, the competitive playing field should be level with respect to
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false advertising claims. The private companies with which the Postal Service will

compete will be subject to Federal Trade Commission (“FTC”) laws and regulations

prohibiting false advertising of products. Since the Postal Service will be acting as an

ordinary business (not a governmental entity) in providing competitive products, it

should be subject to FTC jurisdiction and to the same laws and regulations as other

businesses.

Antitrust Laws. The reasoning set forth in the preceding paragraph applies with

equal force to antitrust law and regulation. Although the Postal Service will be

prevented from cross-subsidizing competitive products under the President’s

Commission formulation, there is a broad range of anticompetitive activity that is not

related to cross-subsidy that the Postal Service may be free to engage in. I respectfully

ask that this distinguished Committee give serious consideration to making the Postal

Service subject to antitrust laws with respect to competitive products.

Postal Insurance. This distinguished Committee may want to address separately

the Postal Service’s sale of insurance as a service ancillary to the sale of competitive

products such as Priority Mail and Parcel Post. Insurance sales by the Postal Service’s

competitors will be subject to any state laws requiring shippers to provide minimal

information on the nature of the insurance contract. There may be regulation by state

insurance commissions of the terms and conditions of package insurance.

Furthermore, courts will likely apply ordinary contract law in disputes between

purchasers of insurance and the private shippers insuring their packages.

The Postal Service as a governmental entity under current laws is exempt from

all of the regulations and limitations described above. In disputes between the Postal
Consumer Advocate Testimony Before

Senate Committee on Governmental Affairs

22

Service and its claimants, courts have held that the Postal Service is essentially selfregulating, i.e., it writes its own regulations limiting its obligation under the insurance

contract and it applies and interprets these rules when insurance purchasers submit

claims. In court proceedings, the Postal Service enjoys a burden of proof standard

much less onerous than its competitors. In a case involving a private shipper as

defendant, the plaintiff will be required to prove his or her case by slightly more

convincing evidence than that submitted by the defendant. In a case involving the

Postal Service as defendant, the Postal Service’s decision to deny an insurance claim

will be upheld unless it is “plainly in error” or “clearly erroneous.” This imposes a much

higher burden of proof on plaintiffs of postal claims.

I would ask that the playing field between the Postal Service and its shipping

competitors be leveled with respect to insurance and that the interests of postal

insurance purchasers be protected.

Conclusion

In conclusion, I would like to give the President’s Commission the highest praise

for mastering a massive amount of technical material on the Postal Service’s

operations, cost structure, main sources of revenue, and the system of ratemaking used

at the Postal Rate Commission. The recommendations made have obviously been

reached after thoughtful, careful deliberation. I ask that the President’s Commission

recommendations be incorporated into postal reform legislation along the lines that I

have suggested in my testimony. I thank the distinguished Committee for this

opportunity to testify.