FISCAL YEAR 2009

to the President and Congress

Postal Regulatory Commission

Annual Report
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chairman’s Messag

December 2009

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

Commission’s 2009 Annual Report. This report details the major activities of the 

Commission in Fiscal Year 2009 and is a testament to the hard work and dedication of 

Commission staff who endeavor to fulfill the Commission’s regulatory responsibilities and 

to implement the vision of the Postal Accountability and Enhancement Act (PAEA). Special 

recognition goes to Commissioner Dan Blair who served very effectively as Chairman 

for most of the fiscal year and provided highly appreciated support during and after the 

transition to new leadership. 

As this document makes evident, the Commission has successfully implemented the 

regulatory framework required by the PAEA and the framework is functioning well. Pricing 

and oversight reforms have been translated into Commission rules and practices that 

operate routinely and effectively. In addition, the Commission continued to fine-tune its 

oversight capabilities during the year with the addition of final rules for complaints and 

confidentiality and for the accounting practices and tax treatment related to Postal Service 

competitive products. We also issued our report on Universal Postal Service and the Postal 

Monopoly, rendered a determination on postal and nonpostal products, conducted an 

analysis of the Postal Service’s retiree health benefit liability, and initiated hearings to 

develop an Advisory Opinion on a Postal Service proposal to review several thousand retail 

offices for possible closure. 

With price increases for 99 percent of mail volume capped at the rate of inflation, the 

Commission is supportive of Postal Service efforts to produce new revenue in a very 

difficult economic environment that saw this year’s mail volume decline by a record 25.6 

billion pieces. Under its new expedited processes, the Commission verified and approved 

rate adjustments for both market-dominant and competitive products this year, as well as 

numerous specialized contract agreements and initiatives, including 63 Negotiated Service 

Agreements, a three-fold increase over fiscal year 2008. With Commission oversight, the 

Postal Service was able to leverage its pricing flexibilities to improve overall margins on its 

competitive products. 

The Commission also authorized the Postal Service to test a number of pricing and 

market innovations designed to stimulate mail demand and grow new revenue. These 

initiatives included the first “experimental” product, involving less-than-truck-load freight 

services, approved on May 7, 2009; a volume incentive pricing program on standard mail 

that ran from July through September, and a First-Class Mail Incentive Pricing Program, 

approved on September 16, 2009, that will run from October through December of this 

year. These revenue initiatives were not enough, however, to offset historic, recessiondriven declines in mail volume and revenue. While the Postal Service intensified its 
focus on cost reductions to counter the declines, the Commission carefully monitored 

the impact of the cuts on postal customers and service. This included an ongoing 

comprehensive review of Postal Service plans to review more than 3000 postal retail 

offices for possible closure. 

Utilizing its statutory Advisory Opinion powers, the Commission initiated public hearings 

– including field hearings in the Bronx, New York and Independence, Ohio – to ensure the 

transparency and accountability of the Postal Service’s actions. The strong support voiced 

by citizens on behalf of their post offices reaffirmed the importance of the Postal Service to 

local communities. At this writing, the Postal Service has continued to reduce the number of 

retail offices under consideration for closure. 

Early in the fiscal year, the Commission released the findings of its year-long study on 

Universal Postal Service and the Postal Monopoly. The American people expressed their 

satisfaction with the current reach and delivery of universal service. And they emphasized 

the critical role of the mail in American life – underpinning commerce, social progress, 

and the political system, and serving as a universal safeguard for those without Internet 

access or expertise. 

Increasingly, however, the Postal Service’s need to reduce costs is placing the Nation’s 

universal service framework under stress. To date, Congress has identified six-day mail 

delivery as an essential part of that framework. In the coming year, the Commission 

expects to review, through the Advisory Opinion process, a Postal Service proposal to 

eliminate one day of delivery per week. The Commission looks forward to providing a 

public forum for the American people to weigh in on this issue and on the relevance of 

universal postal service to their lives and businesses. 

As Chairman of the Commission, I also have encouraged a national conversation on 

the future of mail and hardcopy communications in the United States. The Commissioners 

and Commission staff look forward to advancing this conversation and to working with 

the Congress and all stakeholders to address the problems that face the Postal Service. 

We know that there is much work to be done to ensure a vital and efficient universal mail 

system for the nation. We look forward to building on the successes of the past year, to 

build a brighter future for the mail and the American people.

Sincerely, 

 Ruth Y. Gold

 Chairm
Table of Conte

Chairman’s Message........................................................................................................................................................1

Fiscal Year 2009 at a Glance......................................................................................................................................5

Chapter l – About the Commission...........................................................................................................................7

Commissioners.............................................................................................................................................................8

Mission Statement.......................................................................................................................................................9

Guiding Principles.......................................................................................................................................................9

Commission’s Strategic Plan....................................................................................................................................9

Organizational Chart............................................................................................................................................... 10

Chapter II – Effectiveness of Commission Rules in Achieving the Goals of the PAEA ..................... 11

Effectiveness of Rules Related to Pricing ......................................................................................................... 12

Technical Description of Price Cap..............................................................................................................................13

Effectiveness of Rules in Allowing Pricing Flexibility...........................................................................................14

Market Dominant Rate Changes of General Applicability...................................................................... 14

Standard Mail Incentive Program.................................................................................................................... 15

First-Class Mail Incentive Program.................................................................................................................. 15

Review of Competitive Product Cases and Negotiated Service Agreements................................. 16

Review of Experimental Products.................................................................................................................... 16

Effectiveness of Rules in Achieving Worksharing Limitations ........................................................................17

Effectiveness of Rules in Maintaining Just and Reasonable Rate Schedule ..............................................18

Rules for Complaints and Rate of Service Inquiries.................................................................................. 18

Active Complaints During FY 2009................................................................................................................. 19

Effectiveness of Rules in Assuring Adequate Revenues.....................................................................................19

Analysis of Volume and Revenue Declines................................................................................................... 20

Effectiveness of Rules in Maximizing Incentives to Reduce Costs.................................................................23

Effectiveness of Rules in Enhancing Transparency ..............................................................................................24

Annual Compliance Determination................................................................................................................ 24

Rules on Confidential Materials Filed by the Postal Service .................................................................. 25

Postal Service Cost Methodology Rules ....................................................................................................... 25

Periodic Reporting Rules on Service Performance Measurement and Customer Satisfaction..... 25

Obtaining Information from the Postal Service.................................................................................................25

Financial Reporting........................................................................................................................................................26

Effectiveness of Rules in Achieving the Objectives of Section 3633.............................................................26

Competitive Rate Change...........................................................................................................................................26

Accounting and Periodic Rules.................................................................................................................................27
Chapter III – Report on the Universal Service Obligation and Mail Monopoly................................... 29

Estimated Cost of Universal Service Obligation............................................................................................ 30

Estimated Value of the Monopoly ...................................................................................................................... 30

Chapter IV – Other Legal Proceedings ................................................................................................................. 35

Advisory Opinion on Station and Branch Optimization Docket No. N2009-1.................................... 35

Review of Nonpostal Services Docket Nos. MC2008-1 Phase I and Phase II ....................................... 36

Mail Classification Schedule ................................................................................................................................. 36

Chapter V – International Activities ...................................................................................................................... 37

Chapter VI – Public Affairs and Outreach Efforts ............................................................................................. 41

Overview...................................................................................................................................................................... 41

Congressional Testimony....................................................................................................................................... 41

Outreach Activity...................................................................................................................................................... 42

Consumer Relations................................................................................................................................................. 43 

Public Representatives............................................................................................................................................ 45

Commission’s Website............................................................................................................................................. 46

Freedom of Information Act................................................................................................................................. 46

Chapter VII – Other Commission Activities ........................................................................................................ 47

Study on Calculation of Retiree Health Benefits Liability........................................................................... 47

Periodicals Cost Study............................................................................................................................................. 48

Consultation with the Postal Service................................................................................................................. 48

Chapter VIII – Administration................................................................................................................................... 49

Injury Compensation............................................................................................................................................... 49

Equal Employment Opportunity......................................................................................................................... 49

Diversity ....................................................................................................................................................................... 49
Fiscal Year 2009t A G

• The Commission implemented the 

regulatory framework required by the PAEA 

by applying rules and regulations designed 

to achieve the objectives of sections 3622 

and 3633 of Title 39. In particular, the rules:

– Ensure compliance with the inflationbased cap required by the PAEA;

– Increase pricing flexibility by providing 

several avenues for rate changes 

including volume incentive pricing 

programs, experimental products, and 

negotiated service agreements, and

– Enhance transparency by prescribing the 

data the Postal Service needs to file with 

the Commission, providing procedures 

for obtaining data from the Postal Service, 

and increasing the amount of financial 

data reported by the Postal Service.

• The Commission improved its oversight 

capabilities by publishing final rules for 

complaints and confidentiality and for the 

accounting practices and tax treatment 

related to Postal Service competitive 

products. 

• The Commission issued its report on 

Universal Postal Service and the Postal 

Monopoly and determined that the cost of 

universal service obligations, updated for 

FY 2009, is $5.90 billion and the value of the 

monopoly is $2.96 billion.

• The Commission rendered a determination 

on postal and nonpostal products, 

conducted an analysis of the Postal 

Service’s retiree health benefit liability, and 

initiated hearings to develop an Advisory 

Opinion on a Postal Service proposal to 

review several thousand retail offices for 

possible closure. 

• The Commission engaged in extensive 

public outreach efforts including hearings, 

letters soliciting public input, presentations 

at postal functions, and an easily accessible, 

interactive website.

• The Commission played an increasingly 

active international role, both fulfilling its 

statutory responsibilities under the PAEA 

and proactively building a solid framework 

for communication and cooperation 

on postal regulatory issues with postal 

regulators from other countries as well as 

other stakeholders. 

• The Commission had an operating budget 

of $13.3 million and a staff of 74.

• Chairmanship transitioned from Dan G. 

Blair to Ruth Y. Goldway on August 6, 2009.
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Chapter 

The Commission is an independent agency 

that has exercised regulatory oversight over the 

U.S. Postal Service since its creation by the Postal 

Reorganization Act of 1970 (PRA). The Commission 

is composed of five Commissioners, each of whom 

is appointed by the President, with the advice 

and by consent of the U.S. Senate, for a term 

of six years. The Chairman is designated by the 

President and serves as the head of the agency. 

A Commissioner may continue to serve after the 

expiration of his or her term for up to one year. No 

more than three members of the Commission may 

be from the same political party. 

Chapter I – About the Commiss

The Commission’s Offices are located at 901 New York Avenue NW, Suite 200, Washington, DC 20268. 
8 Annual Rep

Commissioners

Ruth Y. Goldway, Chair

First appointed on April 7, 

1998. Designated Chairman 

by Barack Obama on August 6, 

2009. Term expires November 

22, 2014. Former Manager of 

Public Affairs for the Getty Trust. 

Former Director of Public Affairs, 

California State University, Los Angeles. Former 

Council Member and Mayor, City of Santa Monica. 

Founder and Former Chairperson, Santa Monica 

Pier Restoration Corporation. Former Assistant 

Director of California’s Department of Consumer 

Affairs. Co-founder of Women in Logistics and 

Delivery Services.

Tony Hammond,

Vice-Chairma

Appointed on August 15, 

2002. Elected Vice-Chairman 

October 20, 2009. Term expires 

October 14, 2010. Former 

owner and managing member, 

T. Hammond Company, 

LLC. Former Senior Consultant to Forbes 2000, 

Incorporated. Former Senior Vice President of the 

direct marketing firm, FL&S. Served as Director 

of Campaign Operations for the Republican 

National Committee for the 1998 election cycle. 

Former Executive Director and Finance Director, 

Missouri Republican Party. Staff to former U.S. 

Representative Gene Taylor (R-MO).

Mark Act

Appointed August 3, 2006. Term 

expires October 14, 2010. Served 

as Vice-Chairman from November 

22, 2007, to October 15, 2008. 

Served as Special Assistant to 

former Postal Rate Commission 

Chairman George Omas. Former 

Staff Director, Republican National Committee (RNC) 

Counsel’s Office. Former Deputy to the Chairman of 

the 2004 Republican National Convention. Served as 

Special Assistant to the RNC Chief Counsel as well as 

RNC Counsel’s Office Government Relations Officer 

and Redistricting Coordinator. Formerly served 

as both Executive Director, Republican National 

Convention, Committee on Permanent Organization 

and Deputy Executive Director, Committee on Rules. 

Former Executive Director of the RNC Redistricting 

Task Force. 

Dan G. Bla

Appointed as a Commissioner 

and designated Chairman on 

December 15, 2006. Served as 

Chairman until August 6, 2009. 

Term expires October 14, 2012. 

Formerly served as both Acting 

Director and Deputy Director, 

U.S. Office of Personnel Management. Former 

Senior Counsel to Senator Fred Thompson (RTN) on the Senate Committee on Governmental 

Affairs. Former Staff Director, U.S. House of 

Representatives Subcommittee on the Postal 

Service. Former Minority General Counsel, U.S. 

House of Representatives Committee on Post 

Office and Civil Service. 

Nanci E. Lang

Appointed June 6, 2008. 

Served as Vice-Chairman 

from October 16, 2008, to 

October 9, 2009. Term expires 

November 22, 2012. Former 

Director of Public Affairs and 

Government Relations, Postal 

Regulatory Commission. Former Deputy Staff 

Director to Senator Daniel K. Akaka (D-HI), U.S. 

Senate Committee on Homeland Security and 

Governmental Affairs’ Subcommittee on Oversight 

of Government Management, the Federal Workforce 

and the District of Columbia. Communications 

Director to former U.S. Senator Spark M. Matsunaga 

(D-HI).
Chapter 

Commission St

Assisting the Commission is a staff with 

expertise in law, economics, finance, statistics, and 

cost accounting. The Commission is organized into 

four operational offices:

• Accountability and Compliance; 

• General Counsel; 

• Public Affairs and Government Relations, 

and 

• Secretary and Administration. 

The Commission maintains an independent 

office for its Inspector General.

MISS

Ensure transparency and accountability of the United 

States Postal Service and foster a vital and efficient 

universal mail system.

GUIDI

The Commission is committed to and operates 

by the principles of: 

• Openness;

• Stakeholder (public) participation;

• Collegiality and multi-disciplinary 

approaches; 

• Timely and rigorous analysis;

• Fairness and impartiality;

• Integrity; 

• Commitment to excellence, and

• Merit. 

COMMIS

One of the Commission’s first acts as the Postal 

Regulatory Commission was to organize and 

assign the existing operational framework to 

meet the challenges of the PAEA. Efforts began 

immediately to develop the Postal Regulatory 

Commission’s first Strategic and Operational 

Plan for Fiscal Years 2008 through 2012. This Plan 

outlines the Commission’s core Mission and Vision 

for the first five years, the key Strategic Goals to 

help the Commission fulfill its Mission and Vision, 

and the Operational Strategies to meet statutory 

requirements of the Act. These strategies help 

ensure transparency and accountability of the 

United States Postal Service and foster a vital and 

efficient universal mail system.

As the Commission carries out its 

responsibilities and duties, and evaluates its 

progress and performance based on the strategic 

goals outlined in this Plan, it will make appropriate 

modifications as new challenges arise.

The Strategic Plan can be viewed in its entirety 

on the Commission’s website at www.prc.gov.

 
10 Annual Rep

Tony Hammond, 

Vice-Chairman

Mark Acton, 

Commissioner

Dan Blair,

Commissioner

§ 505 Ocer of the 

Commission 

representing the 

general public

Oce of 

Accountability & 

Compliance

Oce of the

General Counsel

Oce of the

Secretary & 

Administration

Oce of the

Inspector

General

Oce of 

Public A airs & 

Government

Relations

Director

Assistant Director,

Auditing & Costing

Division

Assistant Director,

Analysis & Pricing

Division

General Counsel

Assistant General

Counsel

Director Secretary & Chief 

Administrative

Ocer

Assistant Secretary

& Administrative

Ocer

Inspector General

Ruth Goldway, 

Chairman

Nanci Langley, 

Commissioner

PRC WTH OFFICE
Chapter I

 On December 20, 2006 President George W. 

Bush signed into law the Postal Accountability 

and Enhancement Act (PAEA) Public Law 109–435. 

The Act is founded on the principles of flexibility, 

transparency, accountability and predictability. 

Its purpose is to ensure a robust, affordable and 

quality universal mail service in the United States. 

The Act gives the Postal Service tools to meet the 

challenges of the changing postal environment, 

including greater pricing flexibility, while 

balancing these tools with oversight by a more 

formal regulator.

The PAEA transformed the Postal Rate 

Commission into the Postal Regulatory Commission 

and assigned significant new responsibilities to 

the agency. Among other things, it required the 

Commission to develop and maintain regulations 

for a modern system of rate regulation that 

included an inflation–based price cap, prevent 

cross-subsidization (or other anticompetitive 

postal practices), promote transparency and 

accountability, and adjudicate complaints.

The Act directed the Commission to categorize 

all postal products and services as either market 

dominant or competitive. Market dominant 

products include First-Class letters and cards, 

advertising mail, Periodicals and single-piece 

parcels. Competitive products include Priority Mail, 

Express Mail, and bulk Parcel Post. 

Chapter II – Effectiveness of the Commiss

Rules in Achieving Objective
12 Annual Rep

The Act stipulates that the Commission must 

annually assess the effectiveness of its rules and 

regulations in achieving the objectives under 

sections 3622 (modern rate regulation) and 3633 

(provisions applicable to rates for competitive 

products) of Title 39. The objectives of section 

3622 are to: 

1. Maximize incentives to reduce costs; 

2. Create predictability and stability in rates; 

3. Maintain high quality service standards;

4. Allow the Postal Service pricing flexibility;

5. Assure adequate revenues, including 

retained earnings, to maintain financial 

stability;

6. Reduce administrative burden and 

enhance transparency of ratemaking 

process;

7. Enhance mail security;

8. Establish and maintain a just and 

reasonable schedule for rates and 

classifications, and

9. Allocate the total institutional costs of 

the Postal Service appropriately between 

the market dominant and competitive 

products.

In addition to these objectives, section 3622 

sets limits on discounts related to mail preparation 

(worksharing). The Rules for a Modern System 

of Ratemaking, issued on October 29, 2007, 

eight months ahead of the statutory deadline, 

were designed to achieve the pricing objectives. 

Rules related to periodic reporting, treatment of 

confidential material, and complaint procedures, 

finalized in FY 2009, are designed to enhance 

transparency and accountability, maintain just and 

reasonable rates, and increase efficiency of postal 

operations. 

The objectives of section 3633 are to:

1. Prohibit the subsidization of competitive 

products by market dominant products;

2. Ensure that each competitive product 

covers its costs attributable, and

3. Ensure that all competitive products 

collectively cover what the Commission 

determines to be an appropriate share of 

the institutional costs of the Postal Service.

In FY 2009, the Commission promulgated 

rules in the areas of accounting for competitive 

products. These rules, in conjunction with the 

aforementioned rules, were designed to meet the 

objectives outlined in section 3633.

The efficacy of the Commission’s rules in 

meeting the objectives is discussed below. 

EFFCTIVE

TO 

Commission Order No. 43 established rules for 

changing rates for both market dominant and 

competitive products. These rules incorporated 

the statutory requirement that changes in rates 

for market dominant products may not exceed 

the annual rate of inflation and encompassed the 

objectives of sections 3622 and 3633. One of the 

key features of the price cap as outlined in Order 

No. 43 is the significantly reduced time required 

for regulatory review. The rules allow 45 days for 

review of the Postal Service’s proposed rates. This 

condensed timeframe reduces the administrative 

burden of the ratemaking process, one of the 

objectives of section 3622. 

The rules are designed to allow the Postal 

Service pricing flexibility by applying the CPI 

cap at the class level rather than at the rate 

category level. Under the law, this flexibility is 

tempered somewhat by the separate worksharing 

requirements of section 3622(e)(3) and 

consideration of competing objectives such as 

maintaining just and reasonable rates. 
Chapter I

Order No. 43 also established rules for 

expeditiously processing negotiated service 

agreements (NSA) between the Postal Service and 

individual mailers. For market dominant NSAs, 

the rules direct the Postal Service to provide 

details demonstrating compliance with statutory 

requirements of 39 U.S.C. 3622(c)(10), that such 

NSA results in either financial or operational 

benefits to the Postal Service and does not cause 

undue harm to the market. The Commission 

directs the Postal Service to provide data within 

60 days of the anniversary date of implementation 

of each agreement to allow the Commission to 

test compliance with the above stated goals. The 

rules minimize the administrative and economic 

burden of implementing agreements but at the 

same time, require the signatories of negotiated 

service agreements to submit copies of the 

agreement, as well as specific data related to cost, 

revenue, volume, operational enhancements, and 

marketplace impacts. The rules strike a reasonable 

balance to foster pricing flexibility, transparency, 

and accountability.

The Postal Service has further flexibility in 

providing experimental products. If a product is 

deemed to be experimental it is excluded from 

the requirements of the ratemaking rules. Specific 

limitations on experimental products are outlined 

in the PAEA.

Section 3622(d)(1)(E) of the PAEA directs the 

Commission to provide for procedures whereby 

rates may be adjusted beyond the inflationbased cap due to exceptional or extraordinary 

circumstances provided that the Commission 

determines, after notice and opportunity for 

a public hearing and comment, that such 

adjustment is reasonable and equitable and 

necessary to enable the Postal Service to maintain 

and continue the development of postal services 

of the kind and quality adapted to the needs of 

the United States. The Commission rules refer 

to rate filings of this type as exigent. The rules 

establish a functional and flexible framework for 

exigent cases, and forgo attempting to identify 

with specificity qualifying circumstances. Thus, the 

rules not only exclude definitions of “triggering 

events” for exigent filings, but also do not define, 

in advance, circumstances that would not qualify. 

The rules outline streamlined proceedings for 

exigent adjustments, consistent with the 90-day 

review period and due process considerations.

The Postal Service has even greater flexibility 

to price competitive products. The rules allow the 

Commission 30 days to determine whether the 

Postal Service’s proposed rates for competitive 

products are meeting the objectives of section 

3633. The Commission specified that it would use 

an incremental cost test to validate compliance 

with the cross subsidy requirement that revenue 

generated from competitive products equals or 

exceeds the incremental costs of such products. 

The Commission determined that the appropriate 

share of institutional costs to be borne by 

competitive products is 5.5 percent, subject to 

revision as needed. 

For competitive NSAs, the rules, in accordance 

with the law, allow for not less than a 15-day 

review of all agreements. Competitive NSAs are 

evaluated for compliance with the statutory 

requirements for competitive products.

The rules can be viewed at www.prc.gov/prcdocs/home/PAEA/FinalRulesWeb.pdf.

TECHNI

PRI

Under the PAEA, increases for each market 

dominant class are generally capped by the 

Consumer Price Index. The price cap is set by 

the percent change in the level of the seasonally 

unadjusted Consumer Price Index for All Urban 

Consumers (CPI-U), between the most recent 

average 12-month period from the date the Postal 

Service files its notice of rate adjustment and the 
14 Annual Rep

average of the immediately preceding 12-month 

period. The following example illustrates the 

computation of the price cap.

The use of a 12-month average corresponds 

to the U.S. Bureau of Labor Statistics method for 

calculating annual changes in CPI and provides 

greater stability and predictability. This method 

was proposed by the Commission and endorsed 

by the mailing community.

The difference between the annual price 

cap and the percentage change proposed by 

the Postal Service is known as the “unused rate 

authority.” Because the cap is applied at the class 

level, the unused rate authority may differ by 

class. Cumulative unused rate authority can be 

reserved for use for up to five years. This banked 

rate authority, which is a feature of the PAEA, can 

be used to increase rates beyond the annual price 

cap, with a limitation of 2 percent in each class in 

a given year. The banked authority provides the 

Postal Service with greater pricing flexibility. 

Alternate rules are available to calculate the 

appropriate cap for rate increases other than one 

year apart. 

The Commission publishes the 12-month 

average change in CPI on its website at 

http://www.prc.gov/PRC-DOCS/home/CPI.pdf.

EFFCT

ALLOWIN

The Commission’s rules related to ratemaking 

afford the Postal Service substantial pricing 

flexibility. As explained below, in the two years 

since these rules have been finalized, the Postal 

Service has exercised that pricing flexibility in 

several ways and the Commission has approved all 

of the Postal Service’s requests. 

Market Dominant Rate Changes of Gene

Applicabilit

Under these rules, the Postal Service has 

filed two notices of rate adjustments for market 

dominant products. As seen in Table 2, these 

filings included several instances of differential 

rate increases below the class level. 

The Commission review of these notices found 

that the Postal Service’s planned rate adjustments 

did not exceed the statutory CPI price cap. 

In FY 2009, separate filings related to 

competitive products, two incentive-based 

rate adjustments, an experimental product 

offering, and 63 competitive negotiated service 

agreements (NSAs) were made by the Postal 

Service and approved by the Commission. 

Table 1

Illustration of Price C

Computation  Exam

Sum of CPI-U values for most recent 12 

month period divided by 12 (Recent Average) 2583.63/12=215.303

Sum of CPI-U values for the 12 month period 

immediately preceding the recent 12 month 

period divided by 12 (Base Average) 2488.109/12= 207.342

Percent Change equals Recent Average 

divided by Base Average minus 1 

expressed as a percent (215.303/207.342)-1=3.8%
Chapter I

Standard Mail Incentive Prog

On May 1, 2009, the Postal Service filed with 

the Commission a notice announcing its intention 

to adjust prices for Standard Mail letters and flats 

pursuant to 39 U.S.C. 3622 and 39 CFR Part 3010. 

The proposed adjustment was in the form of a 

Standard Mail Volume Incentive Pricing Program 

with a planned implementation date of July 1, 

2009, and a planned expiration date of September 

30, 2009. The Commission determined that the 

volume incentive pricing program represented 

a reasoned approach by the Postal Service to 

exercise its flexibility in market dominant pricing 

under the PAEA. 

Mailers eligible for the program were mailers 

who were permit holders with a demonstrable 

volume of at least one million Standard Mail letters 

and flats between October 1, 2007, and March 

31, 2008, for one or more permit imprint advance 

deposit accounts, pre-canceled stamp permits, or 

postage meter permits. 

The Commission approved the Postal Service’s 

treatment of the volume incentive pricing 

program as an NSA for purposes of the price cap. 

Mailers received their discounts in the form of 

rebates following the conclusion of the sale period 

and the Commission required the Postal Service to 

provide relevant revenue and cost data within 15 

days after crediting the rebates.

The Postal Service has indicated that it is still 

crediting the rebates. Consequently, data to assess 

the success of this incentive pricing program is not 

yet available.

First-Class Mail Incentive Pro

On August 11, 2009, the Postal Service filed 

with the Commission a notice announcing its 

intention to adjust prices for certain First-Class 

Table 2 

Percentage Rate Increases by Product for First-Class and Standard

 Percentage Rate Percentage Ra

Class  Changes FY 2008 Changes 

First-Class Mail 2.89 3.77

Single-Piece Letters/Postcards 2.50 4.62

Presorted Letters/Postcards 3.55 3.08

Flats 1.93 3.88

Parcels 2.18 2.57

Single-Piece International Mail 3.09 4.14

Standard Mail 2.88 3.78

Letters 3.39 3.83

Flats 0.86 2.31

Parcels NFM 9.66 16.43

High Density/Saturation Letters 1.66 1.25

High Density/Saturation Flats and Parcels 2.09 2.23

Carrier Route Letters, Flats and Parcels 2.99 4.31
16 Annual Rep

Mail presorted letters, flats and cards sent by 

qualifying mailers. The Postal Service characterized 

the planned adjustment as a temporary First-Class 

Mail Incentive Program (Program) to spur volume 

growth during the current recession. The stated 

intent of the Program was to provide an incentive 

for customers to increase presorted, non-parcel 

First-Class Mail volume above the volume they 

otherwise would have mailed. The Postal Service 

included provisions to address the possibility of 

strategic shifting or withholding of volume. Key 

elements of the Program include a 20-percent 

rebate on qualifying incremental volume, certain 

volume thresholds, and a three-month duration, 

extending from October 1, 2009, through 

December 31, 2009.

The Commission approved the Program on 

September 16, 2009, and required the Postal Service 

to file relevant revenue and cost data within 15 days 

of crediting rebates to qualifying mailers.

This pricing initiative is still in effect. 

Consequently, data to assess the success of this 

incentive pricing program is not yet available.

Review of Competitive Product Cases a

Negotiated Service Agreeme

The Commission reviewed 63 competitive 

product cases and one Market Dominant 

negotiated service agreement filed by the Postal 

Service during this fiscal year. As seen in table 3, 

the number of cases reviewed in FY 2009 increased 

substantially from FY 2008. These cases were all 

reviewed and approved by the Commission in a 

timely manner. 

Review of Experimental Produc

On April 1, 2009, the Postal Service filed notice 

with the Commission of a proposed market 

test of an experimental competitive product, 

Collaborative Logistics, under 39 U.S.C. 3641. 

The experiment represents the initial market test 

conducted by the Postal Service under the Postal 

Accountability and Enhancement Act (PAEA). 

Section 3641 authorizes the Postal Service to 

“conduct market tests of experimental products 

in accordance with this section.” A product may 

not be tested, however, unless it satisfies each 

of the following conditions: (1) the product is 

significantly different from all products offered 

by the Postal Service within the 2-year period 

Table 3 

Negotiated Service Agreements Approved by the Commi

 FY 2008  FY 

Type of NSA Requested* Req

Total Competitive Domestic 2 31

Total Competitive International 19 32

Total Competitive NSAs 21 63

Total Market Dominant Domestic 0 0

Total Market Dominant International 0 1

Total Market Dominant NSAs 0 1

*All requested contracts have been approved by the Commission.
Chapter I

preceding the start of the test (section 3641(b)

(1)); (2) the product will not result in undue market 

disruption, especially for small business concerns 

(section 3641(b)(2)), and (3) the product is 

correctly characterized as either market dominant 

or competitive (section 3641(b)(3)).

The Collaborative Logistics market test involves 

the Postal Service selling available space within 

its transportation network. The Postal Service 

compares this market test to LTL (less-thantruckload) shipping services provided in the 

private sector.

The Commission approved the Postal Service’s 

Collaborative Logistics market test on May 7, 2009. 

However, the Commission also noted that future 

market tests should be accompanied by more 

compelling presentations to satisfy section 3641. 

The approval order contained a quarterly data 

collection plan. On October 28, 2009, the Postal 

Service provided its first quarterly report. The 

report showed Collaborative Logistics generated 

$20,385 during quarter 3 and $32,891 in quarter 

4. In addition, the quarterly report provided 

information on range of rates, deviations, loss and 

damage, safety issues, and effects on operations. 

EFFCT

ACHI

LI

To date, the Commission’s rules have been 

effective in balancing the Postal Service’s pricing 

flexibility with the statutory requirements 

related to workshare discounts. This has been 

accomplished either through adjusting discounts 

or reviewing Postal Service justification of 

exceptions. The Commission notes that basing 

discounts on historical cost avoidance calculations 

may be problematic because the costs will change 

during the time the discounts are in place. 

Section 3622 of the PAEA imposes limitations 

on workshare discounts, i.e., reduced rates based 

on costs avoided by the Postal Service when 

mailers undertake certain mail preparation and 

processing tasks. Section 3622(e)(2) directs the 

Commission to ensure that workshare discounts 

do not exceed the costs avoided by the Postal 

Service as a result of the workshare activity, 

unless certain exceptions are met. This provision 

effectively limits the Postal Service’s ability to set 

workshare discounts that exceed 100 percent of 

avoided costs. Accordingly, Commission rules 

require the Postal Service to justify any proposed 

workshare discounts that exceed 100 percent of 

avoided costs by explaining how they meet one of 

four exceptions under the PAEA.

In FY 2008, the Commission approved 

rates for market dominant products that 

were implemented in May 2008. These rates 

were designed to comply with the workshare 

requirements set forth above. In its approval, the 

Commission noted that one proposed First-Class 

discount exceeded 100 percent pass-through 

of avoided cost. In Standard Mail, five of the 

proposed discounts exceeded 100 percent passthrough of avoided costs, and in Package Services, 

three of the proposed discounts exceeded 100 

percent pass-through. The Commission found 

that these proposed discounts complied with 

statutory exceptions. During the Commission’s FY 

2008 Annual Compliance Determination (ACD), in 

which the Postal Service’s compliance with rules 

and regulations for a given year are reviewed, 

the Commission found that the number of passthroughs that actually exceeded 100 percent in 

FY 2008 was substantially higher than had been 

proposed in the notice of rate adjustment. This is 

due in large part to the fact that proposed rates 

are set based on historical costs rather than costs 

that have been inflated to estimate the costs in the 

year the rates will be in effect. Consequently, the 

relationship between the discounts and the actual 

cost avoided at the end of the fiscal year can be 

tenuous. 
18 Annual Rep

In the Postal Service’s presentation of 

worksharing discounts in its notice of market 

dominant rate changes for FY 2009, some of the 

pass-throughs that exceeded 100 percent in the 

FY 2008 ACD were brought below 100 percent, 

while others were not. Standard Mail, in particular, 

had a substantial number of pass-throughs—17—

that exceeded 100 percent. The Commission found 

on a four to one vote (with then-Commissioner 

Goldway dissenting) that in light of the Postal 

Service’s significant volume declines and the 

pricing flexibility afforded the Postal Service, the 

Postal Service’s justifications for these exceptions 

were adequate. These pass-throughs will be 

examined again in the FY 2009 ACD.

The Postal Service’s FY 2009 Notice also 

incorporated significant modifications in the 

methodology used to calculate worksharing 

avoided costs. The changes were based on the 

Postal Service’s interpretation of the definition of 

worksharing under 3622(e), and were not approved 

in advance by the Commission. To provide an 

opportunity to consider the Postal Service’s 

methodological changes in a more appropriate 

forum, the Commission initiated a rulemaking 

docket (RM2009-3) on the same day as the Order 

reviewing the price changes. Separately, final 

rules on the form and content of periodic reports 

were established in Order No. 203 (April 16, 2009), 

including a requirement that methodological 

changes be reviewed by the Commission prior to 

incorporation into reports to the Commission.

EFFC

IN MAINTA

REASO

In FY 2009, in the Special Services class, the 

Postal Service proposed an increase of 963.8 

percent for Platinum-tier Confirm service 

purchased by mailing agents. Several commenters 

raised objections, including that this price change 

was unreasonably discriminatory in violation 

of 39 U.S.C. section 403(b), and was contrary 

to both the “reasonable and equitable” rate 

requirement of section 404(b) and the “just and 

reasonable” objective of 3622(b)(2). Based on a 

review of the Postal Service’s initial justification 

and its responses to Commission inquiries, the 

Commission concluded the Postal Service failed 

to meaningfully address the relevant statutory 

objectives and factors. It instructed the Postal 

Service to provide adequate justification or modify 

its proposal.

As required by the Commission’s rules, the 

Postal Service subsequently filed an amended 

notice of market dominant rate adjustment 

addressing the Commission’s concerns by 

proposing to apply to all Confirm subscribers the 

prices that were proposed for mail owners. 

On April 9, 2009, the Commission completed 

its review of the amended notice and found the 

planned rates for Confirm consistent with applicable 

law. The Commission’s 14-day review of the Postal 

Service’s amended notice permitted Postal Service 

implementation of the rate changes for market 

dominant products on May 11, 2009, as planned.

Rules for Complaints and Rate of Serv

Inquiries

In FY 2009, the Commission finalized rules 

outlining a complaint mechanism. These rules are 

designed, in part, to facilitate the maintenance of a 

just and reasonable rate schedule by enabling the 

Commission to hear and resolve complaints in a 

streamlined and efficient manner while providing 

appropriate due process for all participants. These 

rules establish a rate or service inquiry procedure 

for dealing with issues that do not appear to 

require more formalized procedures applicable to 

complaints.
Chapter I

Active Complaints During FY 2

There were two active complaints before the 

Commission during FY 2009. Capital One Services, 

Inc. (Capital One) filed its Complaint against the 

Postal Service on June 19, 2008, alleging, inter 

alia, undue discrimination relating to the Bank 

of America negotiated service agreement and 

violations of 39 U.S.C. 403(c) and 39 U.S.C. 3622(c)

(10). On August 1, 2008, the Commission denied 

a Postal Service motion to dismiss the Complaint, 

and issued a finding that the Complaint raised 

material issues of fact and law. Subsequently, 

Capital One and the Postal Service, both 

independently and with Commission assistance, 

worked to resolve the many difficult discovery 

issues presented by this docket. In addition, the 

parties also engaged in settlement discussions.

On May 21, 2009, Capital One filed a motion 

seeking to withdraw its Complaint with prejudice, 

as a result of a private settlement with the Postal 

Service. On June 2, 2009, the motion to withdraw 

the Complaint with prejudice was granted by the 

Presiding Officer for the Commission.

The Complaint of GameFly, Inc. (GameFly) 

was filed on April 23, 2009. The Complaint 

asserts several claims that concern unreasonable 

discrimination and other undue preferences 

allowed by the Postal Service in violation of the 

law. In support of its Complaint, GameFly alleges 

that the Postal Service extended preferential 

services and inequitable rates to certain high 

volume rival mailers who similarly use First-Class 

Mail to send and receive DVDs. 

GameFly specifically contends its pieces are 

being processed through automated letter mail 

processing equipment that continues to cause 

damage, and that the favored high volume DVD 

mailers are not suffering the high level of broken 

DVDs. It further alleges that even though it 

switched to higher cost flat rates and inserts to 

reduce breakage, it is still suffering more damage 

than these other mailers. 

The Postal Service responded to the Complaint 

on May 26, 2009, together with a motion for 

partial dismissal of the Complaint. 

The Commission concluded that it has 

jurisdiction over the dispute and the Complaint 

raises material issues of fact and law, and initiated 

proceedings to hear the issues involved. 

EFFCT

ASSURING 

The Postal Service has been generating revenue 

under the PAEA for only two years. In FY 2008 the 

Commission approved an average rate increase 

for market dominant products of 2.9 percent 

based on the 12-month change in CPI at the time 

the notice of change was filed. The resulting rates 

were in effect from May 12, 2008 to May 10, 2009. 

During this period actual inflation was 1.9 percent. 

In FY 2009 the Commission approved an average 

rate increase for market dominant products of 3.9 

percent, again based on the 12-month change 

in CPI at the time the notice of change was filed. 

These rates are still in effect. The annual rate of 

inflation in FY 2009 was –0.3 percent. 

Consistent with the PAEA, the ratemaking rules 

do not require an estimate of volume declines, 

cost increases or mail mix changes for the fiscal 

year covered by new rates. Thus, the rates are not 

designed to generate enough revenue to cover 

estimated future costs, as was the case under 

cost of service ratemaking. Despite rate increases 

that were greater than the actual level of inflation 

for the period the rates were in effect, the Postal 

Service experienced net losses in both FY 2008 

and FY 2009. In FY 2009 the loss was $3.8 billion, 

the second largest financial loss in Postal Service 

history. The Postal Service has indicated that it 

expects to lose an additional $7.8 billion in FY 2010. 
20 Annual Rep

The reasons for the Postal Service’s net losses 

are complex. The Postal Service cites the recession, 

diversion to electronic media, and the statutory 

requirement that the Postal Service prefund its 

retiree health benefits as the major reasons for its 

financial difficulties. 

Total volumes declined 12.7 percent in FY 2009. 

In its Comprehensive Statement, the Postal Service 

attributes most of this decline to the downturn 

in the economy, particularly the housing and 

financial sectors. This volume decline, along with 

changes in the mail mix, caused revenues to drop 

over 9 percent, or $6.8 billion. 

The Postal Service’s projected loss for FY 2010 

reflects an expectation of continued weakness in 

volume, mandated payments for retiree health 

benefits, and the Postal Service’s announced 

intention not to raise rates for market dominant 

products in the coming year. As of November 30, 

2009, the 12 month rate of inflation was -0.57 

percent. Consequently, the Postal Service could 

not increase rates under the price cap. However, 

the PAEA and Commission rules allow the Postal 

Service to file an exigent rate case. Neither the law 

nor the rules specify what triggering events are 

necessary for approval of an exigency case so it 

is not clear the extent to which this option would 

have resulted in more revenue for the Postal 

Service. The Postal Service chose not to explore 

this opportunity. Nor does the PAEA require the 

Postal Service to break even. The Commission will 

review this issue in the coming year.

Analysis of Volume and Revenue Declin

The Postal Service experienced the largest yearover-year declines in mail volumes since the 1930’s 

Depression era. First-Class and Standard Mail 

9000

8000

7000

6000

5000

4000

3000

2000

1000

0

1000

2000

3000

4000

5000

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

est.

Net Income (Loss)

Fiscal Year

Figure 1 – Postal Service Net Income (Loss) in Millions
Chapter I

Table 4 

Mail Volume

   Increase

 FY 2009  FY 2008 Decrea

(in millions) (in millions) (in millions) Chan

First-Class 83,770 91,697 -7,927 -8.6%

Periodicals 7,954 8,605 -651 -7.6%

Standard Mail 82,706 99,084 -16,378 -16.5%

Package Services 730 846 -116 -13.7%

Other 517 896 -379 -42.3%

Total Mailing Services 175,677 201,128 -25,451 -12.7%

Total Shipping Services 1,381 1,575 -194 -12.3%

Total Mail 177,058 202,703 -25,645 -12.7%

Standard Mail Volume and Retail Sales 

FY 2001- FY 2009 

-0.2

-0.15

-0.1

-0.05

0

0.05

0.1

2001 2002 2003 2004 2005 2006 2007 2008 2009 

Retail Sales Total Standard Mail

Fiscal Year

First-Class Mail and Real GDP

FY 2001-FY 2009 

-0.1

-0.08

-0.06

-0.04

-0.02

0

0.02

0.04

0.06

2001 2002 2003 2004 2005 2006 2007 2008 2009

Tota l Firs t Cl ass Volume Re a l GDP 

Fiscal Year

Figure 2 – Volumes and Economic Indicators

experienced the steepest volume declines. As seen 

in table 4, every class of mail showed declines in 

volume during FY 2009. 

Total First-Class volumes have long been 

adversely affected by the trend toward electronic 

bill payment and presentment. With the collapse 

of the financial markets during 2008 and 2009, 

much of the First-Class advertising mail from 

mortgage banks and credit cards disappeared. As 

the recession took hold among the retail markets 

Standard Mail volumes also began a steep decline. 

Figure 2 compares mail volumes and measures of 

economic activity. 
22 Annual Rep

As volume declined, revenue also declined. 

As with volume, all classes and categories of mail 

experienced revenue declines. 

First-Class and Standard Mail accounted for $5.5 

billion of the total $6.8 billion revenue decline. 

This is the second consecutive year of revenue 

declines for the two largest classes of mail.

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

2006 2007 2008 2009

Percent Change

Fiscal Year

First-Class Mail StandardMail

Figure 3 – Revenue Growth for First-Class and Standard Mail

Table 5

Mail Revenu

   Increas

 FY 2009 FY 2008 Decreas

(in millions) (in millions) (in millions) Chan

First-Class 35,873 38,179 -2,306 -6.0%

Periodicals 2,038 2,295 -257 -11.2%

Standard Mail 17,364 20,586 -3,222 -15.7%

Package Services 1,683 1,845 -162 -8.8%

Other 3,000 3,645 -645 -17.7%

Total Mailing Services 59,958 66,550 -6,592 -9.9%

Total Shipping Services 8,132 8,382 -250 -3.0%

Total Mail 68,090 74,932 -6,842 -9.1%
Chapter I

EFFCT

MAXIMIZ

REDU

The PAEA places an inflation-based cap 

on market dominant rate increases while 

simultaneously setting forth the objective that the 

Postal Service must maintain financial stability. 

This puts pressure on the Postal Service to reduce 

costs and increase efficiency. Roughly 60 percent 

of Postal Service costs vary directly with volume 

while the other 40 percent are fixed, at least in the 

short term. When mail volume is increasing this 

leads to total lower unit costs because there are 

more pieces to share the burden of the fixed costs. 

Conversely, when mail volume declines, total unit 

cost increases. The Postal Service’s total operating 

expenses have been trending downward at a 

faster pace than the rate of inflation. However, 

much of this decline is due to volume loss. On a 

unit basis, the Postal Service has not been able to 

keep operating costs in line with CPI. As seen in 

figure 4, total operating costs have trended down 

faster than CPI since FY 2006, while unit operating 

costs have not.

The operating expenses include payments to 

the Postal Service’s Retiree Health Benefits Fund 

(PSRHBF). These payments, which are approximately 

$5.5 billion a year until 2016, were stipulated in the 

PAEA.1

 The Postal Service chose not to include these 

payments in its revenue requirement during the last 

omnibus rate case in 2006. As seen in figure 5, since 

that time, unit operating expenses have grown 

higher than unit revenue.

1

 In FY 2009 Congress granted the Postal Service a one-time 

exception relieving it of $4 billion in Postal Service Retiree Health 

Benefit Fund payment. The measure was included in Public Law No. 

111-68. 

Figure 4 – Trend in Operating Expenses and CPI

-0.1

-0.05

0

0.05

0.1

0.15

2006 2007 2008 2009 2010 est.

% Change

Fiscal Year

Unit Operating Expense CPI Total Operating Expenses
24 Annual Rep

EFFCT

ENHAN

A key tool for achieving transparency in 

Postal Service operations is the annual review 

of information provided by the Postal Service to 

the Commission, in accordance with regulations 

adopted by the Commission. The Postal Service 

has 90 days to collect, audit, and submit data 

the Commission determines necessary. The 

Commission has an additional 90 days to solicit 

comments from the public, evaluate the data, and 

provide a written determination of Postal Service 

compliance with applicable statutory policies. 

In addition to producing the FY 2008 Annual 

Compliance Determination, the Commission 

finalized or proposed rules in the areas of 

accounting for competitive products, periodic 

reporting, treatment of confidential material, 

and complaint procedures in FY 2009. These 

rules are designed to enhance transparency and 

accountability, and increase efficiency of postal 

operations. 

Annual Compliance Determinati

On March 30, 2009, the Commission issued 

its second Annual Compliance Determination. 

The report assessed the Postal Service’s FY 2008 

performance. It focused on three main areas: 

financial condition, strategic goals, and pricing 

policies. The PAEA identifies multiple policy 

considerations that apply to these three areas. To 

the extent possible, the Commission identified 

the most relevant statutory objectives and factors, 

and, where necessary, balanced the importance of 

each. In a number of areas the policy requirements, 

objectives and factors of the PAEA were not fully 

satisfied in 2008. However, the Commission found 

that in many cases the Postal Service had initiated 

actions to address these problems. Consequently, 

the Commission did not take any immediate 

actions but identified several issues that needed to 

Figure 5 – Unit Operating Expense and Revenue

0.25

0.27

0.29

0.31

0.33

0.35

0.37

0.39

0.41

0.43

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Cents per Piece

Unit Revenue Unit Expense

Fiscal Year
Chapter I

be addressed in the near term. The Postal Service’s 

progress in these areas will be assessed in the FY 

2009 Annual Compliance Determination.

Rules on Confidential Materials Filed by 

Postal Service

To balance the need for transparency with 

the desire to protect sensitive information, the 

Commission issued a notice and order of proposed 

rulemaking to establish rules governing the 

treatment of non-public materials on August 13, 

2008. These rules were proposed to meet the 

statutory standards for according confidentiality 

to Postal Service materials. The proposed rules 

only applied to materials filed by the Postal Service 

and claimed to be non-public. The rules used one 

test applicable to discovery requests and requests 

to publicly disclose Postal Service non-public 

materials. 

The Commission received eight comments 

and five reply comments on the proposed rules. 

Comments identified two main shortcomings 

in the proposed rules. Several commenters 

requested a mechanism to protect third-party 

non-public materials. Several comments also 

addressed the Commission’s departure from 

the test articulated in 39 U.S.C. 504(g)(3)(A), 

which is designed to balance the Postal Service’s 

interest in avoiding commercial injury against 

the public’s interest in financial transparency of 

a government agency competing in commercial 

markets. On March 20, 2009, the Commission 

issued and solicited comments on a second notice 

of proposed rulemaking based upon comments 

received from its initial notice and order.

On June 19, 2009, in Order No. 225, the 

Commission adopted final rules that establish 

a procedure for according appropriate 

confidentiality for non-public materials filed with 

the Commission. Essentially, “non-public materials” 

means any document, information, or thing filed 

with the Commission and claimed exempt from 

disclosure under applicable sections of the United 

States Code by the Postal Service or protected 

from disclosure under Federal Rule of Civil 

Procedure 26(c) by a third party with a proprietary 

interest in the materials.

These rules lay a foundation for the 

Commission’s treatment of non-public materials 

filed by the Postal Service and other parties.

Postal Service Cost Methodology Ru

The Commission has proposed various rules in 

several dockets related to costing methodology 

changes made by the Postal Service to produce 

data filed before the Commission. The rules 

describe the scope of reporting and level of 

detail needed to conform to the goals of the 

PAEA with respect to the transparency and 

accountability of Postal Service operations. The 

public and interested parties have been provided 

an opportunity to comment on each of the Postal 

Service proposed changes to cost methodology. 

Periodic Reporting Rules on Servi

Performance Measurement and Custome

Satisfactio

On September 2, 2009, the Commission issued 

proposed rules on Periodic Reporting of Service 

Performance Measurements and Customer 

Satisfaction, Docket No. RM2009-11. These rules 

initiate the process for establishing reporting 

requirements for the level of service and degree 

of customer satisfaction afforded by the Postal 

Service in connection with each market dominant 

product. In the coming year, the Commission 

will consider all comments from the public and 

stakeholders and issue final rules for periodic 

reporting of service performance. 

Obtaining Information from th

Postal Service

In FY 2009, the Commission proposed rules in 

compliance with PAEA subsection 504(f) which, 

among other things, authorizes: (a) the issuance of 
26 Annual Rep

subpoenas requiring officers, employees, agents, 

or contractors of the Postal Service to appear and 

present testimony or to produce documentary or 

other evidence, and (b) the issuance of orders that 

require the taking of depositions and responses 

to written interrogatories by any of those same 

persons. Section 504(f) further authorizes the 

enforcement of subpoenas by appropriate district 

courts of the United States. The matter is pending 

before the Commission.

Financial Reporti

In addition to promulgating rules related to 

transparency, the Commission worked with the 

Postal Service to enhance transparency of financial 

data. For many years prior to FY 2007, the Postal 

Service published monthly financial and operating 

reports. Subsequently, the Postal Service ceased 

publication of the monthly reports and substituted 

them with quarterly financial reports required 

under PAEA. As the Postal Service’s financial 

situation worsened over the next two years, 

there was concern among stakeholders that the 

quarterly reports did not provide sufficient timely 

information and that more frequent financial 

reporting was necessary.

The Commission agreed and asked the Postal 

Service for monthly reporting of financial results. 

The Service claimed that the monthly results were 

only produced for management and that the data 

was not audited and subject to change making the 

information potentially misleading to the public.

The Commission found that the benefits of 

transparency to stakeholders outweighed the 

Postal Service’s concerns and began negotiations 

with senior postal officials to develop a workable 

format for reporting financial and operating 

results. After several consultations, a format 

was agreed upon and the Postal Service filed 

the initial reports beginning in January of 2009. 

The Commission subsequently incorporated the 

format into its data reporting rules and required 

the reports to be submitted within 24 days of the 

end of each month. 

As required by PAEA, the Commission has also 

been monitoring the Postal Service’s progress 

towards compliance with section 404 of the 

Sarbanes-Oxley Act (SOX). Section 404 requires 

establishment of internal controls for financial 

reporting. The Postal Service must be fully 

compliant in FY 2010. The Postal Service has 

updated the Commission on its progress in this 

area several times throughout FY 2009. 

EFFCT

ACHIEVIN

SECTIO

Competitive Rate Cha

The Commission’s review of rate adjustments 

for competitive products is governed by section 

3633(a) of the PAEA. As noted above, section 

3633(a) establishes three statutory standards, 

incorporated into the Commission’s rules, 

applicable to competitive products. First, each 

competitive product must cover its attributable 

cost. Second, competitive products must 

collectively cover their appropriate share of the 

Postal Service’s institutional costs, which the 

Commission has determined to be, at a minimum, 

5.5 percent of the Postal Service’s total institutional 

costs. Third, competitive products may not be crosssubsidized by market dominant products. 

In FY 2009 the Postal Service submitted two 

notices of changes in rates of general applicability 

for competitive products on separate dates. 

The first notice was filed on November 13, 2008, 

and set forth price adjustments for domestic 

Priority Mail, Domestic Express Mail, selected 

categories within Parcel Select, Parcel Return 

Service, International Expedited Services, and 

International Direct M-Bags. On December 11, 

2008, the Commission completed its review. The 
Chapter I

Postal Service implemented its price adjustments 

for competitive prices on January 19, 2009. 

The second notice was filed on February 

10, 2009, and contained price adjustments 

for the other categories in Parcel Select, 

Premium Forwarding Service, International 

Priority Air Service, International Surface Airlift, 

and international Ancillary Services such as 

International Certificates of Mailing, International 

Registered Mail, and International Return Receipt. 

The Commission completed its review of the 

second notice on March 11, 2009, for prices that 

became effective on May 11, 2009. 

Both reviews were completed within 30 days 

and ensured that the rate changes met statutory 

requirements that each competitive product cover 

its direct costs and pay an appropriate share of 

institutional costs, and that market dominant 

products do not cross-subsidize competitive 

products. 

Although the Commission was able to complete 

the reviews on time, the process was hampered by 

limited explanations and information presented 

in the initial Postal Service filings. The Commission 

expects future Postal Service filings for 

competitive product rate adjustments to contain 

more comprehensive information on, and a more 

detailed and clearer demonstration that, with the 

planned changes, rates will satisfy the applicable 

statutory criteria of section 3633(a). 

Accounting and Periodic Rule

To further ensure that the objectives of 

section 3633 are met, on December 18, 2008, the 

Commission issued Order No. 151 concerning 

accounting practices and principles to be used by 

the Postal Service. The Commission has developed 

Accounting and Periodic Reporting Rules applicable 

to competitive products for the establishment and 

application of: (a) the accounting practices and 

principles to be followed by the Postal Service, 

and (b) the substantive and procedural rules for 

determining the assumed Federal income tax on 

competitive products income. The funds generated 

by this assumed tax are to be put in the Postal 

Service’s General Fund to further contribute to 

offsetting overhead expenses.

As a result of this Order the Commission 

directed the Postal Service to develop the assets 

and liabilities of the theoretical competitive 

products enterprise by identifying all asset and 

liability accounts within its Chart of Accounts used 

solely for the provision of: (a) competitive products 

or (b) market dominant products, and for those not 

identified with either, to submit for Commission 

approval a proposed methodology detailing 

how each asset and liability account identified 

in the Chart of Accounts shall be allocated to the 

theoretical competitive products enterprise. In 

satisfaction of that requirement, on July 23, 2009, 

the Postal Service filed a proposed methodology 

for the allocation of assets and liabilities to the 

theoretical competitive products enterprise.

On August 24, 2009, the Commission filed 

Docket No. RM2009-9, invited comment on the 

Postal Service’s proposed methodology and 

offered commenters the opportunity to propose 

alternative methodologies.

The Commission has received comments on the 

proposed rules and will issue final rules early 

in 2010. 
This page has intentionally been left blank.
Chapter I

The Commission issued its Report on Universal 

Postal Service and the Postal Monopoly early in 

FY 2009 as required by the PAEA. The law asks 

the Commission to include in its report several 

relevant items such as: (1) a comprehensive 

review of the history of universal service and the 

postal monopoly; (2) the scope and standards of 

universal service and the postal monopoly under 

current law; (3) a description of geographic areas, 

populations, communities, and other groups not 

receiving service or receiving deficient service; 

(4) the scope and standards of universal service 

and the postal monopoly likely to be needed in 

the future, and (5) Commission recommended 

changes to universal service and the postal 

monopoly. The law also requests the Commission 

to solicit written comments from the Postal Service 

and to consult with the Postal Service, other 

federal agencies, users of the mails, enterprises in 

the private sector engaged in the delivery of mail, 

and the general public.

Primary Commission findings were:

• The universal service obligation has seven 

attributes: (1) Geographic Scope; (2) Range 

of Products; (3) Access to Postal Facilities; (4) 

Delivery Frequency; (5) Prices/Affordability; 

(6) Quality of Service, and (7) Users’ Rights.

• The current obligation to provide service 

to all persons in all parts of the Nation, its 

territories, and possessions, is paramount, 

and should not be altered.

Chapter III – Reports on the Unive

Service Obligation and Mail

Mail delivery in Bayfield, Wisconsin.
30 Annual Rep

• Current law makes the universal service 

obligation applicable to both market 

dominant and competitive products.

• The recommendations set forth in this 

report were:

– Congress consider and balance all the 

features of universal service as part of any 

review of changes necessary to preserve a 

financially viable Postal Service.

– The Postal Service be directed to develop 

information on the probable impact on 

mail usage by large volume mailers in 

reaction to potential alternative changes 

in the seven features of universal service.

– Before any decisions to adjust or 

eliminate universal service or the 

monopoly are made, the resulting impact 

on the societal benefits of a Federal postal 

service should be carefully assessed.

In preparing its report the Commission initiated 

Docket No. PI2008-3 to solicit comments from all 

interested parties. The Commission sent letters 

to federal agencies considered stakeholders in 

the postal system to ensure their participation. 

A national survey was also conducted, on the 

needs and expectations of household singlepiece mailers. Further, to capture the needs and 

expectations of communities, the Commission 

held field hearings in Flagstaff, Arizona; St. Paul, 

Minnesota, and Portsmouth, New Hampshire. 

The Commission also held a workshop to engage 

mailers and others in a dialogue concerning 

universal service and the postal monopoly. Lastly, 

the Commission held a hearing in Washington, 

DC to solicit comments from the postal unions, 

management associations and others. It is 

important to note that the analysis for this report 

was completed before the economic downturn 

and subsequent recession. Commission findings 

and recommendations must be considered 

in light of the serious financial difficulties the 

Postal Service is currently facing. The complete 

report can be viewed at http://www.prc.gov/

DOCS/61/61628/USO Report.pdf.

ESTIMAED C

SER

The PAEA requires the Commission to provide 

annual updates on the estimated cost to the 

Postal Service of providing universal service. 

The following estimates update the estimates 

provided in the initial USO report discussed above. 

The law requests three separate estimates: (1) 

the cost of providing service to areas of the Nation 

that would not receive service but for the universal 

service obligation; (2) the revenue foregone by 

providing free or reduced rates for postal services as 

required by 39 U.S.C., and (3) other public services or 

activities related to the universal service obligation. 

Table 6 provides the estimate for the first and third 

components. Table 7 provides the estimate for 

the second component. At this writing, the data 

necessary to compute the costs for FY 2009 were 

not available. Therefore, the cost estimates compare 

FY 2007 and FY 2008 data. Most of the increase in 

the cost of six day delivery between FY 2007 and FY 

2008 is due to refinement of the method used to 

calculate the indirect costs of delivery. 

The Postal Service provides statutory 

discounted rates for the nonprofit rate categories 

in Periodicals, Standard Regular, and Standard 

Enhanced Carrier Route (ECR). Additionally, 

statutory discounts are given to Periodicals 

Classroom and Science of Agriculture and to 

Library Rate. Table 6 presents the Commission’s 

estimates of revenue forgone by the Postal 

Service in providing discounted rates to preferred 

categories of mail in FY 2008. 

ESTIMATD

MO

While not required by law, the Commission 

updated its combined and mailbox monopoly 
Chapter I

Table 6 

FY 2008 Cost of Universal Servi

($ in Billions

Mandate  FY 2008  FY

Six Day Delivery Instead of Five Day Delivery 2.160 1.930

Impact of Nonprofit Mail Discounts Net of Costs 1.223 1.150

Unzoned Media/Library Rates 0.094 0.063

Losses on Market Dominant Products 0.437 0.448

Maintaining Small Post Offices 0.549 0.586

Alaska Air Subsidy 0.124 0.107

Uniform Rates for First-Class Mail 0.212 0.130

Total Cost of Universal Service Obligations $4.799 $4.414

Table 7 

Revenue Not Received from Free 

Reduced Price Mail for FY 20

($ in Billions

Mail Class 2008 20

Standard Mail

Nonprofit 0.969 0.757 

Nonprofit - ECR 0.072 0.150 

Total Standard Mail 1.041 0.907 

Periodicals

Nonprofit 0.011 0.013 

Classroom 0.001 0.001 

Total Periodicals 0.012 0.014 

*Library Rate (0.001) 0.000 

Free-for-the-Blind Mail 0.052 0.061 

Total 1.104 0.982 

*Library rate mail has an own price elasticity greater than one in absolute 

terms. When discounts are given, mail volume and revenue increase. 

Therefore, the revenue not received is negative.

Estimated

Revenue Not Recei
32 Annual Rep

values for the present year using the base case 

assumptions and methodology outlined in its 

report. The updated and previous year values are 

shown below. 

The value of the monopoly estimates the lost 

profit to the Postal Service if potential competitors 

were allowed to enter and compete in the Postal 

Service’s letter and mailbox monopolies. In other 

words, if the Postal Service’s combined monopoly 

(letter monopoly and mailbox monopoly) 

and, separately, the mailbox monopoly were 

eliminated, the value of the monopoly estimates 

how much the Postal Service would lose. The 

updated base case monopoly values reported 

below are lower than last year’s values due to 

the reduction in volume this year and higher 

fixed network costs. Due to both factors, the 

Commission concludes that potential competitors 

would find entry into previously monopolized 

areas less profitable and thus less attractive. As 

a result, the Commission’s estimates reflect a 

lower lost profit to the Postal Service because of 

a lower incidence of entry by competitors when 

eliminating either monopoly. The Commission 

estimates entry on 41 percent of total routes 

under the base case combined monopoly. This 

figure is considerably lower than the 48 percent 

value estimated for FY 2007. Similarly, for the 

mailbox monopoly, the percentage of profitable 

routes decreases from 51 percent to 44.7 percent. 

The base case assumptions applying to 

competitors in the present analysis include: (1) 

full diversion of local contestable mail when 

discounting existing Postal Service rates by at least 

10 percent; (2) competitors incur only delivery 

costs, and deliver three times a week under the 

combined monopoly, and once a week under the 

mailbox monopoly, and (3) competitors are ten 

percent more cost efficient than the Postal Service. 

Besides differences in delivery frequency, mail 

subject to diversion under the mailbox monopoly 

is much more restricted in scope compared to the 

combined monopoly, as explained in detail in last 

year’s Commission report. 

The method employed to estimate both 

monopoly values is also the same as in last 

year’s approach. The Commission’s model 

estimates competitor profits for all routes based 

on contestable volumes, discounted rates 

and adjusted delivery costs. Entry occurs only 

on routes with positive profits. System level 

monopoly values are estimated as the route sums 

of the lost contributions to the Postal Service from 

volume diversion to competitors. 

The Commission’s estimates should be viewed 

as upper bounds for several reasons. As described 

in last year’s report, it is entirely possible that 

entry would only occur on profitable routes that 

are co-located. Because the Commission’s model 

evaluates entry for each route regardless of the 

extent of route clustering, monopoly values 

are likely overstated. Second, the Commission’s 

model ignores any carrier route sorting required 

by potential entrants for five digit sorted letter 

mail entering the system at the SCF or DDU level. 

Inclusion of these costs would also lower the 

extent of entry to some degree. 

Table 8 

 Value of the Monopol

($ in Billions

 FY 2008 FY 

Mailbox Monopoly 1.07 1.33

Combined Monopoly 2.96 3.48
Chapter I

On the price side, the model does not address 

the added pricing flexibility that the Postal Service 

would be granted, if either monopoly were lifted. 

Presumably, either lifting the mailbox monopoly 

or eliminating the private express statutes or both 

would mean that affected mail could no longer be 

classified as market dominant. Further, exclusion 

of such mail from the price cap would mean that 

the Postal Service could freely price the newly 

competitive products without affecting rates for 

the remaining market dominant products, if any. 

Under such circumstances, the Postal Service can 

be expected to respond to competitive entry by 

lowering its own rates and/or changing delivery 

frequencies where and when these changes are 

still expected to generate positive contributions. 

Although such contributions from contestable 

products are likely lower than under existing 

market dominant values, they are likely higher 

than if volumes are fully diverted to competitors 

because of inflexible rates or delivery frequencies. 

The Commission will be addressing these and 

other issues in the future by improving capabilities 

to estimate monopoly values under more realistic 

conditions.
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Chapter IV 

ADVISOY 

AN BRA

DOCKET NO. N

The Postal Service filed a request with the 

Commission on July 2, 2009, to determine 

whether a plan to optimize the postal retail 

network by consolidating the operations of 

some retail stations and branches into nearby 

facilities constitutes a change in the nature of 

postal services, specifically on a nationwide basis, 

within the meaning of 39 U.S.C. 3661(c). The 

Commission established Docket N2009-1 to hold 

a public hearing and issue an advisory opinion in 

response to the Postal Service’s request. As part of 

this process, the Commission held public hearings 

in Washington, DC, Cleveland, Ohio and Bronx, 

New York, to maximize the opportunity for public 

comment on the Postal Service’s proposal. The 

Commission’s website also lists the latest group 

of Postal Service closings and consolidations. In 

these proceedings, the Commission will advise on 

whether the proposed service changes reflect the 

policies in Title 39 of the United States Code. The 

matter is pending before the Commission.

Chapter IV – Other Legal Procee

James A. Farley Post Office in New York City
36 Annual Rep

REVEW OF No

DOCKET NOS. MC2

AND 

In accordance with 39 U.S.C. 404(e)(3), the 

Commission is to determine which nonpostal 

services, defined as any service that is not a postal 

service, should continue and which should be 

terminated. The PAEA limits the Postal Service’s 

authority to provide nonpostal services to those it 

offered on January 1, 2006.

Any nonpostal service the Commission 

concludes should not continue shall be 

terminated. Any nonpostal service that the 

Commission authorizes to be continued is to be 

regulated under the title as a market dominant 

product, a competitive product or an experimental 

product.

On December 18, 2008, in Docket No. MC2008-

1 Phase I the Commission found that 26 of 47 

revenue-generating activities were not subject 

to review under 39 U.S.C. Additionally, the 

Commission found that six revenue-generating 

activities met the definition of postal services 

and the Postal Service was directed to make the 

appropriate filing to add these products to the 

Mail Classification Schedule (MCS). In Docket No. 

MC2009-19 the Commission established a docket 

in response to the Postal Service request to add 

the six products to the MCS. 

The Commission also found that fifteen 

revenue-generating activities meet the definition 

of non- postal services. Of the fifteen, one, stored 

value cards, was not offered on January 1, 2006 

and may not continue. The Commission authorized 

the fourteen remaining nonpostal services to 

continue. Of these, two are market dominant and 

twelve are competitive. The Commission found 

the record insufficient in certain respects and 

deferred ruling on three issues involving licensing, 

a warranty repair program, and sale of music 

compact discs.

On January 9, 2009, the Commission 

established Phase II of MC2008-9 to allow the 

Postal Service to address these issues followed by 

an opportunity for interested persons to respond. 

The matter is pending before the Commission.

MAIL 

The Mail Classification Schedule, codified at 

39 CFR Appendix A to Subpart A of Part 3020, 

includes the Market Dominant Product List 

and the Competitive Product List. The products 

appearing on these lists are the products that 

the Postal Service currently is authorized to 

offer. In the near future, a formal rulemaking will 

be initiated to augment the Mail Classification 

Schedule to include descriptions of all products. 

The Commission and the Postal Service have 

cooperated on developing draft language for 

the product descriptions and have been using 

this draft language to communicate various 

classification changes that have been reviewed by 

the Commission over the past two years.
Chapter V 3

In FY 2009, the Postal Regulatory Commission 

played an increasingly active international role, 

both fulfilling its statutory responsibilities under the 

PAEA and proactively building a solid framework 

for communication and cooperation on postal 

regulatory issues with postal regulators from other 

countries and other stakeholders. The Commission 

has supported a broader U.S. Government agenda 

to promote a level playing field for postal and 

express delivery products and services. 

In FY 2009, the Commission analyzed over 

30 filings by the Postal Service to introduce 

new international products or amend rates or 

classifications for existing international products. 

These filings represented an approximate 50 

percent increase over FY 2008. 

The Commission continued as an active 

member of the U.S. delegation to the Universal 

Postal Union (UPU), an international treaty 

organization and specialized agency of the United 

Nations headquartered in Bern, Switzerland 

whose mission is to promote an affordable, quality 

universal service among all 191 member countries. 

The Commission coordinated closely with the U.S. 

Department of State, which has lead responsibility 

for international postal policy, along with the 

U.S. Postal Service, Department of Commerce, 

Office of the U.S. Trade Representative, and U.S. 

Customs and Border Protection to implement 

Chapter  – International Ac
38 Annual Rep

the decisions adopted at the quadrennial UPU 

Congress in Geneva in 2008 and develop a U.S. 

Government Strategic Plan for the UPU. For 

the first time, the Commission is co-lead with 

the Postal Service for U.S. participation in the 

UPU Terminal Dues Working Group, which sets 

the levels of remuneration among 191 postal 

administrations for letter mail delivery. The work 

of this group is critical to improving cost coverage 

for inbound international letter mail. Within the 

UPU, the Commission also participated in working 

groups on universal service, parcels, quality of 

service, reform of the Union, strategic planning 

and Customs.

At the multilateral level, the Commission 

was also a member of the U.S. delegation to the 

Congress of the Postal Union of the Americas, 

Spain and Portugal, which took place in Chile 

in August 2009, to ensure regional consistency 

with the work of the UPU. The Commission has 

contributed to the Union’s work on postal 

regulation and terminal dues, and seeks to lend 

its expertise to help promote postal reform and 

modernization in the Americas region. 

The Commission also took concrete steps in FY 

2009 to exchange information and best practices 

with other postal regulators, both bilaterally and 

multilaterally. At the multilateral level, in March 

2009, then-Chairman Dan Blair organized and 

hosted the first-ever global meeting of postal 

regulators to share information and best practices 

in postal regulation. This Postal Regulatory 

Dialogue included postal regulators representing 

China, Ecuador, Japan, the European Commission 

and Portugal, as well as officials from the 

Department of State, Department of Commerce, 

and Office of the U.S. Trade Representative. For 

two days, participants exchanged information 

and ideas on such issues as universal service, 

quality of service, rate setting, and international 

Figure 6 – Postal Regulatory Dialogue

In March 2009, the Commission hosted the first global meeting of postal regulators.
Chapter V 3

responsibilities. There was clear consensus that 

this Dialogue was necessary, valuable and should 

continue, with China offering to host in 2010.

A key outgrowth of the Postal Regulatory 

Dialogue was establishing a webpage on 

international postal regulation which the 

Commission launched in FY 2009. This webpage, 

linked to the homepage, is intended to be a onestop shop for information on postal regulation 

around the world. It contains links to other postal 

regulators and international organizations dealing 

with postal regulation, key reports and studies 

by the Commission and other regulators, and 

upcoming events related to postal regulation. 

At the bilateral level, in June 2009, thenChairman Blair led a U.S. delegation to Japan for a 

Symposium on Postal Reform and Express Delivery 

and bilateral meetings with Japanese government 

officials organized in cooperation with the 

Department of Commerce, Office of the U.S. Trade 

Representative and Department of State. The 

Commission used this opportunity to promote 

greater market orientation, including a clear 

separation of competitive products, avoidance of 

cross-subsidization of competitive products, and a 

level playing field with the private sector. 

The Commission also organized a two-week 

program in Washington for a senior official from 

the Belgian postal regulator to meet one-on-one 

with Commission technical and legal experts and 

to share with the Commission the postal regulatory 

environment in Europe. As part of this program, the 

Commission also organized meetings with other 

public and private sector stakeholders in order to 

offer a broader view of the U.S. postal market. This 

visit served to foster ongoing communication on 

technical issues between the United States and 

Europe.

Lastly, the Commission continued its 

participation in the Federal Advisory Committee 

on International Postal and Delivery Services led 

by the Department of State. This Committee serves 

in an advisory capacity to the Department of State 

on international postal issues and is comprised of 

stakeholders from the public and private sector.
This page has intentionally been left blank.
Chapter VI

Over

The Office of Public Affairs and Government 

Relations (PAGR) serves as the public face of 

the Commission. The Office is the Commission’s 

primary resource in support of public outreach 

and education, media relations, and liaison 

with Congress, the Postal Service and other 

government agencies. The PAGR Director advises 

Commissioners and Commission staff on legislative 

issues and policies related to the Commission 

and the Postal Service in addition to coordinating 

the preparation of both Congressional testimony 

and Congressional inquiries concerning the 

Commission policies and activities.

Congressional Testim

Chairman Goldway, Commissioner Blair, and 

the Director of the Office of Accountability and 

Compliance (OAC) appeared before Congressional 

Committees to report on the program plans 

and actions of the Commission and respond to 

questions from Members. Then-Chairman Blair 

testified before the Senate Subcommittee on 

Federal Financial Management, Government 

Information, Federal Services, and International 

Security in January 2009. Then-Chairman Blair also 

testified before the House Subcommittee on the 

Federal Workforce, Postal Service and the District 

of Columbia in March 2009. The Director of OAC 

testified before the House Subcommittee in May 

Chapter VI – Public Affairs

Outreach Ef

Commission’s Ohio Public Hearing, September 16, 2009.
42 Annual Rep

and July of 2009. Chairman Goldway testified 

before the Senate Subcommittee in August 2009, 

and before the House Subcommittee in November 

2009. Congressional testimony by Commissioners 

and staff is available online at the Commission 

website.

1/28/2009 Testimony of Chairman Dan 

G. Blair on “The Impact of the Economic 

Crisis on the U.S. Postal Service” before the 

Senate Subcommittee on Federal Financial 

Management, Government Information, Federal 

Services and International Security. Blair spelled 

out the limited options available to the Postal 

Service for short term financial relief, and 

recommended that Congress require the Postal 

Service to provide Congress, the Commission 

and GAO with a comprehensive, forwardlooking financial plan.

3/25/2009 Testimony of Chairman Dan G. 

Blair on U.S. Postal Service financial stability 

before the House Subcommittee on the 

Federal Workforce, Postal Service and the 

District of Columbia. Blair stressed the need 

for Postal Service issuance of publicly available 

monthly financial reports to Congress and 

the Commission. Blair also suggested an 

adjustment to the Postal Service’s health benefit 

payment schedule would appear to be the most 

pragmatic approach to short term financial 

relief for the Postal Service. 

5/20/2009 Testimony of OAC Director John 

Waller before the House Subcommittee on the 

Federal Workforce, Postal Service and the District 

of Columbia at a hearing to evaluate the “Postal 

Service’s Cuts in Operations and Network”. 

Waller described Postal Service efforts to lower 

costs and improve efficiency, along with the 

Commission’s work with the Service to provide 

the accountability and transparency needed to 

build support for an agenda of change.

7/30/2009 Testimony of OAC Director John 

Waller on U.S. Postal Service consolidation 

initiatives before the House Subcommittee 

on Federal Workforce, Postal Service and the 

District of Columbia. Waller briefed Congress 

on the Commission’s legally required duty 

to provide an Advisory Opinion to the Postal 

Service on the Service’s plan to optimize the 

postal retail network, called the “Station and 

Branch Consolidation Initiative.” 

8/6/2009 Testimony of Commissioner 

Ruth Y. Goldway on the “U.S. Postal Service in 

Crisis” before the Senate Subcommittee on 

Federal Financial Management, Government 

Information, Federal Services and International 

Security. Goldway described for the Committee 

a Commission report which examined the 

underlying assumptions and methodology used 

by OPM and the Postal Service OIG to determine 

the Service’s unfunded liability for its Retiree 

Health Benefit Fund. Also discussed was the 

Commission’s role in any Postal Service effort to 

reduce days of delivery from six days a week.

11/5/2009 Testimony of Chairman Ruth 

Y. Goldway on the potential for U.S. Postal 

Service revenue generation before the House 

Subcommittee on Federal Workforce, Postal 

Service and the District of Columbia. Goldway 

discussed Postal Service revenue efforts in 

terms of three basic challenges: the intent and 

expectations of the Postal Accountability and 

Enhancement Act; the ongoing financial crisis 

facing the Postal Service, and the Postal Service 

mission to provide universal service to bind the 

Nation together.

Outreach 

In its normal course of activities the Commission 

routinely hears from members of the public 

involved in or representing the mailing industry as 

well as members of Congress. The Commission has 
Chapter VI

performed a number of public outreach activities 

to engage citizens as well as stakeholders as a key 

part of its statutory responsibilities.

• In conjunction with the Commission’s 

review of the U.S. Postal Service Station 

and Branch Initiative, Docket N2009-1, 

field hearings were held in Independence, 

Ohio and Bronx, New York. The goal was 

to promote greater public input into 

the Commission’s deliberations as the 

PRC Advisory Opinion on the Initiative is 

formulated. In total, 19 witnesses testified 

and public attendees were afforded the 

opportunity to make comments or raise 

questions at the close of each hearing;

• Chairman Goldway initiated a “national 

conversation on the future of the mail 

and hard copy communications in the 

U.S.” A letter was sent by the Chairman 

to 162 stakeholders, organizations and 

associations seeking their input on the 

following topics: (1) the U.S. Postal Service 

proposal to consider the closing of station 

and branch post offices throughout the 

nation; (2) the present and future role of 

mail in American society and the societal 

impact of the existence of the postal 

system, and (3) a potential proposal by the 

U.S. Postal Service to reduce mail delivery 

service by one day per week;

• The Office of Public Affairs and 

Government Relations sent letters to 

citizens who had previously contacted 

the Commission regarding the potential 

closure of a leased facility, apprising 

them of the Commission’s investigation 

(Docket PI2010-1) into the Postal Service 

practice of suspending offices for extended 

periods without affording the public rights 

guaranteed under Title 39, U.S.C. 404(d);

• Commissioners and staff appeared before 

stakeholders and other interested groups 

such as mailer and industry organizations, 

postal labor unions and management 

associations, professional organizations, 

trade press, and international bodies 

to discuss the work of the Commission, 

engage in informal dialogue and respond 

to questions, and

• Commissioners and staff participated 

in technical conferences such as those 

administered by Rutgers University Center 

for Research in Regulated Industries by 

presenting technical papers. 

The Commission solicits public comment on 

rulemakings, complaints, mail classification cases, 

public inquiries, rate cases and other matters. There 

is an opportunity for both formal and informal 

comment and both initial and reply comments.

Commenters are encouraged to use the 

electronic filing system to file their comments 

online. Comments filed electronically are 

published on our website under the appropriate 

docket number.

The Commission also maintains a public 

commenter file containing letters, emails and 

faxes for each docket. The file is available for public 

inspection.

Consumer Relat

Within PAGR, a Consumer Relations Specialist 

responds to customer inquiries, handles 

complaints which do not rise to the level of formal 

complaints, and serves as liaison with the Office 

of Consumer Advocate of the Postal Service for 

service issues. A system was developed to manage 

and track public inquiries, correspondence, and 

informal complaints. Inquiries are tracked based 

on source along with the nature of the inquiry, i.e. 

question, comment or informal complaint. Further 

in-depth breakdowns relating to specific service 
44 Annual Rep

categories and sub-categories such as retail, 

delivery, rates, claims, international mail, employee 

behavior, wait time in line, and other factors the 

Commission deems of interest to the public are 

also tracked. This process aids the Commission 

in performing general analyses related to quality 

of service, and helps to identify concerns, trends, 

and potential systemic service problems as part 

of the PAEA’s requirement to monitor service. This 

inquiry log is posted on the Commission’s website 

on the “Consumer Interests” page and is updated 

on a monthly basis. The Commission received 1800 

inquiries during Fiscal Year 2009: 1241 were from 

consumers with general requests for information, 

comments on open dockets, or requests for 

assistance with service problems. 

The top consumer issues included 326 queries 

or comments regarding post office closings, 281 

on the Standard Mail Volume Incentive Pricing 

Program, 101 regarding impact of price changes on 

Alaska bypass mail used for sending essential goods 

to areas without road access, and 57 on possible 

changes in days of delivery service. See chart with 

breakdown of top 9 consumer issues or concerns.

Under the Commission’s Order No. 195 which 

was established on March 24, 2009, rate and 

service inquiries are forwarded to the Office of 

Consumer Advocate to assist and respond to the 

customer and the Commission. From May, 2009, 

through September 30, 2009, the Commission 

forwarded 211 rate and service inquiries to the 

Postal Service. The Postal Service files a monthly 

narrative report summarizing the general nature of 

1241

97

310

85

55

12

Consumer

Federal,State & local govt

Mailer

Media

Postalemployee

Postal organization

Figure 7 – Sources of PAGR Inquiries 
Chapter VI

the inquiries, which is posted on the Commission’s 

website homepage under “What’s New” and also 

filed with Postal Service Periodic Reports. 

Public Represen

In each matter docketed for public proceedings 

by the Commission, the Commission designates 

an “Officer of the Commission” to represent the 

interests of the general public under 39 U.S.C. 505. 

Having been designated to represent the interests 

of the general public, the Public Representative 

focuses on the interests of the general public as 

distinct from the interests of the other groups 

included in §3622(c)(3) (“business mail users, and 

enterprises in the private sector ...”). 

The Public Representative is generally not 

bound by ex parte restrictions imposed on 

Commissioners and staff involved in decisionmaking, and may draw upon analytical and 

legal resources of the Commission as required. 

However, the Public Representative does not 

participate in any deliberations regarding the 

matter in question. By Commission rules, the 

Public Representative may not – except for formal 

comments submitted for the record – discuss the 

matter under consideration with Commissioners 

and their assistants. Anyone from outside the 

Commission may contact and consult with the 

Public Representative during the course of a 

case to discuss how the public interest may be 

affected. The name and contact information for a 

designated Public Representative for each active 

326

281

101

64

35

32

31

31 30

PO closing

Incentive pricing 

AKBypass mail

Days of delivery

Missing mail

Prisonmail

Changeof address

Modeof delivery

Collection box

Figure 8 – Top Consumer Issues
46 Annual Rep

docket is noticed in initiating order and posted on 

the Commission’s website. 

Commission Websi

The Commission’s website, located at 

http://www.prc.gov, is a significant means 

of public outreach. The website enhances 

communications with stakeholders, incorporates 

security improvements, and is readily accessible to 

individuals with disabilities.

Consumers can contact the Commission and 

provide comments or questions regarding rates 

and service through a comment link on email 

via the website. Submissions are reviewed and 

responded to in a timely manner, with service 

issues referred to the Postal Service’s Office of 

Consumer Advocate as necessary. All emails 

received are available for public inspection at 

the Commission’s offices. Messages concerning 

postal rates and services become part of the 

Commission’s record in the Commenter file for any 

pertinent active cases.

Other features of value to stakeholders include:

• A direct link to a Consumer Price IndexUrban (CPI-U) trend chart used by mailers 

for budget planning;

• One-click access to the PRC’s Daily Listings 

(added at users’ request);

• A personalized document alert email 

notification system designed to provide 

instant notification to stakeholders who 

sign up for notification when documents 

meeting pre-selected criteria are published 

on the website, and 

• Additional links for postal information, 

including the Office of the Consumer 

Advocate of the Postal Service, local District 

Consumer Affairs Offices, the Post Office 

locator, USPS frequently asked questions, 

postal rates and fees, and other links of 

consumer interest. 

Freedom of Informati

(F

The Commission disseminates its official orders, 

opinions and Federal Register Notices through the 

Library and Dockets section of its website. Any 

public document, including its own, which is filed 

with the Commission, is available the same day 

on the website’s Daily Listing link. Subscribers 

can receive email notification of new postings. 

Accessibility of Commission information has 

limited the number of FOIA requests.

The Commission received 22 FOIA requests 

in FY 2009, many of which were redirected to 

the Postal Service in an average of five days. The 

Commission uses both written and electronic 

methods, depending on the initial contact, to 

respond to the public. The Commission recently 

certified its online FOIA Reading Room as meeting 

statutory requirements.

The Commission drafted new FOIA rules in FY 

2009 and was the first federal agency to issue rules 

citing President Barack Obama’s January 21st Memo 

on the Freedom of Information Act2

, and Attorney 

General Eric Holder’s March 19th FOIA Guidelines3

.

2

 Presidential Memorandum for Heads of Executive Departments 

and Agencies Concerning the Freedom of Information Act 

[President Obama’s FOIA Memorandum], 74 Fed. Reg. 4683 

(Jan. 21, 2009).

3 Attorney General Holder’s Memorandum for Heads of Executive 

Departments and Agencies Concerning the Freedom of Information 

Act (Mar. 19, 2009), available at http://www.usdoj.gov/ag/

foia-memo-march2009.pdf.
Chapter VI

STUDYON 

RETIREE 

The Commission undertook an analysis of the 

different approaches employed by the U.S. Postal 

Service Office of Inspector General (OIG) and 

the Office of Personnel Management (OPM) to 

calculate the present value of the Postal Service’s 

obligations related to the Postal Service Retiree 

Health Benefit Fund. The analysis was requested 

by the Subcommittee on Federal Workforce, Postal 

Service, and the District of Columbia, Committee 

on Oversight and Government Reform, U.S. House 

of Representatives.4

The Commission determined that the two 

valuations were developed for different reasons 

4

 The request was received on June 15, 2009.

and both were reasonable. The OPM estimate 

serves to meet an annual financial reporting 

requirement. In contrast, the OIG estimate is 

designed to estimate the funded status of the 

Retiree Health Benefits Fund as of year 2016. 

In July 2009, the Commission determined that 

a graded health inflation trend rate is preferable 

to a static trend rate because it reflects current 

expectations of health care inflation while 

recognizing the issue of how much of the national 

Gross Domestic Product will be consumed by 

health care costs in the future. In line with the 

Commission’s recommendation, OPM changed the 

static 7 percent medical inflation assumption it had 

used the prior two years to a graded assumption 

of 8 percent - 5.5 percent, in its calculation of 

Chapter VII – other Commission Act
48 Annual Rep

the Postal Service Retiree Health Benefit Fund 

liability for FY 2009. The use of the graded inflation 

assumption should result in a lower liability for 

retiree health benefits in the future as shown in the 

table above.5

The Commission also recommended that when 

the valuation is required to be revised in 2017 

under the PAEA, Congress may want to request a 

Postal Service specific valuation that reflects use 

of Postal Service demographics apart from the 

overall Federal government population to better 

determine actual costs for the Postal Service. 

Read the full report at http://www.prc.gov/

Docs/63/63987/Retiree%20Health%20Fund%20

Study_109.pdf

PERI DICAL

The PAEA directs the Postal Service and the 

Commission to jointly study the quality of the 

data used to determine the attributable costs of 

Periodicals mail and opportunities for improving 

the efficiency of this mail class. The PAEA does not 

establish a deadline for issuance of this report. To 

date, the Commission and the Postal Service have:

5 Using OPM’s current valuation and the scheduled payments into 

the fund required by the PAEA results in a funded status of 73 

percent in 2016. 

• Developed an outline of the final report

• Analyzed data related specifically to 

publications

• Analyzed overall cost data

• Conducted meetings with mailers

• Conducted a webinar on cost issues related 

to Periodicals mail

• Visited Postal Service facilities to view how 

Periodicals mail is processed 

The Commission anticipates publication of the 

final report to Congress in FY 2010.

Consultation with the

Servi

The Postal Accountability and Enhancement 

Act requires that the Postal Service, in consultation 

with the Commission, establish by regulation a set 

of modern service standards for market dominant 

products. Through a series of monthly consultations, 

the Commission was informed by the Postal Service 

of its progress toward developing such regulations 

which were finalized in FY 2008. The Commission 

has continued these monthly consultations for 

updates on Postal Service progress in implementing 

systems for measuring Postal Service performance 

in meeting these service standards.

Table 9 

PSRHBF Payments to Achieve 73 Percent Funded

($ in Billions

USPS OIG OPM PRC

Workforce Assumption Declining Fixed Declining 

Health Care Inflation 5% 7% Graded: 8%–5%

Average Interest rate on assets 5.35% 6.25% 5.35%

Discount Rate on Liability 6.25% 6.25% 6.25%

FY 2016 Estimated Liabilities $90.5 $147.9 $113.2

FY 2016 Estimated Assets* 103.7 108.7 103.7

FY 2016 Estimated Unfunded Liability (13.2) 39.2 9.5

2016 Asset Balance for 73% Funded 66.1 108.0 82.6

Fixed Annual Payment $1.7 $5.5 $3.4

*Under the USPS OIG methodology the liability is overfunded in 2016.
Chapter VI

Injury Compensati

The Postal Regulatory Commission continues 

to provide a safe work environment for its 

employees. The Commission ended FY 2009 

accident free with no on-the-job injuries or lost 

workdays.

Equal Employment Opportunity

During FY 2009, the Commission had no EEO 

complaint filings.

Diversity

In FY 2009, the Commission continued its 

agency commitment to support initiatives 

to recruit, develop and retain a skilled, highachieving, and diverse workforce. The Commission 

made measurable progress in this area, ending the 

year with 52 percent of its female employees in 

executive or professional level positions. Progress 

was also made with minorities representing 

30 percent of the executive and professional 

workforce and 20 percent of the overall workforce.

Chapter VIII – Administr
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