The Postal Reorganization Act provided USPS with authority to offer nonpostal services. USPS used this authority to introduce a wide array of products, such as prepaid phone cards; an electronic funds transfer service between the United States and Mexico (Dinero Seguro); and retail merchandise, such as T-shirts, mugs, and neckties. In 2006, PAEA eliminated USPS’s authority to offer nonpostal services unless they were offered as of January 1, 2006, and expressly grandfathered by the PRC. PAEA directed the PRC to review USPS’s ongoing nonpostal services within 2 years of enactment to determine whether they should continue (i.e., be grandfathered), taking into account the public’s need for the service and the private sector’s ability to meet that need. The PRC defined, for the purposes of its review, a service to be an ongoing commercial activity that USPS offered to the public for financial gain. Using this definition, all nonpostal services that were offered as of January 1, 2006, were ultimately grandfathered by the PRC. With PRC approval, USPS can introduce new, related nonpostal products if they fall under the umbrella of one of its grandfathered nonpostal services. For example, because the PRC grandfathered Officially Licensed Retail Products as a nonpostal service, USPS can offer a variety of related products, including stamp dispensers and framed postal artwork, as long as they are consistent with the underlying grandfathered nonpostal service. While USPS offers a number of nonpostal products and services, the revenue they generate is relatively small. Nonpostal revenue in fiscal year 2011 was $173 million, accounting for a small fraction of a percent of USPS’s total revenue of $65.7 billion. PAEA required that grandfathered nonpostal services be regulated as either market dominant, competitive, or experimental products.” Market dominant services include those products where USPS exercises sufficient market power that it can, among other things, effectively set the price of such product substantially above cost without risk of losing a significant level of business to other firms offering similar products. For example, first-class mail letters and sealed parcels are market-dominant products. Competitive services consist of all other products and are those in which USPS competes with the private sector.cover its costs for these services. PAEA also authorized USPS to conduct market tests of experimental postal products if the product being tested (1) is significantly different from all products offered by USPS within the prior 2-year period; (2) will not result in an undue market disruption, especially for small business concerns; and (3) is correctly classified as either a market dominant or competitive product. The PRC, as a matter of practice, considers whether these conditions have been met before USPS can begin a market test. PAEA authorized market tests for products that are not anticipated to exceed $10 million in annual revenue and authorized the PRC to exempt products from this threshold if the annual revenue will not (or is not expected to) exceed $50 million. Generally, a market test may not exceed 2 years. things, if there is a market for the product and, if so, to test various pricing scenarios. The time frame allows USPS to demonstrate a “nexus” to the mail and, consequently, that the product is a postal product. If USPS believes a market test demonstrates that a product is suitable, it may seek approval from the PRC to permanently offer it. USPS also may terminate a market test if, for example, the test did not meet USPS’s objectives. If requested by USPS, the PRC may extend the testing period for an additional year. 39 U.S.C. § 3641(d). including the activities to be performed by USPS and the terms of reimbursement, if applicable. One such agreement allows USPS to accept passport applications on behalf of the U.S. Department of State (State Department). Given declining mail volumes, customers’ changing needs and their use of the mail, and a desire to address these issues, USPS began engaging with internal and external stakeholders within the postal community to generate ideas for innovative products and services that could generate additional revenue. In the summer and fall of 2010, USPS held a series of discussions, including an innovation symposium with stakeholders including business leaders, partners, customers, suppliers, and academics, to gather insights on potential innovations and revenue opportunities. According to USPS, the outreach generated over 1,500 potential initiatives, which were evaluated and winnowed down based on a variety of factors, such as time to implement, return on investment, and strategic fit. According to USPS, its decisions to pursue certain initiatives have been guided by several recurring themes, including: making it easier and more convenient for businesses and consumers promoting mailing best practices, such as those that incorporate barcode technology into advertising campaigns; and innovating and leading in e-commerce delivery to meet the needs of the mobile generation. In addition to these recurring themes, each initiative is aligned to support one of USPS’s three primary marketing strategies. These strategies are: (1) First-Class Mail—slow the diversion of First-Class Mail by differentiating hard copy from digital mail and embracing new opportunities from digital and social media; (2) Marketing Mail—simplify the use of marketing mail for businesses and promote emerging technologies for marketing mail; and (3) Shipping Services—develop solutions to grow shipping services in the e-commerce market. USPS’s overall strategic direction is described annually in its Comprehensive Statement of Postal Operations and the impact of these strategies is described in its annual Integrated Financial Plan—both of which are publically available. While the 2013 Integrated Financial Planindicates that USPS expects an operating loss of $2 billion in 2013, it projects that USPS’s revenue-generating initiatives will help USPS increase its shipping revenue by 10 percent and reduce the decline in its mailing revenue to 3 percent in fiscal year 2013. USPS plans to complete a multiyear revenue plan in the spring of 2013 that will include details on its competitive strategies. We have previously reported that making progress toward financial viability would require USPS to take steps to cut costs and increase revenue within its current legal authority. in postal reform legislation passed in the Senate that would have provided USPS with the authority to undertake new revenue-generating initiatives such as offering new nonpostal services and exploring opportunities to offer services on behalf of state and local governments. We also previously identified questions we believe are important to consider before USPS is granted such additional authority,following: How would USPS finance its nonpostal activities, considering its difficult financial condition? Should USPS be allowed to compete in areas where there are already private-sector providers, and if so, on what terms? GAO, U.S. Postal Service: Strategies and Options to Facilitate Progress toward Financial Viability, GAO-10-455, (Washington, D.C.; Apr. 12, 2010). At the time PAEA was enacted, USPS was offering 12 nonpostal services that it has continued to offer as a result of these services being grandfathered by the PRC. Two of these are market dominant services, including MoverSource (a service whereby the cost of changing a customer’s mailing address is defrayed through the sale of advertising) and Philatelic Sales (sales related to the hobby of stamp collecting). The remaining 10 are competitive services, including USPS’s Passport Photo Service. In fiscal year 2011, USPS reported to the PRC that it generated net income totaling $141 million from its 12 nonpostal services and related products. Appendix I provides additional information about each of these grandfathered nonpostal services. Since the enactment of PAEA, USPS has received approval from the PRC to market test a total of eight experimental postal products. Four of the eight approved market tests are for market dominant products, such as First Class Tracer, which enables the tracking of First-Class letters through the mail stream. The remaining four experimental products are competitive products, including USPS’s Gift Cards—experimental product to test the feasibility of selling gift cards loaded with a specified sum of money to consumers who could choose to mail the cards. Four of these experimental products are an outgrowth of USPS’s stakeholder discussions on new revenue-generating initiatives and are discussed further below. USPS terminated one of the eight approved market tests—Collaborative Logistics—a test to determine whether there was a market for renting excess space on USPS’s long-haul delivery trucks. While USPS considered the market test successful, it did not seek to make Collaborative Logistics a permanent product. Instead, USPS terminated the test in September 2011, indicating that its ongoing facility consolidations had resulted in significant opportunities to reduce overcapacity and costs within its transportation network. Depending on its future financial and operational conditions, USPS said it may seek to introduce this product on a permanent basis in the future. Appendix II provides more information on each of the experimental postal products for which USPS has received PRC approval for market testing since the enactment of PAEA. USPS has the authority to perform services for other federal agencies on a discretionary basis by entering into written agreements with these agencies. Because any postal officer may enter into such agreements, and USPS does not have a centralized office responsible for executing or otherwise tracking these agreements, USPS was unable to provide comprehensive information on the agreements it currently has. However, based on our discussions with USPS officials and our review of related reports, we identified at least four services that USPS performs on a discretionary basis for federal agencies.