Sustainability of Universal Postal Service Under New

Market Conditions

Chairman Ruth Y. GoldwayCommissioner Nanci E. LangleyU.S. Postal Regulatory Commission

Postal Regulatory Dialogue – Brussels, Belgium

June 8, 2011

Postal Regulatory Commission (PRC)

Independent U.S. Government Agency

Regulates only the U.S. Postal Service

Strengthened by the Postal Enhancement and Accountability Act (PAEA) of 2006

Five Commissioners appointed by the President and confirmed by the U.S. Senate

Our mission: “Ensure transparency and accountability of the United States Postal Service and foster a vital and efficient universal mail system”

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2006 Postal Accountability and Enhancement Act (PAEA)

Greater transparency and accountability

Greater flexibility for operator

Greater oversight by more formal regulator

Limited products and services to those related to the physical delivery of hard-copy postal items

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The Role of the PRC

Develop a modern system of rate regulation

Monitor U.S. Postal Service finances and service

Consult with Postal Service to establish service standards and measurements on delivery and access

Report to Congress annually on Postal Service’s compliance with regulations and adequacy of service

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The Role of the PRC

Adjudicate complaints from mailers and the public

Special reports and studies

International engagement

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Universal Service

USPS strongly emphasizes no specific, measurable requirements in the law

No quantification of universal service• Fastest possible service• One class sealed against inspection offered at same rate

to everyone• Fair and efficient at reasonable rates• Comprehensive service everywhere, especially rural

areas• Access provided- no post offices closed for solely

economic reasons• Recognizes education scientific and social benefits when

setting rates Specifics – non-profit standard mail at 60% regular rates

and maintain delivery at 6 days per week

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Seven Aspects of Universal Service

Geographic scope Range of products Access to postal facilities Prices/affordability Quality of service Users’ rights to redress Delivery frequency

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Cost of Universal Service andValue of the Monopolies

Cost of Value of Net

Universal Service Monopolies/(Mailbox)

2009 $4.9 b $2.1 b (0.8 b) ($2.8 b)

2008 $4.8 b $3.0 b (1.0 b) ($1.8 b)

2007 $4.4 b $3.5 b (1.3 b) ($0.9 b)

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Social Value of the Mail

Universal connection

The face of government

Lever of democracy

Enabler of social progress

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The U.S. Postal Service Today

Declining volumes and revenues

Growing deficit

2010 - $8.5 billion

2009 - $3.8 billion

2008 - $2.8 billion

2007 - $5.4 billion

$11.56 billion in debt to federal Treasury

$15 billion debt limit

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Structural Challenges

Future Retiree Health Benefits Fund $5.5 billion annual payment under PAEA for 10 years $21.9 billion paid already Commission study estimated $3.4 billion annual payment

as more appropriate

Pension Fund Overpayment identified by Commission and Postal Service

Office of Inspector General Commission estimates overpayment between $50 and $55

billion

Congressional action required for change

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Sustaining Universal Service

Cut costs

5.1 % in 2010

Reduction in work hours (6.2% in 2010)

Grow revenue

New products and service tests

Negotiated Service Agreements

Increase productivity

2.2% in 2010

Follows two years of productivity decline

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Request for Exigent Rate Increase

PAEA – exigent rate increase above price cap allowed under “extraordinary” or “exceptional” circumstances

Postal Service request for average rate increase of 5.6% for market dominant products

Negative consumer price index Public process for input Commission found recession not sufficiently

demonstrated as cause for increase Postal Service lawsuit

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Six vs. Five Days of Delivery

Postal Service request for Advisory Opinion Six days of delivery currently required by law Proposal to eliminate Saturday delivery, collections

and processing Public process for Commission to solicit input Postal Regulatory Commission

Cumulative $1.7 billion savings by third year $600 million loss in revenue from volume loss

Postal Service $3 billion savings annual from first year $200 million loss in revenue from volume loss

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Consolidation of Stations and Branches

Postal Service request for Advisory Opinion List of potential post offices for closing reduced

from

3,200 to 162 Definition of “post office” Commission recommended changes to process

to ensure customer notification and input Postal Service issued regulations on procedures

for closing post offices Final regulations still to be issued

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Looking Ahead

PRC Legislative Review

Process for public input launched in January 2011

Consensus on Retiree Health Benefits Fund and Pension

Fund

Due in December, but completion expected this summer

President’s proposed budget for FY2012

Pending legislation

Continued efforts by Postal Service to cut costs,

grow revenue and increase productivity

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www.prc.gov