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KENTUCKY PRESS ASSOCIATION

Postal Regulatory Update

Mark Acton Vice-Chairman, Postal Regulatory

Commission January 21, 2011

Word of Thanks

David Thompson, Executive Director Kentucky Press Association

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Summary of Discussion

United States Postal Service (USPS) and Postal Regulatory Commission (PRC)

USPS Plan Envisioning America’s Future Postal

Service Significant Recent PRC Activity

Change in Frequency of Delivery: 6 to 5 days (limited discussion) Elimination of Saturday delivery

Exigent Rate Case

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Summary of Discussion

PRC Reports on USPS Workforce Legacy Costs PRC Review of Postal Service Retiree

Health Benefit Fund Liability PRC Pension Cost Special Study

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U.S. Postal Service Self-supporting government enterprise

Linchpin of $1 trillion mailing industry Workforce of 600,000 Only delivery service that reaches every address in the nation

150 million residences, businesses and post office boxes

Annual revenue more than $67 B USPS relies on the sale of postage, products and services to

fund operations no taxpayer funding

Delivers nearly 40% of the world’s mail Retail network of 32,000 locations usps.com the most frequently visited federal

government website If a private company, would rank 29th in Fortune 5005

Postal Regulatory Commission

Executive Branch agency charged by the President and Congress to provide independent federal regulatory oversight for the USPS 5 Commissioners, each appointed to a 6-year

term by the President and confirmed by the Senate Agency Chairman designated by President No more than 3 members of the Commission may

be from the same political party

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Postal Regulatory Commission

Mission: Ensure the transparency and accountability of the Postal Service and foster a vital and effective universal mail system Develop and maintain regulations for a modern system

of rate regulation Consumer Price Index (CPI) cap

Consult with the Postal Service on delivery service standards and performance measures

Prevent cross-subsidization & other anticompetitive postal practices

Promote transparency & accountability, & adjudicate complaints

Consult with the State Department concerning international postal policies 7

USPS Plan: Envisioning America’s Future Postal Service March 2, 2010 -- Postal Service unveils

plan: Concerted Government Affairs/Public

Relations Initiative

USPS projects mail volume will continue to shrink: 177 B pieces (2009) to 150 B (2020)

Competition (UPS and FedEx) Economic recession Electronic diversion 8

USPS: “Envisioning America’s Future Postal Service”

Loss of $8.5 billion in 2010 No action -- cumulative shortfall of $238

billion by 2020

As much as $123 billion in savings during that same time period through aggressive cost cutting and increased productivity Even so, “Estimated $115 billion

shortfall will remain” (USPS)9

USPS: “Envisioning America’s Future Postal Service”

What is the USPS Action Plan? Regulatory and legislative relief

highlights: Adjust delivery days to “better reflect

current mail volumes and customer habits” Exigent rate case Restructure RHB payments and address

overpayments to CSRS fund

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Change in Delivery Frequency:6 to 5 days March 30, 2010: USPS filed request with

the Commission for an Advisory Opinion for the elimination of Saturday delivery

“A change in frequency, not a change in service” Discontinue Saturday residential and

business delivery/collections No mail pick-up from blue collection boxes Post Offices usually open on Saturday

remain open11

Change in Delivery Frequency: 6 to 5 days

PRC is “watchdog agency” protecting USPS’s Universal Service Obligation to Nation One of the most significant changes the

Postal Service has ever presented to the Commission

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Change in Delivery Frequency: 6 to 5 days

Public, on-the-record PRC hearings and proceedings analyzing and cross-examining USPS proposal and supporting evidence During the process, mail users and

interested members of the public offer supporting or opposing views, both informally and as part of more formal, technical presentations

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Change in Delivery Frequency: 6 to 5 days

Witnesses for the record regarding impact on rural newspaper delivery Max Heath, Postal Committee Chairman

of the National Newspaper Association an engaged and informed participant in

the postal regulatory process Al Cross, UK professor & Executive

Director of the Institute for Rural Journalism and Community Life

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Change in Delivery Frequency: 6 to 5 days

The Commission conducted 7 field hearings: Dallas, Sacramento, Chicago, Memphis, Las Vegas,

Rapid City and Buffalo Field hearings transcripts: Posted at

www.prc.gov Solicited public comments via our website

Response was exceptional – over 12,000 letters and e-mails

Advisory Opinion is nearing completion No statutory deadline The exigent rate case took priority

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Exigent Rate Case On July 6, 2010 the Postal Service

filed with the PRC a request for an exigent rate adjustment Pierce the rate cap 5.6% average increase New rates were to have been

implemented in January, 2011

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Exigent Rate Case USPS proposal must: (39 USC

3622(d)(1)(E)) Describe the “extraordinary or

exceptional” exigent circumstances and show why they necessitate the increase,

Show that the proposed rates are reasonable and equitable, and

Describe circumstances under which the increases could be rescinded or reduced

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Exigent Rate Case PRC established a docket to provide for public

comment and has conducted hearings on the record Interested parties were encouraged to

participate in building the record and suggesting relevant questions to the PRC for the USPS to answer during the course of these hearings

Commission issued its decision September 30, 2010 several days ahead of its October 4 statutory deadline.

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USPS Proposed Rates Would Not Remedy “Exigent” Circumstances

After a careful review and in a unanimous and bipartisan vote, the Commission found that the Postal Service failed to meet the legal requirements for an exception to the rate cap Commission found USPS fiscal difficulties a

function of an unsustainable business model, not the national economic recession

The Commission’s decision affirmed the fundamental importance of the statutory price cap in protecting postal consumers and promoting Postal Service efficiency

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USPS Workforce Legacy CostsPRC Reports

PRC Review of USPS Retiree Health Benefit Fund Liability

PRC Special Study (SS2010-1) USPS Civil Service Retirement System (CSRS) Pension Funding

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PRC Review of USPS Retiree Health Benefit Fund Liability

The need to restructure retiree health benefit prefunding requirement is by far the most important aspect of USPS Action Plan – Joe Corbett, USPS CFO, in testimony before the PRC regarding exigent rate request

Request on June 15, 2009 by Chairman Stephen F. Lynch, Subcommittee on Federal Workforce, Postal Service and the District of Columbia, Committee on Oversight and Government Reform, U.S. House of Representatives: Consultant was Mercer Health and Benefits LLC PRC presented its report to the Subcommittee July 30, 2009

OPM: $5.5 billion (present annual USPS expense) PRC: $3.4 billion ($2.1 billion annual savings)

Annual Payments to Achieve 73% Funded Status

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PRC Special Study (SS2010-1) USPS CSRS Pension Funding

39 USC 802(c): The Commission, upon request of USPS, procures service of an actuary qualified to evaluate pension obligations to conduct a review in accordance with generally accepted actuarial practices and principles and provide a report to the Commission containing the results of the review Per USPS request of February 23, 2010, PRC

established Docket SS2010-1 to conduct a review of the Civil Service Retirement System (CSRS) pension liability of USPS

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PRC Special Study (SS2010-1) USPS CSRS Pension Funding

PRC selected the Segal Company, a certified actuarial firm, to conduct the study

PRC reviewed Segal’s report and on June 30, 2010 submitted our findings to USPS, Congress and OPM Overpayment to CSRS Funds $50-55 billion PRC endorsed adoption of a more modern,

fair and equitable accounting methodology as promoted by Financial Accounting Standards Board 23

PRC Special Study (SS2010-1) USPS CSRS Pension Funding

Necessary follow-up Office of Personnel Management (OPM)

responsible for calculating the Postal Service’s CSRS pension liability OPM emphasizes that their methodology is lawful

and the need for Congress to direct another approach

Legislation proposed fall 2010 Would have required OPM to recalculate CSRS fund

payments, but provides no relief from annual REHB payments mandated by PAEA

New Congress . . . new bill? 24

Chairman’s Letter,Annual Compliance Determination

The Commission looks forward to participating actively with the public and Congress in the exploration of the Postal Service’s retiree healthcare benefit funding, pension funding, strategies to reduce costs and improve customer service, and opportunities to expand products and services.

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www.prc.gov

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