Sustainability of Universal Postal Service Under New Market Conditions

1. Sustainability of Universal Postal Service Under New Market Conditions Chairman Ruth Y. Goldway Commissioner Nanci E. Langley U.S. Postal Regulatory Commission Postal Regulatory Dialogue – Brussels, Belgium June 8, 2011

2. 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”

3. 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

4. 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

5. The Role of the PRC • Adjudicate complaints from mailers and the public • Special reports and studies • International engagement

6. 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

7. 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

8. 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)

9. Social Value of the Mail • Universal connection • The face of government • Lever of democracy • Enabler of social progress

10. 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

11. 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

12. 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

13. 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

14. 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

15. 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

16. 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

17. www.prc.gov