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Chairman CLAY. The next panel will consist of the Joint Task Force on Postal Ratemaking, and I understand that the Honorable Ira D. Hall will present the task force's testimony.

We welcome the honorable members of the Joint Task Force on Postal Ratemaking, and each of your statements, without objection, will be included in the record at this point, and, Mr. Hall, you may proceed as you desire. STATEMENT OF HON. IRA D. HALL, MEMBER, JOINT TASK FORCE

ON POSTAL RATEMAKING, ACCOMPANIED BY: HON. HENRY FOLSOM; HON. WILLIAM J. SULLIVAN; HON. PATTI BIRGE TYSON; ROBERT COHEN; FRED EGGLESTON; STEPHEN E. MILLER; AND DAVID F. STOVER, TASK FORCE MEMBERS

Mr. Hall. Thank you, Mr. Chairman. It is certainly a pleasure for the committee to be here today.

We would like to proceed in the following way, with your permission: first, to have each of the members introduce themselves; second, I'll give a brief overview of the statement that has been submitted in writing; and then, third, we would like to open it up to questions and answers.

Chairman Clay. That is proper and okay with the chair.
Mr. Hall. Thank you. If I start on my right, we will work across.

Mr. COHEN. My name is Robert Cohen, and I'm the technical director of the Postal Rate Commission.

Mr. STOVER. David Stover, general counsel of the Postal Rate Commission.

Ms. Tyson. I'm Patti Birge Tyson. I'm delighted to be here as a private citizen. I am a lawyer by training, and I have had a career in government. Last November I retired from 6 years' service as a member of the Postal Rate Commission.

Mr. Folsom. I'm Henry Folsom, vice chairman of the Postal Rate Commission.

Mr. SULLIVAN. I'm Bill Sullivan. I'm a former Postal Governor. I was a postal official as well for 12 years, and I was assistant staff director of the Kappel Commission.

Mr. MILLER. Steve Miller. I'm currently Assistant Postmaster General for the Automation Implementation Department at the Postal Service headquarters.

Mr. EGGLESTON. Fred Eggleston, deputy general counsel of the Postal Service.

Mr. HALL. Ira Hall, a former Governor of the U.S. Postal Service. Chairman CLAY. Thank you.

Mr. HALL. We would like to first share with you an account of our work on improvements in the postal ratemaking process and also to give a preview of the recommendations that we will be making formally around the first of June.

Certainly most observers would probably agree that the Postal Service could be said to have three key objectives: one, as a provider of service, offering prompt, reliable, efficient services; two, as an institution becoming and remaining a world class Postal Service; and, three, as a financial entity maintaining reasonable, predictable, justifiable prices, and sound financial results.

The Postal Service itself has initiated important beginnings in these areas, and our task force is not attempting to cover this very broad waterfront. However, we do believe that we are making a useful contribution in attaining some of these goals.

Our charter itself was to focus on recommendations to improve the effectiveness of the postal ratemaking process. As we discuss our recommendations, we would like to indicate that we think they certainly help achieve the broad scale of the goals just mentioned but particularly those of reasonable, predictable, justifiable prices, and sound financial results.

Separate from the ratesetting process before, that would have the test year, in this process we would look at a ratesetting process that allows the Postal Service to better align its cost and expenses from year to year, and also that it disclose publicly its longer term financial objectives, its annual benchmarks and performance targets for which it is accountable.

Let us turn to an overview of what our task force is and how we worked. Certainly we worked independently, although our members are comprised of both the former Governors and a former Commissioner and current Commissioner of the Postal Rate Commission and senior staff members of each. We did not receive instructions independently from either agency, and neither the Postal Service nor the Postal Rate Commission is really permitted to implement our recommendations, but we hope that we will deliver a report that each will find useful.

We worked on a consensus basis. We had no votes, we had no chairperson, and we had a consensual agreement for our recommendations. We did rely on the Institute of Public Administration report as well as comments filed by participants and the Commission's pending ratemaking on procedural improvements, also referred to as Docket RM91-1. We started with an open mind about legislation, neither assuming it necessary nor prohibiting it, but we found as we continued that much of what we wanted to do could be accomplished, we believed, within the existing framework, and therefore we are not recommending changes in the Postal Reorganization Act.

We did have three goals that emerged as very important in our work. One was accountability; the second is greater predictability; and the third, greater flexibility.

The biggest structural change will be a 4-year rate cycle. Today, as you know, we have something called a test year which would cause the Postal Service to project a future set of 12 months and predict rates necessary to produce break-even. That has resulted in a pattern of rate stability for approximately 3 years. But when change is rapid and nonuniform, we can all agree that this approach is not ideal.

We are proposing the incorporation of a 4-year rate cycle that would include a full 4-year set of cost, volume, and revenue projections. After that hearing, the Postal Rate Commission would recommend formal rates for the first 2 years and project what rates would likely be in the last 2. Because the changes would be more frequently, hopefully they would be smaller and less disruptive to mail users. Certainly they would be explicit and more predictable.

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At the midpoint cycle, there would be a limited rate case really only designed to ensure break-even by the end of the 4-year span, and much of what is now included in the full rate cycle would be eliminated. In fact, we believe that it might be as little as one-fifth in duration as the current rate case. It should be relatively quick and therefore inexpensive.

So we hope that this explicit 4-year rate cycle will help achieve improved accountability. We certainly believe that it will be possible to have minor rate cases of more limited scope and therefore a disposition of repetitively litigated costing issues more by rulemaking

One of the other objectives that we indicated was a better responsiveness to customer requirements, and particularly in the distinctively competitive mail categories we have a challenge, because the Postal Service is an enterprise which is part monopoly and part marketplace competitor. We believe that the proper combination of market rate flexibility with adequate assurance against uneconomic methods of competition will accomplish this objective.

Specifically to increase the flexibility of the Service for competitive classes, such as Express Mail, parcel post, and the heavier weight Priority Mail, we would recommend a decision that would include a target contribution, an aggregate contribution, to institutional costs and then a band of rates consisting of an upper limit and a lower limit for each sale or category, and the Postal Service would be free to set rates and change rates within that band to achieve the target contribution over the life of that rate cycle.

For the area of innovative postal services, we believe that the Postal Service's capability would be enhanced by having a limited scale market test for new services. The mechanism proposed to do this would have the Postal Service filing a classification which includes a specific experimental plan. After appropriate input, the Commission, assuming it finds it satisfactory, would issue an order in suspending the classification case to allow the test to go forward. After the limited field test, the Service could report the results, indicate whether it wanted to continue, alter or drop the classification, and if it did so, then the rates could be implicated.

are also recommending expedited classification proceedings for new service categories. For example, the PRC could devise rules to allow the expedited hearings and decisions on new services on an up or down basis, including a sunset date up until which the new service could be implemented under this mechanism.

Also, the Postal Service would be allowed to enter into specialized service agreements. At times, the Postal Service and one or more of its mailers could find a mutually beneficial type of service not corresponding to things in the existing rate structure. If it is suitable, then it could be allowed to proceed and other mailers who meet specific criteria would be allowed to get the same terms and conditions. Also, we think that it is possible to have more streamlined procedures for minor classification issues.

Another key area of our recommendation will be that of better communications. We believe that there are a number of formal and informal ways in which the Postal Service and the Postal Rate Commission can really engage more in the partnership that was intended under the initial Postal Reorganization Act. We believe that

a part of this step forward would involve both the Commission and Service understanding and clarifying, one, the limits of the ex parte communication rules but also the flexibility that is allowed underneath them. We believe that there could be regular gatherings of the Board and the Commission, sometimes with agendas, sometimes inviting members of the public, sometimes not, and also that the Postal Service data should be available in electronic form for more communication outside of the Service.

We believe that the postal rate process could allow a Postal Service policy witness appearing more in a legislative type format rather than the adversarial one to really indicate the strategy involved in the rate case and that there also be a comprehensive data crosswalk between the brief filing and the postal rate service's strategic plan and its standard data elements.

Let me conclude by reemphasizing our desire that the Postal Rate Commission and the Postal Service really return more to the partnership that was indicated back in 1970 in Congress when the Postal Reorganization Act was passed. We have looked for ways to promote that partnership, and we hope the readers of our report will be able to agree that we have found some.

We presented verbally our recommendations to a joint session of the Board of Governors and the Commissioners last Monday. Our report was received. We had questions relating to clarification, and the Governors and the Commissioners are awaiting our written report in June before having a formal response to our proposal.

At this time we would be delighted to answer any questions that

you have.

[The prepared statement of the Joint Task Force on Postal Ratemaking follows:)

STATEMENT ON BEHALF OF
THE JOINT TASK FORCE ON POSTAL RATEMAKING
BEFORE THE COMMITTEE ON POST OFFICE AND CIVIL SERVICE

UNITED STATES HOUSE OF REPRESENTATIVES

May 12, 1992

Mr. Chairman and Members of the Committee:

We are honored to appear before the Committee on Post Office and civil Service to give an account of our work on improvements in the postal ratemaking process, and a preview of the recommendations we will be making formally in a few weeks.

Most observers would probably agree that the Postal Service could be said to have three key objectives: (1) as a provider of service, offering prompt, reliable, efficient services; (ii) as an institution, becoming and remaining a world class postal service; and (iii) as a financial entity, maintaining reasonable, predictable, justifiable prices and sound financial results. The Postal Service has initiated important beginnings in these areas, particularly in its strategic plan for 1991-1995. Our own task force, naturally, could not cover this very broad and complex "waterfront" but we believe we are making a useful contribution toward achieving some of the goals, and doing so on a consensual basis. To quote our charter from the Board and the Commission:

The task force is asked to recommend to the Postal Rate
Commission and the Board of Governors priority
opportunities to improve the effectiveness of the
Postal Ratemaking process which the Postal Service and
the Postal Rate Commission should pursue jointly.

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