- In As we discuss our key recommendations, we think the Committee will see how they could help achieve the broad goals just mentioned and particularly those of reasonable, predictable, justifiable prices and sound financial results. the latter connection, we believe the postal system would benefit greatly from a ratesetting process which permitted it to align its costs and revenues more closely from year to year in place of the current approach of surplus the first year of new rates, then breakeven, and then a period of deficit operation. Likewise, it would be beneficial for the Postal Service to disclose publicly, in the ratemaking process, its longer-term financial objectives, annual benchmarks, and performance targets for which it is accountable. With that introduction, let us turn to an overview of what our task force is and how we have worked. Possibly the most important single fact about our project is that we have worked independently. Once the Commission and Board Chairmen had chosen us, we were on our own in analyzing the problems and deciding what solutions to recommend. The task force's conclusions do not represent the policies of either the Postal Service or the PRC, nor a mechanical mixture of the two. We kept our respective Chairmen up to date on our general progress, but did not receive instructions from either agency. It follows from this that neither the Postal Service nor the Commission is in any way committed to accepting our results. Our job has been to formulate the best ideas we could, given our collective knowledge and experience in postal affairs. We presented our views last week, in an oral briefing for the Commissioners and the Board. We will deliver our written report around June 1. We believe that these are useful recommendations which deserve to be tried. One reason we think so is that they are consensus recommendations. In arriving at our recommendations, we drew not only on the experience of our members but also on a variety of other sources. Especially important was the report of the Institute of Public Administration1 commissioned by the Board last year, as well as the comments filed by a number of participants in the Commission's pending rulemaking on procedural improvements, Docket RM91-1. We began with a completely open mind about legislation, neither assuming that it was necessary nor, on the other hand, limiting ourselves to topics that could be addressed without statutory change. As we worked, however, we found much more flexibility, and many more opportunities for useful change within the existing law, than we thought at first. Indeed, we found so many such opportunities for reform from within that we concentrated on them as the most productive goals that our group All of the changes we are proposing can, we think, be carried out without amending the Postal Reorganization Act. could pursue. We kept a few general but highly important goals before us. The first of these is accountability. Those who depend on the postal system need to know that the Service and the Commission are doing their respective jobs efficiently and effectively. Another is predictability so that mail users can foresee and - plan for changes in rates and rate structures. A third is flexibility. The postal system must be able to offer the public the services it needs at reasonable, justifiable prices, and to do so without unnecessary procedural obstacles. The biggest structural change we will be recommending is what we call the four-year strategic rate cycle. - Today, a general rate case focuses on one year of estimated future data I called the test year. In the last case, filed in early 1990, the test year was fiscal 1992. Rates are set to produce breakeven in the test year, and the system assumes that that year will be adequately representative of the longer span during which those rates will be in effect. - and we can all agree When change is rapid and non-uniform that today's postal world is like that, with new technologies, usage patterns, and competitive challenges this approach is not ideal. First, it is not certain that a single test year will accurately represent a longer period. In times of rapid change managements do more planning for the future; but the test year system fails to reflect that planning fully. We concluded that it would be better to incorporate a full four-year set of cost, volume, and revenue projections, reflecting the Postal Service's strategic plans, into an explicit four-year rate cycle. The Service would file all this information along with its request. The Commission, after the required hearings, would formally recommend rates for the first two years of the cycle and project what the rates would likely be in the last two. Because changes would be more frequent, they would be smaller and thus less disruptive to mail users. Because the four-year cycle would be an explicit one, furthermore, the timing of increases would be essentially predictable. At the midpoint of the cycle, there would be a limited rate case, designed only to insure breakeven by the end of the fouryear span. There would be no rehashing of volume estimation methods, cost attributions, or pricing issues, and no new We discounts, rate design changes, or classification questions. estimated that the amount of testimony the Service would have to file in the midcycle case could be about a fifth, or even less, of what an omnibus case requires. With so many categories of issues excluded by rule, the case should be relatively quick and inexpensive to try. Indeed, we will be including in our report a clear warning that the midcycle case should not be allowed to turn into a rerun of the omnibus case. It seems clear to us that the explicit four-year rate cycle will help achieve our goal of improving accountability. We focused on some elastic aspects of the rate process that have disturbed many: the statutory provision for contingencies, and the questions that have arisen about the mechanism for recovering prior years' losses. With the four-year strategic rate cycle, we could avoid the indeterminate aspects of the contingency provision, as well as setting out -- and using the midcycle case to help achieve a definite target for recovery of lost equity. We must recognize, after all, that while the ratemaking process falls short if it is not fair to mail users and other interested parties, it also fails if it does not maintain the Postal Service in a healthy financial condition. - In addition to the four-year cycle, we will also be recommending provision for minor rate cases of limited scope to adjust the basic rate patterns initially established in the omnibus phase of the four-year cycle, and for disposition of repetitively-litigated costing issues by rulemaking. One of the most frequently expressed concerns among postal managers -- and others too is the Postal Service's future in - the distinctly competitive mail categories. The problem posed by an enterprise which is part monopoly and part marketplace competitor is not a new one, but it is complex and difficult. Alleviating it calls for a proper combination of marketplace flexibility with adequate assurance against uneconomic methods of competition or exploitation of other customers. To achieve these disparate goals, we are recommending a new procedure that combines existing ratemaking techniques with a useful degree of flexibility for the Service. In each of the competitive classes we have in mind Express Mail, parcel post, and heavier-weight Priority Mail the opinion and recommended - decision would contain a target contribution to institutional Another area that needs a combination of flexibility and accountability is the creation of innovative postal services to respond to mailers' needs. Part of the perceived problem here has been the lack of a well-accepted mechanism for the Postal Service to conduct a limited-scale market test of a new service it is considering. The courts have ruled that the Postal Service does not have unilateral authority to depart from the rate and classification schedules for testing purposes. One recommendation we have is a new procedure whereby the Service would file a classification case which includes a specific experiment plan. The Commission would entertain comments on the plan, and if the plan was found satisfactory, it would promptly issue an order suspending the classification case to allow the |མ ཏྟཱཝཱ |