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test to go forward. After the limited field test, the Service would report the results and indicate whether it wanted to continue, alter, or drop the classification proceeding. If the case did continue, it could then do so on the basis of real empirical data gathered in actual testing.

We are also recommending expedited classification proceedings for new service categories. For example, the PRC could devise rules to allow expedited hearings and decisions on new-service cases on an up-or-down basis. More peripheral issues could be addressed in subsequent cases, to allow the basic determination to be made more quickly; and a new service approved under this mechanism would carry a sunset date far enough in the future to allow any remaining issues or areas of disagreement, and any court appeals, to be explored and resolved while the classification remains in effect. For services with significant startup costs, we recommend consideration of the cost-revenue balance over the whole multi-year startup cycle.

Besides these innovations, we are recommending that procedures be developed to let the Service enter into specialized service agreements. By this we mean that, at times, the Service and one or more mailers will find a mutually beneficial type of service not exactly corresponding to anything in the existing classification schedule. Such an agreement would be suitable when it promises increased net financial contribution to the Service. It would be submitted to the PRC; there would be expedited approval proceedings on a "go/no go" basis once it was in effect, another user able to establish that it could meet the terms and conditions could also participate in it. Also, we think it should be possible to develop more streamlined procedures for minor classification changes, so that simpler filings would be possible.

and

Finally, we will be making a variety of recommendations for better communication within the postal community. As our own task force's experience shows, we can find common ground and helpful answers if we make the effort to communicate. Our first recommendation is that the Commission and the Service take steps to clarify both the importance and the real-life limits of the ex parte communications rules. These rules are necessary to an open, accountable ratemaking process but they should not be "overapplied" and thereby become an obstacle to legitimate communication. We believe there should be regular meetings of the Board and the Commission, accompanied by their senior staffs. Jointly-sponsored scholarly symposiums on ratemaking topics would also be helpful, as would staff-level meetings on non-caserelated subjects, and the development of ways to make Postal Service data easily available in electronic form.

Even in the case-related area there are appropriate ways to increase the level and usefulness of communication. The fouryear strategic rate case, for instance, should include a highlevel Postal Service policy witness appearing in a setting more like a "legislative" hearing than the usual crossexamination context to explain the strategic objectives of the case. In filing a case, the Service should present its data in "last rate case" format, at least as an alternative, even if it is proposing changes in the treatment of costs. We recommend that there be a comprehensive data crosswalk between the rate case filing and the Postal Service's strategic plan and its standard data systems. We recommend that the PRC, for its part, devise mechanisms for quickly correcting non-substantive errors in its recommended decisions, and for responding expeditiously, but on the record to inquiries the Governors may have about the meaning of items in those decisions. Needless

to say, there are many other ways in which the two agencies could usefully and properly communicate with each other.

Mr. Chairman, we have spoken about a great many innovations. Let us close by harking back to the very beginning of postal Reorganization, to the instruction given by the Congress in 1970. The Postal Rate Commission and the Postal Service were envisioned as partners, each with an independent and necessary role in providing needed, high-quality services from a world-class postal system, at fair, realistic, and affordable prices. We have looked for ways to promote that partnership, and we hope that readers of our report will be able to agree that we have found some.

1. Institute of Public Administration, The Ratemaking Process for the United States Postal Service, October 1991. 2. In the Express Mail example, the Service might start at $9.95 -- but then discover that competitors with a lower price were gaining volume. They could decide that the target contribution would be more likely recovered by regaining lost volume through repricing to $8.95. As that is within the band, the change could be made simply by publishing the new price. The Service could thus cope with the unpredictable course of the competitive market more quickly than it now can. 3. United Parcel Service, Inc. v. U.S. Postal Service, 455 F. Supp. 857 (E.D. Pa. 1978), affirmed, 604 F.2d 1370 (3d cir. 1979), certiorari denied, 446 U.S. 957 (1980).

JOINT USPS/PRC RATEMAKING PROCESS TASK FORCE

Ira D. Hall
Treasurer
IBM United States
(Former Governor, USPS)

William J. Sullivan
Vice Chancellor of Administration
University of Maine System
(Former Governor, USPS)

Patti Birge Tyson
Attorney-at-Law
(Former Commissioner, PRC)

Henry Folsom
Vice Chairman
Postal Rate Commission

Stephen E. Miller
Assistant Postmaster General
Automation Implementation

Management Department
U.S. Postal Service

Fred Eggleston
Deputy General Counsel
U.S. Postal Service

David F. Stover
General Counsel
Postal Rate Commission

Robert Cohen
Director, Office of Technical

Analysis and Planning
Postal Rate Commission

5/12/92

Chairman CLAY. Thank you.

Early on in your statement you said that you were not making any recommendations for changes in the Postal Reorganization Act. Is it your opinion that the kinds of problems and the criticisms that the Governors and PMGs have made in the past years about the difficulty of competing with the private sector were due to the lack of flexibility and cooperation from the Postal Rate Commission? Is it your opinion that now, because you issue a report, that you are going to have greater cooperation between the two bodies and the

Postmaster General? Mr. HALL. Well, two things: One, I would like to give a brief comment and ask others to comment as well.

We are only looking at whether or not it was necessary to have legislation for the narrow focus of our ratemaking recommendations. There may be other objectives of either of the parties that may or may not require legislation, but that was outside of the purview of our work.

Mr. SULLIVAN. Mr. Chairman, cooperation between the Postal Service and the Commission is absolutely essential if any progress is to be made. I would also say with or without legislation.

Our study showed that within the present law there is enough room for cooperation without in any way jeopardizing the rights of the parties to an independent review. We strongly recommend that as the starting point. If there is not the cooperation between the Commission and the Postal Service that was envisioned in the Postal Reorganization Act, then nothing will work. If there is that cooperation, then a great deal can be done both to provide flexibility and to make other improvements that we have recommended.

We are confident that, based upon recent history and the cooperative attitude between the two agencies, that that cooperation will continue, not because we recommend it, but simply because we think it is there and we think the time is come to take advantage of it.

Chairman Clay. Why do you suppose that it has not existed up to this point?

Mr. SULLIVAN. Well, the Congress resolved the dilemma about postal ratesetting by a compromise in 1970. The Kappel Commission, which recommended a postal reorganization, had said that the rates should be set by the Postal Service after a hearing by an internal panel of rate managers. The Congress said no, they didn't want to do that, they didn't like the idea of the congressional veto that the Kappel Commission recommended as a check on the Postal Service, and they created a compromise; they created a separate agency, the Postal Rate Commission, and they divided the ratemaking mechanism between the two agencies, and each party has an important part of that mechanism, and they almost lectured the parties on the importance of a partnership and the importance of cooperation.

Over the ensuing 20 years, however, the Postal Service was anxious to establish its turf as wide as possible, I think, and the Postal Rate Commission was very conscious of its independence and determined that it would be independent, and it stressed that to a point where, unfortunately, relations between the two agencies became

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