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I want to thank our witnesses for appearing today to discuss the Postal Service and postal ratemaking reform. I welcome again Mr. Haley, and accept your full statement for the record.

Mr. Chairman, you can proceed as you like.


Mr. Haley. Thank you, Mr. Chairman.

Mr. Chairman and members of the committee, the Postal Rate Commission is pleased to have this opportunity to appear before your committee to discuss our activities this past year and to comment on postal issues that are likely to be important in the near future.

I am George Haley, Chairman of the Postal Rate Commission. With me this morning are my fellow Commissioners, Vice Chairman Folsom, Commissioner Crutcher, Commissioner LeBlanc, and our newest member, Commissioner Ed Quick.

I am very happy to be able to report that we are not now working on an omnibus rate request. The last rate case was extremely complex, and in some areas quite contentious. Following that case, the Postal Rate Commissioners and the Governors of the Postal Service met and discussed how we could improve the process of setting postal rates consistently with our joint and separate obligations under the Postal Reorganization Act.

We established an eight-member task force to discuss these problems and to provide us with ideas for new procedures which could alleviate some of the structural rigidities that have grown up since postal reorganization.

Three days ago, on June 1, the task force delivered its written report to the Commission and the Governors. It is clear that a great deal of thought went into this report, which reflects an understanding of the separate obligations of the Commission and the Governors. For that reason, I think this report is far more useful than any of the other commentaries on postal ratemaking which have been produced recently.

This report will surely spark a broad public dialogue which will be enlightening for all of us concerned with postal ratemaking. Accordingly, I would like to take this opportunity to thank publicly the members of the task force for their efforts on behalf of the postal community.

There is another aspect of this effort that should be recognized. The task force report is the result of a joint effort of the Postal Rate Commission and the Governors of the Postal Service. I believe that some of our current problems might have been avoided if there had been more of this type of cooperation in the past, and I hope that we will make greater efforts to improve the lines of communication between our two agencies in the future.

The Commission and the Governors have separate functions, and ex parte rules exist to preserve the appropriate separation, but the Commission and the Governors also have overlapping obligations;

in particular, to assure that the process for public ratemaking consistent with the overall policies established by the Congress works well.

Joint projects to identify problems and to offer ideas for public comment which might form the basis for potential solutions are a good way to avoid becoming mired in opposing positions which reflect structural rather than policy differences.

I fully expect to work with both Chairman Pace and Postmaster General Runyon to find other ways in which we can cooperate, both to improve our understanding of and to find solutions for the problems affecting postal ratemaking.

Now that we have the task force report, the obvious question is, what happens next? We will not be able to act on each of its suggestions simultaneously. The report, however, identifies several items as candidates for immediate action, and the Commission will look at these first.

We have all heard that the Postal Service is not happy about its recent operating results. Costs are disappointingly high and volumes are disappointingly low. If these trends do not turn around quickly, we can expect an omnibus rate request sometime early next year. The possibility of an imminent rate filing suggests that the Commission should turn first to evaluating the task force proposals concerning rate cases.

The task force has suggested that the Commission consider projections of Postal Service financial and operating results over a 4year period and that most rates change perhaps yearly or perhaps twice during the 4 years, once at the beginning of the period and then again after 2 years.

While similar suggestions have been made before, we have not yet had an opportunity to consider how this specific proposal offered by the task force might be implemented and whether it would be likely to achieve the benefits expected of it.

Also, and this is of primary importance, the Commission has not had an opportunity to hear from the Postal Service, from mailers, or from other interested members of the general public on how they view the task force recommendations. The Commission made it plain when it appointed participants to the task force that it would not prejudge any proposals or commit to implementing any recommendations until after everyone had been given an opportunity to review the task force findings and to present comments and suggestions.

Thus, one of our major responsibilities at this time is to offer a full and fair opportunity for interested members of the public to participate meaningfully in the Commission's evaluation of the task force recommendations. This obligation is particularly sensitive with regard to the task force recommendations concerning the handling of omnibus rate cases.

The task force has also suggested changes in how rates are set for mail which directly competes with products offered by private enterprises. These proposals may be controversial. Again, it is important that we have access to the views of a broad spectrum of the general public before we reach conclusions.

The task force recommended that the Commission publish draft implementing regulations by the end of this month, in the hope

that final rules might be adopted by mid-August. Apparently, the task force believed that the Postal Service would need to know by mid-August whether the 4-year rate period would be in place in order to effectively incorporate that concept into the preparation of its next rate request.

We have determined to obtain public comment in two stages. First, we will ask for written and oral comments on the theoretical and policy precepts which seem to underlie the task force proposals. In this stage, we are seeking comments on whether an extended 4-year rate period with interim increases is a reasonable improvement in the current system. The first stage will also provide an opportunity for the public to comment on economic or legal concerns raised by the suggested system for setting rates for competitive mail services.

The Commission has issued a notice requesting written opinions and scheduling on an on-the-record conference on these topics for June 12. While we expect to receive a significant number of written and oral submissions addressing the theoretical and policy ratemaking issues raised by the task force recommendation, the Commission recognizes that in many areas, a full evaluation of the recommendations may require consideration of implementation details.

To put it bluntly, it often is easier to recommend that a practice be made more simple and expeditious than to develop a detailed set of concrete provisions which preserve the fairness and usefulness of the process while making it more simple and expeditious.

This brings me to the second step the Commission will take to obtain input from the general public. We intend to take the task force recommendations concerning rate cases and the oral and written comments we receive concerning those recommendations and attempt to develop a draft rule which would implement them.

I hope it is clear from the Commission's order requesting comments on the task force proposals and from my testimony here today that the Commission will not be making any sort of judgment on the wisdom or practicality of the task force proposal until after we have received both the theoretical and policy comments and the subsequent comments which address the specific proposed rules we publish. It may

be that the Commission will find it necessary to publish additional revised sets of proposed rules. We will not implement any changes until there has been an open dialog and a full opportunity for all segments of the public to express their views on the proposed changes.

We are committed to exploring ways of improving the ratemaking process, but we also are determined to avoid any change which would violate section 3624 of the act, which guarantees procedural fairness both to the Postal Service and to mailers.

I should mention that the joint task force report is only one of three lengthy public documents published in the last year or so which suggests that postal ratemaking could be improved. The other two reports are "The Ratemaking Process for the United States Postal Service” prepared by the Institute of Public Administration under a contract with the Board of Governors of the Postal Service, and "Pricing Postal Services in a Competitive Environ

ment”, prepared in the General Government Division of the General Accounting Office. My prepared testimony discusses several shortcomings in these other two reports.

Turning to other topics, the Postal Service has asked the Commission to consider three requests for recommended decisions this year. Each concerned a Postal Service request to implement a concept recommended by the Commission in the last omnibus rate case.

The first proposed establishing discounts for flat-shaped mail pieces which are prebarcoded by the mailer. The Commission supported providing rate discounts in first-, second-, and third-class prebarcoded flat mail, and the Board of Governors has announced these discounts will go into effect on September 12, 1992.

The second case concerned providing a new discount rate for walk-sequenced third-class mail having at least 125 pieces per carrier route. Interested parties presented the Commission with a settlement agreement supporting this proposal, and the Commission adopted that settlement. The walk-sequence discount became available on March 15.

The third case is still pending before us. It involves a Postal Service proposal to adjust second-class rates while adding a new discount for mail presented on pallets. We expect to issue a recorded decision on that proposal shortly.

Finally, the Commission wishes to express our regard for retiring Postmaster General Anthony Frank and offer our best wishes to his successor, Marvin Runyon. The Commission and the Postal Service have been in agreement about many important issues during Postmaster General Frank's tenure at the Service. In particular, the Commission has strongly supported his initiative to automate the mail processing function and to improve the accurate reporting of Postal Service on-time delivery performance.

This, Mr. Chairman, concludes my prepared statement. I would be pleased to respond to any questions members of the committee might have.

Thank you.
[The prepared statement of George W. Haley follows:



June 4, 1992

Mr. Chairman and Members of the Committee: The Postal Rate Commission is pleased to have this opportunity to appear before your Committee to discuss our activities this past year and to provide you with our view on postal issues that are likely to be important in the near future.

I am George W. Haley, Chairman of the Postal Rate Commission. With me this morning are my fellow Commissioners, Vice-Chairman Henry R. Folsom, Commissioner John W. Crutcher, Commissioner W. H. "Trey" LeBlanc, and our newest member Commissioner H. Edward Quick.

I am very happy to be able to report that we are NOT now working on an omnibus rate request. The last rate case was extremely complex, and in some areas, quite contentious. It resulted in three separate rate case opinions, all during 1991. It is worth remembering, however, that the rates initially recommended by the Commission have remained in effect since February 1991, providing the Postal Service with an additional six billion dollars per year of operating revenues.

I think I speak for everyone in this room when I express the hope that the Postal Service will not need to request another rate increase for some time. Unfortunately, the day will come when the Postal Service will ask the Commission for a recommended decision on new, higher rates. The most important, and most encouraging, topic that I want to discuss with you this morning, is the steps that are being taken to explore ways both to improve the process itself, and to allow our recommendations to reflect more closely the financial and operating realities of today's postal system.

Following our last case, the Postal Rate Commissioners and the Governors of the Postal Service met, and discussed how we could improve the process of setting postal rates consistently with our joint and separate

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