Chapter 1: Compliance with Statutory Policies
D. Postal Cost Apportionment and Postal Ratemaking Developments
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On September 24, 2001, the Postal Service filed a request with the Postal Rate Commission (PRC) for a recommended decision on changes in rates and fees. The proposed overall percentage change was 8.7 percent and included a 3-cent (or 8.8 percent) increase from the current 34-cent basic First-Class Mail® rate. The proposed increase was designed to provide an additional $4.3 billion in annual revenue, based on a test period of 2003.

The filing also included numerous classification changes that would be responsive to customer needs and the changing environment. For example, the Postal Service proposed that Delivery Confirmation™ service be expanded to First-Class Mail parcels, and that delivery information be available for certified First-Class Mail letters and flats; it proposed a new drop ship discount and a new pallet discount for Periodicals mailers; it proposed an incentive for customers to enter large, heavy parcels at the destination sectional center facility; and it proposed including Delivery Confirmation as a Parcel Select feature. Also, the Postal Service proposed continuing the restructuring of Post Office box grouping and fees begun in the previous omnibus case to better reflect the local cost of providing the service.

On October 25, 2001, Chairman Omas of the PRC suggested that the participants pursue settlement discussions with the goal of terminating the case before the end of the 10-month litigation schedule typically experienced in omnibus rate cases. Commissioner Omas proposed settlement in light of then recent events, including the September 11, 2001, terrorist attacks and the anthrax mailings that had precipitated a greater need for revenues than had been reflected in the Postal Service’s filing. An early termination of the case would allow the Postal Service to implement rate and fee changes earlier and would result in greater overall revenues.

The Postal Service and the other participants undertook extensive settlement negotiations involving two general settlement conferences and numerous discussions in smaller groups. Eventually, the participants reached a settlement agreement that resulted in most of the Postal Service’s original proposals being implemented on June 30, 2002. The agreement also incorporated several relatively minor changes in the proposed rates and fees. A total of 57 out of 63 parties in the case signed the agreement. Only one party, the American Postal Workers Union, AFL-CIO (APWU), opposed it, challenging the proposed discounts for First-Class Mail presort and automation letters. The Commission scheduled hearings to consider APWU’s opposing testimony.

On March 22, 2002, the Commission issued its Recommended Decision on the Postal Service's Request to the Governors of the Postal Service. The Commission accepted the joint Stipulation and Agreement as the basis for its recommendations. On April 8, 2002, The Governors approved the classification, fee, and rate changes recommended by the Commission. With one minor exception, the new rates, which averaged 7.7 percent, became effective on June 30, 2002. No party sought judicial review of the Governors' Decision.

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Chapter 1 Table of Contents

A.  Fundamental Service to the People

B.  Service to Small or Rural

C.  Employee Compensation and
     Career Advancement

D.  Postal Cost Apportionment and Postal
     Ratemaking Developments

E.  Transportation Policies

F.  Postal Service Facilities, Equipment,
     and Employee Working Conditions