Financial Section Part I
Rate and Classification Activity
Under the Postal Reorganization Act of 1970, the Postal Rate Commission, an “independent establishment of the executive branch of the Government of the United States,” made recommendations on rate and classification changes proposed by the Postal Service. Under P.L.109-435, the PRC has an expanded and significantly different role in fostering a viable and efficient postal system. Since the enactment of the law, we, the PRC, and stakeholders worked to develop rules and regulations to implement the new law with regards to rate and classification activity.
On May 3, 2006, we filed a request with the PRC to increase prices under the rules in place at that time. The request was not an across-the-board increase, but was intended to align our prices with our costs, in addition to generating additional revenue. The filing included many innovative classification proposals that have since been accepted and implemented.
The most innovative of these classification proposals was for more extensive shape-based pricing. In addition to the weight of a mailpiece, which was the primary criterion under the former pricing structure, under the new classification, the dimensions of the mailpiece are a determinant of pricing. For example, under the new shape-based pricing model, a mailpiece that weighs one ounce mailed in a large envelope would have a price of 80 cents; however, if the contents were folded and mailed in a letter size envelope the price would be 41 cents. Shape-based pricing recognizes that each shape of mailpiece has substantially different handling costs. This pricing approach encourages efficiency in that customers can reduce their postage by using a shape format that is less costly for us to handle.
The PRC issued its recommendation for new rates on February 26, 2007. The PRC’s recommendation modified some of the proposed pricing structure, reduced the proposed First-Class Mail 1-ounce rate of 42 cents to 41 cents, and reduced the proposed additional-ounce rate from 20 cents to 17 cents. To compensate for the revenue reductions from these changes, the PRC’s recommended decision increased the rates for flats and Periodicals well above our original request. On March 19, 2007, the Governors approved:
- the PRC recommended 41 cent 1-ounce First-Class Mail rate and the additional-ounce rate of 17 cents.
- issuance of the Forever Stamp.
- shape-based pricing.
Consumers are now able to purchase the new Forever Stamp for the 41-cent 1-ounce First-Class Mail single-piece rate and will be able to use it forever to mail a 1-ounce First-Class letter, even if First-Class Mail rates increase in the future.
The majority of the price changes took effect May 14, 2007.
The Governors delayed implementation of new prices for Periodicals until July 15, 2007 and requested reconsideration by the PRC of the Standard Mail flat prices. On June 19, 2007, the Governors decided not to implement a temporary change to Standard Mail Regular and Nonprofit flat prices recommended by the PRC, and instead decided that the current Standard Mail flat prices will remain in effect.
In addition to the general rate changes discussed already, we proposed several mail classification changes and negotiated service agreements (NSAs) in 2007. The experimental classification rate for repositionable notes was extended for an additional year on July 6, 2007. A request for a permanent classification change for Premium Forwarding Service was filed with the Commission on July 31, 2007.
Information on the PRC and the recommended decisions can be found on the PRC website at http://www.prc.gov.