In a February 25 filing with the Postal Regulatory Commission, Mailers Hub joined with nine other industry groups (American Catalog Mailers Association, Association For Mail Electronic Enhancement, ANA—Association Of National Advertisers, Continuity Shippers Association, Envelope Manufacturers Association, International Mailers Advisory Group, Major Mailers Association, National Association Of Presort Mailers, and Printing United Alliance) to support a Package Shippers Association recommendation to eliminate the statutory “appropriate share” provision.
The groups’ joint comments were submitted regarding Docket RM2022-2, Institutional Cost Contribution Requirement for Competitive Products, opened by the PRC on November 18, 2021. That docket is effectively a continuation of earlier dockets that had periodically sought public comment on the “appropriate share” that the 2006 “postal reform” law requires competitive products to pay toward overall Postal Service institutional costs. The “appropriate share” was established to ensure both that competitive products adequately support overall USPS institutional costs and are not set so low as to harm competitors.
The PRC has the statutory authority to modify or eliminate the “appropriate share” provision. Initially set at 5.5% in 2007, the “appropriate share” has been reviewed by the commission in 2021 and 2017 and, most recently, was replaced by a variable percentage derived by a formula based on the agency’s “absolute market power” and changes in its market share (revenue). The PRC noted that “the formula is designed to adjust the appropriate share upwards or downwards based on changes in the capacity of competitive products to contribute to institutional cost.”
(The actual contribution of competitive products to USPS institutional costs has always been well above the minimum required. In FY 2021, the “appropriate share” was set at 9.1%, but the actual contribution was 39.2%.)
In the comments submitted during the 2017 rulemaking, United Parcel Service argued that
“… the appropriate share should be increased substantially based on the prevailing competitive conditions in the market, particularly growth in the Postal Service’s market share and evidence of the Postal Service having a competitive advantage, and to reflect the unique and disproportionate costs that UPS alleges to be associated with competitive products.”
Nonetheless, after a lengthy discussion of the comments it received and a protracted examination of various economic factors and related calculations, the PRC adopted its proposed formula in a 197-page order (No. 4963) issued January 9, 2019. In turn, UPS took the PRC to court.
In a decision issued on April 14, 2020, the US District Court of Appeals for the DC Circuit sided with UPS and remanded the matter back to the PRC. In its order, the court stated that
“Two aspects of the Commission’s Order require a remand. First, the Commission has not adequately explained how the statutory phrases ‘direct and indirect postal costs attributable to [a particular competitive] product through reliably identified causal relationships’ and ‘costs … uniquely or disproportionately associated with any competitive products’ can coincide. It is far from clear that these phrases have the same meaning. … Second, in focusing on costs attributed to competitive products … the Commission failed to discharge its responsibility … to ‘consider … the degree to which any costs are uniquely or disproportionately associated with any competitive products.’ …
“The bottom line is that the Commission’s Order is arbitrary and capricious because it is ‘largely incomprehensible’ with respect to the matters in issue. … Therefore, we are constrained to remand the case for further consideration. … Following reconsideration of this case, any Commission Order must be coherent and transparent, and it must satisfy the requirements of reasoned and reasonable decision-making. … The present Order fails to meet these standards ‘because it fails to articulate a comprehensible standard’ ….”
The latest round
The PRC’s 137-page November 2021 order (No. 6043) served both reissued its January 2019 order adopting a formula to calculate the “appropriate share” (with the necessary explanatory language added to satisfy the court’s remand) and initiated the third five-year review of the requirement.
In their joint comments, the industry groups note that
“The Commission’s findings in Order No. 6043 demonstrate that a minimum contribution requirement is unnecessary to promote fair competition, prevent cross subsidization, or encourage the Postal Service to maximize contributions from competitive products. The Commission’s findings further confirm that imposing a minimum contribution requirement would, if binding, only help private competitors at the expense of the Postal Service, mailers, shippers, and American consumers and businesses. …
“The Commission has made an affirmative finding every year since the [postal reform] Act’s enactment to the effect that ‘there is no evidence to suggest that competitive products are being illegally cross-subsidized by market-dominant products.’ The Commission has also consistently held that the Postal Service has not engaged in anticompetitive pricing to seek an unfair advantage over its private competitors.”
The commenters also noted that “the Commission has consistently held [that] the Postal Service is pricing competitive products to maximize profits,” that “a profitable [USPS] package business helps defray the costs of preserving universal mail service,” and that “a minimum contribution requirement is unnecessary and potentially distortive.” Further, the group stated that “the Commission has correctly observed that “a required contribution level to institutional costs should theoretically be an unnecessary component of competitive product regulation.”
While history has shown that the “appropriate share” minimum contribution may not be necessary to regulate USPS competitive product prices, the commission has been reluctant to take the leap and eliminate it. At the same time, as it has shown, UPS is ever attentive to using the regulatory and legal processes to disable postal competition however it can.