Postal Service accounting is, to say the least, complex. Not only does it have to measure “institutional” costs – like maintaining the USPS Headquarters building – and “attributable” costs – like the manual distribution of Periodicals flats – but it also has to divide those costs between the market dominant products and competitive products.
A core statutory requirement is that the competitive products must contribute toward USPS institutional costs; that contribution is called the “appropriate share,” and what the amount should be has been the source of debate for years.
Beyond the expected angels-on-the-head-of-a-pin technical disputes over how infinitely parsed costs should be attributed, the overarching dispute – primarily between the USPS and United Parcel Service – is whether the Postal Service’s current cost attribution methodology is under-attributing costs to competitive products. UPS’ clearly transparent motivation is not zeal for accounting purity but the simple burdening of USPS competitive products with costs that would drive up the corresponding rates and make USPS competitive products less – competitive.
The dispute arose in November 2016 when, as part of its second mandated five-year review of the “appropriate share” requirement, the PRC initiated a rulemaking to replace the fixed 5.5% share with a “dynamic” one that would be recalculated annually. Over the ensuing six years, the PRC has produced revisions of its proposal, including one in response to a court remand after the commission was sued by UPS.
In its 282-page order (No. 6399) issued January 9, the PRC concluded its record-setting rulemaking and, after a lengthy discussion of the proposal, its history, the competitive environment, and a host of related economic issues, ruled that
“Annually, on a fiscal year basis, the appropriate share of institutional costs to be recovered from competitive products collectively, at a minimum, will be calculated using the following formula: 𝐴𝑆𝑡+1=𝐴𝑆𝑡∗(1+%Δ𝐶𝐶𝑀𝑡−1+𝐶𝐺𝐷𝑡−1) where, AS = Appropriate Share, expressed as a percentage and rounded to one decimal place; CCM = Competitive Contribution Margin; CGD = Competitive Growth Differential; t = Fiscal Year; and If t = 0 = FY 2007, AS = 5.5 percent.”
Its unknown how UPS and other competitors will view the final order. Regardless, it’s all somewhat moot: USPS competitive products actually contribute much more than required.
As the commission noted, “In FY 2021, the most recent year for which data are available, Competitive products contributed $13.193 billion, which constituted [a] 39.2% [share] of total institutional costs, despite Competitive products making up only 5.97% of total mail volume.” (The required “share” was only 10%.)
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