In an order issued January 25, the Postal Regulatory Commission gave each side of an ongoing argument a little of what it wanted.
Accounting
The issue at hand is simple: how the USPS should account for the $59.6 billion in “prefunding” obligations forgiven by the Postal Service Reform Act of 2022 enacted last April. The answer to that question would influence the calculation of USPS costs in FY 2022 and, in turn, yield rate authority for the Postal Service under the “density” adder of either about $400 million or $0.
The Postal Service is arguing its interpretation (to generate the rate authority) while a group of DC-area mailing industry associations is advancing its own (that would result in no “density” rate authority). Specifically, the sides are debating whether the “analytical principles” used by the PRC to validate USPS cost calculations cover the unusual situation of forgiven debt and, if so, how they should be applied. Conversely, if no “analytical principles” exist for the situation, the PRC would be urged to develop some before proceeding.
Earlier
As has been previously reported, the debate started when the Postal Service sent a letter to the Postal Regulatory Commission on August 12 stating how it planned to account for the debt relief; in an October 7 reply, the PRC endorsed the proposed treatment.
In an October 13 letter to the commission, several industry groups, including Mailers Hub, objected to both the informal way in which the matter was decided (without a formal process to amend PRC rules) and to the PRC’s acquiescence to what was seen as inconsistent and irregular from an accounting perspective. This was echoed in a formal petition for reconsideration and rulemaking filed by the Greeting Card Association on November 4.
On December 9, the PRC issued an order (No. 6363) rescinding its October 7 letter and ordering the Postal Service, “should it wish to proceed” in adopting new accounting methods, “to file a petition seeking a change in accepted analytical principles … not later than December 21, 2022.” The USPS responded quickly, filing its petition for rulemaking (docketed as RM2023-2) on December 12.
The mailer group filed its own motion on December 19 asking for “reconsideration of [the PRC’s December 9 order] or, in the alternative, petition to change an analytical principle pursuant to [PRC rules] to address the proper accounting for FY 2022 retiree health benefit normal costs.” The USPS, of course, opposed the motion.
The decision The PRC’s January 25 order (No. 6430) came down in the middle. It denied the mailers’ motion for reconsideration (pleasing the USPS) but agreed to open a rulemaking (pleasing the mailer group). The first thirty pages of the commission’s 32-page order reviews the history of the case and explains the PRC’s reasoning in reaching its earlier and instant decisions. Following that reasoning in turn requires the ability to grasp the unique way the USPS accounts for costs.
As the PRC stated”
“… The filings before the Commission contain arguments concerning both what the accepted analytical principles related to the treatment of retiree health benefit normal costs currently are as well as arguments about whether and how the accepted analytical principles should be changed.
“The primary question that needs to be resolved with respect to the request for reconsideration is what the accepted analytical principles for the treatment of retiree health benefit normal costs are currently. …
“Order No. 6363 found that the current accepted analytical principles do not require the Postal Service to include costs not incurred (such as retiree health benefit normal costs in FY 2022) in its annual periodic reports to the Commission and that ‘ncluding such costs not incurred by the Postal Service would require a change in accepted methodology.’”
The mailer group disagreed, arguing that the current analytical principles require treating the costs as they have been since 2008, but the commission did not accept that position, explaining how the “relevant analytical principle relates to the concepts of ‘economic costs’ and ‘accounting costs’” underlie its reasoning.
The PRC further asserted that
“Mailers appear to misread Order No. 6363 [which] concluded that ‘ncluding such costs not incurred by the Postal Service would require a change in accepted methodology.’ Because the Commission found with respect to retiree health benefit normal costs that the accepted analytical principles reflected the approach advocated by the Postal Service, and not the Mailers, the Commission further stated that ‘should the Mailers desire the Commission rely on a different analytical principle with regard to the … normal cost payments (which the Postal Service does not incur in FY 2022 or beyond), Mailers may petition the Commission for a change [as provided by PRC regulations].”
In turn, the commission explained that its December 9 order (No. 6363) “appropriately placed the burden to petition and advocate for such a change on the Mailers.”
In conclusion, the PRC stated:
“… As discussed in Order No. 6363 … the Commission finds that the Mailers’ view of the current accepted analytical principles is incorrect. Thus, the Commission denies the Mailers’ Motion and Petition with regard to the request for reconsideration of Order No. 6363. “In the alternative to granting reconsideration in their favor, the Mailers request that the Commission initiate a rulemaking proceeding and determine in that proceeding that retiree health benefit normal costs should be treated as accrued and attributed to products in Docket No. ACR2022 (which will culminate in the FY 2022 ACD). The Commission grants the request to consider the Mailers’ petition to change the analytical principles applied to the FY 2022 retiree health benefit normal costs and provides notice of the proposed rulemaking … .”
Proposed rule
The commission’s proposed rule would adopt “Proposal One” that the mailers group had advanced as an alternative if the PRC denied its motion for consideration (which it did). As explained by the PRC:
“The Mailers assert that treating retiree health benefit normal costs as accrued each year and attributing them would improve the quality, accuracy, and completeness of the data in the Postal Service’s periodic reports when compared to the current analytical principles…. The Mailers further assert that accruing and attributing retiree health benefit normal costs in the year in which they are earned ‘is consistent with economic cost accounting’ as these normal costs ‘are a component of the economic cost of postal work.’ The Mailers claim that from a practical perspective … Proposal One is preferable because excluding retiree health benefit normal costs would result in inaccurate cost avoidance estimates, which would, in turn, result in inaccurate compliance determinations with respect to workshare discounts. The Mailers assert that this harm would not just occur in FY 2022, but would result in future distortions in workshare discounts even if the treatment of normal costs changed in the future. The Mailers also state that ‘the categorical exclusion of select costs would also erode the accuracy of the Commission’s compliance findings with respect to … competitive products.’”
The commission set February 8 as the deadline for comments on the proposed rule. Given the record of the docket (RM2023-3) so far, it’s likely that comments in opposition to the change will be filed by the Postal Service, while comments supportive of the proposal will be submitted by mailer groups. It’s also likely that all will invoke (and argue for or against) the same economic and accounting principles that were debated up to this point.
Tea leaves
It’s difficult to decide who’s winning or losing at this point. Though the USPS seems to have won the latest battle, given that it’s been allowed to implement the approach described in its letter last August, the mailers’ group seems to have the chance to win the war, if the commission adopts Proposal One at the end of the rulemaking process.
The commission emphasized that the current analytical principles supported the USPS approach, and could have stopped there without opening the door to changing, or adopting new analytical principles through rulemaking.
That it did initiate a rulemaking could be interpreted as a willingness to adopt new analytical principles – or simply going through the motions to follow due process. Given the likelihood that the losing party may take the matter to federal court, the PRC would be keen to demonstrate that it gave proper consideration to both parties’ arguments about what the analytical principles are or should be. There’s a bit of time pressure: the PRC has to conclude its analysis of the Postal Service’s Annual Compliance Report and issue its resulting Annual Compliance Determination by the end of March. That would give the commission about seven weeks from the close of the comment period to analyze comments, issue a final rule (or decide not to), and then apply the new analytical principles (if there are any) to the evaluation of USPS finances in the ACR, and produce the ACD. So we’ll have to wait a bit to see who wins in the end.
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