REPORT FINDS THAT FIRST-CLASS POSTAGE RATES WOULD BE LOWER IF COLLINS-CARPER POSTAL REFORM LEGISLATION IS ENACTED

WASHINGTON, DC —A recent report issued by the National Postal Policy Council concludes that the price of first-class mail would be 10-20 percent higher if postal reform legislation is not enacted. “Postage payments for the next 10 years will be meaningfully smaller under either the House (HR.22) or the Senate (S. 662) bill, with those under the Senate bill smaller than those under the House bill,” the report found. Senators Susan Collins (R-ME) and Thomas Carper (D-DE) are the authors of the Senate postal reform legislation.

            Senator Collins said, “The U.S. Postal Service is the lynchpin of a $9 billion dollar industry that provides 9 million jobs nationwide.  It is important to our economy, but under its current business model, the Postal Service’s financial future is not viable. It is crucial for our nation’s economy and for the future of the U.S. Postal Service that the Collins-Carper legislation be enacted.”

            The National Postal Policy Council’s report is as follows:

First Class Mail Postage Costs with and without Reform

Prepared for the National Postal Policy Council

by SLS Consulting, Inc.

Lawrence G. Buc

September 26, 2005

First Class Mail Postage Costs with and without Reform

RESULTS

Enactment of postal reform legislation is likely to have a dramatic effect on postage payments for those who mail First-Class Mail.  Postage payments for the next 10 years will be meaningfully smaller under either the House (HR.22) or the Senate (S. 662) bill, with those under the Senate bill smaller than those under the House bill.  As Figure 1 below shows, postage savings for First-Class mailers could be quite significant.

The postage savings is due to the net USPS cost savings from lifting the escrow and changing the retiree benefit payment mechanisms as prescribed by H.R. 22 and S. 662 as well as implementation of a CPI-based rate indexing system beginning in 2008.

Figure 1:  Estimate of Potential 2006-15 Savings From Postal Reform for First-Class Mailers (Millions of Dollars)

METHODS

SLS modeled First-Class Mail postage over ten year – from 2006 to 2015 – both with and without reform.  For the reform cases, we used the provisions of H.R. 22 as passed by the House and the provisions of S. 662 as unanimously reported to the floor by the Senate Homeland Security and Governmental Affairs Committee.   We modeled postage costs for mailers with annual volumes of 50 million, 100 million, 250 million, and 500 million pieces of First-Class Mail per year.

KEY ASSUMPTIONS

Like any model, our model embodies a number of important assumptions.  Changes in these assumptions would lead to changes in our results:

• Annual mail volume was disaggregated by rate category based upon proportions from the Postal Service’s FY 2004 First-Class Mail Billing Determinants report.

• 2006 postage for all cases are based upon the rates proposed by the Postal Service in the current rate case, Docket No. R2005-1.

• With or without reform, the Service increases rates again on January 1, 2007.  Based upon a statement made by Jim Miller, Chair, USPS Board of Governors -- without reform, rates will be increase by mid single digits in 2007 – the model assumes that, without reform, the 2007 rate increase will be six percent.  With reform, rates will increase less due to the rate relief provided by the reform legislation under consideration.  The magnitude of this relief was developed based upon USPS cost estimates.

• After 2006, the model assumes that, with reform, postage will increase annually at the rate of CPI.  Without reform, postage will increase annually at the rate of CPI+1.

The model assumes that the percentage rate increase for Single-Piece and Workshared First-Class Mail will be the same in any given year and will be so either with or without legislation.  This assumes that either with or without reform, Single-Piece and Workshared mail will maintain their current rate relationship and that the worksharing provisions of the bills do not affect rates.  If, in fact, the rate relationship changes dramatically between Single-Piece and Workshared First-Class Mail, savings from reform will be affected and could be either greater or smaller than those shown in the figure above.  However, given that these rate relationships have been relatively stable, we considered the assumption we selected to be reasonable and appropriate