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pptx - U.S. Postal Regulatory Commission

VIEWS: 3 PAGES: 13

									Challenges in the U.S. Postal Environment




                    Ruth Y. Goldway
      Chairman, U.S. Postal Regulatory Commission
            UPU Forum on Postal Regulation
                  November 10, 2011
                   Bern, Switzerland
        Role of the Postal Regulatory
        Commission

   Establish more modern system of rate making
   Monitor quality of service
   Provide detailed, transparent information on
    Postal Service’s operations
   Hear appeals from citizens on post office closings
   Offer assistance in resolving rate and service inquiries
   Hear customer complaints and provide redress if appropriate
   Ensure level playing field between mailers (e.g. decide over
    allegation of rate discrimination)
   Assure universal service six days a week                       2
        U.S. Postal Market Characteristics


   USPS is an independent establishment of the Executive
    Branch of the Federal Government
   Letter and mailbox monopolies
   Market dominant and competitive products
   Price cap (Consumer Price Index)
   Universal Service Obligation
   Limited diversification (hybrid mail, money transfer,
    passport processing, electronic post mark)
   Mail is still the core business

                                                            3
     U.S. Modes of Postal Liberalization



   Upstream competition (workshare discounts)

   Downstream access (local drop-ship)

   Commercial licensing of postal indicia (postage and tracking
    services) to private companies

   Competition in the express, priority and bulk parcel
    delivery market




                                                                   4
                 The U.S. Postal Service Today


 USPS self-sufficient – no government subsidies to support USO
 Declining volumes and revenues
 Increasing costs related to low rate of inflation
 Growing deficit
    2011 - $10.0 billion (estimated)
    2010 - $8.5 billion
    2009 - $3.8 billion
    2008 - $2.8 billion
 $12.69 billion in debt to federal Treasury through June 30, 2011
    $15 billion debt limit

                                                                     5
                         Structural Challenges


 Future Retiree Health Benefits Fund
    Average $5.6 billion annual payment for 10 years under 2006 postal
     reform law
    $20.9 billion paid from 2006-2010 ($45 billion in fund)
    Commission study estimated appropriate annual payments should be
     significantly reduced
 Pension Fund
    Overpayment identified by Commission and Postal Service Office of Inspector
     General
    Commission estimates overpayment between $50 and $55 billion
 Cost of Universal Service Obligation/Value of Monopolies
      2009 cost of USO - $4.9 billion
      2009 value of monopolies - $2.1 billion
      Cost of USO is going up
      Value of monopolies is going down                                           6
                                   U.S. Postal Service Cash Flow

                                   Non-Payment of Retiree Health Benefits in FY 2011
                                              USPS Cash Flows FY 2007 - 2011
                                                       ($ in Millions)
                                                                  FY         FY           FY          FY            FY
                                                               2007         2008         2009        2010        2011 Est.

Net Income/(Loss)                                                 (5,142)     (2,806)      (3,794)     (8,505)       (9,500)


Non-Cash Items and Other Cash Flows                                2,539       2,367        5,367       5,213          9,800


Cash Flows from Investing Activities                                 500      (1,938)      (1,806)     (1,323)       (1,400)


Cash Flows from Financing Activities                               2,005       2,910        2,890       1,687          2,187



Net Increase/(Decrease) in Cash                                      (98)          533      2,657      (2,928)         1,087
Cash Balance BOY                                                     997           899      1,432        4,089         1,161
Cash Balance EOY                                                     899       1,432        4,089       1,161          2,248


Debt Outstanding                                                   4,200       7,200      10,200      12,000         7
                                                                                                                    15,000
               Impact of Inflation and Deflation


 Workers compensation liability very sensitive to changes in inflations
  and discount rates
    1% decline in discount rate adds about $1.4 billion to workers
     compensation liability
    1% increase in discount rate reduces liability by about $1.1 billion


 Price cap limits Postal Service’s ability to increase prices in periods of
  deflation or relatively low inflations




                                                                               8
                      Postal Service Response


 Cut costs
    4.0% reduction in Compensation and Benefits Costs in 2010
    Reduction in work hours (6.0% in 2010)
 Increase productivity
    2.2% in 2010
    Follows two years of productivity decline
 Propose major cost-cutting initiatives
 Grow revenue
    New products and services; and market tests
    Negotiated Service Agreements




                                                                 9
                       PRC Role in Response


 Advisory Opinion on six vs. five days of delivery
 Actuarial review of Retiree Health Benefits Fund
 Technical review of Pension Fund
 Review of network consolidation and realignment
 Review of closing of post offices and branches
 Review of appeals to post office closings
 Review of market dominant and competitive product classifications
 Approval of new products and services
 Review of new rates and conformance with price cap

                                                                      10
          Congressional Role in Response: Senate


 Senate bipartisan legislation:
    Provides $7 billion to U.S. Postal Service from Pension Fund overpayment for
     employee buyouts and other debt
    Allows renegotiation of health care benefits for postal workers
    Requires two years of study before ending Saturday mail delivery
    Spreads out current 10-year annual payment schedule of $5.5 billion per year
     to prefund future retiree health benefits over forty years
    Requires Postal Service to study effects of closing post offices and mail
     processing facilities further




                                                                                    11
                  Congressional Role in Response:
                     House of Representatives

 House of Representatives legislation H.R. 2309:
    Postal management replaced with restructuring authority if Postal Service fails to pay
     bills for more than 30 days – financed with $10 billion line of credit fully collateralized by
     postal facilities
    Gives Postal Service option of eliminating Saturday delivery six months after
     legislation enacted
    Establishes two-year task force to recommend plan to consolidate redundant
     post offices
    Mandates postal workers pay same health and life insurance premiums as federal
     workers and clarifies compensation parity with private sector
    Allows Postal Service to sells advertising space on vehicles and facilities
    Allows Postal Service to pay $1 billion to future retiree health benefits fund this year and
     pay balance in equal installments between FY2015 and FY2016
    Provides for consideration of using net surplus in Pension Fund to fund cost of reducing
     size of postal workforce



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www.prc.gov


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