Industry Alert: USPS Pushes PRC to Move Forward on Ratemaking Reform

USPS is urging the Postal Regulatory Commission (PRC) to move quickly on the next phase of its Market Dominant ratemaking review - a proceeding the mailing industry should be watching closely.

In an October 1 filing, USPS argues that the current ratemaking system is not providing the revenue needed to achieve long-term financial stability. USPS points to nearly $31 billion in cumulative defaults through FY2025 and says recent financial relief has helped preserve cash but has not solved the underlying imbalance between revenue and expenses.

There are some positive points for the industry. USPS acknowledges that pricing is only one part of the solution and highlights significant cost reductions already underway. Since 2021, USPS reports reducing workhours by 56 million, decreasing its workforce by 28,675 employees and lowering transportation and facility costs by approximately $2 billion. USPS also states that continued cost reductions, competitive revenue growth, and administrative and legislative reform could reduce the need for future Market Dominant rate increases.

The concern for mailers is USPS's continued push for greater pricing flexibility. USPS is asking the PRC to act on its Pricing Authority Petition, which seeks greater authority to use Market Dominant pricing to address its financial shortfall.

However, there may also be an important opportunity for the mailing industry.

As the PRC moves into the next phase of its review, the future of existing additional rate authorities could also come into play - including the Density Authority. The Density Authority provides USPS with additional pricing authority when declining mail density increases average cost per piece. Industry stakeholders have already urged the PRC to reconsider this mechanism, with the National Postal Policy Council proposing that it be eliminated and replaced with a performance-based incentive tied to mail-volume growth and cost control.

This creates an important industry debate. Providing USPS with greater overall pricing flexibility while continuing to layer additional authorities such as the Density Adder on top of CPI could increase pressure on mailers and potentially accelerate volume declines. On the other hand, a redesigned ratemaking system could potentially replace or modify some of today's additional rate authorities as part of a broader pricing framework.

The October 1 filing does not announce a postage increase, nor does it propose eliminating the Density Authority. It does, however, increase pressure on the PRC to move forward with a proceeding where these broader questions about the future structure of Market Dominant pricing can be addressed.

For mailers, the question is not simply whether USPS receives additional pricing authority. It is what the entire ratemaking structure looks like when the PRC is finished - and whether that structure balances USPS financial stability with affordable rates, mail-volume retention and a sustainable mailing ecosystem.

ALG will continue monitoring this proceeding closely as the PRC determines its next steps.