Summary

H.R. 22 is legislation that would fundamentally modernize the nation’s postal laws for the first time since 1970 in order to give the Postal Service both the tools and the incentive to adapt itself to the demands of the 21^st century. At the same time, H.R. 22 also establishes new rules to ensure fair competition and protect the public interest. The bill was originally introduced on June 25, 1996, after a year and a half of development through oversight hearings. After five more hearings and taking into account additional extensive public comments on this plan, the Subcommittee on the Postal Service approved the bill on a bipartisan basis in the fall of 1998. After its reintroduction in January 1999, the Subcommittee held two more days of hearings, in which it received testimony from more than thirty-six witnesses representing the varied postal interests in the public and private sectors.

After carefully evaluating all of the testimony received in this latest round of hearings, Chairman McHugh has proposed a comprehensive Amendment in the Nature of a Substitute. Keeping with H.R. 22’s objective of enhancing and improving postal services to the nation, the Amendment incorporates and responds to many of the comments received.

Amendment in the Nature Of A Substitute

The following title-by-title summary provides an overview of how the proposed Amendment would modify H.R. 22. The entire Amendment and a more detailed section-by-section review of the proposed changes – as well the current version of H.R. 22 and explanatory material – are posted on the Subcommittee’s website: (http://www.house.gov/reform/postal/hearings/hr22.htm). Copies are also available from the Subcommittee’s office in room B-349C Rayburn Building, Washington, D.C.

Title-by-Title Summary of Proposed Changes in the Amendment

Title I, which redesignates the titles of the Postal Service Board, the Postmaster General, and the Postal Rate Commission (PRC), is not changed in the Amendment.

Title II establishes the new postal rate-setting process. The amendment clarifies the definition of product to underscore that it is a "postal" product and that it applies to the "rate cell" level. In recognition of the potential challenges of mandating minimum rate requirements at the rate cell level, however, the amendment permits the PRC to waive the requirements if its application to a particular rate cell, or cells, would be impracticable. Reducing the time permitted for the Service to file the baseline rate case from eighteen months to six months accelerates the implementation of the bill. No changes are proposed to the price "cap" regimen established for setting rates for noncompetitive products.

Products contained in the competitive mail category will still be priced by the Board according to market conditions, as long as 1) each of these products are priced to cover their costs, and 2) the competitive products collectively make a contribution to the overall overhead of the Postal Service in at least an equal percentage to the contribution made by all noncompetitive and competitive products combined. However, the Amendment explicitly mandates certain costs for the PRC’s consideration when assessing adjustments to the cost-coverage requirement, and mandates a PRC review of the cost-coverage requirements’ operation and continuing need. The criteria for discontinuing loss-making competitive products are made more explicit in the Amendment. Other provisions clarify the PRC’s ability to review new competitive products.

The Postal Service will still be required to track revenues and expenditures of competitive products by way of a separate new account, "the Postal Service Competitive Products Fund." However, the Amendment recognizes the complexity of separating the assets and liabilities between competitive and noncompetitive products as well as the need to reassess the Service’s accounting for competitive products’ revenues and costs. In that regard, the Amendment requires the Postal Service to develop recommendations to identify and value the assets and liabilities, which would then be reviewed in a PRC proceeding before the PRC promulgates such rules.

For experimental products, the prohibition against "unreasonable market disruption" is more clearly specified as a prohibition that such tests cannot "create an unfair or otherwise inappropriate competitive advantage for the Postal Service, particularly in regard to small business concerns."

As currently in the bill, the Postal Service will be annually audited, as well as reviewed upon complaint, by the PRC to ensure that prices are set in accordance with the law and that delivery and performance standards are being met. The Amendment incorporates several clarifying changes to these provisions. In addition, the PRC must still report at least every 6 years on the operation of the ratemaking system with recommendations for any legislative or other measures necessary to improve it, but the Amendment specifically adds a review of the operations of (1) the cost-coverage requirement for competitive products, (2) the Competitive Products Fund, and (3) the private Corporation authorized by section 204. In this way, a formal and regular review process is established to consider any necessary modifications.

One of the most significant modifications to Title II involves the private Corporation, which is owned by the Postal Service and funded from the Competitive Products Fund. From a legal standpoint, the Corporation is still not "the Postal Service." Funds available to the Corporation remain limited to funds invested from the Competitive Products Fund and loans obtained on the credit of the Corporation itself. As currently in H.R. 22, the Postal Service is required to include the activities of the Corporation in the annual reports to the PRC to ensure compliance with the firewalls established between the Service and the Corporation (such as the requirement that prices charged the Corporation by the Postal Service for goods and services reflect fair market value). In addition to these existing firewalls, the Amendment makes several changes to this section:

1. the Corporation is specifically prohibited – in a new subsection (h) – from providing any mail preparation, processing, or packaging services that are delivered by means of noncompetitive products offered by the Postal Service, unless the Corporation is authorized in a PRC hearing on the record in which it considers various factors, the first of which is "the fair and equitable treatment of small business concerns which have invested in the development of such services, if any";
2. the restrictions on interaction between the Postal Service and the Corporation are further clarified (beyond the current requirements on purchase of goods and services from the Postal Service) to explicitly mandate that the Postal Service must treat the Corporation in the same manner as it would any other private corporation, and that the goods and services provision cannot be considered to exempt the Corporation from the rates established pursuant to the pricing rules for noncompetitive and competitive products;
3. the Corporation and its employees are explicitly subject to the laws of the State in which it is incorporated in the exact same way as any other corporation (and its employees) incorporated in that State;
4. rather than a blanket waiver of post-government employment restrictions for former Postal Service employees, the waiver is limited to only the first three years of the Corporation’s existence; and
5. the Corporation’s specific authorities are clarified to include borrowing money on its own behalf and interactions with other private companies.

Moreover, the Amendment responds to the testimony received from several witnesses as to their suggestion that the noncompetitive product customers more explicitly benefit from the existence, if any, of a Corporation created under this title. Under a new provision, if the Corporation is created, any excess revenues that occur in a given year from Competitive Products collectively (which will include any earnings paid by the Corporation) must be shared equally with the Postal Service Fund (noncompetitive products) and the Competitive Products Fund. Without placing unfair burdens on the Corporation, this section ensures that (1) to the extent that benefits flowing to the Postal Service from the Corporation result in excess revenues, these monies will be shared with noncompetitive product customers, and (2) such customers share equally in the benefits of the success of competitive postal products before such revenues are available for investment in the Corporation. The six-year review mentioned above is modified to include an evaluation of whether this new section should remain in effect, and if so, how it might be improved.

Amendments to Title II also institute one-way transfers of products to the competitive category, as suggested by the Department of Justice, and in response to extensive testimony on the negotiated service agreement provisions for noncompetitive products, modify and clarify those provisions. Title II also narrows the qualification requirements for the Directors to recognize testimony that the current language may have been too broad.

Title III requires equal application and impartial administration of laws to the Postal Service, particularly in regard to unfair competition. Major changes in the Amendment primarily respond to suggestions from the Department of Justice and the Postal Service to tighten and clarify the prohibitions on unfair competition in section 305.

Title IV is not changed in the Amendment; this title makes technical, conforming amendments related to the budget and appropriations.

Title V changes are limited to clarifying the authority for the Postal Service to contract for carriage of mail in foreign air transportation in response to testimony of the Department of Transportation and the Air Transport Association.

Title VI mandates several studies; the Amendment incorporates Postal Service suggestions on the review of universal service, and adopts a Justice Department suggestion to transfer to the Federal Trade Commission the responsibility for evaluating the equal application of laws.