From the beginning of the United States Post Office in 1775 in colonial times, Congress set postal rates. That continued until 1970, when lawmakers passed a law reforming the Post Office Department, renaming it the United States Postal Service and establishing a regulator. At that time, we were called the Postal Rate Commission. Our primary purpose was to review and provide a recommended decision on postal rates requested by the Postal Service.

Congress changed postal governance in 2006, passing the Postal Accountability and Enhancement Act (PAEA) and creating today’s Postal Regulatory Commission. The PAEA gave us enhanced powers to operate as an independent federal agency. Rather than simply reviewing and providing a recommended decision on proposed rates, we’d oversee Postal Service compliance with postal law, including rate making.

Today, under the PAEA’s new model, the Postal Service sets its own rates, and the Commission verifies the requested rates are consistent with the law and regulations. 

How does rate-making work?

Many organizations answer to a board of directors, and the Postal Service has a similar setup. As required by postal law (Title 39 of the U.S. code), the Postal Service’s Board of Governors oversees Postal Service’s practices, sets policies, and controls spending. The Governors propose new rates to the Postal Regulatory Commission for approval. The pre-2006 system for regulating prices, called cost-of-service regulation, required the Postal Service to present evidence to the Rate Commission about the projected costs of picking up, processing, and delivering mail. Rates were set at a level designed to cover costs.  In PAEA, Congress replaced that cost-of-service system with a price-cap system tied to inflation (the Consumer Price index, or CPI). Price caps are used in many regulated industries to provide an incentive for organizations to keep their costs down. Thus, price caps are often described as “incentive regulation.” 

Prior to PAEA, the Postal Service requested rate increases every three to four years.  After 2006, rate increases generally occurred once per year, while in recent years, the Postal Service has frequently requested rate increases twice per year. 

What is the PRC’s role here? 

While the Postal Service sets its rates, the Postal Regulatory Commission sets the limits. The limits apply to market-dominant products – those the Postal Service has a monopoly on, such as letters, periodicals, and postcards, or otherwise has a lot of market power over (meaning it could raise prices or lower service without a risk of losing business to competitors). 

The Commission solicits feedback from the public during this process, and the comments and outcome of each rate case are publicly available through the Commission’s website and docket system.

What’s coming up in rate-making news

The Commission is currently reviewing the market-dominant rate-making system to determine whether it should make further adjustments as mail volume continues to decline along with Postal Service finances. 

A little history: As mentioned, the PAEA passed in 2006 when mail volume was at its peak. Beginning in 2007, mail volume started to decline and never bounced back. Because the Postal Service is funded by mail rather than tax revenues, this decline has hurt its finances. 

PAEA required a 10-year review of whether the new rate-making system (including the price cap) was meeting the goals that Congress established for rate regulation in PAEA. In 2017, the Commission reviewed the CPI price cap and found that rate regulation was not working the way the law intended. 

To remedy this, the Commission developed a new price cap that considers CPI as well as issues that affected the Postal Service’s ability to cover its costs given the decline in mail volume. 

The Postal Commission is now looking at whether the new rate system is working as required by PAEA, or if more changes are needed. 

For a deeper dive into rate making, check out the following sources: 

 At a glance

The Postal Regulatory Commission does: 

• Create rate limits on market dominant products.
• Review Postal Service proposals for rate increases. 
• Examine whether the Postal Service legally complies with rate making mandates.
• Set and monitor a floor on rates for competitive products (packages) so that the Postal Service does not subsidize such products using revenues from letters and other market-dominant products.

The Postal Regulatory Commission does not: 

• Set postal rates.