USPS Governors' Usurpation of Ratemaking Process Denies Due Process to Mailers

The Postal Reorganization Act of 1971 (1) defines the process for the setting of domestic postal rates and fees. This Act divides authority over ratemaking between the U.S. Postal Service (directed by a Board of Governors) (2) and an independent federal agency known as the Postal Rate Commission ("Commission"). The Act guarantees substantial due process and other protections of mailers' rights in the ratemaking process. However, courts have held that nearly all such protections apply only to the process whereby the Commission develops "recommended" rates, which are normally accepted and implemented by the Governors. It is not so clear that they apply a rarely-used mechanism -- often referred to as the anarchy clause -- which allows the Board of Governors to raise postal rates without the concurrence of the Commission.

Postal rates normally are set in a proceeding known as an "omnibus rate case," which begins when the Postal Service files a request for a recommended decision on postal rates and fees with the Commission. (3) The Commission offers mailers and other interested parties the opportunity to question the Postal Service regarding its proposed rates, to present alternative rates, and to argue against the rates proposed by the Postal Service and other parties. Oral questioning of Postal Service and mailer witnesses, is conducted before the Commission, subject to the requirements of Administrative Procedure Act. Participants also engage in written discovery of Postal Service witnesses as well as witnesses of other participants; they file direct and rebuttal testimony, and initial and reply briefs. The Commission by statute has 10 months to conduct the case, which means from the time of receiving the Postal Service's request it must provide for written questioning of the Postal Service and other parties, conduct all of the public hearings, examine the evidence, review initial and reply briefs filed by the parties, select "recommended" rates for each "rate cell" and "rate component," and issue a Recommended Decision to the Governors within 10 months. (4)

The rates selected by the Commission are not implemented until they are approved by the Governors. If the rates are not approved, the Governors can also reject the Commission's recommended rates, allow the rates to be implemented "under protest," or modify the rates.

The Governors may modify rates in certain circumstances if they unanimously, in writing, concur in the view that modification of the rates "is in accord with" the record of the Commission's proceedings and the Postal Reorganization Act, and that the Commission's recommended rates will not provide sufficient revenues. (5) The Governors have exercised this so-called "anarchy clause" to modify rates -- i.e., implement rates chosen by the Postal Service, notwithstanding the proceedings before the Commission -- on three occasions: Docket No. MC78-2 (a mail classification case affecting commercial and nonprofit advertising mail); Docket No. R80-1 (the 1980 omnibus rate case); and Docket No. R2000-1 (the July 2001 rate increase associated with the 2000 omnibus rate case).

This anarchy clause conflicts with fundamental principles underlying the Postal Reorganization Act. The courts have observed that the structure of the Act (and its amendments) reflected Congressional fears of allowing the Governors to control revenues, and of their usurpation of control over rates from the Commission. (6) However, the courts have imposed very few limits on the Governors' power to exercise the anarchy clause, although they have held that mailers' due process rights are sharply circumscribed when the Governors take such unilateral action. (7) Although the absolute limits of that power have not been firmly established, many believe that the practical difficulties involved in challenging its exercise allow the Governors excessive power that is inconsistent with the fundamental rate-making procedure established in the Act.

Certain proposals to amend the ratemaking process in the Postal Reorganization Act, such as HR 22, would have eliminated the anarchy clause. However, with Congress' failure to pass any such substantive amendments to the statutory ratemaking process since 1976, this anomalous and dangerous authority remains intact. Mailers remain at the mercy of the Governors' ability to unanimously set postal rates virtually however they want, even where those rates contradict the findings of the Postal Rate Commission.

1. 39 U.S.C. Section 101, et seq.

2. The Postal Service Board of Governors is made up of nine individuals appointed by the President and confirmed by the Senate, plus the Postmaster General, who is selected by the nine appointed Governors, and the Deputy Postmaster General, who is selected by the nine appointed Governors and the Postmaster General. 39 U.S.C. Section 202. The Act distinguishes between actions by the "Governors" -- the nine appointed Governors -- and the "Board of Governors," which includes the Postmaster General and Deputy Postmaster General. See 39 U.S.C. Section 102. For example, the Governors -- but not the Board of Governors -- are empowered to approve or reject a Recommended Decision from the Commission. 39 U.S.C. Section 3625.

3. 39 U.S.C. section 3622(a). Rates can also be set in the context of a mail classification case, which also is initiated when the Postal Service or a mailer files a request to change the Domestic Mail Classification Schedule. 39 U.S.C. Section 3623(a).

4. 39 U.S.C. Section 3624(c)(1). A "rate cell" is the postage rate for a particular class or subclass of mail, of a specific weight, and receiving a specific degree of transportation or handling, such as a 30-pound Priority Mail package mailed to zone 5. A "rate component" affects multiple "rate cells": for example, the additional ounce rate for First-Class Mail defines (in part) the rates of a 2-ounce piece of First-Class Mail, a 5-ounce piece of First-Class Mail, etc.

5. 39 U.S.C. Section 3625(d).

6. United Parcel Service v. USPS, 604 F.2d 1370, 1373 (3rd Cir. 1979); United Parcel Service v. USPS, 615 F.2d 102, 108-10 (3rd Cir. 1980).

7. National Easter Seal Society v. USPS, 656 F.2d 754 (D.C. Cir. 1981), Time v. USPS, 685 F.2d 760 (2d Cir. 1982), Time v. USPS, 710 F.2d 34 (2d Cir. 1983).