Christensen Associates Submits Report on Postal Service Price Cap

Categories: News, Studies

March 20, 2017 - Mark Meitzen, A. Thomas Bozzo, and Phil Schoech

The Postal Accountability and Enhancement Act (PAEA) of 2006 mandates that the Postal Regulatory Commission conducts a comprehensive review of the current postal price-cap system. The Commission began the review with an Advance Notice of Proposed Rulemaking by soliciting comments from the Postal Service, mailers, and other stakeholders. Included in the Postal Service’s comments, Christensen Associates submitted a wide-ranging study of the current postal price-cap system. The current price-cap system is a form of ex ante price regulation, since postal rates are set by a predetermined formula based on the Consumer Price Index (CPI).

In its review, Christensen Associates evaluated the impact of the CPI price cap in terms of the PAEA objectives, showing that it seriously undermined the financial stability of the Postal Service. This review also summarized the regulatory systems used for other large foreign postal operators and in other U.S. industries, drawing from this summary key lessons for Postal Service price regulation. The review concluded that the current financial position of the Postal Service requires a re-setting of rates, and that a change to the current form of price regulation is needed. The report showed how a form of ex post price regulation — where prices are not directly set by a formula but where the Commission could review rates through annual monitoring and a complaint process — could meet the objectives of the PAEA. The report also listed important factors that should be considered if the Commission decides to continue with ex ante price regulation.

Our report, Analysis of the PAEA’s CPI‐Based Price Cap System and Options for Future Postal Regulation, is publicly available on the Postal Regulatory Commission website.