The U.S. Postal Service’s regulatory body announced Friday that it would allow some additional flexibility to increase the price of postal products, but would keep a price cap in place for any future rate hikes.

After nearly a year of deliberations and lobbying from USPS, the postal unions and the mailing industry, the Postal Regulatory Commission completed its review of the rate-setting system that the Postal Service has operated under for the past decade. While the PRC found the current system hadn’t kept the USPS on a firm financial footing, the commission determined that it would still anchor any future rate hikes to the Consumer Price Index (CPI).

“The commission determined that it is necessary to maintain such a mechanism to create predictability and stability,” Robert Taub, the PRC’s chairman, told reporters at a press conference. Rather than replace the current CPI price cap, the commission said it plans to give USPS some additional wiggle room on prices, in order for the agency to generate a profit in the long-term.

“This additional rate adjustment authority is designed to put the Postal Service on the path to generating positive net income and retained earnings as mandated by law,” Taub said.

Under the PRC’s proposed rule, the Postal Service would be allowed to raise the price of each class of mail by 2 percent each year for the next five years. Following that five-year period, the commission will re-review the state of USPS’ financial outlook.

The rate change reflects the commission’s finding that some postal products were priced too low to cover their attributable costs to process and deliver. Those “underwater products,” Taub said, contributed to the Postal Service’s inability to generate a long-term profit.

“While the Postal Service has generally achieved short-term financial stability, both medium-term and long-term financial stability measures have not been achieved.  For the medium-term measure, the total revenue was not sufficient to cover total costs,” he said.

In addition to the 2 percent pricing flexibility, the Postal Service would be permitted an additional 1 percent of rate authority each year, for each class of mail, provided that USPS meets its yearly benchmarks for operational efficiency and delivery service.

“In other words, this additional performance-based rate authority would only be available contingent upon the postal service meeting these efficiency and service measures,” Taub said.

The PRC’s proposed rule comes after the commission already approved several rate hikes that will take effect next year. Effective Jan. 21, 2018, the Postal Service will raise the price of a first-class postage stamp to 50 cents — an increase of 1 cent — and will introduce an across-the-board 5-cent increase on flat-rate postal products.

Postmaster General Megan Brennan, who recently announced that USPS ended fiscal 2017 with a $2.7 billion loss, applauded the PRC for its proposed rule.

“The Postal Service agrees with the conclusion of the Postal Regulatory Commission that the current CPI price cap does not work and needs to be changed, because it does not enable us to achieve our mission of providing prompt, reliable, and efficient universal postal services to the American people in a financially sustainable manner,” Brennan said in a statement Friday. “We are analyzing the Commission’s alternative price cap proposal to determine the extent to which it advances this goal. ”

Brennan said that the agency believes price caps are unnecessary in a rapidly evolving postal marketplace where USPS customers have alternatives to using the mail.

“We seek a regulatory system that gives the Postal Service the flexibility to adopt the pricing innovations that will be critical to our ability to compete in the marketplace and to create business value for our customers both today and in the future,” the statement said. “We will continue to work with the Commission and our customers to ensure that the mail remains a valued means of commerce and communications.”

The National Association of Letter Carriers postal union said it agrees with the PRC that the current pricing system does not put the Postal Service on a stable financial trajectory.

“We will vigorously participate in this new rate-making proceeding,” NALC President Fredric Rolando said in a statement. “And we remain committed to achieving a sensible system of rate-setting that will be good for the public and the Postal Service.”

However, the Coalition for a 21st Century Postal Service, which represents members of the private-sector mailing industry, said the PRC’s decision was “not surprising but it was still disappointing.”

“While an increase in postage rates may bring some short-term relief to the Postal Service, it may create more harm than good by potentially forcing much more mail out of the system. And once mail leaves, it rarely comes back,”  Art Sackler, the coalition’s coordinator, said in a statement.

The coalition added that it hoped to see USPS’ financial problems addressed through a postal reform bill that passed the House Oversight and Government Reform Committee in February, but has yet to receive a full House vote.

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