SPECIAL EDITION

INCENTIVES INCLUDED IN PRICE FILING

MORE THAN 90 PERCENT OF PROPOSED PRICE CHANGES
UNDER 6 PERCENT

Volume discounts and free additional weight are included in the
proposed price changes the U.S. Postal Service filed with the
Postal Regulatory Commission (PRC) today.

Price changes for the majority of products and services fall
between 4 percent and 6 percent. These products and services
account for about 92 percent of Market Dominant revenue.
The Postal Service Governors approved the recommendation for
prices for all 18 Market Dominant products.

Products outside the range include periodicals (8 percent),
Standard Mail Parcels (23 percent) and Media/Library Mail
(7 percent). The increases above the average are intended to
improve the financial performance of products that currently
do not cover costs while limiting the impact on customers.

The filing includes two incentives designed to retain and
grow profitable mail volume: “Reply Rides Free” and
“Saturation Mail/High Density Incentive Program.”

Reply Rides Free encourages the use of bill and statement
mailings for marketing messages. For qualifying customers,
a 1.2-ounce piece is charged the 1-ounce
price if a reply envelope or card is included in the mailing.

The Saturation Mail/High Density Incentive Program provides
rebates for volume growth for Standard Mail and Nonprofit
Mail letters and flats. A minimum of six Saturation/High Density
mailings in a fiscal year is required.

If approved as proposed, the new prices would take effect
Jan. 2, 2011 — almost two years since the Postal Service
last raised stamp rates.

The proposed price changes would generate $2.3 billion
for the last three quarters of the 2011 fiscal year
(January to September) and an estimated $3 billion for the
full 12 months of fiscal year 2012.

Despite eliminating 1 million work hours and reducing
expenses by more than $1 billion every year since 2001,
a budget gap remains. The proposed price increases will
help close a $7 billion projected shortfall in FY 2011.
The Postal Service would have needed to raise rates an
average of 20 percent across all product lines to completely
close that expected gap.

“This proposal is moderate and reasonable and carefully
evaluated the effect on our customers,” said Maura Robinson,
vice president, Pricing. “Increasing prices will help overcome
some of the financial challenges faced by the Postal Service.
We will continueto work with Congress and other stakeholders
to implement long-term solutions.”

Postmaster General John E. Potter identified in March a number
of actions the Postal Service will pursue, including a change to
delivery frequency, expanded access to products and services
more convenient to customers and restructuring prepayment of
retiree health benefits. Potter was clear at the time that
customers would not be asked to close the entire budget gap.

Innovations like Reply Rides Free and Saturation Mail incentive
programs reinforce the value of mail, help retain volume and
provide opportunities to grow the business. These products also
have proven to cover their costs and contribute much needed
revenue to the Postal Service. Still, greater product and pricing
flexibility is needed if the Postal Service is to remain a vital driver
of the American economy.

“Future price increases can be greatly alleviated if the Postal
Service is given the tools necessary to be a more flexible,
market-oriented company,” Robinson said.

Other highlights from the price filing include:

• First-Class Mail stamps would increase to 46 cents.
• A new Forever Stamp image will be available in October.
• First-Class Mail postcard prices will increase
• 2 cents to 30 cents.
• Periodicals will receive an 8 percent increase.
• Recommended increase for catalogs is 5.1 percent.
• Standard Mail parcels will increase about 23 percent.

This is the first time the Postal Service is requesting price
increases above the rate of inflation, an action that is allowed
under the 2006 Postal law as long as the Postal Service can
demonstrate “exceptional or extraordinary circumstance.”

An ongoing recession that has rocked the Postal Service
business customer base, continued movement toward
electronic alternatives and unprecedented volume loss have
created a situation where the price cap of 0.6 percent,
based on the Consumer Price Index, is insufficient to cover
the extraordinary losses.

The PRC has 90 days to review and make a final ruling on
the filing (on or about Oct. 4). The PRC can accept or
reject all price requests.

The Postal Service receives no tax dollars for operating
expenses, and relies on the sale of postage, products and
services to fundits operations.

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