Postal Service denied rate hike

NEW YORK (CNNMoney.com) -- Christmas is not coming early this year for the U.S. Postal Service, after regulators denied a request Thursday that would have raised the price of a first-class stamp by 2 cents, to 46 cents.

The Postal Service argued that it needed the hike in order to cover lost revenue from a decrease in mail volume, stemming from the economic recession.

While the Postal Regulatory Commission agreed with USPS' argument, they denied the request, saying that the rate hike was an attempt to address long-term structural problems not caused by the recent recession.

The committee wrote in its unanimous decision that the "Postal Service has failed to meet its burden under the law, and the Commission is unanimous in denying its request for an exigent rate increase."

While USPS was able to demonstrate that the recession created the kind of "extraordinary or exceptional" circumstances that would merit the proposed 5.6% average increase on mail costs -- the requested increase was due to retiree benefits.

"The documentation provided by the Postal Service demonstrated that the primary cause of the liquidity crisis was structural, and related to an overly ambitious requirement for the Postal Service to pre-fund its future retiree health benefit premiums," the committee said.

Postal rate hikes are usually capped at the rate of inflation. This is the first time USPS has requested a demand for a price increase, an action that is allowed under the 2006 Postal law.

But as the committee noted, the Postal Service reduced costs by $6 billion in 2009 -- a sign that the price cap is forcing the organization to improve efficiency.

Postmaster General John E. Potter said the ruling was a disappointment, and that it would require more study.

"We are disappointed to learn that the Postal Regulatory Commission has denied our price filing. But we are encouraged by their acknowledgment and understanding of the larger financial risk we face, through the mandated pre-funding of Retiree Health Benefits," Potter said in a statement.

Meanwhile, business groups long opposed to the rate hike cheered the decision.

"The PRC today has helped countless businesses stay competitive and saved tens of thousands of jobs," said Affordable Mail Alliance spokesman Tony Conway. "The Commissioners recognized that imposing an additional tax on Postal Service customers is not the way to address its financial troubles."