The Postal Regulatory Commission has initiated a rulemaking proceeding in response to a petition from the United States Postal Service, filed on September 30, 2025, seeking changes to analytical principles used in periodic reports. This proposal focuses on integrating costs associated with undeliverable-as-addressed (UAA) mail into the cost models for First-Class Mail and USPS Marketing Mail letters. UAA mail refers to items that cannot be delivered to the intended address and must be forwarded, returned to the sender, or treated as waste. The move addresses what the Postal Service describes as inaccuracies in current cost attribution methods, which could inflate presort cost avoidances and distort pricing signals. Published in the Federal Register on October 15, 2025, this notice establishes Docket No. RM2025-13 and invites public comments by November 3, 2025. The significance lies in its potential to refine postal cost calculations, ensuring they better reflect operational realities and promote economic efficiency in a system handling billions of mailpieces annually.
Background on UAA Mail and Current Cost Methodologies
Undeliverable-as-addressed mail arises primarily from address changes, errors, or other issues that prevent delivery. In fiscal year 2024, the Postal Service processed over 2.5 billion UAA letters, creating substantial additional handling costs. As detailed in the petition, UAA mail is removed from the standard processing stream, disregarding its original presort characteristics, and redirected—often requiring manual intervention or automated sorting adjustments. This process disrupts efficiency and adds expenses not currently captured in key cost models.
Under existing methodologies, UAA activities are not directly included in mail processing unit costs or workshare savings calculations. Instead, they are absorbed into the numerator of the Cost and Revenue Analysis (CRA) adjustment factor. This approach assumes UAA costs are proportional to presort levels within mail categories, an assumption the Postal Service argues is flawed. Presortation—where mailers prepare items in bundles or trays to reduce Postal Service handling—earns discounts, but UAA occurrences are independent of presort status. For instance, a highly presorted mailpiece can still become UAA if the recipient moves, incurring costs unrelated to the presort discount. The petition states that this proportionality 'inflates the measure of presort cost avoidances, distorts price signals, and generates economic inefficiencies.'
The framework stems from regulations under 39 CFR Part 3050, which governs periodic reporting and analytical principles for the Postal Service. These rules trace back to the Postal Accountability and Enhancement Act of 2006, which mandated a modern rate system emphasizing efficiency and cost-based pricing. Precedents like previous Commission orders on cost modeling, such as those in Docket No. RM2017-3, have emphasized accurate attribution of costs to avoid subsidies or distortions in competitive markets.
Key Elements of the Proposed Changes
The Postal Service proposes incorporating UAA costs—where independent of presort level—into the denominator of the CRA proportional adjustment factor. This shift would reduce the factor for affected categories, thereby decreasing avoided costs tied to presortation. The petition includes detailed model workbooks for fiscal year 2024, demonstrating calculations for First-Class Mail and USPS Marketing Mail.
Essential data elements include UAA volume estimates, processing times from systems like the Mail Processing Data System, and cost distributions across activities such as forwarding and returns. For example, the models calculate unit costs by applying factors like the percentage of UAA mail forwarded (about 35 percent for First-Class) versus returned or discarded. Quotes from the petition highlight the rationale: 'Once mail is identified as UAA, it is removed from the general mail processing stream, its original presort characteristics are disregarded, and it is redirected before being returned to the mail processing stream.'
The proposal outlines steps for data integration, such as using Address Change Service data to quantify forwarding volumes and applying cost avoidance models to reflect UAA handling. This aims to create category-specific CRA unit costs that vary by presort tier, providing a more granular view than the current uniform adjustment.
Impacts on Costs and Pricing
Implementing the proposal would lower the CRA adjustment factor, with tables in the petition showing reductions for both mail classes. For First-Class Mail, avoided costs would decrease by $134 million, or 8.1 percent, while USPS Marketing Mail sees a $14 million drop, or 1.0 percent. These figures are derived from Excel files accompanying the petition, which compare current and proposed avoided costs across presort categories like automation mixed AADC and 5-digit.
Workshare discounts, governed by 39 CFR Part 3030 Subpart J, could be affected. The petition acknowledges that some discounts might fall out of compliance, stating: 'The Postal Service represents that it will correct any noncompliance in future rate adjustment proceedings if the Commission approves the Proposal.' Tables illustrate shifts, such as the First-Class automation 5-digit discount's passthrough rate changing from 100 percent to about 92 percent under the new model.
Perspectives and Broader Implications
From the Postal Service's viewpoint, this adjustment corrects a methodological oversight, aligning costs more closely with operations and enhancing efficiency. Mailers and industry groups, however, may express concerns during the comment period, arguing that reduced avoided costs could increase effective rates for presorted mail, potentially discouraging preparation efforts that benefit the system overall.
Short-term implications include potential adjustments in upcoming rate cases, as seen in historical proceedings like the 2021 rate authority reviews. Long-term, it could influence competitive dynamics, especially for Marketing Mail in advertising sectors. The Commission's role, as an independent regulator, ensures balanced review, with Public Representative Katalin Clendenin appointed to advocate for general public interests.
In conclusion, this proposal represents a targeted refinement to postal cost accounting. Next steps involve public input by November 3, 2025, followed by Commission evaluation. Ongoing debates may center on data accuracy and economic impacts, with potential for iterative changes in future dockets to maintain pricing integrity.