U.S. Postal Service loses bid to raise rates

WASHINGTON (Reuters) - U.S. regulators on Thursday denied the beleaguered Postal Service an average 5.6 percent rate increase it had requested to help its financially ailing operations cope with the impact of the recession.

The Postal Service had proposed raising the price of a first-class stamp to 46 cents from 44 cents.

The Postal Regulatory Commission, the independent agency that oversees the mail service, said postal officials failed to demonstrate that the global recession was responsible for the agency's multibillion-dollar shortfalls.

"(A) commission analysis confirms that the Postal Service's cash flow problem is not a result of the recession and would have occurred whether or not the recession took place," the regulator said in a statement.

"It is the result of other, unrelated structural problems and the proposed ... rate adjustments would neither solve nor delay those problems."

An increase would have raised postal rates by about $3 billion beginning in January.

The Affordable Mail Alliance, a broad coalition of postal customers, welcomed the decision as a move that would contain mailing costs and encourage the Postal Service to undertake a fundamental restructuring of its networks.

The Postal Service, which delivers half the world's mail, is in the grips of a long-term decline in mail volume as increasing numbers of Americans communicate via email, pay their bills online and favor private carriers including FedExCorp and United Parcel Service.

It reported a $3.5 billion net loss for the fiscal third quarter last month and forecast a cash shortfall into 2011. That marked the 14th net loss in the past 16 quarters.

The commission also warned that the Postal Service may not be able to meet a statutory 10-year payment schedule, averaging around $5.5 billion a year, to create a fund to pay for future retiree health premiums.

"It has been unable to fund this obligation from operations and has instead used up all of its retained earnings and drawn down from its $15 billion borrowing authority," the commission statement said.

"Even with the requested increase, the Postal Service would be unable to meet this annual obligation either in 2011 or in succeeding years."

In addition to seeking higher rates, the Postal Service wants congressional approval to eliminate Saturday mail service to remain solvent.

The commission said the agency achieved more than $6 billion in cost reductions in 2009. As a result of its cost containment programs, work hours have declined faster than volumes in 2010.

(Reporting by David Morgan, editing by Maureen Bavdek)