UPDATE 1-U.S. Postal Service loss shrinks to $1.3 bln in Oct-Dec
* Election mail, holiday packages help results
* Postal Service lost $3.3 billion in year ago quarter
* CFO forecasts extremely low levels of cash in 2013
WASHINGTON, Feb 8 (Reuters) - The U.S. Postal Service lost $1.3 billion in the October through December quarter, officials said on Friday, days after the beleaguered mail agency announced plans to cut back on Saturday delivery to save money.
The Postal Service lost $3.3 billion in the same period a year earlier.
This year, extra mail tied to the November elections and stronger revenue from holiday-related packages contributed to a better quarter, USPS Chief Financial Officer Joe Corbett said.
But he said the Postal Service still expects to face extremely low levels of cash during 2013.
"The need for such cost-saving initiatives like five-day mail delivery are borne out by the continuing loss of first-class mail and the resulting deep and unsustainable financial losses," Corbett said on Friday.
"We cannot continue to operate on a precipice," he said.
The mail service has been grappling with tumbling mail volumes as Americans communicate more online, and has struggled under the weight of massive required payments for future retiree health benefits.
The Postal Service defaulted last year on two payments to the federal government and lost almost $16 billion during the fiscal year.
The October through December period, which is the first quarter of the Postal Service's fiscal year, is typically the strongest because of the holidays.
Officials said total mail volume during the quarter fell to 43.5 billion pieces from 43.6 billion a year earlier. A dip in first-class mail volume was mitigated by the 3.6 percent rise in standard volume, largely due to official election and political mail.
The Postal Service also set aside less this year for its annual payment for future retiree health benefits, which contributed to a 9.8 percent drop in operating expenses to $18.9 billion during the quarter.
Last year, the Postal Service had to account for two such payments after Congress delayed a payment initially due in 2011. The mail agency defaulted on both but still had to account for them in financial reports.
Officials said they expect to default again on this year's $5.6 billion payment, which is due at the end of September.
CALLING ON CONGRESS
Postmaster General Patrick Donahoe again called on the U.S. Congress to pass legislation alleviating the agency's woes. The agency wants to stop making the payments for future benefits and to take over its own health care plan, among other changes.
Lawmakers tried last year to pull together legislation to overhaul the agency's business model but were unable to agree on how to do it.
With gun control, immigration and looming federal spending cuts dominating Congress's attention this year, it appears unlikely lawmakers will tackle postal legislation soon.
In an effort to spur Congress to act, the mail agency earlier this week announced plans to stop delivering first-class mail on Saturdays starting in the first week of August. The agency said cutting back to five-day mail delivery would save $2 billion a year.
The move prompted an outcry from postal unions and some lawmakers, who argued the Postal Service was circumventing Congress. Lawmakers for decades have prevented the Postal Service from scrapping Saturday delivery.
"My encouragement to Congress would be to please not put any restrictions on us moving ahead," Donahoe said. "We've got to make this change, we've got to get savings."
The Postal Service will continue delivering packages on Saturdays and will keep post offices on their normal schedules.
Packages have been a bright spot in a series of bleak financial reports as Americans order products from online retailers such as e-Bay Inc and Amazon.com Inc .
The Postal Service said shipping and package revenue rose 4.7 percent over the same quarter a year ago.