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Does the USPS really want to tie itself to gasoline and diesel for the next 30 years?
Does it want to gamble that ICE vehicles will still be viable in 2050?
— David Roberts, Vox
In a recent executive order, President Biden called for electrifying the entire federal vehicle fleet, including the 225,000 vehicles operated by the United States Postal Service (USPS), to help drive the clean energy economy. That is a laudable goal, but there’s one big barrier to achieving it. While the president has the means to transform the 420,000-vehicle non-postal fleet, he lacks direct legal authority over the independent USPS. The USPS, for its part, is nearing the end of its own autonomous process dating back to 2015 to award a contract or contracts worth up to $6 billion for its Next Generation Delivery Vehicle (NGDV). One of the options on the table is a gas-powered vehicle. Even though a postal electric vehicle (EV) would cost far less to operate and maintain, and provide substantial societal benefits from reduced carbon emissions and accelerated industry transformation, the gas guzzler’s lower upfront price may be hard for the USPS to resist.
This commentary looks at the merits of vehicle electrification, including for last-mile letter and package delivery; the institutional governance of USPS; and the financial challenges USPS is facing. It identifies three policy actions Congress or the Biden administration could take to level the procurement playing field—allowing USPS to choose its NGDV based on a comparison of life-cycle costs—while insulating the contracting process and protecting USPS’s independent status. These actions could plug what would otherwise be a massive hole in the administration’s all-EV plans.
The stakes are high. USPS is nearly as old as our nation, and throughout American history, the desire for speedy mail delivery has shaped the development of the country’s infrastructure and transportation system—from the constitutionally authorized construction of post roads to the Post Office’s use of airmail contracts to jump-start the commercial aviation industry. Electric vehicles—and electricity—are the next frontier. If in making its once-in-a-generation vehicle choice, USPS opts to forego this once-in-a-century innovation and instead tie the agency to fossil fuel for the next 30 years, it would be a damaging lapse in a 230-year history of innovation.
USPS’s Aging Fleet
USPS operates 225,000 vehicles, 140,000 of which are the boxy, right-hand-drive delivery trucks familiar to Americans. Grumman Aerospace Corporation (now Northrop Grumman) custom-built the appropriately named Long Life Vehicle (LLV) between 1987 and 1994 using a truck chassis that Chevrolet stopped making years ago. Although the LLV has been a reliable workhorse for decades, the aging vehicles have become increasingly expensive to operate and maintain. Dubbed “Last Leg Vehicles” by wags in USPS, LLVs get only about eight miles per gallon of fuel, and in 2019, USPS spent an eye-popping $5,000 per vehicle, on average, to maintain the trucks, contributing to the steady increase in the cost of USPS’s “last-mile” delivery network. LLVs lack air conditioning and critical safety features such as antilock brakes and airbags, and in recent years, hundreds of the vehicles have burst into flames while in use.
USPS launched its process to replace the iconic LLV in 2015. It solicited proposals from 15 pre-qualified suppliers and contracted with six of them to build and test 44 prototype vehicles in multiple regions and climates, repeatedly delaying the schedule to give the suppliers time to address deficiencies. Several of the suppliers dropped out, reportedly leaving just three in contention for the production contract, worth as much as $6.3 billion, to manufacture 180,000 vehicles. According to press reports (which may not be accurate, because the underlying information is procurement-sensitive), each of the companies competing for the contract has proposed a different powertrain option: battery electric (Workhorse), plug-in hybrid electric (Karsan/Morgan Olson), and internal combustion (Oshkosh/Ford). USPS has said it might split the contract among several of the bidders. In early December, shortly before it was scheduled to announce the results of the procurement, USPS delayed the decision until March.
Last-Mile Delivery: The Ideal Use-Case for an EV
Electrification of light- and medium-duty vehicles is inevitable given the advantages of electric propulsion. Automakers long ago began using electricity to power vehicle subsystems such as steering and braking, because of the reduced cost and weight and the greater reliability of electric motors and digital technology. Electrification of propulsion produces many of these same benefits, as transmissions, mechanical drivelines, and internal combustion engines (ICE) are replaced by lighter and more reliable electric motors and components. These improvements, together with the ability to capture energy from braking, add up to significantly greater energy efficiency. Vehicle owners benefit from the reduced cost of operation and maintenance (O&M), and society benefits from the immediate elimination of tailpipe emissions and the gradual reduction in carbon emissions as the electricity grid is decarbonized.
Last-mile mail and package delivery is particularly well suited to electric propulsion. LLVs’ low daily mileage—they travel only 22 miles per day on average, and 84 percent travel less than 32 miles a day—reduces the requirements for battery size. And because most mail trucks are centrally parked at night, they can take advantage of workplace charging stations—including smaller, slower chargers—during the hours when electricity rates are lower. Electric propulsion systems are more compact, freeing up space inside the vehicle for cargo and ergonomic features. Finally, the stop-and-go nature of local delivery—LLVs average 500 stops a day—is ideal for vehicles that harvest energy through regenerative braking. Conversely, ICE vehicles are least efficient and most polluting when traveling at slow speeds, with frequent starting and stopping.
Although the upfront cost of an electric LLV replacement is likely higher than that of its ICE counterpart given the current price of batteries, the significant long-term savings in O&M would almost certainly result in a lower life-cycle cost (total cost of ownership, or TCO). EV sedans are already beginning to reach parity with comparable ICE vehicles on TCO, as the price of batteries continues to fall, and larger EVs are not far behind in the race for TCO parity. One indication of the changing economics comes from Amazon, which is both USPS’s competitor and its biggest customer. It recently ordered 100,000 custom-designed electric delivery vans from EV startup Rivian. The United Parcel Service (UPS), for its part, has agreed to buy 10,000 custom electric trucks from London-based startup Arrival that will be manufactured in the United States.
USPS as a Longtime Trailblazer
The USPS’s NGDV decision represents a $6 billion opportunity for the federal government to show leadership on climate and clean energy innovation. No other federal procurement action on the horizon comes close in its potential impact. Electrification of the postal fleet would generate large spillover benefits for the environment, by reducing the emission of carbon dioxide and other pollutants. Although any of the candidate vehicles would be a big improvement over LLVs in this regard, the lifetime carbon footprint of EVs would be far smaller. An electric NGDV would contribute to the innovation ecosystem as well. According to a 2016 task force on federal energy management of which the author was a member, EV adoption by USPS and other federal agencies would send a strong signal to the market, helping to drive EV technology, boost the domestic supply chain, and support the needed charging infrastructure. And as the most popular agency in the federal government—one that tens of millions of Americans interact with daily—USPS can serve as a powerful and highly visible example of clean energy technology at work.
This vanguard role would be nothing new for USPS. Throughout American history it has had a profound impact on the development of our country’s infrastructure and transportation system. The earliest postal carriers traveled by horseback along a system of post roads that the Constitution authorized the federal government to create, and as horse-drawn vehicles began to replace post riders, the Post Office granted contracts to stagecoach lines to help link Eastern communities with the expanding frontier. Air transportation from its infancy was intimately involved with postal delivery, and the Post Office used airmail contracts to jump-start and shape this country’s commercial air transport industry. USPS is currently experimenting with using self-driving trucks to carry letters and packages across state lines.
Policymaker Interest in Electrification of the Postal Fleet
Not surprisingly, policymakers have shown considerable interest in the USPS fleet procurement process. In his executive order on “Tackling the Climate Crisis,” President Biden codified his call to electrify the entire federal fleet and gave federal agencies 90 days to create a plan to do so.
An earlier post by this author looked at how the Biden administration can accelerate that transformation for the 420,000 vehicles in the non-USPS fleet. The postal fleet presents a different set of challenges for the White House because, by law, the president has no direct authority over the politically independent USPS. The president does have a substantial indirect influence, through the appointment of members to the Postal Regulatory Commission (an independent agency that focuses largely on USPS pricing) and the USPS Board of Governors. The board, in turn, is responsible for hiring and firing the postmaster general and deputy postmaster general, exercising fiduciary oversight of USPS’s financial health, and providing strategic direction. Currently, only six of the nine seats on the board are filled, and all six governors, including the chairman, were appointed by President Trump, although two of them are Democrats. Because the appointments require Senate confirmation, it may take time for President Biden to fill the three vacancies and give Democrats the majority needed to control the board.
Congress can exercise more direct oversight of USPS. The House of Representatives last summer showed its support for electrification of the postal fleet by authorizing $25 billion for the USPS to modernize its infrastructure and operations. The bill reserved $6 billion for the NGDV procurement—but it made the funds available to USPS only if 75 percent of the vehicles acquired were EVs. The Senate, however, failed to take up the measure, which was included in a $1.5 trillion infrastructure bill.
USPS’s Financial Challenges
The NGDV procurement is taking place as USPS faces an evolving financial situation. In the short-term, the agency is operationally solvent, even though it gets almost no annual federal funding (USPS differs from Amtrak in both of these respects). While revenue from first class mail, on which USPS has a monopoly, has been ravaged by the growth of email and digital communication, the increase in USPS’s package delivery business—including the provision of last-mile services for online sellers like Amazon—has offset a sizable share of those losses. USPS ended Fiscal Year (FY) 2020 with $2 billion more in revenue than the prior year—expenses were up only slightly more than that—as a result of the COVID-driven surge in e-commerce.
While it will not run out of money anytime soon, USPS faces long-term financial liabilities for pension and retiree health benefits. At the end of FY 2019, the USPS had $161 billion in unfunded obligations, and it had missed (i.e., defaulted on) $55 billion in post-employment benefit payments since 2011. There is bipartisan support for repealing a 2006 requirement that USPS, unlike other U.S. employers, prefund its retiree health benefits. However, stakeholders have been unable to agree on the elements of a broader package of reforms that would allow USPS to maintain its self-financing business model (e.g., dropping Saturday mail delivery, allowing rates on first-class mail to go up by more than the consumer price index, getting into new lines of business, incorporating more work sharing by mailers, and instituting labor reforms to reduce operating costs).
USPS’s financial challenges led to high-stakes political drama in 2020 as cost-cutting moves by the new postmaster general threatened the agency’s ability to deliver mail-in ballots, and as President Trump tried to force USPS to hike its package delivery rates—despite the lack of a business case for doing so—in an apparent attempt to harm rival Jeff Bezos, the CEO of Amazon and owner of the Washington Post. The $2 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act provided the USPS with only a $10 billion line of credit from the Treasury Department—far less than what USPS requested—and at the Trump administration’s insistence, the loan was conditioned on USPS compliance with terms to be set by the Secretary of Treasury. To date, USPS had not drawn upon any of these funds.
As the “G” in NGDV indicates, the choice of a replacement for the LLV is a once-in-a-generation decision. The risk is that, given its precarious financial standing, USPS will opt for a gas-powered vehicle because of its lower upfront cost, as opposed to an electric vehicle, with its lower life-cycle cost.
To address this risk, Congress could encourage USPS to consider alternatives to outright purchase such as leasing and energy-as-a-service arrangements. For example, the EV battery—distinct from the vehicle—could be acquired under an operating lease. This would significantly reduce the upfront cost of the EV and also allow USPS to swap in new batteries periodically, taking advantage of the rapid improvements in battery performance and costs. The charging equipment needed for EVs also could be leased from a utility or other entity whose job it would be to install and maintain the EV chargers and manage the charging process, including selling power back to the grid during high-demand periods. (Under any arrangement, the equipment might also be made available to other federal agencies and even to private individuals, creating another revenue stream for USPS.) Although in present value terms, alternative financing is almost always more expensive than outright purchase, the benefits may outweigh the costs in this case.
A second option would take advantage of the Trump administration’s misguided effort to use USPS to get at Jeff Bezos. In its December 2020 omnibus appropriations and stimulus bill, Congress converted the $10 billion loan to the USPS to direct aid. However, contrary to press reports, the language in the CARES Act, which required USPS to agree to terms set by the Treasury Department to utilize the funds, appears to remain in effect. If so, the Treasury Secretary could simply tell USPS the $10 billion can be used only for the procurement of EVs. USPS would be free to accept or reject the Treasury’s conditions and the use of the funds. This is a potentially powerful option that would allow the Biden administration to act quickly and without congressional approval. The drawback is that—even though it would be motivated by sound public policy considerations—it might be seen as replacing one kind of partisan intrusion with another. (One analyst has warned of USPS being whipsawed like a child in a nasty custody case.)
A third option would take a cue from the House approach and at the same time treat NGDV as the giant infrastructure project it is. The Biden administration could include an appropriations request for a postal fleet upgrade, including the charging equipment, in the infrastructure portion of its forthcoming recovery package. The funds would be conditioned on terms similar to those in last year’s House infrastructure bill: they would be available to USPS only if a large fraction of the vehicles acquired were EVs. The option to use such funding would allow USPS to make its NGDV decision based on a comparison of life-cycle costs, in effect leveling a procurement playing field that, for now, tilts substantially toward upfront cost. Because the USPS Board of Governors would be under no obligation to accept the funds, this approach arguably would not interfere with the NGDV contracting process or otherwise compromise the agency’s independent status.
Energy is central to USPS’s 230-year history of innovation. This history is generally described in terms of the evolving transportation modes the USPS has fostered and employed to deliver mail: pony, stagecoach, locomotive, truck, airplane. But it can also be seen as an evolution in power sources: manpower, horsepower, steam, internal combustion, jet turbine.
Electric vehicles—and electricity—are the next frontier. As energy writer David Roberts has argued, the principle of durability USPS has stressed in the NGDV selection process should apply not only to the trucks but to the technology platform on which they are built. “Does the USPS really want to tie itself to gasoline and diesel for the next 30 years?” he asked. “Does it want to gamble that ICE vehicles will still be viable in 2050?”
America’s first postmaster general, Benjamin Franklin, famously demonstrated the electrical nature of lightning using a kite and conductive rods. In 1956, the Post Office marked the 250th anniversary of Franklin’s birth by issuing a three-cent stamp based on a painting by Benjamin West, “Benjamin Franklin Drawing Electricity from the Sky,” which depicts Franklin’s kite experiment. If America’s polymath founding father were the postmaster general today, is there any doubt which powertrain he would choose for the NGDV?