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U.S. Postal Service Doesn't Have To Reduce Service To Save Money, Regulator Says

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* Postal regulator says plan would save less than USPS projects

* USPS could save about as much without changing delivery - PRC

WASHINGTON, Sept 28 (Reuters) - The U.S. Postal Service's regulator on Friday questioned the potential savings from a plan to shut mail processing sites and slow mail delivery, saying the mail agency could save about the same amount without making major changes to delivery times.

The Postal Service plans to close nearly half its mail processing sites over the next few years, part of its response to tumbling mail volumes as Americans use email more.

But postal officials' assumption that the best response to lower volume was to slow delivery caused it to overlook other cost-cutting options, the Postal Regulatory Commission said in a non-binding opinion.

"The commission's range of potential net savings estimates is lower than that projected by the Postal Service," according to the advisory opinion.

"The vast majority of mail processing savings that the Postal Service expects to attain can be captured without significantly changing service," the PRC said.

The critique is the latest backlash to the Postal Service's cost-cutting ideas. Lawmakers from rural communities, as well as big mailers, have pushed back against plans to close facilities. A Postal Service plan to close thousands of post offices was derailed earlier this year.

The Postal Service says it no longer handles enough mail to justify its current number of facilities and workers.

In May, the mail agency said it would consolidate 140 of its 461 processing sites by February 2013, with more to follow. The plan involved shrinking the area where customers can expect mail to be delivered the next day, with the eventual expectation that delivery would slow further.

The PRC opinion said that at most, that plan would save about $2 billion, slightly less than the Postal Service has projected. But if the move depleted mail volumes by driving advertisers and other mailers online, savings would be much lower, the PRC said.

It also said the Postal Service focused on moving processing from small plants to large ones, but the PRC found that it could save more by looking at productivity rather than size.

Using a model that would close the less productive sites first, the PRC said the USPS could save about $1.8 billion with minimal revenue loss and fewer changes to delivery times.

The Postal Service said when it announced the plan that its second phase of closings and service changes would begin in early 2014. The PRC recommended the USPS use that time to study the initial changes and consider other cost-cutting options.

A Postal Service spokeswoman said the agency is reviewing the advisory opinion.

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