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California Appeals Court Affirms Rate Caps and Fee Limitations for Prison Telecoms

by Douglas Ankney

On February 1, 2023, the California Court of Appeal, Second Appellate Division, affirmed the denial by the state Public Utility Commission (PUC) of challenges to rate caps and fee limitations brought by Securus Technologies LLC (Securus) and Network Communications International Corporation (NCIC) over their contracts in the state’s prisons and jails.

In 2012, the Federal Communications Commission (FCC) began regulating incarcerated person calling services (IPCS) due to the lack of competition among providers. By 2016, the FCC had adopted regulations capping per-minute rates at 13 cents in prisons and in jails a range of 19-31 cents, depending on the average daily population (ADP). Caps were also placed on automated payment fees – at $3.00 per transaction – and “live-agent” fees at $5.95 per transaction, as well as fees for paper statements at $2.00 each. IPCS providers were also prohibited from adding any fee to that charged by third-party financial institutions for processing single-call transactions, usually when the recipient of a collect call from a prisoner does not have an account with the IPCS provider at that facility.

However, the caps on intrastate calls were voided when the U.S. Court of Appeals for the D.C. Circuit ruled the FCC had exceeded its statutory authority in Global Tel*Link v. FCC, 866 F.3d 397 (D.C. Cir. 2017). The caps on interstate calls were also voided for being premised on bad math or incorrect legal conclusions in Securus Techs., Inc. v. FCC, 2017 U.S. App. LEXIS (D.C. Cir. 2017).

By May 2021, the FCC had issued new rules. IPCS providers could recover the cost of site commissions at a per-minute rate of no more than two cents, and the rate for interstate and international calls was capped at 12 cents in prisons and 14-21 cents in jails, depending on their size. [See: PLN, Sep. 2021, p.12.]

Acknowledging that the overwhelming majority of calls made from prisons and jails are intrastate calls, the FCC urged its state partners to “take action to address” the IPCS providers’ “egregiously
high intrastate rates across the country.”

In response, PUC filed a Scoping Memo and Ruling pursuant to Public Utilities Code §1701.1. Phase I required expedited action by PUC in light of the COVID-19 pandemic to “address whether and how the PUC should provide immediate interim relief to meet the inmate communication service needs of incarcerated people and their families at just and reasonable rates.” Then, “in Phase II, the PUC would consider other matters relating to the regulation of IPCS,” including, “setting of rate caps” and holding “evidentiary hearings as needed to resolve issues of material fact.”

In April 2021, after PUC Communication Division Staff proposed the immediate adoption of the FCC’s rate caps and restrictions on ancillary fees, parties were invited to comment. More comments were invited in July 2021 after PUC released a proposed decision adopting relief.

Then on August 23, 2021, PUC issued Decision No. 21-08-037, finding “that IPCS providers charge widely varying and, in some cases, excessively high prices in California for the same services, resulting in unjust and unreasonable rates.”

The agency further found that providers “operate locational monopolies” and that they “use their monopoly status within facilities to exercise market power.”

Interim Rate Cap of Seven Cents Per Minute

PUC then ordered interim per-minuterate caps of seven cents on intrastate debit, prepaid, and collect calls. It also prohibited extra fees for making a single call, getting a printed bill or talking to a live agent, as well as automated payment fees. ICPS providers are also mandated to pass through, without any mark up, government taxes and fees and third-party financial transaction fees, which are limited to $6.95 per transaction.

No other type of ancillary fee or service is allowed that is not explicitly approved by the PUC Decision. The rules apply to intrastate calls and those considered “jurisdictionally mixed” because an IPCS provider cannot determine the location of the call recipient. IPCS providers had 45 days to submit proof of compliance.

PUC arrived at its cap by taking notice of the contract between the state Department of Correction and Rehabilitation (CDCR) and Global Tel*Link (GTL), which provides IPCS throughout CDCR facilities at two-and-a-half cents per minute. Relying on data from the FCC, PUC learned that IPCS costs at jails could be 25% higher than in prisons. Extrapolating from the CDCR/GTL contract, PUC determined a per-minute rate of 3.1 cents should be sufficient to for most jails in California; however, as an added safeguard, PUC allotted five cents per minute, reasoning it would be “highly unlikely” that the costs incurred at a jail would be more than double the costs incurred at the state prison facilities.

Additionally, while Senate Bill 81 had prohibited site commissions at CDCR facilities, some counties continued to rely on site commissions to pay for rehabilitation programs. Therefore, PUC allotted another two cents per minute for those, yielding a total of seven cents per minute to enable the IPCS providers to recover the cost of site commissions.

PUC acknowledged that its rate was comparable with other states. While New Jersey law permitted eleven cents per minute, that state’s Department of Corrections (DOC) posted a lower rate of 4.4 cents. Illinois law permitted seven cents per minute, but the Illinois DOC posted a rate of 0.9 cents per minute. In New York City Jails, where calls are free to prisoners and their families, the city pays three cents per minute. Further, according to the California Public Advocates Office, nearly 40% of jails in the state had rates of five cents per minute or less.

As to eliminating ancillary fees, PUC considered evidence that 15 state prison systems had eliminated automated payment/deposit fees entirely. GTL did not impose the fee on those incarcerated by CDCR. But Prison Policy Initiative (PPI) documented one IPCS provider charging both a $3.00 automated payment fee and passing through payment card processing fees. During the public comments period, PUC “heard significant confusion and customer complaints about IPCS ancillary fees ... making clear that the current ancillary fees are a major burden to families of the incarcerated as they strive to stay in communication with their loved ones.”

Securus and NCIC made numerous objections and petitioned for a rehearing of the PUC Decision. When that request was denied, they petitioned the Court of Appeal for writ of review. PUC and PPI, as a real party in interest, filed answers to which Securus filed a Reply.

The Court’s review was governed by §1757(a) and limited to determining whether PUC exceeded its powers or jurisdiction or had not proceeded in the manner required by law. The Court also looked to see if the PUC decision is supported by the findings, which in turn must be supported by substantial evidence. The Court could also find the order “was procured by fraud” or “was an abuse of discretion” or “violate[d] any right of the petitioner under the Constitution of the United States or California Constitution.”

State Court of Appeal Makes Its Ruling

To begin, the Court noted that the state Supreme Court said in The Ponderosa Telephone Co. v. Public Utilities Com., 36 Cal.App.5th 999 (2019), that there is a “strong presumption” of correctness of PUC findings because it is a “constitutional body with broad legislative and judicial powers.”

The Court then summed up Securus’ first argument thusly: “By adopting a rate cap and prohibiting certain ancillary fees on an interim basis, the PUC improperly exceeded the scope of the issues to be decided in Phase I of the underlying proceeding” – in other words, that PUC “had not proceeded in a manner required by law.” It was true that the Scoping Memo stated that, in Phase II, PUC would consider whether
“[b]eyond providing interim relief, should the [PUC] set rate caps for intrastate [IPCS] to ensure rates that are just and reasonable, and affordable?” But nothing in that provision prohibited PUC from adopting temporary rate caps as a form of interim relief. Furthermore, the Scoping Memo anticipated interim rate caps, as the commissioner wrote: “Our work in Phase I will include examining the FCC’s adopted and prepared rate and fee caps as starting points to provide interim relief to ensure access to just and reasonable communication service rates for California inmates.”

With regard to Securus’ complaint that PUC failed to hold an evidentiary hearing pursuant to § 728, the Court said that nothing there mandated a formal evidentiary hearing. PUC had previously ruled that § 728 required only that a party be given opportunity to be heard in its Order Modifying Decision 12-05-037, 2013 WL 1837160 (Cal. P.U.C. April 18, 2013).

The Court said it gives “considerable deference to the PUC’s interpretation of section 728” in Pacific Gas & Electric Co. v. Public Utilities Com., 237 Cal.App.4th 812 (2015). Moreover, Securus had participated extensively in Phase I discussions and at no time was a formal evidentiary hearing requested. When a party has opportunity to request a hearing and fails to do so, the hearing is forfeited, the Court said, pointing to California Trucking Association v. Public Utilities Com., 19 Cal.3d 240 (1977).

Securus also complained that PUC could not reach a proper conclusion about rate caps because it did not solicit cost data from Securus and other IPCS providers. The Court observed that it found no authority, nor did Securus provide any, supporting the proposition that the burden was on PUC to solicit cost data. And the Court rejected Securus’ argument that it did not provide cost data to the PUC because the Scoping Memo indicated such evidence would not be accepted until Phase II. Nothing in the Scoping Memo even hinted that PUC would not consider any evidence during Phase I, the Court noted. Furthermore, other parties supplied cost data and analysis which Securus had argued was incorrect and incomplete yet failed to provide any evidence of its own. As the record showed, PUC’s conclusions regarding its interim rate cap and prohibition of ancillary fees were supported by sufficient evidence.

The Court also rejected Securus’ argument that allowing for recovery of site commissions violated California Penal Code § 4025. That merely limited how site commissions could be spent, and it neither required any commissions to be collected nor specified any particular amount or rate.

Finally, PUC’s finding that IPCS providers in California operated locational monopolies and used their monopoly status to wield market power was well supported by the evidence, the Court said. The FCC had determined locational monopolies exist where “the location owner attempts to limit the entry of new competition to increase profitability and demand a share of the profits in the form of a locational rent or commission fee.”  The PUC Decision defined “market power” as “the ability of a company to sustain prices at levels above those a competitive market would produce.” In arriving at its conclusion, PUC found that the IPCS market consisted of two markets: the first market with providers competing for the right to provide IPCS at the facility and the second market where the incarcerated purchase the IPCS from providers. Since the providers who charged the highest rates and fees could afford to pay the highest in site commissions, the competition in the first market may actually result in higher rates and fees in the second market, the Court noted.

Identifying Securus as one of six IPCS providers in California, the Court explained that “[i]ncarceration facilities typically limit provision of IPCS within a facility to one provider and often collect site commission fees for their own purposes pursuant to Penal Code section 4025. Thus, incarcerated people are effectively a captive customer class who have no choice in service provider and the end result is that there are no reasonably available substitutes for incarcerated persons and their families to choose from.”

Thus, the Court concluded that Securus had failed to sustain any claim under the six factors of § 1757(a). Accordingly, it affirmed PUC Decision 21-08-037.

NCIC said its costs could soon exceed its revenue and maintained that the rate cap should not apply to any facility with an ADP of less than 1,000. But Paul Goodman, legal counsel for Center for Accessible Technology, said “[t]he Commission properly found that providers could not refuse to turn over information about their actual costs of providing service, and then argue that the ample evidence provided by other parties about the costs of providing service were insufficiently reliable.”

Stephen Raher, general counsel for PPI, believes that PUC “made the right decision” and said “[t]he best thing for parties, consumers, and correctional facilities is to move forward with the next phase of this proceeding. There is plenty of work remaining to be done, and we will continue to press for rate justice for all types of correctional telecommunications services.”

See: Securus Techs., LLC v. Pub. Utils. Com., 88 Cal. App. 5th 787 (2023).