Rule2021-14730
Rates for Interstate Inmate Calling Services
Primary source
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Published
July 28, 2021
Effective
October 26, 2021
Issuing agencies
Federal Communications Commission
Abstract
In this document, the Federal Communications Commission (Commission) reforms its rules for inmate calling services by taking the following steps. The Commission eliminates a separate rate cap for collect calling. The Commission lowers the interim interstate rate caps to $0.12 for prisons and $0.14 for jails with an average daily population of 1,000 or more incarcerated people. The Commission reforms the current treatment of site commission payments to permit recovery only of the portions of such payments related specifically to calling services and requires them to be separately listed on bills. Site commission payments that are legally mandated may be passed through to consumers, without any markup, and site commission payments that result from contractual obligations between facilities and providers are recoverable only up to $0.02 per minute for both prisons and jails with average daily populations of 1,000 incarcerated people or more. The Commission caps, for the first time, international calling rates at the applicable total interstate rate cap, plus the amount paid by the calling services provider to its underlying wholesale carriers for completing international calls. The Commission adopts a process for providers to follow when seeking waivers of the rate caps for interstate and international calling services; reforms the ancillary service third-party transaction fee caps for calls that are billed on a single per-call basis and charges for transferring or processing third- party financial transactions; adopts a new mandatory data collection; and reaffirms providers' obligations regarding functionally equivalent access for incarcerated people with hearing and speech disabilities, delegating authority to its Consumer and Governmental Affairs Bureau (CGB) to undertake a separate data collection to help the Commission resolve critically important disability access issues.
Full Text
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[Federal Register Volume 86, Number 142 (Wednesday, July 28, 2021)]
[Rules and Regulations]
[Pages 40682-40755]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2021-14730]
[[Page 40681]]
Vol. 86
Wednesday,
No. 142
July 28, 2021
Part II
Federal Communications Commission
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47 CFR Part 64
Rates for Interstate Inmate Calling Services; Final Rule
Federal Register / Vol. 86 , No. 142 / Wednesday, July 28, 2021 /
Rules and Regulations
[[Page 40682]]
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FEDERAL COMMUNICATIONS COMMISSION
47 CFR Part 64
[WC Docket No. 12-375, FCC 21-60; FRS 35683]
Rates for Interstate Inmate Calling Services
AGENCY: Federal Communications Commission.
ACTION: Final rule.
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SUMMARY: In this document, the Federal Communications Commission
(Commission) reforms its rules for inmate calling services by taking
the following steps. The Commission eliminates a separate rate cap for
collect calling. The Commission lowers the interim interstate rate caps
to $0.12 for prisons and $0.14 for jails with an average daily
population of 1,000 or more incarcerated people. The Commission reforms
the current treatment of site commission payments to permit recovery
only of the portions of such payments related specifically to calling
services and requires them to be separately listed on bills. Site
commission payments that are legally mandated may be passed through to
consumers, without any markup, and site commission payments that result
from contractual obligations between facilities and providers are
recoverable only up to $0.02 per minute for both prisons and jails with
average daily populations of 1,000 incarcerated people or more. The
Commission caps, for the first time, international calling rates at the
applicable total interstate rate cap, plus the amount paid by the
calling services provider to its underlying wholesale carriers for
completing international calls. The Commission adopts a process for
providers to follow when seeking waivers of the rate caps for
interstate and international calling services; reforms the ancillary
service third-party transaction fee caps for calls that are billed on a
single per-call basis and charges for transferring or processing third-
party financial transactions; adopts a new mandatory data collection;
and reaffirms providers' obligations regarding functionally equivalent
access for incarcerated people with hearing and speech disabilities,
delegating authority to its Consumer and Governmental Affairs Bureau
(CGB) to undertake a separate data collection to help the Commission
resolve critically important disability access issues.
DATES: This rule is effective October 26, 2021. Amendatory instructions
5 and 6, concerning Sec. Sec. 64.6110 and 64.6120, respectively, are
delayed indefinitely. The Federal Communications Commission will
publish a document in the Federal Register announcing the effective
date for the amendment to Sec. 64.6110 and the addition of Sec.
64.6120.
The delegations of authority to the Wireline Competition Bureau
(WCB), the Office of Economics and Analytics (OEA), and CGB (see
section III.H.3 of SUPPLEMENTARY INFORMATION) are effective on July 28,
2021.
ADDRESSES: Federal Communications Commission, 45 L Street NE,
Washington, DC 20554.
FOR FURTHER INFORMATION CONTACT: Michael Scott, Disability Rights
Office of the Consumer and Governmental Affairs Bureau, at (202) 418-
1264 or via email at <a href="/cdn-cgi/l/email-protection#adc0c4cec5ccc8c183decec2d9d9edcbcece83cac2db"><span class="__cf_email__" data-cfemail="fa979399929b9f96d48999958e8eba9c9999d49d958c">[email protected]</span></a> regarding portions of the
Third Report and Order relating specifically to the provision of
communications services to incarcerated people with hearing and speech
disabilities and Simon Solemani, Pricing Policy Division of the
Wireline Competition Bureau, at (202) 418-2270, or via email at
<a href="/cdn-cgi/l/email-protection#c596aca8aaabeb96aaa9a0a8a4abac85a3a6a6eba2aab3"><span class="__cf_email__" data-cfemail="8ad9e3e7e5e4a4d9e5e6efe7ebe4e3caece9e9a4ede5fc">[email protected]</span></a> regarding other portions of the Report and
Order.
SUPPLEMENTARY INFORMATION: The amendment to Sec. 64.6110 and the
addition of Sec. 64.6120 are delayed pending OMB approval. The Federal
Communications Commission will publish a document in the Federal
Register announcing the effective date for these amendments.
This is a summary of the Commission's Third Report and Order, FCC
21-60, released May 24, 2021. This summary is based on the public
redacted version of the document, the full text of which can be
obtained from the following internet address: <a href="https://docs.fcc.gov/public/attachments/FCC-21-60A1.pdf">https://docs.fcc.gov/public/attachments/FCC-21-60A1.pdf</a>.
Synopsis
I. Introduction
1. Unlike virtually everyone else in the United States,
incarcerated people have no choice in their telephone service provider.
Instead, their only option typically is to use a service provider
chosen by the correctional facility, and once chosen, that service
provider typically operates on a monopoly basis. Egregiously high rates
and charges and associated unreasonable practices for the most basic
and essential communications capability--telephone service--impedes
incarcerated peoples' ability to stay connected with family and loved
ones, clergy, and counsel, and financially burdens incarcerated people
and their loved ones. Never have such connections been as vital as they
are now, as many correctional facilities have eliminated in-person
visitation in response to the COVID-19 pandemic.
2. In August 2020, the Commission unanimously adopted the Fourth
Further Notice of Proposed Rulemaking (2020 ICS FNPRM) proposing to
reduce interstate rates and, for the first time, to cap international
rates. Today, the Commission moves forward as proposed, lowering
interstate rates and charges for the vast majority of incarcerated
people, limiting international rates for the first time, and making
other reforms to its rules.
3. Specifically, the Report and Order:
<bullet> Lowers the interstate interim rate caps of $0.21 per
minute for debit and prepaid calls from prisons and jails with 1,000 or
more incarcerated people to new lower interim caps of $0.12 per minute
for prisons and $0.14 per minute for larger jails.
<bullet> Reforms the current treatment of site commission payments
to permit recovery only of the portions of such payments related
specifically to calling services and requires them to be separately
listed on bills.
[cir] Where site commission payments are mandated by federal,
state, or local law, providers may pass these payments through to
consumers, without any markup, as an additional component of the new
interim interstate per-minute rate caps.
[cir] Where site commission payments result from contractual
obligations or negotiations with providers, providers may recover from
consumers no more than the $0.02 per minute for prisons and $0.02 per
minute for larger jails, as proposed in the 2020 ICS FNPRM.
[cir] Therefore, consistent with the proposal in the 2020 ICS
FNPRM, the maximum total interstate rate caps are $0.14 per minute for
prisons and $0.16 per minute for jails with 1,000 or more incarcerated
people.
<bullet> Eliminates the current interim interstate collect calling
rate cap of $0.25 per minute resulting in a single uniform interim
interstate maximum rate cap of $0.21 per minute for all calls for all
facilities, consistent with the proposal in the 2020 ICS FNPRM.
<bullet> Caps, for the first time, international calling rates at
the applicable total interstate rate cap, plus the amount paid by the
calling services provider to its underlying wholesale carriers for
completing international calls, consistent with the 2020 ICS FNPRM.
<bullet> Reforms the ancillary service third-party transaction fee
caps for (1) calls that are billed on a single per-call basis, and (2)
charges for transferring or
[[Page 40683]]
processing third-party financial transactions, as proposed in the 2020
ICS FNPRM.
<bullet> Adopts a new mandatory data collection to obtain more
uniform cost data based on consistent prescribed allocation
methodologies to determine reasonable permanent cost-based rate caps
for facilities of all sizes, as suggested in the 2020 ICS FNPRM.
<bullet> Reaffirms providers' obligations regarding functionally
equivalent access for incarcerated people with hearing and speech
disabilities, consistent with the 2020 ICS FNPRM and federal law.
4. The Commission expects today's actions to have immediate
meaningful and positive impacts on the ability of incarcerated people
and their loved ones to satisfy our universal, basic need to
communicate. Although the Commission uses various terminology
throughout this item to refer to the intended beneficiaries of the
actions herein, unless context specifically indicates otherwise, these
beneficiaries are broadly defined as the people placing and receiving
inmate calling services (ICS) calls, whether they are incarcerated
people, members of their family, or other loved ones and friends. The
Commission also may refer to them, generally, as consumers.
II. Background
5. Access to affordable communications services is critical for
everyone in the United States, including incarcerated members of our
society. Studies have long shown that incarcerated people who have
regular contact with family members are more likely to succeed after
release and have lower recidivism rates. Because correctional
facilities generally grant exclusive rights to service providers,
incarcerated people must purchase service from ``locational
monopolies'' and subsequently face rates far higher than those charged
to other Americans.
A. Statutory Background
6. The Communications Act of 1934, as amended (Communications Act
or Act) divides regulatory authority over interstate, intrastate, and
international communications services between the Commission and the
states. Section 2(a) of the Act empowers the Commission to regulate
``interstate and foreign communication by wire or radio.'' This
regulatory authority includes ensuring that ``[a]ll charges, practices,
classifications, and regulations for and in connection with''
interstate or international communications services are ``just and
reasonable'' in accordance with section 201(b) of the Act. Section
201(b) also provides that ``[t]he Commission may prescribe such rules
and regulations as may be necessary in the public interest to carry
out'' these provisions.
7. Section 2(b) of the Act preserves states' jurisdiction over
``charges, classifications, practices, services, facilities, or
regulations for or in connection with intrastate communication
service.'' The Commission is thus ``generally forbidden from entering
the field of intrastate communication service, which remains the
province of the states.'' Stated differently, section 2(b) ``erects a
presumption against the Commission's assertion of regulatory authority
over intrastate communications.''
8. Section 276 of the Act directs the Commission to prescribe
regulations that ensure that payphone service providers, including
inmate calling services providers, ``are fairly compensated for each
and every completed intrastate and interstate call using their
payphone.'' Although the Telecommunications Act of 1996 (1996 Act)
amended the Act and ``chang[ed] the FCC's authority with respect to
some intrastate activities,'' with respect to section 276, the U.S.
Court of Appeals for the District of Columbia Circuit has held that
``the strictures of [section 2(b)] remain in force.'' Accordingly, that
court concluded that section 276 does not authorize the Commission to
determine ``just and reasonable'' rates for intrastate calls, and that
the Commission's authority under that provision to ensure that
providers ``are fairly compensated'' both for intrastate and interstate
calls does not extend to establishing rate caps on intrastate services.
B. History of Commission Proceedings Prior to 2020
9. In 2003, Martha Wright and her fellow petitioners, current and
former incarcerated people and their relatives and legal counsel
(Wright Petitioners), filed a petition seeking a rulemaking to address
``excessive'' inmate calling services rates. The petition sought to
prohibit exclusive inmate calling services contracts and collect-call-
only restrictions in correctional facilities. In 2007, the Wright
Petitioners filed an alternative petition for rulemaking in which they
emphasized the urgency of the need for Commission action due to
``exorbitant'' inmate calling services rates. The Wright Petitioners
proposed benchmark rates for interstate long distance inmate calling
services calls and reiterated their request that providers offer debit
calling as an alternative option to collect calling. The Commission
sought and received comment on both petitions.
10. In 2012, the Commission commenced an inmate calling services
rulemaking proceeding by releasing the 2012 ICS FNPRM seeking comment
on, among other matters, the proposals in the Wright Petitioners'
petitions and whether to establish rate caps for interstate inmate
calling services calls.
11. In the 2013 ICS Order, in light of record evidence that rates
for calling services used by incarcerated people greatly exceeded the
reasonable costs of providing those services, the Commission adopted
interim interstate rate caps of $0.21 per minute for debit and prepaid
calls and $0.25 per minute for collect calls. Under the Commission's
rules, ``Debit Calling'' means ``a presubscription or comparable
service which allows an Inmate, or someone acting on an Inmate's
behalf, to fund an account set up [through] a Provider that can be used
to pay for Inmate Calling Services calls originated by the Inmate.''
``Prepaid Calling'' means ``a presubscription or comparable service in
which a Consumer, other than an Inmate, funds an account set up
[through] a Provider of Inmate Calling Services. Funds from the account
can then be used to pay for Inmate Calling Services, including calls
that originate with an Inmate.'' ``Collect Calling'' means ``an
arrangement whereby the called party takes affirmative action clearly
indicating that it will pay the charges associated with a call
originating from an Inmate Telephone.'' In the First Mandatory Data
Collection, the Commission required all inmate calling services
providers to submit data on their underlying costs so that the agency
could develop permanent rate caps. In 2014, the Commission sought
comment on reforming charges for services ancillary to the provision of
inmate calling services and on establishing rate caps for both
interstate and intrastate calls. Ancillary service charges are fees
that providers assess on calling services used by incarcerated people
that are not included in the per-minute rates assessed for individual
calls.
12. The Commission adopted a comprehensive framework for interstate
and intrastate inmate calling services in the 2015 ICS Order, including
limits on ancillary service charges and permanent rate caps for
interstate and intrastate inmate calling services calls in light of
``egregiously high'' rates for inmate calling services calls. Because
of continued growth in the number and dollar amount of ancillary
service charges that inflated the effective price paid for inmate
calling services, the
[[Page 40684]]
Commission limited permissible ancillary service charges to only five
types and capped the charges for each: (1) Fees for Single-Call and
Related Services--billing arrangements whereby an incarcerated person's
collect calls are billed through a third party on a per-call basis,
where the called party does not have an account with the inmate calling
services provider or does not want to establish an account; (2)
Automated Payment Fees--credit card payment, debit card payment, and
bill processing fees, including fees for payments made by interactive
voice response, web, or kiosk; (3) Third-Party Financial Transaction
Fees--the exact fees, with no markup, that providers of calling
services used by incarcerated people are charged by third parties to
transfer money or process financial transactions to facilitate a
consumer's ability to make account payments via a third party; (4) Live
Agent Fees--fees associated with the optional use of a live operator to
complete inmate calling services transactions; and (5) Paper Bill/
Statement Fees--fees associated with providing customers of inmate
calling services an optional paper billing statement. The Commission
relied on sections 201(b) and 276 of the Act to adopt rate caps for
both interstate and intrastate inmate calling services. The Commission
relied on sections 201(b) and 276 of the Act to adopt rate caps for
both interstate and intrastate inmate calling services. The Commission
set tiered rate caps of $0.11 per minute for prisons; $0.14 per minute
for jails with average daily populations of 1,000 or more; $0.16 per
minute for jails with average daily populations of 350 to 999; and
$0.22 per minute for jails having average daily populations of less
than 350. The Commission calculated these rate caps using industry-wide
average costs based on data from the First Mandatory Data Collection
and stated that this approach would allow providers to ``recover
average costs at each and every tier.'' The Commission did not include
site commission payments in its permanent rate caps, finding these
payments were not costs reasonably related to the provision of inmate
calling services. The Commission also readopted the interim interstate
rate caps it had adopted in 2013, and extended them to intrastate
calls, pending the effectiveness of the new rate caps, and sought
comment on whether and how to reform rates for international inmate
calling services calls. At the same time, the Commission adopted a
Second Mandatory Data Collection to identify trends in the market and
form the basis for further reform as well as an annual filing
obligation requiring providers to report information on their current
operations, including their interstate, intrastate, and international
rates as well as their ancillary service charges.
13. In the 2016 ICS Reconsideration Order, the Commission
reconsidered its decision to entirely exclude site commission payments
from its 2015 permanent rate caps. The Commission increased those
permanent rate caps to account for claims that certain correctional
facility costs reflected in site commission payments are directly and
reasonably related to the provision of inmate calling services. The
Commission set the revised rate caps at $0.13 per minute for prisons;
$0.19 per minute for jails with average daily populations of 1,000 or
more; $0.21 per minute for jails with average daily populations of 350
to 999; and $0.31 per minute for jails with average daily populations
of less than 350.
C. Judicial Actions
14. In January 2014, in response to providers' petitions for review
of the 2013 ICS Order, the D.C. Circuit stayed the application of
certain portions of the 2013 ICS Order but allowed the Commission's
interim rate caps to remain in effect. Later that year, the court held
the petitions for review in abeyance while the Commission proceeded to
set permanent rates. In March 2016, in response to providers' petitions
for review of the 2015 ICS Order, the D.C. Circuit stayed the
application of the 2015 ICS Order's permanent rate caps and ancillary
service charge caps for Single Call Services while the appeal was
pending. Single-Call Services mean ``billing arrangements whereby an
Inmate's collect calls are billed through a third party on a per-call
basis, where the called party does not have an account with the
Provider of Inmate Calling Services or does not want to establish an
account.'' Later that month, the court stayed the application of the
Commission's interim rate caps to intrastate inmate calling services.
In November 2016, the D.C. Circuit also stayed the 2016 ICS
Reconsideration Order, pending the outcome of the challenge to the 2015
ICS Order.
15. In 2017, in GTL v. FCC, the D.C. Circuit vacated the permanent
rate caps adopted in the 2015 ICS Order. First, the panel majority held
that the Commission lacked the statutory authority to cap intrastate
calling services rates. The court explained that the Commission's
authority over intrastate calls is, except as otherwise provided by
Congress, limited by section 2(b) of the Act and nothing in section 276
of the Act overcomes this limitation. In particular, section 276
``merely directs the Commission to `ensure that all providers [of
calling services to incarcerated people] are fairly compensated' for
their inter- and intrastate calls,'' and it ``is not a `general grant
of jurisdiction' over intrastate ratemaking.'' The court noted that it
``need not decide the precise parameters of the Commission's authority
under Sec. 276.''
16. Second, the D.C. Circuit concluded that the ``Commission's
categorical exclusion of site commissions from the calculus used to set
[inmate calling services] rate caps defie[d] reasoned decision making
because site commissions obviously are costs of doing business incurred
by [inmate calling services] providers.'' The court noted that some
site commissions were ``mandated by state statute,'' while others were
``required by state correctional institutions'' and were thus also a
``condition of doing business.'' The court directed the Commission to
``assess on remand which portions of site commissions might be directly
related to the provision of [inmate calling services] and therefore
legitimate, and which are not.'' The court did not reach the providers'
remaining arguments ``that the exclusion of site commissions denies
[them] fair compensation under [section] 276 and violates the Takings
Clause of the Constitution because it forces providers to provide
services below cost.'' Instead, the court stated that the Commission
should address these issues on remand when revisiting the categorical
exclusion of site commissions. Judge Pillard dissented from this view,
noting that site commissions are not legitimate simply because a state
demands them.
17. Third, the D.C. Circuit held that the Commission's use of
industry-wide averages in setting rate caps was arbitrary and
capricious because it lacked justification in the record and was not
supported by reasoned decision making. Judge Pillard also dissented on
this point, noting that the Commission has ``wide discretion'' under
section 201 of the Act to decide ``which costs to take into account and
to use industry-wide averages that do not necessarily compensate `each
and every' call.'' More specifically, the court found the Commission's
use of a weighted average per-minute cost to be ``patently
unreasonable'' given that such an approach made calls with above-
average costs unprofitable and thus did ``not fulfill the mandate of
Sec. 276 that `each and every''' call be fairly compensated.
[[Page 40685]]
Additionally, the court found that the 2015 ICS Order ``advance[d] an
efficiency argument--that the larger providers can become profitable
under the rate caps if they operate more efficiently--based on data
from the two smallest firms,'' which ``represent[ed] less than one
percent of the industry,'' and that the Order did not account for
conflicting record data. The court therefore vacated this portion of
the 2015 ICS Order.
18. Finally, the court remanded the ancillary service charge caps.
The D.C. Circuit held that ``the Order's imposition of ancillary fee
caps in connection with interstate calls is justified'' given the
Commission's ``plenary authority to regulate interstate rates under
Sec. 201(b), including `practices . . . for and in connection with'
interstate calls.'' The court held that the Commission ``had no
authority to impose ancillary fee caps with respect to intrastate
calls.'' Because the court could not ``discern from the record whether
ancillary fees can be segregated between interstate and intrastate
calls,'' it remanded the issue so the Commission could determine
whether it could segregate ancillary fee caps on interstate calls
(which are permissible) and on intrastate calls (which are
impermissible). The court also vacated the video visitation annual
reporting requirements adopted in the 2015 ICS Order.
19. In December 2017, after it issued the GTL v. FCC opinion, the
D.C. Circuit in Securus v. FCC ordered the 2016 ICS Reconsideration
Order ``summarily vacated insofar as it purports to set rate caps on
inmate calling service'' because the revised rate caps in that 2016
Order were ``premised on the same legal framework and mathematical
methodology'' rejected by the court in GTL v. FCC. The court remanded
``the remaining provisions'' of that Order to the Commission ``for
further consideration . . . in light of the disposition of this case
and other related cases.'' As a result of the D.C. Circuit's decisions
in GTL and Securus, the interim rate caps that the Commission adopted
in 2013 ($0.21 per minute for debit/prepaid calls and $0.25 per minute
for collect calls) remain in effect for interstate inmate calling
services calls.
D. 2020 Rates and Charges Reform Efforts
20. 2020 ICS Order on Remand and FNPRM. In February 2020, the
Wireline Competition Bureau (Bureau or WCB) issued a public notice
seeking to refresh the record on ancillary service charges in light of
the D.C. Circuit's remand in GTL v. FCC. This Public Notice was
published in the Federal Register. In the Ancillary Services Refresh
Public Notice, the Bureau sought comment on ``whether each permitted
[inmate calling services] ancillary service charge may be segregated
between interstate and intrastate calls and, if so, how.'' The Bureau
also sought comment on any steps the Commission should take to ensure,
consistent with the D.C. Circuit's opinion, that providers of
interstate inmate calling services do not circumvent or frustrate the
Commission's ancillary service charge rules. The Bureau also defined
jurisdictionally mixed services as `` `[s]ervices that are capable of
communications both between intrastate end points and between
interstate end points' '' and sought comment on, among other issues,
how the Commission should proceed if any permitted ancillary service is
``jurisdictionally mixed'' and cannot be segregated between interstate
and intrastate calls.
21. In August 2020, the Commission adopted the 2020 ICS Order on
Remand and 2020 ICS FNPRM. The Commission responded to the court's
remands and took action to comprehensively reform inmate calling
services rates and charges. First, the Commission addressed the D.C.
Circuit's directive that the Commission consider whether ancillary
service charges--separate fees that are not included in the per-minute
rates assessed for individual inmate calling services calls--can be
segregated into interstate and intrastate components for the purpose of
excluding the intrastate components from the reach of the Commission's
rules. The Commission found that ancillary service charges generally
are jurisdictionally mixed and cannot be practicably segregated between
the interstate and intrastate jurisdictions except in the limited
number of cases where, at the time a charge is imposed and the consumer
accepts the charge, the call to which the service is ancillary is
clearly an intrastate call. As a result, the Commission concluded that
inmate calling services providers are generally prohibited from
imposing any ancillary service charges other than those permitted by
the Commission's rules, and providers are generally prohibited from
imposing charges in excess of the Commission's applicable ancillary
service fee caps.
22. Second, the Commission proposed rate reform of the inmate
calling services within its jurisdiction. As a result of the D.C.
Circuit's decisions, the interim interstate rate caps of $0.21 per
minute for debit and prepaid calls and $0.25 per minute for collect
calls that the Commission adopted in 2013 remain in effect today.
Commission staff performed extensive analyses of the data it collected
in the Second Mandatory Data Collection as well as the data in the
April 1, 2020, annual reports. In the 2015 ICS Order, the Commission
directed that the Second Mandatory Data Collection be conducted ``two
years from publication of Office of Management and Budget (OMB)
approval of the information collection.'' The Commission received OMB
approval in January 2017, and Federal Register publication occurred on
March 1, 2017. Accordingly, on March 1, 2019, inmate calling services
providers submitted their responses to the Second Mandatory Data
Collection. WCB and the Office of Economics and Analytics (OEA)
undertook a comprehensive analysis of the Second Mandatory Data
Collection responses, and conducted multiple follow-up discussions with
providers to supplement and clarify their responses, in order to
conduct the data analysis upon which the proposals in the August 2020
ICS FNPRM are based. Based on that analysis, the Commission proposed to
lower the interstate rate caps to $0.14 per minute for debit, prepaid,
and collect calls from prisons and $0.16 per minute for debit, prepaid,
and collect calls from jails. In so doing, the Commission used a
methodology that addresses the flaws underlying the Commission's 2015
and 2016 rate caps (which used industry-wide averages to set rate caps)
and that is consistent with the mandate in section 276 of the Act that
inmate calling services providers be fairly compensated for each and
every completed interstate call. The Commission's methodology included
a proposed 10% reduction in GTL's costs to account, in part, for
seemingly substantially overstated costs. The Commission also proposed
to adopt a waiver process that would permit providers to seek waivers
of the proposed rate caps on a facility-by-facility or contract basis
if the rate caps would prevent a provider from recovering the costs of
providing interstate inmate calling services at a facility or
facilities covered by a contract. The 2020 ICS FNPRM also proposed ``to
adopt a rate cap formula for international inmate calling services
calls that permits a provider to charge a rate up to the sum of the
inmate calling services provider's per-minute interstate rate cap for
that correctional facility plus the amount that the provider must pay
its underlying international service provider for that
[[Page 40686]]
call on a per-minute basis (without a markup).'' The Commission
explained that this cap ``would enable inmate calling services
providers to account for widely varying costs,'' be consistent with the
``just and reasonable' standard in section 201(b) of the Act, and
comport with the ``fair compensation'' provision of section 276 of the
Act.
23. In response to the 2020 ICS FNPRM, the Commission received over
90 comments and reply comments and 9 economic studies. Filers included
providers of calling services to incarcerated people, public interest
groups and advocates for the incarcerated, telecommunications
companies, organizations representing individuals who are deaf or hard
of hearing, and providers of telecommunications relay service.
24. Intrastate Rate Reform Efforts. By April 1 of each year, inmate
calling services providers file annual reports with the Commission that
include rates, ancillary service charges, and site commissions. In an
effort to compare interstate inmate calling services rate levels with
intrastate rate levels, Commission staff analyzed the intrastate rate
data submitted as part of the providers' April 1, 2020, annual reports.
Commission staff's review revealed that intrastate rates for debit or
prepaid calls exceed interstate rates in 45 states, with 33 states
allowing rates that are at least double the Commission's interstate cap
and 27 states allowing ``first-minute'' charges that can be more than
25 times that of the first minute of an interstate call. For example,
one provider reported a first-minute intrastate rate of $5.34 and
additional per-minute intrastate rates of $1.39 while reporting the
per-minute interstate rate of $0.21 for the same correctional facility.
Similarly, another provider reported a first-minute intrastate rate of
$6.50 and an additional per-minute intrastate rate of $1.25 while
reporting the per-minute interstate rate of $0.25 for the same
correctional facility. Further, Commission staff identified instances
in which a 15-minute intrastate debit or prepaid call costs as much as
$24.80--almost seven times more than the maximum $3.15 that an
interstate call of the same duration would cost.
25. In light of these data, in September 2020, former Chairman Pai
and Brandon Presley, then president of the National Association of
Regulatory Utility Commissioners (NARUC), jointly sent a letter to the
co-chairs of the National Governors Association urging state
governments to take action to reduce intrastate rates and related fees.
At least one state has enacted a law to reduce intrastate inmate
calling services rates and fees, at least one state commenced a
regulatory proceeding aimed at reducing intrastate inmate calling
services rates and fees, and several states are considering
legislation.
III. Third Report and Order
26. In this Third Report and Order, the Commission takes several
important steps to provide significant financial relief to incarcerated
people and their families, all substantially consistent with the August
2020 ICS FNPRM, except where the record evidence requires the
Commission to take a more conservative approach. The Commission takes
these actions now in light of the exigent circumstances facing
incarcerated people as they continue to deal with hardships related to
the COVID-19 pandemic. First, the Commission reforms per-minute inmate
calling services rates on an interim basis, capping interstate rates at
$0.12 per minute for prisons and $0.14 per minute for larger jails.
Second, the Commission reforms the current treatment of site
commissions by adopting two distinct interim site commission-related
rate components reflecting the different types of site commissions:
Site commission payments that providers are obligated to pay under
formally codified laws or regulations; and payments that providers
agree, by contract, to make. Third, the Commission caps international
calling rates for the first time. These and other reforms adopted here
will enable consumers--incarcerated people and their families--to
obtain essential communications capability at just and reasonable rates
while the Commission remains faithful to its obligations under section
276 of the Act.
27. The reforms the Commission adopts today reflect its findings,
as detailed below, regarding the monopoly power that each calling
service provider has over the individual correctional facilities it
serves; the numerous negative impacts the providers' exercise of that
market power has had on incarcerated people, their families and
communities, and society as a whole; and the substantial record
evidence of the need for at least interim reforms to the Commission's
rate caps and related regulations. In these circumstances, to the
extent the record permits, the Commission exercises its authority under
section 201(b) of the Act to ``prescribe such rules and regulations as
may be necessary'' to ensure that ``[a]ll charges [and] practices . . .
for and in connection with [interstate and international] communication
service'' by wire or radio are `just and reasonable.' '' This provision
provides the Commission with ample authority to regulate the interstate
and international rates and the practices of providers of calling
services for incarcerated people, including setting interim rate caps
for interstate and international calls given that providers have
monopoly power in the facilities they serve. The Commission has
previously exerted jurisdiction over rates where it found it necessary
to constrain monopoly power exercised by competitive LECs.
28. Although the record makes clear that the current interim rate
caps for calling service to prisons and larger jails are unreasonably
high, limitations in the reported data--arising in significant part
from shortcomings in certain providers' responses to the Second
Mandatory Data Collection--make the Commission wary of establishing
permanent rate caps based on the current record. The Commission also
declines to consider ICSolutions' proposal that the Commission forbear
from the requirement that calling services providers contribute to the
Universal Service Fund. The Commission has already addressed
forbearance from universal service contribution obligations in the
inmate calling services context in a separate proceeding, and the
Commission declines to revisit that matter in this proceeding. Nor does
the record allow the Commission to reasonably set permanent or even new
interim interstate rate caps for jails with less than 1,000 average
daily population, adjust its caps on ancillary service fees beyond the
new cap on fees for single-call services and third-party financial
transaction fees, or ensure that incarcerated people with disabilities
have any greater access to functionally equivalent communications
capabilities than they have today. The Commission therefore institutes
a Mandatory Data Collection to provide the Commission and interested
parties with more complete and accurate data regarding the costs of
providing inmate calling services. The Commission anticipates that
those data, in combination with the record developed in response to the
attached Fifth Further Notice of Proposed Rulemaking (Fifth FNPRM),
will enable the Commission to take these important steps in the near
future. The Commission also delegates authority to the Consumer and
Governmental Affairs Bureau (CGB) to undertake a separate data
collection related to service providers' costs and other key aspects of
their provision of telecommunications relay services
[[Page 40687]]
(TRS) and other assistive technologies if necessary to help the
Commission resolve the critically important disability access issues
the Commission explores in the Fifth FNPRM, published elsewhere in this
issue of the Federal Register.
A. Unique Marketplace for Telephone Services Provided to Incarcerated
People
29. The Commission has previously determined that providers of
telephone services to incarcerated people have monopoly power in the
facilities they serve. The Commission reaffirms this long-established
finding, one that applies equally not only to the rates and charges for
calling services provided to incarcerated people, including ancillary
services, but also to providers' practices associated with their
provision of calling services. Indeed, ICSolutions requests that the
Commission investigate providers' compliance with the interim rate
caps, in addition to other instances of asserted noncompliance. While
this rulemaking proceeding is the wrong vehicle to address ICSolution's
first two concerns, the Commission welcomes suggestions on how to
revise its rules to better detect noncompliance, which the Commission
seeks as part of the Fifth FNPRM, published elsewhere in this issue of
the Federal Register.
30. The record demonstrates, as the Commission previously found and
reiterated in the August 2020 ICS FNRPM, that incarcerated people have
no choice in the selection of their calling services provider. For
these consumers, the relevant market is the incarcerating facility. The
authorities responsible for prisons or jails typically negotiate with
the providers of inmate calling services and make their selection
without input from the incarcerated people who will use the service.
Once the facility makes its choice--often resulting in contracts with
providers lasting several years into the future--incarcerated people in
such facilities have no means to switch to another provider, even if
the chosen provider raises rates, imposes additional fees, adopts
unreasonable terms and conditions for use of the service, or offers
inferior service. On the contrary, correctional authorities exercise
near total control over how incarcerated people are able to communicate
with the outside world. This control extends to control over visitation
rights, the use of traditional mail and courier services, and the
ability to use any form of electronic communication. Indeed, the only
way an incarcerated person may legally communicate with the outside
world is with the explicit permission of the correctional authority.
Therefore, no competitive forces within the facility constrain
providers from charging rates that far exceed the costs such providers
incur in offering service.
31. Some commenters argue the market for inmate calling services is
competitive because providers of those services bid against each other
to win contracts with correctional facilities. GTL, in particular,
makes much of this claim. Because correctional officials typically
allow only one provider to serve any given facility, however, there are
no competitive constraints on a provider's rates once it has entered
into a contract to serve a particular facility. Some experts
representing inmate calling services providers recognize this to be the
case. The Commission has observed that ``because the bidder who charges
the highest rates can afford to offer the confinement facilities the
largest location commissions, the competitive bidding process may
result in higher rates.'' Thus, even if there is ``competition'' in the
bidding market as some providers assert, it is not the type of
competition the Commission recognizes as having an ability to ``exert
downward pressure on rates for consumers.''
B. Impact on Consumers and Society
32. The Commission has long recognized the far-ranging consequences
that high calling rates inflict on incarcerated people, their families,
and society as a whole. The record in this proceeding confirms that
excessive telephone rates continue to impose an unreasonable burden on
the ability of incarcerated people--one of the most economically
disadvantaged segments of our population--to maintain vital connections
with the outside world. And reduced prison visitation as a result of
the COVID-19 pandemic has made these consequences even more dire,
exacerbating the urgent need for inmate calling rate reform.
33. A national survey identified the cost of phone calls as the
primary barrier preventing incarcerated people from keeping in touch
with loved ones. As one commenter sums it up: ``A sentence to jail or
prison should not include the additional punishment of being cut off
from family, friends, legal assistance, and community resources.''
Studies confirm that incarcerated people who have regular contact with
family members are more likely to succeed after release and have lower
recidivism rates because they are able to maintain vital support
networks.
34. The high cost of calling services causes damaging consequences
not only for incarcerated people but also for their families. The
record suggests that as many as 34% of families go into debt to keep in
touch with an incarcerated family member. Some low-income families are
forced ``to choose between calling an incarcerated family member and
buying essential food and medicines.'' Rate reform will reduce these
financial burdens and also promote increased communication which
preserves essential family ties, allowing incarcerated people ``to
parent their children and connect with their spouses, helping families
stay intact,'' and decreasing the trauma suffered by children whose
parents have been incarcerated.
35. The benefits of lowering inmate calling services rates also
ripple throughout communities and society in other tangible and
intangible ways. For example, making communications less costly and
easier to use for incarcerated people promotes their ability to plan
for housing, employment, and successful integration into communities
once released from prison. In financial terms, increased communication
helps reduce repeated incarceration, which benefits society by saving
millions of dollars in incarceration-related costs annually.
Additionally, the record shows that the ability to communicate
regularly with families ``reduces foster placement of children of
incarcerated people, which result[s] in measurable savings to society
of tens of millions of dollars per year.''
36. The COVID-19 pandemic has intensified the need to reform inmate
calling services rates. Even before the pandemic, it could be
impractical, costly, and time-prohibitive for family members to make
regular visits to those in prisons often located hundreds of miles
away. But as a result of the pandemic, most jails and prisons have
prohibited or severely limited in-person visitation. Thus, telephone
calls have become even more of ``an essential lifeline for
connection''--adding to the exigency and importance of the reforms that
the Commission adopts today.
C. Interim Interstate Rate Cap Components
37. In the 2020 ICS FNRPM, the Commission proposed to adopt
permanent interstate rate caps of $0.14 per minute for all calls from
prisons and $0.16 per minute for all calls from jails. These proposed
caps included an allowance of $0.02 per minute added to provider-
related rate caps of $0.12 and $0.14 per minute, respectively, to
account for the costs correctional facilities incur that are reasonably
related to the provision of inmate
[[Page 40688]]
calling services. The proposed rate caps generated extensive debate in
the record, with providers contending that the available data do not
justify any reduction in the existing interstate rate caps of $0.21 per
minute for debit and prepaid calls, and public interest groups
suggesting even lower rates than those the Commission proposed.
Although collect calls are subject to a separate rate cap of $0.25 per
minute under the existing interim interstate caps, as discussed below,
the Commission and the parties on record agree that there is no longer
a need to maintain this distinction.
38. After carefully considering the record, including data from the
Second Mandatory Data Collection and commenting parties' analyses of
those data, and refining its analysis based on record feedback, the
Commission takes the following actions. First, as proposed in the 2020
ICS FNRPM, the Commission eliminates a separate rate cap for all
collect calls. Second, the Commission adopts new interim provider-
related interstate rate caps of $0.12 per minute for calling services
provided to incarcerated people in prisons and $0.14 per minute for
calling services provided to incarcerated people in larger jails, as
proposed in the 2020 ICS FNPRM. As the Commission explains below, and
in recognition of the concerns raised by various commenters, the
Commission does not establish new interim rate caps for jails having
average daily populations below 1,000. Those facilities remain subject
to the maximum total per-minute rate cap of $0.21. The Commission
refrains from adopting new interim rate caps for jails with average
daily populations below 1,000, which remain subject to the interstate
total per-minute rate cap of $0.21. Next, the Commission adopts new
interim facility-related rate caps associated with site commission
payments. Together, these rate cap components result in new lower total
interstate rate caps that will remain interim in status, pending a
further data collection which the Commission also adopts today in order
to facilitate the Commission's adoption of permanent interstate rate
caps.
39. Consistent with the 2020 ICS FNPRM, the new interim interstate
rate cap components will apply to all calls that a provider identifies
as interstate as well as to all calls that the provider cannot
definitively identify as intrastate, as determined through the
application of the Commission's traditional end-to-end jurisdictional
analysis. Securus asks that the Commission forbear from enforcing the
end-to-end analysis reflected in the Enforcement Bureau's November 2020
Enforcement Advisory to per-minute interstate rates. The Commission
declines to do so at this time. As the Commission explains in the Order
on Reconsideration published elsewhere in this issue of the Federal
Register, the end-to-end analysis is, and has been, the generally
applicable jurisdictional standard for determining the jurisdiction of
a telephone call in the absence of an express Commission determination
that some other method is permissible. As the Commission has never
expressly permitted another method of jurisdictional classification for
inmate calling services calls, the end-to-end analysis continues to
apply to those calls. Under this analysis, the jurisdictional nature of
a call ``depends on the physical location of the endpoints of the call
and not on whether the area code or NXX prefix of the telephone number,
or the billing address of the credit card associated with the account,
are associated with a particular state.'' Thus, to the extent that a
provider cannot determine that the physical endpoints of a call are
within the same state, that provider must not exceed the Commission's
new interim interstate rate caps for that call. The use of physical
endpoints for determining the appropriate rate cap for a call,
including related ancillary services charges, does not, however,
preclude the use of telephone number or other proxies, where permitted
by the Commission or state or local authorities, in determining the
appropriate taxing jurisdiction for such calls. It similarly has no
bearing on the use of permissible proxies or other good faith estimates
for federal or state Universal Service Fund contributions or similar
regulatory fees or assessments for jurisdictionally indeterminant
calling services.
1. Eliminating Separate Rate Caps for Collect Calls
40. Consistent with the proposal in the 2020 ICS FNPRM, the
Commission eliminates the separate interim rate cap that has applied to
interstate collect calls since 2013. The record overwhelmingly supports
this action, which recognizes the limited role that collect calls play
in today's inmate calling services marketplace and the relatively
small, if any, difference in cost between collect and non-collect
inmate calling services calls.
41. Under the interim rate caps the Commission first adopted in
2013, interstate debit and prepaid calls are capped at $0.21 per
minute, while interstate collect calls are capped at $0.25 per minute.
In the 2015 ICS Order, the Commission adopted a two-year phasedown for
collect calls, after which rate caps for those calls were to be the
same as those of debit and prepaid calls. The Commission found that the
number of collect calls had dropped significantly over the preceding
few years and predicted that the number of collect calls ``will most
likely be at a nominal level in two years.'' Although this phasedown
was vacated by the D.C. Circuit in GTL as part of that court's larger
vacatur of the 2015 ICS Order, the court did not criticize the
Commission's phasedown of collect calls.
42. In the 2020 ICS FNPRM, the Commission proposed to eliminate the
distinct rate cap for collect calls, given ``the absence of any data
demonstrating a material difference in the costs of providing these
different types of calls.'' Commenters overwhelmingly support this
proposal, with both providers and public interest groups agreeing that
there is no longer any need for a separate rate cap for collect calls.
Both Securus and GTL point out that collect call volumes continue to
decline. And commenters agree that there are no longer significant cost
differences between collect calls and debit or prepaid calls. Indeed,
the record provides no support for a separate rate cap for collect
calls, and comments make clear that eliminating the ``collect-only''
rate cap will benefit all stakeholders by making it easier for
providers to administer, and for consumers to understand, rate caps for
interstate and international calls.
43. The Commission finds that the lack of cost disparity in
providing prepaid, debit, or collect calling services, coupled with the
low and ever-diminishing demand for collect calls and the benefits to
all stakeholders from having a single cap for all calls from a
facility, support ending the distinction between prepaid, debit, and
collect calling rates. The Commission therefore eliminates the separate
interim cap for interstate collect calls for jails with average daily
populations below 1,000 that remain subject to the 2013 interim rate
caps. As a result of this change, all interstate calls from jails with
average daily populations below 1,000 will be subject to a single,
uniform, interim rate cap of $0.21 per minute. All interstate calls
from prisons and larger jails will be subject to the new uniform
interim rate caps the Commission adopts today for each type of
facility, without regard to whether the interstate calls are collect,
debit, or prepaid, as those terms are defined in its rules.
2. Setting a Threshold of 1,000 Average Daily Population for Larger
Jails
44. The Commission adopts an average daily population threshold of
[[Page 40689]]
1,000 or greater to differentiate larger jails from smaller jails and
apply its new interim provider-related and facility-related rate caps
to larger jails, while leaving jails with average daily populations
below 1,000 subject to the existing total interim rate cap of $0.21 per
minute for all interstate calls. This larger jail threshold is aligned
with the approach the Commission adopted in 2015, when it likewise used
an average daily population of 1,000 to distinguish between rate cap
tiers. In the 2015 ICS Order, the Commission adopted 1,000 average
daily population as the larger jail size threshold. As one commenter
points out, many of the cost analyses in the record segment jails by
reference to the same 1,000 average daily population figure, a fact
that supports the Commission's decision to set the average daily
population threshold at 1,000 here. Numerous commenters have advanced
the 1,000 average daily population figure to segment their own data
analyses and resultant proposals, and none have criticized this cutoff
as irrational or unduly difficult to administer. Although some
commenters have argued that turnover may provide a more accurate
indicator of costs, the Commission has not received turnover rate data
in the record and must work with the data provided. However, the
Commission finds that the cost data available from jails with average
daily populations less than 1,000, including turnover and admission
rates, deserves further investigation, and specifically seek such data
in the Fifth FNPRM the Commission issues today accompanying this Report
and Order. Providers shall calculate average daily population in
accordance with section 64.6000 of the Commission's rules, which
specifies that average daily population means ``the sum of all inmates
in a facility for each day of the preceding calendar year, divided by
the number of days in the year.''
45. The Commission's decision to exclude jails having average daily
populations below 1,000 from the new interim caps is based on record
evidence suggesting that providers incur higher costs per minute for
jails with average daily populations below 1,000 than for larger jails.
Securus asserts that ``small jails are more expensive to serve than
larger jails.'' Securus points to its cost study showing ``a strong and
consistent relationship between cost and facility size.'' Pay Tel also
broadly argues that inmate calling services ``costs vary substantially
based on facility size.'' More specifically, Pay Tel explains that its
``experiences regarding its costs of providing ICS'' demonstrate that
costs increase ``in terms of jail'' average daily population, providing
further evidence that providers incur greater costs to serve smaller
jails. The Commission agrees with these commenters that, based on the
current record, providers appear to incur somewhat higher costs in
serving jails with average daily populations less than 1,000 than
larger jails and the Commission finds this evidence credible and
sufficient to support a cutoff of 1,000 average daily population for
distinguishing larger jails from those with average daily populations
below 1,000 for purposes of applying the Commission's new interim rate
caps.
46. The data before the Commission preclude any specific
determination of the extent to which the costs of providing calling
services vary with jail size, and the Commission therefore disagrees
with the Public Interest Parties' assertion that ``size does not impact
costs,'' at least on the basis of this record. For example, the Second
Mandatory Data Collection did not collect data on turnover rates so the
Commission cannot determine how that variable affects providers' or
facilities' costs. Given this, the Commission takes a bifurcated
approach with regard to its new interim rate caps for jails. First,
because the Commission is convinced that providers' costs of serving
larger jails are likely below the industry average for all jails, the
Commission uses the available data to set interim provider-related rate
caps for larger jails. These interim caps are separate from those the
Commission sets for prisons. Second, because the available data do not
allow the Commission to quantify the extent to which providers' cost of
serving jails with average daily populations below 1,000 exceed the
industry average, the Commission defers further rate cap setting with
respect to these jails until such time as the Commission is able to
gather and analyze additional cost information. In the Fifth FNPRM,
published elsewhere in this issue of the Federal Register, the
Commission seeks detailed information on provider costs associated with
serving jails with average daily populations below 1,000. On the record
before the Commission, the Commission finds it reasonable and
appropriate to exclude these jails from the new interim rate caps it
adopts today for interstate calls. As explained in Part III.C.2 above,
the Commission also uses the 1,000 average daily population threshold
to distinguish larger jails for purposes of the facility-related rate
component.
3. Accounting for Provider Costs
47. Deciding to Adopt Separate Interim Interstate Provider-Related
Rate Caps for Prisons and Larger Jails. In the 2020 ICS FNPRM, the
Commission found that the reported data showed greater variations from
mean costs for jails than for prisons (and therefore a greater standard
deviation from the mean for jails than for prisons). A mean is the
arithmetic average of numbers in a distribution. A standard deviation
is a measure of dispersion calculated as the square root of the average
of the squared differences from the mean. These greater variations from
mean costs were one reason that led the Commission to propose a higher
interstate rate cap for jails than for prisons. After analyzing the
record, consistent with the proposal in the 2020 ICS FNPRM, the
Commission adopts separate interim interstate provider-related rate
caps for prisons and larger jails.
48. As set forth in Appendix B, the Commission's refined analysis
suggests that it costs service providers approximately 22% more to
provide calling services in jails than in prisons. That analysis also
shows greater variations from mean costs for jails. At least one
commenter provides credible evidence that providers generally incur
higher costs to serve jails than prisons and therefore ``support[s] the
Commission's proposal to establish separate rate ceilings for prisons
and jails.'' Pay Tel agrees that the evidence demonstrates greater
costs per minute for jails than prisons, and explains that its
examination of the reported costs of three of the six providers that
serve both types of facilities shows that the costs of serving jails
are roughly 40% higher. Securus also concludes that, for jails, costs
per minute decrease as facility size increases, and that costs per
minute for prisons are lower than for jails.
49. Not all commenters agree with drawing a distinction between
prisons and jails. The Public Interest Parties point out that some
providers have argued that there are no real cost differences between
serving prisons and jails and therefore there is no basis for a
separate, higher cap for jails. They urge that the Commission moves
towards a unitary rate structure that would ``eliminate the multi-tier
rate structure for jails'' and create a ``unified rate cap for prisons
and jails.'' Although the record indicates that some jails bear the
characteristics the Commission otherwise associates with prisons, on
this record the Commission is not persuaded that these situations are
the norm, and it finds that, overall, the evidence suggests higher
provider costs
[[Page 40690]]
at jails than prisons. At the same time, the Commission rejects the
notion that it should delay any action until the Commission collects
more detailed cost data. The Commission has sufficient record evidence
now to set interim rate caps for prisons and larger jails, consistent
with its obligations and authority under the Act. The Commission
therefore finds it appropriate to set different interstate provider-
related rate caps for prisons than for jails on an interim basis. The
Commission does not, however, distinguish between prisons and larger
jails for purposes of its facility-related rate component designed to
recover portions of contractually prescribed site commission payments.
As explained in Part III.C.4 below, there is record support that the
same facility-related allowance for prisons and larger jails is
appropriate, and the Commission proceeds that way on an interim basis.
To the extent that the record developed in response to the Fifth FNPRM,
published elsewhere in this issue of the Federal Register, reveals that
the Commission should distinguish between prisons and larger jails, the
Commission will revisit that at such time as it develops permanent rate
caps.
50. Methodology. As with any exercise in cost-based ratemaking,
setting reasonable interim interstate provider-related rate caps for
inmate calling services requires a determination of the costs providers
incur in providing those services. Traditionally, agencies have set
regulated rates through company-specific cost-of-service studies that
measure the regulated firms' total cost of providing the regulated
service using the firms' accounting data. The costs of service include
operating expenses (e.g., operating, maintenance and repair, and
administrative expenses), depreciation expenses (the loss of value of
the firm's assets over time due to wear and tear and obsolescence),
cost of capital (the cost incurred to finance the firm's assets with
debt and equity), and income and other tax expenses. Regulators often
establish rules that specify how costs, including those arising from
affiliate transactions, are to be accounted for, apportioned between
the firms' regulated operations and nonregulated operations, and
assigned to, or allocated among, different jurisdictions and services.
51. The Commission's approach toward regulating inmate calling
services rates has been less prescriptive. The Commission, to date, has
not adopted accounting rules for calling service providers. Nor has it
specified complex rules for directly assigning or allocating a
provider's and its affiliates' costs between their calling services
operations and nonregulated operations, or assigning or allocating a
provider's calling services costs to or among the providers' contracts
or facilities. And it did not require calling service providers to
submit cost of service studies requiring each provider to show in
detail each step of its costing process.
52. Instead, the Commission has relied on data obtained through
Mandatory Data Collections to set reasonable cost-based rate caps for
inmate calling services. The Second Mandatory Data Collection, in
particular, required every calling service provider to submit detailed
information regarding its operations, costs, and revenues, including:
(1) Lists of its inmate calling services contracts and the correctional
facilities to which they apply; (2) the average daily populations,
number of calls annually, and minutes of use annually at each of those
facilities; (3) the direct costs of providing inmate calling services
on a total company basis and at each of those facilities; and (4) the
indirect costs of providing inmate calling services on a total company
basis. Direct costs are costs that are ``completely attributable'' to a
particular service such as inmate calling services. Indirect costs are
all costs related to a service other than direct costs and include
``overhead, depreciation, or other costs that are allocated among
different products or services.'' Determining a company's indirect
costs requires a calculation: Subtracting the company's indirect costs
from its total costs. Providers were required to provide information
about costs in several steps. First, providers had to identify which of
their and their corporate affiliates' total costs were directly
attributable to inmate calling services and which were directly
attributable to other operations. Providers were then required to
allocate the remainder of their costs and their affiliates' total
costs--the costs identified as indirect costs or overhead--between
inmate calling services and other, nonregulated, operations. Providers
were then required to allocate the inmate calling services portion of
their direct costs to specific facilities but were not required to
allocate their indirect costs to specific facilities.
53. In the 2020 ICS FNPRM, the Commission proposed to use data from
the Second Mandatory Data Collection, as compiled into a database by
Commission staff, to calculate the costs each provider incurs in
providing inmate calling services under each of its contracts for
prisons and jails separately. The Commission proposed to calculate the
mean (or arithmetical average) of those costs, add one standard
deviation to that mean, and use the resulting sum to determine the
provider cost portions of the interstate rate caps. The Commission
reasoned that this ``mean contract costs per minute . . . plus one
standard deviation'' methodology would allow the vast majority of
providers to recover at least their reported costs under each of their
contracts.
54. Reliance on Data from the Second Mandatory Data Collection. As
proposed in the 2020 ICS FNPRM, the Commission's interim rate cap
methodology begins with the calculation of mean contract costs paid per
minute in the provision of calling services to incarcerated people. To
perform this calculation, the Commission relies on the 2018 data
submitted in response to the Second Mandatory Data Collection, as
supplemented and clarified by the providers in response to follow-up
discussions with Commission staff, as the Commission proposed in the
2020 ICS FNPRM. This approach reflects both the robustness and the
limitations of the data submitted in response to the Second Mandatory
Data Collection. On the one hand, those data provide an unprecedented
wealth of information about the inmate calling services industry and
individual calling service providers. The reported information allows
the Commission to perform sophisticated analyses that help the
Commission estimate the providers' actual costs of providing interstate
inmate calling services.
55. On the other hand, as the Commission explained in the 2020 ICS
FNPRM, the collected data have certain limitations. First, although the
Commission had sought facility-level data in the Second Mandatory Data
Collection, in many instances, providers reported data only at the
contract level, reflecting the fact that ``many providers assess their
inmate calling services operations on a contract-by-contract basis,
although many contracts include multiple correctional facilities.''
Given the lack of facility-level data, the Commission proposed to
analyze the information on a contract, rather than a facility, basis
and sought comment on this approach. Second, the Commission recognized
that some providers had interpreted different steps in the cost
reporting instructions for the Second Mandatory Data Collection in
different ways. The Commission sought comment on the submitted data and
asked commenters to identify other data issues for consideration.
[[Page 40691]]
56. The Public Interest Parties argue that the 2018 data ``provide
more than sufficient evidence to support immediate rate reform.'' The
Commission agrees. As the Public Interest Parties' expert asserts,
variations in internal cost records among providers affect how costs
are reported, not the overall level of costs. In other words, the lack
of uniformity in cost data reporting need not result in further delay
in the Commission's rate reform efforts. Further, as explained in
Appendix A, providers' reports of call minutes and revenues are likely
to be accurate down to the level of the contract. All providers bill on
a per-minute basis, and revenue tracking, and thus reported revenues,
are also likely to be reliable because providers are incentivized to
accurately track them. Accordingly, the Commission finds the reported
minutes of use and revenue data to be reliable and suitable for setting
interim interstate rate caps.
57. Certain providers argue that the 2018 cost data from the Second
Mandatory Data Collection are unsuitable for setting new rate caps.
Securus, for example, contends that the Commission should not rely on
the 2018 data because providers did not report their costs using a
consistent methodology. In particular, Securus emphasizes that because
providers were not required to, and did not, disclose how they
calculated their direct costs or how they allocated indirect costs
between regulated and nonregulated services, ``each company's measure
of `costs' is unique to itself and inconsistent with that of every
other company.'' Pay Tel and its outside consultant highlight
``numerous inconsistencies in the manner in which costs were reported''
which, they argue, make the data unsuitable for cost-based ratemaking.
Pay Tel's outside consultant points to providers' differing
understandings of how to report direct and indirect costs and the
accuracy of reported direct costs based on the chosen allocator for
those costs. For its part, GTL finds it unsurprising that ``there are
differences in the data among [inmate calling services] providers given
the different reporting methodolog[ies] because no uniform accounting
is required or necessary.'' GTL also notes that calling service
providers are not subject to Part 32 accounting rules or any other
uniform system of accounts. The Commission does not find these concerns
sufficient to justify abandoning any reforms at this time, and find
that ``variations in internal cost records and lack of a common
methodology'' do not preclude the Commission from lowering egregiously
high interstate rates now on an interim basis while waiting to obtain
more reliable and consistent cost data. In sum, the 2018 data from the
Second Mandatory Data Collection are the best data available upon which
the Commission may, and does, reasonably rely here.
58. The limitations in the cost data identified in the record do,
however, warrant a departure from the approach the Commission proposed
in the 2020 ICS FNPRM. That approach was premised on the Commission's
ability to calculate providers' collective mean contract costs of
providing inmate calling services to prisons and jails with a high
degree of accuracy. Based on that premise, the Commission proposed
relying on single measures of the industry-mean costs of providing
calling services to permanently cap the interstate rates for prisons
and jails, respectively.
59. After carefully considering the record, including providers'
criticisms of the approach proposed in the 2020 ICS FNPRM, the
Commission takes a different approach than the one the Commission
originally proposed and rely on the costs providers reported in
response to the Second Mandatory Data Collection to develop separate
zones, or ranges, of cost-based rates for prisons and larger jails from
which the Commission selects the respective interim interstate
provider-related rate caps. First, the costs, as reported in response
to the Second Mandatory Data Collection, allow the Commission to
calculate ceilings--or upper bounds--above which any interstate rate
caps for prisons and larger jails would be unreasonably high. Second,
the Commission adjusts the reported data to correct for outliers and
contracts with reported costs that are significantly higher than other
providers. These adjusted data allow the Commission to calculate
floors--or lower bounds--below which any interstate rate caps for
prisons and larger jails could be perceived as unreasonably low on the
current record. These upper and lower bounds thus establish zones of
reasonableness from which the Commission selects the interim interstate
provider-related rate caps.
60. The approach the Commission takes here is fully consistent with
judicial precedent and a logical outgrowth from the approach proposed
in the 2020 ICS FNPRM. Courts widely recognize that an agency may
reasonably rely on the best available data where perfect information is
unavailable. Indeed, the Supreme Court has recognized that the
available data may not always settle a particular issue and that in
such cases an agency must use its judgment to move from the facts in
the record to a policy conclusion. Here, the Commission applies its
judgment to the record before it and reach results that rationally
connect ``the facts found and the choice[s] made.'' Importantly, by
setting lower bounds that adjust for anomalies in the reported data,
the Commission minimizes its reliance on data that the Commission finds
inaccurate or unreliable.
61. The Commission recognizes, of course, that its reliance on
imperfect data is not ideal, but a lack of perfect data is not fatal to
agency action. The D.C. Circuit has held that an agency's decision
should be upheld when from ``among alternatives all of which are to
some extent infirm because of a lack of concrete data, [the agency] has
gone to great lengths to assemble the available facts, reveal its own
doubts, refine its approach, and reach a temporary conclusion.'' Here,
the Commission has undertaken a robust analysis of all the data in the
record and fully accounted for why the rate methodology it employs is
reasonable, despite some providers' failure to meaningfully respond to
Commission data requests and inaccuracies in their reported data. In
the process, the Commission explains its misgivings about reliance on
certain data and lays out its rationale for adopting these rate caps as
an interim step, with a commitment going forward to collect further
data to be used to set permanent rate caps.
62. GTL and Pay Tel claim that the absence of the Commission's
underlying work papers limits their ``ability to comment on the
methodology'' proposed in the 2020 ICS FNPRM and prevents them from
determining whether the adjustments to the data proposed in that FNPRM
are appropriate. The Commission finds these assertions to be meritless.
The record in this proceeding contradicts these views, as do the
comments GTL and Pay Tel themselves offer concerning the Commission's
methodology and treatment of data. Contrary to these providers' claims,
the database on which the calculations in the 2020 ICS FNPRM relied was
made available to interested parties in this proceeding, subject to the
terms of a protective order; and the record reflects that at least two
parties have been able to replicate the Commission's rate cap analysis
on their own, on the basis of the data available to them. The
Commission also refers to this inmate calling services database as the
``dataset.'' The Commission made the
[[Page 40692]]
underlying data available and specified its analytical approach. The
Commission is not required to do more.
63. Allocation of Indirect Costs Based on Minutes of Use.
Consistent with the approach proposed in the 2020 ICS FNPRM, the
Commission's rate cap methodology relies on providers' collective mean
contract costs per paid minute of use, plus one standard deviation.
Because the instructions for the Second Mandatory Data Collection did
not require providers to allocate their indirect costs (including their
overhead costs) of providing inmate calling services among contracts,
the Commission needs to adopt a mechanism for allocating those costs.
These overheads include costs attributable to inmate calling services
and to particular contracts, but not reported as such by the provider.
In the 2020 ICS FNRPM, the Commission proposed allocating the
providers' indirect costs of providing inmate calling services among
contracts based solely on relative minutes of use, a method that
apportions a provider's indirect costs among its individual calling
services contracts in proportion with each contract's share of the
total minutes of use reported by that provider. The Commission sought
comment on this proposal and on whether a different allocator would
more effectively capture how costs are caused. The Commission adopts
the proposed minute of use method of allocation for its new interim
rate caps as one of only two reasonable allocation methods based on the
current record.
64. Parties disagree whether minutes of use provides an appropriate
method for allocating indirect costs, with some comments pointing out
its shortcomings and others supporting its use. Although several
parties argue that minutes of use does not provide an appropriate
allocation method, its independent analysis shows that, while
imperfect, minutes of use provides the most reasonable allocator given
the data before the Commission. Specifically, after examining seven
potential allocators--minutes of use, average daily population, number
of calls, revenue, contracts, facilities, and direct costs--for
allocating providers' indirect costs among contracts, the Commission
finds minutes of use both reasonable and preferable to each potential
alternative. Although none of these allocators fully capture the
reasons for which providers incur inmate calling services costs,
minutes of use constitutes the best available allocator under the
circumstances because it produces plausible per-minute rates while
ensuring that most calling services contracts would remain commercially
viable, even assuming the accuracy of providers' reported costs.
65. The Commission calculated the per-minute caps that would apply
under each potential allocator to compare the allocators. The
Commission refers to these per-minute caps as ``implied rate caps.''
The Commission's calculations employed the mean contract costs per
minute plus one standard deviation methodology proposed in the 2020 ICS
FNPRM. For simplicity, the Commission performed these calculations
collectively for all facilities, rather than separately for different
types or sizes of facilities. The Commission finds that only minutes of
use ($0.149) and number of calls ($0.208) produce results below the
current cap for prepaid and debit calls. In contrast, the implied per-
minute rate caps for the revenue ($0.333), direct costs ($2.417),
average daily population ($11.114), facilities ($303.685), and
contracts ($318.636) allocators all suggest that interstate inmate
calling services rate caps are presently unreasonably low, a
proposition that not even any of the providers has tried to argue. This
disparity is one of the reasons the Commission finds that minutes of
use and number of calls are the only plausible allocators among the
available alternatives. The Commission recognizes, as Securus and Pay
Tel point out, allocating indirect costs based on minutes of use
results in relatively uniform costs per minute in comparison to the
other allocation methods. The Commission also agrees that this relative
uniformity will necessarily result in a lower standard deviation from
the mean for a minutes of use allocator than for any alternative
method. The standard deviation the Commission calculates for minutes of
use ($0.056) is significantly lower than those for each of the other
potential allocators. But the implied rate caps for revenue ($0.220 =
$0164 + $0.056) and direct costs ($0.284 = $0228 + $0.0506) would
exceed current interstate rate levels if the standard deviation for
those allocators were reduced to $0.056, and the implied rate caps for
average daily population ($0.789), facilities ($16.485), and contracts
($18.499) would exceed those levels even without any standard deviation
component.
66. Understanding that there is an element of circularity in using
a minutes-based cost allocator when setting per-minute rate caps, the
Commission further evaluated whether each potential allocator produces
per-minute costs that are consistent with the rates currently set by
providers. Specifically, the Commission calculated the percentage of
contracts for which the provider reported per-minute revenues that are
greater than the per-minute costs allocated to each contract under each
allocator. Minutes of use yielded a higher percentage of viable
contracts than did any other cost allocator. Minutes of use yielded
87.3% of contracts with per-minute provider revenues greater than their
per-minute allocated costs. The next closest allocators are direct
costs at 81.6% and number of calls at 81.3%. This confirms that minutes
of use is the allocator that is most consistent with provider cost
recovery, as it is illogical to assume that providers are entering into
a significant number of contracts that are not commercially viable
(i.e., that do not allow providers to recover their costs). The
Commission therefore finds minutes of use preferable to number of calls
and use it in its provider-related rate caps calculations. The
comparison of its per-minute cap to per-minute revenues is not subject
to the objection that using a per-minute allocator will produce
relatively uniform costs per minute in comparison to the other
allocation methods.
67. The Commission recognizes that its choice of allocator is
affected, in part, by its decision to continue to require providers to
charge per-minute rates for inmate calling services. The Commission
also rejects most of the cost allocators for additional reasons that
are not subject to the objection that using a per-minute allocator will
produce relatively uniform costs per minute in comparison to the other
allocation methods. For example, use of the facility and direct cost
allocator would require throwing out substantial amounts of data, while
the remaining data would include egregious flaws, making any resulting
cost allocation arbitrary. This critique applies to a more limited
extent to average daily population, but it would still be a poor choice
relative to the alternatives of call minutes or number of calls.
Another example is the Commission's exclusion of the revenue allocator.
But changing that rate structure would likely impose significant
burdens on providers, and the Commission finds no basis for requiring
such a change in connection with its adoption of new interim rate caps.
The Commission also cannot meaningfully assess, on the record before
it, how different rate structures would affect incarcerated persons and
their families. The Commission therefore defers action on alternative
rate structures--under which calling services consumers might be
charged a predetermined monthly fee for
[[Page 40693]]
unlimited calls, for example--pending the development of a more
complete record in response to the Fifth FNPRM, published elsewhere in
this issue of the Federal Register. This reasoning again is not subject
to the objection that using a per-minute allocator will produce
relatively uniform costs per minute in comparison to the other
allocation methods.
68. Some commenters contend that the available data preclude the
Commission from allocating providers' costs with sufficient precision
to support any changes in interstate rate caps. Pay Tel emphasizes that
``the observed inability of many [inmate calling services] providers to
track and assign direct costs'' results in high levels of indirect
costs to be allocated, which makes providers' costs appear more
``homogenous'' across locations and contracts than is actually the
case. The Commission agrees there is some merit in these observations,
particularly that the collected data appears to obscure cost
differences between prisons and jails. Securus's outside experts are
particularly critical of using minutes of use as the only allocator,
arguing that ``the majority of [providers'] costs, which include
connectivity to the facilities, developing and implementing the call
platform, on-site equipment and SG&A [(selling, general, and
administrative expenses)], do not vary by the number of minutes.''
69. The Commission finds that such issues do not require it to
postpone reforming its interstate rate caps pending the availability of
better data that might allow the Commission to allocate providers'
indirect costs in a more cost-causative manner. The Commission is not
required to pursue ``the perfect at the expense of the achievable.''
The Commission finds that the better course is to adopt interim
interstate provider-related rate caps for prisons and larger jails now,
using the available data, while requiring that providers submit more
accurate, consistent, and disaggregated data that will allow the
Commission to set permanent interstate provider-related rate caps for
all correctional facilities that more closely reflect providers' costs
of serving individual correctional facilities. As the D.C. Circuit has
explained, ``[w]here existing methodology or research in a new area of
regulation is deficient, the agency necessarily enjoys broad discretion
to attempt to formulate a solution to the best of its ability on the
basis of available information.'' Consistent with this principle, the
Commission chooses ``to use the best available data, and to make
whatever adjustments appear[ ] necessary and feasible'' to ensure that
interstate inmate calling services rates are just and reasonable.
70. The Commission independently rejects the ``use of direct costs
to allocate indirect costs'' and related approaches at this time.
Pointing to its own cost-tracking processes, Pay Tel argues that
allocating indirect costs based on directly attributable costs would be
``not only reasonable and consistent with prior Commission
conclusions'' but also ``consistent with how [inmate calling services]
providers incur costs.'' Although the Commission agrees that allocating
indirect costs based on directly attributable costs could yield
reasonable results when providers have properly identified their
directly attributable costs, the data from many of the providers fall
far short of that mark. Indeed, allocation by direct costs would
require the Commission to ignore all data submitted by the two
providers that reported no direct costs. The providers that did not
report direct costs are [REDACTED]. Similarly, this approach also would
allocate essentially all of GTL's costs on the basis of bad debt, a
measure that bears little, if any, relationship to the reasons GTL
incurs costs in its provision of inmate calling services. Alone among
providers, GTL reported a bad debt expense as their only identifiable
direct cost. The evidence supports no relationship between bad debt
expense and cost causation, and the bad debt expense amounts only to
[REDACTED], making any related assumptions even more speculative.
Accordingly, the Commission finds allocating indirect costs based on
direct costs would provide less reliable results than allocating
indirect costs based on minutes of use. The Commission likewise rejects
the use of facilities to allocate costs, as providers often failed to
report costs for individual facilities where multiple facilities were
supplied under a single contract. In light of the drawbacks to these
approaches, the Commission has a higher degree of confidence in
providers' reported minutes of use by contract.
71. The Commission similarly declines at this time to divide
indirect costs into ``shared costs'' and ``common costs'' and develop
separate allocators for each set of costs, as Securus suggests, because
the available data do not allow the Commission to make such granular
distinctions. The available data do not allow the Commission to analyze
or allocate costs on the basis that Securus suggests. What Securus
identifies as ``common costs'' most closely tracks the ``indirect
costs'' reported in the Second Mandatory Data Collection. The
Commission likewise rejects any allocation key based on percentages of
total company revenue. The Commission has long disclaimed this
allocation methodology because it fails to provide a reliable method
for determining costs, given that ``revenues measure only the ability
of an activity to bear costs, and not the amount of resources used by
the activity.''
72. Accurate Analysis Compels Adjustments to GTL's Reported Cost
Data. As the Commission recognized in the 2020 ICS FNPRM, the critical
question posed by its reliance on the available data is how to address
the various issues reflected in the cost data reported by GTL, the
largest provider of inmate calling services, with an estimated market
share approaching 50%. One estimate from 2017 placed GTL's market share
between 46% and 52.9% before it acquired Telmate, a company whose
market share was between 1.9% and 3.1%. The Commission's internal
analysis suggests GTL's share is around [REDACTED]. The Commission
finds that GTL's cost data does not reflect its actual costs of
providing inmate calling services and may overstate those costs. Given
GTL's market share, including GTL's cost data as reported in the
Commission's calculations for the entire industry, significantly
affects the results. The Commission concludes that it must make certain
adjustments to GTL's reported data if the Commission is to arrive at a
more accurate estimate of industry costs. Courts have upheld the
Commission's exclusion or substitution of flawed or inadequate data
when the Commission has explained the evidence and demonstrated a
rational connection between the facts found and the choice made, as the
Commission does here.
73. On a company-wide basis, GTL's reported unit costs, which do
not rely on cost allocation, are higher than those of all but one (much
smaller) provider, and are nearly [REDACTED] the average of all the
other providers excluding GTL. Unit costs are measured as the quotient
of reported total costs and reported minutes. This remains true for
GTL's allocated costs per minute for prisons or larger jails--both are
higher than nearly all other providers' allocated costs, regardless of
facility type. Despite being the largest provider, and commanding a
disproportionate share of the larger contracts, GTL reports an average
contract per-minute cost of [REDACTED], approximately [REDACTED] times
larger than its nearest peers in size, Securus and CenturyLink, and
more than [REDACTED] times larger than the average contract per-minute
costs of the
[[Page 40694]]
next largest provider, ICSolutions. These results are inconsistent with
the record evidence establishing that providers are able to achieve
significant economies of scale. As the largest inmate calling services
provider, GTL should be better enabled to spread its fixed costs over a
relatively large portfolio of contracts relative to other providers,
especially because GTL serves a higher proportion of larger facilities
than other providers. Instead, taking GTL's reported costs at face
value would imply that it does not achieve economies of scale. The
record does not provide any explanation why GTL might incur higher
inmate calling services costs than the rest of the industry. GTL's unit
costs are also high when compared with the providers that are most like
it. GTL's unit costs are nearly [REDACTED] times those of Securus, the
second-largest provider, nearly [REDACTED] times those of CenturyLink,
and nearly [REDACTED] times those of ICSolutions. Securus's reported
unit costs are [REDACTED]; CenturyLink's reported unit costs are
[REDACTED]; and ICSolutions' reported unit costs are [REDACTED]. Of
equal concern, GTL uniquely reports large losses across all inmate
calling services operations, totaling nearly [REDACTED] of GTL's
reported costs. GTL's total revenues are [REDACTED] less than its
reported costs, suggesting that GTL operates these facilities at a
cumulative loss--a result contradicted by GTL's longevity in the market
and the depth of its market presence. GTL is the only provider which
records making a loss.
74. GTL's accounting practices also require adjustment to its data.
Unlike every other provider, GTL reported ``bad debt expense'' as its
only cost directly related to the provision of inmate calling services,
though it almost certainly incurs other costs that are causally related
to providing inmate calling services. As Pay Tel's expert explains,
GTL's reported direct costs ``represent only 0.01% of its Total [inmate
calling services] costs, effectively reporting a cost structure that is
0% direct and 100% indirect.'' Compounding this problem, GTL allocated
its indirect costs between its inmate calling services operations and
its other operations based on the percentages of total company revenue
each operation generated, which fails to reflect the purposes for which
GTL incurs costs.
75. Considering the impact that this cost data provided by the
market's largest provider would have on its analysis, the Commission
has repeatedly tried to obtain more accurate and complete data from
GTL. These efforts began with several calls between staff and GTL
representatives that sought to obtain a fuller explanation of the
composition of the data provided by GTL in response to the Second
Mandatory Data Collection. Following from these efforts, on July 15,
2020, before the release of the 2020 ICS Order on Remand, the Wireline
Competition Bureau directed GTL to provide ``additional documents and
information regarding GTL's operations, costs, revenues, and cost
allocation procedures'' to supplement GTL's previously filed
submissions, and to enable the Commission ``to make a full and
meaningful evaluation of GTL's cost data and methodology.'' This
directive encompassed 14 separate categories of additional information.
GTL's response, however, provided little additional information that
would enable the Commission to determine the costs it actually incurs
in providing calling services to incarcerated people. Instead, GTL
objected to the requests on multiple grounds, routinely asserting that
the Bureau sought information that GTL cannot provide and arguing that
it does not maintain records that would allow it to respond. These
objections included, inter alia, that the Bureau's requests lacked
relevance, placed an undue burden on GTL, and were overbroad. Without
the requested information, and in light of the issues the Commission
describes above, the Commission is unable to take GTL's reported costs
at face value in its analyses. Two commenters share its concerns and
urge that the Commission adjust GTL's data. Although the Commission
recognizes that GTL has not been required to keep, or indeed kept,
accounting records that would enable it to isolate the costs it incurs
in providing calling services to incarcerated individuals, those facts
do not require that the Commission accepts GTL's reported costs at face
value. The Commission therefore adjusts GTL's reported cost data with
data that more accurately reflect the underlying characteristics of the
prisons and larger jails that GTL serves. Specifically, as the
Commission explains below, in establishing the lower bounds of its
zones of reasonableness the Commission uses a generally accepted
statistical tool--the k-nearest neighbor method--to replace the data
reported for each prison and larger jail contract served by GTL with
the weighted average of the data for the three most comparable (i.e.,
nearest neighbor) contracts served by other providers. The Commission
describes this method in greater detail and show its application to
GTL's data in Appendix C, below.
76. Ancillary Service Costs. In the 2020 ICS FNPRM, the Commission
observed that its proposed rate cap calculations did not account for
revenues earned from certain ancillary services even though providers
reported the costs of these services as inmate calling services costs
in their responses to the Mandatory Data Collection. The Commission
sought comment on whether it should exclude the costs of these services
from its rate cap calculations.
77. Based on the record before it, the Commission finds that there
is no reliable way to exclude ancillary service costs from its
provider-related rate cap calculations at this time. Accordingly, those
costs will remain as a part of the industry costs that the Commission
uses in its calculations of those interim rate caps. The instructions
for the Second Mandatory Data Collection required certain ancillary
service revenues to be reported separately, but providers were not
required to report their ancillary service costs separately from other
inmate calling services costs. Further, providers were not required to
separately report costs relating to any specific ancillary service, and
no commenter has suggested a way of identifying the providers'
ancillary service costs. The Public Interest Parties argue that the
Commission should deduct all revenues from ancillary services from the
costs that go into its per-minute rate cap calculations. The Commission
declines to take this step because doing so would lower the rate caps
equally for all providers and therefore disproportionately affect those
providers having the lowest ancillary service revenues. As a result,
the Commission cannot isolate with any degree of accuracy the costs
providers incur in providing ancillary services from their overall cost
data.
78. The Commission recognizes that this approach will result in
interim interstate rate caps that allow for the recovery of costs
incurred in the provision of ancillary services that calling services
consumers already pay for through separate charges and fees, a result
that substantially increases the likelihood that the Commission's
interim caps are too high. The Commission intends to collect detailed
data on ancillary services costs from each inmate calling services
provider in its next data collection and to use those data to set
permanent provider-related rate caps that eliminate this problem.
79. Implementing the Zone of Reasonableness Approach. The
Commission determines the levels of the
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interim interstate provider-related rate caps using a zone of
reasonableness approach. In the 2020 ICS FNPRM, the Commission proposed
to set separate caps for prisons and all jails at the mean contract
costs per paid minute plus one standard deviation, as calculated
separately for each of those two categories of facilities. After
considering the record, including comments that make clear that
limitations in the available data make it impossible for it to estimate
true mean contract costs per paid minute with any degree of precision,
the Commission finds that a zone of reasonableness approach is
particularly well-suited to its task because it will allow the
Commission to use different measures of mean contract costs per paid
minute to establish separate ranges of rates--one for prisons and
another for larger jails--from which the Commission can select just and
reasonable interim provider-related rate caps. As a result of its new
approach, which differs from the approach proposed in the 2020 ICS
FNPRM, the Commission finds that comments critical of the data
analysis, including proposed adjustments to data, underlying the rate
caps proposed in the 2020 ICS FNPRM are now moot.
80. It is well-established that rates are lawful if they fall
within a zone of reasonableness. Precedent also teaches that the
Commission is ``free, within the limitations imposed by pertinent
constitutional and statutory commands, to devise methods of regulation
capable of equitably reconciling diverse and competing interests.'' A
zone of reasonableness approach allows the Commission to reconcile, to
the extent possible on the record before the Commission, the providers'
and their customers' competing concerns regarding the rates
incarcerated people and those they call pay to communicate. The
Commission therefore relies on a zone of reasonableness approach to set
rates in this instance, which helps avoid giving undue weight to the
assumptions that would lead to either unduly high or unduly low per-
minute rate caps.
81. Given the available data, any upper and lower bounds based on
those data are necessarily estimates. The Commission finds it likely
that its estimates overstate providers' inmate calling services costs.
All providers have an incentive to overstate their costs in their
responses to the Commission's data collections, as this would lead to
higher interstate rate caps, thus resulting in both higher revenues and
higher profits. In addition, imprecisions in the instructions for the
Second Mandatory Data Collection regarding fundamental steps in the
costing process, such as how providers should make sure that their
costs of providing inmate calling services exclude all costs properly
assignable to their non-inmate calling services operations, enabled
providers to inflate their reported costs. The Commission finds that
this combination of incentives and reporting latitude almost certainly
resulted in some overstatement of the providers' costs of providing
inmate calling services. Additionally, because the instructions for the
Second Mandatory Data Collection did not require providers to separate
the costs they incur in providing ancillary services from their total
inmate calling services costs, the Commission's bounds include
ancillary services costs for which providers separately recover fees
and charges under its rules. Each of these factors skews the cost data
upwards, resulting in upper and lower bounds that are likely higher
than any bounds based on more accurate data.
82. The Commission's zone of reasonableness approach involves three
distinct steps. The Commission begins by using data that providers
submitted in response to the Second Mandatory Data Collection to
establish upper bounds of potentially reasonable interstate provider-
related rate caps for prisons and larger jails, respectively. Because
the data the Commission uses in setting the upper bounds significantly
overstate the providers' actual mean contract costs per minute of
providing inmate calling services beyond the general factors the
Commission has just discussed, the Commission then makes reasonable,
conservative adjustments to the reported data and use those data to
establish the lower bounds of its zones of reasonableness. The
Commission describes these adjustments fully in Appendix C, below.
Finally, the Commission relies on its analysis of the record evidence
and on its agency expertise to pick, from within those zones,
reasonable interim interstate provider-related rate caps for prisons
and larger jails. The Commission reiterates that while its zone of
reasonableness methodology relies on contract-level data, the
Commission applies its interim rate caps to individual prisons and
jails having average daily populations of 1,000 or more. For these
jails, the data derived from a contract-level analysis likely
overestimates actual costs. This is because the analysis incorporates
jails having average daily populations lower than 1,000 (which the
Commission would expect to have higher per-minute costs than larger
jails) when such facilities are encompassed by the same contract. The
Commission is comfortable with this approach for purposes of
determining an interim rate cap for jails having average daily
populations of 1,000 or more as it errs on the side of being
conservative, while also being consistent with providers' understanding
that the average daily population threshold is applied on a per-
facility basis.
83. Determining Upper Bounds for the Zones of Reasonableness. The
Commission finds that the method proposed in the 2020 ICS FNPRM, taking
the sum of the mean contract costs per minute plus one standard
deviation relative to that mean, provides a reasonable method for
determining the upper bounds of the zones of reasonableness for prisons
and for larger jails. One standard deviation from the mean of a normal
distribution accounts for approximately 68% of the data, with half of
the remaining 32% being above the mean and half below the mean, thus
creating an additional buffer that makes it more likely that a provider
will be able to recover its costs for any particular contract or
facility. Under this approach, using the data submitted by all 12
providers, the mean contract cost per minute for prisons is $0.092, and
the standard deviation relative to this mean is $0.041 per minute,
resulting in a mean plus one standard deviation of $0.133 per minute.
The Commission calculates these statistics for prisons after removing
the cost-per-minute outlier related to GTL's contract for [REDACTED].
By comparison, the mean cost per minute for prisons based on the data
for the 12 responding providers including this outlier is $0.149, and
the standard deviation is $0.658 per minute, resulting in the mean plus
one standard deviation being $0.807 per minute. Appendix A explains why
the Commission excludes the [REDACTED] contract. Similarly, the mean
contract cost per minute for larger jails is $0.100, and the standard
deviation from that mean is $0.118 per minute, making the mean plus one
standard deviation $0.218 per minute.
84. The Commission finds that these upper bounds overstate, by a
wide margin, the providers' actual costs of providing interstate inmate
calling services for two reasons beyond the general effects it
recounted above. First, at least two providers, GTL and Securus,
calculated the return component of their costs using the prices their
current owners paid to purchase the companies, rather than the amounts
that they and the prior owners had invested in property used to provide
interstate inmate calling services. Under rate-of-return ratemaking, a
company's cost of
[[Page 40696]]
service equals a return component (i.e., allowed rate of return times
the company's rate base) plus the expenses the company incurs in
providing the regulated service. The use of the sale prices of a
company as what amounts to its rate base absent a showing specifically
justifying that practice is inconsistent with fundamental ratemaking
principles. Use of those purchase prices to calculate GTL's and
Securus's costs is inconsistent with the well-established principle
that the purchase prices of companies that possess market power ``are
not a reliable or reasonable basis for ratemaking.'' Instead, the
return component of GTL's and Securus's costs is properly calculated
using the original cost of the property they use to provide inmate
calling services at the point that property was first dedicated to
public use through its use in the provision of inmate calling services.
And, contrary to GTL's argument, the Commission has long held that
payphone calling providers, including inmate calling services
providers, possess monopoly power when (as is the case with GTL and
Securus) they have obtained the exclusive right to provide calling
services to correctional facilities. The Commission reiterates that
finding and, to eliminate any possible doubt, apply it to the purchase
prices that GTL and Securus used in calculating the return component of
their costs.
85. Second, and more significantly, these upper bounds incorporate
GTL's costs as reported, even though (1) GTL admits that it lacks the
accounting records that it would need to determine its actual costs of
providing inmate calling services and (2) GTL's reported costs far
exceed those reported by other providers serving comparable facilities.
Despite these shortcomings, the data from the providers' Second
Mandatory Data Collection responses provide the best available data for
determining the upper bounds of the zones of reasonableness. The
Commission therefore uses $0.133 per minute as the upper bound for
determining a reasonable interstate provider-related rate cap for
prisons and $0.218 per minute as the upper bound for determining a
reasonable interstate provider-related rate cap for larger jails. In
establishing these upper bounds, the Commission is well aware that the
industry's actual mean contract costs of providing inmate calling
services plus one standard deviation are significantly lower.
86. Determining Lower Bounds for the Zones of Reasonableness. The
Commission finds the approach it uses to determine the upper bounds of
the zones of reasonableness--relying on data from the Second Mandatory
Data Collection and calculating the mean cost per minute plus one
standard deviation relative to that mean separately for prisons and
larger jails--provides an appropriate starting point for determining
the lower bounds of the zones. Because of the shortcomings in the
providers' reported data, the Commission adjusts those data using
generally accepted statistical tools to remove outlier contracts and to
replace GTL's reported data with data derived from contracts comparable
to those GTL serves. The related assumptions and adjustments are
described at greater length below, and in Appendix C, below. Under this
approach, the mean cost per minute for prisons is $0.052, the standard
deviation relative to that mean is $0.012, and the mean plus one
standard deviation is $0.064 per minute. Similarly, the mean cost per
minute for larger jails is $0.065, the standard deviation from that
mean is $0.015, and the mean plus one standard deviation is $0.080 per
minute. These numbers--$0.064 per minute and $0.080 per minute--
constitute the lower bounds of the Commission's zones of reasonableness
for prisons and larger jails, respectively.
87. The construction of the lower bound begins by removing three
outlying observations that skew the data and that would otherwise
render the mean and standard deviation to be less precise measures of
the data's central tendency. The central tendency of a distribution
refers to the degree to which data is clustered around a central value,
frequently measured by the mean, median, or mode. In general, the
data's dispersion (as measured by the standard deviation) and central
tendency are the main properties defining a distribution. These three
outlier contracts report costs of [REDACTED] per minute for larger
jails in Williamson, Texas, San Luis, Arizona, and West Texas, Texas,
respectively. The outliers the Commission addresses here were
identified using the Grubbs method, a statistical approach the
Commission describes at length in Appendix C, below. To put these cost
levels in context, [REDACTED] per minute is the highest cost per minute
for any contract regardless of facility type or size, and [REDACTED]
and [REDACTED] per minute are approximately three times and twice as
large as the cost per minute for the next highest larger jail contract.
Excluding these three outliers, costs per minute for larger jail
contracts range from $0.03 to $0.17. As the Commission describes in
Appendix A, a single observation from a prison contract reports a cost
per minute of [REDACTED], which the Commission concludes is clearly
erroneous and omit in entirety. Nothing in the record supports using
such extreme costs to set provider-related rate caps. Further, these
contracts would remain outliers, even under alternative methods of
outlier identification proposed in the record.
88. Next, the Commission substitutes reasonable surrogates for
GTL's reported cost data to address significant and unresolved issues
with those data, as identified in the 2020 ICS FNPRM and discussed more
fully in this Report and Order. As recounted above, GTL's only reported
direct costs for inmate calling services are bad debt costs, although
it certainly incurs other direct costs that are causally related to
providing inmate calling services. Additionally, GTL's reported total
costs per minute are much higher than most other providers' reported
total costs per minute, contrary to the Commission's expectation of
economies of scale. In fact, GTL's total revenues per minute from
prisons are less than its allocated costs per minute, the only provider
for which this is true. These issues remain unresolved--and incurable
on the record before the Commission--because GTL failed to provide
meaningful cost data in its Second Mandatory Data Collection response
or in its response to the Bureau's July 15, 2020, Letter, or to suggest
any alternative means of assisting the Commission in its efforts to
estimate GTL's costs of providing inmate calling services. The
Commission finds that the best way to address this situation is to
adjust GTL's reported contract-level cost data using the k-nearest
neighbor method. The Commission describes this method in greater detail
and show its application to GTL's data in Appendix C, below.
Specifically, the Commission replaces the cost-per-paid-minute data
reported for each prison and larger jail contract served by GTL with
the weighted average of the data for the three most comparable (i.e.,
nearest neighbor) contracts served by other providers. To determine a
contract's ``neighbors,'' the Commission compares its average daily
population, total inmate calling services minutes, total commissions
paid, and facility type to all other contracts in its dataset. This
approach reasonably preserves the non-cost information GTL reported for
the prisons and larger jails it serves, while reducing the likelihood
that the cost data for those facilities are overstated to a significant
extent. The Commission finds that this approach, in
[[Page 40697]]
combination with the removal of outlier observations as described
above, provides a reasonable method for determining the lower bounds of
the zones of reasonableness.
89. In the 2020 ICS FNPRM, the Commission proposed to reduce GTL's
reported costs by 10% in order to address its data reporting issues, an
approach the Commission now abandons in light of convincing opposition
in the record. Commenters addressing this proposal were nearly
unanimous in rejecting it. Some commenters observe that a 10% decrease
would fail to resolve all of the issues presented by GTL's reported
data, while others argue this approach suffers fundamental
methodological flaws of its own. Instead, the Commission relies on the
k-nearest neighbor method, rather than alternative methods for
addressing the deficiencies in GTL's reported data, because the
Commission finds it provides the best approach for setting the lower
bounds of the zones of reasonableness. In particular, although the
Winsor method also would provide a reasonable method for replacing
GTL's data with surrogate data, that method would simply replace GTL's
outlier data with the next-highest observation, as opposed to the
multifactor comparison provided by the Commission's adopted approach.
In other words, the Winsor method would adjust costs downward to the
next-highest observation without consideration of whether the contract
with the next highest costs is similar in any other dimensions, such as
minutes of use or average daily population. The Commission finds the k-
nearest neighbor method's reliance on three comparable contracts makes
it a superior tool for addressing the dataset before the Commission
because it identifies a greater degree of similarity between
observations.
90. The Commission also considered removing all of GTL's data from
its lower bound calculations, an approach on which the Commission
sought comment in the 2020 ICS FNPRM. The Commission finds this
approach too sweeping, however, because it would exclude all of GTL's
prisons and larger jails from its analysis. GTL's Second Mandatory Data
Collection response includes extensive non-cost information on these
facilities, regarding matters such as average daily population and paid
minutes of use, that depict the inmate calling services operations of
roughly [REDACTED] of all prisons and larger jails, or roughly
[REDACTED] of the reported average daily population for those
facilities. Excluding this information from its analysis would create a
significantly incomplete picture of the industry, resulting in
considerably less accurate estimates of industrywide mean contract
costs. Additionally, the remaining contract information from GTL's data
provides necessary distinguishing characteristics that informed the
Commission's selection of the nearest neighboring contracts.
91. Determining Interim Interstate Provider-Related Rate Caps for
Prisons and Larger Jails. The upper bound of the zone of reasonableness
for the provider-related rate cap for prisons is $0.133 per minute and
the lower bound is $0.0643 per minute. For larger jails, the upper
bound is $0.218 per minute and the lower bound is $0.0802 per minute.
Based on its analysis of the available information, the Commission
finds that $0.12 per minute will provide a reasonable interim
interstate provider-related rate cap for prisons and that $0.14 per
minute will provide a reasonable interim interstate provider-related
rate cap for larger jails. Significantly, its analysis confirms that
these interim interstate rate caps will allow most, if not all,
providers to recover their costs (as reported in their responses to the
Second Mandatory Data Collection and allocated among their contracts as
described above) of providing interstate calling services to
incarcerated people. And, because those fully distributed costs likely
overstate the actual costs of providing inmate calling services under
any particular contract, the Commission finds it unlikely that any
provider will be unable to recover its actual costs of providing
interstate inmate calling services under any contract. To the extent
that there are some small number of situations where a provider cannot
recover its actual costs of providing interstate inmate calling
services under the Commission's interim caps, the Commission adopts a
waiver process that will allow it to grant relief from those caps if
the Commission finds such relief is warranted based on its analysis of
data that allows it to more accurately and precisely identify that
provider's cost of providing interstate inmate calling services than
can be achieved using the data currently before the Commission.
92. A provider-related rate cap component of $0.12 per minute for
prisons is $0.02 above the midpoint between the upper and lower bounds
of the zone of reasonableness (approximately $0.10). The providers'
incentives to overstate costs provide a compelling reason to set the
rate cap significantly below that upper bound. The Commission finds
that removal of outliers as reflected in the lower bound number based
on its statistical approach to be appropriate as a general matter,
given the need to measure the central tendency of the data as
accurately as possible. The Commission is reluctant to give this
adjustment too much weight at this time, however, because the
Commission does not know the precise reason why these outlier estimates
are so high. Although the Commission also finds the adjustment to GTL's
costs to be fully justified, the Commission is reluctant to place too
much weight on this adjustment because this is an empirical
approximation relying on the consistency and validity of the contract
data reported by all other firms. After closely examining the imperfect
data reported by providers that have an incentive to overstate their
costs, and after developing the calculation of both of the upper and
lower bounds, the Commission finds that an interim provider-related
rate component of $0.12 per minute for prisons will allow providers to
recover their actual costs of providing inmate calling services at
those facilities, a conservative choice thereby ensuring that the
providers will receive reasonable compensation for their services.
93. Likewise, the Commission finds that an interim rate cap of
$0.14 per minute for larger jails will enable providers to recover
their costs of providing interstate inmate calling services. In
selecting this value, the Commission assigns significant weight to the
result from the cost study conducted by Securus's outside consultant.
This estimate, suggesting that Securus's cost of serving larger jails
is at most [REDACTED] per minute, is based on highly disaggregated cost
data and a relatively sophisticated set of cost allocation procedures
tailored specifically to the business of providing inmate calling
services and appears to be consistent with cost-causation principles.
This number is the maximum per-minute cost estimate among the estimates
Securus's consultant developed for Securus's larger jails, and the
Commission finds that it provides a cushion large enough for providers
to earn at least a normal risk-adjusted rate of return. Further,
because there are relatively few providers for larger jails, as
compared to the larger number of both large and small providers that
serve jails with average daily populations less than 1,000, the
Commission would expect a small variance in the true per-minute costs
of providing inmate calling services at larger jails, relative to the
overall variance. A rate cap of $0.14 per minute provides an even
larger cushion,
[[Page 40698]]
further ensuring that providers will have the opportunity to recover
actual costs.
94. A provider-related rate cap component of $0.14 per minute for
larger jails is just below the midpoint between the upper and lower
bounds of the zone of reasonableness (approximately $0.15), but still
well above the lower bound of approximately $0.08. As with prisons, the
providers' incentives to overstate their costs provide a compelling
reason to set a rate cap significantly below the upper bound. The
Commission again is reluctant to place too much weight on the GTL data
adjustment for the reasons discussed regarding prisons. After closely
examining the data, the Commission finds that an interim provider-
related rate component of $0.14 per minute for larger jails will enable
the majority of providers to recover their actual costs of providing
inmate calling services at those facilities. Further, the Commission
notes that this $0.02 differential between the rates the Commission
selects for prisons and larger jails approximates the 22% cost
differential shown in the record.
95. As the Commission describes in Appendix A, the Commission finds
that setting the provider-related rate component at these levels for
prisons and larger jails will allow providers at substantially all
facilities to recover their reported costs. Analysis of contract
revenues and underlying contract characteristics also suggests a
significant majority of these contracts would be viable at the
Commission's proposed caps. The responses to the Second Mandatory Data
Collection provide data for 129 prisons and 182 larger jails. Following
the process outlined in Appendix A, the Commission finds that 66
prisons and 15 larger jails reported per-minute costs above the
respective interim provider-related rate caps. Looking at these
outliers more closely, however, reveals that all but three of these
facilities (66 prisons and 12 larger jails) are served by GTL, which
lacked the records to accurately determine its costs of providing
calling services to incarcerated people. This alone creates doubt as to
whether these facilities should be viewed as legitimate outliers,
rather than simply illustrations of the issues the Commission observes
throughout GTL's reported data. Repeating this analysis after adjusting
GTL's cost data using the k-nearest neighbor approach used to set the
lower bound shows that all of GTL's facilities would have per-minute
costs below the interim interstate provider-related rate caps. The
remaining facilities (three larger jails) all exhibit per-minute costs
that exceed their per-minute revenues, suggesting that the actual costs
of providing inmate calling services to them are lower than the
Commission's estimates. Finally, the Commission reiterates that to the
extent the actual costs of serving a facility exceed the applicable
interim rate cap, a provider may request a waiver using the process set
forth in this Report and Order. As indicated in the 2020 ICS FNPRM,
``the Commission has permitted inmate calling services providers to
file a petition for a waiver if it believed it could not recover its
costs under the Commission-adopted rate caps.'' The Commission refines
its waiver procedure today.
96. The record supports these interim rate cap choices. The cost
study presented by Securus's outside consultant estimates that Securus
incurs maximum per-minute costs of [REDACTED] to serve prisons and
[REDACTED] to serve larger jails, exclusive of site commissions.
Although the Commission finds that these figures are overstated to the
extent they calculate the return component of Securus's costs using the
prices its current owners paid to purchase the company, the study's
cost estimates suggest that interim provider-related rates caps of
$0.12 for prisons and $0.14 for larger jails will provide a cushion
large enough for the providers at those facilities to earn at least a
normal risk-adjusted rate of return on their capital investment in
providing inmate calling services. As the [REDACTED] per minute cost
has been specifically developed for providers at these largest jails,
and there are relatively few of these providers, the Commission would
not expect there to be a big variance in the true per-minute costs of
providing inmate calling services at these jails. Although the
Commission does not agree with every aspect of this study, the
Commission finds that a number of factors support its credibility and
that it therefore provides valuable supporting evidence that the rate
caps the Commission chooses here provide an adequate interim allowance
for differences among providers and markets, relative to the average
inmate calling services costs reflected in the data filed in response
to the Second Mandatory Data Collection.
97. The Commission's analysis of the mean per-minute revenues from
prisons and larger jails further corroborates its choices. As discussed
in Appendix A, its revenue analysis indicates that it will be
commercially viable for providers to serve the vast majority of prisons
and larger jails under the provider-related rate caps the Commission
adopts today. For example, as the Appendix illustrates, approximately
74% of prisons and 65% of larger jails have reported per-minute
revenues net of site commissions under those interim caps. Revenues net
of site commissions are reported revenues minus reported site
commission payments. Because profit-maximizing firms are unlikely to
bid for contracts at which they will operate at a loss, this suggests
the interim interstate caps will not undermine providers'
profitability. The Commission expects these revenues to cover costs of
service below $0.12 per-minute for prisons and $0.14 per minute for
larger jails, because higher costs would make such contracts
unprofitable, and providers would have no reason to voluntarily accept
such terms. And a large portion of the remaining prisons and larger
jails--those with per-minute revenues that are higher than $0.12 and
$0.14 per minute, respectively--have allocated per-minute costs less
than the applicable interim provider-elated rate caps, which likewise
suggests they will remain profitable under those caps. In total,
therefore, the Commission's interim rate caps will allow approximately
81% of all prison contracts and approximately 96% of all larger jail
contracts to cover the costs the providers reported in response to the
Second Mandatory Data Collection. These percentages would be even
higher if the Commission were to exclude the providers' costs of
providing ancillary services and otherwise rely on the providers'
actual, rather than reported, costs. These percentages are also higher
if the Commission allows for the increased call minutes that will
likely result because its new interim caps will, by lowering prices,
increase call volumes. And these cost recovery figures ignore that all
costs are likely overstated, such that there is further reason to
believe these percentages would be even higher in practice.
4. Accounting for Correctional Facility Costs
98. Based on the record, the Commission adopts additional new
interim rate cap components (the facility-related rate components)
reflecting two different types of site commission payments--those
required under codified law or regulations and those payments
prescribed under negotiated contracts--made to correctional facilities.
At the outset, and as explained in greater detail in this section, the
Commission emphasizes that the facility-related rate components are
interim reforms reflecting the limitations of the record before the
[[Page 40699]]
Commission and the current regulatory backdrop. Site commission
payments are payments made by calling services providers to
correctional facilities and broadly encompass any form of monetary
payment, in-kind payment requirement, gift, exchange of services or
goods, fee, technology allowance, product or the like. They can be
expressed in a variety of ways, including as per-call or per-minute
charges, a percentage of revenue, or a flat fee. The 2020 ICS FNPRM
proposed to permit providers to recover an additional $0.02 per minute
for all types and sizes of facilities to account for the costs
correctional facilities incur that are directly related to the
provision of inmate calling services. The Commission adopts a modified
version of that proposal based on record evidence that $0.02 per minute
for every facility may not permit recovery of all legitimate facility
costs related to inmate calling services, and may not be required at
others. For the time being, the Commission declines to adopt defined
facility-related rate components for jails with average daily
populations below 1,000. Instead, for prisons and larger jails only,
the Commission adopts two distinct interim site commission-related rate
components reflecting different types of site commissions: Site
commission payments that providers are obligated to pay under laws or
regulations and payments that providers agree, by contract, to make. In
referring to ``law or regulation'' the Commission means state statutes
and laws and regulations that are adopted pursuant to state
administrative procedure statutes where there is notice and an
opportunity for public comment such as by a state public utility
commission or similar regulatory body with jurisdiction to establish
inmate calling rates, terms and conditions. The Commission specifically
does not intend to include ``regulations'' for which no formal
administrative process occurred prior to adoption, and the Commission
also does not intend to include contractual negotiations that are
merely approved or endorsed by state or local law. This approach to
defining what are, by default, laws or regulations requiring site
commission payments guards against the risk of abuse from a broader
definition, given evidence that state and local correctional facilities
might themselves be able to create so-called `rules' or `regulations'
outside of formal process--simply by exercising their discretion
regarding site commission payments in a different manner--and thereby
evade the analytical differences underlying this distinction in the
Commission's interim rules. To the extent that a scenario arises that
falls outside the Commission's definition that a provider or
correctional institution believes should be treated as a qualifying law
or regulation, it is free to seek a waiver where the Commission can
conduct a careful case-by-case review to ensure no evasion or abuse is
occurring.
99. First, with regard to the former type of site commission, the
Commission adopts an interim legally mandated facility rate component
that reflects payments that providers make to correctional facilities
pursuant to law or regulation that operates independently of the
contracting process between correctional institutions and providers.
These mandatory payments take varied forms, including per-call charges
or prescribed revenue percentages, and may be imposed on calling
service providers by state governments through statutes or regulations.
Securus argues that this statute is a ``general fee provision'' that
should be treated as a mandatory tax or fee rather than a site
commission subject to the Commission's interim reforms here. As
explained above, providers are free to seek a waiver if they believe
that a law or regulation should not be treated as a legally mandated
site commission but the Commission does not have sufficient information
to make particular factual determinations in this Report and Order
about any particular state mandated payment. The Commission confirms
that its interim rate reforms do not include Mandatory Taxes or Fees as
defined in the Commission's rules. Given the ``mandatory'' nature of
these payments, for the purpose of the interim actions the Commission
takes herein and based solely on the current record, the Commission
recognizes them as a cost that providers must incur to provide calling
services, consistent with section 276's fair compensation provision.
For now, providers may recover the costs of these payments, without any
markup, as a separate component of the total permissible interstate and
international rate caps the Commission adopts today. In no event,
however, can the total rate cap exceed $0.21 per minute.
100. As with other reforms in this Report and Order, the Commission
emphasizes that its adoption of a legally mandated facility rate
component is an interim reform that is aimed to balance the need to
achieve immediate rate relief in light of the history of this
proceeding, the record before it, and the exigent circumstances
presented by the COVID-19 pandemic, consistent with the strictures of
the D.C. Circuit's decision in GTL v. FCC. The Commission concludes,
for purposes of this interim reform, that adopting a legally mandated
facility rate component is consistent with the fair compensation
mandate of section 276. The Commission lacks the evidence, however, to
determine on a permanent basis whether and what portion of these
payments are ``legitimately'' related to the cost of providing the
service. The Commission leaves such determinations to its forthcoming
action on the Fifth FNPRM, published elsewhere in this issue of the
Federal Register.
101. Next, the Commission adopts a contractually prescribed
facility rate component that permits providers to recover, as a
component of their total per-minute interstate and international
calling rates for prisons and larger jails, that portion of such site
commission payments that the Commission determines for the purpose of
this interim action is reasonably related to the facility's cost of
enabling inmate calling services at that facility. Site commission
payments prescribed under negotiated contracts impose contractual
obligations on the provider and, in the Commission's judgment, on the
current record, reflect not only correctional officials' discretion as
to whether to request site commission payments as part of requests for
proposals, and if so in what form and amount, but also providers'
voluntary decisions to offer payments to facilities that are mutually
beneficial in the course of the bidding and subsequent contracting
process. The fact that a state law specifically permits certain
correctional facilities to recover site commissions from providers but
does not mandate such payments does not change the nature of these
discretionary payments. Providers may recover up to $0.02 per minute to
account for these facility costs. Where a law or regulation merely
allows a correctional facility to collect site commissions, requires a
correctional facility to collect some amount of site commission payment
but does not prescribe any specific amount, or is not subject to state
administrative procedural requirements, site commissions would also
fall into the category of a site commission payment prescribed by
contract, because the correctional facilities and providers can
negotiate, in their discretion, regarding how much the providers will
pay in site commissions.
102. To promote increased transparency regarding the total rates
charged to consumers of inmate calling services, the Commission
requires providers to clearly label a legally mandated facility rate
component or a
[[Page 40700]]
contractually prescribed facility rate component, as applicable, in the
rates and charges portion of a calling services consumer's bill,
including disclosing the source of such provider's obligation to pay
that facility-related rate component. Providers that make no site
commission payments (and thus are not permitted to pass any facility-
related rate component on to consumers) are not required to include a
facility-related rate component line item on end user bills.
103. Finally, to avoid any confusion, the Commission reiterates
that nothing in this section, or any other section of this Report and
Order, is intended to result in a higher permissible total rate cap for
any interstate call from any size facility than the $0.21 that existed
for interstate debit and prepaid calls before today and that continues
to apply to all providers for all types of calls from jail facilities
with average daily populations below 1,000. During the eight-year
period that providers have been subject to the $0.21 rate cap for all
facilities, they have had the ability to avail themselves of a waiver
process if they deemed that rate cap to be insufficient to enable them
to recover their inmate calling services costs. With the exception of a
single temporary waiver request relating specifically to the interim
rate caps dating back to 2014, no other provider has sought a waiver of
the $0.21 interstate rate cap claiming that cap fails to permit
recovery of that provider's costs at any size facility. The Commission
notes that Securus filed a general ``me too'' waiver request in 2014
asking the Commission to extend Pay Tel's limited waiver to all other
providers serving the same size jails. The Commission denied Securus's
waiver request without prejudice as Securus failed to make an adequate
showing for a waiver to be granted, and also failed to provide
sufficient, or any, cost and revenue data to support its claims. In
addition, a handful of other waiver requests relating to other sections
of the inmate calling services rules have also been filed but these
waivers typically related to timeframes within which new regulations
associated with ancillary services reforms became effective. The
absence of further waiver requests over the past eight years leads the
Commission to conclude that $0.21 is sufficient for providers to
recover their costs, including any costs related to site commission
payments. Thus, no provider may assess a provider-related rate
component and facility-related rate component that, added together,
results in a total interstate rate for any interstate call from any
size facility of more than $0.21. Operationally, providers remain free
to impose the legally mandated facility rate component at the level
specified by the relevant statute or rule. If the resulting cumulative
total rate exceeds $0.21 per minute, providers would need to charge a
lower provider-related rate. Based on its understanding and awareness
of the various state statutes or rules that underlie legally mandated
facility rate components, the Commission does not expect this to occur,
however. Nevertheless, providers that cannot cover their inmate calling
services costs under the $0.21 per minute total maximum rate cap may
seek a waiver of the Commission's interim rate caps.
104. As with the provider-related rate caps the Commission adopts
today, its decision to allow a $0.02 additive for contractual site
commissions and the full pass-through of legally mandated site
commissions pursuant to section 276 up to the $0.21 cap are interim
steps that the Commission adopts in light of the history of this
proceeding, the available record, and the exigent circumstances caused
by the COVID-19 pandemic, including the related decision by many
prisons and jails to prohibit in-person visitation. Nothing in today's
decision limits its ability, on a more complete record and with
sufficient notice, to reconsider this treatment of site commission
payments, and indeed the Commission seeks detailed comment in the Fifth
FNPRM on site commissions, including what portion of all site
commission payments, if any, actually represent ``legitimate costs''
connected to inmate calling services.
105. Background. The Commission has historically described site
commission payments as ``a division of locational monopoly profit.''
Over the past five years, however, the Commission has recognized that
site commissions may not always exclusively compensate correctional
facilities ``for the transfer of their market power over inmate calling
services to the inmate calling services provider;'' in some instances,
site commission payments may serve in part to compensate correctional
facilities for costs that the facilities ``reasonably incur in the
provision of inmate calling services.'' Although the Commission and the
D.C. Circuit each have recognized the distinction between portions of
these payments, the Commission agrees with commenters, particularly on
this record, that it is ``difficult to disentangle which part of the
site commission payment goes towards reasonable costs and which portion
is due to the transfer of market power.''
106. Although the Commission declined to permit the recovery of any
portion of site commission payments to account for facility-related
costs in the 2015 ICS Order, the Commission explained that record
evidence suggested that if ``facilities incurred any legitimate costs
in connection with [inmate calling services], those costs would likely
amount to no more than one or two cents per billable minute.'' In 2016,
when the Commission reconsidered its decision to categorically exclude
site commissions in the 2015 ICS Order, it concluded that some
facilities likely incur costs directly related to the provision of
inmate calling services that may amount to more than one or two cents a
minute. The Commission therefore increased the rate caps it had adopted
in the 2015 ICS Order to ``better ensure that providers are able to
receive fair compensation for their services'' by adopting an additive
to the 2015 rate caps that differed among facility size. The data and
other evidence supporting the 2016 facility-cost additives suggested
that per-minute facility costs associated with inmate calling services
were higher in smaller facilities than in larger ones, so the
Commission adopted a tiered framework for site commission payments
based on facilities' average daily populations. These rate tiers
mirrored the tiers the Commission had used to establish the permanent
rate caps adopted in the 2015 ICS Order.
107. The D.C. Circuit's 2017 vacatur of the 2015 ICS Order rate
caps in GTL v. FCC, based in part on the finding that the Commission's
decision to categorically exclude site commission payments from those
rate caps was arbitrary and capricious, led the Commission to ask
questions in the 2020 ICS FNPRM aimed at determining ``which portions
of site commissions might be directly related to the provision of
inmate calling services and therefore legitimate, and which are not.''
Because the revised rate caps adopted on reconsideration in 2016 to
provide for the recovery of site commission costs were based on the
same methodology the court had vacated in GTL v. FCC, the D.C. Circuit
also vacated and remanded the 2016 ICS Reconsideration Order. The 2020
ICS FNPRM proposed a $0.02 per minute additive based on staff
``analysis of the costs correctional facilities incur that are directly
related to providing inmate calling services and that the facilities
recover from calling service providers as reflected by comparing
provider cost data for facilities with and without site
[[Page 40701]]
commissions.'' The Commission sought comment on its analysis, including
whether it should vary the allowance for site commission payments based
on a facility's average daily population. It also sought comment on
whether a $0.02 per minute allowance would be adequate to cover the
costs that jails with average daily populations less than 1,000 incur
in connection with the provision of interstate and international inmate
calling services. The Commission asked correctional facilities to
``provide detailed information concerning the specific costs they incur
in connection with the provision of inmate calling services.''
108. Full Recovery of Site Commissions Is Not Required. Some
providers argue that the Commission must allow for full recovery of all
site commission payments because inmate calling services providers
``are required to pay site commissions and have no say in the
elimination or substantial reduction of such commissions.'' The
Commission disagrees.
109. The D.C. Circuit held that, because the Commission
acknowledged that some portion of some providers' site commission
payments might represent ``legitimate'' costs of providing inmate
calling services, the Commission could not reasonably ``categorically
exclude[] site commissions and then set the rate caps at below cost.''
``Ignoring costs that the Commission acknowledges to be legitimate,''
the court explained, ``is implausible.'' But the court left it to the
Commission to determine ``which portions of site commissions might be
directly related to the provision of ICS and therefore legitimate, and
which are not.''
110. Under section 201(b), the Commission has a duty to ensure that
``charges'' and ``practices'' ``for and in connection with'' interstate
and international telecommunications services--including inmate calling
services--are not ``unjust or unreasonable.'' As explained,
incarcerated people and the people they call have no choice in their
telephone service provider. Instead, each correctional facility has a
single provider of inmate calling services that operates as a
monopolist within that facility. And very often, correctional
authorities award the monopoly franchise for inmate calling services
based in part on what portion of inmate calling services revenues a
provider has offered to share with the facility. Without effective
regulation, providers bidding for a facility's monopoly franchise
compete to offer the highest site commission payments, which they then
recover through correspondingly higher rates charged to incarcerated
people and their families.
111. As discussed in greater detail below, in view of these market
dynamics, and based on the record, the Commission rejects the claim
that any and all site commission payments that a provider might elect
to offer a correctional facility in the course of contract negotiations
for the facility's monopoly franchise are ``real, required costs
[forced] on [inmate calling services] providers as a condition
precedent to the providers' ability to offer [inmate calling
services].'' That claim is at odds with well-established principles of
ratemaking. And the providers' position has no limiting principle.
Under their logic, incarcerated people and the people with whom they
communicate by telephone may be forced to pay rates for the calling
services they use that cover items wholly unrelated to those services.
This cannot be reconciled with the Commission's statutory duty to
ensure that incarcerated people and the people with whom they speak are
charged ``just and reasonable'' rates for inmate calling services. The
claim that any and all site commission payments are costs reasonably
related to the provision of interstate and international inmate calling
services is particularly implausible with respect to future contracts.
At least where site commissions are not required under formally
codified laws or regulations, providers of inmate calling services
cannot reasonably contend that they are bound to offer, or agree to
pay, site commissions that are uneconomical for them on a going forward
basis. The record before the Commission suggests that if, in the wake
of this Report and Order, providers of inmate calling services should
offer to pay site commissions at levels higher than they can recover
through interstate and international inmate calling services rates,
that is because they expect to profit from obtaining the franchise at a
given facility in other ways (e.g., by recovering the cost of the site
commission payments they offer through intrastate inmate calling
services rates or through revenue generated by providing other,
nonregulated services). Even with respect to existing contracts, the
Commission disagrees that any and all site commissions that a provider
has agreed to pay are costs reasonably related to the provision of
interstate and international inmate calling services. As it discusses
above, the Commission's proceeding on how to regulate rates for
interstate inmate calling services has been underway for many years.
Throughout this period, providers have understood that the Commission
might seek to bar the recovery of some or all site commissions through
interstate rates. Under the circumstances, whatever the providers
offered to pay, they offered at their own risk.
112. Neither GTL v. FCC nor section 276 of the Act compels a
different conclusion. As the Commission has observed, and as the court
acknowledged in GTL v. FCC, the Commission is entitled ``to assess on
remand which portions of site commissions might be directly related to
the provision of [inmate calling services] and therefore legitimate,
and which are not.'' Due to the D.C. Circuit's remand on the issue of
site commissions, the Commission declines NCIC's recommendation that
the Commission simply ``not disturb site commissions.'' To leave the
issue of site commissions untouched by the Commission's actions today
would be contrary to the Commission's mandate to ensure just and
reasonable rates under section 201(b) of the Act. And ``fair''
compensation for providers of inmate calling services, under section
276, does not mean that providers must be able to recover, through
rates for interstate and international inmate calling services,
revenue-sharing payments that they agree voluntarily to make to
encourage a correctional facility to select them as the monopoly
franchise holder for inmate calling services (both interstate/
international and intrastate) and often other nonregulated services,
too.
113. On the present record, the Commission cannot conclude that
Commission precedent requires, at least based on current law and
policy, that the Commission treat all site commissions solely as a
division of locational monopoly profits none of which are recoverable
through rates, as the United Church of Christ and Public Knowledge
urge. The United Church of Christ and Public Knowledge rely on the
Commission's conclusion in the 1999 Pay Telephone Order that site
commissions ``should be treated as a form of profit rather than a
cost.'' As explained above, while the Commission has historically
viewed site commissions as a division of monopoly profits, it took a
different view in later decisions. UCC and Public Knowledge also argue
that the Commission cannot ``treat the costs of communications
providers for incarcerated people differently from the costs of
communications providers via payphones when the economic
[[Page 40702]]
incentives and factual circumstances are nearly identical and both are
governed by the same statute.'' As the Commission has recognized since
2002, however, calling services for the incarcerated are ``are
economically different than other payphone services.'' The Commission's
actions here reflect a reasonable approach to responding to GTL v. FCC
and Commission precedent in the inmate calling services context in
light of the current record. For example, in the 1999 Pay Telephone
Order the Commission reasoned that site commission payments are not
costs because the ability to offer a site commission payment occurs
``only when a particular payphone location generates a number of calls
that exceeds the break-even number of calls'' thereby producing
``additional profit'' that can be paid to the location owner. The 1999
Pay Telephone Order also expressed confidence that providers reasonably
could expect there to be locations where they would be allowed to
operate payphones without paying locational rent. On the current
record, the Commission is not persuaded that the Commission can apply
those conclusions regarding locational rents from the traditional
payphone context at the time of the 1999 Pay Telephone Order to site
commission payments in the inmate calling service context today given
their tension with the Commission's views regarding the recoverability
of certain correctional facility costs in the 2016 ICS Reconsideration
Order, as well as the D.C. Circuit's rejection of the categorical
exclusion of site commission payments from recovery in inmate calling
service rates at issue in GTL v. FCC. Thus, while the Commission
concludes that full recovery of site commissions is not required, the
Commission cannot conclude on the current record, and in light of the
current legal treatment of site commissions, that no recovery of site
commissions is justified. For this reason, and on the record before it,
the Commission disagrees with the Public Interest Parties insofar as
they suggest that it may be reasonable to fully exclude site commission
payments.
114. Legally Mandated vs. Contractually Prescribed Site Commission
Requirements. On the record now before it and in light of section 276,
the Commission sees a meaningful difference between site commission
payments in an amount that is prescribed under formally codified laws
or regulations and other site commission payments that ultimately are
embodied in contracts with correctional facilities or systems.
115. In GTL v. FCC, the D.C. Circuit rejected the FCC's categorical
exclusion of site commission payments from costs to be recovered
through inmate calling services rates in the regulations under review.
In significant part, the D.C. Circuit reasoned:
The FCC's suggestion that site commissions ``have nothing to do
with the provision of [inmate calling services],'' Order, 30 FCC
Rcd. at 12822 (internal quotation marks omitted), makes no sense in
light of the undisputed record in this case. In some instances,
commissions are mandated by state statute, Rates for Interstate
Inmate Calling Services, 27 FCC Rcd. 16629, 16643 (2012), and in
other instances commissions are required by state correctional
institutions as a condition of doing business with [inmate calling
services] providers, 17 FCC Rcd. at 3252-53. ``If agreeing to pay
site commissions is a condition precedent to [inmate calling
services] providers offering their services, those commissions are
`related to the provision of [inmate calling services].''' Joint Br.
for Pet'rs at 21. And it does not matter that the states may use the
commissions for purposes unrelated to the activities of correctional
facilities. The [inmate calling services] providers who are required
to pay the site commissions as a condition of doing business have no
control over the funds once they are paid. None of the other reasons
offered by the Commission to justify the categorical exclusion of
site commissions passes muster.
As the Commission has already discussed when explaining why the
Commission is not required under GTL to allow the full recovery of any
and all site commissions, as some providers contend, the court's
statements rejecting ``the categorical exclusion of site commissions''
from the rate analysis in the 2015 ICS Order must be interpreted in the
context of the court's express recognition that it is ``[up] to the
Commission to assess on remand which portions of site commissions might
be directly related to the provision of [inmate calling services] and
therefore legitimate, and which are not.'' In light of that
recognition, the Commission reads the analysis excerpted above as
turning on the particularities of the 2015 ICS Order and its underlying
record. The Commission now revisits and revises both its understanding
and expectations regarding the operation of the inmate calling services
marketplace and its approach to evaluating what nexus to interstate and
international inmate calling services is required for a cost to warrant
recovery through the rates for those services. The predicates for the
Commission's actions regarding site commission payments in this Report
and Order thus differ materially from the predicates underlying the
D.C. Circuit's analysis in GTL v. FCC.
116. More Nuanced Understanding of the Inmate Calling Services
Marketplace. With respect to the inmate calling services marketplace,
rather than the two basic scenarios of site commission payments
identified by the D.C. Circuit in GTL v. FCC based on prior Commission
decisions, the Commission identifies three conceptual scenarios where
site commission payments can arise.
117. First, site commission payments at a specified level sometimes
are mandated by state statute or regulation that operate independently
of the inmate calling contracting process. As discussed above, some
laws permit--but do not require--correctional institutions to collect
site commissions, and others require site commission payments but do
not specify any particular level. The Commission does not consider
those to fall within category one--instead, they fall within category
two and/or three (depending on how the correctional institution
approaches the request for proposal process). Although some parties
have advocated that the Commission preempt or otherwise prohibit the
payment of site commissions mandated by state law, the Commission has
not yet taken that step. Consequently, as the law stands today and
consistent with section 276, it is reasonable to conclude that neither
correctional institutions nor providers can avoid the need for site
commission payments in this scenario. As explained above, on the
current record and based on current law, the Commission only finds that
such site commissions satisfy the requirement for fair compensation to
providers under section 276 and leave for another day a complete
analysis under section 201.
118. Second, there can be situations where the correctional
institution's request for proposal, or the like, asks bidders to agree
to pay site commissions at a specified level. While facilities may
include a site commission component in the request for proposal's
description along with other bid ``requirements,'' the Commission
understands that most, if not all, requests for proposals include some
form of an ``exception'' provision that enables bidding providers to
explain why they are deviating from the request for proposal's bidding
specifications or requirements, and that gives the issuer the
discretion to accept such bids nonetheless. In this scenario, unlike in
scenario one, a correctional institution is under no legal compulsion
to insist upon receiving site commission payments, or payments at a
particular level. If no provider accedes to the institution's request
for such payments, the institution will be constrained to
[[Page 40703]]
entertain noncompliant offers if it wants the individuals in its
custody to have access to interstate and international calling
services. Given the well-documented benefits, for communities and
correctional institutions alike, in allowing incarcerated people access
to calling services, the Commission does not anticipate that
correctional facilities would forgo making such calling services
available merely because providers decline to pay site commissions at
the facilities' desired levels. Such restrictions or denials based on a
lack of site commission payments above and beyond the level needed for
correctional institutions to recover any costs they incur in making
inmate calling services available also could have legal implications
that make them unlikely. The Commission therefore anticipates that
correctional institutions will not formally insist on site commission
payments above the level required to cover the institutions' own costs
if the alternative is to go without inmate calling services (and all
the other services typically offered by providers) at the facility. To
the extent that providers nonetheless offer site commissions above that
level, the Commission regards that as a marketplace choice different in
kind from the scenario where site commissions at a given level are
required by a statute or rule. Thus, if providers offer site
commissions at levels that are not recoverable under the Commission's
interstate and international rate caps, the Commission believes that
they do so as a matter of their own business judgment. Consequently,
the Commission does not regard site commissions under the second
scenario as a condition precedent of doing business at correctional
institutions.
119. Third, in other situations, no state law compels site
commission payments and the correctional institution soliciting bids
does not request any specific payment (even if it indicates that offers
to pay site commissions will influence bid selection). On the current
record, the Commission concludes that whether a provider would have ``a
realistic chance of winning a contract'' without a site commission
payment turns not on any inherent feature of the provision of inmate
calling services, but on competing bidders' discretionary business
decisions informed by a range of regulatory and marketplace
considerations that could affect those entities' judgments about which
strategies will prove more or less profitable. Indeed, it is
increasingly clear that when providers offer site commission payments
as part of their bids, they do so to gain a benefit for themselves,
rather than to satisfy a formal precondition of access to a
correctional facility. For one, Securus reports that ``it has made
commission-free offers a standard offering and attempted to renegotiate
contracts with many of its correctional facility partners.'' In
addition, a number of jurisdictions have limited or entirely eliminated
site commission payments. This undercuts the view that, from the
correctional institution's perspective, site commission payments are
inherently necessary to allow a provider access to its facilities.
Indeed, in San Francisco, incarcerated people and their loved ones pay
nothing for their telephone calls--including for site commissions--
while the city and GTL have agreed that payment under the contract will
not exceed $1,590,616 for the initial term of three years. As one
commenter has explained, the ``innovative cost structure'' embodied in
this contract ``better reflects the cost of service paid by the vendor
to provide access to phones in all county jails.'' While the Commission
does not know whether there is some portion of the overall contract
that goes to facility costs, the limitation on the overall payment
under the contract undercuts the notion that correctional facilities
view site commissions as required in all circumstances. Further, and
most importantly, the fact that incarcerated people in San Francisco
still have access to calling services strongly suggests that facilities
do not require these types of payments to continue to allow calling
services.
120. Accordingly, with respect to scenarios two and three, the
Commission rejects any claim that site commission payments are somehow
`required' or determined by the correctional institution: The
Commission finds on this record that providers offer such payments
voluntarily, in their own business judgment. Whereas some commenters
attempt to analogize site commissions of this kind to payments that
landowners demand in exchange for granting access to rights-of-way or
the like, the Commission concludes that, at most, inmate calling
providers appear concerned about a collective action problem that makes
providers, as a group, reluctant to limit or omit site commission
payments in their bids for fear that competitors fail to do so, and
that correctional institutions will select competitors that do offer
site commissions (or offer higher site commissions) instead. A
collective action problem of that kind is not sufficient to require
that the Commission allow full recovery of site commission payments
through end-user rates.
121. Interim Revisions in the Approach to Evaluating Cost Recovery.
In light of GTL v. FCC and the record before it, the Commission
considers which costs reflected in site commission payments are so
related to the provision of inmate calling services that they should be
recoverable at the present time and on the current record in light of
section 276 under relevant precedent. As the Commission explains below,
the section 276 requirement for fair compensation does not mean a
provider is entitled to recover the total ``cost'' it claims it incurs
in connection with each and every separate inmate calling services
call. The Commission thus rejects as inapposite attempts to rely by
analogy on what the Commission has done in other contexts under
different statutory schemes. Modifying the Commission's approach to
cost recovery in this manner on this interim basis accounts for the GTL
v. FCC decision and the legal approach the Commission set out in the
2020 ICS FNPRM.
122. Prior to the GTL v. FCC decision, the Commission evaluated
cost recovery in a manner that sought to effectuate its theory of legal
authority, which relied on the combination of sections 201(b) and
276(b)(1) of the Act. The Commission described its general approach to
inmate calling services cost recovery in the 2013 ICS Order, which
``conclude[d] that only costs that are reasonably and directly related
to the provision of [inmate calling services], including a reasonable
share of common costs, are recoverable through [inmate calling
services] rates consistent with sections 201(b) and 276(b)(1).'' Beyond
discussing illustrative examples, the Commission did not otherwise
elaborate on the framework for evaluating what costs would or would not
be recoverable. Applying that approach in the order under review in GTL
v. FCC, the Commission concluded that ``the site commissions [inmate
calling services] providers pay to some correctional facilities are not
reasonably related to the provision of [inmate calling services] and
should not be considered in determining fair compensation for [inmate
calling services] calls,'' going on to quote one party as stating
``that site commissions often `have nothing to do with the provision'
of [inmate calling services].''
123. In light of the GTL v. FCC decision, it is necessary to update
and more thoroughly explain the
[[Page 40704]]
Commission's approach to evaluating cost recovery for purposes of these
interim reforms. In the 2020 ICS FNPRM, the Commission did not propose
revisiting whether section 276(b)(1) represented a grant of regulatory
authority for the Commission to prevent excessive inmate calling
services rates. Rather, the Commission properly proceeded based on its
authority under section 201(b). In the specific context of whether and
to what extent site commission payments should be recoverable costs in
interstate and international inmate calling services rates, the
Commission sought comment on whether particular approaches would
``result in unjust and unreasonably high rates for incarcerated people
and their loved ones to stay connected,'' consistent with the ``just
and reasonable'' standard in section 201(b) of the Act.
124. Given the focus in the 2020 ICS FNPRM on applying the
Commission's section 201(b) authority, it makes sense to evaluate cost
recovery--otherwise described as an evaluation of whether the costs are
directly and reasonably related to the provision of inmate calling
services--under the longstanding principles the Commission has relied
upon when implementing section 201(b) in the past. To be clear, the
Commission relies on both sections 201 and 276 for its authority to
regulate site commissions. As the D.C. Circuit explained in GTL v. FCC,
these two sections serve different purposes, with section 201 directing
the Commission to ensure that interstate rates are just and reasonable
and section 276 directing the Commission to ensure providers are fairly
compensated. These statutory provisions, while not coterminous, permit
the Commission to regulate site commission payments by examining
whether such payments are prudently incurred under section 201 and
whether such payments provide fair compensation. Under this framework,
just and reasonable rates are focused on recovering prudently incurred
investments and expenses that are ``used and useful'' in the provision
of the regulated service for which rates are being set. In applying
this framework, the Commission considers whether the investment or
expense ``promotes customer benefits, or is primarily for the benefit
of the carrier.'' The Commission not only has applied this in the
context of carriers operating under rate-of-return regulation, but
rates set on that basis also were used as the foundation for price
caps.
125. Contractually Prescribed Site Commission Payments. Given the
regulatory backdrop and the state of the record here, the Commission
recognizes that contractually prescribed site commission payments that
simply compensate a correctional institution for the costs (if any) an
institution incurs to enable interstate and international inmate
calling services to be made available to its incarcerated people, can,
on an interim basis and in light of the current regulatory backdrop, be
considered a prudent expense the provider incurs, at least as long as
the Commission continues to permit providers of interstate and
international inmate calling services to continue to make site
commission payments. In GTL the court faulted the Commission's
``categorical exclusion of site commissions from the calculus used to
set [inmate calling services] rate caps,'' and even the 2016 ICS
Reconsideration Order found that ``it is reasonable for [correctional]
facilities to expect providers to compensate them for those costs[ ]''
the facilities incur to enable the provision of inmate calling
services. Against that backdrop, the record here does not persuade the
Commission to reach a contrary conclusion in its analysis under section
201(b). In light of the regulatory backdrop and current state of the
record, the Commission likewise finds that contractually prescribed
site commission payments that simply compensate a correctional
institution for costs an institution incurs to enable access for
incarcerated people to interstate and international inmate calling
services can, at least at this time, be considered used and useful in
the provision of interstate and international inmate calling services.
In the 2016 ICS Reconsideration Order the Commission found that ``some
facilities likely incur costs that are directly related to the
provision of [inmate calling services],'' and determined that ``it is
reasonable for those facilities to expect [inmate calling services]
providers to compensate them for those costs . . . [as] a legitimate
cost of [inmate calling services] that should be accounted for in [the]
rate cap calculations.'' The current record here again does not
persuade the Commission to reach a contrary conclusion in its analysis
under section 201(b). While a different record might persuade it to
reach a different conclusion in the future, under this record the
Commission will treat such payments as prudently incurred expenses used
and useful in the provision of interstate and international inmate
calling services.
126. By contrast, the Commission finds that contractually
prescribed site commission payments do not warrant recovery insofar as
they exceed the level needed to compensate a correctional institution
for the costs (if any) an institution incurs to enable interstate and
international inmate calling services to be made available to its
incarcerated people. First, the Commission concludes that such expenses
are not prudently incurred. Under Commission precedent, expenses are
imprudent if they are excessive. The Commission finds that to be the
case here. As demonstrated by its marketplace analysis above, the
Commission is not persuaded that a correctional institution would
decline to make inmate calling services available to its incarcerated
people absent contractually prescribed site commission payments above
and beyond any amount necessary to recover the institution's costs to
enable inmate calling services to be provided to its incarcerated
people. That alone persuades the Commission that such payments are
excessive. Separately, the Commission also concludes that the
imprudence of such expenses is confirmed by the ongoing regulatory
scrutiny and questions about recovery through interstate inmate calling
services rates that have surrounded site commission payments since the
2012 ICS FNPRM. This further bolsters the Commission's conclusion that
such site commission payments are imprudent.
127. As an independent, alternative basis for rejecting recovery
through interstate and international inmate calling services rates, the
Commission finds that contractually prescribed site commission
payments, insofar as they exceed the level needed to compensate a
correctional institution for the costs (if any) an institution incurs
to enable interstate and international inmate calling services to be
made available to its incarcerated people, are not used and useful in
the provision of interstate and international inmate calling services.
The used and useful concept is designed, in part, based on the
principle that regulated entities ``must be compensated for the use of
their property in providing service to the public.'' The Commission
does not view site commission payments--whatever their origin--as
involving the use of provider property and investment in a manner
analogous to the circumstances addressed in the Commission's provider-
based rate caps. As a result, even for those site commission payments
that the Commission finds recoverable through interstate and
international inmate calling services rate caps under its interim
rules, the Commission is not persuaded that it should allow more than a
pass-through
[[Page 40705]]
and instead should go further and provide for providers to make a
profit on those site commission payments. Viewed one way, the site
commission payments that the Commission finds permissible to recover
are akin to exogenous costs--``costs that are triggered by
administrative, legislative or judicial action beyond the control of
the carriers''--which, in the event of cost increases, result in upward
adjustment of price caps without guaranteeing carriers profit on those
exogenous costs. The Commission's permitted recovery of certain site
commission payments through interstate and international inmate calling
services charges could be viewed as an analogous adjustment to the rate
cap the Commission sets for the provider-specific costs. Independently
of that precedent, the Commission separately justifies its decision as
a matter of the flexibility provided by the ``just and reasonable''
framework of section 201(b) of the Act under the particular
circumstances here. Specifically, the Commission finds it likely that
setting providers' interstate and international rates in a manner that
provides for a profit on the providers' site commission payments is
likely to exacerbate the already-perverse incentives of providers and
correctional institutions (as well as state or local governments
mandating site commission payments at specified levels) to increase the
magnitude of site commission payments to the ultimate detriment of
customers of interstate and international inmate calling services. By
contrast, the Commission is not persuaded that allowing more than a
pass-through of the site commission expenses that the Commission finds
prudently incurred and used and useful here is necessary to ensure the
continued economic viability of the provision of interstate and
international inmate calling services. Thus, the Commission concludes
that its approach adequately accounts for the use of providers'
property in the provision of interstate and international inmate
calling services balanced with the equitable interest of customers of
interstate and international inmate calling services. ``Equally central
to the used and useful concept, however, is the equitable principle
that the ratepayers may not fairly be forced to pay a return except on
investment which can be shown directly to benefit them.'' And it is
that element of the used and useful analysis that the Commission finds
dispositive here. Under the Commission's marketplace analysis of
contractually prescribed site commission payments, the Commission is
unpersuaded that site commission payments above the level needed to
compensate a correctional institution for costs the institution
reasonably incurs to make interstate and international inmate calling
services available are required to ensure that incarcerated people have
access to those services. Instead, the Commission concludes that such
payments are a means (sometimes the sole or at least primary means) by
which a given provider seeks to overcome its competitors to become the
exclusive provider of multiple services, including nonregulated
services, at a correctional facility. And the record does not reveal
that correctional institutions, in contracting with providers that
offer comparatively higher contractually prescribed site commission
payments, are somehow benefitting customers of interstate and
international inmate calling services as compared to the selection of
some other provider. Rather, the Commission concludes here that given
the anomalous nature of the inmate calling services marketplace, the
primary benefits flow to the chosen provider--which overcame its
competitors and now has the exclusive ability to serve the correctional
facility--and the correctional facility itself (or the state or local
government more generally), which can avail itself of the revenue
stream such site commission payments provide, all to the detriment of
interstate and international inmate calling services customers.
128. Where site commissions of a particular level are not required
under formally codified laws or rules external to the contracting
process, providers of inmate calling services cannot reasonably contend
that they are bound to offer, or agree to pay, site commissions above
the level for which recovery is permitted going forward under the
Commission's rules. In this way, to the extent providers' concerns stem
from a collective action problem in the marketplace, the Commission's
rules could help address that issue. The record before the Commission
further suggests that if, in the wake of this Report and Order,
providers of inmate calling services should offer to pay site
commissions at levels higher than they can recover through interstate
and international inmate calling services rates, that is because they
expect to profit from obtaining the franchise at a given facility in
other ways--e.g., by recovering the cost of the site commission
payments they offer through intrastate inmate calling services rates or
through revenue generated by providing other, nonregulated services.
While the Commission's analysis might have particular force in the case
of newly entered or renewed contracts, even with respect to existing
contracts the analysis above justifies the Commission's refusal to set
rates in a way designed to recover contractually prescribed site
commission payments above the level needed for a correctional
institution to recover its costs of making inmate calling services
available to its incarcerated people.
129. Legally Mandated Site Commission Payments. The Commission next
conducts the cost recovery analysis for scenario one (referred to for
convenience as ``legally mandated site commission payments''). The
Commission's analysis begins the same as for contractually prescribed
site commission payments. For the same reasons explained above in that
context and given the regulatory backdrop, the Commission assumes on
the record here and for purposes of this interim reform that legally
mandated site commission payments simply compensate a correctional
institution for the actual costs (if any) an institution incurs to
enable interstate and international inmate calling services to be made
available to its incarcerated people and are at least plausibly a
prudent expense that is used and useful in the provision of interstate
and international inmate calling services.
130. The Commission's analyses of contractually prescribed and
legally mandated site commission payments part ways, on the record
before the Commission, when it comes to site commission payments
insofar as they exceed the level that simply compensates a correctional
institution for any costs the institution incurs to enable interstate
and international inmate calling services to be made available to its
incarcerated people--at least up to the level of the site commission
payment specified by law or rule. The Commission is not aware of
situations where a statute or regulation external to the contracting
process requires a specific site commission and the provider
nonetheless pays a site commission even higher than such level. Should
such a situation occur, the Commission would find such expenses both
imprudent and not used and useful for the same reasons discussed in
connection with contractually prescribed site commission payments,
discussed above. The Commission assumes on this record that making
legally mandated site commission payments at the level required by the
relevant statute or regulation is a
[[Page 40706]]
prudent expense, as the Commission sees no evidence that either the
provider or the correctional institution could agree to a lower amount
(or no site commissions at all) based on the current record and current
law. The Commission does not determine at this time to what extent this
expense may impact its ability to ensure just and reasonable interstate
rates under the section 201 analysis as a whole, as evaluated based on
a different record in the future. And the Commission has not
determined, even on this record, that this expense reflects the actual
costs associated with the provision of inmate calling services,
separate and apart from the legal compulsion for facilities to collect
it.
131. For purposes of the interim reforms it makes today, the
Commission finds legally mandated site commission payments at the level
required by the relevant statute or rule to be used and useful in the
provision of interstate and international inmate calling services at
least as long as the Commission continues to permit providers of
interstate and international inmate calling services to continue to
make these site commission payments. The Commission emphasizes that
this is a close question, however, and reiterate that the record the
Commission develops in response to today's Fifth FNPRM may persuade it
to reach a different conclusion when the Commission addresses site
commissions on a permanent basis. In a state that has codified a
requirement that providers of inmate calling services pay site
commissions at a specified level, as allowed by current federal policy
but an open question in the attached Fifth FNPRM, facilities have no
immediate ability to entertain offers from providers that wish to
supply a facility without paying the site commission demanded. And
absent further legislative process to amend the governing statute,
facilities would appear to have to forgo making interstate and
international inmate calling services available if they cannot collect
the legally mandated site commission payments. Additionally, by
agreeing to pay site commissions that are required by statute,
providers do not obtain any benefit or leverage over competing
providers. For this reason, too, legally mandated site commissions do
not, in the Commission's judgment, reflect the independent business
judgment of service providers, based on the current treatment of site
commissions. While formally distinct from the Commission's prudence and
used and useful analysis, the Commission takes comfort that its
conclusion today with respect to legally mandated site commission
payments is unlikely to cause long-term harm. For one, the Commission
only adopts interim rules here, and if subsequent events or additional
arguments or evidence come forward justifying a different outcome, the
Commission can revisit its decision at that time. In addition, on
balance the Commission finds legally mandated site commission payments
less pernicious than contractually prescribed site commission payments.
The legislative process is transparent, and laws are enacted by elected
officials who are accountable to their constituents. At least as an
interim matter, while the Commission collect additional information on
this subject in the Fifth FNPRM, published elsewhere in this issue of
the Federal Register, the Commission takes comfort in the legislative
process as a potential check on the ability of providers and
governmental authorities to impose unjust and unreasonable rates for
interstate and international inmate calling services. For these
reasons, taking into account the court's vacatur in GTL, the Commission
permits providers of inmate calling services to recover through
interstate and international rates--as a line item distinct from the
generally applicable interim interstate and international provider-
related rate cap component--any site commissions that they pay pursuant
to formally codified law or regulation so long as the total per-minute
rate that users pay does not exceed the $0.21 cap, which remains, as it
has since 2013, the highest permissible rate for interstate debit and
prepaid calls, and by this Report and Order, the highest permissible
rate for collect calls too. Operationally, providers remain free to
impose a legally mandated site commission facility charge at the level
specified by the relevant statute or regulation, consistent with the
analysis above. If their resulting cumulative rate otherwise would
exceed the current $0.21 per minute rate cap, they would need to charge
a lower provider-related rate to stay within that rate cap under the
Commission's rules. As explained above, providers have been operating
under the $0.21 per minute rate cap since 2013, and despite the
opportunity to justify a waiver of that cap, no provider has done so.
Consequently, the Commission declines to presume, for purposes of
establishing new rules, that aggregate interstate and international
inmate calling services charges above that level will be justified,
although, as before, a waiver process is available if a provider seeks
to make that case.
132. Determining the Appropriate Contractually Prescribed Facility
Rate Component. The Commission permits providers of prisons and larger
jails to recover no more than $0.02 per minute over and above the
otherwise applicable provider-related rate cap to account for site
commissions actually paid but not required by formally codified law or
regulation. The total rate charged for interstate inmate calling
services is also bound by the overall upper limit of $0.21 per minute
that has been effective since 2013.
133. The Commission reaches its decision to adopt a $0.02 per-
minute facility-related rate component for prisons and larger jails on
two separate and independent bases. First, this allowance is based on
estimates of the portion of site commissions that are legitimately
related to inmate calling services based on the methodology first
described in Appendix H of the 2020 ICS FNPRM but since updated with
corrected cost data consistent with the record. The Commission
continues to rely on this methodology because it most conservatively
estimates the site commission allowance by rounding up and applying the
same rate to jails and prisons to ``ensure [the Commission] do[es] not
harm unusual prison contracts.'' The Public Interest Parties' expert
replicated the Commission's initial analysis and concluded the proposed
$0.02 facility-cost allowance estimate is ``reasonable'' given the
difficulty of disaggregating the portion of site commission payments
directly attributable to inmate calling services from the portion that
is due to the transfer of market power. Because the Commission's
initial analysis, like its updated analysis, continues to be based on
imperfect cost data that are not sufficiently disaggregated so as to
reflect potential differences in costs for smaller jail facilities as
commenters claim, the Commission limits its actions here to only
prisons and larger jails as well. As the Public Interest Parties'
expert suggests, that methodology reflects the Commission's
``reasonable attempt'' in light of ``data limitations on site
commissions'' to compare per-minute costs for facilities that are paid
site commissions and those that are not as a way to ``isolate the gap
in costs that could be covered by site commission payments.'' This
methodology, derived from cost and site commission data that providers
reported in response to the Second Mandatory Data Collection,
incorporated no correctional facility-provided cost data. Thus, the
Commission's proposed methodology
[[Page 40707]]
reflected its reasoned judgment as to the best estimation of legitimate
facility costs related to inmate calling services in the absence of
cost data from correctional facilities themselves. The Public Interest
Parties agree that the proposed $0.02 allowance for all facilities
``strikes an appropriate balance between the statutory mandates that
[inmate calling services] providers receive fair compensation and that
[inmate calling services] rates are just, reasonable and promote access
to [inmate calling services] by incarcerated people and their families
and support networks.'' They explain that the site commission allowance
is not designed to necessarily compensate providers for the entirety of
all site commission payments, pointing out that would be inconsistent
with the GTL decision, which recognized as ``legitimate'' only those
site commissions that are ``directly related to the provision of
[inmate calling services].''
134. The Commission's updated site commission analysis in Appendix
D reflects even lower potential estimates for legitimate facility costs
related to inmate calling services. As explained above, the record
convinces the Commission that adjustments and corrections to the cost
data underlying the 2020 ICS FNPRM proposals were necessary for
determining the provider-related rate component, and the Commission
updated its site commission analysis using these revised cost data.
This updated analysis supports a facility-related rate component of
less than the $0.02 allowance the Commission originally calculated.
Indeed, these updated data show that prison contracts without site
commissions had per-minute allocated costs which were on average $0.008
higher than prison contracts that required the payment of site
commissions, whereas the gap for jails was $0.004. However, the
Commission is unwilling to reduce the $0.02 allowance at this time,
especially on an interim basis, given record opposition to that
allowance on the basis that it is too low, was not based on facility-
provided cost data, and relied on cost data aggregated for the most
part at the contract level rather than facility level where size
variations would likely be reflected. And, as discussed below, the
Commission has independent record data that supports the $0.02
allowance.
135. Several commenters oppose the $0.02 allowance as too low for
two primary reasons. First, providers criticize the Commission's
methodology for estimating reasonable facility costs in the 2020 ICS
FNPRM insofar as this methodology ``fails to consider whether any
characteristics other than facility costs might affect whether a
particular contract pays a site commission.'' Second, the National
Sheriffs' Association and others argue that $0.02 per minute is
inappropriate for smaller jails, and claim that adopting a uniform
$0.02 per-minute allowance for all facilities conflicts with the
approach the Commission took in the 2016 ICS Order, which adopted
additive amounts to the rate caps to account for site commissions based
on facility size.
136. The Commission agrees that the 2020 ICS FNPRM methodology
resulted in a proposed facility-related rate component that does not
distinguish between different types of site commission payments and
that may not sufficiently reflect that smaller correctional facilities
might face higher facility costs related to inmate calling services
than the initially calculated $0.02. The Commission therefore departs
from its initial proposal to apply a specific uniform facility cost
allowance cap to all facilities for all types of site commissions in
two ways to address these criticisms.
137. First, the Commission distinguishes between the two distinct
types of site commission payments and permit providers, when serving
prisons and larger jails, to recover each in a distinct manner. For
payments required under codified law or regulation, as explained above,
the Commission permits recovery of the full commission amount, without
markup, provided that the total interstate rate charged for interstate
inmate calling services at those facilities does not exceed the $0.21
per-minute rate that represents the highest interstate rate cap
currently in effect for debit and prepaid calls for any size
correctional facilities. Second, for contractually prescribed site
commission payments, the Commission adopts a $0.02 cap on recovery
through interstate rates but limit its applicability solely to prisons
and larger jails.
138. The Commission limits the applicability of the $0.02 cap for
recovery of contractually prescribed site commission payments to
prisons and larger jails, in response to criticism that this value
would not be sufficient to recover the alleged higher facility-related
costs incurred by jails with average daily populations below 1,000.
Likewise, the Commission does not adopt a separate legally mandated
rate component for these facilities. Instead, inmate calling services
for jails with average daily populations below 1,000 will remain
subject only to the single, aggregate $0.21 per-minute total rate cap.
The Commission agrees that the cost data methodology underlying the
calculation of the contractually prescribed facility rate component may
have masked facility size cost variations due to the aggregated nature
of those data. Given that these data obscure cost differences at the
level of provider contracts, it is likely to be even harder to identify
the variation, among jail contracts of different sizes, in costs that
are in some cases incurred by providers and in other cases incurred by
incarceration authorities. Thus, the Commission's decision to limit
adopting a facility-related rate component to only prisons and larger
jails on this interim basis, as the Commission does for the provider-
related rate component, and to refrain from changing the current
interim rate cap of $0.21 for
[…truncated; see source link]Indexed from Federal Register on July 28, 2021.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.