It has come to our attention that the California Public Utilities Commission (CPUC) is actively pursuing a troubling enforcement campaign that fundamentally violates principles of fair regulation and due process. The agency is demanding multi-year retroactive collections of Public Purpose Program surcharges—along with substantial accumulated interest penalties—from interconnected VoIP (I-VoIP) providers who were prevented from complying with payment obligations due to the CPUC's own well-documented systemic and administrative failures. This extraordinary enforcement position essentially punishes companies for the agency's administrative incompetence, creating a dangerous precedent where regulatory agencies can collect penalties for compliance failures they themselves caused. For affected providers, the financial exposure may be substantial, the legal basis is questionable, and action may be required to protect company interests and through administrative waivers and/or judicial challenges to this fundamentally unfair regulatory overreach.
Background: The California Universal Service Programs Framework
California's Public Purpose Program (PPP) surcharge is a state-mandated fee collected from telecommunications providers to fund the state's six Universal Service programs that provide affordable telephone and internet services for low-income, deaf, or hearing impaired, rural, and underserved customers, schools, libraries, hospitals, and non-profit organizations. Under California Public Utilities Code Section 270 et seq., the CPUC administers this surcharge system and requires all eligible providers to register and remit payments. Beginning April 1, 2023, all telecommunications lines in California are assessed a flat $1.11 monthly surcharge per access line, replacing the six separate variable-rate surcharges that previously appeared on customer bills. The regulatory framework depends entirely on the CPUC's utility registration system, which serves as the sole mechanism for provider enrollment, surcharge calculation, and payment submission, making provider access to this system essential for legal compliance regardless of their willingness to pay.
Current Enforcement Crisis
The CPUC is now pursuing an aggressive—and legally questionable—enforcement strategy regarding PPP Surcharge collections that raises serious due process concerns.
We have confirmed that the CPUC is issuing demand notices to providers seeking payment of allegedly past-due California PPP Surcharges, complete with accumulated interest penalties—even where companies were unable to register or remit payments during the affected periods due to the CPUC's own documented administrative failures.
The Administrative Breakdown
During the relevant period, many telecommunications providers found themselves in regulatory limbo when the CPUC:
- Suspended its existing utility registration system without adequate notice
- Failed to provide a functional replacement system for an extended period
- Effectively blocked new providers from initial registration
- Prevented existing providers from accessing their accounts to remit required surcharges
- Offered no alternative compliance mechanism during the system outage
These access issues are well-documented through provider complaints, CPUC staff acknowledgments, and the still-pending Petition filed by the Competitive Carriers Association of California and the California Telecommunications Association (CCA-CVA Petition), which remains undocketed despite addressing these systemic registration failures.
CPUC's Troubling Position
Despite these documented system failures, the CPUC's current enforcement position appears to be that:
- Companies remain fully liable for unpaid surcharges during periods when registration and remittance were practically impossible
- Interest penalties continue to accrue against providers who were unable to pay due to CPUC's own administrative failures
- No relief or mitigation is warranted for circumstances entirely outside of provider control
Legal and Financial Implications
This enforcement approach creates substantial risks for affected companies and raises serious legal concerns:
- Due Process Violations: Penalizing companies for non-compliance when compliance was impossible may violate fundamental due process protections
- Equitable Estoppel: The CPUC may be estopped from collecting penalties resulting from its own administrative failures
- Arbitrary Enforcement: Selective penalty assessment based on administrative convenience rather than actual wrongdoing
- Financial Exposure: Retroactive surcharge collections plus compounding interest penalties create significant unexpected liabilities
Immediate Action Required
If your company receives a CPUC notice demanding payment of California PPP Surcharges and/or interest penalties for periods during which registration or remittance was impossible due to CPUC system failures:
DO NOT IGNORE THE NOTICE. Immediate response is essential to preserve all legal rights and defenses.
Contact our firm immediately to discuss waiver requests, administrative appeals, and potential legal challenges. Reach out directly to:
- Jackie McHugh: jrm@commlawgroup.com
- Jonathan Marashlian: jsm@commlawgroup.com
Coordinated Legal Response
Our firm is prepared to pursue multiple avenues of relief, including:
- Individual waiver requests emphasizing the impossibility of compliance
- Administrative appeals challenging penalty assessments
- If necessary, coordinated legal action in California state court
Should waiver requests prove unsuccessful and sufficient clients are impacted, we will evaluate forming a coalition of similarly situated companies to pursue collective relief and share litigation costs.
The Broader Stakes
These CPUC enforcement actions may establish dangerous precedents allowing regulatory agencies to penalize regulated entities for agency-caused compliance failures. Swift, coordinated action is essential to protect provider rights and ensure fair regulatory enforcement.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
