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HIKO Energy, LLC v. Pennsylvania Public Utility Commission

Commonwealth Court of Pennsylvania

June 8, 2017

HIKO Energy, LLC, Petitioner
v.
Pennsylvania Public Utility Commission, Respondent

          Argued: December 14, 2016

          BEFORE: HONORABLE MARY HANNAH LEAVITT, President Judge HONORABLE RENÉE COHN JUBELIRER, Judge HONORABLE ROBERT SIMPSON, Judge HONORABLE PATRICIA A. McCULLOUGH, Judge HONORABLE ANNE E. COVEY, Judge HONORABLE MICHAEL H. WOJCIK, Judge HONORABLE JULIA K. HEARTHWAY, Judge

          OPINION

          ROBERT SIMPSON, Judge

         This appeal presents a challenge to the Pennsylvania Public Utility Commission's (PUC) imposition of a civil penalty of approximately $1.8 million against an electric generation supplier[1] (EGS) which, during the polar vortex[2] effects of the winter of 2014, intentionally billed its customers at a rate that exceeded the company's guaranteed introductory rate on nearly 15, 000 invoices at the direction of its management and Chief Executive Officer (CEO). In particular, HIKO Energy, LLC (HIKO) asks whether the PUC erred or abused its discretion in imposing a civil penalty of this magnitude.

         Specifically, HIKO argues the civil penalty constitutes an excessive fine in contravention of the Pennsylvania and U.S. Constitutions. HIKO further contends the PUC's civil penalty impermissibly penalizes HIKO for exercising its right to litigate this matter. It also asserts the PUC exceeded its statutory authority or abused its discretion by imposing a "per invoice" methodology in calculating the number of alleged offenses, resulting in an excessive, unprecedented civil penalty. Additionally, HIKO maintains the PUC improperly adopted the civil penalty recommended by the Administrative Law Judges (ALJs) in their initial decision, despite finding an absence of substantial evidence to support several key factual predicates for imposition of the penalty amount. Upon review, we affirm.

         I. Background

         In February 2012, HIKO, which operates in several states, filed an application with the PUC to operate as an alternative retail electric supplier in Pennsylvania. Several months later, the PUC issued an order tentatively and conditionally approving HIKO's license to supply EGS services to residential, small commercial, large commercial, industrial and governmental customers in all electric distribution company (EDC) service territories, subject to certain reporting requirements regarding its sales and marketing practices. The conditions applied "for a term of 18 months [sic] from the start of [HIKO's] marketing activities in the [s]tate." ALJs' Initial Dec., 8/21/15, at 3. The PUC imposed the conditions based on the high number of complaints regarding HIKO that the PUC's technical staff discovered in New York. Because no adverse comments to the tentative order were received, it subsequently became final by operation of law.

         In December 2012, HIKO began marketing in Pennsylvania. HIKO's EGS license was subject to the 18-month conditional, probation period from December 2012 through June 2014.

         HIKO's business model was to purchase energy on the spot market through a third-party energy trading firm. HIKO advertised, marketed, offered for sale and sold EGS services to retail customers in Pennsylvania through door-to-door solicitations, telephone solicitations and HIKO's website. HIKO delivers its energy to customers through local utilities. It began enrolling customers in Pennsylvania in variable rate plans on December 31, 2012.

         Beginning in August 2013, HIKO offered a variable rate product that included a six-month introductory price guarantee. More particularly, in its welcome letter and disclosure statement, HIKO promised customers it would provide savings that were at least 1-7% less than the price-to-compare (PTC) of the customer's local utility (EDC) for the first six monthly billing cycles. Specifically, HIKO's welcome letter to customers stated:

Guaranteed Savings! You have been enrolled onto a variable rate, which is guaranteed to be 1-7% less than your local [u]tility's price to compare, for the first six monthly billing cycles. After the six-month introductory rate plan, you will be automatically rolled over onto a competitive variable rate, which will be determined by [HIKO], based on numerous key factors, including current market conditions and climate. The variable rate can change regularly.

ALJs' Initial Dec., 8/21/15, Finding of Fact (F.F.) No. 45 (emphasis in original). HIKO also issued a "Disclosure Statement" to customers who enrolled in its price offering, which stated that the rate was the "price stated at sign-up and confirmed in your written Welcome Letter from HIKO." F.F. No. 46.

         In January 2014, wholesale market prices for energy supply increased dramatically in part based on a period of sustained cold weather referred to as a "polar vortex, " resulting in an increased use of electricity in Pennsylvania and the PJM Interconnection LLC[3] (PJM) service area. F.F. No. 21. Also during the winter of 2014, natural gas prices in Canada increased because of a change in regulation on the TransCanada Pipeline, indirectly contributing to increased demand and increased prices for natural gas in Pennsylvania. F.F. No. 22.

         Prior to the polar vortex, PJM sales of electricity to HIKO were approximately $0.08 per kWh. The price increased approximately 300% to $0.227 per kWh in January 2014 and remained at or above $0.138 per kWh until the end of March 2014. During the winter of 2014, HIKO experienced an unexpected increase in the price of purchasing spot market wholesale electricity, and it found it difficult to obtain electric power supply except at exorbitant rates as supply costs tripled or quadrupled.

         HIKO's CEO Harvey Klein determined it was impossible for HIKO to stay in business while honoring the 1% less than PTC introductory rate guarantee; thus, HIKO's CEO and management made a business decision to intentionally overcharge approximately 5, 700 customers enrolled in the guaranteed savings plan between January and April 2014. The approximately 5, 700 customers enrolled in the guaranteed savings plan were billed an aggregate sales revenue of $3.29 million, approximately $1.8 million of which corresponded to overcharges not in accordance with the HIKO's welcome letter and disclosure statement. HIKO overcharged customers as much as $0.29 per kWh, or up to 400% the EDCs' PTC. The average overcharge that HIKO billed customers was $124. HIKO voluntarily ceased marketing its variable rate plan offerings in Pennsylvania by February 2014.

         In January 2014, HIKO began receiving a large volume of telephone calls and emails from customers complaining about their bills, which overwhelmed HIKO's customer service department. In response, HIKO hired an additional 11 employees for its customer service department and enlisted a call center based in Florida to respond to customer complaints from all states in which it had customers.

         Beginning in February 2014, HIKO voluntarily refunded approximately $160, 000 to some of its complaining customers in Pennsylvania. It also instituted some changes to its business model, and it now purchases some energy under longer term contracts (i.e. six months), hedging against sudden increases in wholesale prices. HIKO no longer offers the guaranteed savings introductory plan with its variable rate service; however, HIKO's CEO indicated a willingness to move forward with the plan in the future.

         In March 2014, the PUC's Bureau of Investigation and Enforcement (I&E) initiated an informal investigation into HIKO as a result of customer complaints received by the PUC's Bureau of Consumer Services (BCS) regarding allegations that HIKO overcharged customers. In response to I&E's data requests, HIKO provided billing data for electric generation service it supplied to residential customers within each EDC service territory in which it operates and billed from January through April 2014. I&E reviewed HIKO's responses to the data requests, including spreadsheets with billing data HIKO submitted to EDCs from January to April 2014 for customers in the service territories of Duquesne Light Company, Metropolitan Edison Company (Met-Ed), Pennsylvania Electric Company (Penelec), PPL Electric Utilities (PPL), West Penn Power Company and PECO.

         Thereafter, in July 2014, I&E filed a complaint against HIKO alleging that between January and April 2014, HIKO billed 5, 708 customers at a rate that exceeded the discounted introductory rate it guaranteed to customers on 14, 689 invoices. I&E alleged each of the 14, 689 overcharges constituted a violation of 52 Pa. Code §54.4(a) (stating "EGS prices billed must reflect the marketed prices and the agreed upon prices in the disclosure statement."). I&E requested a civil penalty of $14, 689, 000 (or $1, 000 per violation). It also asked the PUC to revoke HIKO's authority to operate as an EGS in Pennsylvania and to provide a refund to each customer. In response, HIKO filed an answer, new matter and preliminary objections. The ALJs overruled HIKO's preliminary objections. A hearing ensued.

         In the interim, the Commonwealth, by its then Attorney General, through the Bureau of Consumer Protection (OAG), and the Acting Consumer Advocate (OCA) (collectively, OAG/OCA), filed a joint complaint against HIKO with the PUC alleging HIKO engaged in misleading marketing and improper billing. OAG/OCA sought restitution, revocation of HIKO's EGS license and a prohibition on future deceptive practices. Ultimately, the ALJs approved a settlement in the OAG/OCA case pursuant to which HIKO agreed to: make restitution to customers who were overcharged as a result of its failure to adhere to the guaranteed introductory rate; a moratorium on accepting any new customers until June 30, 2016; and, make a contribution of $25, 000 to the local EDCs' hardship funds. The restitution provided for in the settlement required HIKO to establish a refund pool of $2, 025, 383.85, in addition to the voluntary refund of $159, 320.15 HIKO already provided, which would ensure overcharged customers received refunds so as to realize a 3.5% savings from their respective PTC rates for the period at issue.

         At the hearing on I&E's complaint against HIKO, I&E presented the testimony of Daniel Mumford, manager of the BCS' Informal Compliance and Competition Unit. I&E also presented documentary evidence. For its part, HIKO presented the testimony of its CEO, Klein, and the rebuttal testimony of expert witness Charles J. Cicchetti, Ph.D., an independent consultant with a background in economics and utility regulation. It also presented documentary evidence. After the hearing, the parties filed briefs.

         The ALJs subsequently issued a decision in which they found that, between January and April 2014, HIKO intentionally billed customers at a rate higher than the rate guaranteed in its welcome letter and disclosure statement, resulting in customers not receiving the discounted guaranteed price. Additionally, the ALJs found HIKO was aware it did not honor the price offering when it broke the guarantee, and HIKO's conduct was not the result of negligence, administrative error or data glitch. Rather, HIKO made a decision to remain in business rather than abandon its Pennsylvania EGS license, and it decided to charge its customers in excess of the guaranteed price offering at enrollment. HIKO's failure to honor its price offering occurred while its license was subject to the conditions outlined in the PUC's June 2012 tentative order. The ALJs also found that if HIKO exited the retail electric market in Pennsylvania, HIKO's customers would have been transferred to default service provided by the local EDCs and would not have been deprived of essential electricity. Further, the ALJs found that HIKO's refunds to customers were initially made only to those customers who complained or filed complaints with governmental agencies. HIKO did not proactively issue refunds to all overcharged customers.

         Ultimately, the ALJs granted, in part, I&E's complaint, denied as moot the request for customer refunds based on the settlement reached in the OAG/OCA case and denied the request for revocation of HIKO's EGS license in light of the settlement reached in the OAG/OCA case. The ALJs also granted I&E's request for a civil penalty under Section 3301 of the Public Utility Code, 66 Pa. C.S. §3301, albeit in a lesser amount than that sought by I&E.

         More particularly, the ALJs directed HIKO to pay a civil penalty of $1, 836, 125. The ALJs calculated the civil penalty by multiplying the number of violations of 52 Pa. Code §54.4(a), 14, 689, [4] by $125, a figure that represented the approximate average overcharge per invoice. The ALJs imposed this penalty based on their determination that HIKO made a conscious decision not to honor its price savings guarantee to customers within the six-month introductory period, and, as a result, intentionally billed 5, 708 customers in six separate EDC territories a total of 14, 689 overcharges. In imposing the civil penalty, the ALJs undertook an analysis of the 10 factors and standards set forth in 52 Pa. Code §69.1201. That provision states:

§ 69.1201. Factors and standards for evaluating litigated and settled proceedings involving violations of the Public Utility Code and [PUC] regulations--statement of policy.
(a) The [PUC] will consider specific factors and standards in evaluating litigated and settled cases involving violations of 66 Pa.C.S. (relating to Public Utility Code) and this title. These factors and standards will be utilized by the [PUC] in determining if a fine for violating a [PUC] order, regulation or statute is appropriate, as well as if a proposed settlement for a violation is reasonable and approval of the settlement agreement is in the public interest.
(b) Many of the same factors and standards may be considered in the evaluation of both litigated and settled cases. When applied in settled cases, these factors and standards will not be applied in as strict a fashion as in a litigated proceeding. The parties in settled cases will be afforded flexibility in reaching amicable resolutions to complaints and other matters so long as the settlement is in the public interest. The parties to a settlement should include in the settlement agreement a statement in support of settlement explaining how and why the settlement is in the public interest. The statement may be filed jointly by the parties or separately by each individual party.
(c) The factors and standards that will be considered by the [PUC] include the following:
(1) Whether the conduct at issue was of a serious nature. When conduct of a serious nature is involved, such as willful fraud or misrepresentation, the conduct may warrant a higher penalty. When the conduct is less egregious, such as administrative filing or technical errors, it may warrant a lower penalty.
(2) Whether the resulting consequences of the conduct at issue were of a serious nature. When consequences of a serious nature are involved, such as personal injury or property damage, the consequences may warrant a higher penalty.
(3) Whether the conduct at issue was deemed intentional or negligent. This factor may only be considered in evaluating litigated cases. When conduct has been deemed intentional, the conduct may result in a higher penalty.
(4) Whether the regulated entity made efforts to modify internal practices and procedures to address the conduct at issue and prevent similar conduct in the future. These modifications may include activities such as training and improving company techniques and supervision. The amount of time it took the utility to correct the conduct once it was discovered and the involvement of top-level management in correcting the conduct may be considered.
(5) The number of customers affected and the duration of the violation.
(6)The compliance history of the regulated entity which committed the violation. An isolated incident from an otherwise compliant utility may result in a lower penalty, whereas frequent, recurrent violations by a utility may result in a higher penalty.
(7) Whether the regulated entity cooperated with the [PUC's] investigation. Facts establishing bad faith, active concealment of violations, or attempts to interfere with [PUC] investigations may result in a higher penalty.
(8) The amount of the civil penalty or fine necessary to deter future violations. The size of the utility may be considered to determine an appropriate penalty amount.
(9) Past [PUC] decisions in similar situations.
(10) Other relevant factors.

Id.

         Before the PUC, both parties filed exceptions, which the PUC denied in an extensive, 56-page opinion. In short, the PUC adopted the ALJs' initial decision ordering HIKO to pay the $1, 836, 125 civil penalty. In determining the penalty was appropriate, the PUC stated it agreed that HIKO acted "knowingly and deliberately" and "effectively treated its own customers as the financial guarantors of its own business plan, which backed contracts offering customers guaranteed savings with what was essentially a speculative supply portfolio based exclusively on spot market purchases." Commission Op., 12/3/15, at 44.

         Thereafter, HIKO filed a petition for review to this Court. It also filed an application for stay, which a single judge of this Court granted, pending resolution of the appeal.[5] This matter is now before us for disposition.

         II. Issues

         On appeal, [6] HIKO states the following issues:

1. Whether the [PUC's] determination to impose the highest civil penalty it has ever imposed against any entity, a civil penalty of $1, 836, 125 against HIKO, violates the Excessive Fines Clause of Article I, Section 13 of the Pennsylvania Constitution and the Eighth Amendment to the United States Constitution where the penalty is not reasonably proportionate in light of the underlying violations and the [PUC's] prior decisions approving much smaller penalties for similar or more egregious conduct?
2. Whether the [PUC's] unprecedented civil penalty of $1, 836, 125 impermissibly penalizes HIKO for exercising its right to litigate this matter, thus depriving HIKO of its right of appeal under Article 5, Section 9 of the Pennsylvania Constitution?
3. Whether the [PUC] exceeded its statutory authority or, in the alternative, abused its discretion when it imposed a 'per invoice' methodology for calculating the number of alleged offenses, which resulted in an excessive and unprecedented civil penalty against HIKO?
4. Whether the [PUC] improperly adopted an unprecedented civil penalty of $1, 836, 125 that had been recommended by the ALJs, despite the [PUC's] finding of an absence of substantial evidence to support several key factual predicates for the imposition of such an amount?

         Br. for Petitioner at 7 (Statement of Questions Involved).

         III. Discussion

         A. Excessive Fine

         1. Contentions

         HIKO first asserts the PUC's decision to impose a civil penalty of $1, 836, 125 violates the Excessive Fines Clauses of the U.S. and Pennsylvania Constitutions. HIKO argues that, in levying a nearly $2 million civil penalty against it, the PUC chose to impose the highest civil penalty in its nearly 80 year history without any evidence that HIKO was financially able to bear that penalty, without acknowledging the financial constraints HIKO faced during the polar vortex, and without considering the significantly smaller civil penalties the PUC approved in the settlement of analogous cases. Indeed, HIKO contends, the civil penalty imposed here is between 14 to 80 times higher than the penalties the PUC approved in cases involving other EGS companies for similar or even more egregious conduct, and is wholly disproportionate to the alleged violations, particularly given the significant mitigating circumstances supported by record evidence. Thus, HIKO maintains, as a constitutional matter, the PUC's civil penalty cannot be sustained because it is grossly disproportionate both to the gravity of the alleged offense and to the magnitude of the fine the PUC approved against other similar offenders.

         HIKO argues Pennsylvania law requires civil penalty determinations to be proportional to the alleged offense and to the treatment of other offenders for similar conduct. Pennsylvania's prohibition against excessive fines set forth in Article I, Section 13 of the Pennsylvania Constitution is coextensive with the Eighth Amendment to the U.S. Constitution. Commonwealth v. Eisenberg, 98 A.3d 1268 (Pa. 2014). Further, the proscription against excessive fines applies to a "civil penalty" if the penalty is designed, at least in part, to serve "either retributive or deterrent purposes." Austin v. United States, 509 U.S. 602 (1993).

         HIKO argues the "dispositive inquiry" in determining whether a mandatory fine violates Article I, Section 13 of the Pennsylvania Constitution centers on the question of whether, under the circumstances, the fine is "irrational or unreasonable." Commonwealth v. Gipple, 613 A.2d 600, 602 (Pa. Super. 1992). Similarly, under the Eighth Amendment, a fine "violates the Excessive Fines Clause if it is grossly disproportional to the gravity of a defendant's offense[, ]" a standard mirrored in the Pennsylvania Constitution. United States v. Bajakajian, 524 U.S. 321, 334 (1999); see Eisenberg.

         In undertaking the proportionality test, HIKO maintains, the Pennsylvania Supreme Court relied on the test set forth in Solem v. Helm, 463 U.S. 277 (1983), which requires a court to compare the magnitude of the fine to the gravity of the offense, to the treatment of other offenders in the same jurisdiction and to the treatment of the same offense in other jurisdictions. Thus, HIKO contends it was incumbent on the PUC to ensure the civil penalty it imposed here could be harmonized with its decisions approving civil penalties in other contexts, especially those involving similar violations. However, it asserts, the PUC did not do so.

         HIKO argues the civil penalty here is grossly disproportionate to the treatment of other alleged offenders for similar or more egregious conduct. It argues the PUC seeks to justify the civil penalty by characterizing the intentional nature of the conduct, from HIKO's top management, combined with the magnitude of the violation as the two factors that most underscore the nature of the violation.

         However, HIKO contends, those same factors are present in other proceedings involving similar or more egregious conduct, but which resulted in only a fraction of the civil penalty the PUC imposed here. Indeed, HIKO maintains, the grossly disproportionate nature of the penalty here is most clearly evidenced by the civil penalties assessed against other EGSs for engaging in very similar conduct.

         HIKO cites numerous PUC proceedings involving EGSs, which it contends involved conduct substantially similar to that of HIKO and for which the EGSs received far lesser penalties. See Commonwealth v. Respond Power, LLC, Nos. C-2014-2438640, C-2014-2427659 (Apr. 22, 2016) (recommending $125, 000 civil penalty for similar violations arising from variable rate price increases during polar vortex period, including 52 Pa. Code §54.4(a)). Pa. Pub. Util. Comm'n v. Energy Servs. Providers, Inc. d/b/a Pa. Gas & Electric, No. M-2013-2325122 (June 5, 2014), 2014 WL 2644840 (Pa.P.U.C.) (Pa. G&E) (approving $150, 200 civil penalty for slamming allegations involving 319 customer accounts, characterized as among the most egregious conduct ever investigated by I&E); Commonwealth v. IDT Energy, Inc., No. C-2014-2427657 (Nov. 19, 2015), 2015 WL 7873831 (Pa.P.U.C.) (approving settlement with $25, 000 civil penalty for alleged violations of PUC regulations for increasing variable rate prices during polar vortex period).

         HIKO maintains each of these cases involved pricing decisions initiated by the EGSs' management that impacted thousands of customers during the polar vortex. Yet, none of these enforcement proceedings resulted in a civil penalty remotely close to the penalty levied against HIKO. HIKO asserts the PUC's excuse-that settlement amounts are not precedential-misses the point. In particular, the PUC, including the ALJs and I&E, had to apply the same factors under the PUC's penalty policy-including consideration of whether the penalty amount sufficed to deter future violations. HIKO asserts the exponential differences in penalty amounts for violations against similar companies for similar violations arising from the same event cannot be justified on the ground that there was a trial against HIKO. HIKO argues this disparity shows the lack of "intra-Pennsylvania" proportionality, which the Pennsylvania Supreme Court described as "imperative." Eisenberg, 98 A.3d at 1282-83.

         HIKO further maintains the PUC's decisions approving civil penalties for similar violations, including Section 54.4(a), are not the only comparable cases. It asserts the PUC also approved settlements with significantly lower civil penalties against EGSs that engaged in the more egregious act of "slamming, "[7] which the PUC described as fraudulent conduct for which it has "zero tolerance." Pa. Pub. Util. Comm'n, Bureau of Investigation & Enforcement v. Pub. Power, LLC, No. M-2012-2257858 (Dec. 19, 2013), slip op. at 8, 2013 WL 6835126 (Pa.P.U.C.) at *5. Yet, despite the PUC's "zero tolerance" for "slamming, " HIKO asserts, EGSs charged with slamming hundreds of customers paid civil penalties far lower than the penalty levied against HIKO. See, e.g., Pa. G&E; Public Power.

         Further, despite its "zero tolerance" for slamming, HIKO argues, the PUC now attempts to discount the violations at issue in Public Power and Pa. G&E in order to justify the astronomical difference between the civil penalties it approved against those companies and the penalty imposed against HIKO. In its final order, the PUC characterizes the conduct of Public Power and Energy Services Providers as mistaken or initiated by a rogue, low-level employee, rather than a top executive or management. But, HIKO contends, a review of the factual findings in those cases reveals otherwise.

         HIKO acknowledges there are very few PUC decisions applying the penalty policy factors in litigated cases. Here, the ALJs stated there were no PUC decisions applying the factors in a litigated case against an EGS like HIKO, or in a litigated case involving similar violations. Therefore, it could only rely on PUC decisions approving settlements with other EGSs or approving settlements of other "serious" violations affecting thousands of customers.

         HIKO further maintains a relevant factor in determining the appropriate penalty is the size of the company, which would bear on its ability to withstand the penalty and the amount needed for deterrence. 52 Pa. Code §69.1201(c)(8). It argues the PUC acknowledged that consideration of "size" was expressly mentioned in the penalty policy, but noted there was very little in the record on that point, stating-"[i]t is difficult to determine the size of HIKO"- except to note it was small in comparison with EDCs. ALJs' Initial Dec. at 49. HIKO contends that neither I&E nor the PUC offered anything to distinguish HIKO in size from any other EGS subject to regulatory proceedings that paid lesser civil penalties. Further, HIKO argues, in granting HIKO's stay application here, a single judge of this Court found "troubling, " the PUC's failure to make any finding regarding whether the penalty was appropriate for a company of HIKO's size." HIKO Energy, LLC v. Pa. Pub. Util. Comm'n (Pa. Cmwlth., No. 5 C.D. 2016, filed February 12, 2016) (unreported) (single judge op.), Slip Op. at 6.

         Moreover, HIKO asserts, the PUC gave no weight to its statements in approving settlements with far larger EDCs for far more serious violations. Those cases involved gas pipeline explosions, including several that caused deaths, serious injuries and millions of dollars in property damage, which the penalty policy explicitly defines as "consequences of a serious nature [that] … may warrant a higher penalty." 52 Pa. Code § 69.1201(c)(2); see, e.g., Pa. Pub. Util. Comm'n, Bureau of Investigation & Enforcement v. UGI Utils., Inc., Gas Div., No. C-2012-2308997 (Feb. 19, 2013) (approving $500, 000 civil penalty in connection with UGI's settlement of violations for inadequate leak detection measures and faulty pipeline replacement procedures that caused natural gas explosion resulting in five deaths, including two children, destruction of eight residences and substantial property damage). HIKO maintains that in that case the PUC rejected a proposed settlement with a $386, 000 civil penalty, but accepted a $500, 000 civil penalty as sufficient to deter future violations by UGI, a company far larger than HIKO. ALJs' Initial Dec. at 49 (noting that number of customers HIKO served was "small in comparison with the EDCs' respective customer counts"); see also Reproduced Record (R.R.) at 301a-03a (HIKO expert witness, Dr. Cicchetti, explaining the size of most EDCs in terms of rate base, balance sheets, revenue, income and access to capital are different than those of an EGS and therefore such larger companies are better able to absorb a multi-million dollar penalty).

         HIKO further contends the PUC approved the $500, 000 penalty knowing UGI was the subject of prior PUC proceedings for repeated, similar violations of pipeline safety and operating regulations over a five-year period that resulted in personal injuries and property damage. Perhaps even more telling, HIKO asserts, when the PUC apparently decided those prior penalties were inadequate and wanted to signify to UGI's management that it did not do enough to change its safety practices, the PUC approved a penalty of $1 million, or just 54% of the penalty levied against HIKO. See Pa. Pub. Util. Comm'n, Bureau of Investigation & Enforcement v. UGI Penn Nat. Gas, No. M-2013-2338981 (Sept. 26, 2013), 2013 WL 5488626 (Pa.P.U.C.). HIKO contends approval of those penalties as sufficient against a far larger EDC-and one that engaged in repeated violations that caused far more serious injuries-must be taken as an indication of what the PUC believes serves as adequate deterrence.

         HIKO argues that, given its concededly much smaller size, its lack of any history of non-compliance, the extraordinary time period in which the violations occurred and the absence of any threat to public safety, it was arbitrary for the PUC to require an amount more than 80% higher than the UGI penalty in order to deter future violations by HIKO.

         Also, HIKO asserts, in adopting and affirming the ALJs' factual findings, the PUC accepted the testimony of HIKO's energy expert, Dr. Cicchetti, who testified the polar vortex coincided with and exacerbated extraordinary regulatory disruptions in the wholesale energy markets. Thus, in addition to abnormally cold conditions during this period, prices for both natural gas and electricity surged to unanticipated (and unprecedented) levels. This too the PUC admitted. See Review of Rules, Policies & Consumer Educ. Measures Regarding Variable Rate Retail Elec. Prods., No. M-2014-2406134 (March 4, 2014), 2014 WL 1092815 (Pa.P.U.C.).

         HIKO argues the unprecedented and exponential increase in spot market prices for wholesale electricity was felt by all EGSs and their variable rate customers. HIKO, in particular, faced severe financial difficulty in satisfying PJM collateral calls and meeting its ongoing monthly electricity purchase requirements. Had HIKO failed to satisfy PJM's increasing collateral calls, it asserts, it would have been banned from participating in any PJM market activities and lost all its customers in every state in which it operated. Further, its failure to satisfy its PJM requirements also would have caused it to violate its EGS license requirements, which require HIKO to maintain PJM membership. HIKO argues none of this evidence was disputed by the PUC. Nevertheless, the PUC did not consider any of these circumstances as an excuse for HIKO's breach of its guaranteed rate promise, believing HIKO should have simply filed for bankruptcy or gone out of business.

         HIKO points out that, in order to keep the company afloat during the polar vortex, its CEO personally guaranteed a $20 million loan and risked significant personal assets. HIKO argues it could not have survived if it continued to honor the price guarantee during the polar vortex. Again, it asserts, the PUC did not refute any of this evidence.

         Instead, the PUC minimized the import of these unforeseeable conditions, affirming the ALJs' finding that the impact of the polar vortex and accompanying market disruption provided "no excuse" for HIKO's failure to honor the price guarantee because "the customer information [HIKO] provided with the guaranteed savings rate plan contained no reservations due to outside circumstances." Commission Op. at 47. The PUC further noted, "relying on the spot market for 100% of its supply exposed HIKO to known risks" and HIKO "knew or should have known that many moving pieces affecting the wholesale spot market were outside its control." Id. at 47, 48. Yet, HIKO argues, this rationale is undermined by the PUC's own admission regarding the unforeseeable nature of the polar vortex.

         In addition, HIKO maintains, the PUC exceeded its statutory authority or abused its discretion in rejecting these mitigating circumstances based on an interpretation of HIKO's contract with price guarantee customers. First, HIKO argues, there is nothing in the Public Utility Code that authorizes the PUC to interpret the terms and conditions of a private contract between an EGS and its customers. Indeed, the PUC concluded its jurisdiction "does not extend to interpreting the terms and conditions of a contract between an EGS and a customer to determine whether a breach has occurred or setting the rates an EGS can charge." Office of Small Bus. Advocate v. FirstEnergy Solutions Corp. ("FES"), No. P-2014-2421556 (Jan. 26, 2015), slip op. at 18; see Adams v. Pa. Pub. Util. Comm'n, 819 A.2d 631 (Pa. Cmwlth. 2003); Allport Water Auth. v. Winburne Water Co., 393 A.2d 673 (Pa. Super. 1978).

         Further, HIKO argues, the PUC's decision to penalize HIKO for allegedly failing to meet its price guarantee is nothing more than an end-run around controlling authority that deprives the PUC of the power to regulate EGS prices. HIKO argues nothing in the Public Utility Code authorizes the PUC to regulate EGS' prices. Thus, while Section 1301 of the Public Utility Code, 66 Pa. C.S. §1301, gives the PUC statutory authority to determine "just and reasonable" rates, those are rates demanded or received by a "public utility, " which excludes EGSs. Specifically, Section 2806(a) of the Public Utility Code provides that "the generation of electricity shall no longer be regulated as a public utility service or function except as otherwise provided for in this chapter." 66 Pa. C.S. §2806(a). The definition of "public utility" in Section 102 of the Public Utility Code does not include EGSs except for the limited purposes in Sections 2809 and 2810 of the Public Utility Code, 66 Pa. C.S. §§2809, 2810. See Delmarva Power & Light Co. v. Pub. Util. Comm'n, 870 A.2d 901 (Pa. 2005). HIKO contends those Sections have no bearing on prices charged by EGSs.

         HIKO further asserts the PUC recognized its lack of jurisdiction to regulate prices charged by EGSs. See Commonwealth v. Blue Pilot Energy, LLC, No. C-2014-2427655 (Dec. 11, 2014); see also CRH Catering Co. v. Blue Pilot Energy, LLC, Nos. P-2014-2451865, C-2014-2415277, C-2014-2415278, C-2014-2415281, C-2014-2415282 (Feb. 24, 2015), 2015 WL 849251 (Pa.P.U.C.). HIKO maintains these rulings are consistent with prior PUC determinations, which indicated that the rates consumers pay in the retail electric market are governed by the terms of their contract with their EGS. Thus, HIKO contends any attempt by the PUC to construe HIKO's contracts and enforce price terms through imposition of a civil penalty is expressly prohibited.

         HIKO further argues the PUC's civil penalty analysis fails to properly consider HIKO's efforts to mitigate financial harm to its customers. For example, HIKO voluntarily suspended all marketing efforts as early as January 2014. HIKO argues that, as its CEO testified, HIKO was not in the business of making promises to Pennsylvania consumers it knew it could not keep. HIKO maintains the ALJs agreed HIKO did not set out to defraud consumers by selling a guaranteed rate it knew it could not meet. During the period of suspended marketing, HIKO asserts, its customer base (including customers under the price guarantee and other customers with pure variable rates) plummeted from about 10, 000 to about 3, 000. HIKO argues this significant loss of customers, coupled with the growing financial burdens of staying afloat resulted in significant financial losses. HIKO contends that, although the decision of other EGSs to voluntarily suspend the sale of variable rate products was previously considered a mitigating factor, see IDT Energy, the PUC refused to acknowledge it here.

         HIKO also asserts it began issuing refunds to its price guarantee customers as early as February 2014. And, at the time the PUC issued its final order here, it simultaneously approved the settlement in the OAG/OCA case in which HIKO agreed to pay more than $2 million in restitution to Pennsylvania customers.

         For these reasons, HIKO maintains, a civil penalty of $1, 836, 125 is grossly disproportionate when compared to other civil penalties the PUC imposed and when viewed in light of all mitigating circumstances. HIKO contends it bears no rational relation to the offense or the record, and, therefore, violates the excessive fines provisions of the U.S. and Pennsylvania Constitutions. See St. Louis, I.M. & S. Ry. Co. v. Williams, 251 U.S. 63, 67 (1919) (state-ordered monetary penalties violate due process clause's guarantee against unlawful deprivation of property when penalties are "wholly disproportioned to the offense and obviously unreasonable"). HIKO asserts the PUC here approved an unprecedented civil penalty that lacked record support and was unreasonably disproportionate to the sanctions levied against other alleged offenders for similar or more egregious conduct. Thus, this Court should set aside the civil penalty.

         2. Analysis

         Initially, our review of the notes of testimony of the ALJs' hearing as well as HIKO's pre-hearing memorandum reveals no mention of HIKO's assertion that the penalty I&E sought (which was eight times the amount of the penalty ultimately imposed by the PUC) would violate the Excessive Fines Clauses of the U.S. and Pennsylvania Constitutions. Nor did HIKO raise this issue in its brief after the ALJs' hearing.[8] Additionally, HIKO did not raise this issue in its exceptions to the ALJs' initial decision filed with the PUC. Indeed, in its opinion denying HIKO's emergency motion for supersedeas pending appeal to this Court, the PUC observed that HIKO failed to raise this issue at the appropriate stage of the proceeding, i.e., in its exceptions following the ALJs' Initial Decision. R.R. at 1184a. Thus, this issue is waived. Lyft, Inc. v. Pa. Pub. Util. Comm'n, 145 A.3d 1235 (Pa. Cmwlth. 2016) (en banc) (petitioner's failure to raise issues before PUC results in waiver); Wheeling & Lake Erie Ry. Co. v. Pa. Pub. Util. Comm'n, 778 A.2d 785 (Pa. Cmwlth. 2001) (petitioner's claim that allocation of costs against it resulted in unconstitutional taking was waived where petitioner did not raise issue before ALJ or PUC).[9]

         Further, as to those claims HIKO properly preserved before the PUC, we discern no error in the PUC's rejection of HIKO's assertions. With regard to our review of the PUC's decision, in Lyft, we explained:

[T]he PUC's interpretations of the [Public Utility] Code, the statute for which it has enforcement responsibility, and its own regulations are entitled to great deference and should not be reversed unless clearly erroneous. [On review], the Court should neither substitute its judgment for that of the PUC when substantial evidence supports the PUC's decision on a matter within [the PUC's] expertise, nor should it indulge in the process of weighing evidence and resolving conflicting testimony.
The PUC's decision must be supported by substantial evidence, meaning more than a mere trace of evidence or suspicion of the existence of a fact sought to be established. The party seeking affirmative relief from the PUC bears the burden of proving its claims with competent evidence. That the record may contain evidence that supports a different result than that reached by the PUC is irrelevant so long as the record contains substantial evidence supporting the PUC's decision.

Lyft, 145 A.3d at 1240 (citations omitted). Further, this Court may not reduce a fine imposed by the PUC if the PUC has not violated constitutional rights, committed errors of law or failed to support its findings of fact by substantial evidence. Pub. Serv. Water Co. v. Pa. Pub. Util. Comm'n, 645 A.2d 423 (Pa. Cmwlth. 1994).

         Here, we reject HIKO's argument that the civil penalty is disproportionate to the PUC's treatment of other entities that engaged in similar conduct. In rejecting HIKO's reliance on administrative proceedings involving other entities, the PUC explained that HIKO relied on settled rather than fully litigated cases and, in any event, the cases were factually distinguishable.

         To that end, none of the cases HIKO cited involved intentional conduct directed by the company's highest-level executives such as that directed by HIKO's executives here, which involved the intentional decision to overcharge the accounts of more than 5, 700 customers on nearly 15, 000 invoices over a four-month period. F.F. Nos. 26 (citing Certified Record (C.R.), HIKO St. 1-R at 9; HIKO St. 2-R at 49; ALJs' Hr'g, 4/20/15, Notes of Testimony (N.T.) at 193-95), 72 (citing N.T. at 165, 217); ALJs' Initial Dec. at 38, 40, 41, 42, 46, 54, 56; Commission Op. at 27, 53. Thus, as the PUC explained, "we believe that the intentional decision by top management and the broad scope of HIKO's violations substantially distinguish it from the cases upon which HIKO relies." Commission Op. at 27. The PUC observed:

With respect to HIKO's claims that the ALJs did not properly consider the level of civil penalties approved against other EGSs, including those in settled cases, we find HIKO's argument to be erroneous. First, as to the precedential value of settlements … the well-established legal principle often invoked by and before [the PUC] [is] that settlements do not set precedent. Cases that proceed to a settled conclusion are often incomparable in many ways. For example, in Public Power, cited often by HIKO, the parties agreed to a settlement following an informal investigation by I&E, not the filing and full prosecution of a formal complaint as is the case here. Further, the settlement document itself in that proceeding, as is typical in settlements, stated that because settlements avoid the necessity of full litigation, all parties compromised their positions, and the investigated party, without admitting culpability, agreed to a lower penalty that avoided the possibility of more adverse consequences, including a higher fine. See Pa. PUC Bureau of Investigation and Enforcement v. Public Power, LLC, Docket No. M-2012-2257858 (Order entered August 29, 2013), Attached Settlement Agreement at 15, ¶ 36.
HIKO also misstates the distinction between settled and litigated proceedings under our policy statement. While HIKO contends that our policy statement 'explicitly states' that the factors to be considered in both litigated and settled proceedings are the same, that oversimplifies the requisite analysis, which also explicitly provides that consideration of the factors will be applied more strictly in litigated cases, a provision overlooked by HIKO. See 52 Pa. Code § 69.1201(b). While we may consider the same factors, we do not consider them as strictly in settled cases. This is not only because we encourage settlements but also, as the ALJs and I&E noted, the records in settled cases often contain substantially different evidence and no admission of wrongdoing. [ALJs' Initial Dec. at 52; I&E Reply Exceptions at 20]. We also note that the third factor we consider, whether the conduct was intentional or negligent, is as HIKO asserted only considered in evaluating litigated cases. In this case, however, the intentional nature of the conduct, from [HIKO's] top management, combined with the magnitude of the violation, are perhaps the two factors that most underscore the egregious nature of the violation and support as a minimum the penalty recommended by the ALJs.

Commission Op. at 52-53 (emphasis added) (footnote omitted).

         As the PUC explained, and contrary to HIKO's assertions, the stringency in application of the factors and standards the PUC utilizes in evaluating cases involving violations of the Public Utility Code and its regulations differ in settled and litigated cases. Indeed, the PUC's penalty policy expressly states, in pertinent part (with emphasis added):

(a) The [PUC] will consider specific factors and standards in evaluating litigated and settled cases involving violations of 66 Pa.C.S. (relating to Public Utility Code) and this title. These factors and standards will be utilized by the [PUC] in determining if a fine for violating a [PUC] order, regulation or statute is appropriate, as well as if a proposed settlement for a violation is reasonable and approval of the settlement agreement is in the public interest.
(b) Many of the same factors and standards may be considered in the evaluation of both litigated and settled cases. When applied in settled cases, these factors and standards will not be applied in as strict a fashion as in a litigated proceeding. The parties in settled cases will be afforded flexibility in reaching amicable resolutions to complaints and other matters so long as the settlement is in the public interest. …

52 Pa. Code §69.1201(b). Further, as the PUC indicated, the third penalty factor, i.e., whether the conduct at issue was intentional or negligent, "may only be considered in evaluating litigated cases. When conduct has been deemed intentional, the conduct may result in a higher penalty." 52 Pa. Code §69.1201(c)(3) (emphasis added).

         In addition, our independent review of the various PUC cases cited by HIKO reveals that every case involved a settlement. Further, those cases are factually distinguishable in that they involved: far fewer customer accounts[10] or far fewer purported violations;[11] alleged misconduct by a third-party vendor without the company's knowledge;[12] or no determination that the conduct at issue was intentional.[13] In specific response to HIKO's arguments regarding an approved penalty for UGI, those cases involved settlements (factors applied less strictly, case non-precedential), and involved no determination that the conduct at issue was intentional. Also, the UGI cases did not involve an entity whose licensure was in conditional, probationary status. It is clearly within the PUC's discretion to distinguish this matter from the UGI cases on those bases.

         Nevertheless, HIKO asserts the PUC erred in failing to consider various circumstances that were outside of HIKO's control during the period at issue, including the financial constraints it faced. As the PUC observed, however, HIKO's reliance on an 18-month pricing history did not serve as an adequate basis on which to guarantee unconditional pricing savings of up to 7% for an initial six-month period. Commission Op. at 46 (citing ALJs' Initial Dec. at 29); F.F. No. 13 (citing C.R., HIKO St. 1-R at 2-5). More specifically, during the period at issue here, HIKO made 100% of its electric purchases on the spot market. F.F. No. 13. Clearly, this practice assumed certain risks regarding the volatility of wholesale market prices. Commission Op. at 46 (citing ALJs' Initial Dec. at 29). And, even if HIKO

did not foresee at the time of enrollment of customers in the 1-7% guaranteed savings plans the high risk HIKO or its variable rate customers were assuming because of the impending on-the-spot wholesale market price increases that were about to occur in [January 2014], the surprise does not justify the fact that the end-user customers enrolled in guaranteed savings plans are shouldering a substantial portion of the burden of the increase in wholesale rates.

Id. at 47 (citing ALJs' Initial Dec. at 29-30).

         Further, the PUC and the ALJs specifically considered the various circumstances HIKO alleged were outside of its control, but found these circumstances did not justify HIKO's actions. In particular, the customer information HIKO provided with its guaranteed savings rate plan contained no reservations based on outside circumstances. Thus,

the polar vortex weather condition, the increase in natural gas prices due to the Canadian regulatory change, the increase in demand because of the weather, PJM's operational requirements, and/or the resulting spot market energy prices do not constitute a good excuse for HIKO's business decision to not honor a guaranteed discount under the terms and conditions of its ...

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