Hiko Energy, LLC v. Pa. Pub. Util. Comm'n

209 A.3d 246

HIKO ENERGY, LLC, Appellant

v.PENNSYLVANIA PUBLIC UTILITY COMMISSION, Appellee

No. 39 EAP 2017

Supreme Court of Pennsylvania.

Argued: September 26, 2018

Decided: June 5, 2019

OPINION

JUSTICE MUNDY

In this appeal by allowance, we consider whether the penalty imposed against HIKO Energy, LLC (HIKO) was so grossly disproportionate as to violate the Excessive Fines Clause of the Pennsylvania and U.S. Constitutions; whether the penalty impermissibly punished HIKO for litigating; and whether the Pennsylvania Utility Commission (PUC) abused its discretion in imposing a penalty which was not supported by substantial evidence. We conclude that HIKO waived its constitutional challenge to the civil penalty in this case, the penalty was not imposed as a punishment against HIKO for opting to litigate its case, and that the PUC's conclusions in support of imposing the penalty are supported by substantial evidence.

I. Background

This matter originates with the PUC's Bureau of Consumer Services (BCS) receiving numerous customer complaints alleging HIKO, an electric energy supplier, had overcharged customers in Pennsylvania during the polar vortex in the winter months of 2014.¹ Based on extensive customer complaints, the PUC's Board of Investigation and Enforcement (I & E) instituted an informal investigation into HIKO in March 2014.

Relevant to the investigation, it was determined that in August 2013, HIKO offered a variable rate plan that included a six-month introductory price guarantee. As part of this offer, in its welcome letter and disclosure statement, HIKO guaranteed customers it would charge 1-7% less than the rate offered by customers' local electric distribution company (EDC) for the first six monthly billing cycles.² HIKO referred to this metric as the price-to-compare (PTC), or the rate, which, at any given time, was being offered by a customer's EDC. The disclosure statement, which, in addition to the welcome letter, was also sent to customers enrolling in the variable rate plan, further stated that the rate was the "price stated at sign-up and confirmed in your written Welcome Letter from HIKO." ALJs' Initial Decision, 8/21/15, at ¶ 46.

Prior to the polar vortex, HIKO purchased electricity from PJM Interconnection LLC (PJM)³ for approximately $ 0.08 per kWh. Due in part to the increased demand for electricity, the price nearly tripled to $ 0.227 per kWh in January 2014, and stayed at or above $ 0.138 per kWh until the end of March 2014. As a result of these increases, HIKO experienced an unexpected increase in the price of spot market wholesale electricity, and faced difficulty in obtaining electric power supply at the rates required under its business model. Ultimately, this resulted in HIKO overcharging around 5,700 of its customers enrolled in the guaranteed savings plan by approximately $ 1.8 million. ALJs' Initial Decision, 8/21/15, at ¶ 27.

Following the completion of the informal investigation, in July 2014, I & E filed a complaint against HIKO alleging that during the 2014 polar vortex, HIKO had overcharged 5,708 customers on 14,780 invoices. I & E posited that each of these 14,780 overcharges constituted a violation of 52 Pa. Code § 54.4(a), which requires that the billed prices reflect the marketed prices.⁴ I & E requested a civil penalty of $ 14,780,000.00 against HIKO, or $ 1,000.00 per violation of Section 54.4(a). Further, I & E requested the PUC revoke HIKO's authority to operate as an EGS in Pennsylvania and order HIKO to provide a refund to each Pennsylvania customer. HIKO responded by filing an answer, new matter, and preliminary objections. In its Answer, HIKO alleged that if the administrative law judges (ALJs) found any violations occurred, "the Complainant's requested relief is grossly disproportionate to said violations." HIKO's Answer to I & E's Complaint, 7/31/14, New Matter at ¶ 11. The ALJs overruled HIKO's preliminary objections.⁵

The complaint filed by I & E culminated in a hearing involving the parties.⁶ At the hearing, HIKO's CEO, Harvey Klein, testified that during the 2014 polar vortex, HIKO was unable to honor its commitment to beat the price to compare of other EGS companies. N.T., 4/20/15, at 165 (Testimony of Harvey Klein). In fact, Klein asserted, "it was simply impossible for us to stay in business while continuing to beat the price to compare." Pre-served Rebuttal Testimony of Harvey Klein, 3/13/15, at 9. Accordingly, with Klein's knowledge and approval, HIKO deviated from the terms of its price guarantee, and charged customers at rates higher than what was guaranteed in HIKO's disclosure statement and welcome letter. N.T., 4/20/15, at 165-66 (Testimony of Harvey Klein).

In February 2014, HIKO began instituting voluntary refunds to customers who complained and ultimately refunded approximately $ 160,000 to customers in Pennsylvania. Pre-served Rebuttal Testimony of Harvey Klein, 3/13/15, at 13. Around this same time, HIKO adjusted its business model, and it now purchases some energy under longer term contracts in order to hedge against sudden increases in wholesale prices. N.T., 4/20/15, at 167 (Testimony of Harvey Klein). Additionally, HIKO has ceased offering the variable rate price guarantee to Pennsylvania customers. Pre-served Rebuttal Testimony of Harvey Klein, 3/13/15, at 13.

As part of I & E's investigation, HIKO provided I & E with billing data for EGS it supplied to residential customers within each EDC service territory⁷ in which it operates and billed from January through April 2014. Klein testified to the authenticity of these documents and agreed that the spreadsheets HIKO produced represented billing data for HIKO customers enrolled in the price guarantee program. N.T., 4/20/15, at 147 (Testimony of Harvey Klein). Klein further agreed that the lines in the spreadsheets which represented an overcharge were highlighted. N.T., 4/20/15, at 153 (Testimony of Harvey Klein). Based on the documents HIKO provided, I & E's investigation eventually uncovered that HIKO overcharged 5,708 customers on 14,689 invoices.⁸ ALJs' Initial Decision, 8/21/15, at ¶ 67; Pre-served Direct Testimony of Daniel Mumford, 12/23/14, at 16, 21, 45. At no point during the proceedings did HIKO provide updated or corrected billing spreadsheets. Pre-served Direct Testimony of Daniel Mumford, 12/23/14, at 19.

At the conclusion of the hearing, the ALJs issued a decision finding that HIKO had intentionally billed customers at a rate higher than what was guaranteed in HIKO's welcome letter and disclosure statement. Further, the ALJs reasoned that HIKO was aware that it failed to honor the price offering when it broke the guarantee. The ALJs determined that HIKO made the affirmative decision to remain in business by intentionally overcharging its Pennsylvania customers in excess of the rate it had previously guaranteed. This overcharging occurred, the ALJs noted, while HIKO's license was subject to the reporting conditions outlined in the initial order granting HIKO its license.

The ALJs also recognized that had HIKO abandoned its Pennsylvania business instead of overcharging its customers, the affected customers would have been transferred to local EDCs and would not have been deprived of electricity during the polar vortex. Additionally, any customers that HIKO dropped would have actually saved money, because the local EDCs were charging their customers much lower rates throughout the duration of the polar vortex. ALJs' Initial Decision, 8/21/15, at ¶ 28. Moreover, the ALJs found that HIKO did not voluntarily offer refunds to customers; rather, HIKO initially issued refunds only to customers who had complained directly to HIKO or through a government agency.

At the conclusion of the hearing, the ALJs granted, in part, I & E's complaint, while denying the requests for customer refunds as moot based on the settlement reached between HIKO and OAG/OCA. The ALJs further denied I & E's request for revocation of HIKO's EGS license, again noting the terms of the settlement reached between HIKO and OAG/OCA.

Additionally, the ALJs granted I & E's request to impose a civil penalty on HIKO pursuant to Section 3301 of the Public Utility Code, 66 Pa.C.S. § 3301. Although the ALJs did not impose the approximately $ 14,700,000.00 penalty I & E initially sought based on a $ 1,000.00 penalty per overcharge invoice, they directed HIKO to pay a civil penalty of $ 1,836,125.00. This amount was calculated by multiplying the number of violations of 52 Pa. Code § 54.4(a) (14,689) with the approximate average overcharge per invoice ($ 125.00). The ALJs justified this penalty based largely on HIKO's conscious decision to disregard the price guarantee made to its customers. Further, the ALJs considered the ten factors which impact the imposition of a fine for violation of a PUC order, regulation, or statute listed in 52 Pa. Code § 69.1201. Section 69.1201 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

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