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

163 A.3d 1079

HIKO ENERGY, LLC, Petitioner

v.PENNSYLVANIA PUBLIC UTILITY COMMISSION, Respondent

No. 5 C.D. 2016

Commonwealth Court of Pennsylvania.

Argued: December 14, 2016

Filed: June 8, 2017

Vincent E. Gentile, Princeton, NJ, for petitioner.

Terrence J. Buda, Assistant Counsel, Harrisburg, for respondent.

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 BY JUDGE SIMPSON

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 supplier¹ (EGS) which, during the polar vortex² 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 LLC³ (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...