HIKO Energy, LLC v. Pennsylvania Public Utility Commission

IN THE COMMONWEALTH COURT OF PENNSYLVANIA

HIKO Energy, LLC, :

Petitioner :

:

v. : No. 5 C.D. 2016

: Argued: December 14, 2016

Pennsylvania Public Utility :

Commission, :

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 FILED: June 8, 2017

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

1

An “electric generation supplier” is:

A person or corporation, … brokers and marketers, aggregators or

any other entities, that sells to end-use customers electricity or

related services utilizing the jurisdictional transmission or

distribution facilities of an electric distribution company or that

purchases, brokers, arranges or markets electricity or related

services for sale to end-use customers utilizing the jurisdictional

transmission and distribution facilities of an electric distribution

company. …

(Footnote continued on next page…)

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,

(continued…)

66 Pa. C.S. §2803. Additionally, an “electric distribution company” or EDC, is: “The public

utility providing facilities for the jurisdictional transmission and distribution of electricity to

retail customers ….” Id.

Each retail customer falls within the territory of a local EDC, and the price-to-compare is

the default rate that a retail customer is billed by the EDC. Id.; 52 Pa. Code § 54.182. In 1996,

the General Assembly enacted the Electricity Generation Customer Choice and Competition Act,

66 Pa. C.S. §§2801-2815, which allowed retail customers to purchase electricity directly from

EGSs rather than their local utility and allowed EGSs to use the transmission and distribution

facilities of EDCs. Coalition for Affordable Util. Servs. & Energy Efficiency in Pa. v. Pa. Pub.

Util. Comm’n, 120 A.3d 1087 (Pa. Cmwlth. 2015) (en banc). While the PUC continues to

regulate the transmission and distribution rates of EDCs, it lacks authority to regulate rates

charged by EGSs to determine whether they are “just and reasonable,” and it lacks the authority

to compel EGSs to file tariffs. Id. at 1101 (quoting 66 Pa. C.S. §1301).

2

As explained by the National Weather Service and National Oceanic and Atmospheric

Administration, the polar vortex is

a large area of low pressure and cold air surrounding both of the

Earth’s poles. It ALWAYS exists near the poles, but weakens in

summer and strengthens in winter. The term ‘vortex’ refers to the

counter-clockwise flow of air that helps keep the colder air near

the Poles. Many times during winter in the northern hemisphere,

the polar vortex will expand, sending cold air southward with the

jet stream …. This occurs fairly regularly during wintertime and is

often associated with large outbreaks of Arctic air in the United

States. The one that occurred January 2014 is similar to many

other cold outbreaks that have occurred in the past, including

several notable colder outbreaks in 1977, 1982, 1985 and 1989. …

Polar vortexes are not something new. The term ‘polar vortex’ has

only recently been popularized, bringing attention to a weather

feature that has always been present. It is also not a feature that

exists at the Earth’s surface.

What is the Polar Vortex? Nat’l Weather Serv. & Nat’l Oceanic & Atmospheric Admin.,

http://www.nws.noaa.gov/om/cold/polar_vortex.shtml (last visited Feb. 14, 2017).

2

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

3

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

4

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.

3

PJM Interconnection LLC is a regional transmission organization that coordinates the

movement of wholesale electricity in 13 states (including Pennsylvania) and the District of

Columbia. Metro. Edison Co. v. Pa. Pub. Util. Comm’n, 22 A.3d 353 (Pa. Cmwlth. 2011) (en

banc).

5

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

6

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

7

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

8

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

9

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.

4

The original number of 14,780 invoices was reduced to 14,689 invoices during the

proceedings before the ALJs.

10

(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

11

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

12

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?

5

Through his opinion and order, the single judge also required that HIKO file a bond in

an amount equal to 120% of the civil penalty imposed by the PUC.

6

When reviewing the PUC’s findings and conclusions, our review is limited to

determining whether constitutional rights were violated, whether errors of law were committed

or whether the PUC’s findings and conclusions were supported by substantial evidence.

Bethlehem Steel Corp. v. Pa. Pub. Util. Comm’n, 713 A.2d 1110 (Pa. 1998).

13

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

14

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

15

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

16

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.

17

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

7

“Slamming” is an unauthorized change made to a customer’s supply service. See Pa.

Pub. Util. Comm’n, Bureau of Investigation & Enforcement v. ResCom Energy LLC, No. M-

2013-2320112 (June 19, 2014), 2014 WL 2876696 (Pa.P.U.C.).

18

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.,

19

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

20

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

21

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.

22

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

23

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

24

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.

25

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

8

In its reply brief, HIKO asserts it preserved this issue in its brief after the ALJs’ hearing

as well as in its answer and new matter filed in response to I&E’s complaint. See R.R. at 83a,

837a. Our review of these documents reveals no mention of HIKO’s present assertion that the

proposed penalty would violate the Excessive Fines Clauses of the U.S. and Pennsylvania

Constitutions.

9

In any event, the primary case upon which HIKO relies in support of its excessive fines

argument, Commonwealth v. Eisenberg, 98 A.3d 1268 (Pa. 2014), is distinguishable. There, the

Supreme Court determined that the imposition of a $75,000 mandatory fine under the

Pennsylvania Race Horse Development and Gaming Act, 4 Pa. C.S. §§1101–1904, based on a

casino employee’s misdemeanor criminal conviction for a single theft of $200 violated the

Excessive Fines Clause of the Pennsylvania Constitution. Among other things, the Court stated:

(Footnote continued on next page…)

26

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.

(continued…)

In our view, the fine here, when measured against the

conduct triggering the punishment, and the lack of discretion

afforded the trial court, is constitutionally excessive. Simply put,

appellant, who had no prior record, stole $200 from his employer,

which happened to be a casino. There was no violence involved;

there was apparently no grand scheme involved to defraud either

the casino or its patrons. Employee thefts are unfortunately

common; as noted, appellant’s conduct, if charged under the

Crimes Code[,] [18 Pa. C.S. §§101–9402], exposed him to a

maximum possible fine of $10,000. Instead, because appellant’s

theft occurred at a casino, the trial court had no discretion, under

the Gaming Act, but to impose a minimum fine of $75,000—an

amount that was 375 times the amount of the theft.

Eisenberg, 98 A.3d at 1285.

Unlike Eisenberg, and as discussed throughout this opinion, the supported findings of the

ALJs and the PUC here reveal HIKO’s management made a decision to intentionally charge its

customers at a rate that exceeded its guaranteed rate on 14,689 invoices over a four-month period

in violation of PUC regulations. The fine imposed here approximated the average overcharge on

each of the 14,689 invoices and represented 12.5% of the maximum statutory fine allowable

under Section 3301 of the Public Utility Code, 66 Pa. C.S. §3301.

Further, none of the cases HIKO cites in its discussion of the principles relating to an

excessive fines analysis involve consideration of the constitutionality of a civil penalty imposed

by a state agency.

27

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;

28

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

29

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

30

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 accounts10 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

10

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.).

11

Commonwealth v. Respond Power, LLC, Nos. C-2014-2438640, C-2014-2427659

(Apr. 22, 2016).

12

Pa. Pub. Util. Comm’n, Bureau of Investigation & Enforcement v. Pub. Power, LLC,

No. M-2012-2257858, (Dec. 19, 2013), 2013 WL 6835126 (Pa.P.U.C.).

13

Commonwealth v. IDT Energy, Inc., No. C-2014-2427657 (Nov. 19, 2015), 2015 WL

7873831 (Pa.P.U.C.); 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.); Pa. Pub.

Util. Comm’n, Bureau of Investigation & Enforcement v. UGI Utils., Inc., Gas Div., No. C-

2012-2308997 (Feb. 19, 2013).

31

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

32

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 [p]rice

[o]ffering nor mitigate the warranted imposition of a civil

penalty in this case.

There is no evidence to suggest that HIKO’s

disclosure statement or welcome letter indicated to the

customer that its introductory rate would be dependent

upon any of these aforementioned factors. …

Commission Op. at 47 (quoting ALJs’ Initial Dec. at 57) (emphasis added). No

error is apparent in this reasoning. Indeed, HIKO’s disclosure statement and

welcome letter were devoid of any indication that the guaranteed introductory rate

HIKO promised its customers was subject to change based on any of the various

circumstances upon which HIKO now relies.14

14

In a footnote, HIKO asserts, even if the PUC was authorized to engage in contract

interpretation to enforce or regulate HIKO’s prices, the PUC’s determination that HIKO’s

customer information for the price guarantee program did not contain any reservations as to

outside circumstances is contradicted by a plain reading of the contract. HIKO argues its terms

and conditions included a force majeure provision, which states: “HIKO will not be liable for

any interruptions caused by a Force Majeure Event, and HIKO is not and shall not be liable for

damages caused by Force Majeure Events.” See Commonwealth v. HIKO Energy, LLC, Dkt.

No. C-2014-2427652, Joint Compl., App. A at ¶ 11. The provision defines “Force Majeure

Events” to include acts of God. HIKO argues the polar vortex of 2014 may be reasonably

characterized as an act of God, which is “[a]n overwhelming, unpreventable event caused

exclusively by forces of nature.” BLACK’S LAW DICTIONARY 37 (8th ed. 1999). Thus, HIKO

asserts, the PUC’s determination that HIKO’s customer information offered no information

(Footnote continued on next page…)

33

Moreover, the PUC agreed with the ALJs that HIKO’s reliance on the

spot market for 100% of its energy supply exposed HIKO to known risks, if not

foreseeable events, given that numerous factors upon which the wholesale market

depends were outside HIKO’s control. Commission Op. at 47-48. As such,

“HIKO [could not] credibly claim that relying on a market subject to so many

known exposures is not inherently risky, such that they were risks [HIKO]

apparently was willing to assume.” Commission Op. at 48. In other words, it was

or should have been foreseeable that exclusive reliance on the wholesale spot

(continued…)

regarding the impact of such unforeseeable and uncontrollable events is unsupported by the

record.

Contrary to HIKO’s assertions, when read in its entirety, we do not believe the provision

of the customer disclosure statement upon which HIKO relies is helpful to its position. That

provision states:

11. Force Majeure. HIKO will make commercially reasonable efforts to

provide electricity hereunder but HIKO does not guarantee a continuous supply

of electricity to Customer. Certain causes and events out of the control of HIKO

(‘Force Majeure Events’) may result in interruptions in service. HIKO will not

be liable for any such interruptions caused by a Force Majeure Event, and HIKO

is not and shall not be liable for damages caused by Force Majeure Events.

Force Majeure Events shall include acts of God, fire, flood, storm, terrorism,

war, civil disturbance, acts of any governmental authority, accidents, strikes,

labor disputes or problems, required maintenance work, inability to access the

local distribution system, non-performance by the EDC (including, but not

limited to, a facility outage on its distribution lines or electric facilities), changes

in laws, rules, or regulations of any governmental authority or any other cause

beyond HIKO’s control.

Commonwealth v. HIKO Energy, LLC, Dkt. No. C-2014-2427652, Joint Compl., App. A at ¶ 11

(emphasis added). We fail to see how this provision was sufficient to place HIKO’s customers

on notice that the six-month discounted rate HIKO guaranteed its customers could change based

on the cold weather experienced in the winter of 2014.

Further, we disagree with HIKO that the polar vortex effects of the winter of 2014

constitute an act of God. Black’s Law Dictionary defines an “act of God” as “[a]n

overwhelming, unpreventable event caused exclusively by forces of nature, such as an

earthquake, flood, or tornado.” Black’s Law Dictionary 37 (8th ed. 1999) (emphasis added). We

do not believe the polar vortex effects of the winter of 2014 fall within this definition,

particularly in light of the enumerated examples.

34

market could, depending on the confluence of several independent factors at any

one time, produce less than favorable pricing conditions. Id. In addition to the fact

HIKO knew or clearly should have known many “moving pieces” affecting the

wholesale spot market were outside its control, HIKO “also should have been able

to foresee that relying on its customers as financial guarantors, when its finances

were stretched because of those many circumstances outside its control, was not a

valid option in the face of its contractual guarantees and existing regulatory

protections.” Id. Indeed, it was HIKO’s sole decision how to structure a

compatible price and supply scheme. F.F. No. 76 (citing N.T. at 162).

In an analogous situation, this Court rejected the PUC’s determination

that a public utility company established that it was subject to price increases that

were outside of the public utility company’s control, explaining:

We agree with [the dissenting PUC Commissioner’s]

assessment that the [PUC’s] interpretation is clearly

erroneous because the plain meaning of the term ‘outside

of the control’ does not means [sic] that ratepayers will

act as the surety for companies that act to maximize their

return, and not, as other utilities did, to protect their

exposure from known and definable obligations.

An event ‘outside of the control’ of a person or

group typically refers to sudden illness, fire, theft, acts of

God and natural disasters, not situations where a party

can take actions to protect himself or herself from risk.

See Peister v. State of Colorado, Department of Social

Services, 849 P.2d 894 (Colo.Ct.App.1993). Strategic

business planning always involves decisions on how

much risk to accept and where the burden of risk is

placed. In this case, [the public utility company] made a

choice to divest itself of its generation assets and, unlike

other utilities, not to protect itself by entering into long-

term contracts within the rate caps to protect itself from

35

PLR [“provider of last resort”] costs. Instead, it made a

bet that electric rates would remain below the rate caps

and chose to maximize its profits. This was not an event

outside of its control, but a conscious business decision.

The General Assembly did not intend that if a utility lost

money on choices it made, it would be allowed to recover

more in rates. As [PUC] Commissioner Brownell stated,

‘the statute did not establish a ‘heads I win, tails you

lose’ construct.’ Because an event that is “outside of the

control” does not mean the results of business decisions,

it was plainly erroneous for the [PUC] to allow revenues

to be increased above the legislatively mandated rate

caps.

ARIPPA v. Pa. Pub. Util Comm’n, 792 A.2d 636, 665-66 (Pa. Cmwlth. 2002) (en

banc).

Further, HIKO’s assertion that it lacked any prior history of non-

compliance is unpersuasive. As to HIKO’s history of operation as an EGS in

Pennsylvania, the PUC tentatively and conditionally granted HIKO’s application to

operate as an EGS in June 2012. F.F. Nos. 5-6. Based on numerous complaints

against HIKO in New York, the PUC conditionally approved HIKO’s license

subject to certain reporting requirements as to its sales and marketing practices.

F.F. No. 6 (citing C.R., I&E St. 1 at 50-51). The conditions applied from

December 2012 through June 2014. Id. As such, the violations at issue here

(which occurred between January and April 2014), took place while HIKO’s EGS

license was subject to conditions on its sales and marketing practices. Given that

the significant and abundant violations here began merely a-year-and-a-half after

HIKO received tentative and conditional EGS license approval and all of the

violations occurred while HIKO’s EGS license remained in conditional status, we

36

reject HIKO’s argument that the PUC erred in failing to consider its purported

“history of compliance.”

We also reject HIKO’s argument that the PUC’s failure to afford

sufficient weight to HIKO’s size in fashioning the civil penalty here warrants

disturbing the PUC’s decision. On that point, the PUC’s penalty policy states, in

relevant part: “The factors and standards that will be considered by the [PUC]

include … [t]he 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.” 52 Pa. Code §69.1201(c)(8) (emphasis added). Here, the PUC

clearly considered this factor. Commission Op. at 52. However, it was reluctant to

place much weight on the ALJs’ analysis of HIKO’s size. The PUC agreed with

the ALJs that as a supplier licensed in eight states, HIKO certainly had an

opportunity to acquire a combined customer base, if not also economies of scale

and scope, that could exceed that of any one EDC in Pennsylvania. Nevertheless,

the PUC believed there was insufficient evidence on this point; as such, it placed

little emphasis on its importance. Regardless, it found ample support for the

remainder of the ALJs’ analysis to adopt the recommended civil penalty. As

discussed throughout this opinion, the record amply supports the PUC’s decision

regarding its imposition of the civil penalty. Further, as the ALJs recognized, the

total amount of the civil penalty imposed here closely reflects the actual, aggregate

overcharge that HIKO billed its customers. ALJs’ Initial Dec. at 49.

In addition, we reject HIKO’s contention that the PUC engaged in an

“end-run” around controlling authority that deprives it of the power to regulate

37

EGS prices. The PUC has subject matter jurisdiction to regulate certain aspects of

the services provided by EGSs. See Sections 2807, 2809 of the Public Utility

Code, 66 Pa. C.S. §§2807, 2809. Under Section 2809(b) of the Public Utility

Code, 66 Pa. C.S. §2809(b), EGSs are required to abide by PUC regulations.

(“A[n] [EGS] license shall be issued to any qualified applicant, authorizing the

whole or any part of the service covered by the application, if it is found that the

applicant is fit, willing and able … to conform to the provisions of this title and the

lawful orders and regulations of the [PUC] under this title, including the [PUC’s]

regulations regarding standards and billing practices ….”). For EGSs serving

residential customers, this includes adherence to the regulations set forth in Title

52, Chapter 54, which relate to, among other things, bill format, disclosure

statements and marketing and sales activities. See Herp v. Respond Power LLC,

No. C-2014-2413756 (Dec. 17, 2014). As set forth above, Section 54.4(a) states:

“EGS prices billed must reflect the marketed prices and the agreed upon prices in

the disclosure statement.” 52 Pa. Code §54.4(a). Thus, we reject HIKO’s

assertion that the PUC engaged in an “end-run” around controlling authority that

deprives it of the power to regulate EGS prices here.

Similarly, we reject HIKO’s assertion that the PUC exceeded its

authority in interpreting HIKO’s private contracts with its customers when the

PUC determined HIKO breached its price guarantee. In this case, HIKO’s CEO

admitted that HIKO billed its customers in excess of its guaranteed introductory

rate. N.T. at 165. As such, in analyzing this matter, the PUC applied its regulation

and determined each overcharge constituted a violation of Section 54.4(a) of its

38

regulations. Thus, the PUC did not improperly engage in contract interpretation;

rather, it applied its regulations to HIKO’s admitted overcharges.

Finally, we reject HIKO’s contention that the PUC did not properly

consider HIKO’s efforts to mitigate financial harm to its customers. On this point,

the PUC determined (with emphasis added):

It appears from the record that in the early phases

of HIKO’s overbilling, [HIKO] made no effort to

voluntarily cease the overbilling. I&E Exhibits 12 and

13 show that only once customers filed informal

complaints with BCS, did HIKO take action to refund

overcharged amounts to customers. I&E Exhibits 12 and

13 are further supported by the testimony of HIKO’s

expert:

Q. Dr. Cicchetti, do you know if with regard to this

proceeding whether HIKO had any specific

remedial plan to provide refunds to the affected

customers?

A. I know before this proceeding began that they

were dealing with customer complaints, and that

they made refunds to specific customers who

complained.

N.T. [at] 204.

As the spreadsheet data shows [sic], HIKO’s

overbilling occurred not as a single occurrence, but over

a four-month period. There were at least four separate

decisions to continue HIKO’s pattern of overbilling – one

for each of the January, February, March and April 2014

billing cycles. N.T. [at] 217. Taking this same logic

even further, the spreadsheet data contained in Column 4

titled ‘Invoice Data’ in I&E Exhibits 6A through 11A

shows [sic] multiple invoice dates for each month,

suggesting that the decision to continue its scheme of

39

overbilling could have been confirmed prior to each and

every invoice date.

HIKO ceased offering the guaranteed rate in

February, hired 11 additional customer service

representatives, and contracted with an answering service

in Florida to handle the numerous customer complaints

from several States. [Klein] testified that HIKO now also

purchases hedges regarding power supply, i.e. 6-month

contracts. However, whether that alone is sufficient risk

management to ensure that HIKO’s variable rate prices

do not exceed its guaranteed savings plans remains to be

seen. There is no evidence the company modified its

internal practices or procedures to address the conduct at

issue. Of particular concern is that [Klein] testified he

still intends to offer the 1% guaranteed rate. N.T. [at]

167-168. Thus, it appears the guaranteed savings plan is

still a goal and part of the business model.

ALJs’ Initial Dec. at 43; see also Commission Op. at 49. Additionally, the PUC

explained:

The ALJs were unpersuaded that HIKO’s actions outside

of those agreed to in OAG/OCA-HIKO Settlement

warranted consideration of a lower penalty. We agree

and find most compelling the ALJs’ conclusion that

HIKO’s illegal billing practices continued for four

consecutive months with [HIKO] beginning to issue

refunds only after customers filed informal complaints

with [the BCS].

Commission Op. at 49. Thus, we reject HIKO’s assertions on this point.

B. Penalty for Right to Litigate

1. Contentions

HIKO next argues the PUC’s determination to impose a civil penalty

of $1,836,125 impermissibly penalizes HIKO for exercising its right to litigate this

40

matter. In light of the PUC’s refusal to consider civil penalty decisions in settled

cases involving substantially similar allegations, HIKO asserts, the

disproportionate civil penalty levied against it can have no other explanation than

as a penalty because HIKO chose to litigate rather than settle this matter. HIKO

contends the PUC approved the enormous civil penalty here, despite the fact it is

nearly 80 times higher than the civil penalty it approved against another EGS for

similar conduct during the same period. And, HIKO argues, the PUC’s sole basis

for rejecting any consideration of the amounts approved in those cases is because

they were settled rather than litigated. Yet, as discussed above, HIKO asserts,

there is no reason the penalty decisions in settled cases should have no bearing in

determining an appropriate civil penalty here, given the dearth of litigated cases

involving similar allegations, and the requirement that the PUC consider the very

same penalty standards in both litigated and settled cases.

Further, while HIKO acknowledges a lower civil penalty is a common

condition of a settlement, it asserts that the fuller evidentiary record in a litigated

proceeding does not justify an exponential increase in the civil penalty, especially

where HIKO was never presented with any real option than to settle this matter.

To that end, HIKO argues, when I&E initiated this proceeding before the PUC,

HIKO was faced with a claim for $15 million in civil penalties, potential license

revocation and a refusal to settle on any terms other than a multi-million dollar

penalty. HIKO asserts it had no practical alternative except to litigate the penalty

action. Having done so, the PUC imposed its highest ever penalty, effectively

punishing HIKO for refusing to settle. And, in affirming this unprecedented

41

penalty, HIKO contends, it was penalized again by not being allowed to rely on

any settled cases as precedent to show that a lesser penalty was appropriate.

Under the Pennsylvania Constitution, HIKO argues, it had a right to

refuse settlement and litigate this matter, including through an appeal to this Court.

Article 5, Section 9 of the Pennsylvania Constitution provides for appeals to courts

of record from administrative agencies. It states: “[T]here shall also be a right of

appeal from a court of record or from an administrative agency to a court of record

or to an appellate court ….” PA. CONST. art. 5, §9. HIKO maintains that, by

imposing astronomical and disproportionate civil penalties against it simply

because it decided to exercise its right to litigate, the PUC impermissibly attempted

to chill HIKO’s right of appeal. If pursuing litigation results in a disproportionate

civil penalty, HIKO argues, parties will inevitably be coerced into abandoning their

rights to litigate civil penalty assessments regardless of the merits of the cases

against them.

HIKO argues that an action by the government that unnecessarily

chills the exercise of a constitutional right is invalid. See Commonwealth v.

Brown, 26 A.3d 485 (Pa. Super. 2011) (citing United States v. Jackson, 390 U.S.

570 (1968)). It asserts the stark disparity between the civil penalty ultimately

assessed against it and the civil penalty assessed against other EGSs for the same

or even more egregious conduct underscores the arbitrariness of the PUC’s

decision and compels the conclusion that the amount reflects, not what the record

evidence warranted, but a punishment for HIKO’s decision to litigate. HIKO

contends that permitting the PUC to enforce this unsubstantiated civil penalty

42

violates HIKO’s right to due process in that it places too high a price on HIKO’s

constitutional right to litigate this matter.

2. Analysis

We reject HIKO’s argument that the PUC imposed the civil penalty

here based on HIKO’s choice to litigate rather than settle this matter. Rather, our

review of the decisions rendered by the ALJs and the PUC reflects that, in

fashioning the civil penalty here, the tribunals applied the 10 factors set forth in the

PUC’s penalty policy to the facts presented.

Further, with regard to HIKO’s repeated assertions that the PUC erred

in failing to consider settled case, the PUC previously explained that it

“vigorously, and without equivocation, reject[s] considering a settlement as

precedent, as to any subsequent issue, in any proceeding.” Pa. Pub. Util. Comm’n

v. The Bell Tel. Co. of Pa., No. R-811819 (Nov. 10, 1988), 1988 Pa. PUC LEXIS

572 at *19 (emphasis in original). Thus, “the [PUC’s] approval of a settlement

does not establish legal precedent, because parties frequently waive their legal

rights regarding certain issues in a settlement.” Customer Assistance Programs:

Funding Levels & Cost Recovery Mechanisms, No. M-00051923 (Oct. 19, 2006),

2006 WL 6610966 (Pa.P.U.C.) at *11.

To that end, as set forth above, HIKO mischaracterizes the PUC’s

penalty policy statement as it pertains to litigated rather than settled cases. As

stated above, “[w]hen applied in settled cases, [the penalty policy] factors and

standards will not be applied in as strict a fashion as in a litigated proceeding.” 52

Pa. Code §69.1201(b) (emphasis added). Thus, the parties in settled cases will be

43

afforded flexibility in reaching amicable resolutions to complaints and other

matters so long as the settlement is in the public interest. Id. Additionally, the

third penalty factor, which involves a determination of whether the conduct at issue

is intentional or negligent, and which the PUC considered of great import here,

“may only be considered in evaluating litigated cases.” 52 Pa. Code

§69.1201(c)(3) (emphasis added). Indeed, when conduct is deemed intentional, it

may result in a higher penalty. Id.

Further, as explained above, the settled cases upon which HIKO relies

are factually distinguishable. In particular, none of the cases HIKO cited involved

intentional conduct directed by the company’s highest-level executives such as that

directed by HIKO’s CEO and management 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 C.R., HIKO St. 1-R

at 8-9; HIKO St. 2-R at 49; N.T. 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. Indeed, the

PUC stated that the two factors that highlighted the egregious nature of the

violations and supported the penalty determination were: (1) the intentional nature

of the conduct from HIKO’s top management; and, (2) the magnitude of the

violation. Commission Op. at 53. Indeed, I&E’s witness, Daniel Mumford,

manager of the BCS’ Informal Compliance and Competition Unit, testified: “I’m

not aware of any previous case whether this large [a] number of customers were

overcharged deliberately.” N.T. at 132; see also N.T. at 124 (Mumford testified

“I’m not aware of any comparable cases, cases that could be compared to this one.

…”). Therefore, contrary to HIKO’s assertions, there is no indication the PUC

44

imposed the penalty here based solely on HIKO’s decision to litigate rather than

settle this matter.

In addition, while HIKO claims the PUC penalized it for refusing to

settle, it points to nothing in the record that substantiates this bald assertion. To

that end, through its complaint I&E sought the maximum penalty of nearly $15

million (based on the statutory maximum fine of $1,000 per violation), see R.R. at

41a, and the PUC ultimately imposed a penalty that was one-eighth (or 12.5%) of

that amount, or $1,836,125. Thus, while the PUC’s policy is to “encourage

settlements,” 52 Pa. Code §5.231(a), there is nothing to indicate that HIKO was

compelled to litigate rather than settle this matter.

For these reasons, we reject HIKO’s argument that the PUC’s

imposition of the civil penalty here impermissibly penalized HIKO for exercising

its right to litigate this matter.

C. Penalty Computation

1. Contentions

HIKO next maintains the PUC erred in applying a “per invoice”

methodology that resulted in a finding of 14,689 separate violations. HIKO argues

its failure to honor the price guarantee during the polar vortex was the result of a

single business decision, not 14,689 separate decisions to overcharge customers.

Also, by adopting a penalty computation based on invoices rather than prices

actually billed, HIKO asserts, the ALJs arrived at a civil penalty that improperly

penalized HIKO for actions that did not violate PUC regulations.

45

HIKO contends that, as the PUC found that HIKO’s alleged

overcharges violated Section 54.4(a) of the PUC’s regulations, each day its

business decision remained effective constituted a separate and distinct offense.

See 66 Pa. C.S. §3301(b). As such, the PUC was required to apply a civil penalty

for each violation of Section 54.4(a) during the four months affected by the polar

vortex. Even if the PUC applied the maximum penalty of $1,000 for each day’s

violation, HIKO asserts, the PUC would have arrived at a total civil penalty of

$120,000—a penalty proportional to the civil penalties levied against other EGSs

for similar violations.

HIKO argues the PUC’s “per invoice” methodology is contrary to the

language of Section 54.4(a), which provides: “EGS prices billed must reflect the

marketed prices and the agreed upon prices in the disclosure statement.” 52 Pa.

Code §54.4(a) (emphasis added). HIKO contends the regulation does not state that

each EGS invoice must conform to the marketed price. HIKO asserts the invoice

amount and the actual amount billed to a customer may be different, as the PUC

acknowledged by its decision to remove “re-billed” charges from the total number

of alleged violations. R.R. at 902a. Moreover, HIKO maintains, it did not “bill”

customers itself; rather, the customer’s local EDC actually sent the invoices.

HIKO’s customer records simply showed each customer’s account, the usage, the

rate and the total charges over specific periods. HIKO argues I&E did not produce

a single customer invoice to support its case. It asserts this distinction is critical

where, as here, there are thousands of customer billing entries in HIKO’s records

and each instance in which the “amount invoiced” is actually billed to a customer

can carry a civil penalty up to $1,000.

46

Further, HIKO maintains, based on his industry experience, its expert,

Dr. Cicchetti, offered a number of explanations as to why approximately 300

invoice entries in HIKO’s records were likely not billed to customers. HIKO

argues I&E offered no proof one way or the other, and thus did not carry its burden

of proving those occurrences constituted violations.

2. Analysis

Section 3301 of the Public Utility Code (“Civil penalties for

violations”) states, in relevant part:

(a) General rule.--If any public utility, or any other

person or corporation subject to this part, shall violate

any of the provisions of this part, or shall do any matter

or thing herein prohibited; or shall fail, omit, neglect, or

refuse to perform any duty enjoined upon it by this part;

or shall fail, omit, neglect or refuse to obey, observe, and

comply with any regulation or final direction,

requirement, determination or order made by the [PUC]

… such public utility, person or corporation for such

violation, omission, failure, neglect, or refusal, shall

forfeit and pay to the Commonwealth a sum not

exceeding $1,000, to be recovered by an action of

assumpsit instituted in the name of the Commonwealth.

In construing and enforcing the provisions of this section,

the violation, omission, failure, neglect, or refusal of any

officer, agent, or employee acting for, or employed by,

any such public utility, person or corporation shall, in

every case be deemed to be the violation, omission,

failure, neglect, or refusal of such public utility, person or

corporation.

(b) Continuing offenses.--Each and every day’s

continuance in the violation of any regulation or final

direction, requirement, determination, or order of the

[PUC] … or of any final judgment, order or decree made

by any court, shall be a separate and distinct offense. If

any interlocutory order of supersedeas, or a preliminary

47

injunction be granted, no penalties, shall be incurred or

collected for or on account of any act, matter, or thing

done in violation of such final direction, requirement,

determination, order, or decree, so superseded or

enjoined for the period of time such order of supersedeas

or injunction is in force.

66 Pa. C.S. §3301(a), (b).

As set forth above, the pertinent PUC regulation states: “EGS prices

billed must reflect the marketed prices and the agreed upon prices in the disclosure

statement.” 52 Pa. Code §54.4(a) (emphasis added). HIKO challenges the PUC’s

interpretation of this regulation. As set forth above, however, the PUC’s

interpretation of its own regulations is entitled to great deference and will not be

reversed unless clearly erroneous. Lyft.

Here, the PUC rejected HIKO’s proffered interpretation of 52 Pa.

Code §54.4(a), explaining (with emphasis added):

Although HIKO argues that Section 54.4(a) ‘does

not state that each EGS invoice must conform to the

marketed price’ but rather contains a ‘general’ statement

that ‘prices billed must reflect the marketed price and the

agreed upon prices in the disclosure statement’ we find

that distinction to be one without a difference. HIKO

[Exceptions] at 12 (emphasis in original). The prices in

HIKO’s invoices did not match the customer

information[15] provided, which guaranteed savings of

between 1% and 7%. We find no basis to adopt an

analysis that Section 54.4(a) demands anything more

15

As the PUC noted in its opinion, its regulations define the term “Customer

information” as “[w]ritten, oral or electronic communications used by electricity providers

[(which expressly includes EGSs)] to communicate to consumers prices and terms of service.”

52 Pa. Code §54.2.

48

than disparate pricing in order for us to adopt the ALJs’

conclusion that HIKO billed prices that did not match its

customer information.

Commission Op. at 25-26. We do not believe the PUC’s interpretation of the plain

language of Section 54.4(a) of its regulations is clearly erroneous; thus, we may

not disturb it.

Further, the record supports the PUC’s determination that HIKO

violated Section 54.4(a) by charging its customers amounts that exceeded HIKO’s

marketed prices and the agreed upon prices in HIKO’s disclosure statement. The

ALJs determined each overcharge equated to a violation of Section 54.4(a) of the

PUC’s regulations. ALJs’ Initial Dec. at 31. HIKO marketed and agreed to a

discount of 1% to 7% off the customer’s EDC’s PTC through its disclosure

statement and welcome letter. Id. HIKO issued a disclosure statement to each

customer who enrolled in its price offering, which stated that the rate is the “price

stated at sign-up and confirmed in your written Welcome Letter from HIKO.” Id.

at 32 (citing C.R., I&E Ex. 4; N.T. 143-44). HIKO’s Welcome Letter to customers

enrolled in its price offering stated:

Guaranteed Savings! You have been enrolled onto a

variable rate, which is guaranteed to be 1-7% less than

your local Utility’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.

Id. (quoting C.R., I&E Ex. 3) (emphasis in original).

49

HIKO did not dispute that it failed to honor the guaranteed discounted

rate during the winter of 2014. Id. (citing C.R., HIKO St. 1-R at 9; C.R., HIKO St.

2-R at 33-34, 39, 49, 59; N.T. at 164-66, 191, 193, 195, 197). In particular, HIKO

admitted that from January through April 2014, it billed a large number of its

customers in the service territories of Duquesne Light, Met-Ed, PECO, Penelec,

PPL and West Penn a unit rate for electricity supply during the customers’

introductory periods that exceeded, and sometimes far exceeded, the discounted

introductory rate guaranteed at the time of each customer’s enrollment as a HIKO

supply customer. Id.

The ALJs explained that I&E Exhibits 6A through 11A showed the

number of violations. Further, HIKO’s CEO, Klein, confirmed the spreadsheets

were true and correct business records representing billing data for HIKO

customers of this price guarantee from January through April 2014 in each EDC

service territory. N.T. at 147. Klein testified each row of data set forth in the

spreadsheets represented a single invoice entry. N.T. 148. Klein confirmed the

meaning of each column heading. N.T. at 148-51. Klein confirmed the process for

determining whether an invoice entry was deemed an overcharge under the terms

of the price offering. N.T. at 151-54.

Further, the ALJs credited the testimony of I&E witness Mumford

that the spreadsheets show 14,689 occurrences of HIKO’s overcharging over 99%

of the PTC of the EDC in six EDC territories. ALJs’ Initial Dec. at 33; N.T. at 49.

The ALJs also found persuasive Mumford’s testimony that each overcharge was a

reasonable way of defining an “instance.” Id. at 34 (citing N.T. at 38-39, 136-37).

50

The ALJs explained that the record revealed 14,689 overcharges. Id.

at 35. Contrary to Dr. Cicchetti’s claim that I&E’s penalty assessment was

exaggerated “for what was essentially a single business decision,” the ALJs stated,

violations of Section 54.4(a) are not based on the number of business decisions, but

rather, the number of overcharges. Id. (citing C.R., HIKO St. 2 at 49). On each

occasion, HIKO submitted a bill for a charge that was contrary to what it promised.

Id. (citing N.T. at 87-88).

Further, as the ALJs recognized, the imposition of a civil penalty for

each overcharge is lawful and appropriate in light of the fact that each overcharge

can be feasibly segregated into a discrete violation. See Newcomer Trucking, Inc.

v. Pa. Pub. Util. Comm’n, 531 A.2d 85, 87 (Pa. Cmwlth. 1987) (“[I]t becomes

obvious that Section 3301(a) of the [Public Utility] Code permits the PUC to

impose a fine of up to $1,000 for each and every discrete violation of the [Public

Utility] Code or PUC regulation, regardless of the number of violations that

occur.”).

In Newcomer, the PUC determined that a trucking company,

Newcomer Trucking, Inc. (Newcomer), violated a PUC regulation 184 times on

128 separate days by transporting the goods of more than one consignor on one

truck at the same time. The PUC imposed a penalty per regulatory violation. In

rejecting Newcomer’s challenges to the PUC’s penalty calculation, this Court

explained:

First, Newcomer contends that [Section 3301 of the

Public Utility Code] limits to $1,000 the amount of the

penalty the PUC can impose upon a violator of any single

51

Code provision regardless of the number of violations

committed. Thus, Newcomer asserts that, even though it

had violated 52 Pa.Code § 31.24 a total of 184 times on

128 separate days, the total fine that the PUC could assess

was $1,000. We are compelled to disagree with this

strained and unreasonable interpretation.

As our research has uncovered no case law

interpreting [Section 3301 of the Public Utility Code], we

must turn to the Statutory Construction Act of 1972 (Act),

1 Pa. C.S. §§ 1501-1991, for guidance. Two sections of

the Act are particularly instructive here. Under Section

1922, a statute is to be interpreted so as to avoid an absurd

or unreasonable result. 1 Pa. C.S. § 1922(1). Interpreting

Section 3301(a) of the Code in the fashion proposed by

Newcomer, however, would be both absurd and

unreasonable. Under Newcomer’s argument, no matter

how many times a Code provision or PUC regulation is

violated, be it once or 100 times, the maximum penalty

that the PUC could levy would be $1,000. Clearly, this

could not have been the intent of the legislature, and we

decline to so find.

Moreover, Section 1930 of the Act states:

“Whenever a penalty or forfeiture is provided for the

violation of a statute, such penalty or forfeiture shall be

construed to be for each such violation.” 1 Pa. C.S. §

1930. When this section is read in conjunction with

Section 1922(1) of the Act, it becomes obvious that

Section 3301(a) of the Code permits the PUC to impose a

fine of up to $1,000 for each and every discrete violation

of the Code or PUC regulation, regardless of the number

of violations that occur.

Alternatively, however, Newcomer argues that even

if the PUC can impose a penalty in excess of $1,000,

subsection (b) of Section 3301 of the Code requires the

PUC to impose the monetary penalty on a per day, not per

violation, basis. Thus, according to Newcomer, since the

violation here occurred on 128 separate days, it should

have been fined only $12,800.

52

While again, no cases have interpreted [Section 3301(b)

of the Public Utility Code], cases citing its virtually

identical predecessor, Section 1301(b) of the Public

Utility Law,[16] are instructive. See 1 Pa. C.S. § 1922(4)

(“[w]hen a court of last resort has construed the language

used in a statute, the General Assembly in subsequent

statutes on the same subject matter intends the same

construction to be placed upon such language”).

In York Telephone & Telegraph Co. v.

Pennsylvania Public Utility Commission, [121 A.2d 605

(Pa. Super. 1956)], the court affirmed a PUC order fining

a public utility $50 per day for the 655 days it failed to

comply with an earlier PUC order to acquire additional

manpower to improve its service. In so doing, the court

recognized that ‘continuing offenses’ are not simply

offenses repeated on more than one day; rather,

‘continuing offenses’ are proscribed activities that are of

an ongoing nature and cannot be feasibly segregated into

discrete violations so as to impose separate penalties.

[121 A.2d at 617] (Rhoades, P.J., concurring and

dissenting); see also Gornish v. Pennsylvania Public

Utility Commission, [4 A.2d 569 (Pa. Super. 1939)].

In the case at bar, however, although the proscribed

shipments occurred on 128 separate days, 184 separate

shipments were identified. Each shipment constituted a

separate violation of 52 Pa. Code § 31.24, and thus the

PUC acted within its power under Section 3301 when it

assessed a penalty for each violation.

Newcomer, 531 A.2d at 86-88 (emphasis added).

Similar to Newcomer, the record here reveals HIKO overcharged its

customers on 14,689 invoices during the four-month period at issue. Each invoice

constituted a separate violation of 52 Pa. Code §54.4(a); thus, the PUC acted

16

Act of May 28, 1937, P.L. 1053, as amended, 66 P.S. §1491(b). Section 1301 was

repealed by Section 2 of the Act of July 1, 1978, P.L. 598.

53

within its authority under Section 3301 of the Public Utility Code in assessing a

penalty for each violation. Further, as indicated in the above-quoted excerpt from

Newcomer, we specifically rejected the argument HIKO advances here, that the

PUC was required to calculate the penalty under Section 3301(b) of the Public

Utility Code on a per day rather than per violation basis.

In addition, although HIKO relies on the opinion of its expert, Dr.

Cicchetti, that 300 invoice entries were likely not billed to customers, the PUC and

ALJs expressly rejected this testimony, explaining: “[Dr.] Cicchetti was unspecific

about which line items were incorrectly included in the calculations. He also

seemed unsure whether the customer was billed the re-bill or not. As his testimony

contains conjecture, we find I&E carried its burden of proving 14,689 violations

did occur during the four month period in question.” Commission Op. at 32

(quoting ALJs’ Initial Dec. at 31). As set forth in greater detail below, the record

supports the PUC’s finding on this point.

In sum, the record supports the finding of the PUC and ALJs that

HIKO charged its customers at rates in excess of its marketed prices and the agreed

upon prices in its disclosure statement on 14,689 invoices. Further, the PUC and

ALJs properly determined each overcharge constituted a separate violation of 52

Pa. Code §54.4(a). Newcomer.

D. Substantial Evidence

1. Contentions

As a final issue, HIKO maintains the PUC erred in sustaining a civil

penalty that lacks substantial record support. HIKO argues the PUC adopted the

54

same penalty amount the ALJs recommended even though the PUC admitted the

ALJs made factual mistakes that led them to weigh some of the required penalty

factors against HIKO. In so doing, HIKO asserts, the PUC erred.

HIKO contends the PUC was free to wholly disregard and supersede

the ALJs’ findings, especially where the recommended civil penalty was not

supported by substantial evidence. See, e.g., City of Phila. v. Pa. Pub. Util.

Comm’n, 458 A.2d 1026 (Pa. Cmwlth. 1983). HIKO argues where the relief

granted is a civil penalty for violations of PUC regulations, the PUC’s civil penalty

determination must be supported by evidence presented on each of the 10 factors in

the penalty policy. See Rosi v. Bell Atl.-Pa, Inc. & Sprint Commc’ns, L.P., No. C-

0092409 (Mar. 16, 2000), 2000 WL 1407936 (Pa.P.U.C.). HIKO asserts that, in

assigning proper weight to each of the penalty factors, the PUC should have, at a

minimum, reduced the civil penalty to reflect the shortcomings it found in the

ALJs’ findings, as well as the uncertainties inherent in applying a “per invoice”

method of computing an appropriate civil penalty.

HIKO contends the PUC expressly acknowledged that the ALJs relied

on insufficient evidence to support certain conclusions as to the required penalty

factors. First, the PUC conceded the ALJs’ conclusion that customers suffered

financial hardship as a result of the overcharges was “lacking on this record.”

Commission Op. at 48. HIKO asserts the ALJs drew this conclusion despite the

fact that I&E did not present any such evidence at the hearing. HIKO argues the

evidence it presented supported the opposite conclusion as nearly two-thirds of the

customer overcharges were less than $100. Moreover, HIKO agreed to make full

55

restitution to all affected customers in its settlement of the OAG/OCA case. HIKO

asserts the ALJs’ improper conclusion of financial hardship prejudiced HIKO by

more heavily weighting the “seriousness of the violation” element of the penalty

policy, 52 Pa. Code §69.1201(c)(2), against HIKO. Nevertheless, HIKO

maintains, the PUC did not reduce the ALJs’ recommended civil penalty.

Next, HIKO asserts, the PUC admitted that the ALJs’ conclusion that

HIKO did not comply with the PUC’s surety requirements was “unclear at best,”

and the PUC was “unable to reach any conclusion on this point.” Commission Op.

at 49. Again, HIKO argues, although the ALJs weighted the “compliance history”

penalty factor, see 52 Pa. Code §69.1201(c)(6), against HIKO, it did not adjust the

recommended penalty amount.

In addition, HIKO contends, the PUC conceded there was

“insufficient evidence” to support the ALJs’ analysis that a nearly $2 million civil

penalty was proper given HIKO’s size. Commission Op. at 52. At the hearing,

HIKO asserts, I&E produced no evidence as to HIKO’s size, see 52 Pa. Code

§69.1201(c)(8), to show the enormous civil penalty was warranted to deter HIKO

or could even be borne by the company. Again, HIKO asserts, the PUC refused to

depart from the civil penalty recommended by the ALJs, saying only, “it placed

little emphasis on [the] value” of the evidence as to HIKO’s size. Commission Op.

at 52.

HIKO argues that, having admitted the ALJs improperly drew

conclusions that weighed each of those penalty factors against HIKO, the PUC

56

should have at the very least reduced the penalty. Yet, HIKO asserts the PUC

approved the exact same amount the ALJs recommended, without modification. In

the PUC’s view, none of these evidentiary shortcomings “[rose] to such a level as

to persuade [it] that the proposed civil penalty [was] inappropriate or

unsupported.” Commission Op. at 43. HIKO contends that such a vague basis for

ignoring crucial deficiencies in the initial decision is contrary to constitutional law.

In the context of regulatory penalties, the Due Process Clauses of the U.S. and

Pennsylvania Constitutions mandate that a party have reasonable notice of the

penalty that may accrue for a violation, as well as the underlying basis on which it

rests. See S. Union Twp. v. Dep’t of Envtl. Prot., 839 A.2d 1179, 1192 (Pa.

Cmwlth. 2003); see also Connally v. Gen. Constr. Co., 269 U.S. 385, 391 (1926).

Effectively conceding substantial evidence was lacking on 3 of the 10

required elements of the penalty policy, HIKO argues, the PUC was required to re-

calibrate the civil penalty the ALJs computed. Had it done so, in light of the PUC

decisions approving settlements in other relevant cases, see 52 Pa. Code

§69.1201(c)(9), HIKO asserts, it could not have upheld the $1,836,125 penalty.

HIKO also reiterates its argument that the PUC used an improper

method for computing the number of violations. It asserts the PUC affirmed the

ALJs’ finding that HIKO billed its customers 14,689 times in amounts that

exceeded the price guarantee and that each billing constituted a separate violation

of Section 54.4(a). Yet, in the same breath, the PUC acknowledged the inherent

inconsistencies and uncertainties of the underlying data that this “per invoice”

computation relied on.

57

HIKO asserts that, in affirming the ALJs’ penalty determination, the

PUC again disregarded these deficiencies, reasoning: “HIKO had the opportunity

to correct mistakes in I&E’s calculation” and ultimately “fail[ed] to carry its

burden of persuasion once [I&E’s] burden shifted from I&E to [HIKO].”

Commission Op. at 33. HIKO argues this explanation ignores basic principles of

burden of proof and burden-shifting. It maintains, there is no dispute that I&E had

the burden of proving Section 54.4(a) was violated on 14,689 separate occasions.

HIKO contends I&E’s burden also required it to eliminate confusion about the

meaning of its proofs and to establish any seemingly anomalous entries were, in

fact, invoices actually billed to customers. To do that, HIKO asserts, I&E could

have served written discovery to establish what the entries meant. HIKO argues

I&E could have obtained the actual customer invoices to confirm whether the

customer was actually billed the invoice amount or presented customer testimony.

But, I&E elected to do none of these things.

HIKO contends that where I&E’s exhibits are inconsistent, misleading

or unreliable, I&E does not to carry its burden. HIKO argues it should not incur

greater penalties because of that failure. Because I&E did not offer any evidence

proving these partial, duplicative or corrected invoice entries actually amounted to

violations of the PUC’s regulations, HIKO argues, I&E did not meet its burden of

proving HIKO violated Section 54.4(a) on 14,689 separate occasions.

In addition, HIKO contends, the total number of violations the PUC

accepted includes hundreds of other anomalous and questionable invoices that

58

should not have been considered violations of Section 54.4(a) because they

involved de minimis amounts.

HIKO also asserts Dr. Cicchetti testified that at least 118 of the

invoices (0.8%) included in I&E’s computation contained overcharges of less than

$1 and 1,293 of the invoices (8.8%) were less than $10. And, HIKO argues, the

ALJs credited this testimony. Yet, the PUC approved a civil penalty computation

that included a substantial penalty for each of these overcharges. HIKO contends

this is overly punitive. See Bristol-Myers Co. v. Lit Bros., Inc., 6 A.2d 843, 848

(Pa. 1939) (“[T]he court is not bound to a strictness at once harsh and pedantic in

the application of statutes ... Where there are irregularities of very slight

consequence, it does not intend that the infliction of penalties should be inflexibly

severe.”). Therefore, HIKO maintains, the PUC should have entirely removed or

significantly discounted these invoice entries in the penalty calculation.

HIKO argues that a “per customer” methodology would recognize a

violation for each of the 5,708 affected HIKO customers at the average $124

customer overcharge and result in a far lower but still substantial penalty of

$707,792. It asserts such a penalty would be many times higher than any other

civil penalty the PUC approved against another EGS, and much higher than

virtually all the civil penalties approved in settlements for EDCs for gas explosions

that caused serious physical injuries and property damage. HIKO contends the

PUC’s prior penalty decisions regarding similar claims comport with a “per

customer” method for violations of Section 54.4(a). See Herp. HIKO maintains

the PUC did not address its decision in Herp here.

59

2. Analysis

We reject HIKO’s various assertions on this issue. At the outset, we

note, HIKO does not dispute the PUC’s determinations as to several of the penalty

policy factors. In particular, HIKO does not dispute that: (a) under the first penalty

factor, its conduct was of a serious nature, which “may warrant a higher penalty,”

52 Pa. Code §69.1201(c)(1); (b) under the third penalty factor, its conduct was

intentional, which “may result in a higher penalty,” see 52 Pa. Code

§69.1201(c)(3); (c) under the fifth penalty factor, its conduct involved a large

number of customers (more than 5,700) over the course of a four-month period;

and, (d) under the sixth penalty factor, all of the violations here occurred while

HIKO’s Pennsylvania EGS license was still in conditional status.

Nevertheless, HIKO first asserts that, in light of the PUC’s concession

that the record lacked substantial evidence that HIKO’s customers suffered

financial hardship, the PUC was obligated to reduce the civil penalty. The ALJs

mentioned this point in the context of their analysis of the second penalty factor,

which involves consideration of: “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.” See 52 Pa. Code §69.1201(c)(2). With regard to the

second factor, the ALJs stated:

HIKO’s argument that since the allegations do not

involve the consequences of death, personal injury, or

property damage, no or a low penalty is warranted. As

an example, HIKO cites as authority for its position,

[UGI Penn Natural Gas], wherein after repeated

violations of gas safety regulations spanning the course

of nearly five years, with consequences that included

60

many deaths and substantial property damage, the largest

civil penalty imposed on UGI Utilities, Inc. (‘UGI’) was

only $1,000,000. It is difficult to compare settled

outcomes involving natural gas explosions with the

instant case. We have no way of knowing whether the

violations alleged in the UGI cases would have been

proven by a preponderance of the evidence. …

Focusing on the instant case, it would be

unreasonable given the magnitude of the number of

overcharges in violation of 52 [Pa. Code] § 54.4(a) to not

direct any penalty at all. Further, it is unknown the

hardship the approximately 5,700 customers experienced,

even if their average monthly overcharge was only $124.

If the EGS’s [PTC] rate increased by 400% without prior

notice and without the expectation for the occurrence, we

infer that there was some financial hardship experienced

by the customers and, therefore, the consequences of

HIKO’s actions were of a serious nature. [C.R.,] I&E St.

1 at 49. We accept as credible Dr. Cicchetti’s testimony

that some of the overcharges were for less than a dollar.

N.T. [at] 211. This fact and the fact that the conduct

complained of is not ‘slamming’ may warrant less than

the maximum penalty per occurrence; however, the

conduct is serious as evidenced by the number of

informal complaints BCS received regarding the

company, the number of total violations as depicted in

Appendix C to I&E’s Main Brief, and the number of

customers that cancelled their agreements with HIKO

from January – April, 2014.

ALJs’ Initial Dec. at 39-40 (emphasis added). While the PUC declined to uphold

the ALJs’ inference regarding customer hardship, it nevertheless recognized that

the $125 per violation penalty levied by the ALJs was appropriate because it

approximated HIKO’s average overcharge on customer invoices during the four-

month period at issue, which was $124. Commission Op. at 48. The PUC also

indicated that consumer testimony admitted in connection with the OAG/OCA

case addressed the issue of customer hardship. Id.

61

Regardless, the PUC determined its decision not to adopt the ALJs’

inference regarding financial hardship to HIKO’s customers did not warrant an

adjustment to the penalty amount arrived at by the ALJs. Id. This is not surprising

given the PUC’s determinations regarding the magnitude of HIKO’s continuous,

intentional violations of PUC regulations here.

Indeed, the PUC clearly believed that the consequences of HIKO’s

widespread and prolonged overcharging of its customers in direct infringement of

its price guarantee and PUC regulations were serious. As I&E’s witness Mumford

explained during his direct testimony, “[w]hen customers shop in the retail electric

marketplace, they need to be able to trust that the rates that are marketed and

promised at the time of enrollment are the rates that will be charged for electric

generation. Otherwise, retail electric competition will not be successful.” C.R.,

I&E Statement No. 1 at 49. To that end, the PUC explained that HIKO

“knowingly and deliberately” chose to dishonor its promised and contracted-for

savings of 1% to 7% on 14,689 occasions to 5,708 customers, in direct violation of

Section 54.4(a) of the PUC’s regulations. Commission Op. at 44. In so doing, the

PUC determined, HIKO 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. Id. Thus, although this case did not involve

personal injury or property damage, the PUC clearly considered HIKO’s recurring

regulatory violations to have serious consequences.

62

As further support for its argument that the PUC should have reduced

the penalty, HIKO points to the PUC’s determination that it was unable to clearly

determine whether HIKO complied with the PUC’s surety or bond requirements.

Although HIKO correctly points out that the PUC stated that evidence of HIKO’s

compliance with the PUC’s surety requirements was “unclear at best,”

Commission Op. at 49, we disagree with HIKO that this fact required the PUC to

reduce the penalty imposed against HIKO.

To that end, the ALJs addressed the surety issue in their discussion of

the sixth penalty policy factor, which concerns “[t]he 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.” 52 Pa. Code

§69.1201(c)(6). With regard to HIKO’s compliance history, as set forth in greater

detail above, HIKO’s 14,689 violations of Section 54.4(a) of the PUC’s

regulations, which involved 5,708 customers over the course of a four-month

period, all occurred during the period HIKO’s EGS license was in conditional,

probationary status in which the PUC had placed conditions on HIKO’s sales and

marketing practices. In light of the fact that HIKO’s widespread, repeated

violations here occurred while its EGS license remained in conditional status, in

evaluating the “history of compliance” penalty policy factor, the PUC stated, “at

the time of the January through April 2014 violations, HIKO was still operating in

a ‘probationary’ period of its licensure.” Commission Op. at 52.

63

Next, as to HIKO’s argument regarding the lack of record evidence as

to its size, as explained above, the PUC’s eighth penalty policy factor states: “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.” 52 Pa.

Code §69.1201(c)(8) (emphasis added). Here, the PUC clearly considered this

factor. Commission Op. at 52. However, it declined to place much weight on the

ALJs’ analysis of HIKO’s size. Regardless, the PUC found ample support for the

remainder of the ALJs’ analysis to adopt the recommended civil penalty.

Additionally, as the ALJs recognized, the total amount of the civil penalty closely

reflects the actual, total overcharge HIKO billed its customers. ALJs’ Initial Dec.

at 49. As discussed throughout this opinion, the record amply supports the PUC’s

decision regarding its imposition of the civil penalty.

Finally, as to HIKO’s argument that the PUC erred in utilizing a “per

invoice” method of computing the civil penalty, the PUC, adopting the ALJs’

reasoning, explained, in pertinent part:

HIKO made 14,689 separate and distinct

overcharges to 5,708 Pennsylvania customer accounts

from January through April 2014. Based on the invoice

entries set forth in I&E Exhibits 6A through 11A, and as

summarized in I&E Exhibit 14, the evidence shows a

total of 14,689 overcharges disaggregated as follows: 264

in Duquesne Light service territory, 1,624 in Met-Ed

service territory, 1,599 in PECO service territory, 1,782

in Penelec service territory, 8,018 in PPL service territory

and 1,402 in West Penn service territory. …

In Exhibits 6A, 7A, 9A, 10A and 11A, the number

of violations appears to be accurately highlighted. Where

there is a re-bill in these exhibits, it is clearly marked

‘Rebilled Energy Charge’ and these charges do not

64

appear to be highlighted or included in the total number

of violations, i.e. Exhibit 7A, at 1. However the PECO

exhibit does not have any line-itemed re-bill charges

expressly stating such. [Dr.] Cicchetti testified as

follows:

There were a lot of overcharges where, if

you look at the data, there were probably at least

300 instances where it was one of these bills dated

one day, and then two days later it was modified

and it was another bill. And I’m not sure the

customer even saw that. It may have just been

between HIKO and the utility.

[Dr.] Cicchetti was unspecific about which line

items were incorrectly included in the calculations. He

also seemed unsure whether the customer was billed the

re-bill or not. As his testimony contains conjecture, we

find I&E carried its burden of proving 14,689 violations

did occur during the four month period in question.

****

HIKO does not dispute that it failed to honor the

guaranteed discounted rate during the winter of 2014.

HIKO admits that from January 2014 through April

2014, HIKO billed a large number of customers within

the service territories of Duquesne Light, Met-Ed, PECO,

Penelec, PPL and West Penn a unit rate for electricity

supply during the customers’ introductory periods that

exceeded, and sometimes far exceeded, the discounted

introductory rate that was guaranteed at the time of each

customer’s enrollment as a HIKO supply customer.

I&E Exhibits 6A through 11A show the

highlighted number of violations. HIKO’s witness,

[Klein], confirmed that the spreadsheets were true and

correct business records representing billing data for

HIKO customers of this price guarantee for January

through April 2014 in each EDC service territory. [Klein]

testified that each row of data set forth in the

spreadsheets represents a single invoice entry. [Klein]

confirmed the meaning of each column heading. [Klein]

65

confirmed the process for determining whether an

invoice entry was deemed to be an overcharge under the

terms of the [p]rice [o]ffering.

The testimony of I&E’s witness [Mumford],

Manager of the Informal Compliance and Competition

Unit of BCS, is persuasive and supports a finding that

these spreadsheets show 14,689 occurrences of HIKO’s

overbilling over 99% of the price to compare rate of the

EDC in six EDCs’ territories. Although we note that in

the PECO Exhibit 8A there are approximately 60

highlighted charges that appear to involve thirty double

billings (the same account number, the same time period,

and different usage amounts and billed amounts), since

the line items are labeled Energy Charge instead of

Rebilled, we are willing to accept these also as violations

of 52 Pa. Code [§]54.4(a).

Commission Op. at 30-32 (quoting ALJs’ Initial Dec. at 30-33) (emphasis in

original). The record supports the PUC’s necessary determinations. See N.T. at

38-39, 49, 146-154, 210-11, C.R., I&E Exs. 6A-11A, I&E St. No. 1 at 16-45; see

also R.R. at 818a-19a.

Further, as the PUC explained, HIKO had the opportunity to correct

mistakes in I&E’s calculation. However, Klein, HIKO’s CEO and President,

confirmed that the data presented in I&E’s exhibits were “true and correct business

records representing billing data for HIKO customers of this price guarantee for

January through April 2014 in each EDC service territory[.]” Id. at 32 (quoting

ALJs’ Initial Dec. at 32-33). Additionally, HIKO presented no clear evidence of

any errors that would impact the outcome. Id. While HIKO offered the testimony

of Dr. Cicchetti, an independent consultant, Dr. Cicchetti testified that the entries

HIKO disputed “likely represented” contested billing that was later corrected or

66

replaced, and the ALJs rejected this testimony as conjecture. Id. at 33 (citing

HIKO Exceptions at 16).

In short, as the PUC explained, I&E presented evidence of HIKO’s

billing invoices utilizing data that HIKO provided, and HIKO did not present any

clear evidence to refute that evidence. Id.

In addition, based on their analysis of the penalty policy factors, the

ALJs determined that the average amount of HIKO’s overcharge mitigated in favor

of less than the maximum $1,000 per violation penalty authorized under Section

3301(a) of the Public Utility Code. Thus, the ALJs arrived at a per violation

penalty of $125, which closely resembled HIKO’s average monthly overcharge of

$124, and only 12.5% of the maximum per violation penalty I&E requested.

Further, contrary to HIKO’s argument, the PUC did consider the fact

that some of the overcharges were relatively small. However, the PUC explained

that there was no “de minimis” exception contained in its regulations requiring it to

ignore violations “likely” affecting seasonal homeowners or, as I&E asserted,

rendering them irrelevant to a determination of whether a violation occurred.

Commission Op. at 34.

Finally, Herp, relied on by HIKO, is distinguishable. Herp involved

the complaint of a single customer (rather than an investigation by I&E) regarding

a misleading statement about an EGS’ rates made by a third-party marketing agent

for the EGS during a door-to-door solicitation.

67

Here, unlike in Herp, the fact-finder determined that HIKO’s highest-

level executives made the decision to intentionally overcharge approximately

5,708 customers on nearly 15,000 invoices in a manner contrary to the clear

language of its welcome letter and disclosure statement. Thus, the intentional

misconduct by HIKO’s top management, combined with the sheer magnitude of

the violations, separates this case from Herp.

IV. Conclusion

For all the foregoing reasons, we affirm.

ROBERT SIMPSON, Judge

68

IN THE COMMONWEALTH COURT OF PENNSYLVANIA

HIKO Energy, LLC, :

Petitioner :

:

v. : No. 5 C.D. 2016

: Argued: December 14, 2016

Pennsylvania Public Utility :

Commission, :

Respondent :

ORDER

AND NOW, this 8th day of June, 2017, the order of the Pennsylvania

Public Utility Commission is AFFIRMED.

ROBERT SIMPSON, Judge

IN THE COMMONWEALTH COURT OF PENNSYLVANIA

HIKO Energy, LLC, :

Petitioner :

:

v. : No. 5 C.D. 2016

: Argued: December 14, 2016

Pennsylvania Public Utility :

Commission, :

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

DISSENTING OPINION

BY PRESIDENT JUDGE LEAVITT FILED: June 8, 2017

The Pennsylvania Public Utility Commission (PUC) has imposed a

civil penalty of $1,836,125 upon HIKO Energy, LLC (HIKO), an electric

generation supplier (EGS), because its invoices to 5,708 customers over a four-

month period “did not reflect the marketed prices and agreed upon prices in the

disclosure statement.” 52 Pa. Code §54.4(a). This civil penalty, the highest in the

history of utility regulation in Pennsylvania when ordered, is grossly

disproportionate to the penalties of $25,000 to $125,000 imposed upon other EGSs

for the same conduct during the same time period. A grossly disproportionate civil

penalty violates the PUC’s Statement of Policy for calculating civil penalties and

the constitutional prohibition against excessive fines. Because the PUC erred and

abused its discretion, I respectfully dissent from the majority’s decision to affirm

the PUC.

HIKO has its principal place of business in New York. In December

of 2012, the PUC granted HIKO a license to supply electric generation services in

Pennsylvania to residential, small commercial, large commercial, industrial, and

governmental customers in the service territories of various electric distribution

companies (EDC). The license was granted on condition of an 18-month

probationary period, from December 2012 through June 2014, and shortly

thereafter HIKO began providing service in Pennsylvania. HIKO purchased

electrical energy on the spot market and then sold it to retail customers. It

developed its customer list by door-to-door, telephone, and website solicitation.

HIKO delivered electric service through utilities local to its customers.

In August 2013, HIKO began to offer a six-month introductory price,

which guaranteed that the customer’s cost for electricity would be at least one to

seven percent less than the price-to-compare (PTC) of the customer’s local utility.

Thereafter, customers would be enrolled in HIKO’s variable rate program whereby

prices would be determined by market conditions and climate. HIKO confirmed

the introductory price offer in a “Welcome Letter and Disclosure Statement” issued

to customers that accepted this offer.1

In January 2014, wholesale market prices for electrical energy

increased dramatically. A period of sustained cold weather, referred to as a “polar

vortex,” caused a surge in the use of electricity in Pennsylvania. At the same time,

1

HIKO’s welcome letter stated that the rate “is guaranteed to be 1-7% less than [the] local

Utility’s price to compare, for the first six months billing cycles. After the six-month

introductory rate plan, [customers] will be automatically rolled over onto a competitive variable

rate, which will be determined by HIKO Energy, based on numerous key factors, including

current market conditions and climate.” ALJ Decision at 15, Finding of Fact No. 45. The

Disclosure Statement provided that the rate is the “price stated at sign-up and confirmed in

[customers’] written Welcome Letter from HIKO.” ALJ Decision at 15, Finding of Fact No. 46.

MHL-2

an increase in natural gas prices in Canada increased the costs of electrical

generating plants. Prior to the polar vortex, PJM Interconnection LLC2 (PJM) sold

electricity to HIKO at approximately $0.08 per kWh. In January 2014, the price

increased approximately 300% to $0.227 per kWh, and the price remained at or

above $0.138 per kWh until April 2014. As a result, HIKO was able to secure

electrical power only at exorbitant rates during this period.

Consistent with its variable rate program, HIKO passed its unexpected

costs along to its customers. This decision included the 5,708 customers enrolled

in HIKO’s introductory price discount program. During the first four months of

2014, those 5,708 customers were billed in the aggregate $3.29 million. Of that

total, approximately $1.8 million represented charges in excess of the introductory

price discount. HIKO charged customers as much as $0.29 per kWh, or up to

400% of the PTC of the local utility. The average aggregate overcharge for each

HIKO customer in the introductory price discount program was $124. ALJ

Decision at 13; Finding of Fact No. 29.

Customers complained to HIKO. In response, beginning in February

2014, HIKO made refunds that totalled $159,320.15. It also stopped offering the

six-month introductory price discount.

Customers also complained to the PUC’s Bureau of Consumer

Services, which referred the matter for an investigation. In response to the PUC’s

investigation, HIKO provided all requested information, which included a

spreadsheet of 14,689 invoice entries for the first four months of 2014. That

2

PJM is a regional transmission organization that coordinates the movement of wholesale

electricity in 13 states (including Pennsylvania) and the District of Columbia.

MHL-3

included invoices issued above the introductory discounted rate as well as invoices

that were duplicate “re-bills.” ALJ Decision at 18, Finding of Fact No. 69.

Based on the information provided by HIKO, the PUC’s Bureau of

Investigation and Enforcement (I&E) filed a complaint, alleging that each of

HIKO’s 14,689 invoices constituted a separate violation of the PUC’s regulation,

which requires an EGS to bill at the “agreed upon price stated in the disclosure

statement.” 52 Pa. Code §54.4(a).3 The complaint requested a civil penalty of

$14,689,000, or $1,000 for each alleged violation. HIKO filed an answer with new

matter, asserting, inter alia, that the requested penalty was grossly

disproportionate. HIKO Answer, New Matter ¶11; Reproduced Record at 83a

(R.R. ___). The PUC appointed Elizabeth H. Barnes and Joel H. Cheskis to serve

as Administrative Law Judges to hear evidence in the case and recommend a

decision.

In the meantime, the Office of Attorney General, by its Bureau of

Consumer Protection and its Office of Consumer Advocate (collectively, Attorney

General), filed a complaint with the PUC, accusing HIKO of misleading marketing

and improper billing. The PUC appointed ALJ Barnes and ALJ Cheskis to

conduct a hearing on the Attorney General’s complaint. HIKO sought to

consolidate the two proceedings, but the ALJs denied its request.

The Attorney General and HIKO settled their litigation. HIKO agreed

to pay $2,025,383.85 into a refund pool, in addition to the refund of $159,320.15 it

3

This regulation states:

(a) EGS prices billed must reflect the marketed prices and the agreed upon prices

in the disclosure statement.

52 Pa. Code §54.4(a).

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had already made to affected customers. HIKO agreed to give customers that had

enrolled in HIKO’s introductory discount program a refund that gave them the

benefit of their bargain.4 HIKO further agreed to cease accepting new customers

until June 30, 2016; to pay up to $50,000 for the costs and expenses related to

administering the refund pool; and to contribute $25,000 to the local EDC hardship

funds. The parties submitted the settlement to the ALJs for review, and on August

21, 2015, the ALJs approved the settlement between the Attorney General and

HIKO.

The very same day, the ALJs issued a decision in I&E’s enforcement

action against HIKO and ordered a civil penalty of $1,836,125. In so doing, the

ALJs referred to the PUC’s Statement of Policy on civil penalties, which states:

(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

4

During the first four months of 2014, HIKO lost 70 percent of its customers in Pennsylvania;

80 percent of those were in the guaranteed discount program. In large part, this was attributed to

HIKO’s decision to stop marketing in January 2014. Some customers left the state or switched

utilities. The refund pool was created to pay the administrative expenses associated with

locating the customers entitled to a refund as well as paying for the refunds themselves.

According to HIKO’s expert, Charles Cicchetti, a number of the overcharges “were less than a

dollar. Quite a few under $10.” R.R. 577a.

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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.

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(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.

52 Pa. Code §69.1201. The ALJs addressed some, but not all, of the above-listed

ten factors.

The ALJs found that HIKO made a conscious decision not to bill at

the agreed upon six-month introductory price in the disclosure statement given to

approximately 5,700 customers. They found the resulting “overcharges” to

constitute serious violations but rejected the $14.69 million penalty proposed by

I&E. The ALJs concluded that a civil penalty of $1.84 million, approximately

25% of HIKO’s annual gross revenue, in addition to $160,000 in refunds and

HIKO’s agreement to provide an additional $1.67 million in refunds to the same

customer class, constituted a “reasonable deterrence” to future violations. ALJ

Decision at 50.

In reviewing past PUC decisions, the ALJs noted that there were “not

many fully litigated cases specifically regarding Section 54.4(a) of the [PUC]’s

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regulations.” ALJ Decision at 50. The ALJs disregarded the much lower civil

penalties the PUC had imposed on other EGS companies that had also overcharged

their customers during the polar vortex because they were the result of settlements.

The ALJs reasoned that settled cases do not have any precedential value to a

litigated case.

To calculate the $1,836,125 civil penalty, the ALJs treated each

spreadsheet invoice entry as a violation, for a total of 14,689 violations. The ALJs

multiplied that number by $125, the aggregate average overcharge per customer.

The ALJs concluded that the $1,836,125 penalty was “appropriate upon

consideration of the ten factors and standards.” ALJ Decision at 64, Conclusion of

Law No. 12. Acknowledging that a civil penalty of this magnitude was

“unprecedented,” the ALJs rationalized its size by noting that the $125 per

violation was far less than the $1,000 per violation penalty requested by I&E. ALJ

Decision at 62.

HIKO filed exceptions with the PUC. It argued that the penalty

recommended by the ALJs could not be reconciled with the PUC’s Statement of

Policy for calculating an appropriate civil penalty. It also argued that the ALJs

erred in basing the penalty on the number of spreadsheet invoices instead of the

number of customers or the number of decisions by HIKO management. It further

argued that the $1,836,125 civil penalty was grossly disproportionate because it

was nearly 80 times higher than the civil penalties imposed on the EGS companies

that had engaged in the same conduct during the same period of time and for the

same reason, i.e., unexpected cost increases caused by the polar vortex. The ALJs

improperly disregarded those other decisions where the penalties ranged from

$25,000 to $125,000 simply because they were settled cases. HIKO was not able

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to settle with I&E because it refused to consider any penalty below several million

dollars.

On December 3, 2016, the PUC issued the instant adjudication

denying HIKO’s exceptions. The PUC observed that “HIKO 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.” PUC

Adjudication at 44. Because the $125 per violation was comparable to HIKO’s

average overcharge of $124, the PUC concluded that the penalty was appropriate.

The PUC held that its other decisions, where the penalty approved was reached by

settlement, were entitled to little weight because HIKO had required I&E to

litigate.

In its appeal to this Court, HIKO argues that the PUC imposed a

grossly disproportionate penalty that violated the PUC’s Statement of Policy and

the excessive fines clauses of the United States and Pennsylvania Constitutions.5 It

contends that the $1,836,125 civil penalty is grossly disproportionate to the

sanctions levied against other EGSs for the same, and even more egregious

misconduct, that occurred at the same time period. HIKO further argues that the

PUC erred in determining the number of violations on a “per invoice” basis, which

was never proved by the I&E.

5

Specifically, the Eighth Amendment of the U.S. Constitution provides: “[e]xcessive bail shall

not be required, nor excessive fines imposed, nor cruel and unusual punishments inflicted.” U.S.

CONST. amend. VIII. The Pennsylvania Constitution contains similar language. PA. CONST. art.

I, §13 (“[e]xcessive bail shall not be required, nor excessive fines imposed, nor cruel

punishments inflicted”).

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This Court’s review of PUC adjudications is governed by Section 704

of the Administrative Agency Law, which states:

After hearing, the court shall affirm the adjudication unless it

shall find that the adjudication is in violation of the

constitutional rights of the appellant, or is not in accordance

with the law, or that the provisions of Subchapter A of Chapter

5 (relating to practice and procedure of Commonwealth

agencies) have been violated in the proceedings before the

agency, or that any finding of fact made by the agency and

necessary to support its adjudication is not supported by

substantial evidence.

2 Pa. C.S. §704. See Barasch v. Pennsylvania Public Utility Commission, 493

A.2d 653, 655 (Pa. 1985). Whether an agency decision is “in accordance with

law” also considers whether the agency’s determination represents an abuse of

discretion. Fraternal Order of Police v. Pennsylvania Labor Relations Board, 735

A.2d 96, 99 (Pa. 1999). The abuse of discretion standard does not allow the

appellate court to substitute its judgment for that of the agency. In re Petition of

Acchione, 227 A.2d 816, 820 (Pa. 1967).

In support of its argument that the $1,836,125 civil penalty is grossly

disproportionate, HIKO directs the Court’s attention to two recent PUC decisions,

Commonwealth v. IDT Energy, Inc.6 and Commonwealth v. Respond Power LLC.7

Those enforcement proceedings arose during the same confluence of events in

2014: abnormally cold weather attributable to the “polar vortex,” record breaking

use of natural gas and electricity, and a dramatic increase in wholesale market

prices for electrical energy.

6

PUC Docket No. C-2014-2427657, penalty approved by the PUC on June 6, 2016.

7

PUC Docket No. C-2014-2427659 & 2438640, penalty approved by the PUC on August 11,

2016.

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In the first case, the Attorney General accused IDT Energy, an EGS,

of making misleading and deceptive promises of savings; switching customers

without their consent (a practice known as “slamming”); and providing inaccurate

pricing information. This resulted in overcharges in the amount of $6.5 million.

IDT Energy, ALJ Decision (11/19/2015) at 36. Under its settlement with the

Attorney General, IDT Energy agreed (1) to pay $6,577,000 in refunds; (2) to pay

a $25,000 civil penalty; (3) to contribute $75,000 to a local EDC hardship fund;

and (4) to modify its business practices. The ALJs approved the settlement in its

entirety. Notably, the ALJs rejected an intervenor’s objection that the $25,000

civil penalty and the $75,000 contribution to the hardship funds were inadequate to

deter future violations. Instead, the ALJs specifically found the $25,000 civil

penalty to be “reasonable and in the public interest.” Id. at 46. The PUC entered a

decision adopting the ALJs’ recommended approval. IDT Energy, PUC

Adjudication (6/30/2016) at 67.

In the second case, the Attorney General accused Respond Power

LLC, another EGS, of “making misleading and deceptive claims, making

misleading and deceptive promises of savings, slamming and failing to provide

accurate pricing information.” Respond Power, ALJ Decision (5/17/2016) at 1.

This conduct resulted in approximately $5 million in overcharges to its customers.

Id. at 19. Under the settlement with the Attorney General, Respond Power agreed

(1) to pay $4,122,224.91 in refunds in addition to the $971,279.45 it had already

refunded; (2) to pay a $125,000 civil penalty; (3) to contribute $50,000 to EDC

hardship funds; and (4) to make modifications to its business practices. Id. at 1.

The ALJs approved the settlement in its entirety, finding that the $125,000 civil

penalty and the $50,000 contribution to the hardship funds constituted a

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“reasonable” deterrent and was “in the public interest.” Id. at 50-51. The ALJs

reasoned:

Although the civil penalty constitutes a small fraction of the

amount provided in the Refund Pool, we believe that the

provisions of the Settlement must be considered as a whole, not

piecemeal. When doing so, the Settlement as a whole deters

future violation, is in the public interest and warrants being

adopted.

Id. at 62. The PUC entered a decision adopting the ALJs’ recommended approval.

Respond Power, PUC Adjudication (8/11/2016) at 1.

Even though HIKO’s conduct was very similar to that committed by

the respondents in IDT Energy and Respond Power, it has been ordered to pay a

civil penalty that is 73% higher than the penalty in IDT Energy and 15% higher

than the penalty in Respond Power. The conduct of the respondents in IDT Energy

and Respond Power was more egregious because it included violations in addition

to their common violation of 52 Pa. Code §54.4(a). IDT Energy and Respond

Power engaged in misleading and deceptive practices that included “slamming”

customers. I&E never accused HIKO of engaging in such conduct. To the

contrary, the ALJs found, specifically, that HIKO did not intend to defraud its

customers in its initial price offering:

[T]here is no evidence to support a finding that HIKO intended

in its August offering to defraud customers initially or in

advance of the offering. Rather, the testimony is convincing

that the company based its offering upon an 18-month historical

data which showed price elasticity and stability in the spot

market.

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ALJ Decision at 51 (internal citation omitted). The ALJs concluded that HIKO’s

misconduct was limited to one violation, i.e., deviating from the agreed upon

discounted rate in violation of 52 Pa. Code §54.4(a).

Notwithstanding these factual differences that favored HIKO, the

ALJs imposed a penalty of $1.84 million. This was grossly disproportionate to the

$25,000 civil penalty imposed on IDT Energy for its $6.5 million in overcharges,

and the $125,000 civil penalty imposed on Respond Power for its $5 million in

overcharges. Notably, the ALJs stated that the $125,000 civil penalty imposed on

Respond Power was reasonable when the settlement taken “as a whole deters

future violation.” Respond Power, ALJ Decision (5/17/2016) at 62. The ALJs did

not consider HIKO’s “settlement as a whole” with the Attorney General, which

required HIKO to pay $2,025,383.85 into a refund pool (on top of $160,000 it had

already voluntarily refunded); $50,000 in expenses to administer the refunds; and

$25,000 to the EDC hardship funds. The same ALJs made the decisions in HIKO,

IDT Energy and Respond Power. Their different outcomes cannot be reconciled.

The PUC rationalizes the differences by explaining that it applies the

ten factors in its Statement of Policy differently for settled and for litigated cases.

That Statement of Policy states, in pertinent part, as follows:

(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.

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52 Pa. Code §69.1201(b) (emphasis added). Because it does not apply the factors

as strictly in a settled case as in a litigated case, the PUC contends that settled cases

do not have any precedential value. PUC Adjudication at 26. This rationale is

inconsistent with the PUC’s own Statement of Policy.

First, the Statement of Policy commits the PUC to look at “past

Commission decisions” involving similar misconduct. 52 Pa. Code

§69.1201(c)(9). The policy says “past decisions” without regard to whether the

decision was made in a litigated case or in a settled case. All penalties, whether

reached by settlement or by litigation, require a decision of the PUC. Here, the

only “past decisions” that were similar to HIKO’s were PUC decisions approving

settlements.

Second, in every PUC decision approving a settlement, there must be

a finding that the penalty will deter future violations and is in the

This text is long and has been trimmed here. Open the source document for the complete record.