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PUC Denies Stay of $2 Million Fine Imposed On Retail Supplier

January 29, 2016

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Copyright 2010-16 EnergyChoiceMatters.com
Reporting by Paul Ring • ring@energychoicematters.com

The Pennsylvania PUC denied an emergency petition for supersedeas filed by Hiko Energy, LLC concerning the PUC's prior order fining Hiko $1.8 million, denying a sought stay of the deadline for payment pending an appeal by Hiko as the PUC said Hiko's petition failed to meet the standards for such a stay.

As previously reported, the PUC issued the $1.8 million fine against Hiko for what the PUC said was the company's action to, "knowingly and deliberately," decide not to honor guaranteed savings contracts with customers due to the polar vortex (click here for story)

Hiko filed an emergency petition for supersedeas of the PUC's order, and sought a stay of the civil penalty pending resolution of an appeal Hiko intends to file with the Commonwealth Court. Hiko claimed that it would likely succeed on appeal, claiming that the unprecedented size of the penalty, compared to settled cases before the PUC, was not supported by sufficient evidence.

Hiko had previously said that, absent the stay, it, "will suffer significant loss that threatens the economic viability of the Company and could ultimately impair its ability to serve Pennsylvania customers."

The PUC denied the requested stay, stating, "we find that HIKO made no showing of a likelihood of success on the merits on appeal."

"HIKO was not treated differently from past transgressors; our penalty is in line with penalties imposed in other cases involving intentional wrongdoing; the penalty on the facts of this record is neither unprecedented nor excessive; and HIKO suffered no constitutional infringements," the PUC said

The PUC's denial renders moot the Hiko's request to use the required regulatory surety as a supersedeas bond, "a request we would deny on the merits because it does not comply with the regulatory purpose behind the surety requirement," the PUC said.

"The arguments in HIKO’s Petition do not support the entry of a stay. With the exception of its constitutional challenges to our December 2015 Order that are raised for the first time in this Petition, HIKO presents no new arguments on appeal that were not addressed in our December 2015 Order. More importantly, HIKO appears to remain unaware of not only the seriousness of its actions but also the extent to which they were brought about as a direct result of the Company’s own decisions," the PUC said

"HIKO’s opposition to the penalty we imposed continues to be fueled by the Company’s erroneous conclusions that the penalty is unprecedented, bears no rational relationship to any other we have previously imposed, is unsupported by our 'penalty policy,' and was imposed without regard to consideration of mitigating circumstances, which HIKO claims were largely outside its control. These arguments, however, were previously raised and rejected," the PUC said.

The PUC noted that in setting the $1.8 million fine, "we approved a fine that was only 12.5% of the total civil penalty I&E sought."

"We reached this decision after a thorough review of the totality of the circumstances, including review of HIKO’s own business decisions. Those decisions included not just offering a retail electric product that guaranteed customers savings despite the fact that the Company’s supply portfolio was backed exclusively by spot-market purchases, perhaps the most volatilely-priced and weather-affected supply source, but then choosing to ignore our Regulation and deliberately convert its customer base to financial guarantors to evade the consequences of its own decisions," the PUC said

"HIKO’s challenge to the $1.8 million penalty evidences a lack of understanding of our authority to impose penalties. Based on the Company’s deliberate overbilling of 5,708 customers, we could have imposed a penalty of $5,708,000, a result with clear precedent, had we simply applied the maximum penalty allowed for each individual customer violation," the PUC noted

"We did not impose the maximum penalty sought by I&E in recognition of the fact that under OAG/OCA-HIKO Settlement, the Company did 'not escape the consequences of its executive-level decisions unscathed.' In turning to its customer base for financial relief, however, HIKO committed a most serious transgression for which it continues to blame external sources," the PUC said

The PUC continued: "Similar efforts to find financial refuge from unsound business decisions in customers’ pockets were rejected by Commonwealth Court in an early appellate decision following Pennsylvania’s electric restructuring. In ARIPPA v. Pa. PUC, 792 A.2d 636 (Pa. Cmwlth. 2002) (ARIPPA), Commonwealth Court determined that a similar strategic business decision by the former GPU, Inc. (GPU) to rely on the vagaries of the wholesale power supply market coupled with ineffective risk management strategies were decisions within the GPU’s exclusive control. GPU did then as HIKO does now, frame the issue as the unexpected volatility of the wholesale market outside the company’s control. The Court disagreed, stating as follows: '[T]he plain meaning of the term 'outside of the control' does not means 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. Strategic business planning always involves decisions on how much risk to accept and where the burden of risk is placed. In this case, GPU Energy 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 PLR 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.'"

Regarding constitutional arguments newly raised by Hiko, such as whether the fine was proportional to the violation, the PUC contrasted the case with those cited by Hiko, stating that the PUC's fine was, "tailored, scaled, and calculated to fit the offense committed and the level of deterrence required and was amply supported by the evidence." The PUC noted that the fine, which equated to $125 per violation, was similar to the average amount of overbilling each individual customer experienced

Moreover, the PUC said that the level of the fine was justified for deterrence purposes as, "HIKO’s violations did not detrimentally affect just the thousands of private customers the Company deliberately overcharged. HIKO’s conduct also damaged the public interest this Commission serves by violating the trust customers placed in the competitive market. Violations as severe as HIKO’s cast a long shadow, and the integrity of the entire competitive market suffered as a result of HIKO’s choices."

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