Pennsylvania Supreme Court Affirms $1.8 Million Civil Penalty Against Retail Supplier
June 6, 2019 Email This Story Copyright 2010-19 EnergyChoiceMatters.com
Reporting by Paul Ring • firstname.lastname@example.org
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The Pennsylvania Supreme Court affirmed a prior $1.8 million civil penalty imposed by the Pennsylvania PUC against HIKO Energy
An ALJ's initial decision has stated that, "Prior to the polar vortex, HIKO purchased electricity from PJM Interconnection LLC (PJM)
for approximately $0.08 per kWh. Due in part to the increased demand for
electricity, the price nearly tripled to $0.227 per kWh in January 2014, and stayed at or
above $0.138 per kWh until the end of March 2014. As a result of these increases, HIKO
experienced an unexpected increase in the price of spot market wholesale electricity, and
faced difficulty in obtaining electric power supply at the rates required under its business
model. Ultimately, this resulted in HIKO overcharging around 5,700 of its customers
enrolled in the guaranteed savings plan by approximately $1.8 million."
HIKO appealed, arguing that the civil penalty in this case violates the Excessive Fines Clauses of the Federal and Pennsylvania Constitutions because it is grossly disproportionate to past civil penalties the PUC has issued. HIKO alleged that it was excessively penalized for litigating its case, rather than accepting a settlement
The lower Commonwealth court found that HIKO's excessive fines argument under
both the Pennsylvania and Federal Constitutions was waived because HIKO failed to
raise the argument in its pre-hearing memorandum, its testimony, its brief after the ALJs’
hearing, or its exceptions to the ALJs’ initial decision.
Notwithstanding a finding of waiver, the Commonwealth court determined that
HIKO’s disproportionality argument was meritless
The Commonwealth court noted that other fines on suppliers which HIKO had cited, "do not involve intentional conduct."
The Commonwealth court also rejected HIKO’s contention that the PUC was effectively attempting
to circumvent controlling authority which deprives it of the power to regulate EGS prices.
Instead, the Commonwealth court noted that, per the Public Utility Code, EGSs must abide by PUC
regulations, which, in some instances, relate to bill format, disclosure statements, and
marketing and sales activities. Id. at 1100 (citing 66 Pa. C.S. § 2809; 52 Pa. Code
§ 54.4(a)). Thus, the Commonwealth court concluded that the PUC was acting within its
permitted scope of authority.
HIKO appealed to the Supreme Court
"In this appeal by allowance, we consider whether the penalty imposed against
HIKO Energy, LLC (HIKO) was so grossly disproportionate as to violate the Excessive
Fines Clause of the Pennsylvania and U.S. Constitutions; whether the penalty
impermissibly punished HIKO for litigating; and whether the Pennsylvania Utility
Commission (PUC) abused its discretion in imposing a penalty which was not supported
by substantial evidence," the Supreme Court said
"We conclude that HIKO waived its constitutional challenge to
the civil penalty in this case, the penalty was not imposed as a punishment against HIKO
for opting to litigate its case, and that the PUC’s conclusions in support of imposing the
penalty are supported by substantial evidence," the Supreme Court said
"Here, we find that HIKO failed to preserve a constitutional challenge to the fines imposed pursuant to Section 54.4(a) because it did not articulate its constitutional theory until its application for a stay of the Commission’s decision. See Emergency Petition for
Supersedeas, 12/18/15, at 6. While we acknowledge HIKO asserted in its lower
pleadings that the penalty was, in its view, disproportionate to penalties in other cases, it
did so only in relation to the application of the factors enumerated in Section 69.1201(c).
The argument that the fine was grossly disproportionate to other PUC fines imposed does
not preserve a claim that Section 54.4(a) as applied to HIKO is unconstitutional. See
Lehman, 839 A.2d at 276. When a party is alleging a statute is unconstitutional, whether
as applied or on its face, “it is incumbent . . . to state, at least in somewhat express terms,
the specific constitutional grounds upon which the challenger is basing its attack on the
legislation.” In re F.C. III, 2 A.3d at 1212," the Supreme Court said
"While courts have found issues preserved based on a party’s failure to cite to specific authority, Allegheny County, Shenango, supra, our precedent does not grant the same leniency to constitutional challenges," the Supreme Court said
"A critical difference in Eisenberg as compared to the present matter is the lower tribunal’s comprehension of the claim. Id. HIKO asserts that it raised the excessive fines constitutional theory in its Answer to I&E’s Complaint, as well is in its Exceptions to the ALJs’ Penalty Decision. In its Answer to I&E’s Complaint, HIKO asserted that the 'requested relief is grossly disproportionate to said violation(s).' See HIKO’s Answer to I&E’s Complaint, 7/31/14, New Matter at ¶ 11. In the Exceptions filed to the ALJs’ Initial Decision, HIKO generally argues that the ALJs failed to properly apply the penalty factors and consider mitigating circumstances, which resulted in a disproportionate penalty. Exceptions of HIKO Energy, LLC to Initial Decision, 9/10/15, at 7, 29-32. Critically, however, the PUC did not recognize these references as HIKO raising a constitutional argument, because the Commission did not analyze or mention whether the penalty complied with the Excessive Fines Clause. Op. at 23 (summarizing HIKO’s arguments). Accordingly, because HIKO failed to raise its constitutional challenge before the PUC, we hold that the argument is waived," the Supreme Court said
As to HIKO's claim it was being penalized for litigating the case, the Supreme Court said, "Aside from reanalyzing the comparative or proportionality arguments discussed
above, we see no factual or legal basis for HIKO to assert it was penalized for litigating
Litigation brings with it inherent risks and uncertainties not associated with
settlement. See, e.g., Baker v. AC&S, Inc., 755 A.2d 664, 670 (Pa. 2000) (recognizing
the choice of certain parties to 'encounter the uncertainties of litigation'). I&E initially
sought a statutory maximum penalty of approximately $15 million, and the penalty which
was ultimately imposed was roughly 13% of that initial demand. HIKO, 163 A.3d at 1103.
Although HIKO may have been displeased with initial settlement negotiations, the record
is devoid of evidence that the PUC compelled it to litigate."
The Supreme Court said that, "After careful consideration, we find substantial evidence supports the civil penalty imposed in this case."
"[W]e find no abuse of discretion in the Commission’s conclusion that, despite some discrepancies, the penalty factors still weighed in favor of the civil penalty it imposed," the Supreme Court said