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Pennsylvania Court Rules PUC Lacks Authority To Order Retail Suppliers To Issue Refunds To Customers For Violations Of PUC Regulations

October 28, 2020

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Copyright 2010-20
Reporting by Paul Ring •

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Pennsylvania's Commonwealth Court issued a decision in an appeal filed by Blue Pilot Energy, LLC in which the Court found that the Pennsylvania PUC lacks authority to order electric generation suppliers (EGSs) to provide refunds to customers for violations of PUC regulations, as the Court reversed the PUC's order with respect to refunds

As previously reported, the PUC had ordered Blue Pilot Energy to refund to customers approximately $2.5 million (via refund pool) for alleged violations of PUC regulations, while also imposing a fine of nearly $1.1 million

See our prior story here for background on the specific violations

Blue Pilot appealed the PUC's decision, arguing, among other things, that the PUC acted beyond its authority when it determined that Blue Pilot had failed to adhere to the terms of its disclosure statement. As summarized by the Court, Blue Pilot argued that, in the PUC's order, the PUC essentially determined that Blue Pilot breached its contracts with its customers. Citing the Pennsylvania Superior Court decision in Allport Water Authority v. Winburne Water Company, 393 A.2d 673 (Pa. Super. 1978) (en banc), Blue Pilot contended that the PUC lacks jurisdiction to rule on private party contract disputes.

However, the Court disagreed, finding that, "this case does not simply involve a breach of contract."

"While the PUC has no obvious authority to vindicate private contractual rights in this area, it has unquestionable authority to ensure that Blue Pilot meets its obligation to comply with PUC regulations. That the two may be interrelated does not diminish the PUC's jurisdiction to enforce its own regulations through the formal complaint procedures in its regulations," the Court said

Citing a similar finding in ARIPPA v. Pa. Pub. Util. Comm 'n, 966 A.2d 1204, 1211 (Pa. Cmwlth. 2009) (en banc), the Court said, "we first note that the Competition Act requires all EGSs wishing to do business in the Commonwealth to be licensed by the PUC. 66 Pa. C.S. § 2809(a). The Competition Act further requires all licensed EGSs to abide by the PUC's regulations. Id. § 2809(b). Blue Pilot does not challenge the validity of the PUC's regulations that require EGSs to bill in accordance with the terms of their disclosure statements. 52 Pa. Code §§ 54.4(a), 54.5(a). The PUC possesses the statutory authority to enforce its regulations. 66 Pa. C.S. § 502 ... The ability of customers to shop for electric generation service is a result of legislative action, the Competition Act, which created a regulated marketplace under which EGSs may offer their services to consumers provided they follow certain rules. Whether an EGS breaks the rules of that marketplace by violating a regulation of the PUC 'is not a matter of ordinary contract interpretation.' Id. Enforcement of those rules falls squarely within the jurisdiction of the PUC."

Blue Pilot, which was represented by Eckert Seamans Cherin & Mellott, LLC, also argued that the PUC exceeded its authority by creating the customer refund pool

Here, in discussing the parties arguments on appeal, the Court stated, "In response, the PUC tacitly concedes that there is no express authority in the Public Utility Code generally, or the Competition Act specifically, that authorizes the PUC to order the refund remedy in this case. Moreover, the PUC expressly concedes that it lacks 'the authority to order across-the-board relief to all affected customers pursuant to its plenary authority under Section 501 of the [Public Utility] Code.' (PUC Br. at 38.)"

The PUC, however, claimed plenary authority under Section 501 to direct an EGS to issue a credit or refund for an over bill, with the PUC arguing that refund authority is an implied power necessarily implicit in the Public Utility Code

The Court disagreed with the PUC, and found that the PUC lacks authority to order an EGS to provide refunds for violations of PUC regulations

The Court said, "All parties agree that there is no express grant in the Public Utility Code generally and the Competition Act specifically of authority to the PUC to order across-the-board refund relief to all of Blue Pilot's customers as a remedy for Blue Pilot's adjudicated violation of the PUC's regulations relating to EGS disclosure statements. The only way, then, the PUC can exercise this authority is if the authority is grounded in 'a strong and necessary implication from' the statutory text."

The Court found that, "There is no dispute that Section 501(a) of the Public Utility Code grants general authority to the PUC 'to enforce, execute and carry out, by its regulations, orders, or otherwise, all and singular, the provisions' of the Public Utility Code 'and the full intent thereof.' Moreover, Section 501(b) of the Public Utility Code vests within the PUC the 'general administrative power and authority to supervise and regulate all public utilities doing business within this Commonwealth,' and for purposes of Sections 2809 and 2810 of the Competition Act, EGSs are public utilities. Section 2809(b) of the Competition Act requires EGSs to comply with the PUC's regulations. Section 2809(e) of the Competition Act commands the PUC 'to impose requirements [on EGSs] necessary to ensure that the present quality of service provided by electric utilities does not deteriorate.' None of these sections however, expressly empower the PUC to order an EGS, which is found to be in violation of PUC regulations, to fund a refund pool for customers as a penalty for that violation."

"The PUC, the OAG, and the OCA argue that such authority must be found from the above express statutory provisions. We are unpersuaded. Absent from any of their briefs in this matter is any argument that such refund authority is necessary to carry out the PUC's statutory duties under the Public Utility Code. Looking at the IDT Opinion, on which the PUC principally relies, we see only the PUC's view that a refund remedy 'carries out ... statutorily[ ]prescribed consumer protections,' 'helps' to ensure compliance with the PUC's regulations, and is 'consistent with' and 'furthers' the policy objectives of the Public Utility Code. IDT Opinion at 17-18. All of this may very well be true, but it does not establish the requisite necessity to relax the general rule that limits an agency's authority to only that which is expressly conferred by the General Assembly," the Court said. [emphasis in original]

"Critically, in making this argument, the PUC, the OAG, and the OCA offer no reason upon which we could conclude that the violation and penalty provisions found within Chapter 33 of the Public Utility Code and the license suspension and revocation authority found in the PUC regulations are inadequate to protect the public and ensure EGS compliance with the PUC's regulations. In this case, the PUC relied on its express authority in Section 3301 to assess a civil penalty of over $1 million on account of Blue Pilot's violation of the PUC's regulations governing EGSs. Neither the PUC, the OAG, nor the OCA explains how the power to levy such a civil penalty, alone or in concert with the authority to suspend or revoke a license, is inadequate to protect consumers or curb misconduct by EGSs. In addition to the authority to assess a civil penalty and to suspend or revoke an EGS license, Section 3302 of the Public Utility Code, 66 Pa. C.S. § 3302, imposes criminal penalties on EGSs that 'knowingly fail, omit, neglect or refuse to obey, observe, and comply with any regulation' of the PUC," the Court said

The Court further observed that Chapter 33 of the Public Utility Code explicitly preserves a private right of action to pursue damages in the appropriate court of law, "perhaps even premised upon a PUC administrative determination that a public utility or EGS acted contrary to PUC regulations."

"[N]either the PUC, the OAG, nor the OCA claims that this express provision, and the related civil remedies available to consumers, whether at common law or by statute, are inadequate to make consumers whole and discourage misconduct by EGSs, such that we must imply refund authority by necessity," the Court said

"Section 1312 of the Public Utility Code also counsels against implying refund authority in this case. The PUC, the OAG, and the OCA concede, as they must, that Section 1312 of the Public Utility Code expressly grants the PUC the authority to direct the type of refund relief the PUC imposed in this case, but only with respect to public utilities and their patrons. They concede that this section does not apply to EGSs. Yet, they ask this Court to imply by necessity the very authority to order that which the PUC cannot order under the express refund authority conferred by the General Assembly. This is the exact opposite of implying authority necessary to carry out the General Assembly's intent. To do what the PUC, the OAG, and the OCA ask in this case would require us to confer on the PUC authority that the General Assembly withheld," the Court said

"For all of these reasons, we conclude that the PUC acted within its jurisdiction in adjudicating the Formal Complaint's allegations that Blue Pilot violated applicable PUC regulations governing Blue Pilot's pricing and disclosure statement. Nonetheless, we will reverse the portion of the PUC's Orders that establish a refund pool for Blue Pilot's customers, as the PUC lacks the requisite express authority or necessary implied authority to grant that relief," the Court said

Note that the issue here is refunds for violations of PUC regulations. The PUC does have express statutory authority to order refunds in cases of slamming, under the specific terms of 52 Pa. Code§ 57. 177(b) [which generally limits refunds to two months]

Finally, Blue Pilot appealed the amount of the $1.1 million fine as excessive. The Court denied Blue Pilot's appeal on this issue

Addressing various arguments raised by Blue Pilot, the Court said in part that, "Blue Pilot does not address the threshold proportionality question of whether the fine imposed in this case is proportionate to the gravity of Blue Pilot's adjudicated offenses."

Summarizing the entire matter, the Court said, "For the reasons set forth above, the PUC acted within its jurisdiction in adjudicating issues surrounding Blue Pilot's lack of compliance with PUC regulations governing EGSs in the Commonwealth, particularly with respect to the question of consistency between pricing and disclosure statements to customers and the contents of those disclosure statements. Blue Pilot has not persuaded us in this appeal that the nearly $1.1 million civil penalty that the PUC imposed in this matter is unconstitutionally excessive or that the assessment of the penalty violated Blue Pilot's procedural or substantive due process rights. As Blue Pilot did not timely raise any issue concerning its ability to pay the civil penalty in this case, we do not address that issue on appeal. Finally, the PUC lacks the authority, either expressly or by necessary implication, to order the creation of a refund pool for all affected customers of Blue Pilot. We will, accordingly, affirm in part and reverse in part the PUC's Merits Order and Reconsideration Order."

Case: No. 1054 C.D. 2019

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