HIKO Energy, Aplt. v. PA PUC ( 2019 )

[J-66-2018]
IN THE SUPREME COURT OF PENNSYLVANIA
EASTERN DISTRICT
SAYLOR, C.J., BAER, TODD, DONOHUE, DOUGHERTY, WECHT, MUNDY, JJ.
HIKO ENERGY, LLC, : No. 39 EAP 2017
:
Appellant : Appeal from the Order of
: Commonwealth Court entered on
: June 8, 2017 at No. 5 CD 2017
v. : affirming the Order entered on
: December 3, 2015 by the
: Pennsylvania Public Utility
PENNSYLVANIA PUBLIC UTILITY : Commission at No. C-2014-2431410.
COMMISSION, :
: ARGUED: September 26, 2018
Appellee :
OPINION
JUSTICE MUNDY DECIDED: June 5, 2019
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. 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.
I. Background
This matter originates with the PUC’s Bureau of Consumer Services (BCS)
receiving numerous customer complaints alleging HIKO, an electric energy supplier, had
overcharged customers in Pennsylvania during the polar vortex in the winter months of
2014.1 Based on extensive customer complaints, the PUC’s Board of Investigation and
Enforcement (I&E) instituted an informal investigation into HIKO in March 2014.
Relevant to the investigation, it was determined that in August 2013, HIKO offered
a variable rate plan that included a six-month introductory price guarantee. As part of this
offer, in its welcome letter and disclosure statement, HIKO guaranteed customers it would
charge 1-7% less than the rate offered by customers’ local electric distribution company
(EDC) for the first six monthly billing cycles.2 HIKO referred to this metric as the price-to-
compare (PTC), or the rate, which, at any given time, was being offered by a customer’s
EDC. The disclosure statement, which, in addition to the welcome letter, was also sent
to customers enrolling in the variable rate plan, further stated that the rate was the “price
1 HIKO was temporarily operating as an electric generation supplier (EGS) pursuant to
an order from the PUC conditionally approving a license to supply services to all electric
distribution company (EDC) service territories in Pennsylvania. The temporary license
was valid for 18 months, from December 2012 through June 2014. Additionally, the
license was conditioned upon reporting requirements regarding HIKO’s sales and
marketing practices, and was based on the discovery that a high number of complaints
were filed against HIKO in New York. Administrative Law Judges’ (ALJs) Initial Decision,
8/21/15, at 3.
2 Specifically, HIKO’s welcome letter sent to customers enrolling in the variable rate plan
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.
ALJs’ Initial Decision, 8/21/15, at ¶ 45 (emphasis in original).
[J-66-2018] - 2
stated at sign-up and confirmed in your written Welcome Letter from HIKO.” ALJs’ Initial
Decision, 8/21/15, at ¶ 46.
Prior to the polar vortex, HIKO purchased electricity from PJM Interconnection LLC
(PJM)3 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. ALJs’ Initial
Decision, 8/21/15, at ¶ 27.
Following the completion of the informal investigation, in July 2014, I&E filed a
complaint against HIKO alleging that during the 2014 polar vortex, HIKO had overcharged
5,708 customers on 14,780 invoices. I&E posited that each of these 14,780 overcharges
constituted a violation of 52 Pa. Code § 54.4(a), which requires that the billed prices reflect
the marketed prices.4 I&E requested a civil penalty of $14,780,000.00 against HIKO, or
$1,000.00 per violation of Section 54.4(a). Further, I&E requested the PUC revoke
HIKO’s authority to operate as an EGS in Pennsylvania and order HIKO to provide a
refund to each Pennsylvania customer. HIKO responded by filing an answer, new matter,
and preliminary objections. In its Answer, HIKO alleged that if the administrative law
3 “PJM 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, 356 n.4 (Pa. Cmwlth. 2011) (en
banc).
4Specifically, 52 Pa. Code § 54.4(a) requires that “EGS prices billed must reflect the
marketed prices and the agreed upon prices in the disclosure statement.”
[J-66-2018] - 3
judges (ALJs) found any violations occurred, “the Complainant’s requested relief is
grossly disproportionate to said violations.” HIKO’s Answer to I&E’s Complaint, 7/31/14,
New Matter at ¶ 11. The ALJs overruled HIKO’s preliminary objections.5
The complaint filed by I&E culminated in a hearing involving the parties.6 At the
hearing, HIKO’s CEO, Harvey Klein, testified that during the 2014 polar vortex, HIKO was
unable to honor its commitment to beat the price to compare of other EGS companies.
N.T., 4/20/15, at 165 (Testimony of Harvey Klein). In fact, Klein asserted, “it was simply
impossible for us to stay in business while continuing to beat the price to compare.” Pre-
served Rebuttal Testimony of Harvey Klein, 3/13/15, at 9. Accordingly, with Klein’s
knowledge and approval, HIKO deviated from the terms of its price guarantee, and
charged customers at rates higher than what was guaranteed in HIKO’s disclosure
statement and welcome letter. N.T., 4/20/15, at 165-66 (Testimony of Harvey Klein).
5 During this same time period, the Commonwealth, acting through its Attorney General
through the Bureau of Consumer Protection (OAG) and the Acting Consumer Advocate
(collectively OAG/OCA) filed a joint complaint against HIKO. In the complaint, OAG/OCA
accused HIKO of engaging in misleading marketing and improper billing, and requested
restitution, revocation of HIKO’s EGS license, and a prohibition on future deceptive
practices. HIKO and OAG/OCA eventually reached a settlement approved by the ALJs.
As part of that settlement, HIKO agreed to: (1) make restitution payments to overcharged
customers; (2) cease accepting new customers until at least June 30, 2016; and (3) make
a $25,000 contribution to the local EDC’s hardship funds. The restitution aspect of the
agreement mandated HIKO would create a refund pool of $2,025,383.85, which, in
addition to the $159,320.15 in refunds HIKO had already provided, would ensure HIKO
customers received refunds equaling a 3.5% savings from their respective PTC rates for
the polar vortex months.
6 I&E presented the testimony of Daniel Mumford, manager of the PUC’s Bureau of
Consumer Services’ Informal Compliance and Competition Unit, along with documentary
evidence. HIKO presented the testimony of its CEO, Harvey Klein, and rebuttal testimony
of expert witness Charles J. Cicchetti, Ph.D. (Cicchetti). Dr. Cicchetti is an independent
consultant with a background in economics and utility regulation.
[J-66-2018] - 4
In February 2014, HIKO began instituting voluntary refunds to customers who
complained and ultimately refunded approximately $160,000 to customers in
Pennsylvania. Pre-served Rebuttal Testimony of Harvey Klein, 3/13/15, at 13. Around
this same time, HIKO adjusted its business model, and it now purchases some energy
under longer term contracts in order to hedge against sudden increases in wholesale
prices. N.T., 4/20/15, at 167 (Testimony of Harvey Klein). Additionally, HIKO has ceased
offering the variable rate price guarantee to Pennsylvania customers. Pre-served
Rebuttal Testimony of Harvey Klein, 3/13/15, at 13.
As part of I&E’s investigation, HIKO provided I&E with billing data for EGS it
supplied to residential customers within each EDC service territory7 in which it operates
and billed from January through April 2014. Klein testified to the authenticity of these
documents and agreed that the spreadsheets HIKO produced represented billing data for
HIKO customers enrolled in the price guarantee program. N.T., 4/20/15, at 147
(Testimony of Harvey Klein). Klein further agreed that the lines in the spreadsheets which
represented an overcharge were highlighted. N.T., 4/20/15, at 153 (Testimony of Harvey
Klein). Based on the documents HIKO provided, I&E’s investigation eventually uncovered
that HIKO overcharged 5,708 customers on 14,689 invoices.8 ALJs’ Initial Decision,
8/21/15, at ¶ 67; Pre-served Direct Testimony of Daniel Mumford, 12/23/14, at 16, 21, 45.
At no point during the proceedings did HIKO provide updated or corrected billing
spreadsheets. Pre-served Direct Testimony of Daniel Mumford, 12/23/14, at 19.
7 This included 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.
8 Although I&E initially alleged HIKO had committed 14,780 violations, after its
investigation, this number changed to 14,689 overcharges. ALJs’ Initial Decision, 8/21/15,
at ¶ 67. Notwithstanding this distinction, the Commonwealth Court and the parties’ briefs
assert that I&E initially alleged 14,689 violations.
[J-66-2018] - 5
At the conclusion of the hearing, the ALJs issued a decision finding that HIKO
had intentionally billed customers at a rate higher than what was guaranteed in HIKO’s
welcome letter and disclosure statement. Further, the ALJs reasoned that HIKO was
aware that it failed to honor the price offering when it broke the guarantee. The ALJs
determined that HIKO made the affirmative decision to remain in business by intentionally
overcharging its Pennsylvania customers in excess of the rate it had previously
guaranteed. This overcharging occurred, the ALJs noted, while HIKO’s license was
subject to the reporting conditions outlined in the initial order granting HIKO its license.
The ALJs also recognized that had HIKO abandoned its Pennsylvania business
instead of overcharging its customers, the affected customers would have been
transferred to local EDCs and would not have been deprived of electricity during the polar
vortex. Additionally, any customers that HIKO dropped would have actually saved
money, because the local EDCs were charging their customers much lower rates
throughout the duration of the polar vortex. ALJs’ Initial Decision, 8/21/15, at ¶ 28.
Moreover, the ALJs found that HIKO did not voluntarily offer refunds to customers; rather,
HIKO initially issued refunds only to customers who had complained directly to HIKO or
through a government agency.
At the conclusion of the hearing, the ALJs granted, in part, I&E’s complaint, while
denying the requests for customer refunds as moot based on the settlement reached
between HIKO and OAG/OCA. The ALJs further denied I&E’s request for revocation of
HIKO’s EGS license, again noting the terms of the settlement reached between HIKO
and OAG/OCA.
Additionally, the ALJs granted I&E’s request to impose a civil penalty on HIKO
pursuant to Section 3301 of the Public Utility Code, 66 Pa.C.S. § 3301. Although the
ALJs did not impose the approximately $14,700,000.00 penalty I&E initially sought based
[J-66-2018] - 6
on a $1,000.00 penalty per overcharge invoice, they directed HIKO to pay a civil penalty
of $1,836,125.00. This amount was calculated by multiplying the number of violations of
52 Pa. Code § 54.4(a) (14,689) with the approximate average overcharge per invoice
($125.00). The ALJs justified this penalty based largely on HIKO’s conscious decision to
disregard the price guarantee made to its customers. Further, the ALJs considered the
ten factors which impact the imposition of a fine for violation of a PUC order, regulation,
or statute listed in 52 Pa. Code § 69.1201. Section 69.1201 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.
(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
[J-66-2018] - 7
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.
(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.
[J-66-2018] - 8
(10) Other relevant factors.
52 Pa. Code § 69.1201.
Both parties filed exceptions. In its exceptions, HIKO asserted, among other
things, that “the requested civil penalty . . . [was] disproportionate to the alleged
violations”, and was higher than the penalty imposed on other EGSs in what HIKO asserts
are factually similar matters. See Exceptions of HIKO Energy, LLC to Initial Decision,
9/10/15, at 7, 30-31, 33. In its Reply to I&E’s Exceptions, HIKO alleged “that significantly
lower civil penalties have been levied against much larger companies for more egregious
conduct” and characterized the proposed penalty as “grossly disproportionate.” See
Replies of HIKO Energy, LLC to Exceptions of I&E, 9/21/15, at 3, 6, 16-17.
Both parties’ exceptions were denied. Subsequently, the PUC adopted the ALJs’
decision, imposing a $1,836,125.00 civil penalty on HIKO. In concluding that the penalty
was fitting, the PUC recognized that HIKO acted knowingly, deliberately, and “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.” Commission
Opinion, 12/3/15, at 44.
II. Commonwealth Court Proceedings
A. Majority Opinion
HIKO appealed to the Commonwealth Court and filed an application for stay. In
its application for stay, HIKO asserted for the first time that the civil penalty was
“unreasonable . . . and violative of the Excessive Fines Clause of Article I, Section 13.” 9
Emergency Petition for Supersedeas, 12/18/15, at 6. By single-judge order, the
Commonwealth Court granted the application for stay pending the resolution of the
9 PA. CONST. art. I, § 13.
[J-66-2018] - 9
appeal. HIKO Energy, LLC v. Pa. Pub. Util. Comm’n, No. 5 C.D. 2016 (Memorandum
Opinion and Order) (Pa. Cmwlth. Feb. 12, 2016).
On appeal to the Commonwealth Court, HIKO asserted that the PUC’s imposition
of a $1,836,125.00 civil penalty violates the Excessive Fines Clauses of the U.S.10 and
Pennsylvania Constitutions. HIKO, 163 A.3d at 1088. Specifically, HIKO noted that the
nearly $2 million penalty imposed against it by the PUC is the highest civil penalty the
PUC had imposed in its nearly 80-year history and is between 14 and 80 times higher
than the penalties the PUC had approved in similar cases in the past. Additionally, HIKO
alleged that the PUC imposed this penalty without noting the financial constraints HIKO
faced stemming from the polar vortex, and failed to consider the significantly smaller
penalties imposed by the PUC in similar cases. Id.
HIKO further argued that evaluating compliance with Article I, Section 13 of the
Pennsylvania Constitution mirrors that of the Eighth Amendment of the Federal
Constitution. Id. (noting that a fine “violates the Excessive Fines Clause if it is grossly
disproportional to the gravity of a defendant’s offense[.]”) (quoting United States v.
Bajakajian, 524 U.S. 321, 334 (1998)). HIKO asserted that this Court evaluates
proportionality as it has been articulated in Solem v. Helm, 463 U.S. 277 (1983), which
mandates that the magnitude of the fine imposed be compared with treatment of other
offenders in the same jurisdiction. HIKO, 163 A.3d at 1089.
Here, HIKO argued the magnitude of the fine and gravity of the offense did not
correspond with the treatment of other similarly situated entities. Specifically, HIKO
claimed that the instant penalty is greater than the respective fines imposed on other
entities accused of similar or more egregious conduct. In some other cases, HIKO
pointed out, the fine was smaller than what was imposed here, yet the conduct of a larger
10 U.S. CONST. amend. VIII.
[J-66-2018] - 10
EDC resulted in death and property destruction. Id. at 1090 (citing Pa. Pub. Util. Comm’n,
Bureau of Investigation & Enforcement v. UGI Utils., Inc., Gas Div., No. C-2012-2308997
(Pa. Pub. Util. Comm’n Feb. 19, 2013)). To justify the instant fine, HIKO asserted, the
PUC unfairly weighed the intentional nature of the conduct and the magnitude of the
violation, and disregarded relevant mitigating circumstances.
Further, HIKO argued that the polar vortex, which was beyond HIKO’s control, was
the cause of the increase in spot market prices for electricity. Additionally, HIKO pointed
out that its CEO personally guaranteed a $20 million dollar loan in order to keep the
company afloat, and that honoring its price guarantee would have rendered HIKO
insolvent. Id. at 1092. HIKO asserted that the PUC minimized the importance of these
unforeseeable conditions in its penalty analysis, and improperly found these and other
circumstances to be no excuse for HIKO’s conduct.
The Commonwealth Court concluded 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. Id. at 1094. Moreover, the
Commonwealth Court recognized its own limitations in reducing a fine imposed by the
PUC, noting that it may do so only if there is a violation of constitutional rights, an error of
law, or a finding that the PUC has not supported its factual findings with substantial
evidence. Id. at 1095 (citing Pub. Serv. Water Co. v. Pa. Pub. Util. Comm’n, 645 A.2d
423 (Pa. Cmwlth. 1994)).
Notwithstanding a finding of waiver, the Commonwealth Court determined that
HIKO’s disproportionality argument was meritless. Id. The court pointed out that the
cases HIKO relies on do not involve intentional conduct. Id. at 1095. Additionally, the
Commonwealth Court reasoned that HIKO’s comparison to penalties imposed against
[J-66-2018] - 11
other utilities is inappropriate for several reasons. First, the court noted that some of the
other cases relied on settled prior to litigation, and the court recognized “the well-
established legal principle often invoked by and before the PUC is that settlements do not
set precedent.” Id. Moreover, the court noted Section 69.1201(b) explicitly provides for
stringent application of the penalty factors in litigated matters. 52 Pa. Code § 69.1201(b).
Additionally, the court emphasized that whether the conduct at issue was intentional or
negligent should be considered only after litigation, and if it is, the “[intentional] conduct
may result in a higher penalty.” 52 Pa. Code § 69.1201(c)(3).
Moreover, the court determined that the cases HIKO seeks comparison to were
settled, rather than litigated, and factually distinguishable for several reasons. HIKO, 163
A.3d at 1096. Accordingly, those matters did not necessitate the imposition of a smaller
fine on HIKO. Likewise, the court found HIKO’s argument that the PUC failed to consider
mitigating circumstances lacked merit as well. The Commonwealth Court reasoned,
rather, that the ALJs and the PUC did, in fact, recognize that the polar vortex caused
major price fluctuations in electricity service, and that the polar vortex was beyond HIKO’s
control. The PUC and ALJs, however, were not convinced that the polar vortex was a
sufficient justification for HIKO’s conduct. The court agreed, noting specifically that
HIKO’s introductory guarantee did not condition its variable rate program on any of the
factors HIKO noted, thus it cannot retroactively rely on those circumstances to justify its
actions and mitigate the imposed penalty. Id. at 1097.
Further, the court was unpersuaded by HIKO’s arguments alleging that it lacked
any history of non-compliance and that the PUC failed to account for HIKO’s size in
calculating the penalty. Id. at 1099. Regarding the non-compliance, the court noted that
HIKO’s EGS license was subject to reporting requirements regarding its sales and
marketing practices in Pennsylvania due to numerous complaints against it in New York.
[J-66-2018] - 12
Id. The conditions applied from December 2012 to June 2014, a time-period that
encompassed the violations in this case. Thus, on this basis alone, the court was not
convinced that HIKO had a “history of compliance.” Id. Further, the court recognized
that, pursuant to the statute, “[t]he size of the utility may be considered to determine an
appropriate penalty amount.” Id. (quoting 52 Pa. Code § 69.1201(c)(8) (emphasis
added)). Thus, the court noted that neither the Commission nor the ALJs were required
to consider HIKO’s size.
The 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 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.
Lastly, the court rejected HIKO’s contention that the PUC failed to properly take
into account HIKO’s efforts to mitigate financial harm to its customers. The court noted
that the ALJs and the PUC did consider HIKO’s mitigation efforts. Those efforts, however,
did not persuade the PUC that HIKO’s conduct warranted a lower penalty, noting that
HIKO did not begin offering refunds until customers had complained or filed informal
complaints with the BCS. Id. at 1101 (citing PUC Op. at 49).
Next, HIKO contended that the penalty impermissibly penalized it for exercising its
right to litigate. Id. In support, HIKO alleged that the only possible explanation for refusing
to treat settlements as precedential is because the PUC wanted to utilize the penalty as
a punishment for HIKO choosing to litigate its case. HIKO further claimed that it had no
real choice but to litigate this matter because I&E was initially seeking a $15 million civil
[J-66-2018] - 13
penalty along with license revocation, and was purportedly unwilling to settle on any terms
absent a multi-million dollar penalty. In such a case, if pursuing litigation results in a
disproportionate civil penalty, HIKO contends the PUC is effectively coercing parties into
settling cases and abandoning their rights to litigate and appeal. HIKO argues that such
a course of action is invalid, because it unnecessarily chills the exercise of a constitutional
right. Id. at 1102 (citing Commonwealth v. Brown, 26 A.3d 485 (Pa. Super. 2011)).
The Commonwealth Court, however, again disagreed, noting that the ALJs and
the PUC properly applied the ten factors for evaluating penalties listed in Section 69.1201.
See 52 Pa. Code § 69.1201. Additionally, the court again recognized that HIKO was
incorrect in asserting that the PUC failed to consider previously settled cases as
precedential. Looking to past PUC decisions/opinions, the court concluded that the PUC
has stated it “vigorously, and without equivocation, reject[s] considering a settlement as
precedent, as to any subsequent issue, in any proceeding.” HIKO, 163 A.3d at 1102
(quoting Pa. Pub. Util. Comm’n v. The Bell Tel. Co. of Pa., No. R-811819, 1988 Pa. PUC
LEXIS 572 at *19 (Nov. 10, 1988)). Moreover, as the court previously observed, the
penalty factors are not applied in as strict a fashion in settled matters when compared to
litigated matters, and some factors are only applicable in litigated cases. Id. at 1103
(citing 52 Pa. Code § 69.1201(b)). In this regard, settling parties are afforded more
flexibility in “reaching amicable resolutions to complaints and other matters so long as the
settlement is in the public interest.” Id.Further, the court determined that the settled cases on which HIKO relies are
factually distinguishable and bear little weight for measuring the penalty imposed in this
case. Id. Thus, in the court’s view, the penalty imposed was not utilized as a penalty
against HIKO for exercising its right to litigate, and the court asserted that HIKO’s
argument to the contrary was nothing more than a “bald assertion.” Id.[J-66-2018] - 14
As to its third argument, HIKO asserted that the PUC abused its discretion by
sustaining the civil penalty in this case because, according to HIKO, the penalty lacked
evidentiary support. HIKO noted that the PUC was free to disregard the ALJs’ findings
and recommended civil penalty, and in fact should have found that several of the factors
justifying the penalty lacked support in the record. In fact, HIKO contended, the PUC
acknowledges that the evidentiary support for some of these factors was wholly lacking.
Id. at 1109.
HIKO further argued that the PUC utilized an improper method for computing the
number of violations. HIKO posited that the PUC did not carry its burden of proof in
establishing the precise number of violations. Thus, while HIKO acknowledged that it
may not have carried its burden in correcting the computing mistakes, HIKO argued that
I&E failed to meet its initial burden. In HIKO’s view, because I&E failed to carry its burden
in the first place, the burden to disprove the calculation never shifted to HIKO. Id. at 1109-
10. Further, HIKO argued that several of the invoices relied upon by I&E involved very
small overcharges, and should have been excluded from the computation as de minimis
amounts. Additionally, HIKO pointed out that in other matters where the PUC imposed a
penalty, it utilized a “per customer” method for computing violations of 52 Pa. Code §
54.4(a). Id. at 1110.
The Commonwealth Court, however, again rejected HIKO’s arguments. Initially,
the court recognized that HIKO failed to argue that several of the factors under 52 Pa.
Code § 69.1201(c) lacked evidentiary support. Regarding the other factors which HIKO
did raise, the court noted that the PUC properly considered the evidence, and did not
reach unsupported conclusions. In any event, the court recognized that when considering
all of the pertinent factors and the evidence of record before the ALJs and PUC, “the
[J-66-2018] - 15
record amply supports the PUC’s decision regarding its imposition of the civil penalty.”
HIKO, 163 A.3d at 1113.
The court also rejected HIKO’s argument that the PUC erred when it adopted a
“per invoice” method for calculating the civil penalty in this case. The court noted that
HIKO’s CEO, Klein, testified that the data presented in I&E’s exhibits relating to the
number of violations 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 1114 (citing PUC Op. at 32). Moreover, although HIKO presented
the testimony of Dr. Cicchetti, that some of the billing entries “likely represented”
contested billing that was later corrected, the testimony was rejected as conjecture. Id.
Thus, the court determined that HIKO simply failed to counter the evidence which
supported the “per invoice” computation of the penalty. Lastly, the court noted that
although the PUC recognized some of the overcharges were minor, a de minimis
exception did not exist in the regulations, and still warranted consideration when
calculating the penalty.
B. Dissenting Opinion
President Judge Leavitt authored a dissent joined by Judge Cohn Jubelirer and
Judge Covey. As to HIKO’s first issue, the dissent argued that HIKO’s constitutional
argument was not waived because HIKO asserted that the penalty was “grossly
disproportionate” in its Answer to I&E’s Complaint. HIKO, 163 A.3d at 1122 (Leavitt, P.J.,
dissenting) (citing HIKO’s Answer to I&E’s Complaint, at New Matter ¶ 11). Moreover,
HIKO again asserted the penalty was “grossly disproportionate” in its exception to the
ALJs’ penalty decision. Id. (citing HIKO Exception to ALJs’ Initial Decision at 30-31).
Relying on Allegheny County v. Commonwealth, 490 A.2d 402 (Pa. 1985), the dissent
asserted that a party may identify additional legal authority on appeal to support a claim
[J-66-2018] - 16
it raised in the lower courts. On this basis, the dissent contended that the constitutional
challenge was not waived. Rather, HIKO was not asserting a new claim or legal theory,
it was merely offering additional legal authority to support its contention that the penalty
was “grossly disproportionate.” HIKO, 163 A.3d at 1122-23 (Leavitt, P.J., dissenting)
Finding that the constitutional argument was not waived, the dissent proceeded to
analyze HIKO’s constitutional claim. Initially, the dissent noted “that the excessive fines
clause set forth in the Pennsylvania Constitution is coextensive with the Eighth
Amendment to the U.S. Constitution.” Id. at 1123 (citing Commonwealth v. Eisenberg,
98 A.3d 1268, 1281 (Pa. 2014)). The dissent then analyzed whether, in its view, the
penalty was excessive when compared to the gravity of the offense.
Recognizing that this Court has pointed to Solem as the benchmark for analyzing
an excessive fine claim, the dissent asserted that it must “compare the magnitude of the
fine to the treatment of other offenders in the same jurisdiction, and to the treatment of
the same offense in other jurisdictions.” HIKO, 163 A.3d at 1123 (Leavitt, P.J., dissenting)
(citing Eisenberg, 98 A.3d at 1282). The dissent also noted the importance of “intra-
Pennsylvania” proportionality when analyzing an excessive fine claim. Id. (citing
Commonwealth v. Baker, 78 A.3d 1044, 1055 (Pa. 2013)).
After outlining the above parameters governing an excessive fine analysis in
Pennsylvania, the dissent concluded that the civil penalty imposed on HIKO could not be
harmonized with the civil penalties imposed on similar entities for similar conduct. Id. at
1123. Notably, the dissent did not articulate that the similar cases it was referring to
involved settled, rather than litigated, cases. Accordingly, the dissent contended that the
penalty imposed in this instance violated the bar against excessive fines in both the
Pennsylvania and United States Constitutions. Id.[J-66-2018] - 17
The dissent also diverged from the majority’s analysis in that it took issue with the
PUC’s methodology for computing the penalty against HIKO. The dissent recognized
that in calculating the $1,836,125.00 penalty, the PUC multiplied the number of violations
it found, 14,689, by $125.00, which was comparable to the average overcharge per
customer of $124.00. The dissent, however, reasoned that because the average
overcharge amount was $124.00 per customer, that figure should have been multiplied
by the total number of affected customers, in this case, 5,708. Such a calculation would
result in a penalty amount of $713,500.00, which the dissent opined was sufficient and
consistent with the PUC’s history. Moreover, the dissent concluded that there was a
dearth of evidence supporting the finding that HIKO had committed 14,689 violations.
Contrary to the majority’s reasoning, the dissent concluded that I&E failed to meet its
burden to prove 14,689 violations. Accordingly, the dissent continued, the burden of
disproving those violations never shifted to HIKO. Id. at 1124-25.
III. Grant of Allocatur and Standard of Review
On December 13, 2017, this Court granted allowance of appeal to consider the
following issues:
1. Whether the $1,836,125.00 penalty was so grossly
disproportionate to the penalties the Commission has
approved for similar or more egregious conduct as to violate
the Excessive Fines Clause of the Pennsylvania and U.S.
Constitutions.
2. Whether the $1,836,125.00 penalty impermissibly punished
HIKO for litigating the complaint for a civil penalty instead of
settling it.
3. Whether the Commission abused its discretion in imposing
an unprecedented civil penalty, which was not supported by
substantial evidence.
HIKO Energy, LLC v. Pa. Pub. Util. Comm’n, 176 A.3d 235 (Pa. 2017).
[J-66-2018] - 18
In appeals from Pennsylvania Utility Commission matters, an appellate court is
limited to determining “whether constitutional rights have been violated, an error of law
has been committed, or the Commission’s findings and conclusions are, or are not,
supported by substantial evidence.” Barasch v. Pa. Pub. Util. Comm’n, 493 A.2d 653,
655 (Pa. 1985); see also 2 Pa.C.S. § 704. Conformity with those principles is reviewed
under an abuse of discretion standard. Fraternal Order of Police v. Pa. Labor Relations
Bd., 735 A.2d 96, 99 (Pa. 1999) (the “essential import [of this standard] is to establish a
limited appellate review of agency conclusions to ensure that they are adequately
supported by competent factual findings, are free from arbitrary or capricious decision
making, and, to the extent relevant, represent a proper exercise of the agency’s
discretion.”).
IV. Whether the Fine Violates the Excessive Fines Clause
A. The Parties’ Arguments
In its first argument, HIKO asserts an as-applied constitutional challenge to the
penalty the PUC imposed. HIKO acknowledges it is not asserting that the Commission’s
penalty powers are unconstitutional, or that its penalty policy is facially unconstitutional.
Rather, HIKO argues 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’s Brief at 25.
In evaluating the constitutionality of a fine, HIKO notes courts should conduct a
proportionality test by comparing the magnitude of the fine to the gravity of the offense
and to the treatment of offenders in both the same jurisdiction and other jurisdictions.
HIKO’s Brief at 26 (citing Solem, supra) HIKO also correctly points out that this Court,
when comparing proportionality, favors an intra-Pennsylvania analysis, Eisenberg, 98
A.3d at 1283, and alleges we recently indicated courts should consider the impact of the
[J-66-2018] - 19
fine on the violator. Id. (citing Shoul v. Commonwealth, Dep’t of Transp., 173 A.3d 669,
686 (Pa. 2017)).
HIKO recognizes that the PUC’s rationale for imposing the fine in this case rested
upon the intentional conduct of HIKO’s CEO coupled with the magnitude of the violation.
HIKO’s Brief at 28. However, HIKO alleges that both of these factors are present in other
cases where a much smaller civil penalty was imposed.
The first proceeding HIKO utilizes for comparison is an action against Energy
Services Providers, Inc. d/b/a Pennsylvania Gas & Electric (PaG&E). Commonwealth v.
PaG&E, No. C-2014-2427656, Tentative Form Opinion & Order, at 4-7 (Pa. Pub. Util.
Comm’n Feb 11, 2016). In that case, PaG&E was alleged to have violated Section 54.4(a)
during the 2014 polar vortex by charging prices that did not conform to the Company’s
disclosure statement. HIKO’s Brief at 29-30 (citing Commonwealth v. PaG&E, Docket
No. C-2014-2427656, Joint Complaint filed June 20, 2014 at ¶¶ 20, 64). Notwithstanding
this violation, HIKO notes the PUC approved a civil penalty of $25,000.00 in the PaG&E
settlement, which was 1.4% of the penalty imposed on HIKO. Id. at 30. Further, HIKO
contends that this settlement was permitted even though PaG&E had received more
customer complaints and had a history of violations including “slamming”11 customers.
Id. at 29-30.
HIKO further relies on settlements in proceedings against IDT Energy, Inc. (IDT)
and Respond Power, LLC (Respond). Both of those proceedings, HIKO notes, concerned
violations stemming from increases of variable rate prices during the polar vortex. Id. at
30. Irrespective of the factual similarities, however, HIKO notes that both entities received
11“Slamming” refers to the practice of changing a customer’s supply service without
authorization. See Pa. Pub. Util. Comm’n, Bureau of Investigation and Enforcement v.
ResCom Energy LLC, No. M-2013-2320112, 2014 WL 2876696 (Pa. Pub. Util. Comm’n
June 20, 2014).
[J-66-2018] - 20
civil penalties dramatically lower than the penalty imposed on HIKO; IDT received a
$25,000.00 civil penalty, and Respond received a $125,000.00 civil penalty. See
Commonwealth v. IDT Energy, Inc., No. C-2014-2427657, Tentative Opinion & Order (Pa.
Pub. Util. Comm’n June 30, 2016); Commonwealth v. Respond Power LLC, No. C-2014-
2427659, Initial Decision (ALJs May 17, 2016).
Next, HIKO disputes the PUC’s contention that settled cases carry no precedential
value. Instead, HIKO submits the precedential nature of a case is not relevant to a
proportionality analysis because the Section 69.1201(c) Penalty Policy does not exempt
comparison to other settlements. 52 Pa. Code § 69.1201(c)(9). HIKO asserts that
dismissing those cases as non-precedential undercuts this Court’s directive to conduct
an “intra-Pennsylvania” proportionality analysis. HIKO’s Brief at 33 (citing Eisenberg, 98
A.3d at 1282-83). Moreover, HIKO argues that the PUC’s disregard of its prior settled
cases is particularly troubling because the ALJs could not locate any litigated cases to
compare this case to in order to effectuate a proportionality analysis. Accordingly,
comparing the penalty imposed in those three cases with the penalty in this case, HIKO
contends the different penalty amounts cannot be reconciled, particularly given the fact
that the comparable cases concern similar violations stemming from the same polar
vortex event.
Further, HIKO argues that its violations in this case were not as serious as two
other cases, but HIKO still received a far greater penalty. First, HIKO points to a
“slamming” case where Public Power, LLC was alleged to have fraudulently enrolled
2,937 customers in its plan and a settlement was approved which contained a $64,450.00
penalty. See Pa. Pub. Util. Comm’n, Bureau of Investigation and Enforcement v. Public
Power, LLC, Docket No. M-2012-2257858, Opinion and Order at 4, 8. (Pa. Pub. Util.
Comm’n Dec. 19, 2013). In another case, UGI Utilities’ alleged safety violations caused
[J-66-2018] - 21
a pipeline explosion killing five people and destroying eight homes, and the PUC
approved a settlement containing a $500,000 civil penalty. See Pa. Pub. Util. Comm’n,
Bureau of Investigation & Enforcement v. UGI Utils., Inc. - Gas Div., Docket No. C-2012-
2308997, Opinion and Order, at 30, 36 (Pa. Pub. Util. Comm’n Feb. 19, 2013).
Additionally, HIKO asserts that the PUC failed to take into account HIKO’s smaller
size when compared with other companies against which the PUC has assessed smaller
civil penalties. In one example discussed above, HIKO points out the PUC’s approval of
a $500,000.00 civil penalty against UGI Utilities for pipeline safety violations. Id. at 30,
36. HIKO further points out, however, that the PUC later decided that penalty was
inadequate to deter future violations by UGI, and approved an additional penalty of
$1,000,000.00. Pa. Pub. Util. Comm’n, Bureau of Investigation & Enforcement v. UGI
Penn Nat. Gas, Inc., No. M-2013-2338981, Opinion and Order, at 15, 18, 20 (Pa. Pub.
Util. Comm’n Sept. 26, 2013). In another instance, the PUC settled with Uber for a $3.5
million civil penalty stemming from over 100,000 regulatory violations. See Uber Techs.
v. Pa. Pub. Util. Comm’n, 1617 C.D. 2016, Settlement Agreement, at 4 (Pa. Cmwlth.
2017). HIKO submits that given its much smaller size when compared to UGI or Uber,
HIKO’s history of compliance, the absence of any threat to public safety, and that the
cause of the violations (the polar vortex) was beyond HIKO’s control, the PUC had no
basis to deter HIKO by imposing a penalty higher than the UGI penalty and more than
half as much as the Uber Penalty. HIKO’s Brief at 40.
Lastly, HIKO contends the PUC ignored several mitigating factors, specifically: (1)
unanticipated severe weather and accompanying market disruption; (2) HIKO’s restitution
payments to overcharged customers; (3) HIKO’s contributions to the local hardship funds
to provide energy for low-income consumers; (4) HIKO’s suspended marketing of variable
rate products; and (5) HIKO’s change of marketing and energy purchasing practices.
[J-66-2018] - 22
HIKO’s Brief 41-44. HIKO argues that the PUC’s failure to credit HIKO with the same
mitigation it accepted in other cases is evidence of the grossly disproportionate nature of
the penalty.
In contrast, the PUC argues that the Commonwealth Court correctly concluded
HIKO waived its constitutional challenges to the civil penalty. Specifically, the PUC
contends HIKO did not preserve the issues before the administrative agency because it
failed to raise the specific constitutional provisions it claimed the penalty violated. PUC’s
Brief at 11-12. In this regard, the PUC echoes the reasoning of the Commonwealth Court
majority, and contends that HIKO’s mere allegation that the penalty was grossly
disproportionate did not alone preserve the constitutional argument because a party must
state “in somewhat express terms, the specific constitutional grounds upon which the
challenger is basing its attack.” Id. (quoting In re F.C. III, 2 A.3d 1201, 1212 (Pa. 2010)).
Assuming the constitutional challenge was properly preserved, the PUC submits
the penalty was not excessive given the offense and the magnitude of HIKO’s deliberate
decision to overcharge its customers. The PUC contends the dispositive factor is whether
the penalty was irrational or unreasonable, which it maintains this penalty was not
because HIKO’s misconduct was unprecedented and egregious. Id. at 15 (citing
Commonwealth v. Gipple, 613 A.2d 600, 602 (Pa. Super. 1992)). Further, the PUC
argues that every HIKO invoice that represented an intentional overcharge was a
separate and distinct violation of 52 Pa. Code § 54.4(a); thus, as the lower tribunals found,
HIKO committed 14,689 violations. The PUC further points out that the maximum penalty
for each violation is $1,000.00 pursuant to 66 Pa.C.S. § 3301. In this case, however, the
PUC posits that it only imposed a civil penalty of $125.00 per violation, which is well below
the statutory maximum. Moreover, the PUC asserts the penalty is tailored to the offense
because the average overbill amount was $124.00. PUC’s Brief at 16.
[J-66-2018] - 23
Lastly, the PUC claims that the other cases HIKO relies on for purposes of
comparison are distinguishable because none involved intentional overcharging of
several thousand customers at the direction of the CEO and upper management. Thus,
because the conduct here was particularly egregious, the PUC asserts that the penalty
should be affirmed as constitutional. Id. at 20.
In its reply brief, HIKO asserts that the PUC’s waiver argument fails for two distinct
reasons. First, HIKO points out that the question of waiver is not present in the questions
for which we granted allocatur. HIKO’s Reply Brief at 4-5 (citing Commonwealth v. Lynn,
114 A.3d 796, 823 (Pa. 2015)). Second, HIKO contends that even if the question of
waiver was properly before this Court, it would fail, because HIKO claims it repeatedly
raised the issue of gross disproportionality of the civil penalty before the Commission. Id.
at 5. Thus, as the dissent noted, HIKO alleges that it was not presenting a new argument,
but rather was “offering authority to support its prior argument.” HIKO’s Reply Brief at 6
n.4 (citing Shenango Inc. v. Dep’t of Envtl. Prot., 934 A.2d 135, 142 n.16 (Pa. Cmwlth.
2007)).
HIKO also highlights that the PUC’s penalty policy requires it to consider “[p]ast
Commission decisions in similar situations.” 52 Pa. Code § 69.1201(c)(9). Accordingly,
HIKO asserts that the PUC cannot disregard settled cases when they are factually similar
because comparison is required to show that the penalty in this case is grossly
disproportionate. HIKO reiterates that other cases - specifically PaG&E, IDT, and
Respond, discussed supra - concern similar factual scenarios relating to the polar vortex
of 2014. HIKO posits that the only distinguishing factors between the present case and
those cases is the size of the penalty. HIKO’s Reply Brief at 10-12.
Additionally, HIKO notes that even though the penalty statute permitted the civil
penalty in this case, it can still be grossly disproportionate in application. Similarly, the
[J-66-2018] - 24
fact that I&E sought a higher penalty does not make the PUC’s imposition of a lesser
amount reasonable if it is grossly disproportionate to other penalties in similar cases.
B. Legal Analysis
As a preliminary matter, we must determine whether HIKO properly preserved its
constitutional claim. Generally, a party waives appellate review of a claim when it fails to
raise the issue before an administrative tribunal rendering a final decision. SugarHouse
HSP Gaming, L.P. v. Pa. Gaming Control Bd., 162 A.3d 353, 365 (Pa. 2017) (quoting
Wing v. Unemployment Comp. Bd. of Review, 436 A.2d 179, 181 (Pa. 1981)). Policy
considerations regarding the efficacy of administrative tribunals mandate this conclusion:
[T]he administrative law tribunal must be given the opportunity
to correct its errors as early as possible; diligent preparation
and effective advocacy before the tribunal must be
encouraged by requiring the parties to develop complete
records and advance all legal theories; and the finality of the
lower tribunals’ determinations must not be eroded by treating
each determination as part of a sequence of piecemeal
adjudications.
Wing, 436 A.2d at 181. Issue preservation requirements promote “the orderly and
efficient use of our judicial resources.” In re F.C. III, 2 A.3d 1201, 1212 (Pa. 2010).
Indeed, when an appellate court hears arguments on an issue not properly raised below,
it effectively equates the lower tribunal’s proceedings to “merely a dress rehearsal.”
Dilliplaine v. Lehigh Valley Trust Co., 322 A.2d 114, 116 (Pa. 1974).
Although the lower tribunal in this case is an administrative agency, waiver
principles still apply. We have expressly held that as-applied constitutional challenges
must be raised before administrative agencies. Lehman v. Pennsylvania State Police,
839 A.2d 265, 276 (Pa. 2003) (“[C]laims challenging a statute’s application to the facts of
a particular case must be raised before the agency or are waived.”) Several cogent
reasons distinct to administrative agencies support this conclusion:
[J-66-2018] - 25
First, the agency is given an opportunity to interpret the statute
it is charged with administering to avoid an unconstitutional
application. Second, agencies currently decide challenges to
the constitutionality of regulations; administrative competency
is not an issue. Third, agencies are better situated than the
courts to develop agency-specific issues, and to find facts.
Fourth, refusing to consider constitutional challenges to a
statutes application allows litigants to circumvent the
exhaustion of administrative remedies doctrine before
seeking judicial review.
Id.; see also Lyft, Inc. v. Pa. Pub. Util. Comm’n, 145 A.3d 1235, 1245 (Pa. Cmwlth. 2016)
(finding waiver for failure to raise issues before the agency); Wheeling & Lake Erie Ry.
Co. v. Pa. Pub. Util. Comm’n, 778 A.2d 785, 795 (Pa. Cmwlth. 2001) (“It is well
established that where, as here, the appellant failed to raise the issue before the agency,
the issue has been waived and cannot be considered on appeal.”)
Notwithstanding our waiver jurisprudence, we have recognized the delicate, yet
distinct line between failing to raise a claim and adducing additional authority for an
appellate court. See Allegheny Cnty. v. Commonwealth, 490 A.2d 402, 413 n.9 (Pa.
1985) (recognizing “the County has merely identified additional legal authority in support
of its claims; the county’s basic theory is the same as that set forth in its amended
complaint. While that complaint left something to be desired as regards citation to specific
statutory provisions, this belated clarification of the County’s claims should not inure to its
prejudice.”). In evaluating this distinction, the critical inquiry is whether a party is raising
a wholly new legal theory, or is merely strengthening its previously articulated argument
with additional legal authority. Id.; see also Shenango Inc. v. Dep’t of Envtl. Prot., 934
A.2d 135, 142 n.16 (Pa. Cmwlth. 2007) (reasoning that a party’s failure to expressly
address a regulation did not result in waiver because the party did argue the underlying
legal theory in the lower court without citation to that regulation).
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
[J-66-2018] - 26
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.
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. Lehman, F.C. III, supra; see also Eisenberg,
98 A.3d at 1275. In Eisenberg, we noted that although the Appellant’s constitutional
challenge was poorly articulated it was preserved, because:
Counsel specifically referenced the Cruel Punishments
Clause of Article I, Section 13 of the Pennsylvania
Constitution (as well as the Cruel and Unusual Punishment
Clause of the U.S. Constitution, found in the Eighth
Amendment). . . . Also relevant, for issue preservation
purposes, is that the trial court plainly understood the
gravamen of the claim . . . . In addition, the court conveyed at
the outset its remarks, albeit in oblique terms, that the
constitutional issue would ultimately not be resolved in that
trial courtroom.
Eisenberg, 98 A.3d at 1275 (emphasis added).
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
[J-66-2018] - 27
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.
V. Whether the Fine Penalizes HIKO for Exercising its Right to Litigate
A. The Parties’ Arguments
In the second issue, HIKO contends the PUC impermissibly penalized it for
exercising its right to litigate this case. Specifically, HIKO notes that Article 1, Section 11
of the Pennsylvania Constitution protects an individual’s right to seek a remedy in court
for an injury done to “lands, goods, person or reputation” which includes the right to
“justice administered without sale, denial or delay. . . .” PA. CONST. art. 1, § 11. Further,
HIKO asserts Article 1, Section 11 works in conjunction with Article 5, Section 9, which
protects the right of appeal from an agency determination to a court of record. PA. CONST.
art. 5, § 9 (“. . . there shall [] 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 . . . .”). HIKO argues
that this Court should recognize that coercion to settle, upon the threat of excessive
penalties, violates these due process provisions. HIKO’s Brief at 45-46. Moreover, HIKO
[J-66-2018] - 28
argues that the PUC’s willingness and ability to ignore past settlements concerning
factually similar proceedings pressures prospective litigants into settling. Id. at 46.
Further, HIKO points out that I&E initially sought a civil penalty of approximately
$15 million in addition to potential license revocation, and noted that I&E refused to join
its settlement with OAG and OCA. Instead, HIKO argues, I&E continued to push for
“extraordinary penalties, restitution, and revocation of HIKO’s license, despite its decision
not to object to the OAG/OCA settlement.” HIKO’s Brief at 47. Based on this, HIKO
submits it had no choice but to litigate, and the resulting penalty was imposed as a
punishment for that choice. Accordingly, HIKO submits the PUC impermissibly chilled
the exercise of HIKO’s constitutionally protected right to litigate the case through the
courts. HIKO’s Brief at 48 (citing Commonwealth v. Brown, 26 A.3d 485, 505 (Pa. Super.
2011)).
The PUC contends that there is no evidence to support HIKO’s argument that it
penalized HIKO for litigating the case. The PUC points out that the Commonwealth Court
described this argument as a “bald assertion” and found “nothing in the record
substantiates [this argument].” PUC’s Brief at 21 (quoting HIKO, 163 A.3d at 1103).
Moreover, the PUC also asserts that irrespective of the merits of HIKO’s argument on this
point, the underlying settlement negotiations are inadmissible pursuant to Pa.R.E. 408, 1
Pa. Code § 35.115, and 52 Pa. Code § 5.231(d).12
12 Pennsylvania Rule of Evidence 408 precludes evidence of:
(1) furnishing, promising, or offering--or accepting, promising
to accept, or offering to accept--a valuable consideration in
compromising or attempting to compromise the claim; and
(2) conduct or a statement made during compromise
negotiations about the claim.
Further, 1 Pa. Code § 35.115, a subset of the General Rules of Administrative Practice
and Procedure, states:
[J-66-2018] - 29
Next, the PUC argues it was not required to consider penalties in settled cases
when calculating HIKO’s civil penalty. The PUC submits that its policy statement
distinguishes the considerations in litigated cases by providing “[m]any 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.” 52 Pa. Code § 69.1201(b). Significantly,
in this case, the PUC points out that the factor of intentional conduct is relevant only in
litigated cases and generally mandates a higher penalty. 52 Pa. Code § 69.1201(c)(3).
The PUC emphasizes that evidentiary records associated with settlements
generally contain no admission of wrongdoing. PUC’s Brief at 26. Further, even if the
PUC could consider past settlements, it submits that comparison would not be helpful
because HIKO’s conduct here is incomparable to other matters.
Nothing contained in these rules shall be construed as
precluding a participant in a proceeding from submitting at any
time offers of settlement or proposals of adjustment to all
parties and to the agency, or to staff counsel for transmittal to
the agency, or from requesting conferences for that purpose.
Unaccepted proposals of settlement or of adjustment or as to
procedure to be followed and proposed stipulations not
agreed to shall be privileged and are not admissible in
evidence against a counsel or person claiming such privilege.
Moreover, the regulations governing PUC hearings state, in relevant part:
Offers of settlement, or adjustment, or of procedure to be
followed, and proposed stipulations not agreed to by every
party, including proposals intended to resolve discovery
disputes, will not be admissible in evidence against a counsel
or party claiming the privilege.
52 Pa. Code § 5.231(d). The PUC argues these rules and regulations, taken together,
bar any evidence relating to the settlement negotiations between it and HIKO.
Specifically, the PUC contends that HIKO is precluded from relying on the substance of
the settlement negotiations in this case. PUC’s Brief at 22-23.
[J-66-2018] - 30
Finally, the PUC stresses that by litigating this case, HIKO assumed the
uncertainty inherent in litigation. The PUC compares HIKO’s decisions to litigate with a
criminal defendant rejecting a plea bargain and opting instead for a trial. PUC’s Brief at
28. While in that scenario the defendant may be acquitted, HIKO emphasizes that the
defendant may also face a more severe penalty than what was offered in the plea deal.
Similarly, the PUC asserts that in this case, HIKO bore the risk associated with litigation.
Id.In its reply brief, HIKO posits that notwithstanding the risk of litigation, the
underlying premises governing a penalty should be predictable. HIKO’s Reply Brief at
19. HIKO further reiterates that it did not have an option to settle with I&E, because I&E
was initially seeking a $15 million penalty demand, and HIKO claims I&E refused to modify
its penalty demand despite the OAG/OCA Settlement. HIKO’s Reply Brief at 19-20.
B. Legal Analysis
Like the Commonwealth Court, we reject HIKO’s contention that the Commission
imposed the civil penalty in this case based on HIKO’s choice to litigate the matter. HIKO,
163 A.3d at 1102. Although framed differently, HIKO is again attempting to compare the
penalty imposed here with the penalties in factually incomparable settled cases.
Nonetheless, the conclusions remain the same: the PUC “vigorously, and without
equivocation, reject[s] considering a settlement as precedent, as to any subsequent
issue, in any proceeding.” The Bell Tel. Co. of Pa., 1988 Pa. PUC LEXIS 572 at *19
(emphasis in original). This sentiment is particularly true when attempting to compare
civil penalties or fines in settled cases with those in litigated cases because, as the PUC
points out, settled cases do not contain a full evidentiary record or a finding or admission
of wrongdoing.
[J-66-2018] - 31
Moreover, as has been made clear throughout this proceeding, and was again
recognized above, the penalty factors utilized to compute the penalty are applied with
more leniency in settled cases. 52 Pa. Code. § 69.1201(b). Indeed, the third penalty
factor concerning whether the conduct at issue was intentional or negligent is only
applicable in litigated cases, 52 Pa. Code § 69.1201(c)(3), and HIKO’s conduct was a
major consideration in computing the penalty in this case. HIKO, 163 A.3d at 1103.
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
this matter.13 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.
VI. Whether Substantial Evidence Supports the Fine
A. The Parties’ Arguments
Lastly, HIKO argues that the PUC abused its discretion because the civil penalty
in this case was not supported by substantial evidence. First, HIKO contends that the
PUC erred in computing the civil penalty in this case by utilizing a “per invoice”
13 Inasmuch as HIKO frames this argument as an infringement on a constitutional right
protected by Article 1, Section 11 and Article 5, Section 9 of the Pennsylvania
Constitution, its argument is underdeveloped and lacks evidentiary support in the record.
In any event, HIKO is merely reframing its first argument and ultimately seeks to compare
the penalty in this case with the penalty in other, settled cases. For the reasons set forth
above, such an analysis does not warrant relief notwithstanding HIKO’s attempted
invocation of our state charter.
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methodology, which led to finding 14,689 separate violations. HIKO’s Brief at 49. HIKO
alleges that this computation was incorrect because its failure to honor the price
guarantee was the result of one single business decision, not 14,689 decisions. Id.
Additionally, HIKO looks to the language utilized in Section 54.4(a), which provides that
“EGS prices billed must reflect the marketed prices and the agreed upon prices in the
disclosure statement.” Id. at 50 (quoting 52 Pa. Code § 54.4(a) (emphasis added)). In
HIKO’s view, this language requires only that the actual prices billed reflect the agreed
upon prices; it does not mandate that each invoice be accurate. Id. at 51. Critically, HIKO
argues, the amount on the invoice and the amount actually billed may be different. HIKO
posits that these discrepancies are evidence that I&E failed to carry its burden in proving
the specific number of violations. Id. at 52 (citing HIKO, 163 A.3d at 1125 (Leavitt, P.J.,
dissenting)). Thus, although the Commission determined HIKO failed to rebut I&E’s
proffered evidence of violations, HIKO alleges that the burden to disprove the violations
never should have shifted to it due to I&E’s failure to meet its initial burden. HIKO’s Brief
at 52-53.
Second, HIKO argues that the PUC ignored its own precedent where it utilized a
“per customer” calculation rather than a “per invoice” one. Specifically, HIKO points us
to Herp v. Respond Power LLC, where a former customer alleged that Respond had
increased its variable rate price over the PTC during the polar vortex. Herp v. Respond
Power LLC, No. C-2014-2413756, Opinion and Order (Pa. Pub. Util. Comm’n Jan. 28,
2016). After a hearing, the ALJ concluded that Respond had violated 10 distinct
Commission regulations. Id. One of those regulations was Section 54.4(a), which the
ALJs concluded Respond had violated based on its failure to bill at its marketed price
during the winter months of 2014. Id. The Commission upheld the maximum penalty of
$1,000.00 per violation but found only four regulatory violations. Id. The PUC imposed
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a $4,000.00 penalty, calculated at $1,000.00 per violation. Id. From this, HIKO asserts
that Respond was fined $1,000.00 for violating Section 54.4(a) even though Respond’s
monthly invoices exceeded the marketed price in three separate months. Id. Thus, HIKO
contends that the PUC applied a per customer computation in past cases, and it should
do the same here. HIKO’s Brief at 54. If a “per customer” methodology were utilized,
HIKO notes that it would still be subject to a substantial fine of $713,500.00 based on a
$125.00 per violation calculation. HIKO’s Brief at 55.
Finally, HIKO contends that the PUC erred when it did not reduce the civil penalty
notwithstanding its acknowledgment that several of the ALJs’ conclusions lacked
evidentiary support. Specifically, HIKO emphasizes the PUC discounted several of the
ALJs’ conclusions, including the financial hardship suffered by HIKO’s customers and
HIKO’s alleged failure to comply with the surety requirements. Additionally, HIKO notes
that no finding was made as to its size. HIKO submits it logically follows that the penalty
against it should be reduced because these conclusions and the associated penalty
factors were weighed against it when originally calculating the penalty. HIKO’s Brief at
57-58.
The PUC counters HIKO’s argument, and claims that substantial evidence
supported the civil penalty imposed against HIKO. First, the PUC contends that its “per
invoice” methodology is consistent with 52 Pa. Code § 54.4(a), because each time HIKO
issued an invoice that did not match its guaranteed price, it violated Section 54.4(a).
PUC’s Brief at 29. The PUC argues that Section 54.4(a) merely requires proof of
disparate pricing between the prices billed and the process marketed. Id. (citing 52 Pa.
Code § 54.4(a)). Thus, the PUC continues, because the invoices reflect disparate
amounts from what was guaranteed in the disclosure statement, HIKO violated Section
54.4(a) with each invoice. Id. at 29-30.
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The PUC further contends that HIKO’s purported “per customer” methodology is
not viable because it ignores the fact that HIKO overbilled some customers multiple times.
Similarly, although HIKO characterizes the violation here as resulting from one business
decision, the PUC posits that each overcharge flowing from that decision amounts to a
discrete violation, regardless of the number of violations which ultimately occur. Id. at 32
(citing Newcomer Trucking, Inc. v. Pa. Pub. Util. Comm’n, 531 A.2d 85 (Pa. Cmwlth 1987)
(noting that the PUC may “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.”)) Moreover, the PUC opines that HIKO’s purported reduction of its conduct down
to one business decision cynically ignores the consequences of the decision, which
resulted in 14,689 overbilled invoices. Id. at 31.
Next, the PUC argues that it relied on HIKO’s business records to establish the
violations. Indeed, the PUC submits that each invoice reflecting a price higher than what
was guaranteed was construed as a violation. The PUC emphasizes that HIKO’s CEO
authenticated and explained these records. As a result, the PUC asserts it was HIKO’s
burden to rebut the evidence, which it failed to do. Id. at 33-34. Instead, the PUC argues,
HIKO’s expert, Dr. Cicchetti, provided mere conjecture, which the ALJs found
unpersuasive to surmount the evidence set forth by I&E. Id. at 35-39. On appeal, the
PUC notes that the Commission agreed with the ALJs, and found that HIKO failed to
present clear evidence of error that the billing data--which HIKO provided-- was not true
and correct. Id.
The PUC further posits that HIKO’s reliance on Herp is misplaced for several
reasons. First, the PUC notes that, notwithstanding HIKO’s mischaracterization, the
Commission in Herp utilized a “per violation” calculation for determining the relevant fine.
Id. at 41. Moreover, unlike this case, the PUC submits that Herp concerned one
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customer. Additionally, the PUC argues that HIKO’s violations resulted from the
intentional conduct of management, and thus, the factual differences between this case
and Herp render comparison unpersuasive. Further, irrespective of Herp, even if the
Commission utilized a per customer analysis in this case, the PUC asserts it could still
impose a fine of $5,708,000.00, or a $1,000.00 fine for each of the 5,708 affected
customers. Id. at 42 (citing 66 Pa. C.S. § 3301).
Lastly, the PUC contends that despite some discrepancies in the record, it properly
found that HIKO engaged in intentional, fraudulent conduct in a highly competitive market,
which is sufficient to support the penalty it imposed. Id. at 43-44. Moreover,
notwithstanding HIKO’s argument regarding the application and supportive evidence of
specific penalty factors, the Commission concluded that “the remaining factors as a whole
support[] the recommended penalty.” PUC’s Brief at 47 (quoting PUC Op. at 52). The
PUC concludes its argument by again emphasizing the intentional conduct undertaken
by HIKO in this case, and noting that HIKO utilized its customers as financial guarantors
of its business. HIKO’s Brief at 48.
In its reply brief, HIKO maintains that the Commission’s decision was not
supported by substantial evidence. HIKO’s Reply Brief at 21. HIKO stresses the PUC’s
admission that the record contained discrepancies, yet notes that the PUC refused to
adjust the corresponding penalty. Id. HIKO further reiterates the arguments which it
raised in its main brief, and emphasizes that several factors supporting the penalty lacked
evidence. HIKO’s Reply Brief at 25-26.
B. Legal Analysis
After careful consideration, we find substantial evidence supports the civil penalty
imposed in this case. 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
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§ 54.4(a). Through testimony, the parties confirmed that the spreadsheets I&E relied on
to determine the number of violations of Section 54.4(a) were produced by HIKO. N.T.,
4/20/15, at 148 (Testimony of Harvey Klein); Pre-served Direct Testimony of Daniel
Mumford, 12/23/14, at 19. Klein further confirmed the composition of the spreadsheets,
and agreed that lines which represented an overcharge were highlighted. N.T., 4/20/15,
at 153 (Testimony of Harvey Klein). Through these exhibits and the corresponding
testimony, it is clear that I&E carried its burden of proving the existence of 14,689
violations.
HIKO attempted to rebut this testimony through its expert, Dr. Cicchetti, but the
ALJs and the Commission were unpersuaded and rejected the testimony, finding it
contained conjecture. PUC Op. at 30-33. As the Commonwealth Court succinctly stated
“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.” HIKO, 163 A.3d at
1114. It is not the proper function of this Court to reweigh the evidence and reassign
credibility to findings made by the lower tribunals. Barasch, 493 A.2d at 655 (noting an
appellate court’s standard of review in appeals from the Pennsylvania Utility
Commission). Accordingly, we see no reason to disturb this determination on appeal.
Similarly, we 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. Section 69.1201 does not require that the penalty factors bear equal weight.
52 Pa. Code § 69.1201. As the Commonwealth Court noted, HIKO does not dispute the
applicability of several penalty factors, including: the seriousness of the conduct; whether
the conduct was intentional; the number of customers affected; and HIKO’s compliance
history and the conditional status of its license. 52 Pa. Code § 69.1201(c)(1), (3), (5), (6).
Moreover, because Section 69.1201(c)(10) permits the consideration of “other relevant
[J-66-2018] - 37
factors”, the egregious conduct of HIKO which is irreducible to the remaining nine factors
may still weigh in favor of imposing the ALJs’ proposed penalty. 52 Pa. Code §
69.1201(c)(10).
Finally, we agree with the Commonwealth Court that Herp has minimal
precedential value in this case. Primarily, contrary to HIKO’s assertions, the Commission
in Herp utilized a “per violation” methodology for computing the requisite civil penalty.
Herp v. Respond, Docket No. C-2014-2413756, (Opinion and Order entered Jan. 28,
2016). Further, Herp concerned one customer’s complaint stemming from a misleading
statement by a third party marketing agent, not the systemic, executive-ordered
intentional overcharging of 5,708 customers. Id. For the foregoing reasons, the order of
the Commonwealth Court is affirmed.
Justices Baer, Todd, Dougherty and Wecht join the opinion.
Justice Donohue files a dissenting opinion in which Chief Justice Saylor joins.
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