VII. Penalties
Under Section 2107, any utility that violates any order of the Commission is "subject to a penalty" and the statutory range of Commission penalties is from $500 from $20,000 for each offense. Each day of violation is considered a separate violation. (Section 2108.) The Commission, however, has broad discretion in administering this section of the code and, even while we hold utilities "subject" to a penalty, we may elect to suspend the whole or portion of a penalty or decline to impose a penalty altogether. (Affiliate Rulemaking Decision.)
CPSD recommends that Commission impose a $6.75 million fine on PG&E. SSJID supports this recommendation due to PG&E's failure to read meters regularly in violation of Rule 9. We evaluate these recommendations under the criteria for considering penalties set forth in the Affiliate Rulemaking Decision.
A. Severity of the Offense
Pursuant to the Affiliate Rulemaking Decision, we consider whether there was physical harm; economic harm, either through costs imposed upon victims of the violation or unlawful benefits gained by the utility; or harm to the integrity of the regulatory process. The number of violations is a factor in determining the severity.
We find that, to the extent that customers had their service terminated as the result of nonpayment of illegal backbills, PG&E's conduct caused physical harm. As the United States Supreme Court stated, "Utility service is a necessity of modern life; indeed, the discontinuance of water or heating for even short periods of time may threaten health and safety." (Memphis Light, Gas & Water Division v. Craft (1978) 436 U.S. 1, 18.) TURN estimates that up to roughly 3,400 customers were affected in the CorDaptix period,30 and it is reasonable to assume that additional customers were similarly affected before that time.
The economic harm to victims includes, not only the amount of the charges in violation of the tariff rule, but also the costs of service shutoffs, reconnection fees, increased deposits, and damage to credit ratings as the result of the illegal backbills. PG&E maintains that there is no evidence demonstrating that a meaningful percentage of victims were economically harmed by having to pay for their energy usage at a later time. As discussed earlier, we reject this position. All customers who paid illegal charges were economically harmed and are due refunds. However, in evaluating the severity of harm for purposes of determining whether to impose a fine, we recognize the fact that customers who were illegally backbilled received the economic benefit of energy service for the amount of the illegal backbill.
In terms of economic harm as measured by unlawful benefits gained by the utility, although PG&E unlawfully benefited from the illegal charges, the undisputed record shows that PG&E did not believe that it would benefit from its conduct. Rather, PG&E believed that the uncollected amounts would flow through balancing accounts and ultimately be paid (for the most part) by other ratepayers.
Although tariff violations are harmful to the integrity of the regulatory process, the Commission has found no such harm where a utility was following guidance from Commission staff. (In re Metromedia Fiber Network Serv. (D.04-04-068) 2004 Cal. PUC LEXIS 168.) Throughout the period of this investigation, PG&E received copies of letters from the Consumer Affairs Branch to customers, who complained about PG&E's practice of backbilling in excess of Rule 17.1 time limits, affirming PG&E's practices. There is ample evidence that PG&E's continued violations were made in reliance upon the knowledge that Commission staff was aware of PG&E's practice and did not object to it.
CPSD contends that PG&E cannot claim reliance on Commission staff guidance because Skinner (supra, 55 CPUC2d 408), provided clear direction on the proper interpretation of Rule 17.1. Skinner is not on point, as it involved an incorrect bill containing incorrect charges; it was not a delayed or estimated bill, which is the subject of this case. CPSD correctly contends that PG&E's reliance on Commission staff does not make its behavior lawful or correct. However, it is a mitigating factor in the consideration of whether to impose a penalty.
CPSD attempts to distinguish Metromedia from this case. First, CPSD points out that Metromedia was an application proceeding, while this case is an enforcement proceeding. CPSD offers no explanation of why this difference is meaningful, and our decision not to impose a penalty in Metromedia did not rely on the fact that it was an application proceeding. CPSD notes that, in Metromedia, the utility disclosed the scope of the proposed project to the Commission, as opposed to the Commission initiating its own investigation. However, there is no evidence in this case that PG&E concealed its conduct from the Commission. To the contrary, Commission staff regularly reviewed customer complaints on the substance of this case and issued letters affirming PG&E's conduct. CPSD's argument that Metromedia is distinguishable because the utility affirmatively sought Commission staff guidance in advance of its illegal action is unpersuasive, as the illegal action in Metromedia was necessarily a one-time event (failing to obtain an environmental review in advance of construction of a specific project) in contrast to the on-going billing practices of the utility for a multi-year period and the corresponding on-going opportunities for Commission staff to review and advise against the illegal practices. CPSD argues that Metromedia is distinguishable because in that case the Commission itself, in issuing an order granting a Certificate of Public Necessity and Convenience for the project, had not directed the utility to obtain environmental review as a condition to the certification. This is a factual distinction, but it has no legal significance for purposes of determining whether PG&E received guidance from Commission staff affirming its practice.
Under D.98-12-075, a single violation is less severe than multiple offenses. A widespread violation that affects a large number of customers is a more severe offense than one that is limited in scope. The violations in this case affected a very large number of customers. Over 157,000 residential customers received illegal backbills related to delayed bills in the period from January 2000 to April 2005, and roughly 73,000 residential customers received illegal backbills related to estimated bills for reasons within PG&E's control in the period from October 2001 through April 2005.31
B. Conduct of the Utility
The conduct of the utility is a factor in determining whether a penalty should be imposed. According to the Affiliate Rulemaking Decision, this factor recognizes the important role of the utility's conduct in preventing the violation, detecting the violation, and disclosing and rectifying the violation. It also takes into consideration the deterrent effect of a fine with respect to the financial resources of the utility and the unique facts of the case.
There is no evidence that PG&E knew that its billing violations were in fact violations or that it acted with the intent to violate the law. As discussed above, there is no evidence that PG&E concealed its conduct from the Commission.
The record demonstrates that PG&E was reasonably prompt in rectifying the violation. After Consumer Affairs Branch staff first expressed disagreement with PG&E's backbilling practices in May 2004, PG&E initiated a series of discussions with Commission staff to resolve the issue. Consumer Affairs Branch meanwhile continued to issue letters to customers affirming PG&E's interpretation of Rule 17.1. When the Commission's Executive Director sent PG&E a letter on October 12, 2004, identifying delayed bills as billing error, within days PG&E filed an advice letter proposing to modify Rule 17.1's language on this issue, changed its billing practices with respect to illegal backbilling related to delayed bills, and began to identify and issue refunds to customers who received illegal backbills related to delayed bills. When the Commission issued Resolution G-3372, stating that estimated bills are billing error where the cause for estimation was within PG&E's control, PG&E implemented measures to prevent backbilling related to estimated bills, and to identify and issue refunds to customers who received illegal backbills related to estimated bills.
Under the Affiliate Rulemaking Decision, the Commission will adjust the amount of fines to achieve the objective of deterrence, without becoming excessive, based on each utility's financial resources. The refunds, chargeable to shareholders, that we order in this case provide an incentive for PG&E to strive for compliance with its tariffs. We consider if a fine is necessary to also deter PG&E from knowingly violating its tariffs. Here as in Metromedia, we recognize that, since PG&E did not know that it was violating its tariff, a fine would have no reasonable deterrent effect.
PG&E challenges, and CPSD defends, the amount of CPSD's recommended fine. Because we find mitigating circumstances that warrant elimination of any penalty, we do not reach the issue of the appropriate fine amount.
C. Precedent
Pursuant to the Affiliate Rulemaking Decision, we explicitly address previous decisions that involve reasonably comparable factual circumstances, and explain any substantial differences in outcome.
TURN v. Pacific Bell (supra, 49 CPUC2d 299), in which the Commission ordered a $15 million penalty in addition to $34 million in refunds of illegal late charges, shares some factual circumstances with the current case. TURN v. Pacific Bell involved the improper imposition of late payment fees and reconnection charges resulting from the utility's systematic delays in processing customer payments over a five-year period. Beyond these facts, the similarities end: Pacific Bell became aware very early on that it was improperly charging its customers, yet failed to correct the problem because it did not want to incur the associated costs. Even when it belatedly took steps to notify the public of its mistakes, Pacific Bell neglected to use ordinary diligence to correct statements which it knew to be misleading and incomplete. These circumstances stand in stark contrast to the current case, where PG&E did not knowingly persist in an illegal practice, relied on Commission staff acquiescence in its illegal practice, took timely and reasonable steps to correct and make reparations for it, and does not have a current history of customer abuse and illegal customer charges.
D. No Penalty Warranted
We have reviewed the exacerbating and mitigating facts and conclude that no penalty is warranted in this case. To summarize, the facts that exacerbate the wrongdoing are:
· Physical harm to roughly 3,400 customers due to termination of service;
· Economic harm of payment of illegal charges and related financial stress, offset by the value of energy service received; and
· Significant number of violations affecting between 200,000 and 250,000 residential households.
The facts that mitigate the wrongdoing are:
· Customers received the economic benefit of energy usage for which they were illegally charged;
· Commission staff affirmed PG&E's illegal practice in letters to customers closing customer complaints;
· Lack of intentional misconduct;
· Reasonable efforts to cease the violations and refund past illegal charges;
· No prior record of similar violations; and
· A penalty would produce no deterrence against knowing violations.
Due to the number of significant factors that contravene the imposition of a penalty, we exercise our discretion to decline to impose a penalty, and conclude that a fine is not warranted in this case.
30 This estimate includes roughly 2900 customers whose service terminations were related to delayed bills, plus 17% of that number (493) whose service terminations were related to estimated bills. TURN qualifies this estimate as overstated as it is based on an overly inclusive database.
31 The data for the number of backbills in excess of three months related to estimated bills does not consistently identify whether the cause for estimation was within PG&E's control. Based on data for the period 2003, it appears that roughly 50% of estimated bills are for reasons within PG&E's control. Applying this 50% factor to the number of backbills in excess of three months related to estimated bills yields approximately 73,000.
