Investigation of $460M in FirstEnergy charges back on, but why was it stopped in the first place?

By: - January 5, 2021 1:00 am

Electrical pylons. Photo from Getty Images.

The Public Utility Commission of Ohio has restarted an audit of $465 million that Akron-based FirstEnergy collected from ratepayers in 2017 and 2018, supposedly to modernize the utility grid.

The state’s official watchdog, the Office of the Ohio Consumers’ Counsel, wants to know whether any of the money was used in a $61 million bribery scandal. That affair so far has resulted in a $1.3 billion nuclear bailout, the indictment of then-House Speaker Larry Householder and the guilty pleas of two of his associates.

But why the audit was called off in the first place also raises serious questions.

Leading the commission in voting to shut down the audit was Chairman Sam Randazzo. He resigned in November after FirstEnergy disclosed that it paid $4 million to someone just before he started regulating the utility in early 2019. Gov. Mike DeWine later said that Randazzo received the payment, but DeWine said he was unaware of it when he appointed the former FirstEnergy lobbyist to chair the PUCO.

For its part, FirstEnergy fired its CEO, Chuck Jones, when news of the payment came to light.

The Randazzo-led utility commission’s timing in stopping the audit might seem strange. It came just after the Ohio Supreme Court ruled in January 2020 that the charge FirstEnergy had been collecting was unlawful — seemingly a time when a regulator would want to know more about what happened with the funds.

A big reason why the court struck down the distribution-modernization charge: Despite allowing FirstEnergy to collect almost a half-billion extra dollars from ratepayers, the PUCO didn’t implement effective rules to ensure that FirstEnergy used the money to update the utility grid.

“Utility companies can be expected to respond to financial motivations, but not if the commission awards them money up front with no meaningful conditions attached,” the decision said. “The PUCO staff’s wishful thinking cannot take the place of real requirements, restrictions, or conditions imposed by the commission for the use of (distribution-modernization) funds.”

Not only did the PUCO call off the audit just as the charge was declared illegal, it did so as the auditors were making some interesting findings.

For example, it found that instead of using all the funds to improve its Ohio distribution system, FirstEnergy was placing some in a “Regulated Utility Money Pool,” from which out-of-state utilities could borrow.

To justify ending the audit — for which PUCO staff wanted more time — Randazzo and the other commissioners claimed that’s what the Supreme Court wanted.

“The court directed the commission to eliminate” the distribution-modernization charge, the PUCO wrote in its dismissal. “In support of this ruling, the court specifically objected to the usefulness of the proposed final review, questioning the lack of an effective remedy resulting from such review.”

However a reading of the Supreme Court’s opinion doesn’t mention any “specific objection” to the audit.

The relevant passage says that the auditors final report wouldn’t be available until after FirstEnergy had collected and spent the money.

“Thus, it is not clear what remedy would be available should the commission (or this court on appeal) find that FirstEnergy has misused DMR funds,” the ruling said.

One reason there’s no remedy, the court noted, is because when it allowed FirstEnergy to jack up its rates, the PUCO didn’t create any mechanism to refund the money to ratepayers if the charge is later declared unlawful or if it is shown the  money was misused.

“FirstEnergy has been recovering (distribution-modernization) revenue since January 1, 2017, and the commission did not make the (revenue) subject to refund if FirstEnergy does not meet the required conditions,” the court wrote.

The $465 million FirstEnergy collected from the upcharge isn’t the only such money collected — and kept — by Ohio utilities. The consumer’s counsel reports that since 2009, $1.5 billion has been collected from Ohio ratepayers in upcharges that were later struck down by the courts. 

As with the FirstEnergy charge, the PUCO didn’t create a mechanism to force other utilities to pay back the extra money they got back, either. 

FirstEnergy objected to reopening that audit, but wouldn’t comment further Monday. 

“Due to the ongoing PUCO audits, FirstEnergy is unable to provide additional information at this time,” spokeswoman Jennifer Young said in an email.

In a filing, the consumers’ counsel slammed the company’s objections.

“In an unfortunate display of corporate arrogance, the FirstEnergy Utilities are opposing an investigation by their state regulator, the PUCO, into utility consumer protection issues surrounding what has been described by a prosecutor as ‘likely the largest bribery scheme ever perpetrated against the state of Ohio,'” it said. “The PUCO has the authority under Ohio law to investigate the FirstEnergy Utilities and their owner, FirstEnergy Corp. FirstEnergy should get out of the PUCO’s way and cooperate.”



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Marty Schladen
Marty Schladen

Marty Schladen has been a reporter for decades, working in Indiana, Texas and other places before returning to his native Ohio to work at The Columbus Dispatch in 2017. He's won state and national journalism awards for investigations into utility regulation, public corruption, the environment, prescription drug spending and other matters.