Scandal-ridden FirstEnergy agrees to give up new upcharge

Photo from Getty Images.

Many FirstEnergy customers weren’t recession-proofed when the coronavirus pandemic hit, but Akron-based FirstEnergy made sure that it was.

Now, after firing its top management in the wake of a corruption-riddled 2019 law championed by the Akron-based company, FirstEnergy has agreed to stop collecting an upcharge that was part of it, Attorney General Dave Yost said Monday. As it currently stands, the charge is worth about $102 million a year to the company, Yost said.

“A private company, probably as a matter of morality, shouldn’t be able to guarantee its profits against the marketplace by operation of the law,” Yost said in a virtual press conference.

Yost last year sued FirstEnergy after federal authorities arrested then-House Speaker Larry Householder and four associates — two of whom later pleaded guilty — in connection with the 2019 passage of House Bill 6. The bill forced all Ohio utility customers to pay more than $1 billion over 10 years to bail out two failing nuclear reactors owned by a former FirstEnergy subsidiary. It also forces ratepayers to pay hundreds of millions propping up two aging, coal-fired power plants — including one that isn’t even in Ohio.

Prosecutors say FirstEnergy and related groups funneled $61 million through 501(c)(4) “dark money” groups and into an effort to make Householder speaker and to pass and protect the utility bailout. U.S Attorney David DeVillers said it was likely the biggest bribery scandal in Ohio history.

The bill also contained the mechanism that FirstEnergy agreed to stop collecting from on Monday. 

In an email, FirstEnergy spokeswoman Jennifer Young said, “FirstEnergy’s Ohio utilities filed an application on Feb. 1 with the Public Utilities Commission of Ohio to end the collection of decoupling revenues permitted by HB 6. This will need to be considered and approved by the PUCO and is the first step toward a partial resolution with the Ohio Attorney General and other parties, subject to court approval. Working to constructively resolve this matter in cooperation with the Ohio Attorney General and other parties is part of decisive actions the board and management are taking to position FirstEnergy for the future and continue to deliver safe, reliable electric service to our customers. FirstEnergy’s leadership is committed to transparency and integrity in every aspect of its business.”

Even by the standards of arcane utility regulation, “decoupling rider” can make the eyes glaze. But the context in which this one came about might make them pop.

FirstEnergy’s board last year fired CEO Chuck Jones after an internal investigation found that the company in January 2019 had paid $4 million to a former lobbyist who had just taken a position with the state’s regulator — the Public Utilities Commission of Ohio. That’s when Gov. Mike DeWine appointed Sam Randazzo, a former FirstEnergy lobbyist, to chair the commission.

Randazzo resigned after federal agents raided his Columbus house in November and DeWine is still looking for a successor. Even though he was supposed to be regulating utilities, emails released in January show that Randazzo played a role in shaping HB 6, the massive energy bill.

Perhaps not coincidentally, bill’s decoupling rider guaranteed revenue for the company for which Randazzo had previously lobbied and from which Randazzo collected $4 million as he took his seat on the utility commission. 

The decoupling mechanism was created in 2008 to offset electric company revenue losses due to energy efficiency programs. For example, if an electric company gives away or subsidizes things like LED light bulbs, such a rider would allow the company to recoup revenue it loses from selling less electricity. 

The kicker with the FirstEnergy decoupling rider is that HB 6 gutted Ohio’s energy efficiency programs at the same time that it all but required the PUCO to approve it. The rider set the high-consumption year of 2018 as the baseline and allowed the company to upcharge its customers to meet that baseline.

A tracker maintained by the state’s official utility watchdog, the Ohio Consumers’ Counsel, indicates that FirstEnergy has collected $27 million from the rider over the past year.

“Two million consumers will be paying FirstEnergy about $310,722 per day in 2021, compared to about $51,259 per day in 2020,” consumer counsel spokesman J.P. Blackwood said in a statement issued before Monday’s news. “In other words, every day the legislature delays repealing HB 6, FirstEnergy gets another $310,722 from consumers. What a deal!”

In a 2019 earnings call, then-First Energy CEO Jones seemed to think it was a good deal. He said the rider made the company “somewhat recession-proof.”

In a statement issued after his press conference, Yost said the rider was the product of corruption plain and simple.

“Under its now removed prior leadership, FirstEnergy built a feeding trough that it thought would guarantee it record profits year after year, filled with unearned money out of Ohioans’ pockets,” he said. “This agreement recognizes the corrupt influence used to guarantee a for-profit company above-market returns for years to come by operation of law.”

Last Wednesday, as he introduced a bill to eliminate the decoupling charge, state Rep. Mark Romanchuk, R-Ontario, noted that it allowed FirstEnergy to lock in nearly $1 billion in annual revenue based on its best earnings in a decade. 

“This transfers the risk of weather and economic conditions to the ratepayers,” Romanchuk said. “The nation and Ohio are currently experiencing an economic slowdown due to the pandemic. Because the decoupling rider did not account for weaker consumption due to economic conditions, the utility will continue to receive $978 million in distribution revenue at a time when businesses were shut down and families are struggling to make ends meet.”

A judge has already stopped collection of nuclear bailout funds because of the criminal allegations against Householder and others. But that doesn’t mean FirstEnergy and other Ohio utilities haven’t profited from charges that were later declared to be unlawful.

There’s no mechanism to recoup the $27 million FirstEnergy has already gotten from the decoupling rider. 

That’s in addition to more than $1 billion collected from Ohio residents and businesses since 2009 that the state Supreme Court later ruled to be unlawful. Of that, more than $400 million was collected by FirstEnergy that was supposed to upgrade its distribution system but at least some of which was shared with out-of-state utilities.

Yost said it’s up to the legislature to make well-connected utilities refund money from charges that are declared illegal.

“It strikes me as fundamentally unjust,” he said. “The law is what it is and we’re stuck with the law until it’s changed.”