Yet more evidence from FirstEnergy that Ohio’s utility regulation is broken: editorial

In the latest development in Ohio’s utility regulation mess, an audit commissioned by the Public Utilities Commission of Ohio has found that even though FirstEnergy Corp. collected roughly $500 million from Ohio electricity customers to modernize the utility’s power-line grid, it couldn’t show it used any of the money for that purpose.

Auditors found no evidence that ratepayer money the Akron company collected (at least $168 million a year from 2017 until 2019) led FirstEnergy – which owns the Illuminating, Ohio Edison and Toledo Edison companies – to spend more on modernizing its grid, cleveland.com’s Jeremy Pelzer reported.

In fact, the “distribution modernization rider” was proposed by the PUCO’s staff itself, the audit found — not so much to modernize FirstEnergy’s electricity grid but rather to bolster FirstEnergy’s finances so it might borrow money for modernization.

The audit also could not determine whether any of the modernization money was or wasn’t spent to lobby for passage of House Bill 6, the scandal-scarred nuclear bailout legislation that spawned federal indictments of five Statehouse figures, including then-House Speaker Larry Householder, who is presumed innocent until and if proven otherwise.

Federal prosecutors have alleged that FirstEnergy and an affiliate secretly gave tens of millions of dollars to a nonprofit Householder controlled, cleveland.com’s John Caniglia has reported.

Last summer, FirstEnergy signed a deferred prosecution agreement with federal prosecutors, agreeing to pay a $230 million fine and cooperate with the investigation.

The company at that time “acknowledged that it paid $4.3 million” to a public official whose description matches former PUCO chair Sam Randazzo “to further FirstEnergy Corp.’s interests related to passage of nuclear legislation and other company priorities,” the Justice Department said. Randazzo hasn’t been charged with any wrongdoing.

In their recent PUCO-commissioned grid-modernization audit, Daymark Energy Advisors also found that, while the fee was in effect, the three FirstEnergy electric distribution companies in Ohio boosted the size of the dividends they paid FirstEnergy, their parent. The auditors said there was no documented evidence to prove or disprove a connection between the fees and the dividend boosts.

The no-strings-attached grid modernization fee proved too much even for the usually complaisant Ohio Supreme Court, which in a 4-3 ruling issued in June 2019 killed the modernization fee in a majority opinion written by Justice Michael Donnelly.

Unquestionably, if properly funded and engineered, grid modernization should be on Ohio’s agenda. The August 2003 Northeast blackout that left 45 million Americans and 10 million Canadians without electricity originated in FirstEnergy’s Ohio territory, a U.S.-Canadian study found: A FirstEnergy line in Walton Hills came in contact with trees, and FirstEnergy’s computers failed to adequately react.

A FirstEnergy spokesman told Pelzer it respectfully disagrees with the Daymark audit and will file comments with the PUCO expressing its concerns.

While it’s at it, FirstEnergy should turn over other relevant documents bearing on how it spent ratepayer money intended for grid modernization and whether it helped kill an earlier PUCO audit on the subject.

In October, Pelzer highlighted documents that suggest that an earlier version of the distribution modernization rider audit, by Oxford Advisors, was killed during Randazzo’s tenure at PUCO. The documents raise important questions about what was in the prior audit and whether it painted a more damning picture of FirstEnergy’s use of ratepayer funds. A March 2020 text message from then-FirstEnergy CEO Chuck Jones refers to a person who appears to be Randazzo “burning” the audit and overruling PUCO staff and other commissioners on that and other pro-FirstEnergy moves.

To clear the air, PUCO should release the earlier audit and challenge FirstEnergy’s attempts to keep other relevant documentation secret.

The grid modernization fee was itself an example of how the PUCO at times seems to forget that the word “public” is part of its name and chief reason for its existence. The commission is supposed to be an umpire on behalf of the public interest, not a cheerleader for one side or the other.

The Daymark audit strongly suggests that the PUCO’s members and staff forgot that fact in bolstering FirstEnergy’s financial position at consumers’ expense without requiring a specific consumer benefit.

What’s more, citing an arcanity in the law, when it struck down the modernization rider, the Ohio Supreme Court failed to order refunds of the money FirstEnergy had already collected.

In the end, Pelzer reports, FirstEnergy last November “agreed to pay more than $300 million in customer refunds to settle claims that it violated Ohio’s ban on utilities making ‘significantly excessive’ profits,” since the company’s calculations “didn’t include the money it took from the distribution modernization rider.”

The PUCO has shown its toothlessness. But the PUCO doesn’t appoint itself. Governors pick the commissioners, albeit wearing the fig-leaf of a 1982 law that supposedly hinges appointments on merit. In fact, that law was designed to checkmate a ballot issue that would have let voters select the PUCO.

A PUCO vacancy looms. In filling it, Gov. DeWine will indicate what he has learned – or has failed to learn – from the FirstEnergy/House Bill 6 mess. And he will be graded accordingly.

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