FirstEnergy鈥檚 legal papers in a regulatory case state it can鈥檛 categorically deny that money from Ohio ratepayers was spent for activities related to the state鈥檚 nuclear and coal bailout law. The could support a broad scope for an ordered by the Public Utilities Commission of Ohio earlier this month.
The PUCO may come under increased scrutiny in the wake of 鈥� Nov. 16 search at the home of , a of who had been the general counsel for the Industrial Energy Users-Ohio trade group and who had also been linked to a couple of creditors in 鈥� (now Energy Harbor鈥檚) .
Randazzo and the PUCO had already drawn some criticism for nearly two months to tell FirstEnergy鈥檚 utilities to prove they hadn鈥檛 directly or indirectly used ratepayer money on House Bill 6. The law is at the heart of an alleged $60 million , which the Department of Justice announced July 21. And only Nov. 4 did the PUCO finally call for an independent audit of FirstEnergy spending on HB 6.
FirstEnergy isn鈥檛 a named defendant in the federal criminal case but is instead referred to as Company A. The company鈥檚 statements about an inability to admit or deny statements about the use of ratepayer money for HB 6 activities came in response to information requests, called discovery, in the regulatory case that started in September.
FirstEnergy鈥檚 evasion or apparent backtracking from earlier statements 鈥渃ertainly requires a lot of new questions and hopefully more answers from FirstEnergy about what exactly is going on here,鈥� said Dave Anderson, policy and communications manager for the Energy & Policy Institute.
Seeking answers
The Office of the Ohio Consumers鈥� Counsel attached the company鈥檚 statements to a motion filed last week, asking the PUCO to compel full responses to its discovery. In the case, the PUCO FirstEnergy鈥檚 utilities to prove that 鈥渢he costs of any political or charitable spending in support of [House Bill 6 and a subsequent referendum effort] were not included, directly or indirectly, in any rates or charges paid by ratepayers in this state.鈥�
Among other things, the Ohio Consumers鈥� Counsel asked FirstEnergy鈥檚 utilities to admit or deny that they or any affiliates used any money from rates, or other charges collected from Ohio electric customers for charitable or political spending or for HB 6 activities. In recent years, those charges included nearly half a billion dollars for a rider that was ultimately held unlawful.
FirstEnergy provided a long litany of objections but said it didn鈥檛 build costs for such spending into rates and other utility charges. But then the utilities also said they 鈥渓ack information sufficient to either admit or deny鈥� those requests for admission.
Funds from utility ratepayers apparently go into a group account. There they鈥檙e 鈥渘ot differentiated from funds received by the Companies from other revenues or sources,鈥� FirstEnergy鈥檚 responses said.
鈥淲hat鈥檚 weird is to say, 鈥榃e don鈥檛 know, and you鈥檙e not entitled to discovery,鈥欌�� said Ashley Brown, a former PUCO commissioner who now heads the Harvard Electricity Policy Group. The purpose of legal discovery is to let parties learn more.
The responses seem to be a subtle but possibly significant shift from FirstEnergy鈥檚 earlier filings.
FirstEnergy鈥檚 lawyers the PUCO鈥檚 question about whether Ohio ratepayers directly or indirectly paid for HB 6 efforts or other political or charitable spending by saying, 鈥淭he short and simple answer is 鈥榥o.鈥欌�� They attached a two-page affidavit from an officer at affiliate FirstEnergy Service Company.
Now the statement in the discovery responses 鈥渟eems to say something different,鈥� Anderson said: 鈥淭hat actually after an internal review of some sort鈥攖hat they don鈥檛 describe 鈥攖hey realize that they somehow don鈥檛 have sufficient information about how various pots of money have been spent and can鈥檛 actually deny or admit anything regarding those questions.鈥�
鈥淔irstEnergy鈥檚 internal review is ongoing. The Board is conducting a full review of its governance and oversight processes to promote robust corporate controls going forward,鈥� company spokesperson Jennifer Young said. 鈥淚鈥檓 not able to provide any additional comments on the PUCO case beyond our filing.鈥�
FirstEnergy has basically objected to all the discovery sought by the Office of the Ohio Consumers鈥� Counsel in that case, while also trying to thwart participation by various environmental groups and other parties. And, the Office of the Ohio Consumers鈥� Counsel said, it hasn鈥檛 gotten any clear answers to its discovery.
鈥淲hen OCC sought to learn the truth about whether FirstEnergy spent or used funds collected from Ohio utility customers for HB 6 (instead of for providing utility service) the FirstEnergy Utilities refused to answer a single question,鈥� the consumer advocate鈥檚 lawyers last week.
Following the money
The PUCO 鈥渙pened this case to review 鈥榯he political and charitable spending鈥� by FirstEnergy in support of HB 6,鈥� the Ohio Consumers鈥� Counsel said in that filing. In contrast, FirstEnergy鈥檚 filings suggest it wants to limit any inquiry to whether spending for HB 6 was built into the rates or riders charged to customers. In , that鈥檚 鈥渁 much smaller scope that shields [FirstEnergy] from answering and fails to protect customers.鈥�
Indeed, the company鈥檚 statements in its discovery responses could be viewed as 鈥� a term for evasive responses that became popular during the Watergate era.
Even if FirstEnergy鈥檚 utilities lack firsthand knowledge of what happened to money after it went to FirstEnergy Service Company or the parent corporation, arguably someone should know how money was ultimately spent, which might show whether ratepayer money indirectly paid for HB 6 activities.
鈥淧lus, the new was previously the chief financial officer of the company,鈥� and also allegedly to one of the dark money groups in the HB 6 scandal, Anderson said. The federal released in July alleges that approximately went from 鈥淐ompany A Service Company鈥� to defendant Generation Now, with added amounts coming from pass-through companies or FirstEnergy Solutions (referred to as 鈥淐ompany A-1 Corp.鈥�)
Those statements about undifferentiated funds and other factors may end up supporting a broad scope for the on ordered by regulators Nov. 4.
The case file is one in which the Ohio Consumers鈥� Counsel had asked for an independent audit back in. The Ohio Consumers鈥� Counsel argued the scope should include an examination of corporate governance, relationships among affiliates, and spending of ratepayer money.
Regulators finally ordered an independent audit six days after FirstEnergy terminated longtime CEO Charles Jones and two other members of top management. As of Nov. 8, FirstEnergy also 鈥溾�� two more vice presidents, who had served as its former chief legal officer and chief ethics officer, according to a filing with the Securities and Exchange Commission.
The audit鈥檚 scope should also determine if 鈥渢he 鈥榣oosey-goosey鈥� distribution modernization charge money that FirstEnergy Utilities collected from customers was used lawfully and in compliance with PUCO orders for electric utility service,鈥� the Ohio Consumers鈥� Counsel in a Sept. 30 filing.
Collection of the rider began in 2017. In 2018, the Ohio Consumers鈥� Counsel鈥檚 efforts to find out how the money was being spent. When Oxford Advisors provided a report in June 2019, it noted that spending from the no-strings-attached rider wasn鈥檛 restricted to activities of the Ohio utilities.
Instead, a regulated money pool with the funds 鈥渁ppears to be benefiting the liquidity needs of the non-Ohio regulated companies when looking over the trends,鈥� Oxford Advisors found. Also, it , funds from the pool 鈥渉ave been used to pay dividends to FirstEnergy.鈥� At that point the company presumably might have used them for other purposes, including charitable activities and lobbying.
The PUCO skipped any final review of how the rider was used after the Ohio Supreme Court held it unlawful.
鈥淪o, there was never a PUCO ruling on the merits of whether FirstEnergy had complied with the directive to use the funds (ultimately about $465 million) to support grid modernization and not subsidize its affiliate,鈥� the Ohio Consumers鈥� Counsel said in a pending for appeal.
That review could happen now, along with an examination of corporate governance and other matters, if the new independent audit digs into how ratepayer money was ultimately spent once it left the utilities and went to FirstEnergy Service Company, FirstEnergy or other affiliates.
The PUCO has said it will select a contractor in December for the new independent audit on HB 6 spending. A report is expected to be completed in April.
Whatever happens, the PUCO鈥檚 Nov. 4 notes that the case 鈥渞egarding political and charitable spending by FirstEnergy鈥檚 Ohio electric distribution utilities spending remains ongoing.鈥� Thus, questions remain about FirstEnergy鈥檚 limited discovery responses, as well as its fierce opposition to letting environmental advocates and take part fully in the case.
