This periodic newsletter provides updates on Ohio’s ongoing utility corruption scandal and is a joint project of the Energy News Network and Eye on Ohio, the nonprofit, nonpartisan Ohio Center for Journalism.
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New developments in the saga surrounding House Bill 6, Ohio’s nuclear and coal bailout law, include:
- A Feb. 4 audit report by federal regulators bumps up the amount spent by FirstEnergy and its affiliates on HB 6 and other political matters. The audit contrasts sharply with the Ohio regulators’ more fragmented approach.
- The Federal Energy Regulatory Commission’s report spurs efforts to get more documents and information from FirstEnergy in cases before the Public Utilities Commission of Ohio.
- Newly produced documents show that former PUCO Chair Sam Randazzo, later implicated in the scandal, suggested the idea of letting FirstEnergy show it didn’t use ratepayer money for HB 6 — and then only after criticism in the press.
- FirstEnergy is settling several shareholder cases, with corporate governance reforms as part of the deal.
- The Ohio attorney general wants to move ahead in its case against FirstEnergy, Energy Harbor and others.
- Former Ohio House Speaker Larry Householder and co-defendant Matt Borges filed motions to dismiss or limit the federal government’s criminal case against them.
- Gov. Mike DeWine reappointed longtime utility lawyer Daniel Conway to a second five-year term on the PUCO.
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FERC follows the money
A Feb. 4 audit of FirstEnergy by the Federal Energy Regulatory Commission found seven major areas where the company did not properly track and allocate expenses among affiliates. The findings upped the amount paid by FirstEnergy and its subsidiaries to groups involved in the HB 6 scandal to nearly $71 million.
“Of the $70.9 million, $1.5 million was allocated to some of our utilities and transmission companies,” said FirstEnergy spokesperson Mark Durbin. Included lobbying expenses had previously been disclosed, he said. “None of the rest of the $70.9 million was collected from customers,” he added.
Yet it remains unclear what happened to ratepayers’ rider money after it went into a money pool at FirstEnergy’s shared services subsidiary. That subsidiary arguably could have disbursed some of the money received to parent corporation FirstEnergy. FirstEnergy then could have sent the money to dark money groups involved in HB 6. Or, some of the money could have found its way to FirstEnergy Solutions (now Energy Harbor), which then might have used it for lobbying or other HB 6 activities.
Problems with the company’s money pool also were noted in a Jan. 14 report by Daymark Energy Advisors on a $457 million credit support rider that was ultimately held unlawful.
FERC’s audit report also dealt with payments to companies linked to former PUCO Chair Sam Randazzo and noted additional amounts paid to another Ohio individual whose role remains unclear. Spending for lobbying and political matters beyond Ohio was covered as well.
“What started off as a ‘$60 million bribery scandal’ is now more like a $133 million scandal,” said David Anderson, policy and communications manager for the Energy and Policy Institute. FirstEnergy has said it will provide some refunds, at least for the $1.5 million and probably some other non-HB 6 charges. It’s unclear whether FERC might go further and fine FirstEnergy, he added.
- FirstEnergy must refund customers for improper lobbying costs, federal audit finds (Akron Beacon Journal)
- Audit: FirstEnergy improperly used ratepayer money to fund HB6 dark money efforts (Cleveland.com)
A contrast …
In light of FERC’s report, the Office of the Ohio Consumers’ Counsel wants to question current and former ethics officers at FirstEnergy in proceedings known as depositions. The consumers’ counsel has also asked PUCO senior attorney examiner Gregory Price to revisit his earlier decision to shield FirstEnergy from having to disclose information and documents relating to FERC’s audit.
That ruling and others have hindered the consumers’ counsel and others in fact-finding efforts to contest FirstEnergy’s claims in four limited-issue cases at the PUCO. FERC’s comprehensive audit report also sparked comparisons to the PUCO’s approach to the HB 6 scandal.
“The contrast between what a regulatory agency should be doing and what the people in Columbus are doing cannot be more stark,” said Ashley Brown of the Harvard Electricity Policy Group. As a former PUCO commissioner, he has been critical of the PUCO’s piecemeal approach. In FirstEnergy’s case, FERC “is doing its job,” while the PUCO “is literally sleepwalking,” he said.
New light on Randazzo’s role
Newly produced documents show that former PUCO Chair Sam Randazzo came up with the idea for the PUCO to take the “baby step” of letting FirstEnergy show it didn’t use ratepayer money for HB 6. And it’s questionable whether the agency would have done anything about it without a motion from the Office of the Ohio Consumers’ Counsel and bad publicity.
Randazzo and others at the PUCO also reviewed repeal bills and considered possible legislative alternatives after news broke about then-House Speaker Larry Householder’s arrest and FirstEnergy’s involvement in the HB 6 scandal. Price was a party to various discussions and emails before HB 6 was enacted and when possible repeal bills were being considered.
- Former Ohio regulator linked to $4 million payoff directed agency to limit response to FirstEnergy corruption (Energy News Network/Eye on Ohio)
Shareholder suits settled
FirstEnergy is settling several shareholder derivative lawsuits arising out of its HB 6 activities. In those cases, shareholders asserted claims on behalf of the corporation for harm arising out of alleged breaches of offices and directors’ fiduciary duties to the company.
Terms announced on Feb. 10 call for six longtime board members to step down this year. Other provisions aim to strengthen board oversight of company action plans, lobbying activities and other corporate governance matters. Individual defendants’ insurers will also pay FirstEnergy $180 million, less any attorney’s fees the courts award to plaintiffs.
The settlements let FirstEnergy’s officers and directors avoid potential liability, and the company avoids embarrassment from potential disclosures from witnesses. The payment to FirstEnergy should cover plaintiffs’ lawyer fees. Any extra is meant to compensate the company for alleged harms from individual defendants’ alleged breach of their duties. The governance reforms aim to ensure better oversight and prevent future problems.
FirstEnergy continues to face other litigation, including cases seeking to recover losses sustained by shareholders, as well as a class action case brought by ratepayers against it, Energy Harbor and others. In November, FirstEnergy argued that enactment of HB 6 should bar any claim for alleged corruption and other actions in the ratepayer case. Plaintiffs’ response is currently due in late February. Unopposed extensions prolonged their initial deadline.
- FirstEnergy agrees to board refresh, review of executive team, lobbying activity (S&P Global)
- Judge questions FirstEnergy settlement with shareholders, demanding to know how deal came about (Cleveland.com)
- FirstEnergy says Ohio law at center of corruption probe protects it from ratepayer lawsuits. (Energy News Network)
State and federal claims
On Feb. 7, the Ohio attorney general’s office renewed its request for Judge Chris Brown to let fact-finding discovery move ahead in the state’s civil case against FirstEnergy, Energy Harbor, Randazzo, former FirstEnergy executives and others.
Meanwhile, Householder and co-defendant Matt Borges have sought to dismiss or limit the federal government’s criminal case against them relating to HB 6.
- Ohio Statehouse corruption: Former House speaker wants the court to dismiss the federal case. (Cincinnati Enquirer)
- Missing money at the Ohio Republican Party (WKRC)
PUCO: More of the same
Gov. Mike DeWine has chosen Commissioner Daniel Conway for a second five-year term on the PUCO. The governor’s Feb. 10 announcement stressed Conway’s “track record of being judicious and weighing issues from all sides.” Conway has had a decades-long history representing electric and gas utilities and telecommunications companies before the PUCO. All three of the other candidates nominated on Feb. 7 also have ties to the energy industry, as do several members of the Nominating Committee.
Conway’s reappointment clashes with statements DeWine made to Gongwer News Service last month, saying he hoped to choose someone “who did not have the background or connections in the industry.” The day before, the Office of the Ohio Consumers’ Counsel and Ohio Poverty Law Center had asked him to reopen the application process with a goal of selecting a consumer advocate. The Consumers’ Counsel and others also have called for reform of the process to select PUCO commissioners.
- Finalists selected for Ohio utility regulator perch, all with deep energy and utility ties (Ohio Capital Journal)
- DeWine re-appoints former utility lawyer as utility regulator (Ohio Capital Journal)