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:
- The Public Utilities Commission of Ohio doubles down on its piecemeal approach to FirstEnergy’s HB 6 cases, limiting challengers’ fact-finding even after a regulatory judge, who had also acted on the policy side of the bailout law, withdrew from the cases.
- FirstEnergy and others are fighting against the Ohio attorney general’s efforts to move ahead in the state’s civil conspiracy case.
- One federal judge wants more facts before approving settlement deals in a FirstEnergy shareholder case, while another rejects a move to dismiss claims for damages.
- Despite apparent efforts to delay full inquiry into various HB 6 issues until after the elections, critics continue calls for increased scrutiny and reform, including the launch of an advocacy group’s “Crime with DeWine” campaign.
‘Who paid the bribes?’
U.S. District Court Judge John Adams walked out of a March 9 court hearing when a FirstEnergy lawyer evaded his question of who paid bribes relating to HB 6 matters.
The hearing in Adams’ court dealt with a proposed settlement of several shareholder derivative cases. Under the deal, insurers would pay FirstEnergy $180 million, minus lawyer fees for the plaintiffs in the cases. Adams also wanted to know why plaintiffs were agreeing to settlements before questioning any current or former company executives under oath.
“You are not here to answer my questions. You are here to duck and avoid,” Adams told FirstEnergy’s lawyer, Jeroen van Kwawegen.
Van Kwawegen tried to shield the information as part of settlement discussions between the parties, but Adams’ follow-up order on March 11 cast doubt on that argument. He gave parties until noon on March 16 to file briefs.
Former PUCO commissioner Ashley Brown, who headed the Harvard Electricity Policy Group, noted the contrast between Adams’ approach and the PUCO commissioners’ adherence to a more tempered approach that same day. “It’s just astounding to read these things back-to-back,” he said.
It’s unclear who approved all the payments involved in the scandal. FirstEnergy statements attached to a Feb. 18 filing at the PUCO indicate that the company’s former head of external affairs, Michael Dowling, approved at least $1 million of payments to Generation Now in 2017. The filing also shows that former executive Joel Bailey approved a 2018 payment to Hardworking Ohioans. Both organizations acted as dark money groups in the alleged HB 6 conspiracy.
- ‘Who paid the bribes?’ Federal judge demands info on House Bill 6 in hearing over FirstEnergy shareholders’ litigation (Cleveland.com)
- Judge demands answer on bribe payments in corruption scandal (Associated Press)
- Who paid the bribes? Judge demands answers in FirstEnergy shareholders’ suit (Ohio Capital Journal)
Regulatory judge Gregory Price withdrew from four FirstEnergy House Bill 6 cases on March 4, following multiple news reports showing he had acted on the policy side of HB 6. Former PUCO Chair Sam Randazzo looped Price in on communications before the law passed in 2019 and after calls for repeal following the arrests of former Ohio House Speaker Larry Householder and others in July 2020.
Critics stressed the potential for bias and the appearance of impropriety if someone in a judge-like role may have already taken a position on an issue, especially when allegations against Randazzo raised the specter of corruption within the PUCO.
Yet on March 9, the PUCO commissioners doubled down on their piecemeal approach to the controversy and affirmed Price’s latest refusal to allow prehearing fact-finding by the Office of the Ohio Consumers’ Counsel.
Specifically, the order refuses to let the consumers’ counsel get a never-finalized audit report on an unlawful FirstEnergy rider. The order likewise bars the consumers’ counsel from questioning the auditor, Oxford Advisors, under oath prior to the hearing in the case. The PUCO will produce someone from Oxford Advisors at the hearing in the case. But the inability to take a deposition will arguably limit challengers’ ability to prepare cross-examination of that witness.
Texts by former FirstEnergy executives suggest Randazzo may have had Oxford Advisors’ draft report “burned” at the company’s behest. Yet the PUCO order dismissed arguments about unusual circumstances as “nothing more than unsubstantiated speculation.” And it treated issues about whether the rider might have funded HB 6 activities as limited to another case.
Comments by PUCO Chair Jenifer French and Commissioner Daniel Conway accepted ownership of the rulings in the FirstEnergy cases, although neither spoke about the corruption allegations relating to FirstEnergy or Randazzo.
Regulatory judges in cases “work for us, and the decisions that are made are made by us, not by utility examiners,” Conway said. French said the ruling “maintains consistency by treating OCC’s request for information as it has treated other requests of this nature in the past.”
- Ohio regulatory judge steps back from FirstEnergy’s HB 6 cases after subpoenaed records reveal his role (Energy News Network/Eye on Ohio)
Another limited audit
Also on March 9, the PUCO said it would hire an outside auditor in a case opened in September 2020 to find out if ratepayer money directly or indirectly funded FirstEnergy’s HB 6 activities. However, the order limits the auditor’s work to assisting agency staff in reviewing FirstEnergy’s response to the PUCO’s initial order asking the company to show that it didn’t use ratepayer money for HB 6.
In other words, the auditor won’t conduct an independent audit to answer the question of whether ratepayer money paid for HB 6 activities. Instead, the auditor will basically help PUCO staff look over FirstEnergy’s shoulder to see if they’re satisfied with FirstEnergy’s position on whether it acted properly.
FirstEnergy has gone from a categorical denial of any improper use of ratepayer money to an admission that some ratepayer funds were used for political or other unauthorized purposes. Those amounts are far less than the nearly $71 million for lobbying and HB 6 expenses noted in a Feb. 4 audit report from the Federal Energy Regulatory Commission. But that report and a Daymark Advisers audit released in January found that money from the rider involved in the “burned” audit dispute went into a money pool.
The ultimate disposition of funds from that money pool was not clearly tracked, the two reports found. Consequently, it’s unclear whether FirstEnergy can show that additional ratepayer money wasn’t used directly or indirectly on HB 6. Much will depend on who bears the burden of proof on the issue.
A final version of the new audit report won’t be due until December 2022.
Meanwhile, rulings on March 11 supported most of FirstEnergy’s privilege claims in the case, although other parties will be able to get materials FirstEnergy provided in connection with FERC’s audit. However, PUCO won’t let the consumers’ counsel get copies of various communications between FirstEnergy and FERC relating to that audit or an ongoing review. The consumers’ counsel has asked to intervene in that ongoing review.
- FirstEnergy, DeWine’s office and others still far from full disclosure on HB 6 (Energy News Network/Eye on Ohio)
- Ohio regulators decline to force FirstEnergy to hire an independent auditor (Energy News Network/Eye on Ohio)
A ‘plausible, persuasive case’
In a separate case, U.S. District Court Judge Algenon Marbley held on March 7 that shareholders had “set out a plausible, persuasive case for securities fraud under theories of both misstatement liability and scheme liability.” Other claims likewise withstood FirstEnergy’s motion to dismiss, subject to a few tweaks. Nor did a dismissed AEP case control the outcome for FirstEnergy.
“To dismiss this Complaint, as Defendants urge, would be to adopt a severely strained view of bribery laws, pleading requirements, and the facts of the case,” Marbley wrote.
FirstEnergy noted a potential risk of loss from shareholder claims and the Ohio attorney general’s lawsuit in its most recent annual report to the Securities and Exchange Commission.
‘The cows have left the barn’
Filings in the Ohio attorney general’s civil corruption case seek to move ahead with discovery, noting that other cases already have allowed extensive discovery from FirstEnergy and other parties.
“The cows have left the barn. It is time to stop manning the only closed barndoor,” said a Feb. 22 filing by the state’s lawyers. A March 8 filing provided additional support under Ohio law for moving ahead, despite the pending criminal claims against Householder and others.
FirstEnergy’s March 11 response stressed that the stay in the case resulted from an agreed-upon order from February 2021, as part of a compromise for the utilities to stop collecting fees under HB 6’s recession-proofing provisions, which have since been repealed. In other words, FirstEnergy would treat the stay as a rock-solid freeze against moving ahead, even though other cases have moved forward and there’s no longer any benefit flowing to the state and ratepayers from a stay.
- Ohio cities settle civil claims related to power plant bailout (Energy News Network/Eye on Ohio)
‘Crime With DeWine’
Outside of court and regulatory hearings, Ohio Citizen Action launched a Crime With DeWine campaign on March 8. The title is a play on Gov. Mike DeWine’s 2020 “Wine with DeWine” briefings on the COVID-19 pandemic. The focus is on getting DeWine and Lt. Gov. Jon Husted to reject utility funding and to adopt reforms for both the PUCO and its nominating council.
“The activity is not tied to any election or campaign. It’s a grassroots effort,” said Rachael Belz, executive director of Ohio Citizen Action. The organization had been critical of the PUCO since before Randazzo’s appointment in 2019. That criticism continued after news surfaced about payments from FirstEnergy to Randazzo.
“There’s never been any cleaning house of any kind except for Randazzo resigning after his house was raided by the FBI,” Belz said.
Among other things, the group wants reforms that will include consumer advocacy as one of the required background fields for PUCO commissioners, full disclosure about both PUCO candidates and people serving on the nominating council, rejection of campaign donations from all Ohio utilities who have benefited from HB 6, and more.
“Nobody at the PUCO seems to respect the consumer in Ohio, and that continues to be troubling,” Belz said.
Meanwhile, the We the People coalition continues to call for the revocation of FirstEnergy’s corporate charter. And Democratic challengers for governor continue to focus on the HB 6 scandal and call for reform at the PUCO.
“Mike DeWine’s PUCO continues its coverup,” tweeted John Cranley, a former Cincinnati mayor and challenger for the Democratic governor nomination, adding that “it’s no surprise that the findings don’t have to be public until after the November election.”