Welcome to Ohio Utility Watch, a periodic newsletter tracking developments in Ohio’s ongoing public-corruption saga, often referred to as the House Bill 6 scandal.
If you’re new to the subject, here is an overview. In brief: Utility companies used dark money groups to route roughly $60 million in bribes to lawmakers so that they would pass legislation mandating more than $1.5 billion in subsidies — paid for by utility customers — to aging, uneconomical coal and nuclear power plants.
The Ohio Manufacturers’ Association Energy Group and the Office of the Ohio Consumers’ Counsel filed briefs last week that call for FirstEnergy’s Ohio utilities to pay more than half a billion dollars for regulatory violations in three of the agency’s House Bill 6-related regulatory cases. The utilities claim any remedy should be orders of magnitude smaller.
It’s the latest development in the saga of HB 6, the 2019 law at the heart of Ohio’s ongoing corruption scandal involving FirstEnergy, which owns three regulated utilities in Ohio. In the alleged multimillion-dollar conspiracy, the sprawling corporation used dark money — political spending whose ultimate source is concealed — to bribe former Ohio House Speaker Larry Householder (R) and pay others for their help in passing and protecting the law for the benefit of FirstEnergy and its unregulated subsidiaries, including FirstEnergy Solutions, which ran two Ohio nuclear plants and was in bankruptcy at the time.
The legislation would have charged customers of utilities across the state — including FirstEnergy’s utilities, AEP Ohio, Duke Energy Ohio, and AES Ohio — more than $1 billion over the course of six years for the two nuclear plants. Lawmakers repealed that charge in 2021, along with terms guaranteeing revenue for utilities. HB 6 still requires utility customers to subsidize two 1950s-era coal plants through mid-August. Terms gutting Ohio’s renewable energy and energy-efficiency standards also remain in place.
FirstEnergy has admitted that it funneled roughly $60 million to dark money groups connected to Householder and that it paid $4.3 million to Sam Randazzo, former chair of the Public Utilities Commission of Ohio, shortly before Gov. Mike DeWine (R) appointed him, in return for helping to pass HB 6 and doing other favors for the company at the commission.
FirstEnergy paid roughly a third of a billion dollars to resolve federal criminal and securities charges, but neither those nor any state settlements to date address violations of Ohio regulatory law. Three cases at the Public Utilities Commission of Ohio, or PUCO, had their evidentiary hearing — an administrative trial— in June.
One case explores whether FirstEnergy violated Ohio law requiring corporate separation between utilities and unregulated affiliates. Another case examines how FirstEnergy used more than $450 million collected from customers under a bill rider that was later found to be unlawful. The third case considers whether charges to an account that was meant for expenses related to utilities’ capital equipment were improper. The PUCO’s fourth HB 6 case, which likely won’t have an evidentiary hearing before next year, considers whether customer money was used for political or charitable purposes.
FirstEnergy has “undertaken significant measures to make amends for past misconduct,” its utilities’ lawyers wrote in their July 21 brief. FirstEnergy’s utilities deny that they violated Ohio’s corporate separation law. They further argue that they shouldn’t have to pay much more than a $6.6 million refund, with interest, plus a “measured remedy” for concealing a side deal with Randazzo in the case that imposed the unlawful bill rider.
FirstEnergy’s proposed resolution would be “more like a pat on the back than a slap on the wrist in terms of a punishment for committing those crimes and misusing ratepayer money,” said Dave Anderson, policy and communications manager for the Energy and Policy Institute, a watchdog group.
What does evidence show?
FirstEnergy spokesperson Jennifer Young said the company is unable to comment on ongoing litigation. Yet the utilities’ brief raises unusual arguments about the state’s corporate separation law and their failure to track specifically how customer money was spent.
FirstEnergy’s utilities concede that state law prohibits them from favoring their unregulated affiliate, FirstEnergy Solutions. But they argue that this rule was not broken, claiming that the company’s bribes to public officials were meant to boost the financial standing of its regulated utilities. HB 6’s revenue guarantees funnelled money toward those utilities, the brief says, while the law’s nuclear subsidies would have provided them with more baseload power.
“While FirstEnergy Corp. engaged in criminal conduct … there is no evidence that the Companies extended an undue preference or advantage to any affiliate,” the brief says.
However, Ohio’s corporate separation law bans regulated utilities from favoring or subsidizing unregulated electricity production, and the majority of the HB 6 subsidies were for FirstEnergy Solutions’ nuclear plants.
FirstEnergy’s utilities also claim they properly spent the unlawful rider money “directly or indirectly” for grid modernization, as the PUCO required in a 2016 order, and that it can’t be refunded because of a 2019 ruling by the Ohio Supreme Court. Nonetheless, the company noted, roughly two-thirds of the total rider payments went back to customers under a 2021 settlement in a case about significantly excessive earnings.
The 2019 Ohio Supreme Court decision said the bill charge wasn’t refundable because it hadn’t yet been ruled unlawful. The court didn’t address whether restitution is appropriate for alleged misuses of the money, which came to light later. That’s the basis for the Ohio Manufacturers’ Association Energy Group and Office of the Ohio Consumers’ Counsel request for the charge to be refunded. And the case about significantly excessive earnings suggests the utilities had sufficient profits, which undermines claims that they needed the rider money, the consumers’ counsel noted.
Evidence at the regulatory hearings in June included a 2022 audit by Daymark Energy Advisors. Daymark found the spending could not be traced after it went into a money pool managed by an unregulated affiliate, FirstEnergy Service Co. And while the utilities made some upgrades to their distribution infrastructure, they recovered the funding through other bill charges, the auditor found. Daymark also concluded there was insufficient evidence for FirstEnergy’s claim that debt reduction and cuts to utilities’ pension obligations improved its ability to borrow money later for grid modernization.
“FirstEnergy has utterly failed to sustain its burden of proof and … its actions in furtherance of HB 6 and the bribes have and still are causing harm to customers,” lawyers for the manufacturers’ group wrote in their brief. Rather, evidence showed multiple violations, they wrote, citing testimony by the group’s expert, John Seryak, and by Ashley Brown, a former PUCO commissioner who testified on behalf of the state consumers’ counsel.
Limited review
PUCO Chair Jenifer French has said the agency will “continue to follow the facts wherever they may lead” in the HB 6 saga. But critics say the commission is merely perpetuating a piecemeal approach to the corruption scandal, which began while Randazzo was still its chair.
“It just seems like there was a deliberate effort within the PUCO to break it up into multiple cases and just create a really confusing and convoluted process that has made it hard for the public to follow,” said Anderson, with the Energy and Policy Institute.
Regulators still have not ordered a full-scale investigation and management review of FirstEnergy’s utilities, which the Office of the Ohio Consumers’ Counsel requested nearly five years ago. Nor did the commission announce any investigation into its own activities after Randazzo’s first criminal indictment in late 2023.
Questions in the individual regulatory cases are certainly relevant, “but they’re marginal,” Brown told Canary Media. “The heart of the issue is this is a corporation gone rogue.”
FirstEnergy has announced multiple reforms, including a new ethics officer and other steps to improve corporate governance. But good corporate governance hinges on companies knowing there will be consequences for violations, Brown said.
Indeed, if regulators don’t require steep financial penalties, the manufacturers’ group suggested they should revoke the FirstEnergy companies’ ability to do business as monopoly distribution utilities.
That possibility merits consideration, Anderson said. “At what point does a corporation give up its government-granted privilege of having a whole body of captive ratepayers that it can collect ratepayer money from and have guaranteed profits from after having engaged in behavior like this?” he asked.