LOVELAND MAGAZINE

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Tag: audit

  • Utility regulators block watchdog’s requests for info about a buried audit of a $460 million fund

    Utility regulators block watchdog’s requests for info about a buried audit of a $460 million fund

    Photo by Getty Images.

    BY: JAKE ZUCKERMAN – Ohio Capital Journal

    An administrative judge blocked a watchdog’s attempt to obtain an audit that the Ohio utility regulatory agency’s former chairman, who has been accused of taking a $4.3 million bribe, allegedly tried to squash before publication.

    The ruling, released Friday evening, is a setback for the Ohio Consumers’ Counsel, a state funded agency representing residential ratepayers in utility cases. The OCC has pushed for investigations of FirstEnergy, especially since the company admitted to playing a central role in a massive public corruption scandal.

    The OCC asked the Public Utilities Commission of Ohio to grant it a subpoena to obtain a copy of any draft audit into a $458 million charge from FirstEnergy that started in 2017 collected called the “Distribution Modernization Rider.” The OCC also sought to depose an auditor who worked on report.

    The Ohio Supreme Court blocked FirstEnergy from continuing to charge customers for the DMR, two years after it was first applied on monthly bills. The court said the PUCO unlawfully failed to ensure the money is actually spent on modernizing the grid. A subsequent PUCO investigation was inconclusive as to whether the DMR monies were used to fund the bribery operations.

    The Supreme Court’s order questioned the value of leaving intact the audit when it overturned the rider, finding the reviews fail to properly protect ratepayers from the “possible misuse of DMR funds.” Additionally, the justices reasoned that any findings of misuse of the funds would be moot given the court had already blocked the charge and a state law blocked the court from ordering refunds unless PUCO explicitly allows for them, which it did not. The PUCO later nixed the audit, citing the court’s thinking.

    The OCC has previously obtained a text message from FirstEnergy’s CEO referencing former PUCO Chairman Sam Randazzo “burning the DMR final report.”

    The text partially came to light when FirstEnergy entered into a deferred prosecution agreement with the U.S. Department of Justice to possibly avert a charge of wire fraud. The company agreed to pay a $230 million penalty. It also admitted to paying Randazzo $22 million over nine years, including $4.3 million just before he started as PUCO chairman. The company also admitted to a separate $60 million bribery scheme ran through the state Legislature to pass House Bill 6 in 2019.

    Randazzo has not been charged with a crime and has maintained his innocence. The PUCO has received two subpoenas in connection with the investigation.

    PUCO Attorney Examiner Gregory Price denied both the OCC’s requests. He said the facts are clear that no such draft report exists in any form. Additionally, the question of FirstEnergy’s political spending is being “thoroughly addressed” in other PUCO cases.

    Price ruled OCC’s reliance on the Randazzo text shows its “obvious interest in investigating potential wrongdoing” as opposed to matters it “actually has jurisdiction over.”

    In December 2020, about two months after federal agents raided Randazzo’s home, the PUCO opted to resume the audit into the DMR. However, this time it hired Daymark Energy Advisors. That audit, released earlier this year, was inconclusive as to whether the DMR funds were used to fund the HB 6 campaign. FirstEnergy, the auditors said, pooled funds from all its 11 utilities in one pot, creating an “inability” for the auditors to track the funds.

    Price, however, said the final report “appears to fully address whether [FirstEnergy] properly expended the DMR funds.”

    In records the PUCO provided to federal prosecutors, Price is copied onto email threads regarding policy meetings before and after the passage of House Bill 6. As was first reported by Cleveland.com, one email shows Price was invited to one such meeting days before the House passed the bill.

    Other investigations into FirstEnergy, Randazzo and other alleged conspirators continue. Former House Speaker Larry Householder is expected to stand trial on a racketeering charge in connection with the scandal this fall. He recently asked a court to dismiss the charge against him. That motion has not yet received a ruling.

    Meanwhile, FirstEnergy shareholders have filed a class action lawsuit against the company as well.

  • Investigation of $460M in FirstEnergy charges back on, but why was it stopped in the first place?

    Investigation of $460M in FirstEnergy charges back on, but why was it stopped in the first place?

    By Marty Schladen and Ohio Capital Journal

    The Public Utility Commission of Ohio has restarted an audit of $465 million that Akron-based FirstEnergy collected from ratepayers in 2017 and 2018, supposedly to modernize the utility grid.

    The state’s official watchdog, the Office of the Ohio Consumers’ Counsel, wants to know whether any of the money was used in a $61 million bribery scandal. That affair so far has resulted in a $1.3 billion nuclear bailout, the indictment of then-House Speaker Larry Householder and the guilty pleas of two of his associates.

    But why the audit was called off in the first place also raises serious questions.

    Leading the commission in voting to shut down the audit was Chairman Sam Randazzo. He resigned in November after FirstEnergy disclosed that it paid $4 million to someone just before he started regulating the utility in early 2019. Gov. Mike DeWine later said that Randazzo received the payment, but DeWine said he was unaware of it when he appointed the former FirstEnergy lobbyist to chair the PUCO.

    For its part, FirstEnergy fired its CEO, Chuck Jones, when news of the payment came to light.

    The Randazzo-led utility commission’s timing in stopping the audit might seem strange. It came just after the Ohio Supreme Court ruled in January 2020 that the charge FirstEnergy had been collecting was unlawful — seemingly a time when a regulator would want to know more about what happened with the funds.

    A big reason why the court struck down the distribution-modernization charge: Despite allowing FirstEnergy to collect almost a half-billion extra dollars from ratepayers, the PUCO didn’t implement effective rules to ensure that FirstEnergy used the money to update the utility grid.

    “Utility companies can be expected to respond to financial motivations, but not if the commission awards them money up front with no meaningful conditions attached,” the decision said. “The PUCO staff’s wishful thinking cannot take the place of real requirements, restrictions, or conditions imposed by the commission for the use of (distribution-modernization) funds.”

    Not only did the PUCO call off the audit just as the charge was declared illegal, it did so as the auditors were making some interesting findings.

    For example, it found that instead of using all the funds to improve its Ohio distribution system, FirstEnergy was placing some in a “Regulated Utility Money Pool,” from which out-of-state utilities could borrow.

    To justify ending the audit — for which PUCO staff wanted more time — Randazzo and the other commissioners claimed that’s what the Supreme Court wanted.

    “The court directed the commission to eliminate” the distribution-modernization charge, the PUCO wrote in its dismissal. “In support of this ruling, the court specifically objected to the usefulness of the proposed final review, questioning the lack of an effective remedy resulting from such review.”

    However a reading of the Supreme Court’s opinion doesn’t mention any “specific objection” to the audit.

    The relevant passage says that the auditors final report wouldn’t be available until after FirstEnergy had collected and spent the money.

    “Thus, it is not clear what remedy would be available should the commission (or this court on appeal) find that FirstEnergy has misused DMR funds,” the ruling said.

    One reason there’s no remedy, the court noted, is because when it allowed FirstEnergy to jack up its rates, the PUCO didn’t create any mechanism to refund the money to ratepayers if the charge is later declared unlawful or if it is shown the  money was misused.

    “FirstEnergy has been recovering (distribution-modernization) revenue since January 1, 2017, and the commission did not make the (revenue) subject to refund if FirstEnergy does not meet the required conditions,” the court wrote.

    The $465 million FirstEnergy collected from the upcharge isn’t the only such money collected — and kept — by Ohio utilities. The consumer’s counsel reports that since 2009, $1.5 billion has been collected from Ohio ratepayers in upcharges that were later struck down by the courts. 

    As with the FirstEnergy charge, the PUCO didn’t create a mechanism to force other utilities to pay back the extra money they got back, either. 

    FirstEnergy objected to reopening that audit, but wouldn’t comment further Monday. 

    “Due to the ongoing PUCO audits, FirstEnergy is unable to provide additional information at this time,” spokeswoman Jennifer Young said in an email.

    In a filing, the consumers’ counsel slammed the company’s objections.

    “In an unfortunate display of corporate arrogance, the FirstEnergy Utilities are opposing an investigation by their state regulator, the PUCO, into utility consumer protection issues surrounding what has been described by a prosecutor as ‘likely the largest bribery scheme ever perpetrated against the state of Ohio,’” it said. “The PUCO has the authority under Ohio law to investigate the FirstEnergy Utilities and their owner, FirstEnergy Corp. FirstEnergy should get out of the PUCO’s way and cooperate.”