The Gavel outside the Supreme Court of the State of Ohio. (Photo by Graham Stokes for Ohio Capital Journal. Republish photo only with original article.)
This monthly newsletter provides updates on Ohio’s ongoing utility corruption scandal. Was this forwarded to you? Click here to subscribe.
The Office of the Ohio Consumers’ Counsel and the Ohio Manufacturers’ Association Energy Group asked the Ohio Supreme Court on Dec. 16 to reverse Ohio regulators’ rulings allowing millions of dollars in contested charges for two 1950s-era coal plants subsidized by House Bill 6. The financial ratings agency Fitch recently said it expects the plants will remain “uneconomical for the foreseeable future.”
HB 6 is the nuclear and coal bailout law at the heart of Ohio’s ongoing corruption scandal. In other developments:
- FirstEnergy failed to comply with Ohio’s law requiring corporate separation between utilities and their affiliates for years before HB 6, according to challengers in one of several HB 6 cases before the Public Utilities Commission of Ohio. FirstEnergy claims there were no violations.
- An evidentiary hearing on two other HB 6 regulatory cases and the corporate separation issues related to the bailout law is currently set to start in February. Challengers’ efforts may continue to be frustrated by a lack of complete answers from witnesses.
- The Sixth Circuit Court of Appeals has scheduled oral arguments for Feb. 5 in appeals of the HB 6-related racketeering convictions of former Ohio House Speaker Larry Householder and lobbyist Matt Borges.
Ohio Supreme Court appeal filed
The Office of the Ohio Consumers’ Counsel and the Ohio Manufacturers’ Association Energy Group want the Ohio Supreme Court to reverse the PUCO’s Dec. 4 refusal to reconsider an order approving contested charges paid to American Electric Power’s Ohio utility in 2018 and 2019 for two coal plants that are now subsidized under HB 6. The challengers also want the court to reduce future HB 6 charges for the two 1950s-era plants by $74.5 million.
The PUCO’s earlier orders said it allowed the contested charges because, among other things, the auditor did not expressly say they were “imprudent.” But the Dec. 16 notice of appeal claims the PUCO acted unlawfully and unreasonably in reaching its conclusions, especially “when evidence showed that its staff had influenced the filed audit report.”
At a minimum, the notice of appeal said, there was an appearance of impropriety after the staff asked the auditor, London Economics, to “tone down” language from its draft audit report that running the coal plants was “not in the best interests of the ratepayers.”
Ohio lawmakers have repeatedly failed to advance bills that would repeal HB 6’s subsidies for the two plants owned by the Ohio Valley Electric Corporation, or OVEC. On Dec. 6, the bond ratings agency Fitch reported it expects OVEC’s operation of the plants to remain “uneconomical for the foreseeable future.”
Unless HB 6’s coal plant subsidies are repealed or reined in by regulators, Ohioans could pay nearly $1 billion through 2030, according to an estimate by RunnerStone for the Ohio Manufacturers’ Association.
Read more:
- Bond rating agency says OVEC plants will be uneconomical “for the foreseeable future” (Checks & Balances Projects)
- $105 million in coal plant subsidies approved by PUCO (WOSU)
- As Ohio regulators sit on coal plant subsidy cases, costs could rack up for ratepayers (Energy News Network)
Corporate separation claims
Audit reports are also at the heart of arguments in another regulatory case dealing with whether FirstEnergy violated Ohio law requiring separation between regulated utilities and their unregulated affiliates.
Filings by challengers in November and December argue that although the PUCO-ordered audit reports were flawed, regulators should nonetheless find the company failed to prove it complied with Ohio’s corporate separation law.
The hearing in the case this fall excluded issues relating to the 2019 bailout law. Yet challengers’ post-hearing briefs describe a scenario that, if true, would have made it easier for HB 6-related violations of the law to take place, including violations the company admitted to in a 2021 settlement with federal prosecutors.
The PUCO began the corporate separation case in 2017, a few years after an earlier case decided audits were necessary to make sure utilities didn’t subsidize their generation affiliates. Sage Management Consultants’ May 2018 report focused mainly on procedures, including a 2009 corporate separation plan filed with the PUCO. The audit did not determine dollar amounts for any specific cross-subsidies.
Yet Sage found that the utilities’ former generation affiliate, FirstEnergy Solutions, got marketing advantages as a result of ties to FirstEnergy’s utilities. And having retail sales and services workers designated as shared services employees was “highly inappropriate,” the report said. Sage made multiple recommendations for improvement.
Months after the first HB 6-related criminal charges came to light, the PUCO ordered an additional corporate separation audit. Daymark Energy Advisors’ September 2021 report found FirstEnergy complied with 23 of 44 requirements. Daymark characterized 13 of the remaining requirements as having “opportunities for improvement” and put the remaining eight into a category for “minor non-compliance.”
FirstEnergy, for its part, denied any violations occurred and argued the company should not be liable for penalties.
“Neither of the Auditors identified any violations of the corporate separation laws. Nor did the Auditors identify any areas of major non-compliance or issues requiring immediate remediation,” company lawyers wrote in a Dec. 13 filing. The company’s filings said it implemented auditors’ recommendations, so any forfeiture would be excessive.
But FirstEnergy failed for years to resolve the problems identified in the first audit, argued the Office of the Ohio Consumers’ Counsel and Northwest Ohio Aggregation Coalition. As a result, those problems “have been ongoing and many,” their lawyers wrote in a December 13 brief. In their view, “FirstEnergy seeks to defend their failures through mischaracterization of the audits’ findings and semantics.”
Interstate Gas Supply, a competitor in the generation market, wrote that regardless of how FirstEnergy and auditors labeled them, “the fact that these violations occurred is undisputed. A violation of law, however ‘minor’, is still a violation.”
FirstEnergy bears the burden of proof to show that it complied with the law, said a Nov. 15 filing by the Ohio Manufacturers’ Association Energy Group. The audit reports found multiple violations. Moreover, Daymark and Sage failed to review materials necessary for proper audits, the group argued.
In particular, Daymark failed to obtain and review four years’ worth of records for FirstEnergy’s former chief ethics officer, whom the company fired in the fall of 2020. Nor did FirstEnergy or the PUCO require that those documents be subsequently produced.
“Allowing FirstEnergy to shirk its responsibility to maintain and/or fully disclose these required records ultimately enables FirstEnergy to avoid liability for the cross-subsidization and other violations that Ohio’s corporate separation laws are meant to prevent,” the Manufacturers’ Association group’s Dec. 13 filing said.
Challengers also argued that the administrative law judges wrongly excluded some testimony by experts for the Consumers’ Counsel and Interstate Gas Supply, while allowing testimony from a FirstEnergy witness about steps taken after the relevant audit periods. The administrative law judges also limited the challengers’ ability to cross-examine the auditors, they wrote.
The Consumers’ Counsel and Northwest Ohio Aggregation Coalition want the PUCO to make the companies pay roughly $53 million, noting that each violation can result in penalties of $25,000 per day. Other parties said the forfeiture should be at least that amount, and some suggested the specific calculations be done after a hearing wraps up on the HB 6-related portion of the case.
Read more:
- FirstEnergy, DeWine’s office and others still far from full disclosure on HB 6 (Energy News Network/Eye on Ohio)
- FirstEnergy should do more to comply with Ohio’s corporate separation rules, audit finds (Cleveland.com)
The rest of the case
The PUCO plans to hear testimony on the HB 6-related parts of the corporate separation case as part of two rider cases currently scheduled to start a joint evidentiary hearing on Feb. 3.
Parties are supposed to pre-file written testimony in January, but depositions have not yet wrapped up in the cases. Those proceedings let lawyers question people under oath before a trial or an evidentiary hearing takes place.
Several witnesses refused to answer multiple questions, invoking their rights against self-incrimination under the Fifth Amendment to the U.S. Constitution. One of the latest is Dennis Chack, a former FirstEnergy executive whom former CEO Chuck Jones once texted that Sam Randazzo would get a task “done” for the company while serving as PUCO chair.
But an Ohio statute would grant immunity for testifying — at least under state law. On Dec. 4, the PUCO asked the Ohio Attorney General to seek court orders compelling the testimony. Even with such orders, completing pretrial fact-finding will be a major task for challengers.
Read more:
- Ex-FirstEnergy executive takes the Fifth in scandal (Cincinnati Enquirer, subscription)
- FirstEnergy exec fired for payment to vendor who paid his daughter $500,000, documents show (Cleveland.com, subscription)
- HB 6 Updates: Fact-finding limits could frustrate shareholder cases (Energy News Network)
- PUCO seeks testimony of former FirstEnergy CEO, lobbyist in HB6 investigation (Crain’s Cleveland Business, subscription)
Oral arguments scheduled
After months of briefing, the Sixth Circuit Court of Appeals has scheduled oral argument in the appeals of former Ohio House Speaker Larry Householder and lobbyist Matt Borges from their HB 6-related racketeering convictions in 2023. Both are currently serving their sentences: 20 years for Householder and five years for Borges.
Oral argument provides a chance for parties’ lawyers to answer judges’ questions about issues in a case or to drive home points made in briefs. The judges’ questions also sometimes provide hints about which matters might be troubling them or how they might ultimately lean in a case.
A three-judge panel will hear arguments in each defendant’s case on Feb. 5, starting at 9 a.m., at the federal courthouse in Cincinnati. Householder’s and Borges’ lawyers will each be limited to 15 minutes, with the government getting a similar amount of time for its arguments against each defendant.
This article first appeared on Energy News Network and is republished here under a Creative Commons license.
GET THE MORNING HEADLINES.
YOU MAKE OUR WORK POSSIBLE.