Energy Harbor reveals money, risks involved in Ohio bailout

Financial documents from Energy Harbor reveal new details about FirstEnergy Corp.’s involvement in the multi-million dollar political campaign behind Ohio’s law forcing consumers to bail out struggling coal and nuclear plants owned by the state’s powerful electric utilities. 

FirstEnergy Solutions (FES), a former subsidiary of FirstEnergy Corp., recently emerged from bankruptcy as “Energy Harbor,” a new corporate entity. 

As first reported by the Energy News Network and Eye on Ohio, a monthly operating report found on the investor relations page of Energy Harbor’s new website shows that FES paid nearly $2 million last year to the dark money group Generation Now.

Generation Now spent millions of dollars on ads supporting the passage of House Bill 6, which delivered a nearly billion-dollar bailout to FES’s Davis-Besse and Perry nuclear power plants, which are now owned by Energy Harbor. The group’s misleading ads, some of which featured FES employees, often described HB 6 as supporting clean energy in Ohio, even though the bill increased subsidies for several coal plants and rolled back the state’s renewable energy and energy efficiency standards for electric utilities. The financial boost FES received from HB 6 also enabled it to cancel plans to shut down its super-polluting Sammis coal plant, even though that plant was never named in the bill. 

After HB 6 passed, Generation Now mounted an aggressive and successful campaign to block a voter referendum on the new bailout law from reaching the ballot this November. 

A court filing found by the Energy News Network and Eye on Ohio also linked Generation Now to Ohioans for Energy Security, the group that paid millions more for deceptive ads that falsely claimed China was behind the petition campaign for a voter referendum challenging HB 6. 

The Energy and Policy Institute reviewed financial documents found on Energy Harbor’s website and others filed by FirstEnergy Corp, which was previously the parent company of FES. The financial documents identified a large pot of money that FES used to pay FirstEnergy Corp. for political services during the bailout fight. The documents also identified financial risks that Energy Harbor will face moving forward, including uncertainties surrounding its bailout.   

Bankrupt FES paid its parent company $152 million for “shared services” that included “political and regulatory advocacy” 

Charles Jones, the CEO of FirstEnergy Corp., sent a letter to state lawmakers last February, before House Bill 6 was introduced, in which he argued that FirstEnergy Corp. and FES were no longer the same company. Republicans in the Ohio House and Senate later similarly claimed that HB 6 had nothing to do with FirstEnergy Corp. or its sizeable campaign contributions. 

Evidence to the contrary is abundant. 

“FES is currently a subsidiary of FirstEnergy Corp., a publicly owned corporation,” a corporate disclosure statement FES filed in federal court in October 2019, months after HB 6 was signed into law, plainly stated.

FirstEnergy Corp. also recently received a lamp-shaped award for its role in passing HB 6 from the Edison Electric Institute and International Brotherhood of Electrical Workers. Wendy Zele, an external affairs manager for FirstEnergy Corp., provided draft testimony to local county and school officials who testified in support of the bill. No fewer than 10 lobbyists for FirstEnergy Corp. worked on HB 6 last year, and that’s on top of the nine lobbyists FES employed at the peak of the debate over the bill. 

In its annual 10-K report filed last month, FirstEnergy Corp. said it received $152 million last year from FES for “shared services” provided by FirstEnergy Service Company (FESC), a subsidiary of FirstEnergy Corp. The service company was a non-debtor in FES’s bankruptcy case. 

Those services included everything from human resources to “external affairs, including political and regulatory advocacy” under an amended shared services agreement reached between FES and FirstEnergy Corp, according to a disclosure statement found on Energy Harbor’s website. 

A copy of the shared services agreement details the extent of these political services:

The external affairs services provided to FES by FESC included access to the FirstEnergy Political Action Committee that doled out campaign cash to state lawmakers in Ohio. FES’s CEO John Judge and vice president of government affairs David Griffing both made monthly contributions to the FirstEnergy Corp. PAC throughout 2018 and 2019, contributions that continued as recently as last month. In other words, those campaign contributions from FirstEnergy Corp. that Republican leaders tried to downplay as being unrelated to House Bill 6 were in fact connected to FES. 

Energy Harbor formed its own PAC this March. 

Under the shared services agreement, FESC also provided communications services to FES, including external communications and advertising targeting Ohio.

A copy of the agreement can be found below. A list of the broad range of services that FESC agreed to provide to FES begins on page 22:

Energy Harbor still relies on “shared services” from its former parent company FirstEnergy Corp

FES emerged from bankruptcy as Energy Harbor last month, but the new company still relies on shared services provided by FirstEnergy Corp.

A spokesperson for Energy Harbor told the Energy & Policy Institute that it still participates in a shared services agreement, but that those shared services no longer include external affairs or political and regulatory advocacy.

A disclosure statement from FES’s bankrupcty case found on Energy Harbor’s website describes the expiration of the shared services agreement with FirstEnergy Corp. as a risk factor facing the utility: 

The Debtors currently receive shared services from FESC under the Amended Shared Services Agreement. The Amended Shared Services Agreement terminates by its own terms on June 30, 2020. While the Debtors are in the process of separating their business and operations from those of the FE Non-Debtor Parties, including standing up their own shared services functions, it is uncertain whether the Debtors will be able to successfully separate prior to June 30, 2020. If the Debtors are unable to access shared services after June 30, 2020 and have not completely separated from the FE Non-Debtor Parties, it could cost the Debtors’ Estates or the Reorganized Debtors, as applicable, substantial amounts of time and resources.

The judge in FES’s bankruptcy case noted last summer that the shared services agreement was necessary because FES was “utterly incapable” of taking on these services on its own. The agreement was to phase out as FES eventually fully separates from its former parent company.

What portion of the $152 million FES paid to FESC last year was used for external affairs and political advocacy is not known. FES previously disclosed millions of dollars in payments to a host of external lobbyists, public relations firms, and lawyers who helped secure the utility a nearly billion-dollar bailout in Ohio. 

Energy Harbor faces financial risks linked to bailout 

In another corporate disclosure report from last month, Energy Harbor described the risk factors it faces moving forward. Some of the financial risks identified by Energy Harbor are similar to those listed by other utilities in financial reports, including possible changes in customer demand for electricity due to state and federal energy efficiency standards. (The filing, from Feb. 28, did not mention the coronavirus pandemic and associated economic crisis as a factor in suppressing demand, though that is now being discussed in the utility sector.) 

Other risk factors listed, such as possible “challenges to Ohio HB6,” are relatively unique to Energy Harbor. Other utilities, including AEP, Duke Energy, and Dayton Power & Light, do benefit from the bill, but are not as reliant on its subsidies. The first such challenge to HB 6 was defeated by FES and its political allies, after a multi-million dollar effort that killed the petition campaign for a voter referendum challenging the law. 

Energy Harbor also identified regulation by the Federal Energy Regulatory Commission (FERC) as a risk factor, and “in particular FERC regulation of the PJM Interconnection L.L.C. (“PJM”) wholesale energy, ancillary services, and capacity markets as well as FERC’s compliance and enforcement activity…” In December, FERC dealt a possible blow to Ohio’s HB 6 coal and nuclear subsidies with its Minimum Offer Price Rule targeting PJM.  

State lawmakers may take further action this year to prop up the coal and nuclear plants subsidized by HB 6, but the legislative session is now on hold due to the coronavirus outbreak in Ohio. 

Consumers in Ohio won’t start paying for HB 6’s nuclear subsidies that benefit the investor-owned Energy Harbor until 2021, and those subsidies are currently the subject of regulatory and political uncertainty. 

Top photo is of a cooling tower at FirstEnergy’s Davis-Besse nuclear power plant by Joseph Varnum obtained on Wikipedia Commons. Creative Commons Attribution-Share Alike 3.0 Unported License