Money trail in FirstEnergy corruption scandal leads outside Ohio

FirstEnergy improperly used money collected from customers in five states to pay for expenses connected to the ongoing corruption scandal in Ohio, the company has confirmed. 

The money was collected from customers of FirstEnergy’s regulated distribution and transmission utilities in Maryland, New Jersey, Ohio, Pennsylvania, and West Virginia, according to statements found in annual Form 1 reports the utilities recently filed this month with the Federal Energy Regulatory Commission. 

FirstEnergy first disclosed in February that its internal investigation related to the federal racketeering case against former Ohio House speaker Larry Householder had:

… identified certain transactions, which, in some instances, extended back ten years or more, including vendor services, that were either improperly classified, misallocated to certain of the Utilities and Transmission Companies, or lacked proper supporting documentation. These transactions resulted in amounts collected from customers that were immaterial to FirstEnergy, and the Utilities and Transmission Companies will be working with the appropriate regulatory agencies to address these amounts.

The Energy and Policy Institute found similar statements in annual Form 1 reports for 2020 filed with FERC by fourteen FirstEnergy distribution, generation, and transmission utilities earlier this month; the statements indicated that the money was collected from customers of all fourteen subsidiaries. 

One statement found in the Form 1 report filed by Jersey Central Power & Light (JCP&L) reads as follows (highlights added):

… in connection with the internal investigation, FirstEnergy recently identified certain transactions, which, in some instances, extended back ten or more years, including vendor service, that were either improperly classified, misallocated to certain FirstEnergy utility and transmission companies, or lacked proper supporting documentation. These transactions resulted in amounts collected from customers that were immaterial to FirstEnergy and JCP&L. These utility and transmission companies will be working with the appropriate regulatory agencies to address these amounts.

Nearly identical statements were found in Form 1s filed by thirteen other FirstEnergy utilities, only with the initials of the utility filing the report inserted in the place of JCP&L’s, including Allegheny Generating Company, American Transmission Systems, Cleveland Electric Illuminating Company, Metropolitan Edison, Mon Power, Ohio Edison, Mid-Atlantic Interstate Transmission, PATH Allegheny Transmission Company, Pennsylvania Electric Company,  Pennsylvania Power Company, Potomac Edison, Toledo Edison, and West Penn Power. 

The Energy and Policy Institute asked Jennifer Young, a spokesperson for FirstEnergy, to confirm that the money was collected from customers of the distribution and transmission utilities that included those statements in their Form 1s. 

“Your interpretation of the disclosure is correct,” Young responded in an email.

A new Factbook for FirstEnergy investors also said that the company is “Working with the state regulators to return funds to ratepayers that were improperly included in customer rates.”

“During our last call, we mentioned that we were proactively engaging with our regulators to refund customers for certain vendor payments,” FirstEnergy CEO Steven Strah said during an earnings call this morning. “Those conversations are underway in each affected jurisdiction.”

“In Ohio, at the PUCO’s request, the scope of our annual audit of Rider DCR has been expanded to include a review of these payments,” Strah said.

Last month, the Public Utilities Commission of Ohio (PUCO) directed that the audit of FirstEnergy’s Delivery Capitalization Rider (DCR) be expanded to include to “determine whether any funds from ratepayers were used to pay for the vendors and if so, whether funds associated with the payments should be returned to ratepayers through Rider DCR or through an alternative proceeding.”

FirstEnergy did not respond to a request for more information about how exactly FirstEnergy is working to refund the money to customers, and in which affected jurisdictions.

Exactly how much money was improperly collected from customers remains a closely guarded secret, but some details have trickled out of FirstEnergy and more may be on the way. 

Company officials said on an earnings call in February that the “transactions” included a $4.3 million payment to an individual who fit the description of former Public Utilities Commission of Ohio chairman Samuel Randazzo, who resigned last year after the FBI raided his townhouse in Columbus. The transactions “could” have also included money spent on lobbying and political efforts, company officials said on the call. 

Santino Fanelli, FirstEnergy’s director of rates and regulatory affairs, revealed during a March deposition led by the Ohio Consumers Counsel that at least some of the $56.6 million that was secretly routed from the FirstEnergy Service Company to Generation Now was misallocated to FirstEnergy’s Ohio utilities, which include Ohio Edison, CEI, and Toledo Edison. 

Generation Now is one of three defendants that have pleaded guilty to racketeering conspiracy charges in the Householder case, in connection with a $60 million bribery scheme that resulted in a $1 billion nuclear power plant bailout included in Ohio’s 2019 energy law House Bill 6, as well as coal bailouts and a gutting of clean energy laws. 

FirstEnergy disclosed today in a quarterly financial report that it is discussing the possibility of a deferred prosecution agreement with federal prosecutors. The company also said that it “believes it is probable that it will incur a loss in connection with the investigation.” 

FERC is now investigating FirstEnergy’s lobbying and governmental affairs activities concerning HB 6. 
Earlier research by the Energy and Policy Institute found that customers of FirstEnergy’s distribution and transmission utilities may be on the hook for as much as $137 million in money paid to the FirstEnergy Service Company in 2017 to 2019 for external affairs support that included lobbying and government affairs.

Below is an excerpt from JCP&L’s annual Form 1 report for 2020.

Page 51 of Jersey Central Power & Light FERC Form 1 Annual 2020

Contributed to DocumentCloud by Dave Anderson (Energy and Policy Institute) • View document or read text

Top image attributed to Jericho from Wikipedia Commons. Creative CommonsAttribution 3.0 Unported license.

Updated on April 23, 2021 with additional information disclosed during FirstEnergy earnings call and in related investors materials posted on FirstEnergy’s website.