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FirstEnergy to pay $306 million in refunds in legal settlement

First Energy file
Posted at 6:47 AM, Nov 03, 2021
and last updated 2021-11-03 06:47:29-04

The following article was originally published in the Ohio Capital Journal and published on News5Cleveland.com under a content-sharing agreement.

FirstEnergy Corp. has agreed to refund $306 million to customers after the Supreme Court ruled the utility improperly excluded millions in charges from a calculation of whether its profits were “significantly excessive.”

The refund traces back to what FirstEnergy called a “distribution modernization rider” (DMR) — about $458 million collected from customers over about 2.5 years, purportedly with the intent of shoring up the company’s credit rating to borrow funds with lower interest rates to modernize its electric grid.

The Public Utilities Commission of Ohio, which regulates power companies, allowed FirstEnergy to impose the DMR charges. It then allowed the company to discount the charges from a calculation of whether its profits are “significantly excessive,” which would violate state utility law.

Two Ohio Supreme Court cases found PUCO erred on both counts, at Ohio electric customers’ expense.

In June 2019, the justices determined that PUCO failed to impose any serious requirements on FirstEnergy to use the DMR funds to for the stated purpose.

Justice Michael Donnelly wrote that PUCO relied on “wishful thinking” to ensure FirstEnergy would actually spend the money modernizing its grid, as opposed to imposing a binding requirement. The ruling terminated the charges but didn’t refund what had already been collected since Jan. 1, 2017.

Late last year, the court ruled that PUCO improperly allowed FirstEnergy to exclude revenue generated from the DMR when it calculated whether its profits were “significantly excessive.”

Justice Melody Stewart wrote that PUCO failed to cite — “let alone explain” — why it would allow a utility to make this kind of self-serving calculation, which she said undermines the purpose of the earnings test.

Following subsequent negotiations stemming from the Supreme Court ruling, consumer advocates negotiated a settlement forcing the refund. The $306 million doesn’t reflect the full scope of DMR charges, but the profits that were “significantly excessive” from the regulated utility unto its captive customers.

“Today’s record refund is the culmination of OCC’s hard-fought efforts over several years to secure refunds for consumers regarding FirstEnergy’s high profits,” said Ohio Consumers’ Counsel Director Bruce Weston in a news release.

“Last year, in an OCC appeal, the Ohio Supreme Court threw out a PUCO decision shielding FirstEnergy from refunding profits. Consumers are to get $306 million of justice. We hope it’s a trend.”

FirstEnergy CEO Steven Strah said in a news release the decisions bring “clarity and resolution” to these PUCO proceedings and the company remains committed to delivering safe, reliable, and affordable electric service.

The PUCO decisions span in time from before the appointment of utility lawyer Sam Randazzo as PUCO chairman and after his resignation. FirstEnergy, in a deferred prosecution agreement filed with federal prosecutors earlier this summer, said it paid Randazzo more than $4.3 million in January 2019 as he began his chairmanship. Randazzo, who has not been charged with a crime, then allegedly used these funds to advance regulatory favors for the company.

PUCO approved the DMR before Randazzo’s appointment, though made some of its Supreme Court arguments with Randazzo as chairman.

However, other relevant actions tie him into the DMR more closely. Documents partially revealed in criminal proceedings and later obtained by OCC via subpoena detail FirstEnergy CEO Chuck Jones texting another executive about how Randazzo “will get it done for us but cannot just jettison all process.”

Jones also referenced the “burning” of the DMR final report, which OCC alleged was a reference to PUCO’s delayal of an audit into how FirstEnergy spent the DMR monies.

FirstEnergy’s deferred prosecution agreement (similar to a plea of guilt) makes reference to Randazzo acting as chairman to scrap a rate review, which preserved a profitable revenue stream for the company.

The settlement includes the following for all FirstEnergy Ohio utility customers:

  • $96 million in bill credits associated with the companies’ 2017-2019 significantly excessive earnings test cases, with $51 million allocated to residential customers.
  • $210 million in future rate reductions for all customers, including $80 million in 2022, $60 million in 2023, $45 million in 2024, and $25 million in 2025.