The following article was originally published in the Ohio Capital Journal and published on News5Cleveland.com under a content-sharing agreement.
As it was in the midst of financing a $61 million bribery scheme, Akron-based FirstEnergy also improperly claimed millions in construction expenses, according to a new report.
The company classified lobbying and donations as construction expenses at the same time that it funded the bribery scandal, although it’s not clear if any of that money was paid in bribes.
Now that $108 million in such errors have been found, the utility is asking Ohio regulators for permission to charge its customers for them.
Otherwise, they’ll be billed to FirstEnergy shareholders — which prominently include the company’s own executives.
Corruption surcharge
Ohioans are already frustrated with skyrocketing utility costs.
Due in part to AI-driven demand for data centers, monthly utility bills were up $32 on average this summer compared to 10 years ago, Signal Cleveland reported.
But Ohio customers also have faced a sizable surcharge for corruption over the past decade.
In 2023, former Ohio House Speaker Larry Householder, R-Glenford, was sentenced to 20 years in federal prison for his role in a conspiracy in which FirstEnergy paid $61 million in bribes to get a $1.3 billion ratepayer bailout.
Former FirstEnergy CEO Chuck Jones and Vice President Michael Dowling face felony charges in the same scandal.
Most of the bailout money was intended to prop up money-losing nuclear plants owned by FirstEnergy. It was repealed after the FBI made its first arrests.
But it wasn’t until five years later that the Republican-led legislature repealed a coal bailout benefitting a group of Ohio utilities that was part of the same 2019 legislation.
By that time, ratepayers had already been forced to pay more than $500 million that won’t be refunded.
That’s all in addition to $1.5 billion that electric utilities have been allowed to collect since 2009 in charges that the Ohio Supreme Court later deemed to be illegal.
But because the Public Utilities Commission of Ohio greenlit the charges without creating a refund mechanism, customers won’t get that back either.
Underwriting incompetence
Now a new report by the Energy & Policy Institute has flagged another way FirstEnergy might be trying to profit improperly.
A FirstEnergy spokeswoman didn’t respond to calls and emails requesting comment for this story.
As revealed in court documents and testimony in the fallout from the scandal, by 2016, company leaders’ poor business decisions had made them desperate.
They were heavily invested in aging coal and nuclear plants, fracking had made gas-fired electricity generation much cheaper, and they couldn’t compete.
So they went looking for a way to force customers to bail them out.
FirstEnergy started courting Householder at the World Series in Cleveland that October, and by flying him on the corporate jet to Donald Trump’s first inauguration the following January.
Using FirstEnergy money, Householder and his allies were elected, he became Ohio House speaker at the start of 2019, and he shepherded the bailout through the legislature later that year.
The FBI arrested Householder and four others in July 2020. Two of his codefendants later died by suicide.
Construction? Or lobbying?
Auditors later found that concurrent with the scheme, FirstEnergy had engaged in another practice that — regardless of whether it was intentional — worked to the company’s financial advantage.
A 2022 audit by the Federal Energy Regulatory Commission found that from 2015 to 2021, FirstEnergy incorrectly classified millions spent on things like lobbying, advertising, and political donations as construction costs.
That’s important, the Energy and Policy Institute Report said, because utilities are allowed to collect a profit from ratepayers on their construction investments.
They’re not allowed to collect such profits for money they spend on lobbying and political donations.
“Utilities are supposed to fund lobbying and donations with shareholder money because these expenditures primarily benefit shareholders and do not benefit ratepayers,” the report said.
However, the federal audit found lots of claimed construction expenses that had almost nothing to do with actual construction.
“For example, audit staff found that some employees spent 5% or less of their time performing work that supported the FirstEnergy subsidiaries’ construction operations, but had more than 90% of their labor and related costs capitalized as a cost of construction,” the audit said.
Construction? Or bribes?
Some of those misclassified dollars might have been used in the bribery scandal.
The Energy and Policy Institute report cited a 2024 utilities commission audit. It said that FirstEnergy claimed as a construction expense $2.5 million that was part of a $4.3 million bribe paid to Sam Randazzo.
Randazzo played a pivotal role in the bribery scandal, starting shortly after the Nov. 6, 2018 elections.
On Dec. 18, 2018, FirstEnergy execs Jones and Dowling met with Gov.-elect Mike DeWine and Lt. Gov.-elect (and now-U.S. Sen.) Jon Husted at the Columbus Athletic Club.
They discussed whether the executives wanted Randazzo to regulate their massive electric utility, according to a state indictment.
Jones and Dowling then drove about a mile to Randazzo’s German Village condo and negotiated the $4.3 million bribe, the indictment said.
DeWine appointed Randazzo to the state’s top regulatory spot a few weeks later.
It was a perch from which Randazzo helped write the corrupt energy bill that FirstEnergy paid huge bribes for.
The $2.5 million part of the bribe for the future regulatory chief was itself part of $6.45 million that FirstEnergy paid to a group controlled by Randazzo.
The company then classified the money as a construction expense, the Energy and Policy Institute Report said.
After being arrested, Randazzo died by suicide in April 2024.
Dunning ratepayers, not stockholders
As a consequence of the federal audit’s findings, FirstEnergy reclassified $108 million in claimed construction expenses as “miscellaneous deferred debits.”
Now, even though some of the funds were apparently used to improperly profit from ratepayers, FirstEnergy is asking to bill those same customers for the whole shebang.
It’s part of a request to the utility commission to pass on $190 million in additional costs to ratepayers.
In its annual 2024 10-K report to the U.S. Securities and Exchange Commission, FirstEnergy said it “has accepted” the findings of the 2022 federal audit. But it added that it hopes the company’s owners won’t have to shoulder them.
If the Public Utilities Commission doesn’t allow it to bill ratepayers for charges that the audit said were improperly accounted for, it would “have an adverse impact on FirstEnergy’s financial condition,” the filing said.
In other words, shareholders instead of customers would be left holding the bag. And that would cost the FirstEnergy brass, as opposed to their ratepayers, who have no choice about whether to use the company’s distribution system.
For example, total compensation for FirstEnergy CEO Brian X. Tierney was $26.5 million in 2023, Axios reported.
To give an idea just how much that is, assume Tierney works 70 hours a week. That would mean he was paid $7,280 an hour, or 219 times the average hourly wage of his Ohio customers.
And a huge portion of Tierney’s 2023 pay — more than $22 million — was in the form of company stock, which would take a hit if something “had an adverse impact on FirstEnergy’s financial condition.”
The state’s official consumer advocate, the Office of Consumers Counsel is urging the Public Utilities Commission to make FirstEnergy’s owners pay for errors made by the people they pick to run the company.
“Consumers shouldn’t pay for FirstEnergy’s mistakes. Both the independent auditor and OCC’s expert agree that FirstEnergy’s $108 million ‘fix’ for its own error was improper,” the agency’s head, Maureen Willis, said in an email.
“FirstEnergy caused the problem — now it’s trying to make consumers clean it up. The record points the other way: FirstEnergy consumers deserve a rate cut, not another hike.
Willis added, “The PUCO should stand with consumers, not FirstEnergy.”
