FirstEnergy headquarters in Akron. (Image from Google Maps.)
A modern report shows that Akron-based FirstEnergy, which was in the middle of financing a $61 million bribery scheme, also wrongly claimed multimillion-dollar construction expenses.
The company classified lobbying and donations as construction expenses at the same time it financed the bribery scandal, although it is unclear whether some of that money was paid in bribes.
Now that $108 million in errors have been discovered, the company is asking Ohio regulators for permission to charge its customers for them.
Otherwise, they will be charged to FirstEnergy shareholders – which include primarily: the company’s own management staff.
Corruption surcharge
Ohioans are already frustrated with skyrocketing utility costs.
Partly due to AI-driven demand for data centers and monthly utility bills increased by $32 average this summer compared to 10 years ago, Signal Cleveland reports.
However, over the past decade, Ohio clients have also faced significant additional corruption charges.
In 2023, former Ohio House Speaker Larry Householder, R-Glenford, was sentenced to prison 20 years in federal prison for his role in a conspiracy in which FirstEnergy paid $61 million in bribes to obtain a $1.3 billion bailout.
The face of former FirstEnergy CEO Chuck Jones and vice president Michael Dowling criminal charges in the same scandal.
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Most of the money from the rescue package went to support FirstEnergy’s loss-making nuclear plants. It was rescinded after the first arrests were made by the FBI.
But it wasn’t until five years later that the Republican-led Legislature repealed coal aid to a group of Ohio utilities that was part of the same 2019 legislation.
By then, the payers were already there forced to pay over $500 million this will not be refunded.
All this in addition $1.5 billion that utilities could charge fees starting in 2009 that the Ohio Supreme Court later ruled illegal.
But because the Ohio Public Utilities Commission greenlit the fees without creating a refund mechanism, customers won’t get them back either.
Insurance incompetence
Now A modern report by the Energy & Policy Institute pointed out another way FirstEnergy may be trying to make profits the wrong way.
A spokeswoman for FirstEnergy did not respond to calls and emails seeking comment for this story.
As revealed in court documents and depositions in the wake of the scandal, by 2016, penniless business decisions by company leaders had driven them to desperation.
They invested heavily in aging coal and nuclear plants, fracking made it much cheaper to generate electricity from gas and they couldn’t compete.
So they looked for a way to force customers to pay a deposit.
FirstEnergy began courting Householder in World Series in Cleveland in October and taking him on a corporate jet to Donald Trump’s first inauguration the following January.
FirstEnergy’s money elected Householder and his allies, he became speaker of the Ohio House of Representatives in early 2019, and later that year shepherded the aid program through the Legislature.
FBI arrested landlord and four others in July 2020. Two of his co-defendants later died by suicide.
Construction? Or maybe lobbying?
Auditors later determined that FirstEnergy had engaged in another practice in parallel with the program that, whether intentional or not, provided a financial benefit to the company.
AND Audit 2022 The Federal Energy Regulatory Commission found that between 2015 and 2021, FirstEnergy misclassified millions spent on things like lobbying, advertising and political donations as construction costs.
That’s critical, the Energy and Policy Institute report said, because utilities can collect profits from taxpayers on construction investments.
They are not allowed to reap such profits with money spent on lobbying and political contributions.
“Utility companies are expected to fund lobbying and donations with shareholder money because these expenses primarily benefit shareholders, not ratepayers,” the report says.
However, a federal audit found many 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 supporting the construction activities of FirstEnergy subsidiaries, but more than 90% of their work and related costs were capitalized as construction costs,” the audit said.
Construction? Or bribes?
Some of these misclassified dollars may have been used in the corruption scandal.
The Energy and Policy Institute report quoted: Public Utilities Commission Audit 2024. FirstEnergy was found to have requested $2.5 million as a construction cost, which was part of a $4.3 million bribe paid to Sam Randazzo.
Randazzo played a key role in the corruption scandal that began shortly after the November 6, 2018 elections.
On December 18, 2018, FirstEnergy executives Jones and Dowling met with Governor-elect Mike DeWine and Lieutenant Governor-elect (now U.S. Senator) Jon Husted at the Columbus Athletic Club.
They discussed whether executives wanted Randazzo to regulate their huge utilities, according to a state of indictment.
Jones and Dowling then drove about a mile to Randazzo’s German Village apartment and negotiated a $4.3 million bribe, the indictment says.
A few weeks later, DeWine appointed Randazzo to the state’s top regulatory position.
This was the perch from which Randazzo helped write a corrupt energy bill for which FirstEnergy paid huge bribes.
Part of the $2.5 million bribe to the future regulator chief was itself part of the $6.45 million that FirstEnergy paid to a group controlled by Randazzo.
The company then classified the money as a construction expense, according to a report by the Energy and Policy Institute.
After his arrest, Randazzo died by suicide in April 2024.
Reprimanding payers, not shareholders
As a result of the federal audit’s findings, FirstEnergy reclassified $108 million of claimed construction expenses as “miscellaneous deferred charges.”
Now, even though some of the funds were apparently used to illegally profit from ratepayers, FirstEnergy is asking those same customers to be charged for the entire mess.
This is part of a request to the Public Utilities Commission to pass it on Additional costs amounting to $190 million to payers.
In its vintage 10k report 2024 U.S. Securities and Exchange Commission, FirstEnergy said it “accepted” the findings of a federal audit conducted in 2022. But it added that it hoped the company’s owners would not have to bear them.
If the Public Utilities Commission does not allow ratepayers to be billed for fees that the audit found were incorrectly assessed, “it will have an adverse impact on FirstEnergy’s financial condition,” the document said.
In other words, shareholders instead of customers would be left with a quagmire. And that will cost FirstEnergy, as opposed to its ratepayers, who have no choice whether to operate the company’s distribution system.
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For example, FirstEnergy CEO Brian X. Tierney’s total compensation was $26.5 million in 2023– Axios reported.
To give you an idea of how much that is, let’s assume Tierney works 70 hours a week. This would mean he was earning $7,280 per hour 219 times average hourly rate for its Ohio clients.
A huge portion of Tierney’s 2023 compensation – more than $22 million – was in the form of company stock, which would suffer if anything “had an adverse effect on FirstEnergy’s financial condition.”
The Office of Consumer Advisors, the state’s official consumer advocate, is urging the Public Utilities Commission to require FirstEnergy’s owners to pay for mistakes made by those chosen to run the company.
“Consumers should not have to pay for FirstEnergy’s mistakes. Both the independent auditor and the OCC expert agree that FirstEnergy’s own $108 million ‘fix’ of the mistake was inappropriate,” agency chief Maureen Willis said in an email.
“FirstEnergy caused the problem — now it’s trying to force consumers to neat up the problem. The data shows otherwise: FirstEnergy consumers deserve a rate cut, not another rate escalate.
Willis added: “PUCO should be supporting consumers, not FirstEnergy.”
