Ohio’s top utility regulator quietly lobbied lawmakers to include a provision in the state budget that saved tens of millions for FirstEnergy Corp., text messages from company executives show.
FirstEnergy admitted in federal court earlier this year that it funded $60 million to a political nonprofit that wasn’t required to disclose its donors, secretly controlled by former House Speaker Larry Householder. Householder, who has maintained his innocence, allegedly used it for personal and political gain and to engineer passage of House Bill 6, a bailout package worth at least $1.3 billion to FirstEnergy.
The company also stated in court documents it paid attorney Sam Randazzo more than $4.3 million in the weeks before Gov. Mike DeWine appointed him in February 2019 as chairman of the Public Utilities Commission of Ohio, which regulates power companies. The payment topped off a consulting agreement dating back to 2010 that totaled $22 million. Randazzo, according to FirstEnergy, advanced a variety of favors for the company from his perch as Ohio’s top utility regulator.
Randazzo has not been charged with a crime and has denied wrongdoing.
Court records indicate prosecutors have mostly focused on two outputs from Randazzo to benefit FirstEnergy: his backstage role shaping HB 6, and his steering of PUCO decisions. The obtained text messages, however, suggest Randazzo also helped convince lawmakers to slip into the 2019 budget a short few sentences worth millions to FirstEnergy.
State law requires utilities to demonstrate to the PUCO every year that their earnings aren’t “significantly excessive.” The law doesn’t define the term and leaves it to PUCO to determine via a “significantly excessive earnings test” (SEET). The 2019 budget changed this formula to protect utilities structured like FirstEnergy from issuing PUCO-ordered consumer refunds.
“Senate kept SEET in — thanks to ty and Sam Randazzo,” FirstEnergy Senior Vice President of External Affairs Michael Dowling texted to the company’s CEO Charles Jones on June 19, 2019, according to messages provided to The Ohio Capital Journal.
The texts don’t identify “ty.” However, lobbying records show FirstEnergy’s director of state affairs, Ty Pine, registered to lobby on the budget. A shareholder lawsuit against FirstEnergy accuses Pine, who did not respond to inquiries through his cell phone or his attorney, of possessing “intimate knowledge” about FirstEnergy’s advocacy. The suit alleges Pine had at least 188 “phone contacts” with Householder and his co-conspirators as HB 6 moved.
PUCO’s stated mission is to ensure Ohioans can access utility services like electric distribution, in a monopolistic market, at fair prices. The texts, however, suggest that PUCO’s chairman worked behind the scenes so utilities could pocket hefty margins from captive customers instead of refunding them.
The change allowed FirstEnergy, technically the parent company of three Ohio utilities, to group its three subsidiaries together in determining whether their profits were “significantly excessive.” This allowed FirstEnergy’s Ohio Edison utility, which serves more than 1 million residents, to run up what its critics call a significantly excessive profit margin, so long as lower returns from the other two brought down the aggregate rate.
“FirstEnergy has used the SEET law change to avoid customer refunds and also to obfuscate what Ohio Edison’s earnings are, so that interested parties, regulators, and policymakers cannot determine how much excessive profit they are keeping,” wrote two consultants in a 2020 memo for the Ohio Manufacturers Association, which represents large-scale electricity customers.
In another text, Dowling tells Jones, both of whom were fired in October 2020, of “significant news” that the Senate’s budget will have the more favorable SEET language. He singles out for praise state Senate Finance Chairman Matt Dolan, R-Chagrin Falls, who is now running for the U.S. Senate.
“Dolan was the most helpful,” Dowling said.
In an interview, Dolan, who wields immense influence shaping the state budget as a finance chairman, said he never spoke with Randazzo or Pine about the SEET provision. However, he said he did speak to Dowling personally, who convinced him of the merits of the SEET change.
According to Dolan, it was House lawmakers who really wanted the SEET change, and senators used it as a bargaining chip.
“I can tell you we knew it was important to the House, and we made some negotiations,” he said. “At some point you have to pick your battles. Hindsight, we realize now why the House was pushing so hard for these provisions. But I didn’t talk to [Randazzo] or [Pine] about these issues.”
The Senate president at the time, Sen. Larry Obhof, R-Medina, declined to comment.
Attorneys for Dowling and Jones didn’t respond to multiple interview requests or written questions.
Attorneys for Randazzo didn’t respond to interview requests or written questions. Randazzo, approached at his Columbus residence, declined an interview request.
Understanding Ohio utility law is as interesting as listening to paint dry, albeit with millions on the line.
In 2008, lawmakers passed a law allowing utilities to file “electric security plans” that allow utilities to ask PUCO for permission to add “riders” — utility-speak for extra fees — onto customers’ bills.
The same legislation prohibited utilities from earning “significantly excessive” profits. Utilities run the numbers and show their work to the PUCO. If PUCO deems the rates “significantly excessive,” consumers are entitled to refunds.
The House, then under control of Householder, first proposed the SEET changes.
The Ohio Consumers’ Counsel, an independent state agency that represents residential ratepayers, objected. OCC representative Jeff Jacobson said the change would subject Ohio Edison customers to “price gouging” by allowing FirstEnergy utilities to flout the law and hide behind the lower returns of its other two utilities.
“This change would artificially dilute Ohio Edison’s high profits, on paper, for calculating whether it is charging customers for significantly excessive monopoly profits,” he said.
“Under the bill, Ohio Edison’s higher profits would be averaged with the lower profits of FirstEnergy’s other Ohio utilities, Toledo Edison and Cleveland Electric Illuminating.”
FirstEnergy lobbyist Eileen Mikkelsen, in written testimony to lawmakers, insisted the SEET change “will not increase our customers’ rates.” She did not address the diminished likelihood of consumer refunds under the revamped SEET test. (FirstEnergy told shareholders in May it fired Mikkelsen for her “inaction” in 2015 in connection to the company’s payments to Randazzo.)
“Our SEET language is in the bill,” an unidentified FirstEnergy executive texted another in July 2019, just before the legislation passed, court records state.
A FirstEnergy spokeswoman declined to comment, citing “ongoing litigation,” but highlighted various actions the company has taken over the past year “in response to issues.”
Lawmakers passed the 2019 budget within days of HB 6, the latter of which included bailouts of nuclear plants owned at the time by a FirstEnergy subsidiary, and a “decoupling” provision that provided a ratepayer-funded guarantee of FirstEnergy revenues at a boom-year level, even if energy prices tumble. FirstEnergy’s CEO boasted to shareholders the concept would make the company “somewhat recession proof.”
After the arrest of Householder and several alleged co-conspirators, three subsequent guilty pleas, and formal notice to shareholders of a FirstEnergy bribe to Randazzo, lawmakers in 2021 passed a bill repealing some (but not all) pieces of HB 6.
Among the repealed provisions: the nuclear bailout, the “decoupling” provision, and the SEET changes.
‘Burning the DMR report’
The obtained text messages add new detail alongside other previously known Randazzo interventions in PUCO cases and lobbying lawmakers to FirstEnergy’s benefit.
Before Randazzo’s appointment, FirstEnergy was seeking other workarounds to the SEET law. Starting in 2017, PUCO allowed the company to charge its roughly 2 million customers about $458 million over 2.5 years as a “distribution modernization rider;” In return, FirstEnergy said it would undergo a base rate review (what it charges for electricity) in 2024, its first since 2007. The PUCO agreed. The company then asked the PUCO to discount the DMR revenue from its SEET test.
The Ohio Supreme Court would go on to overturn both PUCO decisions: allowing the rider in the first place and letting FirstEnergy exclude its earnings from the SEET test.
In June 2019, the court granted an appeal and overturned the PUCO’s decision to allow FirstEnergy to apply the charges to customers. Justices ruled the PUCO failed to actually require FirstEnergy to use the money to modernize its distribution and instead relied on “wishful thinking” that the company would voluntarily do so.
The newly obtained texts show FirstEnergy’s executives reacting in real time to the bad news.
“Their remedy will be remand it back to PUCO so hopefully Sam can fix it,” Jones said to Dowling in one of the texts obtained by this outlet.
“Sam should make AEP pay $100M,” he added a few minutes later, presumably referring to American Electric Power, another utility company.
By December 2020, the Ohio Supreme Court overruled the PUCO’s other decision in an appeal brought by the OCC and found the regulators improperly allowed FirstEnergy to discount the DMR revenue from its SEET calculation. In a settlement resulting from the ruling announced last week, FirstEnergy agreed to refund $306 million to ratepayers for its significantly excessive earnings.
The rate review FirstEnergy agreed to would have subjected it to regulatory scrutiny as the company opened its books to the PUCO. FirstEnergy executives referred to the looming rate review as their “Ohio hole” they sought to avoid, court documents state.
The newly appointed Randazzo was “going to make the requirement to file go away,” one unspecified FirstEnergy executive texted another, according to FirstEnergy’s proffered facts in a deferred prosecution agreement.
In a 2019 PUCO ruling, Randazzo determined that because the Supreme Court had nixed the DMR, it was “no longer necessary or appropriate” for FirstEnergy to go through the rate review it agreed to. FirstEnergy's stock price leapt upon the news. Jones, according to prosecutors, texted Randazzo a picture of the financial news and said "Thank you!!"
HB 6 maintained the decoupling provision until PUCO approval of FirstEnergy’s next base rate application. Thus, Randazzo’s ruling also preserved the decoupling mechanism, which the Ohio Manufacturing Association estimated would save FirstEnergy hundreds of millions through 2024.
Messages obtained by the OCC that have previously been reported show Jones, as FirstEnergy’s CEO, texting Dowling, seeming to convey anxiety around whether people might begin to notice Randazzo’s favorable treatment toward the company.
“[Randazzo] says the combination of overruling Staff and other Commissioners on decoupling, getting rid of SEET and burning the DMR final report has a lot of talk going on in the halls of the PUCO about does he work there or for us?” the text states.
OCC alleged “burning the DMR” report refers to a February 2020 PUCO decision to nix an audit into how the DMR funds were actually spent.
The paper trail
Bankruptcy filings would become the first publicly known connection between Randazzo and FirstEnergy. The company disclosed as a creditor in a May 2018 filing a debt to the “IEU-Ohio Administration Company.” In a November 2018 bankruptcy filing an entity called “Sustainability Funding Alliance” was listed as a creditor as well.
Randazzo’s financial disclosure, a requirement as PUCO chairman, listed him as the owner of both companies.
After Randazzo’s name appeared on a short list of candidates for the top spot on PUCO, several environmental advocacy groups sent a letter to DeWine expressing “serious concern” about his potential appointment. The letter focused on Randazzo’s sustained efforts to “dismantle” Ohio’s energy efficiency and renewable energy laws (both of which were gutted in HB 6). DeWine selected him regardless.
The Ohio Senate unanimously confirmed him in April 2019.
On Nov. 16, 2020, the Cincinnati Enquirer reported that FBI agents were spotted removing boxes of materials from Randazzo’s home. Three days later, FirstEnergy first disclosed to the U.S. Securities and Exchange Commission the existence of a payment of approximately $4 million made in early 2019 to “an entity associated with an individual who was subsequently appointed to a full-time role as an Ohio government official directly involved in regulating” the company.
On Nov. 20, Randazzo resigned as PUCO chairman.
By mid-July, nearly a year after federal agents arrested Householder in connection with the House Bill 6 scandal, FirstEnergy entered into an agreement with federal prosecutors to avert a charge of conspiring to commit honest services wire fraud. In a statement of facts from the company, it acknowledged payments to Randazzo (only identified as “Public Official B” and PUCO chairman).
A spokeswoman for the U.S. Attorney for the Southern District of Ohio declined comment for this report beyond public court filings. A PUCO spokesman declined to comment, citing unspecified “pending investigations.”
A DeWine spokesman didn’t respond to an inquiry about the new texts between Jones and Dowling. The governor, after news of the FirstEnergy agreement broke this summer, sought to distance himself from the man he appointed.
“I knew he worked for FirstEnergy,” DeWine said to reporters. “What I knew was the relationship was over with, that would have been the important thing to me. Whether or not it had been six months or whatever period of time it had been. Everybody knew Sam Randazzo had worked for FirstEnergy, so it wasn’t an issue. My understanding was that relationship had been terminated.”
An attorney for Randazzo told the Cincinnati Enquirer, after prosecutors unveiled their agreement with FirstEnergy, that his client had done nothing wrong.
“I executed my duties as PUCO chair conscientiously, lawfully, and mindful of striking the right balance between competing interests,” Randazzo said in a statement through the attorney. “At no time prior to or after my appointment to the PUCO was I asked or did I agree to exercise authority as a public official or perform any official action in my capacity as chair to further FirstEnergy’s legislative, regulatory or other interests."
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