An audit ordered by Ohio regulators did not uncover any misuse of revenue collected under FirstEnergy Corp.'s distribution modernization rider to fund lobbying activities.
The Public Utilities Commission of Ohio, or PUCO, agreed in December 2020 to reopen an audit (PUCO docket 17-2474-EL-UNC) of FirstEnergy's distribution modernization rider, or Rider DMR, to verify that customer charges were not used to support a now largely repealed nuclear subsidy law known as House Bill 6.
The PUCO hired Daymark Energy Advisors Inc. to conduct the review requested by the Office of the Ohio Consumers' Counsel in an effort to require FirstEnergy "to show that it did not improperly use money collected from consumers or violate any utility regulatory laws, rules or orders in its activities regarding House Bill 6."
"We found no documented evidence that ties Rider DMR spending to lobbying for the passage of H.B. 6," Daymark Energy Advisors wrote in its Jan. 14 audit report. "However, given the inability to trace how Rider DMR funds were spent, we cannot rule out with certainty use of Rider DMR funds to support of the passage of H.B. 6."
Daymark pointed out that all rider revenues collected by FirstEnergy's utilities are placed into a "utility money pool" on a routine basis. "Once funds enter the money pool, they lose their identity and can no longer be traced back to any specific rider or tied to specific spending," Daymark wrote.
The advisory firm recommended the money pool be audited at least every five years.
Daymark also noted that dividend payments to FirstEnergy from its Ohio regulated subsidiaries increased during the period of Rider DMR collections, but it did not view this as unreasonable.
"We recommend that a documented dividend policy be established for the Ohio companies," Daymark wrote. "For example, a formal policy could include financial requirements, metrics, restrictions, and procedural guidelines for determining dividend amounts as well as a target range."
The PUCO approved the three-year rider in October 2016 that allowed FirstEnergy utility subsidiaries The Toledo Edison Co., The Cleveland Electric Illuminating Co. and Ohio Edison Co. to collect up to $204 million per year in an effort to protect FirstEnergy's credit rating and ability to make necessary grid investments. FirstEnergy and its Ohio utilities lowered recovery to an estimated $168 million in 2018 and 2019 in response to a federal tax overhaul.
In June 2019, the Supreme Court of Ohio found that the PUCO's approval of the annual distribution rider was "unlawful and unreasonable" and that conditions placed on the recovery of revenue were "meaningless." The state's highest court remanded the case to the PUCO with instructions to remove the rider from the utilities' electric security plans.
The PUCO said FirstEnergy's Ohio utilities collected $457.7 million under the rider from Jan. 1, 2017, through July 2, 2019.
The PUCO and the Federal Energy Regulatory Commission have launched multiple audits and political spending reviews into FirstEnergy and its activities surrounding H.B. 6. In a three-year deferred prosecution agreement with federal prosecutors, FirstEnergy admitted that the company and its past and present affiliates funneled nearly $60 million through "dark money" groups to secure the legislative bailout of two merchant nuclear plants.