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13 FirstEnergy utilities paid $144 million for external affairs to service company involved in Ohio bribery scandal
| From | Energy and Policy Institute <[email protected]> |
| Subject | 13 FirstEnergy utilities paid $144 million for external affairs to service company involved in Ohio bribery scandal |
| Date | February 11, 2021 1:03 PM |
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** 13 FirstEnergy utilities paid $144 million for external affairs to service company involved in Ohio bribery scandal ([link removed])
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By Dave Anderson on Feb 10, 2021 07:12 pm
FirstEnergy utilities in five states paid $144 million over three years for external affairs support from the central service company that’s alleged to be the source of tens of millions of dollars in bribes to a criminal enterprise led by indicted former Ohio House speaker Larry Householder.
Ratepayers may be on the hook for much of the spending on external affairs, based on how the utilities accounted for the service company payments in annual reports to the nation’s top utility regulatory agency. State utility regulators in Ohio and New Jersey are investigating whether any money from ratepayers may have been spent in the bribery scandal in Ohio.
The $144 million for external affairs support was paid to the FirstEnergy Service Company (FESC) between 2017 and 2019 by thirteen electric distributions and transmission companies that are subsidiaries of FirstEnergy Corp. The payments were reported as affiliate transactions on annual Form 1 reports to the Federal Energy Regulatory Commission (FERC) reviewed by the Energy and Policy Institute for this analysis. Copies of the Form 1 reports can be found here on DocumentCloud ([link removed]) or via FERC’s eLibrary ([link removed]) .
The thirteen FirstEnergy subsidiaries include ten regulated electric distribution utilities and three transmission companies that together serve Maryland, New Jersey, Ohio, Pennsylvania and West Virginia. The table below lists the utilities included in this analysis, and how much they paid the FESC for external affairs services for 2017 to 2019:
IFRAME: [1][link removed]
“FirstEnergy Service Company provides legal, financial, and other corporate support services to all of FirstEnergy’s subsidiaries and affiliates,” according to FirstEnergy.
The money from the utilities paid for a suite of services largely overseen at the time by Michael Dowling, the FESC’s vice president of External Affairs who was terminated last year by FirstEnergy in connection with the bribery scandal ([link removed]) . The external affairs services the FESC provided to the utilities included support on local affairs and economic development, state affairs, federal affairs and energy policy, corporate affairs and community involvement, and rates and regulatory affairs.
A now-removed bio ([link removed]) once found on FirstEnergy’s website described Dowling as “responsible for FirstEnergy’s local, state and federal Governmental Affairs; Energy Policy; State Regulatory Affairs and Market Policies; Economic Development; Corporate Affairs and Community Involvement, and the FirstEnergy Political Action Committee.”
Diagram, text Description automatically generated
A 2018 audit of FirstEnergy’s compliance with corporate separation rules ([link removed]) for the Public Utilities Commission of Ohio described the FESC’s External Affairs organization as led by the senior vice president of external affairs, who at the time was Dowling.
** Are FirstEnergy utilities properly reporting political expenditures made via affiliate transactions with the FirstEnergy Service Company to FERC?
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Major electric utilities file annual reports with the Federal Energy Regulatory Commission (FERC), called Form 1, that detail some of their expenditures using FERC’s Uniform System of Accounts (USoA) ([link removed]) .
The Form 1 report includes a section ([link removed]) where utilities report transactions with affiliated or associated companies for non-power goods and services. The section includes brief descriptions of the goods or services received, the total and account charged or credited, and information about how costs are allocated when goods or services are shared among multiple affiliates and associates.
A utility’s inclusion of an expense in a certain FERC account does not conclusively determine whether or not that expense can be recovered from a utility’s ratepayers – that generally happens in a rate case. But the accounting system provides a key tool utility regulators and public intervenors in rate cases, such as consumer advocates and environmental groups, use when identifying which expenses should be allowed and disallowed for recovery by utilities.
$138 million of the $144 million that the thirteen utilities paid the FESC for external affairs services in 2017-2019 was reported in several USoA accounts for administrative and general (A&G) operating expenses.
More than $137 million was included in a single operating A&G account for outside services, account number 923. The outside services account ([link removed]) serves as a sort of catch-all for “the fees and expenses of professional consultants and others for general services which are not applicable to a particular operating function or to other accounts.”
Expenses included in USoA administrative and general (A&G) operating accounts are generally considered to be above-the-line, or recoverable from ratepayers, in rate-making processes overseen by utility regulators, according to a guide to the USoA by the American Public Power Association ([link removed]) . A&G expenses can still be challenged and removed from utility revenue requirements used to establish rates during rate cases, but they are easier for utilities to recover from ratepayers than expenses reported in below-the-line accounts for USoA political expenditures or donations, which are generally disallowed from rates. Below the line expenses are supposed to be recovered from utilities’ earnings, or shareholders.
Utilities may still improperly include below-the-line expenses in above-the-line accounts, and sometimes they get caught ([link removed]) , which can result in refunds for ratepayers.
None of the $144 million paid to the FESC for External Affairs was allocated to the below-the-line USoA account 426.4 ([link removed]) for generally unrecoverable political expenditures, which includes lobbying expenses. A small portion, about $5.2 million, was included in a different below-the-line account, 426.5, for “miscellaneous expenses which are nonoperating in nature,” which are also typically disallowed from rates.
Descriptions found in a 2017 service agreement ([link removed]) between the FESC andall the FirstEnergy utilities ([link removed]) included in this analysis show the suite of external affairs services once overseen by Dowling includes lobbying ([link removed]) and other political expenses ([link removed]) , as discussed in greater detail in the sections below. The 2017 service agreement was signed by Steven E. Strah ([link removed]) , who at the time was the president of FirstEnergy and last year replaced Charles Jones ([link removed]) , who was terminated in connection with the Ohio bribery
investigation, as CEO of the company.
In a separate section of Form 1, each of the thirteen FirstEnergy utilities did report relatively small amounts that ranged from -$20 to less than $70,000 annually and together totaled less than $1 million for all three years in the political expenditures account, 424.6. Nothing in the Form 1s clearly connects those 426.4 expenditures to the money paid to the FESC for external affairs support, which is reported separately in the section where affiliate transactions are supposed to be allocated to their proper USoA accounts. So any political expenditures included in affiliate transactions should be reported in the affiliate transactions section of Form 1.
None of the nearly $6 million the thirteen utilities paid to the FESC for federal affairs and energy policy support in 2017 to 2019, for example, was allocated to below-the-line accounts in the affiliate transactions section of the utilities’ Form 1s. Company descriptions of the federal affairs ([link removed]) services provided by the FESC explicitly include lobbying.
** Did the FirstEnergy Service Company improperly report to FERC $67 million in alleged contributions to two 501(c)(4) dark money groups involved in the Ohio bribery scandal?
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Federal prosecutors have presented evidence that the “Company A Service Company,” which is widely reported to be the FESC ([link removed]) , was the primary source of $60 million in secret bribe payments to the criminal enterprise led by Householder and several political operatives through a dark money group called Generation Now, the 501(c)(4) dark money group that last week filed the third guilty plea in the case ([link removed]) .
The External Affairs Department that was formerly led by Dowling approves political contributions to 501(c)(4) groups, according to FirstEnergy ([link removed]) . The IRS reserves 501(c)(4) status for tax-exempt nonprofits ([link removed]) whose primary purpose is promoting social welfare, but which may engage in limited political activity without disclosing their donors.
Evidence from the bribery case ([link removed]) includes phone records that indicate Householder was in contact with the “Company A Service Company’s VP of External Affairs” fourteen times between February 2017 and July 2019, a key timeframe in the investigation.
The FESC must file an annual report with FERC, Form 60, which is also based on the USoA. The totals that the FESC included in below-the-line accounts for political expenditures and donations for social welfare purposes on its 2017 ([link removed]) , 2018 ([link removed]) , and 2019 ([link removed]) Form 60s don’t add up to anywhere near the over $67 million allegedly paid to Generation Now and Partners for Progress, a second 501(c)(4) connected to the bribery scandal, during that time. The FESC reported totals of only $1.2 million in donations to account 426.1 and $6.6 million in political expenditures in account 426.4 to FERC for 2017-2019.
Financial transactions also detailed in the bribery case ([link removed]) indicate Generation Now received more than $42 million directly from the “Company A Service Co.” between 2017 and 2019.
Partners for Progress ([link removed]) , which is not named or charged in the bribery case, reportedly received $25 million from the service company during the same timeframe ([link removed]) , and passed $15.9 million of that money onto Generation Now. Partners for Progress is reported to the “Energy Pass-Through” group described in the grand jury indictment ([link removed]) in the case funded exclusively by the Company A Service Co.
Prosecutors say the money was used to help elect Ohio House candidates who then supported Householder’s rise to Ohio House speaker in early 2019, and enable him to deliver a new law called House Bill 6 that included a $1 billion bailout for two nuclear power plants owned by “Company A-1” and a rigged decoupling provision that was expected to deliver as much as $2 billion to “Company A” in guaranteed profits ([link removed]) from ratepayers. Millions were also spent on an aggressive ([link removed]) , misleading ([link removed]) , and racist ([link removed]) campaign to defeat a 2019 petition campaign that sought to overturn HB 6
through a voter referendum, and to influence the outcomes of 2020 state house primaries in Ohio to the benefit of Householder-backed candidates.
FirstEnergy Corp. and the FESC have so far not been formally named or charged in the case, but both have been subpoenaed along with the company’s political action committee ([link removed]) and, based on the evidence presented in the case, they are widely reported to be the Company A and Company A Service Company described by prosecutors. Prosecutors also describe the role played by Company A-1, which is reportedly FirstEnergy Solutions (FES), a competitive power subsidiary of FirstEnergy until it emerged from bankruptcy last February as a separate new company called Energy Harbor.
Energy Habor has also reportedly been subpoenaed ([link removed]) in the bribery case.
** State and federal utility regulators are now investigating the FirstEnergy Service Company
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The Public Utilities Commission of Ohio launched a review ([link removed]) in September to determine whether any money from ratepayers of FirstEnergy’s regulated utilities in Ohio – Cleveland Electric Illuminating Company (CEI), Ohio Edison, and Toledo Edison – was used directly or indirectly to pay for political spending or contributions in support of HB 6. A PUCO attorney examiner explained at a recent meeting on the confines of discovery in the review ([link removed]) why the term “indirectly” was included to help define the scope of the investigation, indicating that regulators may be focused on the payments via the FESC.
“We were trying to make sure that contributions that may have been made by FirstEnergy Service Company and then subsequently charged back to the utilities were not excluded somehow because they were not directly made by the utilities,” Price said ([link removed]) .
PUCO rules prohibit regulated utilities from recovering the costs of political spending and charitable contributions from ratepayers, as is the case in many states. Environmental groups and consumer advocates are asking the PUCO to strengthen its review of FirstEnergy’s political spending and contributions ([link removed]) . The public interest groups also want PUCO to combine the review with related audits ordered by the commission, one of FirstEnergy’s compliance with corporate separation rules for utilities ([link removed]) and another of a rider that was struck down by the Ohio Supreme Court ([link removed].) .
As part of the PUCO’s review of FirstEnergy’s political spending and contributions on HB 6, the Ohio Consumer Counsel (OCC) is fighting to compel ([link removed]) CEI, Ohio Edison, and Toledo Edison to respond to discovery requests seeking information about FirstEnergy’s External Affairs organization, which according to the OCC “apparently would be in charge of political and charitable spending (lobbying) efforts for activities including HB 6 activities.”
The OCC also wants more information ([link removed]) about money paid to the FESC that “appeared to be connected to lobbying efforts” that was reported by CEI, Ohio Edison, and Toledo Edison on their annual Form 1 reports to FERC. The consumer advocate was set to depose ([link removed]) Santino Fanelli, FirstEnergy’s director of rates and regulatory affairs, on February 11, but that deposition has been postponed.
Lawyers for CEI, Ohio Edison, and Toledo Edison have resisted responding to the discovery requests. They’ve denied recovering HB 6 costs, and in general political spending and charitable contributions from ratepayers, but also claimed to “lack information sufficient to either admit or deny” using money collected from ratepayers for those purposes because ratepayer dollars are “not differentiated from funds received by the Companies from other revenues or sources,” as the Energy News Network first reported ([link removed]) .
A resolution introduced in October ([link removed]) by state lawmakers in New Jersey called on the Bureau of Public Utilities (BPU) to audit Jersey Central Power & Light (JCP&L) and ensure that “no revenue from the regulated rates of JCP&L was improperly diverted to any illegal enterprises” in light of an investigation of FirstEnergy launched by the Securities and Exchange Commission (SEC) following a whistleblower complaint related to the bribery case in Ohio ([link removed]) .
At a December meeting ([link removed]) , the BPU discussed plans to commence a multi-phase audit that will include affiliate transactions between JCP&L, its parent company FirstEnergy Corp. and its affiliates, which include transactions with the FESC. Another phase of the BPU audit will include a comprehensive management audit that will look at “the internal and external investigations of FirstEnergy and its impact on JCP&L and its New Jersey customers, and examine whether New Jersey is sufficiently insulated from any risks associated with activities of its affiliates and parent company,” according to statements made at the meeting ([link removed]) .
JCP&L included information and testimony about money it paid to the FESC for external affairs services in a February 2020 petition ([link removed]) to the BPU for an electric distribution base rate increase. JCP&L also included information about its payments for external affairs support to the FESC in a 2019 request to update the revenue requirement ([link removed]) used in transmission formula rates regulated by FERC.
A spokesperson for the BPU did not respond to an email from the Energy and Policy Institute seeking comment on whether ratepayers have paid or will pay for external affairs support provided to JCP&L by the FESC.
Mid-Atlantic Interstate Transmission also includedinformation about its payments to the FESC for external affairs ([link removed]) in a 2020 update to FERC of the revenue requirement for its formula transmission rate.
FERC’s Office of Enforcement launched an ongoing audit of FirstEnergy in early 2019 ([link removed]) , not long before the introduction of HB 6 in Ohio, including affiliate transactions between the FESC and FirstEnergy’s subsidiaries.
“Most audits find that public utilities recorded non-operating expenses… in A&G [administrative and general] expense accounts, leading to inappropriate inclusion of such costs in revenue requirements produced by their formula rates,” according to FERC’s 2019 Report on Enforcement ([link removed]) , which cited lobbying expenses and charitable contributions as examples of these expenses.
FERC’s Office of Enforcement did not respond to an email request for information about the status of the audit.
A witness from the FESC who provided testimony to the BPU last February on service company expenses in JCP&L’s rate case said the audit report ([link removed]) will “include selective tests of Service Company cost allocation methodologies and charges billed by the Service Company to the FEU [FirstEnergy Utilities].” The witness said the audit report, which should be public, was expected in 2020, but later last year FERC announced Covid-19 related delays to audit and enforcement measures.
FERC has flagged FirstEnergy utilities for accounting issues before. A 1984 FERC audit ([link removed]) found that Ohio Edison charged the salary of its Manager of Governmental Affairs, a registered lobbyist, to operating expenses, when it “should have been charged to Account 426.4, Expenditures for certain civic, political, and related activities.”
In a 2010 order ([link removed]) approving the merger of FirstEnergy and Allegheny Energy, FERC noted that the two companies estimated they would incur approximately $120 million in merger costs, and attempted to charge those “transaction costs to Account 923, Outside Services, as they are incurred.” FERC’s order directed that “merger costs are considered non-operating in nature and should be recorded in Account 426.5, Other Deductions.”
Emails from the Energy & Policy Institute seeking comment on whether money collected from ratepayers has or will be used to pay for external affairs support provided by the FESC went answered by the spokespersons for multiple FirstEnergy utilities included in this analysis.
** A breakdown of the money paid to the FirstEnergy Service Company for external affairs in 2017-2019 by service type, and more details on how these largely political services relate to the corruption scandal in Ohio
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Totals listed below include money paid to the FESC as reported by the thirteen FirstEnergy utility subsidiaries in their annual Form 1 reports, organized by external affairs service type. .
The totals do not include money paid to the FESC for external affairs by the parent company FirstEnergy Corp. or other subsidiaries not required to file annual reports with FERC. In 2017-2019, that included the competitive retail and generation subsidiaries that formed FES. FES continued to receive shared services ([link removed]) , including external affairs, from the FESC during it’s Chapter 11 bankruptcy that stretched from 2018 to 2020, and paid $152 million for those shared services in 2019. It’s not clear how much of that $152 million went to external affairs support, versus the many other corporate support services the FESC provides.
As part of a 2018 settlement agreement with the FES debtors, the FESC agreed ([link removed]) to provide FES with a $112.5 million credit for shared services received for that year, and also waive any claims for unpaid services from the time before FES filed its bankruptcy petition in March of 2017. In other words, FES may have received a free ride for external affairs work from the FESC for much of the 2016 to 2019 time period covered by the federal bribery investigation.
** Nearly $59 million for external affairs and communications support
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The thirteen FirstEnergy utilities included in this analysis paid the FESC a total of $58.7 million for external affairs and communications support in 2017-2019, of which more than $56 million was allocated to USoA Account 923, the generally recoverable operating account for outside service expenses.
The utilities allocated less than $2.2 million to Account 426.5, the non-operating account for miscellaneous expenses that is generally unrecoverable from ratepayers. They included none of the money for external affairs and donations in the FERC accounts for political expenditures and donations.
A small remaining portion was allocated to other USoA 900 series A&G operating accounts, and to accounts used for assets.
As noted earlier, a page on political activity found on FirstEnergy’s website ([link removed]) states that the External Affairs Department approves payments to 501(c)(4) organizations:
In certain circumstances, where permitted by law, and with the approval of our External Affairs Department, FirstEnergy may use corporate funds for the payment of dues and/or contributions to section 527 organizations (tax exempt organizations that engage in political activities), section 501(c)(4) organizations and trade associations that may use a portion of such dues for political and lobbying activities.
Partners for Progress’s latest annual Form 990 report to the IRS ([link removed]) for 2019 speaks to the primarily political nature of its mission, and to its contributions to other highly political social welfare groups, including Generation Now. The group described its primary mission ([link removed]) as “advocacy support of public utilities, related industries and associated public policy concerns.”
A section of the report describing Partners for Partnership’s accomplishments in 2019 focused on $13.9 million in grants it made, nearly all of which went to Generation Now, for “advocacy efforts” that “include efforts to increase support for the operation and viability of nuclear power plants in Ohio.”
A schedule of grants listed the purpose of Partners for Partnership’s cash grant to Generation Now as being for “issue advocacy, lobbying, and ballot referendums” – all of which seem to fit FERC’s definition of political expenditures ([link removed]) in the USoA.
Other cash grants Partners for Progress ([link removed]) made in 2019 to 501(c)(4)s were listed as being for for the express purpose of “political campaign intervention,” including grants for:
* $300,000 to Securing Ohio’s Future, which supported Mike DeWine for Ohio Governor during the 2018 election
* $75,000 to Protecting Ohio, which supported DeWine’s daughter Alice DeWine’s failed 2020 candidacy for a county prosecutor position
* $150,000 to Liberty Ohio, which opposed an outspoken Republican state representative who voted against HB 6
Dowling, the FESC’s vice president of external affairs, was terminated along with FirstEnergy CEO Charles Jones and vice president of marketing and branding Dennis Check following an internal company investigation ([link removed]) that found:
Each of these terminated executives violated certain FirstEnergy policies and its code of conduct. These executives were terminated as of October 29, 2020. Such former members of senior management did not maintain and promote a control environment with an appropriate tone of compliance in certain areas of FirstEnergy’s business, nor sufficiently promote, monitor or enforce adherence to certain FirstEnergy policies and its code of conduct. Furthermore, certain former members of senior management did not reasonably ensure that relevant information was communicated within our organization and not withheld from our independent directors, our Audit Committee, and our independent auditor.
An amended shared services agreement between the FESC and FES from 2018 ([link removed].) provided a detailed breakdown of the External Affairs services ([link removed]) the FESC agreed to provide to FES during its Chapter 11 bankruptcy:
The service agreement was with the FES debtors, but the agreement also included an overview of cost allocation methods that shows how “Indirect Costs” for some services provided to the FES debtors by the FESC were to be shared with the non-debtors FirstEnergy Corp. and its other subsidiaries.
Some external affairs services were assigned to cost centers like “Sr VP External Affairs” and “Energy Policy” and aligned with the “Multi-Factor All ([link removed]) ” cost allocation method, whereby:
For the Indirect Costs for products or services benefiting the entire FE Corp. system (including both the Client Companies and FE NonDebtor Parties), FE Corp. and all Subsidiaries will bear a fair and equitable portion of such costs. FE Corp. will bear 5% of these Indirect Costs. The remaining Indirect Costs will be allocated among the Utility Subsidiaries and the Non-Utility Subsidiaries benefiting from the services provided based on FE Corp.’s equity investment in the respective groups, as determined by the calculated allocation factors in use as of March 31, 2018…
Similar cost allocation methodologies can be found in the FESC’s service agreements ([link removed]) with the regulated FirstEnergy utilities included in this analysis.
In 2020, before the announcement of the federal HB 6 bribery investigation, Dowling attended a ceremony where FirstEnergy received a lobbying award from the Edison Electric Institute (EEI) and International Brotherhood of Electrical Workers ([link removed]) for the campaign to pass the bill in Ohio.
Dowling said winning the award “is the World Series in public policy – there’s no greater honor to be honest with you.”
EEI is the industry association for investor-owned electric utilities, and it’s funded by annual dues that are largely paid for by ratepayers of their member utilities through their utility bills ([link removed]) . In recent years, EEI dues have become a focus of efforts to protect ratepayers from paying for utility political spending embedded in industry association dues, which have their own USoA account 930.2 ([link removed]) , during rate cases.
** Nearly $6 million for federal affairs and energy policy support
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The thirteen FirstEnergy utilities paid the FESC just a few dollars shy of $6 million for federal affairs and energy policy support in 2017-2019.
Nearly all of this spending was recorded in the operating accounts for A&G expenses that are generally recoverable from ratepayers, aside from about $550 included in an account for assets. Almost all of the $6 million was included in USoA Account 923 for outside services.
Exactly zero dollars was allocated to the USoA 420 series accounts for non-operating costs that are typically unrecoverable from ratepayers, including Account 426.4 used for political expenditures and lobbying costs.
FESC service agreements ([link removed]) describe federal affairs ([link removed]) as including services “associated with developing and maintaining relationships with federal governmental institutions; includes lobbying and other support activities.”
The origins of the Ohio bribery scandal are often traced back to January 2017, when Larry Householder boarded one of FirstEnergy’s corporate planes ([link removed]) for a trip to D.C. for Donald Trump inauguration.
The 2019 campaign to pass HB 6 in Ohio followed a failed multi-year campaign by FirstEnergy and coal producer Murray Energy to secure a federal bailout for struggling coal and nuclear power plants from the Trump administration ([link removed]) . Emails and other records obtained by the Energy and Policy Institute via Freedom of Information Act requests show Dowling was personally involved in meetings with Secretary of Energy Rick Perry ([link removed]) and FERC Chairman Neil Chatterjee ([link removed]) during that time.
The FESC paid $1.1 million from 2017 to 2019 for Jeff Miller of Miller Strategies, a former aide to Perry, to lobby the Department of Energy on “grid resilience issues,” according to federal lobbying reports. Miller continued to lobby for the FESC in 2020.
Miller also raised millions of dollars as a campaign contributions bundler ([link removed]) for the Trump Victory fund during that time, according to bundling report data on file with the Federal Elections Commission.
Jeff Longstreth, a political advisor to Householder and the president of Generation Now, sent text messages in 2019 to Republican members of the Ohio House in 2019 as part of a pressure campaign to secure votes for HB 6 ([link removed]) . One message from Longstreth ([link removed]) released by the Ohio House last year in response to a federal subpoena and Open Records Law requests claimed that “the Trump Campaign is putting on the full scale press to save the jobs at the power plants.”
“Call Bob Paduchik if you don’t believe me,” Longstreth said, a reference to the Trump campaign official who urged state lawmakers to pass HB 6.
Longstreth was indicted alongside Householder, and has filed a guilty plea ([link removed]) to racketeering charges.
** Over $23 million on local affairs and economic development, and nearly $5 million on state affairs
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The thirteen utilities also paid the FESC over $23.7 million for local affairs and economic development support in 2017 to 2019, and close to $5 million for state affairs support.
$23.6 million of the money paid to the FESC for local affairs and economic development support was recorded in generally recoverable USoA A&G operating accounts, and again the majority – $23.2 – million was included in Account 923 for outside services.
$1.6 million spent on state affairs was recorded in above-the-line operating A&G accounts too.
State affairs was the only service type examined by this analysis where the majority of the money paid to the FESC was included in the generally unrecoverable, below-the-line account 426.5 for other deductions. Of the money paid to the FESC for state affairs, $3.3 million was recorded in account 426.5. None of the money paid to the FESC for local affairs and development or state affairs was recorded in USoA Account 426.4, the proper account for lobbying and political expenditures.
Service agreements describe the FESC’s state affairs support ([link removed]) as including activities “associated with developing relationships with state government institutions; includes lobbying, and other support activities.”
Joel Bailey is the FESC’s vice president for state and local affairs and economic development, a position described in 2018 by PUCO’s corporate separation audit ([link removed]) as “responsible for state and local legislation affecting FirstEnergy.”
“This unit also has a Governmental Affairs Representative who is responsible for FirstEnergy’s Political Action Committee (PAC),” the audit said. “The PAC is employee funded and supports state and federal level political candidates.”
Bailey and Dowling ([link removed]) both personally lobbied on HB 6 in 2019.
Bailey’s name appeared on a December 2019 presentation at a Campaign Institute hosted by the Edison Electric Institute ([link removed]) . Bailey’s presentation ([link removed]) detailed FirstEnergy’s multi-year campaign to secure bailouts from consumers for its uncompetitive coal and nuclear power plants in Ohio. His presentation included images of letters, resolutions, and testimony in support of FirstEnergy’s bailout proposals gathered from Ohio local government officials.
Bailey was CCed on 2019 emails ([link removed]) with local officials who were part of the Ohio Clean Energy Jobs Alliance ([link removed].) that was “powered by FirstEnergy Solutions” and supported HB 6. He was involved in a similar early 2018 campaign called Ohioans for Clean Energy ([link removed]) , which supported FirstEnergy’s pre-HB6 Zero Emissions Nuclear bills. Those earlier ZEN bills were included in a 2020 federal subpoena seeking records from the Ohio House about HB 6.
Emails show other members of FirstEnergy’s local external affairs team in Ohio, like Wendy Zele ([link removed]) , and economic development team, like Hans Rosebrock ([link removed]) , were also involved in organizing local officials to support House Bill 6 in 2019 ([link removed]) . Neither Zele or Rosebrock were registered as lobbyists for FirstEnergy with Ohio’s Joint Legislative Ethics Committee.
CCed ([link removed]) on many ([link removed]) of those emails ([link removed]) was Juan Cespedes, the lobbyistretained by the FESC in 2018 to lobby for the bankrupt FES ([link removed]) . Cespedes was charged alongside Householder in the HB 6 bribery case last year and filed a guilty plea in October ([link removed]) .
Annual Form 990 reports filed with the IRS by Generation Now ([link removed]) and Partners for Progress ([link removed]) described their missions as including promoting economic development.
** Close to $27 million for rates and regulatory affairs support
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The thirteen FirstEnergy utilities paid the FESC $26.8 million to provide rates and regulatory support in 2017-2019.
Basically all that total was included in USoA 900 series A&G operating accounts, and all but $183,000 of that was allocated to a single account, FERC Account 923 for outside services.
A few negligible amounts, some negative, were reported under other accounts, mostly for assets.
Service agreements with the FESC say the rates and regulatory affairs support provided ([link removed]) includes technical services like developing short-term and long-term sales forecasts, but also includes “regulatory activities and consulting” that involve monitoring and participating in “regulatory affairs at the local, state, and federal level.”
Attorneys for the FESC represented CEI, Ohio Edison, and Toledo Edison in cases where PUCO developed rules for implementing key provisions of HB 6 ([link removed]) like the nuclear bailout.
Brian Knipe, another attorney for the FESC, is now among the parties ([link removed]) participating in PUCO’s review of HB 6 political spending. Knipe was among the attorneys who filed a protective motion ([link removed]) for CEI, Ohio Edison, and Toledo Edison that was aimed at limiting deposition and discovery by the Ohio Consumers’ Counsel in that review.
Almost $24 million for corporate affairs and community involvement support
The FESC received $23.8 million from the thirteen FirstEnergy utilities for corporate affairs and community involvement support in 2017 to 2019. All but about $6,000 of that was included in USoA utility operating accounts for expenses that can usually be recovered from customers, with $23.7 million going into account 923 for outside services.
None was allocated by the utilities to the below-the-line account 426.1 for donations.
Descriptions found in service agreements with the FESC ([link removed]) show corporate affairs and community support includes “contributions management,” whereby the FESC “directs coordinates, monitors, and manages contributions.”
A 2019 report by the Energy and Policy Institute ([link removed].) documented how FirstEnergy solicited support for its federal and state bailout proposals from 501(c)(3) tax-exempt charities that received contributions from the FirstEnergy Foundation or through corporate contributions from FirstEnergy utilities.
Ebony Yeboah-Amankwah, the former vice president, general counsel, and chief ethics officer ([link removed]) for the FESC who separated from FirstEnergy last year in connection with the bribery scandal in Ohio ([link removed]) , also had served as the secretary of the FirstEnergy Foundation.
** The FESC used to have to publicly disclose more info about spending included in Account 923 for outside services
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Up until the mid-2000s, utilities’ central service companies filed an annual report with the Securities and Exchange Commission called the U-13-60 ([link removed]) . The report included schedules with a breakdown of account 923 outside service expenses ([link removed]) by sub-accounts that listed from whom those services were purchased, the types of services provided, and the total amount paid.
One U-13-60 report the FESC filed for 2004 ([link removed]) listed payments to outside law and lobbying firms like Akin Gump that FirstEnergy still employed years later during the HB 6 fight ([link removed]) .
The FESC reported to the SEC ([link removed]) that it paid the law firm Calfee, Halter & Griswold $106,000 in 2004 for “other” outside services described as “Consulting services related to governmental affairs.” Calfee also received $1.7 million ([link removed]) that year from the FESC for “Legal services related to various system wide issues.”
Calfee is in the news today for its role in running Partners for Progress ([link removed]) .
The FESC also disclosed to the SEC that it paid $500,000 in 2004 for “IEU Ohio” to provide “other” services related to “Ohio natural [gas] and electricity issues.” ([link removed]) IEU Ohio is the Industrial Energy Users Ohio, the non-profit industry group that was long spearheaded by attorney and lobbyist Samuel Randazzo ([link removed]) , who became chair of the PUCO in 2019. As recently as early 2019, Randazzo listed income from a for-profit consulting firm called the IEU-Ohio Administration Company ([link removed]) , which was incorporated in Ohio in 2003, on financial disclosures he filed annually with the Ohio Ethics Commission.
In early 2019, Randazzo declined to publicly answer questions about his murky financial relationship with FirstEnergy ([link removed]) during his nomination and appointment to the PUCO, where he served as chairman until his resignation in November of 2020 ([link removed]) . Randazzo resigned from PUCO in scandal after the FBI raided his home, and FirstEnergyrevealed a previously secret $4 million payment ([link removed]) made in early 2019 to an entity affiliated with someone who “subsequently was appointed to a full-time role as an Ohio government official directly involved in regulating the Ohio Companies, including with respect to distribution rates.” FirstEnergy’s description of this individual fits Randazzo.
FirstEnergy has connected the decision last year to terminate “certain former members of senior executives” ([link removed]) to the internal company investigation that it claims revealed that $4 million payment to the company’s board. The full findings of that internal investigation have not been made public by FirstEnergy.
FERC replaced the SEC’s U-13-60 report with the “streamlined” Form 60 in rules adopted to implement the Public Utility Holding Company Act (PUHCA) of 2005, which replaced the repealed PUHCA of 1935. The old schedules for the outside services account were eliminated in the transition to the new annual report for service companies ([link removed]) , over the objections of the National Association of Regulatory Utility Commissioners (NARUC).
“Outside services and employee expenses are major components of expense (along with labor) incurred by a service company,” NARUC said ([link removed]) . “The detail in these schedules provides an important tool for understanding service company costs and functions.”
A representative of PUCO who spoke at one 2006 technical conference FERC held as it considered the new Form 60 rules warned of an “explosion” of outside services spending by utilities ([link removed]) in Ohio.
Also eliminated after 2005 were other schedules found in the U-13-60, including schedules for general advertising expenses and donations. FirstEnergy, EEI, and other utilities called on FERC to adopt a “streamlined version of the Form 60” ([link removed]) to avoid “imposing undue burden” on utilities in terms of reporting requirements.
Affiliate transactions with the FESC reported on Form 1s for 2017 to 2019 by the thirteen FirstEnergy utilities included in this analysis provide only a partial window into their spending on outside services. The thirteen utilities together included over $1 billion in spending on outside services in Account 923 on their FERC Form 1s over the three year period. The FESC reported on its Form 60s that it charged a total of $212.7 million million for outside services on its FERC Form 60s during that same time.
Today’s FERC Form 1s and Form 60s provide relatively few details about how all that money on outside services was spent. The old SEC U-13-6 reports that were phased out during the mid-2000s show how in the past, the FESC included expenses like “lobbying services” and “consulting services related to government affairs” in outside services account 923, alongside mundane “other” expenses like “staffing services.”
FirstEnergy is now fighting efforts to require it to publicly disclose information ([link removed]) like the full findings of the internal investigation that led to the termination of Dowling and other senior company executives in connection with the bribery scandal. In PUCO’s review of FirstEnergy’s HB 6 political spending, the company’s lawyers claim the OCC’s discovery requests regarding its Ohio utilities’ Form 1s ([link removed]) are somehow “unduly burdensome, harassing, oppressive, vague, ambiguous and seeks to impose an undue expense.”
The USoA requires utilities and their service company to maintain records related to outside spending “so as to permit ready analysis showing the nature of service, identity of the person furnishing the service, affiliation to the service company ([link removed]) , and, if allocated to more than one company, the specific method of allocation.”
So FirstEnergy should have that information available if regulators come calling.
** Analysis
------------------------------------------------------------
The spreadsheet below includes a summary of the key areas of the Energy & Policy Institute’s analysis of the FERC Form 1s filed by the thirteen FirstEnergy utilities in 2017 to 2019.
The first tab summarizes the total money paid to the FESC by utility, and also includes a breakdown by utility of spending on each external affairs service type.
The remaining tabs provide breakdowns of the spending by external affairs service area type, utility, and the USoA accounts used to report the spending. Columns highlighted in green mark amounts included the generally recoverable A&G expense accounts. Columns in red mark amounts included in the usually unrecoverable below-the-line-account 426.5 for miscellaneous non-operating expense. Yellow marks amounts included in other accounts, nearly all for assets.
IFRAME: [2][link removed]
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By Dave Anderson on Feb 10, 2021 07:12 pm
FirstEnergy utilities in five states paid $144 million over three years for external affairs support from the central service company that’s alleged to be the source of tens of millions of dollars in bribes to a criminal enterprise led by indicted former Ohio House speaker Larry Householder.
Ratepayers may be on the hook for much of the spending on external affairs, based on how the utilities accounted for the service company payments in annual reports to the nation’s top utility regulatory agency. State utility regulators in Ohio and New Jersey are investigating whether any money from ratepayers may have been spent in the bribery scandal in Ohio.
The $144 million for external affairs support was paid to the FirstEnergy Service Company (FESC) between 2017 and 2019 by thirteen electric distributions and transmission companies that are subsidiaries of FirstEnergy Corp. The payments were reported as affiliate transactions on annual Form 1 reports to the Federal Energy Regulatory Commission (FERC) reviewed by the Energy and Policy Institute for this analysis. Copies of the Form 1 reports can be found here on DocumentCloud ([link removed]) or via FERC’s eLibrary ([link removed]) .
The thirteen FirstEnergy subsidiaries include ten regulated electric distribution utilities and three transmission companies that together serve Maryland, New Jersey, Ohio, Pennsylvania and West Virginia. The table below lists the utilities included in this analysis, and how much they paid the FESC for external affairs services for 2017 to 2019:
IFRAME: [1][link removed]
“FirstEnergy Service Company provides legal, financial, and other corporate support services to all of FirstEnergy’s subsidiaries and affiliates,” according to FirstEnergy.
The money from the utilities paid for a suite of services largely overseen at the time by Michael Dowling, the FESC’s vice president of External Affairs who was terminated last year by FirstEnergy in connection with the bribery scandal ([link removed]) . The external affairs services the FESC provided to the utilities included support on local affairs and economic development, state affairs, federal affairs and energy policy, corporate affairs and community involvement, and rates and regulatory affairs.
A now-removed bio ([link removed]) once found on FirstEnergy’s website described Dowling as “responsible for FirstEnergy’s local, state and federal Governmental Affairs; Energy Policy; State Regulatory Affairs and Market Policies; Economic Development; Corporate Affairs and Community Involvement, and the FirstEnergy Political Action Committee.”
Diagram, text Description automatically generated
A 2018 audit of FirstEnergy’s compliance with corporate separation rules ([link removed]) for the Public Utilities Commission of Ohio described the FESC’s External Affairs organization as led by the senior vice president of external affairs, who at the time was Dowling.
** Are FirstEnergy utilities properly reporting political expenditures made via affiliate transactions with the FirstEnergy Service Company to FERC?
------------------------------------------------------------
Major electric utilities file annual reports with the Federal Energy Regulatory Commission (FERC), called Form 1, that detail some of their expenditures using FERC’s Uniform System of Accounts (USoA) ([link removed]) .
The Form 1 report includes a section ([link removed]) where utilities report transactions with affiliated or associated companies for non-power goods and services. The section includes brief descriptions of the goods or services received, the total and account charged or credited, and information about how costs are allocated when goods or services are shared among multiple affiliates and associates.
A utility’s inclusion of an expense in a certain FERC account does not conclusively determine whether or not that expense can be recovered from a utility’s ratepayers – that generally happens in a rate case. But the accounting system provides a key tool utility regulators and public intervenors in rate cases, such as consumer advocates and environmental groups, use when identifying which expenses should be allowed and disallowed for recovery by utilities.
$138 million of the $144 million that the thirteen utilities paid the FESC for external affairs services in 2017-2019 was reported in several USoA accounts for administrative and general (A&G) operating expenses.
More than $137 million was included in a single operating A&G account for outside services, account number 923. The outside services account ([link removed]) serves as a sort of catch-all for “the fees and expenses of professional consultants and others for general services which are not applicable to a particular operating function or to other accounts.”
Expenses included in USoA administrative and general (A&G) operating accounts are generally considered to be above-the-line, or recoverable from ratepayers, in rate-making processes overseen by utility regulators, according to a guide to the USoA by the American Public Power Association ([link removed]) . A&G expenses can still be challenged and removed from utility revenue requirements used to establish rates during rate cases, but they are easier for utilities to recover from ratepayers than expenses reported in below-the-line accounts for USoA political expenditures or donations, which are generally disallowed from rates. Below the line expenses are supposed to be recovered from utilities’ earnings, or shareholders.
Utilities may still improperly include below-the-line expenses in above-the-line accounts, and sometimes they get caught ([link removed]) , which can result in refunds for ratepayers.
None of the $144 million paid to the FESC for External Affairs was allocated to the below-the-line USoA account 426.4 ([link removed]) for generally unrecoverable political expenditures, which includes lobbying expenses. A small portion, about $5.2 million, was included in a different below-the-line account, 426.5, for “miscellaneous expenses which are nonoperating in nature,” which are also typically disallowed from rates.
Descriptions found in a 2017 service agreement ([link removed]) between the FESC andall the FirstEnergy utilities ([link removed]) included in this analysis show the suite of external affairs services once overseen by Dowling includes lobbying ([link removed]) and other political expenses ([link removed]) , as discussed in greater detail in the sections below. The 2017 service agreement was signed by Steven E. Strah ([link removed]) , who at the time was the president of FirstEnergy and last year replaced Charles Jones ([link removed]) , who was terminated in connection with the Ohio bribery
investigation, as CEO of the company.
In a separate section of Form 1, each of the thirteen FirstEnergy utilities did report relatively small amounts that ranged from -$20 to less than $70,000 annually and together totaled less than $1 million for all three years in the political expenditures account, 424.6. Nothing in the Form 1s clearly connects those 426.4 expenditures to the money paid to the FESC for external affairs support, which is reported separately in the section where affiliate transactions are supposed to be allocated to their proper USoA accounts. So any political expenditures included in affiliate transactions should be reported in the affiliate transactions section of Form 1.
None of the nearly $6 million the thirteen utilities paid to the FESC for federal affairs and energy policy support in 2017 to 2019, for example, was allocated to below-the-line accounts in the affiliate transactions section of the utilities’ Form 1s. Company descriptions of the federal affairs ([link removed]) services provided by the FESC explicitly include lobbying.
** Did the FirstEnergy Service Company improperly report to FERC $67 million in alleged contributions to two 501(c)(4) dark money groups involved in the Ohio bribery scandal?
------------------------------------------------------------
Federal prosecutors have presented evidence that the “Company A Service Company,” which is widely reported to be the FESC ([link removed]) , was the primary source of $60 million in secret bribe payments to the criminal enterprise led by Householder and several political operatives through a dark money group called Generation Now, the 501(c)(4) dark money group that last week filed the third guilty plea in the case ([link removed]) .
The External Affairs Department that was formerly led by Dowling approves political contributions to 501(c)(4) groups, according to FirstEnergy ([link removed]) . The IRS reserves 501(c)(4) status for tax-exempt nonprofits ([link removed]) whose primary purpose is promoting social welfare, but which may engage in limited political activity without disclosing their donors.
Evidence from the bribery case ([link removed]) includes phone records that indicate Householder was in contact with the “Company A Service Company’s VP of External Affairs” fourteen times between February 2017 and July 2019, a key timeframe in the investigation.
The FESC must file an annual report with FERC, Form 60, which is also based on the USoA. The totals that the FESC included in below-the-line accounts for political expenditures and donations for social welfare purposes on its 2017 ([link removed]) , 2018 ([link removed]) , and 2019 ([link removed]) Form 60s don’t add up to anywhere near the over $67 million allegedly paid to Generation Now and Partners for Progress, a second 501(c)(4) connected to the bribery scandal, during that time. The FESC reported totals of only $1.2 million in donations to account 426.1 and $6.6 million in political expenditures in account 426.4 to FERC for 2017-2019.
Financial transactions also detailed in the bribery case ([link removed]) indicate Generation Now received more than $42 million directly from the “Company A Service Co.” between 2017 and 2019.
Partners for Progress ([link removed]) , which is not named or charged in the bribery case, reportedly received $25 million from the service company during the same timeframe ([link removed]) , and passed $15.9 million of that money onto Generation Now. Partners for Progress is reported to the “Energy Pass-Through” group described in the grand jury indictment ([link removed]) in the case funded exclusively by the Company A Service Co.
Prosecutors say the money was used to help elect Ohio House candidates who then supported Householder’s rise to Ohio House speaker in early 2019, and enable him to deliver a new law called House Bill 6 that included a $1 billion bailout for two nuclear power plants owned by “Company A-1” and a rigged decoupling provision that was expected to deliver as much as $2 billion to “Company A” in guaranteed profits ([link removed]) from ratepayers. Millions were also spent on an aggressive ([link removed]) , misleading ([link removed]) , and racist ([link removed]) campaign to defeat a 2019 petition campaign that sought to overturn HB 6
through a voter referendum, and to influence the outcomes of 2020 state house primaries in Ohio to the benefit of Householder-backed candidates.
FirstEnergy Corp. and the FESC have so far not been formally named or charged in the case, but both have been subpoenaed along with the company’s political action committee ([link removed]) and, based on the evidence presented in the case, they are widely reported to be the Company A and Company A Service Company described by prosecutors. Prosecutors also describe the role played by Company A-1, which is reportedly FirstEnergy Solutions (FES), a competitive power subsidiary of FirstEnergy until it emerged from bankruptcy last February as a separate new company called Energy Harbor.
Energy Habor has also reportedly been subpoenaed ([link removed]) in the bribery case.
** State and federal utility regulators are now investigating the FirstEnergy Service Company
------------------------------------------------------------
The Public Utilities Commission of Ohio launched a review ([link removed]) in September to determine whether any money from ratepayers of FirstEnergy’s regulated utilities in Ohio – Cleveland Electric Illuminating Company (CEI), Ohio Edison, and Toledo Edison – was used directly or indirectly to pay for political spending or contributions in support of HB 6. A PUCO attorney examiner explained at a recent meeting on the confines of discovery in the review ([link removed]) why the term “indirectly” was included to help define the scope of the investigation, indicating that regulators may be focused on the payments via the FESC.
“We were trying to make sure that contributions that may have been made by FirstEnergy Service Company and then subsequently charged back to the utilities were not excluded somehow because they were not directly made by the utilities,” Price said ([link removed]) .
PUCO rules prohibit regulated utilities from recovering the costs of political spending and charitable contributions from ratepayers, as is the case in many states. Environmental groups and consumer advocates are asking the PUCO to strengthen its review of FirstEnergy’s political spending and contributions ([link removed]) . The public interest groups also want PUCO to combine the review with related audits ordered by the commission, one of FirstEnergy’s compliance with corporate separation rules for utilities ([link removed]) and another of a rider that was struck down by the Ohio Supreme Court ([link removed].) .
As part of the PUCO’s review of FirstEnergy’s political spending and contributions on HB 6, the Ohio Consumer Counsel (OCC) is fighting to compel ([link removed]) CEI, Ohio Edison, and Toledo Edison to respond to discovery requests seeking information about FirstEnergy’s External Affairs organization, which according to the OCC “apparently would be in charge of political and charitable spending (lobbying) efforts for activities including HB 6 activities.”
The OCC also wants more information ([link removed]) about money paid to the FESC that “appeared to be connected to lobbying efforts” that was reported by CEI, Ohio Edison, and Toledo Edison on their annual Form 1 reports to FERC. The consumer advocate was set to depose ([link removed]) Santino Fanelli, FirstEnergy’s director of rates and regulatory affairs, on February 11, but that deposition has been postponed.
Lawyers for CEI, Ohio Edison, and Toledo Edison have resisted responding to the discovery requests. They’ve denied recovering HB 6 costs, and in general political spending and charitable contributions from ratepayers, but also claimed to “lack information sufficient to either admit or deny” using money collected from ratepayers for those purposes because ratepayer dollars are “not differentiated from funds received by the Companies from other revenues or sources,” as the Energy News Network first reported ([link removed]) .
A resolution introduced in October ([link removed]) by state lawmakers in New Jersey called on the Bureau of Public Utilities (BPU) to audit Jersey Central Power & Light (JCP&L) and ensure that “no revenue from the regulated rates of JCP&L was improperly diverted to any illegal enterprises” in light of an investigation of FirstEnergy launched by the Securities and Exchange Commission (SEC) following a whistleblower complaint related to the bribery case in Ohio ([link removed]) .
At a December meeting ([link removed]) , the BPU discussed plans to commence a multi-phase audit that will include affiliate transactions between JCP&L, its parent company FirstEnergy Corp. and its affiliates, which include transactions with the FESC. Another phase of the BPU audit will include a comprehensive management audit that will look at “the internal and external investigations of FirstEnergy and its impact on JCP&L and its New Jersey customers, and examine whether New Jersey is sufficiently insulated from any risks associated with activities of its affiliates and parent company,” according to statements made at the meeting ([link removed]) .
JCP&L included information and testimony about money it paid to the FESC for external affairs services in a February 2020 petition ([link removed]) to the BPU for an electric distribution base rate increase. JCP&L also included information about its payments for external affairs support to the FESC in a 2019 request to update the revenue requirement ([link removed]) used in transmission formula rates regulated by FERC.
A spokesperson for the BPU did not respond to an email from the Energy and Policy Institute seeking comment on whether ratepayers have paid or will pay for external affairs support provided to JCP&L by the FESC.
Mid-Atlantic Interstate Transmission also includedinformation about its payments to the FESC for external affairs ([link removed]) in a 2020 update to FERC of the revenue requirement for its formula transmission rate.
FERC’s Office of Enforcement launched an ongoing audit of FirstEnergy in early 2019 ([link removed]) , not long before the introduction of HB 6 in Ohio, including affiliate transactions between the FESC and FirstEnergy’s subsidiaries.
“Most audits find that public utilities recorded non-operating expenses… in A&G [administrative and general] expense accounts, leading to inappropriate inclusion of such costs in revenue requirements produced by their formula rates,” according to FERC’s 2019 Report on Enforcement ([link removed]) , which cited lobbying expenses and charitable contributions as examples of these expenses.
FERC’s Office of Enforcement did not respond to an email request for information about the status of the audit.
A witness from the FESC who provided testimony to the BPU last February on service company expenses in JCP&L’s rate case said the audit report ([link removed]) will “include selective tests of Service Company cost allocation methodologies and charges billed by the Service Company to the FEU [FirstEnergy Utilities].” The witness said the audit report, which should be public, was expected in 2020, but later last year FERC announced Covid-19 related delays to audit and enforcement measures.
FERC has flagged FirstEnergy utilities for accounting issues before. A 1984 FERC audit ([link removed]) found that Ohio Edison charged the salary of its Manager of Governmental Affairs, a registered lobbyist, to operating expenses, when it “should have been charged to Account 426.4, Expenditures for certain civic, political, and related activities.”
In a 2010 order ([link removed]) approving the merger of FirstEnergy and Allegheny Energy, FERC noted that the two companies estimated they would incur approximately $120 million in merger costs, and attempted to charge those “transaction costs to Account 923, Outside Services, as they are incurred.” FERC’s order directed that “merger costs are considered non-operating in nature and should be recorded in Account 426.5, Other Deductions.”
Emails from the Energy & Policy Institute seeking comment on whether money collected from ratepayers has or will be used to pay for external affairs support provided by the FESC went answered by the spokespersons for multiple FirstEnergy utilities included in this analysis.
** A breakdown of the money paid to the FirstEnergy Service Company for external affairs in 2017-2019 by service type, and more details on how these largely political services relate to the corruption scandal in Ohio
------------------------------------------------------------
Totals listed below include money paid to the FESC as reported by the thirteen FirstEnergy utility subsidiaries in their annual Form 1 reports, organized by external affairs service type. .
The totals do not include money paid to the FESC for external affairs by the parent company FirstEnergy Corp. or other subsidiaries not required to file annual reports with FERC. In 2017-2019, that included the competitive retail and generation subsidiaries that formed FES. FES continued to receive shared services ([link removed]) , including external affairs, from the FESC during it’s Chapter 11 bankruptcy that stretched from 2018 to 2020, and paid $152 million for those shared services in 2019. It’s not clear how much of that $152 million went to external affairs support, versus the many other corporate support services the FESC provides.
As part of a 2018 settlement agreement with the FES debtors, the FESC agreed ([link removed]) to provide FES with a $112.5 million credit for shared services received for that year, and also waive any claims for unpaid services from the time before FES filed its bankruptcy petition in March of 2017. In other words, FES may have received a free ride for external affairs work from the FESC for much of the 2016 to 2019 time period covered by the federal bribery investigation.
** Nearly $59 million for external affairs and communications support
------------------------------------------------------------
The thirteen FirstEnergy utilities included in this analysis paid the FESC a total of $58.7 million for external affairs and communications support in 2017-2019, of which more than $56 million was allocated to USoA Account 923, the generally recoverable operating account for outside service expenses.
The utilities allocated less than $2.2 million to Account 426.5, the non-operating account for miscellaneous expenses that is generally unrecoverable from ratepayers. They included none of the money for external affairs and donations in the FERC accounts for political expenditures and donations.
A small remaining portion was allocated to other USoA 900 series A&G operating accounts, and to accounts used for assets.
As noted earlier, a page on political activity found on FirstEnergy’s website ([link removed]) states that the External Affairs Department approves payments to 501(c)(4) organizations:
In certain circumstances, where permitted by law, and with the approval of our External Affairs Department, FirstEnergy may use corporate funds for the payment of dues and/or contributions to section 527 organizations (tax exempt organizations that engage in political activities), section 501(c)(4) organizations and trade associations that may use a portion of such dues for political and lobbying activities.
Partners for Progress’s latest annual Form 990 report to the IRS ([link removed]) for 2019 speaks to the primarily political nature of its mission, and to its contributions to other highly political social welfare groups, including Generation Now. The group described its primary mission ([link removed]) as “advocacy support of public utilities, related industries and associated public policy concerns.”
A section of the report describing Partners for Partnership’s accomplishments in 2019 focused on $13.9 million in grants it made, nearly all of which went to Generation Now, for “advocacy efforts” that “include efforts to increase support for the operation and viability of nuclear power plants in Ohio.”
A schedule of grants listed the purpose of Partners for Partnership’s cash grant to Generation Now as being for “issue advocacy, lobbying, and ballot referendums” – all of which seem to fit FERC’s definition of political expenditures ([link removed]) in the USoA.
Other cash grants Partners for Progress ([link removed]) made in 2019 to 501(c)(4)s were listed as being for for the express purpose of “political campaign intervention,” including grants for:
* $300,000 to Securing Ohio’s Future, which supported Mike DeWine for Ohio Governor during the 2018 election
* $75,000 to Protecting Ohio, which supported DeWine’s daughter Alice DeWine’s failed 2020 candidacy for a county prosecutor position
* $150,000 to Liberty Ohio, which opposed an outspoken Republican state representative who voted against HB 6
Dowling, the FESC’s vice president of external affairs, was terminated along with FirstEnergy CEO Charles Jones and vice president of marketing and branding Dennis Check following an internal company investigation ([link removed]) that found:
Each of these terminated executives violated certain FirstEnergy policies and its code of conduct. These executives were terminated as of October 29, 2020. Such former members of senior management did not maintain and promote a control environment with an appropriate tone of compliance in certain areas of FirstEnergy’s business, nor sufficiently promote, monitor or enforce adherence to certain FirstEnergy policies and its code of conduct. Furthermore, certain former members of senior management did not reasonably ensure that relevant information was communicated within our organization and not withheld from our independent directors, our Audit Committee, and our independent auditor.
An amended shared services agreement between the FESC and FES from 2018 ([link removed].) provided a detailed breakdown of the External Affairs services ([link removed]) the FESC agreed to provide to FES during its Chapter 11 bankruptcy:
The service agreement was with the FES debtors, but the agreement also included an overview of cost allocation methods that shows how “Indirect Costs” for some services provided to the FES debtors by the FESC were to be shared with the non-debtors FirstEnergy Corp. and its other subsidiaries.
Some external affairs services were assigned to cost centers like “Sr VP External Affairs” and “Energy Policy” and aligned with the “Multi-Factor All ([link removed]) ” cost allocation method, whereby:
For the Indirect Costs for products or services benefiting the entire FE Corp. system (including both the Client Companies and FE NonDebtor Parties), FE Corp. and all Subsidiaries will bear a fair and equitable portion of such costs. FE Corp. will bear 5% of these Indirect Costs. The remaining Indirect Costs will be allocated among the Utility Subsidiaries and the Non-Utility Subsidiaries benefiting from the services provided based on FE Corp.’s equity investment in the respective groups, as determined by the calculated allocation factors in use as of March 31, 2018…
Similar cost allocation methodologies can be found in the FESC’s service agreements ([link removed]) with the regulated FirstEnergy utilities included in this analysis.
In 2020, before the announcement of the federal HB 6 bribery investigation, Dowling attended a ceremony where FirstEnergy received a lobbying award from the Edison Electric Institute (EEI) and International Brotherhood of Electrical Workers ([link removed]) for the campaign to pass the bill in Ohio.
Dowling said winning the award “is the World Series in public policy – there’s no greater honor to be honest with you.”
EEI is the industry association for investor-owned electric utilities, and it’s funded by annual dues that are largely paid for by ratepayers of their member utilities through their utility bills ([link removed]) . In recent years, EEI dues have become a focus of efforts to protect ratepayers from paying for utility political spending embedded in industry association dues, which have their own USoA account 930.2 ([link removed]) , during rate cases.
** Nearly $6 million for federal affairs and energy policy support
------------------------------------------------------------
The thirteen FirstEnergy utilities paid the FESC just a few dollars shy of $6 million for federal affairs and energy policy support in 2017-2019.
Nearly all of this spending was recorded in the operating accounts for A&G expenses that are generally recoverable from ratepayers, aside from about $550 included in an account for assets. Almost all of the $6 million was included in USoA Account 923 for outside services.
Exactly zero dollars was allocated to the USoA 420 series accounts for non-operating costs that are typically unrecoverable from ratepayers, including Account 426.4 used for political expenditures and lobbying costs.
FESC service agreements ([link removed]) describe federal affairs ([link removed]) as including services “associated with developing and maintaining relationships with federal governmental institutions; includes lobbying and other support activities.”
The origins of the Ohio bribery scandal are often traced back to January 2017, when Larry Householder boarded one of FirstEnergy’s corporate planes ([link removed]) for a trip to D.C. for Donald Trump inauguration.
The 2019 campaign to pass HB 6 in Ohio followed a failed multi-year campaign by FirstEnergy and coal producer Murray Energy to secure a federal bailout for struggling coal and nuclear power plants from the Trump administration ([link removed]) . Emails and other records obtained by the Energy and Policy Institute via Freedom of Information Act requests show Dowling was personally involved in meetings with Secretary of Energy Rick Perry ([link removed]) and FERC Chairman Neil Chatterjee ([link removed]) during that time.
The FESC paid $1.1 million from 2017 to 2019 for Jeff Miller of Miller Strategies, a former aide to Perry, to lobby the Department of Energy on “grid resilience issues,” according to federal lobbying reports. Miller continued to lobby for the FESC in 2020.
Miller also raised millions of dollars as a campaign contributions bundler ([link removed]) for the Trump Victory fund during that time, according to bundling report data on file with the Federal Elections Commission.
Jeff Longstreth, a political advisor to Householder and the president of Generation Now, sent text messages in 2019 to Republican members of the Ohio House in 2019 as part of a pressure campaign to secure votes for HB 6 ([link removed]) . One message from Longstreth ([link removed]) released by the Ohio House last year in response to a federal subpoena and Open Records Law requests claimed that “the Trump Campaign is putting on the full scale press to save the jobs at the power plants.”
“Call Bob Paduchik if you don’t believe me,” Longstreth said, a reference to the Trump campaign official who urged state lawmakers to pass HB 6.
Longstreth was indicted alongside Householder, and has filed a guilty plea ([link removed]) to racketeering charges.
** Over $23 million on local affairs and economic development, and nearly $5 million on state affairs
------------------------------------------------------------
The thirteen utilities also paid the FESC over $23.7 million for local affairs and economic development support in 2017 to 2019, and close to $5 million for state affairs support.
$23.6 million of the money paid to the FESC for local affairs and economic development support was recorded in generally recoverable USoA A&G operating accounts, and again the majority – $23.2 – million was included in Account 923 for outside services.
$1.6 million spent on state affairs was recorded in above-the-line operating A&G accounts too.
State affairs was the only service type examined by this analysis where the majority of the money paid to the FESC was included in the generally unrecoverable, below-the-line account 426.5 for other deductions. Of the money paid to the FESC for state affairs, $3.3 million was recorded in account 426.5. None of the money paid to the FESC for local affairs and development or state affairs was recorded in USoA Account 426.4, the proper account for lobbying and political expenditures.
Service agreements describe the FESC’s state affairs support ([link removed]) as including activities “associated with developing relationships with state government institutions; includes lobbying, and other support activities.”
Joel Bailey is the FESC’s vice president for state and local affairs and economic development, a position described in 2018 by PUCO’s corporate separation audit ([link removed]) as “responsible for state and local legislation affecting FirstEnergy.”
“This unit also has a Governmental Affairs Representative who is responsible for FirstEnergy’s Political Action Committee (PAC),” the audit said. “The PAC is employee funded and supports state and federal level political candidates.”
Bailey and Dowling ([link removed]) both personally lobbied on HB 6 in 2019.
Bailey’s name appeared on a December 2019 presentation at a Campaign Institute hosted by the Edison Electric Institute ([link removed]) . Bailey’s presentation ([link removed]) detailed FirstEnergy’s multi-year campaign to secure bailouts from consumers for its uncompetitive coal and nuclear power plants in Ohio. His presentation included images of letters, resolutions, and testimony in support of FirstEnergy’s bailout proposals gathered from Ohio local government officials.
Bailey was CCed on 2019 emails ([link removed]) with local officials who were part of the Ohio Clean Energy Jobs Alliance ([link removed].) that was “powered by FirstEnergy Solutions” and supported HB 6. He was involved in a similar early 2018 campaign called Ohioans for Clean Energy ([link removed]) , which supported FirstEnergy’s pre-HB6 Zero Emissions Nuclear bills. Those earlier ZEN bills were included in a 2020 federal subpoena seeking records from the Ohio House about HB 6.
Emails show other members of FirstEnergy’s local external affairs team in Ohio, like Wendy Zele ([link removed]) , and economic development team, like Hans Rosebrock ([link removed]) , were also involved in organizing local officials to support House Bill 6 in 2019 ([link removed]) . Neither Zele or Rosebrock were registered as lobbyists for FirstEnergy with Ohio’s Joint Legislative Ethics Committee.
CCed ([link removed]) on many ([link removed]) of those emails ([link removed]) was Juan Cespedes, the lobbyistretained by the FESC in 2018 to lobby for the bankrupt FES ([link removed]) . Cespedes was charged alongside Householder in the HB 6 bribery case last year and filed a guilty plea in October ([link removed]) .
Annual Form 990 reports filed with the IRS by Generation Now ([link removed]) and Partners for Progress ([link removed]) described their missions as including promoting economic development.
** Close to $27 million for rates and regulatory affairs support
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The thirteen FirstEnergy utilities paid the FESC $26.8 million to provide rates and regulatory support in 2017-2019.
Basically all that total was included in USoA 900 series A&G operating accounts, and all but $183,000 of that was allocated to a single account, FERC Account 923 for outside services.
A few negligible amounts, some negative, were reported under other accounts, mostly for assets.
Service agreements with the FESC say the rates and regulatory affairs support provided ([link removed]) includes technical services like developing short-term and long-term sales forecasts, but also includes “regulatory activities and consulting” that involve monitoring and participating in “regulatory affairs at the local, state, and federal level.”
Attorneys for the FESC represented CEI, Ohio Edison, and Toledo Edison in cases where PUCO developed rules for implementing key provisions of HB 6 ([link removed]) like the nuclear bailout.
Brian Knipe, another attorney for the FESC, is now among the parties ([link removed]) participating in PUCO’s review of HB 6 political spending. Knipe was among the attorneys who filed a protective motion ([link removed]) for CEI, Ohio Edison, and Toledo Edison that was aimed at limiting deposition and discovery by the Ohio Consumers’ Counsel in that review.
Almost $24 million for corporate affairs and community involvement support
The FESC received $23.8 million from the thirteen FirstEnergy utilities for corporate affairs and community involvement support in 2017 to 2019. All but about $6,000 of that was included in USoA utility operating accounts for expenses that can usually be recovered from customers, with $23.7 million going into account 923 for outside services.
None was allocated by the utilities to the below-the-line account 426.1 for donations.
Descriptions found in service agreements with the FESC ([link removed]) show corporate affairs and community support includes “contributions management,” whereby the FESC “directs coordinates, monitors, and manages contributions.”
A 2019 report by the Energy and Policy Institute ([link removed].) documented how FirstEnergy solicited support for its federal and state bailout proposals from 501(c)(3) tax-exempt charities that received contributions from the FirstEnergy Foundation or through corporate contributions from FirstEnergy utilities.
Ebony Yeboah-Amankwah, the former vice president, general counsel, and chief ethics officer ([link removed]) for the FESC who separated from FirstEnergy last year in connection with the bribery scandal in Ohio ([link removed]) , also had served as the secretary of the FirstEnergy Foundation.
** The FESC used to have to publicly disclose more info about spending included in Account 923 for outside services
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Up until the mid-2000s, utilities’ central service companies filed an annual report with the Securities and Exchange Commission called the U-13-60 ([link removed]) . The report included schedules with a breakdown of account 923 outside service expenses ([link removed]) by sub-accounts that listed from whom those services were purchased, the types of services provided, and the total amount paid.
One U-13-60 report the FESC filed for 2004 ([link removed]) listed payments to outside law and lobbying firms like Akin Gump that FirstEnergy still employed years later during the HB 6 fight ([link removed]) .
The FESC reported to the SEC ([link removed]) that it paid the law firm Calfee, Halter & Griswold $106,000 in 2004 for “other” outside services described as “Consulting services related to governmental affairs.” Calfee also received $1.7 million ([link removed]) that year from the FESC for “Legal services related to various system wide issues.”
Calfee is in the news today for its role in running Partners for Progress ([link removed]) .
The FESC also disclosed to the SEC that it paid $500,000 in 2004 for “IEU Ohio” to provide “other” services related to “Ohio natural [gas] and electricity issues.” ([link removed]) IEU Ohio is the Industrial Energy Users Ohio, the non-profit industry group that was long spearheaded by attorney and lobbyist Samuel Randazzo ([link removed]) , who became chair of the PUCO in 2019. As recently as early 2019, Randazzo listed income from a for-profit consulting firm called the IEU-Ohio Administration Company ([link removed]) , which was incorporated in Ohio in 2003, on financial disclosures he filed annually with the Ohio Ethics Commission.
In early 2019, Randazzo declined to publicly answer questions about his murky financial relationship with FirstEnergy ([link removed]) during his nomination and appointment to the PUCO, where he served as chairman until his resignation in November of 2020 ([link removed]) . Randazzo resigned from PUCO in scandal after the FBI raided his home, and FirstEnergyrevealed a previously secret $4 million payment ([link removed]) made in early 2019 to an entity affiliated with someone who “subsequently was appointed to a full-time role as an Ohio government official directly involved in regulating the Ohio Companies, including with respect to distribution rates.” FirstEnergy’s description of this individual fits Randazzo.
FirstEnergy has connected the decision last year to terminate “certain former members of senior executives” ([link removed]) to the internal company investigation that it claims revealed that $4 million payment to the company’s board. The full findings of that internal investigation have not been made public by FirstEnergy.
FERC replaced the SEC’s U-13-60 report with the “streamlined” Form 60 in rules adopted to implement the Public Utility Holding Company Act (PUHCA) of 2005, which replaced the repealed PUHCA of 1935. The old schedules for the outside services account were eliminated in the transition to the new annual report for service companies ([link removed]) , over the objections of the National Association of Regulatory Utility Commissioners (NARUC).
“Outside services and employee expenses are major components of expense (along with labor) incurred by a service company,” NARUC said ([link removed]) . “The detail in these schedules provides an important tool for understanding service company costs and functions.”
A representative of PUCO who spoke at one 2006 technical conference FERC held as it considered the new Form 60 rules warned of an “explosion” of outside services spending by utilities ([link removed]) in Ohio.
Also eliminated after 2005 were other schedules found in the U-13-60, including schedules for general advertising expenses and donations. FirstEnergy, EEI, and other utilities called on FERC to adopt a “streamlined version of the Form 60” ([link removed]) to avoid “imposing undue burden” on utilities in terms of reporting requirements.
Affiliate transactions with the FESC reported on Form 1s for 2017 to 2019 by the thirteen FirstEnergy utilities included in this analysis provide only a partial window into their spending on outside services. The thirteen utilities together included over $1 billion in spending on outside services in Account 923 on their FERC Form 1s over the three year period. The FESC reported on its Form 60s that it charged a total of $212.7 million million for outside services on its FERC Form 60s during that same time.
Today’s FERC Form 1s and Form 60s provide relatively few details about how all that money on outside services was spent. The old SEC U-13-6 reports that were phased out during the mid-2000s show how in the past, the FESC included expenses like “lobbying services” and “consulting services related to government affairs” in outside services account 923, alongside mundane “other” expenses like “staffing services.”
FirstEnergy is now fighting efforts to require it to publicly disclose information ([link removed]) like the full findings of the internal investigation that led to the termination of Dowling and other senior company executives in connection with the bribery scandal. In PUCO’s review of FirstEnergy’s HB 6 political spending, the company’s lawyers claim the OCC’s discovery requests regarding its Ohio utilities’ Form 1s ([link removed]) are somehow “unduly burdensome, harassing, oppressive, vague, ambiguous and seeks to impose an undue expense.”
The USoA requires utilities and their service company to maintain records related to outside spending “so as to permit ready analysis showing the nature of service, identity of the person furnishing the service, affiliation to the service company ([link removed]) , and, if allocated to more than one company, the specific method of allocation.”
So FirstEnergy should have that information available if regulators come calling.
** Analysis
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The spreadsheet below includes a summary of the key areas of the Energy & Policy Institute’s analysis of the FERC Form 1s filed by the thirteen FirstEnergy utilities in 2017 to 2019.
The first tab summarizes the total money paid to the FESC by utility, and also includes a breakdown by utility of spending on each external affairs service type.
The remaining tabs provide breakdowns of the spending by external affairs service area type, utility, and the USoA accounts used to report the spending. Columns highlighted in green mark amounts included the generally recoverable A&G expense accounts. Columns in red mark amounts included in the usually unrecoverable below-the-line-account 426.5 for miscellaneous non-operating expense. Yellow marks amounts included in other accounts, nearly all for assets.
IFRAME: [2][link removed]
The post 13 FirstEnergy utilities paid $144 million for external affairs to service company involved in Ohio bribery scandal ([link removed]) appeared first on Energy and Policy Institute ([link removed]) .
References
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