AEP’s Clifty Creek power plant in Madison, Indiana. Credit: Crowezr / Wikimedia Commons

This monthly newsletter provides updates on Ohio’s ongoing utility corruption scandal. Was this forwarded to you? Click here to subscribe.

“Holy mackerel,” wrote John Swez, Duke Energy’s director for generation dispatch, in a recently released company email about losses from the old coal plants subsidized by House Bill 6, Ohio’s coal and nuclear bailout law. Critics say that and other emails show utilities knew the coal plants were run in a way that increased their losses and the resulting costs to consumers.

“Holy mackerel” can also apply to other developments in Ohio’s ongoing corruption scandal. Among other things:

  • The case on coal plant charges also shows how overbroad confidentiality claims compound challengers’ problems in contesting allegedly unlawful and unreasonable charges.
  • An 18-month stay on four HB 6 regulatory cases ended, but new issues have led parties to ask the Public Utilities Commission of Ohio to push out the schedule until criminal claims are resolved.
  • A firm timetable has not yet been set in the state’s criminal case against former FirstEnergy executives Chuck Jones and Michael Dowling and former PUCO chair Sam Randazzo. Prosecutors are expected to produce roughly 100,000 documents to the defendants. Meanwhile, questions remain for the DeWine administration.
  • Lawyers for former Ohio House speaker Larry Householder briefed their arguments for reversing his criminal conviction.
  • A newly released email shows American Electric Power insisted on including coal plant subsidies in HB 6. An end to those subsidies could impact the company’s finances, its latest annual report says.

Coal plant costs

“Holy mackerel,” wrote John Swez, Duke Energy’s director for generation dispatch, in an April 2020 email. The recently released message came in response to losses for the two 1950s-era coal plants subsidized by HB 6, known as the OVEC plants. That and other emails in the chain show Duke Energy executives and others were told at the time that it was more expensive to run the coal plants continuously, rather than only when market conditions would let them break even or make a profit.

The Ohio Manufacturers’ Association Energy Group quoted from the emails in a March 5 brief, urging regulators to find more than $100 million in costs passed on to ratepayers for that year were imprudent and unreasonable. The Office of the Ohio Consumers’ Counsel likewise cited the emails, saying they “shine a clear spotlight on what the actors were thinking when the events unfolded.”

The emails highlight how utilities often assert overbroad claims for confidentiality. Duke Energy Ohio claimed everything in the emails was confidential all through pre-hearing fact finding, called discovery, and during an evidentiary hearing, too.

Only afterward did the hearing examiner tell lawyers for Duke, American Electric Power and AES Ohio to reconsider their broad confidentiality claims in the case. That led to filing of a publicly available redacted version of the Duke emails in late January. Earlier work by the Checks & Balances Project highlighted other confidentiality claims for information in an audit report that were already publicly available.

The two subsidized coal plants continue to lose more than half a million dollars daily, according to the Office of the Ohio Consumers’ Counsel. Since 2020 began, ratepayers have paid roughly $250 millionfor the plants under HB 6. Leadership in Ohio’s General Assembly has blocked votes on bills to repeal the coal plant subsidies.

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Putting on the brakes — again

The Public Utilities Commission ended an 18-month freeze of four HB 6-linked FirstEnergy cases last month. “The PUCO will continue to follow the facts wherever they may lead,” said Chair Jenifer French just before the prior stay order expired.

The Feb. 26 orders put three of the cases on a fast track for evidentiary hearings to start in June and July. However, the orders did not allow enough time for challengers to conduct discovery. And because of the commission’s complete freeze of the cases for 18 months, FirstEnergy still hasn’t produced hundreds of thousands of pages of documents, said a joint March 4 filing by the Office of the Ohio Consumers’ Counsel and the Ohio Manufacturers’ Association Energy Group.

A Feb. 29 letter from lawyers at the Ohio Attorney General’s office poses more problems. In it, the attorneys suggested an Ohio statute could provide former FirstEnergy executives Chuck Jones and Michael Dowling or former PUCO chair Sam Randazzo with immunity from criminal prosecution if they were forced to testify in the regulatory cases. All three are defendants in a criminal case filed by the state last month.

The statute’s language suggests the state’s lawyers have a legitimate concern, said Michael Benza, a criminal law expert at Case Western Reserve University School of Law. Moreover, the law’s language describes what’s known as transactional immunity. It’s very broad and “prevents all prosecutions under the umbrella of what the person testified to,” Benza said.

After the letter was filed, the PUCO ruled that any outstanding or requested subpoenas for Jones or Dowling would not go forward. The Consumers’ Counsel agreed not to require testimony from them or Randazzo before their trials in the criminal cases.

However, making challengers move ahead without a full opportunity for discovery would deprive them of due process rights, the Consumers’ Counsel and the manufacturers’ group argued.

Instead, they asked the PUCO to postpone the hearings until after completion of the current criminal cases and a fair opportunity for discovery. Meanwhile, regulators should require FirstEnergy to finish outstanding document production, they said.

One of the three cases deals with corporate separation requirements under Ohio law. FirstEnergy would have violated those requirements if it diverted ratepayer money from regulated Ohio utilities to benefit its former unregulated subsidiary, FirstEnergy Solutions.

Another case deals with a credit support rider that was held unlawful by the Ohio Supreme Court more than two years after FirstEnergy started collecting roughly $450,000 from ratepayers. The court ruled the unlawful charges are not refundable. However, problems noted in the audit and by other parties in the case could subject FirstEnergy to up to $1.4 billion in penalties.

A third case deals with a “delivery capital rider.” An audit found that millions of dollars which appear linked to the HB 6 scandal were improperly charged to ratepayers. FirstEnergy is looking to extend and increase that rider’s charges in a separate regulatory proceeding.

The fourth HB 6-linked case is a broader inquiry into whether FirstEnergy unlawfully used ratepayer money for political or charitable purposes. There is no evidentiary hearing scheduled yet. An audit report is now due from the accounting firm Marcum in late August.

Although using ratepayer money for political purposes is already unlawful, HB 444, introduced March 8, would require refunds and add new fines for violations.

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Ongoing criminal cases

A firm timetable has not yet been set in the state’s criminal case against Chuck Jones, Michael Dowling and Sam Randazzo, who have all pled not guilty to charges of bribery, theft, money laundering, telecommunications fraud, record tampering, and a pattern of corrupt activity. Filings in the case show where state prosecutors are expected to produce roughly 100,000 documents to the defendants. It’s also unclear when the federal government’s case against Randazzo will go to trial, or whether there will be more federal or state charges against others.

On Feb. 16, the Ohio Attorney General’s office asked a Franklin County court for a full stay on its HB 6 civil case against the three defendants, FirstEnergy and others. No party has opposed the motion, which argues that the state’s case against any defendant could hinge upon discovery from the others. Judge Chris Brown might still rule on multiple motions to dismiss or for partial summary judgment.

Gov. Mike DeWine’s administration also faces increased public scrutiny, with critics calling for a broader corruption probe. DeWine claims he didn’t know about the $4.3 million payment from Randazzo to FirstEnergy shortly before his appointment to the PUCO. Yet allegations in the indictment state that his former chief of staff, Laurel Dawson, knew about the payment.

Dawson’s husband had been a lobbyist for FirstEnergy, and she still works as an advisor to DeWine. His former legislative affairs director, Dan McCarthy, had been president of a nonprofit allegedly used to funnel funds from FirstEnergy to dark money groups controlled by Householder.

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Arguments on appeal

Lawyers for former Ohio House speaker Larry Householder briefed their arguments for reversing his conviction in the federal government’s HB 6 criminal case last year. Defense lawyers claimed federal prosecutors tried Householder as “a scapegoat for what it viewed to be a corrupt piece of legislation supported by undisclosed campaign contributions,” which they claimed were protected under the First Amendment.

“If using laundered bribe money from a major power company like FirstEnergy to pay off a legal settlement against your failed coal mining business is free speech, then our democracy is doomed,” said Dave Anderson, energy and policy communications manager for the Energy and Policy Institute.

Householder’s brief claimed the trial court erred in multiple ways, including its rulings on the admissibility of various pieces of evidence, the sufficiency of the evidence, jury instructions and dismissal of a juror. Other issues include the length of the 20-year sentence and a claim about the judge’s impartiality.

To get a reversal of their convictions, Householder and Borges, whose appeal is a separate case, must convince the Sixth Circuit Court of Appeals that the trial court erred in ways that adversely affected their defenses. The government’s response to Householder’s brief is due March 27, unless an extension is granted. The government’s brief in the Borges appeal is due April 8.

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Material impact?

American Electric Power’s latest annual report, filed last month, warned shareholders that HB 6’s coal plant subsidies are under added scrutiny. AEP owns a larger share of OVEC than other Ohio utilities and noted that a repeal of the subsidies could impact its income, cash flow and financial condition.

AEP insisted on those subsidies, as shown by a recently released email from former chief operating officer Lisa Barton to Dowling at FirstEnergy. Charges for the coal plants like those for FirstEnergy’s nuclear plants were “essential” for support for HB 6, she wrote. Publicly, however, Barton and AEP touted the company’s renewable energy goals, as shown by remarks she made in 2020.

AEP’s annual report for 2022 had said its management “does not believe that AEP was involved in any wrongful conduct in connection with the passage of HB 6.” Now, its 2023 annual report says, the company has formed an independent committee to investigate whether actions by the directors or officers breached their fiduciary duties to the company. “Management is unable to determine a range of potential losses that is reasonably possible of occurring,” the report said.

The report also shows the company hopes to soon resolve possible claims by the Securities and Exchange Commission related to HB 6. The investigation has included testimony and information relating to Empowering Ohio’s Economy, a group that got about $8.7 million from AEP from 2015 through 2020. About $900,000 went from Empowering Ohio’s Economy to other groups linked to the HB 6 scandal.

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Kathi is the author of 25 books and more than 600 articles, and writes often on science and policy issues. In addition to her journalism career, Kathi is an alumna of Harvard Law School and has spent 15 years practicing law. She is a member of the Society of Environmental Journalists and the National Association of Science Writers. Kathi covers the state of Ohio.