Documents show state utility regulators sought edits to draft versions of an audit they commissioned, prompting the removal of declarations that a ratepayer-funded bailout of two uneconomic coal plants was a bad deal for Ohio electric customers.

Staff at the Public Utilities Commission of Ohio, which sets customers’ water and electric rates, asked an auditor it hired to use a “milder tone and intensity” when describing bailouts of coal fired power plants funded residential and industrial electricity users.

After reviewing a non-public draft of the audit, PUCO employee Mahila Christopher cited a few specific lines of concern in a September 2020 email to auditors, obtained via public records request. She specifically flagged language that states: “keeping the plants running does not seem to be in the best interests of the ratepayers.”

The sentence does not appear in the publicly released version of the audit.

Starting in 2014, PUCO began the process of approving requests from three utility companies — American Electric Power, Duke Energy, and Dayton Power and Light Co. (now known as AES) — to charge their customers “riders” on monthly bills to pay for the coal plant bailouts through 2024. The utilities are some of the largest shareholders of a cooperative called the Ohio Valley Electric Corp., which owns the plants. PUCO ordered the audit, an oversight mechanism, as part of the deal.

Has Ohio's Public Utilities Commission been captured by those it's supposed to regulate?

In 2019, Ohio lawmakers codified the bailouts, expanded them to all residential and industrial utility customers statewide, and extended them through 2030 in House Bill 6. That legislation is now at the center of a federal bribery case that has yielded guilty pleas of a lobbyist, a powerful political operative, a dark money nonprofit, and utility company FirstEnergy Corp. The former House speaker has been indicted on one count of racketeering, though he maintains his innocence. Facts proffered by FirstEnergy in its guilty plea implicate the former PUCO chairman of bribery as well, though he has not been charged with a crime and maintains his innocence.

Since HB 6 was implemented in January 2020, Ohio ratepayers have spent $166 million bailing out the plants, one of which is in Madison, Indiana, the other in Cheshire, Ohio.  The PUCO-commissioned audit ultimately concluded the plants “cost customers more than the cost of energy and capacity.”

In another email, one of the auditors tells PUCO she’ll delete another sentence referencing the conclusion that “the OVEC contract overall is not in the best interest of AEP Ohio ratepayers.”

In the publicly released version of the audit, no such sentence appears, even though the stated objective of the audit is to “investigate whether the AEP Ohio’s actions were in the best interest of its retail payers.”

AEP is far and away the largest shareholder of OVEC, owning about 43% of its equity. Duke owns 9%. AES owns 4.9%.

The email states staff needs “final acquiescence from PUCO Admin” regarding the “overall tone” of the report. A commission spokesman said this refers to the staffer’s supervisor.

The PUCO email was sent after the initial arrests in House Bill 6 but before the guilty pleas (October 2020) and public disclosures linking the PUCO chairman to the scandal (November 2020).

To that end, Christopher requested another edit, asking that auditors reduce their “level of detail/specifics” about the scandal. Specifically, she asked them to remove a reference to FirstEnergy, Generation Now (the FirstEnergy-funded nonprofit that pleaded guilty), and the charges against former House Speaker Larry Householder.

The request was apparently heeded. The public audit bears no reference to Householder, Generation Now, or FirstEnergy (as it relates to the company’s role in the scandal).

When FirstEnergy agreed to plea guilty to a lesser charge in July, it stated in court documents it paid PUCO Chairman Sam Randazzo $4.3 million shortly before he took office in exchange for regulatory favors. Randazzo has denied this, stating the payment was lawful and stemmed from his consulting work for the company.

AEP has been linked to the scandal through Generation Now, the nonprofit that pleaded guilty. Generation Now received $700,000 from Empowering Ohio’s Economy, a nonprofit solely funded by AEP. Earlier this summer, the company disclosed it received a subpoena from federal regulators “relating to the benefits to the company from the passage of H.B. 6.”

The emails reflect a trend of what’s known as “regulatory capture,” in which regulatory agencies created to act in the public interest wind up acting in the interest of the industries they’re intended to regulate. Gov. Mike DeWine appointed Sam Randazzo as chairman of the PUCO, despite public outcry from environmental advocates regarding his years of work in opposition to renewable energy on multiple fronts.

The Ohio Consumers' Counsel, an independent but state-funded agency that represents residential ratepayers before the PUCO, obtained the emails in a public records request. An OCC official cited them as evidence of PUCO’s “utility friendly regulation” in testimony before lawmakers in support of legislation to repeal the OVEC bailouts.

OCC spokeswoman Merrilee Embs expressed outrage at the implications of the emails.

“As the state consumer advocate, we are dismayed with the PUCO’s emails catering to the utility (AEP) in the audit of coal power plant subsidies that Ohioans were charged,” she said. “This situation at the PUCO demands reform, and reform should start with commissioner appointments. It’s time to appoint consumer representatives to the PUCO.”

Matt Schilling, a PUCO spokesman, declined specific questions about the case, citing ongoing litigation and pending PUCO action on the audit report.

“There are pending motions for this case to go to an evidentiary hearing, which I expect will be ruled upon soon by the administrative law judge assigned to the case,” he said.

• • •• • •