FirstEnergy audit leaves lobbying costs unclear
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CHARLESTON -- An auditing firm hired by the West Virginia Public Service Commission found evidence that electric companies owned by FirstEnergy Corp. adjusted for related costs connected to the Ohio House Bill 6 scandal, but full lobbying costs by FirstEnergy remain elusive.
The PSC received a focus management audit report Thursday by Rhode Island-based Van Reen Accounting LLC of Monongahela Power Co. and Potomac Edison Co. Both companies are owned by Akron-based FirstEnergy Corp.
The PSC filed an order in March calling for a focused management audit of MonPower and Potomac Edison's lobbying and image building expenses that were included in expanded net energy costs (ENEC) cost recovery proceedings covering 2023 and going back to 2018. Van Reen was selected to conduct the audit in August and given a deadline of Dec. 31 to complete the audit.
Part of the audit was to focus on whether FirstEnergy tried to charge MonPower and Potomac Edison ratepayers for lobbying and promotion expenses as part of base rate increase requests in connection with Ohio House Bill 6.
According to federal court documents, FirstEnergy was accused of spending more than $60 million between 2018 and 2020, funneling the money through Generation Now, a non-profit controlled by Former Republican Ohio House Speaker Larry Householder and others. The funds were allegedly used to help Householder become House speaker.
Later, funds from the non-profit were used to bribe ballot initiative signature collectors to stop collecting signatures to reverse House Bill 6, a bill that charges Ohio ratepayers to keep the Davis-Besse and Perry nuclear plants operating, allowing for electric utility decoupling, and reversing energy efficiency mandates.
Householder, former Ohio Republican Party chairman Matt Borges, and three others were found guilty over the past year for their part in a bribery and racketeering scheme.
In lieu of prosecution, FirstEnergy, which was charged with federal wire fraud, agreed to a settlement and $230 million penalty and a three-year deferred prosecution agreement.
Other investigations and lawsuits against FirstEnergy are pending. According to the Van Reen report, attorney-client privilege prevented them from inspecting FirstEnergy's lobbying and building costs associated with HB 6.
"FE's legal investigation that included identification of HB 6 costs mischarged to (MonPower and Potomac Edison)...is attorney-client privileged," the report stated. "As such, Van Reen Accounting's procedures for HB 6 were limited to inquiries and review of the costs within the possession, custody, or control of MonPower and (Potomac Edison)."
While Van Reen said it had obtained evidence that MonPower and Potomac Edison had adjusted for HB 6-related costs, the firm found no evidence that HB 6-related costs were included in the 2022 test year used in the companies' 2023 rate case request.
According to the report, more than $871,000 in costs associated with HB 6 were mischarged to MonPower and Potomac Edison's expense and capital accounts in 2012 and between 2014 and 2020. Correcting journal entries were posted in 2020 to remove these costs from the two companies' operating expenses and capital accounts.
"Because these costs were incurred prior to and after 2013 and the companies' last base rates in West Virginia were based on a 2013 test year, these costs are not in current base rates," the report stated. "In addition, because correcting journal entries were recorded prior to 2022 and the test year for the 2023 rate case is as of December 31, 2022, these costs are not in the proposed revenue requirement of Case No. 23-0460-E-42T."
MonPower and Potomac Edison have three pending electric rate increase requests before the PSC, including their annual ENEC request, where the companies are seeking an additional $167.5 million, or an additional $9.19 per an average residential customer's power bill. They are also seeking $207.5 million through an increase in base rates, and $33.9 million over a two-year period beginning in 2024 for vegetation management.
For non-HB 6 lobbying costs, MonPower and Potomac Edison reported a combined $343,752 in external and internal lobbying costs accrued between 2015 and 2021 according to a September 2022 list of correcting journal entries to remove several non-operating and non-recoverable costs. But Van Reen auditors said both companies had a difficult time separating its normal lobbying costs from possible HB 6 lobbying costs.
"...The companies stated that internal lobbying costs were not tracked with sufficient specificity to determine whether those costs were incurred as part of lobbying in support of HB 6," according to the report.
FirstEnergy did provide Van Reen with Excel spreadsheets containing information from the company's internal Federal Energy Regulatory Commission investigation for external and internal lobbying costs, though the expenditures were redacted. However, the investigation did find that external and internal lobbying costs had been "misclassified, misallocated, or lacked sufficient supporting documentation across all of (FirstEnergy) and its subsidiaries."
According to the report, more than $1 million in non-HB 6-related external and internal lobbying costs were recorded on MonPower and Potomac Edison's books between 2015 and 2021 along with $84,489 in internal lobbying ancillary costs, though correcting journal entries made in 2022 removed these costs.
The audit also found $229,115 in sports sponsorships mischarged to MonPower and Potomac Edison and included in the companies' 2013 test year for its prior base rate case. The companies determined that customers are owed more than $2.5 million in a refund, which will be credited to customers in July 2024.
Another $328,785 in non-recoverable costs was mischarged to MonPower and Potomac Edison between 2015 and 2022, and more than $875,000 in non-operating and non-recoverable costs on non-base rate surcharges.
Steven Allen Adams can be reached at sadams@newsandsentinel.com.