New Audit of FirstEnergy Ohio Utilities’ DMR Now Available



COLUMBUS, OHIO (Jan. 14, 2022) – A new audit report of FirstEnergy Ohio utilities’ distribution modernization rider is now available. The audit report was ordered by the Public Utilities Commission of Ohio (PUCO) on Dec. 30, 2020 in response to the allegations surrounding the passage of Amended Substitute House Bill 6 during the 133rd General Assembly.

The audit report, prepared by Daymark Energy Advisors, examined whether the revenues collected by the utilities from rider DMR were used for its stated purpose of supporting the utilities’ grid modernization investments. The utilities collected $457.7 million from Jan. 1, 2017 – July 2, 2019.

Findings and recommendations

The audit report makes 17 findings and recommendations. Among the findings and recommendations:

  • The audit found no evidence revenues from the DMR were used to fund lobbying activities.
  • Recommends the “utility money pool” be audited more frequently. A utility money pool allows utilities to borrow short-term working capital amongst its corporate affiliates.
  • Recommends the FirstEnergy’s Ohio utilities establish a formal dividend policy. The audit report noted that dividend payments made by the utilities to the corporate parent FirstEnergy Corporation—while not unreasonable—lacked a formal documented policy.

A copy of the audit report is available on the PUCO website at www.PUCO.ohio.gov by clicking on the link to “Docketing Information Systems” and searching for case 17-2474-EL-UNC.

The PUCO administrative law judge will issue a procedural schedule soon to allow the intervening parties in this proceeding to weigh in on the audit report’s findings and recommendations.

CASE BACKGROUND

The distribution modernization rider (DMR) was a provision of Cleveland Electric Illuminating, Ohio Edison and Toledo Edison’s electric security plan established in October 2016. The stated purpose of the DMR was to jump start the utilities’ grid modernization investments.

On Oct. 12, 2016 the Commission issued an entry on rehearing that, among other things, established the DMR for a 3-year period beginning on Jan. 1, 2017. The utility was permitted to seek a 2-year extension, subject to further review and approval.

On Dec. 1, 2017 the utilities filed an application to pursue grid modernization efforts throughout its service territory.

On Feb. 1, 2019, the utilities filed an application seeking a 2-year extension of the DMR.

On June 14, 2019 a mid-term audit report of rider DMR was filed by Oxford Advisors.

On June 19, 2019 the Supreme Court of Ohio ruled on an appeal of the Commission’s 2016 entry on rehearing establishing the DMR. The court remanded the case back to the PUCO and instructed the Commission to remove the DMR from the utilities’ electric security plan.

On July 17, 2019, the Commission approved a settlement agreement to authorize the utilities to make up to $516 million in grid modernization investments across its service territory. The settlement also resolved issues related to the utilities refunding and/or crediting customers with $900 million due to the Tax Cuts and Jobs Act of 2017.

On Aug. 22, 2019 the Commission ordered the FirstEnergy utilities to eliminate DMR from its tariffs and refund any amounts it had collected from customers since July 2, 2019 after the Supreme Court of Ohio issued its order.

On Nov. 21, 2019, the Commission dismissed the utilities’ application to seek a 2-year extension as moot given the Supreme Court of Ohio’s June 19, 2019 ruling.

On Feb. 26, 2020, the Commission issued an entry finding a final audit report was no longer necessary, as the DMR was a term of the utilities’ electric security plan invalidated by the Supreme Court of Ohio’s June 19, 2019 ruling. In doing so, the Commission noted the court specifically objected to the usefulness of DMR audits.

On Dec. 30, 2020, the Commission reopened the proceeding and following the allegations surrounding the passage of HB 6.

On June 2, 2021 the Commission selected Daymark Energy Advisors to perform the audit.

RELATED AND ONGOING CASES

The PUCO has four separate pending investigations related to FirstEnergy’s Ohio utilities and the passage of Amended Substitute House Bill 6 (133 G.A.)

On Dec. 30, 2020, the Commission renewed a requirement for the FirstEnergy Ohio utilities to file an application for a distribution rate case by May 2024.

On July 7, 2021, the Commission ordered the FirstEnergy utilities to refund $27.5 million it collected in “decoupling” funds.

On Nov. 1, 2021, the Commission ordered the FirstEnergy utilities to refund $306 million as a result of a settlement resolving over 10 regulatory proceedings related to its annual earnings reviews, energy efficiency rider audits, and continuing its electric security plan through May 2024.