The New Jersey Board of Public Utilities voted Wednesday to hold a public hearing on Jersey Central Power & Light in response to the ongoing bribery scandal involving its parent, FirstEnergy.
The BPU acted two days after FBI agents raided the home of Public Utilities Commission of Ohio Chair Sam Randazzo and several weeks after S&P Global and Fitch Ratings downgraded the credit rating of FirstEnergy and its subsidiaries, including JCP&L.
In July, federal prosecutors alleged FirstEnergy spent $61 million in bribes, “dark money” campaign contributions and advertising to elect the speaker of the Ohio House of Representatives and allies in return for their support of House Bill 6, which provided $1.5 billion in subsidies for the utility’s struggling nuclear plants.
On Oct. 29, FirstEnergy announced it had fired CEO Charles Jones and two others following an internal review related to “government investigations.” On Nov. 8, the company released its top lawyer and chief ethics officer. (See Chief Ethics, Legal Officers ‘Separate’ from FirstEnergy.)
S&P said it dropped FirstEnergy and JCP&L to BB+ from BBB as a result of the alleged scheme.
“The two-notch downgrade reflects the termination of the company’s CEO, Chuck Jones, and two other executives for violating company policies and its code of conduct. We view the severity of these violations at the highest level within the company as demonstrative of insufficient internal controls and a cultural weakness,” S&P wrote in announcing its Oct. 30 downgrade. “We view these violations as significantly outside of industry norms and, in our view, represent a material deficiency in the company’s governance.”
On the same day, Fitch downgraded FirstEnergy and FirstEnergy Transmission’s long-term issuer default ratings (IDR) to BBB- from BBB and JCP&L’s long- and short-term IDRs.
Moody’s Investors Service has not changed its ratings but put FirstEnergy and JCP&L on a negative credit watch.
Mitigation Plan
The downgrades required JCP&L to provide the BPU with a mitigation plan for shoring up its rating.
The board said it will receive written comments until Dec. 4 on the mitigation plan. It set a public hearing for Dec. 11, when it will hear from JCP&L and “determine the appropriateness of any additional board action to protect” ratepayers.
BPU Chief Economist Ben Witherell recommended the hearing “to be comprehensive and transparent in its review of the company’s mitigation plan and to assess the company’s ability to successfully implement an appropriate mitigation plan.”
“I don’t think we have all the information we want yet,” he said. “The New Jersey subsidiary is financially solid. However, the parent company’s risks do weigh on that. … Issues at the parent company are very significant.”
BPU President Joseph Fiordaliso said, “The situation is very serious.
“I was in communication with the acting CEO of FirstEnergy, [Steven Strah] … and he assured me that the internal investigation is just as aggressive as the investigation from external sources.”
Commissioner Bob Gordon noted that the BPU had recently ordered an audit of JCP&L. “It’s really important that it go beyond the numbers, beyond the financial audit. It needs to be an audit of operational effectiveness and organizational design; incentive systems; reporting relationships. It really needs to be a management audit, not simply to assure us that it’s a creditworthy organization.”
Randazzo Raided
On Monday, FBI agents raided the Columbus home of PUCO Chair Randazzo, who was appointed to the commission in February 2019 by Gov. Mike DeWine.
“FBI agents are conducting court-authorized law enforcement activity in that area in relation to a sealed federal search warrant,” FBI spokesman Todd Lindgren told local media. “Due to this matter being sealed, no further details can be released at this time.”
Randazzo and PUCO officials have declined to comment on the raid.
Randazzo’s ethics statement shows an ownership in two consulting businesses, including one Sustainability Funding Alliance of Ohio, that did work for FirstEnergy Solutions (FES), FirstEnergy’s former generation subsidiary. It emerged from bankruptcy this year as an independent company, Energy Harbor.
Before joining PUCO, Randazzo was a partner at McNees, Wallace & Nurick and represented Industrial Energy Users-Ohio.
Earlier this month, PUCO began an audit of FirstEnergy to see whether the company broke any laws or regulations regarding its interactions with FES.
At a press conference this week, DeWine said of Randazzo: “We have no indication he’s under investigation or the target of an investigation.”
