By Christen Smith
The Ohio Supreme Court on Wednesday overturned a 2016 decision by state regulators that netted FirstEnergy at least $168 million in extra annual revenue through a distribution modernization rider (DMR) — though ratepayers shouldn’t expect a refund anytime soon.
In a 4-3 ruling, the court said the Public Utilities Commission of Ohio erred when it allowed FirstEnergy to modify its existing electric security plan to charge more than 2 million customers for the rider, collecting approximately $442 million over the last three years.
The commission approved the charge because the revenue it generated would purportedly serve as an incentive for the companies to modernize their distribution systems. The Ohio Consumers Counsel and 18 other parties challenged PUCO’s decision, telling the court that the fee was a sham devised for “credit support” and did not fund any system upgrades.
“Although the DMR may make it possible for FirstEnergy to obtain capital for future infrastructure investment on more favorable credit terms, the evidence cited does not support the commission’s finding that the DMR qualifies as an incentive under [the Revised Code],” the court said in its ruling. “The PUCO staff’s wishful thinking cannot take the place of real requirements, restrictions or conditions imposed by the commission for the use of DMR funds.”
Although FirstEnergy must immediately remove the charge from ratepayer bills, the court acknowledged current state law does not provide any refund mechanism for the nearly half-billion dollars in fees it says the company improperly collected.
It’s a common occurrence, said OCC spokesperson J.P. Blackwood, noting that since 2008, utility companies have collected more than $1 billion from consumers in unlawful fees without paying back a single dime.
“Without a refund, this decision is another victory for utilities who have thwarted consumer attempts at the PUCO, the legislature and the court to enable refunds of utility charges that the court finds to be improper,” he said. “The utilities have too much influence in this state and that needs to be reformed.”
Matt Schilling, spokesperson for PUCO Chairman Sam Randazzo, did not respond to a line of questioning about whether the organization would ever consider approving a refund mechanism for consumers in the future.
“The PUCO is currently reviewing the decision and will respond in accordance with the court’s directives,” he said.
FirstEnergy also said it is still reviewing the ruling and evaluating its options.
“We continue to believe that [the DMR] provides benefits to our customers by enhancing our ability to modernize our system and invest in advanced technologies,” company spokesperson Mark Durbin said. “A third party appointed by the PUCO just this week determined that we have appropriately used DMR funds in support of grid modernization.”
In its ruling, the court was specifically critical of PUCO’s previous third-party DMR expenditure reviews, performed periodically by Oxford Advisors, saying they “do not sufficiently protect ratepayers from possible misuse of DMR funds.”
The court noted that Oxford is required to submit quarterly updates to PUCO staff, as well as a midterm report in the event FirstEnergy seeks to extend the DMR beyond its initial three-year term and a final report within 90 days of the termination of the DMR.
But the court also pointed to a catch: While PUCO will allow any participant in the DMR proceeding to examine Oxford’s conclusions and recommendations, the reports do not become available until they are filed with the commission.
“This will not occur, however, until FirstEnergy seeks to either extend or terminate the DMR, and so it appears that the parties will not be able to challenge Oxford’s findings until well after the DMR funds have been recovered and spent,” the court wrote. “Thus, it is not clear what remedy would be available should the commission (or this court on appeal) find that FirstEnergy has misused DMR funds.”