Consumer protection? New DeWine regulatory chief says most overcharges can’t be refunded

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By Marty Schladen and Ohio Capital Journal

Gov. Mike DeWine’s latest appointee to lead Ohio’s scandal-plagued utility regulator last week raised concerns among some lawmakers and consumer watchdogs. She claimed that her agency has only a very limited ability to make electric companies refund billions in improper charges to ratepayers.

There was always going to be scrutiny when Jenifer French made her first appearance last Wednesday before the Ohio Senate and Public Utilities Committee. 

DeWine appointed her in March to chair the Public Utilities Commission of Ohio. DeWine’s first appointee, Sam Randazzo, resigned in November after the public learned that a lobbyist believed to be Randazzo got a $4.3 million payment from Akron’s FirstEnergy just as Randazzo took over as Ohio’s top utility regulator. 

For its part, FirstEnergy last year fired its top executives after discovering the payment to Randazzo — and after federal prosecutors accused it of being at the center of a $61 million bribery scandal that resulted in a $1.3 billion bailout that greatly benefited FirstEnergy and associated companies.

French, a former Franklin County Common Pleas judge, told the Senate committee that she wanted to use her background to restore public confidence in the agency. 

But Sen. Mark Romanchuk, R-Ontario, wanted to get down to specifics.

“You mentioned something about public trust and public trust, I believe, is fixing this refund problem,” he said. “Since 2009, there has been about about $1.5 billion that has been deemed improper at the court and that money was not refundable back to the ratepayers — the people who paid that money.”

Romanchuk was referring to charges that the PUCO allowed, but that the Ohio Supreme Court later struck down as illegal. 

The funds include $456 million FirstEnergy got, supposedly to modernize the utility grid. But at least some of the money was placed into a pool that FirstEnergy’s out-of-state utilities could borrow from. 

Allowing electric companies to pocket improper proceeds from ratepayers is not a business-friendly practice, Romanchuk told French.

“That was $1.5 billion that was pulled out of our economy, and I would argue that’s not a good thing as we compete with other states and other countries around the world,” he said.

French replied, in essence, that while her agency has the power to allow rate increases, it has scant power to get the money back when the increases are ruled to be illegal. 

At issue is why the PUCO, when it grants rate increases, doesn’t routinely say they’ll have to be refunded if the courts strike them down or if the utilities don’t use the money as they promise.

“My understanding is that there are very limited circumstances in which the PUCO can set rates that are capable of being refunded at the end,” French said. “For the most part, it’s the call of the legislature.”

Romanchuk disputed that. He pointed to a 2019 Ohio Supreme Court decision saying that if the PUCO had built a refund mechanism into the “rider” that allowed FirstEnergy to collect $456 million, it could have forced the company to pay it back when an audit showed the money wasn’t used for its stated purpose.

The decision said that a 1953 law “bars any refund of recovered rates unless the tariff applicable to those rates sets forth a refund mechanism… FirstEnergy’s tariffs for the modernization charge, however, contain no refund mechanism.”

French said she was unfamiliar with that decision. 

A year before, the court said something similar in a case in which FirstEnergy was allowed to make yet another upcharge. In that case, the PUCO was asking that the company refund $43 million in “imprudent” purchases of renewable energy credits.

Referring back to its 1957 Keco Industries v Cincinnati decision, the court said that refunds would amount to illegal “retroactive ratemaking” because the fees the utilities ended up collecting would differ from those filed in the original tariffs. In other words, once a rate is legally set, the PUCO can’t change it willy-nilly, the decision said.

But the 2018 decision additionally said this: “FirstEnergy also asserts that the plain language of (the 1953 law) bars any refund in this case because the ($43 million) rider did not specify a refund process. We agree.”

So why wouldn’t refunds be legal under Keco if a provision for them is a part of the original order?

French said it was her understanding of the Keco case that unless a rate increase was of a special type — a “reconciled rider” — the only way refunds can happen is if the General Assembly changes the law.

“If it is not provided for in a law… or a reconciled rider, refunds would require a statutory change,” she said. “I think the Supreme Court was very clear about that. If there are opportunities for us by statute to be permitted to determine whether a rider is refundable or not, certainly that is something we would look into.”

That rationale can be hard to understand. In emails, PUCO spokesman Matt Schilling was asked why his agency doesn’t routinely make a refund mechanism part of any rate increase.

He said the decisions to which French and Romanchuk were referring relied on two separate authorities. French was talking about the Keco decision, while Romanchuk was talking about a decision based on the 1953 statute, Ohio Revised Code 4905.32.

Neither, however, uses the term “rider” and none of the subsequent Supreme Court decisions Schilling provided contains the term “reconciled rider.”

The state’s official consumer watchdog, the Ohio Consumers’ Counsel, said nothing stops the PUCO from building refund mechanisms into rate hikes that are later ruled to be unlawful.

 “In the words of former Supreme Court Justice Paul Pfeifer, it ‘boggles the mind’ that Ohio consumers are denied refunds of utility charges after the court finds a PUCO order to be improper,” spokesman J.P. Blackwood said in an email. He added that PUCO commissioners seem to be substituting their own judgement for that of the Supreme Court. 

“That PUCO commissioners have protected utilities more than consumers by not making certain charges refundable, further shows that the selection process for PUCO commissioners needs reform,” he said. 

Last Wednesday, Sen. Teresa Fedor, D-Toledo, put those sentiments more succinctly.

“It’s time for the board members of the PUCO to start siding with the citizens of Ohio,” she said.