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Regulator Improperly Granted Approval for FirstEnergy-Affiliate to Operate

The Public Utilities Commission of Ohio (PUCO) improperly allowed First Energy Advisors to begin operations without first determining that the company was fit and capable of complying with Ohio law, the Ohio Supreme Court ruled today.

In a unanimous decision, the Supreme Court ruled the PUCO failed to follow state law and commission rules when it certified FirstEnergy Advisors, an affiliate of FirstEnergy Corp., as an electric service provider in April 2020.

After groups raised concerns that the new company had an unfair competitive advantage because of its close ties to parent company FirstEnergy Corp., the PUCO deferred most of the issues to an ongoing “audit case” of FirstEnergy Corp. rather than address them in FirstEnergy Advisors’ application, the Court stated. The PUCO also issued only a “barebones” two-paragraph decision that failed to explain the legal and factual basis for its decision.

Writing for the Court, Justice R. Patrick DeWine noted state law requires the PUCO to show “in sufficient detail” the facts in the record upon which it based its certification order, and the reasoning followed to reach its conclusions.

 “The order here does neither,” Justice DeWine wrote.

The Court remanded the case to the PUCO for further proceedings, including whether to conduct a hearing where those opposed to the company’s approval can raise their issues.

Effort to Provide Service Raised Concerns Ohio consumers have the option of purchasing electricity through the distribution companies that operate the power grid or through competitive retail electric service providers, known as CRES providers. To become a CRES provider, a company must receive PUCO approval by documenting it has the managerial, financial, and technical fitness and capability to provide service and comply with all commission rules and orders.

Suvon LLC, doing business as FirstEnergy Advisors, applied to the PUCO in January 2020 to be a CRES provider. The Ohio Consumers’ Counsel, the Northeast Ohio Public Energy Council, and others objected to the approval of the application. Among their concerns was that FirstEnergy Advisors appeared to be in violation of the state’s “corporate separation” rules, which facilitate competition in Ohio’s electricity-supply market by ensuring that companies like FirstEnergy Advisors do not gain an unfair competitive advantage because of their relationship with their parent company.

Ongoing Review Coincides with Application Justice DeWine explained the shortcomings of the PUCO’s approval of the FirstEnergy Advisors application are related to the rules of Ohio’s competitive marketplace and the commission’s ongoing examination of FirstEnergy companies.

FirstEnergy Corp. is the parent company of several distribution utilities, including Ohio Edison Company, the Cleveland Electric Illuminating Company, and Toledo Edison Company. Consumers can choose to purchase electricity from the distribution companies or from a CRES provider. The distribution companies are allowed to have affiliated CRES providers. But to prevent an unfair advantage in the marketplace, a utility-affiliated CRES provider must be fully separate from the distribution utility.

Years before FirstEnergy Advisors applied to be a CRES provider, the consumers’ counsel and others raised issues with FirstEnergy Corp.’s close ties to another CRES provider, FirstEnergy Solutions. In what the Court named the “audit case,” the PUCO initiated an audit of FirstEnergy Corp. in 2107 to determine if Ohio Edison, Toledo Edison, and Cleveland Electric Illuminating were complying with the corporate-separation rules in their relationship with FirstEnergy Solutions.

An audit report in 2018 found FirstEnergy Solutions had an unfair competitive advantage because it was sharing key employees, including CEO Charles Jones, with the three distribution companies. The audit recommended changes in FirstEnergy Solutions’ operations and suggested the company stop using “FirstEnergy” in its name to eliminate customer confusion and appearance of favoritism.

Before a final report was issued, FirstEnergy Solutions filed for bankruptcy. It emerged as a new company no longer affiliated with FirstEnergy Corp. Although FirstEnergy Solutions disappeared, the PUCO kept the audit case open and is using it to examine other issues related to FirstEnergy Corp., including corporate-separation issues with its new CRES provider - FirstEnergy Advisors.

Companies Too Closely Connected, Opponents Argue The consumers’ counsel and the public energy council, a collaboration of local governments in 19 northern Ohio counties, asked the PUCO to put FirstEnergy Advisors’ certification application on hold because it appeared the company was violating the corporate-separation rules by sharing key employees. Citing issues raised in the audit report, the opponents complained the company was not able to demonstrate it could comply with all commission rules.

The PUCO staff was given time to examine FirstEnergy Advisors’ application, and several weeks later the staff presented the commission with a two-paragraph report recommending approval. The report stated FirstEnergy Advisors answered all questions on the application and provided required exhibits. It also stated the company “intends to comply with all commission rules.”

Two weeks later, the PUCO approved the application. The opponents requested the commission reconsider its decision, which was denied. The consumers’ counsel and the public energy council appealed to the Supreme Court, which is required to hear this type of appeal.

Supreme Court Examined Law’s Requirements Justice DeWine wrote the PUCO is required to comply with R.C. 4903.09, which states that in contested cases heard by the commission, the PUCO must make a complete record of the proceeding and must submit “findings of facts and written opinions setting forth the reasons prompting the decisions arrived at, based upon said findings of fact.”

The opinion noted the Court has prohibited the PUCO from issuing summary rulings and conclusions that do not explain the rationale or point to the supporting information in the record. Neither the PUCO’s order nor the staff report explained how FirstEnergy Advisors met the requirements that it is fit to provide service, the Court ruled.

The Court noted that the PUCO may adopt reports prepared by staff and incorporate them into its order, but such materials must contain sufficient legal and factual conclusions to comply with the law. The Court found it was not acceptable to “simply recite” that FirstEnergy Advisors intends to comply with the rules.

“Rather than relying on the company’s stated intent, PUCO should have identified plans, procedures, and protocols FirstEnergy Advisors has in place that show the company is fit and capable of complying with all applicable commission rules and orders,” the opinion stated.

The opinion noted the PUCO rejected the opponents’ arguments by stating that issues of corporate separation and other matters were best dealt with in the ongoing audit case and other FirstEnergy cases before the commission. But the PUCO “cannot do” this, the Court stated.

Rather than granting FirstEnergy Advisors the permission to operate and then have it prove through the ongoing cases that it is fit and capable of complying the commission rules, the law requires that the PUCO must find that FirstEnergy Advisors is fit and capable of complying with the law before it grants the application, the opinion stated. The Court noted that the commission’s explicit statements deferring questions about FirstEnergy Advisors’ ability to comply with corporate separation requirements meant that the PUCO had failed to make the necessary determination.

The Court stated that before certifying the provider, the “PUCO must determine whether FirstEnergy Advisors has demonstrated that it is fit and capable of complying with all PUCO rules, including corporate-separation requirements. It cannot simply defer resolution of these matters to another proceeding.”

2020-1009. In re Application of FirstEnergy Advisors for Certification as a Competitive Retail Elec. Serv. Power Broker & Aggregator, Slip Opinion No. 2021-Ohio-3630.

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