To connect the dots, of the Ohio nuclear bailout bribery scandal you have to the world of utility regulation. It might not be the most exciting topic, but it is important to understand how this complicated system laid the groundwork for the HB6 scandal.
FirstEnergy figured they could get their customers to subsidize their poorly performing nuclear power plants. To do so, they paid a $4 million bribe to Sam Randazzo just before Ohio Gov. Mike DeWine appointed him as the chair of the Public Utilities Commission of Ohio.
Randazzo had worked as a lobbyist, a consultant and a lawyer in the energy industry.
FirstEnergy paid Randazzo $22 million in the 10 years before he became chairman. But Randazzo didn’t disclose some of his deepest utility connections in public documents when he sought the job as chairman.
Randazzo hasn’t been charged with a crime and he denies any wrongdoing. He contends the payment was a part of his consulting agreement with the company.
But with First Energy’s lofty goals, the company needed influence in multiple offices.
So, if regulators are in the pockets of utility companies – or even just biased toward them because they have prior career connections in the industry, they can make calls that lean in the industry’s favor.
Favorable rulings from the commission are combined with favorable laws fought for with successful lobbying, magnifying the industry’s influence. Over time, the conditions help the businesses reduce their risk and send profits to shareholders, while costs for consumers creep up.
Transcript
Renee Fox: Warning, this episode contains strong language that could be offensive to young or sensitive listeners.
From WOSU Public Media, this is The Power Grab, how dark money and dirty politics led to the biggest bribery scandal in Ohio history.
I’m your host Renee Fox.
In our last episode, we learned how commonly used dark money tools aided the House Bill 6 scandal. Donors give to nonprofit 501c4s because they’re allowed to remain secret, no matter how much they give.
501c4s are classified as social welfare organizations in the tax code. They’re supposed to be used for the public good, with no more than half of the funds going toward political activity.
But with a lack of transparency and no failsafes against abuse, many argue C4s undermine the greater good. They’re just tools to make it harder to know who is influencing elections and lawmakers.
Prosecutors tracked down transfers made by First Energy to these dark money groups as the funds migrated to support the HB 6 conspiracy.
But that $60 million First Energy doled out to elect Householder and his allies, to pass HB 6 and stop it from being rolled back, wasn’t the only cash that traded hands. And politicians in the state house weren’t the only state officials for sale.
Episode Five: Market Manipulation
The Power Grab has focused on several key players so far. Larry Householder and Matt Borges – who were found guilty and sentenced to prison. And there’s Neil Clark, who died by suicide after pleading not guilty to the charges against him before the 2023 trial in Cincinnati. But, there are more angles – and bribes – to the story. And, the case is still open.
In order to connect the dots, we’re going to have to explore the exciting world of… utility regulation. OK, maybe “exciting” is to strong a word but it is important to understand how this complicated system laid the groundwork for the HB6 scandal.
When federal prosecutors needed to explain things to the jury trying Larry Householder and Matt Borges, they brought in Professor Noah Dormady.
Noah Dormady: I tried to help the jury understand the economic incentives of why they would want that rider through HB six. Right. So I walk them through what happened on the wholesale market with the shale boom to precipitate the kind of the desire, the financial need, or I guess I should say, the financial want to have an additional rider.
Renee Fox: He researches energy policies at Ohio State University. He’ll give us a crash course in the market forces that led to HB 6.
Before we move into how the monopolized utility market is manipulated, let’s take a look at the role a top state regulator played in the HB 6 scandal.
Just after former Ohio attorney general and U.S. senator Mike DeWine was elected governor for the first time in November 2018, he was tasked with picking a new chairman for the Public Utilities Commission of Ohio.
So what’s a Public Utilities Commission?
The commission is made up of five members with one designated as chairman. They’re nominated by the governor and confirmed by the state senate – that’s after a nominating council recommends four candidates.
The commission is tasked with regulating the public utilities in the state. They consider requests from utility companies, weighing them against the research and recommendations made by their staff, feedback from consumer groups and other organizations with a stake in the outcome.
When utility companies like First Energy want to negotiate rule changes or increase what they charge customers, they go to the commission.
It is important to note there are three elements to energy production and delivery in the United States. First - there’s generation - the power created in plants across the country. Then - transmission – sending that power across regions on transmission (power) lines.
Then distribution. Distribution companies take power from the transmission lines and deliver it to your home or business.
When transmission and generation companies pushed their prices up – though their costs were down – the federal government started the process in the 90s to move them to a system where market forces dictated prices. That’s called deregulation.
Noah Dormady: One of the things I think that's important for people to know is that generation is deregulated and overseen by the federal government. Transmission is deregulated and overseen by the federal government, but distribution, bec ause you can only have one company, a monopoly provider of those power lines and those wires in your backyard remains regulated, and it's regulated at the state level by the PUC, the Public Utilities Commission of Ohio here in Ohio.
Renee Fox: Public utilities are unique businesses. They’re responsible for delivering one of the fundamental necessities to modern living – power - for heat and electricity. But, they’re still for-profit businesses with shareholders operating in a market with plenty of uncertainty and risk.
To give the company and the consumers some stability, the utility distributors are allowed to act as monopolies in certain geographic areas.
Dormady said monopolies are somewhat necessary in the energy distribution industry, even if other parts of the market are open.
Noah Dormady: You're still going to need one monopoly company that owns those power lines in your backyard. Imagine if we had 30 competing companies with three sets of power lines in our backyard, what that would look like. It would be expensive. It would be degrading to the environment. It would be a disaster. So we still can't get away from that one aspect.
Renee Fox: Here’s John Oliver to explain how the monopoly system was first devised in a segment on HBO’s Last Week Tonight.
John Oliver: Utilities operating as natural monopolies date back to the fact that around the start of the 20th century, we needed to build a nationwide power grid from scratch. And that obviously required a huge investment.
Companies were only incentivized to do that with a guarantee that they’d be able to operate in a non-competitive environment. At the time, that made sense. But those monopolies exist to this day and mostly as for-profit investor owned companies.
Renee Fox: The PUCO is there to keep the company with the monopoly from wielding too much power over its captive consumer base.
But, utility companies have successfully lobbied for years to structure the market in Ohio in a way that works for them. They’ve won a steady rollback of consumer protections in exchange for increased corporate profits and decreased oversight.
The public utility commissioners are supposed to be the referees for a tug of war between the desires of utility companies and energy consumers.
So how do they make those choices?
Decisions are made after a process similar to a legal proceeding. There is a set of rules and procedures where each side makes its argument and the staff conducts research. The decisions often rely on mediation – on a give and take like a union might negotiate a labor contract. But consumers are at a disadvantage because they’re always on the defense.
Every ask from a utility company has the potential to bump up costs for consumers, even if the other side negotiates to keep that increase lower than the original ask.
Other times, agreements aren’t reached. Then, the commission has to make decisions based on state and federal laws. They weigh each side’s argument and the staff’s recommendation based on their interpretation of the facts. But the catch is - commissioners do not have to follow any of those.
So, if regulators are in the pockets of utility companies – or even just biased toward them because they have prior career connections in the industry, they can make calls that lean in the industry’s favor.
Favorable rulings from the commission are combined with favorable laws fought for with successful lobbying, magnifying the industry’s influence. Over time, the conditions help the businesses reduce their risk and send profits to shareholders, while costs for consumers creep up.
TV Newscast Montage: Big changes could be coming to your electric bill. Many FirstEnergy customers will see a dramatic increase.
We just saw a rate increase. Prices doubling. This was back in June. I'm sure our viewers want to know why this happening again.
The utility told customers that increasing demand and higher supply
costs means they have to pass those costs on to customers.
Renee Fox: So DeWine’s selection for the person to chair the PUCO would set the tone for how utility companies would be received during his administration.
He landed on Sam Randazzo. Randazzo had worked as a lobbyist, a consultant and a lawyer in the energy industry. He came highly recommended from the nominating council – one that he’d recently finished serving on.
Environmental groups disliked his career of opposition to renewable energy and energy efficiency standards – they predicted Randazzo would stall their expansion. Others were against Randazzo because of the work he’d done for utility companies. Some thought it was strange he was selected by a nominating council that he’d served on.
But Randazzo didn’t disclose some of his deepest utility connections in public documents when he sought the job as chairman.
But DeWine said Randazzo’s utility connections weren’t being kept secret. He said they were “common knowledge.” He defended his choice and said Randazzo was retired.
Mike DeWine: Everyone knew he worked for FirstEnergy. That was not a question. He had, everyone also knew he had worked for a lot of different companies. He’d worked both sides of it. He’d worked for the utilities, he’s worked for the consumers.” (DeWine everyone knew - pulled)
Democratic state Rep. Casey Weinstein said Randazzo’s First Energy connections were not common knowledge.
Casey Weinstein: We had some suspicions and some idea that Randazzo had a connection to FirstEnergy. But we simply couldn't pin him down on that.
And, when questioned about those connections by Weinstein, Randazzo said he was “old school” and wouldn’t talk about past clients.
But soon, a lot more information about Randazzo’s involvement and close ties to the utility industry would come out.
Karen Kasler: FBI agents carried boxes out of the home of public utility chair Sam Randazzo. An FBI spokesman said the raid was related to a sealed federal search warrant. And there were no arrests and none expected. While it's unclear why Randazzo's home was searched, the PUCO is now auditing FirstEnergy. The electric utility thought to be at the center of a $61 million bribery scene to pass a nuclear bailout law that federal prosecutors say involved former Republican House Speaker Larry Householder.
Renee Fox: It turns out, First Energy paid Randazzo $22 million in the 10 years before he became chairman.
First Energy admitted to the federal government a year after Householder was indicted that $4 million of that was a bribe – that Randazzo collected just before he became chairman.
Randazzo hasn’t been charged with a crime and he denies any wrongdoing. He contends the payment was a part of his consulting agreement with the company.
But with First Energy’s lofty goals, the company needed influence in multiple offices.
And Randazzo sure seemed to be on the team.
Randazzo – it came out during the federal investigation – helped write the language in HB 6.
And when HB 6 passed, one of First Energy’s former executives texted Randazzo an image. He photoshopped Randazzo’s face onto Mount Rushmore. In Teddy Roosevelt’s place. The other presidents – George Washington, Thomas Jefferson, Abraham Lincoln were replaced by utility company executives.
Text on the image stated – “HB 6 Fuck Anybody Who Ain't Us.”
Renee Fox: First Energy admits it pursued influence in the General Assembly and with the Public Utilities Commission. There’s also evidence they had the ear of the state’s executive branch, too.
Householder’s proxy during the HB 6 scandal – Neil Clark – was secretly recorded talking about the cash First Energy gave DeWine.
Clark said he brought in $3 million from First Energy in dark money donations when DeWine was running for governor.
Neil Clark: This, this Governor, this Governor was not doing well with polls, he was not a sure winner. Everybody, you know. It, it, it, it wasn’t a guaranteed win, and so all that soft money was really necessary to victory.
News reports traced at least $1 million from First Energy to DeWine’s campaign.
DeWine won the election in November 2018 and he nominated Randazzo to chair the PUCO three months later in February 2019.
Later, meeting records and text messages exchanged between fired First Energy executives Chuck Jones and Mike Dowling were released – the guys on Mount Rushmore with Randazzo. They showed DeWine had met with them a few times. The messages indicated there was some consensus between them that Randazzo should be chairman of the PUCO.
The messages also insinuated Lt. Gov. Jon Husted helped push HB 6 on lawmakers.
Husted and DeWine downplayed their involvement. They said they did support HB 6, but for the right reasons – they genuinely believed it was a good idea to save the nuclear plants through subsidies.
Mike DeWine: We have said for over four years now that having nuclear power in the state of Ohio is important. My position always was the same. We need to be able to save nuclear energy in the state of Ohio. It's in the public interest to do that. And that position never changed.
Renee Fox: Husted denies that he helped move the nuclear bailout forward among lawmakers, though former First Energy executives texted about it.
Jon Husted: I wasn't involved in the legislative process, and I stand by that and those are the facts. I don't care what anybody else says about it. That's the truth.
Renee Fox: The investigation also revealed some other connections between First Energy’s HB 6 push and the DeWine administration. DeWine’s legislative director in 2019 controlled a 501c4 that received millions from First Energy during the HB 6 build up and funne led some of that money to Householder’s 501c4 Generation Now.
Randazzo gave First Energy other favorable attention while he was chairman at the PUCO, sometimes going against staff recommendations.
But to understand some of those decisions, we need to understand a little bit more about how utility prices are set by the utilities commission. There’s a few things you need to know first. And things might get a bit more complicated.
One of the ways Randazzo helped First Energy was eliminating a requirement that the company go through a rate case in 2024.
These rate cases are introduced when a company wants to increase certain types of charges, or because they were promised in return for something else during negotiations. During these cases, companies have to go through what basically amounts to a financial audit that verifies that new consumer costs are reasonable and that the proposed company profits are within reason.
Text messages show First Energy executives pushed Randazzo to get rid of the reviews because they hurt stock prices.
The company admits in the deferred prosecution agreement with federal prosecutors that if the 2024 case were allowed to move forward, it would have resulted in a rebalancing that would have benefited consumers. That’s why they asked Randazzo to get rid of it.
You might think that these reviews are conducted every time a company wants to raise charges – but you’d be wrong.
Over the decades, the energy industry has successfully lobbied to get the rules amended – to let them raise rates without opening the books.
The company hasn’t gone through a rate case since 2007 – but they’ve tacked on extra costs to consumers without the high-level scrutiny of a rate case countless times.
One of the ways they do that is asking the PUCO for something called a rider.
Riders are extra charges added to utility bills outside the charges for the electricity or natural gas. They’re proposed by utility companies and then negotiated during the PUCO’s process, often without the scrutiny to ensure they’re necessary and not covering losses in other areas. The different parties debate the request. But instead of holding strong to a position they drop the adversarial tone and make concessions.
Noah Dormady: And what often ends up happening is that all the different interests or parties involved in these cases environmental groups, manufacturing groups, small business groups, whomever will engage in a process to settle the case that goes away from or diverges from that from that model.
They'll go away from that process and they'll pursue a process that is less adversarial and more of a deal-making process. And in that process, oftentimes you'll see additional charges added that end up to being, I would say, detrimental to consumers costs, where benefits are added for specific constituency groups or specific specific special interests, but not necessarily to the benefit of consumers.
And, most of those extra expenses aren’t obvious to customers – they’re not always itemized on a bill.
Renee Fox: But, riders were never supposed to be so common. They were supposed to be a temporary boost to utility companies after Ohio decided to change the way it regulates the utility market in the early 2000s.
It was pitched as deregulation – a way to allow real market forces to dictate energy generation costs, while still maintaining some cost setting by organizations like the PUCO for distribution costs.
The move was made on promises it would lead to savings for consumers. Here’s Prof. Dormady…
Noah Dormady: In theory, deregulation is supposed to take and shift risk from consumers onto the market participants. Deregulation is supposed to take pricing benefits, the efficiencies of a larger marketplace that spans across multiple states, a regional market, and take those efficiencies and pass those through to households and businesses.
Renee Fox: But, true deregulation never happened in Ohio. Because utilities lobbied for and clawed back exceptions.
Noah Dormady: It was supposed to end back in 2005. These riders and these riders were really intended back at that time to ease us over the hump, to get us through the transition from a regulated market to a restructured or deregulated market.
Renee Fox: But instead of going away, utility companies got extension after extension so they’re still an integral part of how Ohioans are billed for energy.
Noah Dormady: And in some ways, it's almost kind of like like an abuser who keeps promising you that they're going to they're going to stop hitting you. Right. It's going to they're going to they're going to they're going to end. And this is going to stop, I promise you, to stop by 2005. I promise you it's going to start by 2008. I promise by 2010. But it never really stops.
Renee Fox: That means the benefits of cheaper energy aren’t being passed on to consumers.
Noah Dormady: Those riders over time have grown. Those riders have continued to populate. And even though we've seen the price of electricity on the wholesale market decline, we've seen the price at the retail level increase over time and we've seen a highly statistically significant and inverse relationship between the wholesale market and the retail market.
When prices were favorable on the wholesale market, the theory of deregulation said, well, those benefits should flow to consumers. We didn't get those benefits. As consumers, we got the opposite. We got a bunch of additional riders that added charges up to our bill and that raised retail prices so that retail prices flowed in the opposite direction of wholesale prices.
Renee Fox: That means the utility companies get security while consumers are left with unfulfilled promises of a market that wasn’t properly deregulated.
Noah Dormady: If deregulation is doing what it should have done, we should see our prices move in the same direction as the wholesale market.
There may be a lag for a few months or a couple of quarters here and there, but we should see a general trend over time that is consistent between the wholesale market and the retail market. But what we actually see is an inverse relationship that's highly statistically significant.” (Dormady if deregulation is - pulled)
Renee Fox: That significance of that statistic means there’s more than a 99% percent chance that Ohio’s incomplete effort to deregulate the market actually caused cost increases for consumers.
Noah Dormady: That means it's statistically significant at 0.0001. So one minus that is the probability that that relationship does not exist
Renee Fox: There are other ways energy deregulation was thwarted in Ohio. Dormady said Ohio’s law ignored the need to make sure a company isn’t generating the electricity it is distributing – otherwise there is incentive to use the costs collected when energy is distributed to make up for any losses on the energy generation side of the business.
He said the law failed to force the companies to actually separate.
Noah Dormady: It didn't actually create functional separation, but it allowed those utility companies, companies like AEP, companies like First Energy, to essentially sell their generation units, not to a third party independent company, but sell them to a company that they owned. They essentially sold the power plants to themselves through corporate separation.
Renee Fox: Allowing the companies to just divide into subsidiaries, instead of having true corporate separation, incentivized companies like First Energy to recover losses in whatever way they could to keep the parent company solvent.
And that’s what led to HB 6. First Energy lobbied to have their distribution customers take on the burden of making their power generation companies whole.
To understand the scandal, Dormady said it’s important to understand what was going on in the energy markets back when First Energy figured they could get their customers to subsidize their poorly performing nuclear power plants.
It starts with Ohio’s natural gas boom.
At the start of the new millennium, an Ohio State University analysis found only 1% of natural gas was produced from shale formations in the United States. Once companies started tapping shale formations, like the Utica Shale in Ohio for natural gas, the product altered the energy landscape in the region. So, by the time 2012 rolled around, about 40 percent of natural gas came from shale production.
Noah Dormady: What we essentially saw with the shale boom in Ohio is we saw a dramatic new technology that increased our ability to access cheap natural gas. And what that did is that lowered the price of natural gas. It lowered natural gas cost on our wholesale market, and consequently it lowered the overall market clearing price in our wholesale market.
With new sources for energy on the market, that made it cheaper to produce electricity. That made it less profitable to sell electricity.
Noah Dormady: Now, you can imagine if you were a company that owned, say, two nuclear power plants like First Energy Solutions or later Energy Harbor, and you're sitting on a fixed resource and the wholesale market price starts to decline precipitously.
Renee Fox: You can see how you would be tempted to want to find some other way to get another source of revenue because you could no longer compete in this new post shale boom market. So essentially you're asking yourself, well, boy, what what reason would I have for wanting to seek an additional rider on customers electric bills? And it's all because they weren't making as much money as they were before the shale boom.
In the end, the First Energy subsidiary that owned the power plants filed for bankruptcy. They sold off the subsidiary Energy Harbor to a Texas company for $3.4 billion.
Catherine Turcer with Common Cause Ohio said that’s evidence the bailout wasn’t necessary for the plants in the first place. It was just a money grab to insulate themselves from not acting sooner on market conditions.
Catherine Turcer: So when we talk about the cost of corruption. Just imagine that. The FirstEnergy Solutions never actually needed their additional dollars. The first energy solutions essentially went through all of this rigamarole to get a bailout. That they didn't actually need.
First Energy has faced several lawsuits from investors arguing that First Energy executives acted recklessly in their push to get HB 6 in place. They contend bribing public officials caused damage to the company and cost shareholders.
After the deferred prosecution agreement was made public in 2021, Ohio Attorney General Dave Yost filed a civil suit against Randazzo, and a host of others accused or convicted of being involved in the conspiracy, including ex-CEO Chuck Jones.
“The attorney general is seeking restitution from Randazzo, Jones, and former FirstEnergy vice president Michael Dowling. Yost says they engaged in crimes like extortion, money laundering and intimidation while trying to enrich themselves.
Yost says it's important to send a message.
Andy Chow: ‘That if you do this in Ohio, it will ruin you. You will be caught and you're going to pay a price that is so high there will be nothing left of your career.’” (Andy Chow 1 pulled)
Yost accused Randazzo of moving money around out of fear his assets would be seized after First Energy said the company bribed him.
Dave Yost: It looks like some of the assets that were liquidated – the money came into an account and may have already been transferred elsewhere.” (Yost liquidated - pulled)
Renee Fox: Yost said Randazzo transferred or sold several properties worth nearly $5 million.
That court case is still unsettled. A court granted Yost’s request to freeze $8 million of his assets – nearly double the alleged bribe – and Randazzo appealed that decision.
The case went to the Ohio Supreme Court. Attorneys for both sides argued their case in June, and a decision hasn’t been made yet.
Randazzo’s attorney Roger Sugarman argued that the state’s deferred prosecution agreement with First Energy is an unproven allegation and nothing more than hearsay. He contends the $4.3 million payment was to end a consultingg contract, not to bribe Randazzo.
Roger Sugarman: FirstEnergy bought its way out of a criminal prosecution by agreeing to pay $230 million. And they made some other admissions. But if you look, when you read our brief and look at the record, there's no every statement made against Mr. Randazzo in that case that was relied upon is hearsay.
It's unsupported evidence in in federal case, which you pointed out. There is no proponent offered by FirstEnergy to substantiate any of the claims and that first and the deferred prosecution agreement.
Renee Fox: In that agreement – First Energy agreed to pay the federal government $115 million in restitution and to put another $115 million toward a program that helps people in Ohio pay their utility bills. In return, the government held off on charging First Energy with wire fraud and asked for details of the bribes.
State attorney Charles Miller retorted that there is plenty of evidence that a hold on his assets is necessary.
Charles Miller: There were plenty of badges of fraud here. You know, we have a scenario where he was raided by the FBI. FirstEnergy, a publicly traded public utility, admitted in federal court in a deferred prosecution agreement to paying him a $4.3 million bribe.
We have the fact that after that, you know, so he's on he's potentially on the hook to us and, you know, and to others and just on us alone on this claim that's treble damages, you know, So he's insolvent at this point.
And what does he do? He gives away a house to his son. He liquidates a bunch of other properties and takes the proceeds. You know, these aren't mortgaged properties. So he's actually receiving the proceeds, puts them in a brokerage account. There's all evidence here that's in place that it seems like he is going to move funds.
Renee Fox: Miller said the state is a victim of criminal conduct and should be able to recover up to three times the alleged bribe.
Charles Miller: But, you know, somebody somebody receives these crown proceeds bribe money as an employee of the state to take action that benefited FirstEnergy for billions of dollars. And he just wants to be
I'll take that money, run off with it, spend it down, use it, move it around, give things to his children. So that he's judgment proof at the end of the day. And that has to be stopped.
Renee Fox: Sugarman, Randazzo’s attorney, declined to participate in an interview for the podcast.
It’s no surprise, but there are other ways to tweak regulations to bolster corporate profits.
And, Randazzo had a hand in securing yet another way to siphon more profit from the public. The state has a formula they use to calculate whether or not companies like First Energy are taking “significantly excessive” earnings from their customers. Randazzo helped meddle with it, turning it more favorable for the utility company. They got the change into the 2019 state budget.
Some of the PUCO decisions Randazzo oversaw were overturned, but not all of them. First Energy’s 2024 rate case was reinstated in the agreement it signed with prosecutors.
But the company is trying to get more from customers first. Right now, after the scandal and their admissions of bribery, They’re still asking for a billion dollars in new charges – just a few months before they are due to undergo that oversight process.
Next week on The Power Grab… Episode 6: The Aftermath
After a seven-week trial, HB 6 offered us an inside look at the ways outsized corporate influence shapes political and bureaucratic decisions in Ohio. What does that corruption cost and has it led to any meaningful anti-corruption changes in the state?
Karen Kasler with the Statehouse News Bureau.
Karen Kasler: In the sentencing hearing for Larry Householder, the prosecution actually brought that up, that, yeah, the nuclear power plant subsidies for House Bill six are gone, but the rest of House Bill six remains and may never be repealed. And so the damage that Larry Householder did in passing House Bill six is still there and may never be corrected.” (Kasler may never be corrected - pulled)
Renee Fox: The Power Grab is a production of WOSU Public Media and part of the NPR Network.
It’s written and hosted by me, Renee Fox.
The show is produced and edited by Michael De Bonis.
Audio engineering by Dalton Jones.
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