Following Bribery Scandal, OPC Investigation of FirstEnergy’s Ownership of Potomac Edison Reveals Significant Customer Risks, Need for Public Service Commission Action
BALTIMORE – A months-long investigation into Ohio-based FirstEnergy Corp.’s ownership of Potomac Edison has revealed a troubling relationship between the scandal-ridden holding company and its utility subsidiary, the Maryland Office of People’s Counsel told the state Public Service Commission in a filing today.
FirstEnergy has been embroiled in a far-reaching, multi-year racketeering and bribery scandal related to Ohio legislation supporting its troubled nuclear plants. The scandal has resulted in federal criminal charges, civil and regulatory proceedings in multiple states, and the termination of FirstEnergy’s chief executive officer and other executives. Last summer, FirstEnergy entered into a deferred federal criminal prosecution agreement that requires it to pay $230 million related to the scandal.
Potomac Edison serves more than a quarter million electric customers in Western Maryland. The utility admitted that its customers funded a portion of the bribes, and OPC has been trying for more than six months to verify how much utility customers have paid, only to have its efforts largely thwarted by the company.
“Potomac Edison has stymied our efforts at most every front to learn how Maryland customers ended up footing the bill for the bribery scandal,” said People’s Counsel David S. Lapp. “We have been unable to verify how much Maryland customers paid, but we have learned much about the extent to which FirstEnergy dictates what Potomac Edison charges its Maryland customers. That is a situation prone to customer abuse that must be remedied.”
OPC’s filing provides important details, but also points out that more information about the scandal and its implications is being disclosed on an almost daily basis. A federal agency audit issued earlier this month identified significant shortcomings in FirstEnergy’s tracking of political and lobbying expenses and found that FirstEnergy’s utility subsidiaries, including Potomac Edison, receive insufficient details about charges imposed on them by the holding company and its affiliated companies. This recent audit, along with more recent changes to FirstEnergy’s corporate board as part of a settlement of a shareholder lawsuit—and a federal court’s query into the nature of corporate board changes—deserve further investigation, OPC’s filing said.
“Our investigation has revealed a disturbing lack of independence of Potomac Edison,” Lapp said. “We are concerned that the current arrangement has led to Maryland customers paying for costs that have nothing to do with the service provided to them, and it may continue to do so absent changes necessary to protect Maryland consumers.”
OPC’s filing further explains that the Commission must open a separate proceeding under Maryland law to evaluate whether corporate raider Carl Icahn should be able to acquire the power to exercise “substantial influence” over Potomac Edison. Icahn acquired hundreds of millions of dollars of FirstEnergy stock, and to avoid a potential proxy fight, FirstEnergy entered into a shareholder agreement giving Icahn designees two seats on its corporate board along with unique rights not enjoyed by any other FirstEnergy board member. That agreement gives Icahn substantial influence over Potomac Edison, requiring a separate Commission proceeding to determine if doing so will benefit Potomac Edison’s Maryland customers and is in the public interest, OPC’s filing says.
“Our investigation raises alarm bells about Potomac Edison’s relationship with its parent company,” Lapp said. “The Commission must take action based on the evidence that we have. But key questions remain unanswered that the Commission should address by continuing—and broadening—this important investigation.”
The Maryland Office of People’s Counsel is an independent state agency that represents Maryland’s residential consumers of electric, natural gas, telecommunications, private water and certain transportation matters before the Public Service Commission, federal regulatory agencies and the courts.
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