Ohio consumer watchdog blasts AEP rate hike

By Marty Schladen
Ohio Capital Journal

The Public Utilities Commission of Ohio last week approved yet another rate increase to distribute electricity without requiring a big utility to go through a rigorous process to determine whether it’s needed.

The Office of Ohio’s Consumers’ Counsel — the state’s official watchdog — said the rate hike is improper. Meanwhile, the PUCO — which has been mired in scandal — said the changes are justified and will actually save some customers money.

The PUCO last Wednesday approved an “electric security plan” that the watchdog said will allow AEP to charge an extra $8 a week by 2028. It follows an increase the regulator allowed late last month that would add $10 in monthly distribution charges to the typical customer’s bill.

The most recent charge comes as part of a plan that “will serve to improve the service quality and reliability of the grid across AEP Ohio’s service territory and will reduce costs for AEP SSO customers,” PUCO Chair Jenifer French said in a statement. “Incentivizing off-peak electric vehicle charging, smart thermostat programs, and customer and community assistance programs are exciting opportunities for Ohio consumers.”

However, the consumers’ counsel said it’s just another one-sided deal that is allowing a big Ohio utility to profit at consumers’ expense.

“Under AEP’s electric security plan there is much security for AEP and little for residential consumers,” Consumers’ Counsel Maureen Willis said in a statement. “Such plans, like AEP’s billion-dollar security plan, favor utilities over consumers. AEP’s residential consumers are hurting with the highest disconnection rates in the state.”

Among the watchdog’s specific criticisms: The scheme doesn’t “fully demonstrate how its billion-dollar plan will improve reliability,” and it “lacks transparency and accountability.”

In its regulatory filings, the Consumers’ Counsel warned that the extra billion dollars the latest security plan would allow AEP to raise by 2028 would cause “rate shock” for customers. It said that amount should be lowered to $717 million.

But the PUCO decided that the larger increase was needed to fulfill a 2021 survey’s finding that “AEP Ohio’s customers want power to be restored quickly in the event of an outage and power outages to be kept to a minimum.”

As for the claim that AEP customers will save with the new electric security plan, the Consumers’ Counsel countered that it’s important to look at the details. Those savings would be enjoyed by fewer than half of AEP customers who participate in a competitive-supply program, and there’s no guarantee those savings will last, the watchdog said.

Another bone of contention is one of long-standing — that the utility wasn’t required to go through a “rate case” before the increase was granted. That’s a more rigorous process intended to ensure that monopoly utilities don’t benefit unfairly.

“In a standard rate case, a utility opens its books for an objective and comprehensive look at how much it costs to deliver a safe and reliable supply of energy and yet allows the utility the opportunity to earn a fair profit,” Consumers’ Counsel spokesman JP Blackwood said Friday in an email. “Rate cases also provide some basic consumer protections that are absent from electric security plans. Under electric distribution rate cases, the expenses must be incurred during a defined “test year.” Investment is measured as of a specific date (date certain). Charges are cost based and must be shown to be necessary to provide utility service to consumers.”

Instead of requiring AEP to undergo a rate case prior to allowing the rate hike, the electric security plan approved by the PUCO delayed one for more than two years — to June 1, 2026.

Blackwood said that a 2008 law allowed electric security plans, but now a bill filed by state Sen. Mark Romanchuk, R-Ontario, would prohibit them. 

“Electric security plans allow utilities to charge consumers for costly ‘riders,’” the Consumers’ Counsel said January in written testimony in support of Romanchuk’s proposal, Senate Bill 143. “Riders are add-on charges that allow utilities to cherry pick expenses and investments for expedited recovery with limited review. That ratemaking is an exception to Ohio rate case law that otherwise requires utility expenses, revenues, plant, and profits to be considered together in a case. Standard ratemaking does not allow for such riders. Under an electric security plan, there is almost no limitation on the type of riders the electric utilities can ask for.” 

The use of riders and the avoidance of rate cases both played roles in the massive FirstEnergy bribery and money laundering scandal. An audit of a “distribution modernization” rider was conducted after House Speaker Larry Householder, R-Glenford, and four others were arrested in July 2020 in a scandal in which $61 million in bribes were paid to purchase a $1.3 billion bailout.

FirstEnergy collected $465 million under the distribution rider before the Ohio Supreme Court ruled that it was illegal. Because of the way it and other riders are structured by the PUCO, there’s no way to refund them to customers if they’re later declared illegal.

Sam Randazzo, then the PUCO chairman, in early 2020 led the commission in stopping an audit of the funds raised by the distribution rider. Randazzo resigned the following November after the FBI searched his German Village condo and FirstEnergy said in a deferred prosecution agreement that it paid Randazzo a $4.3 million bribe as incoming governor Mike DeWine was nominating him to head up the regulatory agency.

Randazzo now faces indictments in state and federal court over his relationship with FirstEnergy. When the audit he helped stop was finally completed, investigators couldn’t determine what the proceeds of the FirstEnergy rider were spent on — or if they were used to help pay massive bribes in the bailout scandal.

Randazzo is accused of helping draft, pass and protect the bailout in exchange for the millions he was paid by FirstEnergy. 

He also is accused of doing another improper favor for FirstEnergy by canceling a 2024 rate case that FirstEnergy executives feared would force them to lower rates, which would dent stock prices and take a bite out of their own portfolios. That rate case has subsequently been reinstated.

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