Audit finds FirstEnergy overpaid for renewable energy credits, passed on expenses to customers 

FirstEnergy Corp. has spent millions of dollars more than it should have since late 2009 to comply with state renewable-energy mandates, two independent audits have found.

And the Public Utilities Commission of Ohio has allowed the Akron-based company to pass those costs on to customers – with a 7 percent interest charge – over the next three years. The charge will amount to about $5 a month for the average customer.

The law requires that a percentage of the power every electric company sells to be generated with renewable technologies such as wind and solar. Companies can buy “renewable energy credits” – or RECS – instead of the power itself or pay the state a fine, called an “alternative compliance payment.”

The audits found that the Illuminating Co., Ohio Edison and Toledo Edison relied on FirstEnergy Solutions, an unregulated affiliate, to buy credits from people and organizations that generate renewable energy.

And FES paid up to 15 times more for credits than the three local companies would have spent had they just paid the fines, a management audit by Exeter Associates of Columbia, Md., found. In fact, the cost of the credits was higher than credits anywhere in the country, before or since, the audit found.

The auditors called FirstEnergy’s decisions “seriously flawed.” They recommended that the PUCO consider not allowing the companies to pass on the “excessive costs,” a move the company said it would challenge.

The company said it had no choice but to buy the credits.

“We bought the credits to comply with the law,” FirstEnergy spokesman Todd Schneider said. “If the credits are available, you have to buy them. The alternative compliance payments are available only if there is a shortfall, if you can’t buy the credits.”

Fines cannot be passed onto rate payers. Expenses for credits can. And have been.

Schneider said the company decided to spread out the costs over three years to lessen the effect on customers’ bills. And he added that comparing Ohio’s renewable energy credit costs in the first years of the state program with the cost of RECs in other states makes no sense. “RECs were new to Ohio,” he said.

The cost of the credits is already showing up on customers’ bills – in half-cent-per-kilowatt-hour increases that will add up over time. The average residential customer uses between 750 and 1,000 kilowatt-hours of electricity per month.

Although the PUCO has already approved the costs in its recent acceptance of a new FirstEnergy rate case, the audit report is sure to come up in appeals to that rate case decision due Friday.

“Renewable energy is a cost-competitive option, and yet FirstEnergy chose to over-charge their customers,” said Daniel Sawmiller, an analyst with the Sierra Club.

“The Sierra Club will be looking to the PUCO to ensure that these excessive payments make their way back into customers’ wallets and that FirstEnergy’s other companies, like FirstEnergy Solutions, are no longer able to benefit at the public’s expense.”

A companion financial audit conducted by Goldenberg Schneider LPA of Cincinnati examined the amount of money the companies spent – nearly $126 million between the last quarter of 2009 and Dec. 31, 2011.

That cost has been added to all customers’ bills, in the form of a “rider” on the rate every customer pays per kilowatt-hour used.

In the last three months of 2011, the most recent quarter the audit examined, Illuminating Co. customers were paying an extra 0.4699 cents per kilowatt-hour, the highest in the state. That’s a few dollars on a customer’s bill but millions of dollars for the companies.

The auditors compared that charge to the charges levied by other Ohio utilities to pay for renewable energy credits. FirstEnergy’s three companies were the highest.