cleveland.com file photo

Cleveland Public Power says you have no right to know what you're paying for; bills are 'trade secrets'

CLEVELAND, Ohio -- Cleveland Public Power customers, you’ve probably wondered how the city-owned utility calculates that mysterious “energy adjustment charge” you see on your bill. You know, the fee that fluctuates from month to month and sometimes even exceeds the base rate for electricity?

Cleveland.com has tried to get to the bottom of that, as part of an ongoing investigation into accusations that CPP has been improperly billing its customers for years.

But unfortunately, the city says the EAC calculation is a “trade secret,” and you – the customers -- don’t have a right to know what you’re paying for.

Next slide: What exactly is the EAC, and is CPP misusing it?

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Photo by Lynn Ischay, The Plain Dealer

What exactly is the EAC, and is CPP misusing it?

A city ordinance allows the utility to charge customers the “energy adjustment charge” to account for monthly fluctuations in the cost of buying power, according to a prescribed calculation.

But in an October cleveland.com story, the city’s former director of public utilities, Paul Bender, accused CPP of improperly using the energy adjustment charge for years to obscure $128 million in tacked on fees. According to Bender, CPP Commissioner Ivan Henderson and his predecessors had folded into the EAC unrelated costs for landscaping, tree trimming, car parts, ice and snow removal, laser print cartridges, paints and labor.

Also buried in the energy adjustment charge in 2012, Bender said, was a $1.5 million payment to fired consultant Peter Tien, the architect of a controversial proposal for a waste-to-energy plant that was never built.

Henderson justified the expenses by evoking an ordinance passed in 1975 that allows the utility to charge customers an “environmental or ecological adjustment” for “special apparatus and equipment required for compliance with federal, state or city environmental protection laws and directives.”

Bender, who left the city in September 2014, argued that the expenses are part of the daily operating cost of the utility and should be covered by the base rate paid by customers.

The issue now is the subject of a class-action lawsuit in Cuyahoga County Common Pleas Court.

Next slide: Shouldn’t all of these fees be public information?

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Photo by Taber Andrew Bain, Flickr Creative Commons

Shouldn't all of these fees be public information?

Cleveland.com sought to examine the energy adjustment charge more fully and requested a detailed breakdown of the fee, including an explanation of where CPP buys power and how much it costs each month.

But the city has denied the public records request, citing a state law that protects companies from divulging “trade secrets.”

The state law defines a trade secret as:

Information, including the whole or any portion or phase of any scientific or technical information, design, process, procedure, formula, pattern, compilation, program, device, method, technique, or improvement, or any business information or plans, financial information, or listing of names, addresses, or telephone numbers, that satisfies both of the following:

1) It derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use.

2) It is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

Next slide: So how does that apply to charges on customers’ bills?

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Photo by Eddie S, Flickr Creative Commons

So how does that apply to charges on customers' bills?

Pressed to explain how that definition applies to charges on customers’ bills, public utilities spokesman Jason Wood reiterated that “public disclosure of the confidential calculation of charges and adjustments to be applied to CPP customer rate schedules … could provide an unfair advantage to CPP’s competitors in the marketplace.”

Wood went on to say that the judge overseeing the class-action lawsuit has issued “protective orders to preclude (the calculation’s) public dissemination.”

The protective order, however, specifically states that a document’s designation as “confidential” pertains only to the case at hand and does not mean it is automatically precluded from release as a public record.

Next slide: Is CPP inflating its EAC to maintain a low base rate?

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Cleveland.com file photo

Is CPP inflating its EAC to maintain a low base rate?

CPP, as a municipally-owned utility, is not regulated by the Public Utilities Commission of Ohio and instead must seek approval from City Council on changes to the base rate for power. That rate has not changed since 1983 – a point of pride for the utility, which has struggled for years to compete with its private-sector counterpart, FirstEnergy.

But CPP’s energy adjustment charge often exceeds its base rate, while its justification remains a mystery to customers.

This week, a CPP customer contacted cleveland.com, requesting an investigation into the EAC. The customer said that on his last CPP bill, he was charged $87.67 on the base rate -- with an energy adjustment charge of $108.60.

Next slide: Has this issue come up behind the scenes at City Hall?

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Photo by John Kuntz, cleveland.com

Has this issue come up behind the scenes at City Hall?

In emails from April 2013, obtained by cleveland.com, financial managers for the city’s Department of Public Utilities questioned the legality of how CPP calculates the EAC.

“What allows CPP to legally charge the equalizer line?” one manager wrote in an email to Henderson, Bender (pictured here) and other DPU officials. “The total amount billed based on this equalizer was about $5 million in 2012.”

The manager went on to ask: “What is allowed in the EAC in terms of costs we can recover? They have some items that went thru to the customer we are concerned with and others they don’t charge, but it might be allowed.”

In a follow-up email, Bender called the calculation “overly complex” and demanded that Henderson explain its components.

Henderson responded that “as a competitive entity, CPP’s tools and formulas used to set its rates are proprietary.” And he said he would prefer to avoid “creating sensitive documents that would be normally excluded from public records if marked as confidential.”

Bender wrote: “I still have no idea what you are talking about. All information needed is to be shared within DPU as requested. Period.”

Next slide: How does it work on the regulated side of the biz?

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Photo by FirstEnergy Corp., Flickr Creative Commons

How does it work on the regulated side of the biz?

Regulated energy companies, such as FirstEnergy, are not permitted to keep such secrets, a spokesman for the PUCO said in a recent interview.

In fact, the process of setting rates and approving new fees is so transparent for those investor-owned companies, that the PUCO posts the requests for rate adjustments on its website and holds public hearings before signing off.

“All the regulated rates that we set are done in public, in the open, and filed in cases available on our website,” said PUCO spokesman Matt Schilling. “They can fluctuate. But as regulators, we go back and make sure the utility is truing that up to reflect actual costs and actual sales.”

Next slide: What does the PUCO say about Cleveland’s ‘trade secret’ claim?

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Cleveland.com file photo

What does the PUCO say about Cleveland's 'trade secret' claim?

Schilling said competitive suppliers that generate power are permitted to protect certain trade information by filing it under seal with the PUCO. But CPP hasn’t generated its own power since 1978, so the energy adjustment charge should reflect only power that the utility bought from other sources.

“Considering the fact that they’re run by the government and owned by the customers they serve, it sounds funny to me,” Schilling said of the city’s claim that the calculation constitutes a trade secret.

Next slide: Does FirstEnergy keep 'trade secrets?'



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Photo courtesy of FirstEnergy

Does FirstEnergy keep 'trade secrets?'

In a recent email, FirstEnergy spokesman Mark Durbin said that the utility is highly transparent, and “if a customer asked about any of the charges on their bill we would discuss the information with them.”

Durbin went on to say that more than 70 percent of FirstEnergy’s customers choose to shop for their own electric generation supplier. But customers who choose FirstEnergy as their supplier know exactly what they’re paying for, he said.

“For those that don’t shop, we procure the generation load by holding competitive auctions, with results and charges that are approved by the PUCO,” Durbin said.

Next slide: What does City Council President Kevin Kelley have to say?

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Photo by Marvin Fong, The Plain Dealer

What does City Council President Kevin Kelley have to say?

In a recent interview, Cleveland City Council President Kevin Kelley likened CPP to a co-op, essentially owned by the people it serves. The more that is known about the utility’s operation, the better, Kelley said, adding that he is perplexed by the notion that CPP would keep such rate information from its customers.

“Every nickel that goes in is from the ratepayers,” Kelley said. “And every nickel that goes out should be spent on behalf of the ratepayers. … I don’t see what would be ‘trade secret’ about it. People should know exactly what they’re paying for.”

Kelley vowed that CPP will come under council scrutiny in the coming year.

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