FirstEnergy Federally Charged in Ohio Nuclear Bailout Scheme

Facing a federal charge for honest services wire fraud in a corruption case related to the billion-dollar nuclear plant bailout in Ohio, FirstEnergy Corp. has agreed to abide by the terms of a three-year deferred prosecution settlement to get the charge dismissed.

In court filings on July 22, the Akron, Ohio-based public utility holding company admitted it conspired with public officials and other individuals and entities to pay millions of dollars to Larry Householder, former Ohio House Speaker, through Generation Now, a 501(c)(4) organization, in exchange for passing a $1.3 billion bailout for its struggling Perry and Davis–Besse nuclear plants. 

“Central to FirstEnergy Corp.’s effort to influence the legislative process in Ohio was the use of 501(c)(4) corporate entities,” the company said in a public statement issued on Thursday as part of the deferred prosecution agreement with the U.S. Attorney’s Office for the Southern District of Ohio to resolve the Department of Justice investigation. “FirstEnergy Corp. used the 501(c)(4) corporate form as a mechanism to conceal payments for the benefit of public officials and in return for official action.”

Political Racketeering Scandal

The charge is the latest development in the political racketeering scandal which stemmed from Ohio’s abrupt passage and enactment of HB 6 in July 2019.

The law essentially provided FirstEnergy Solution’s (FES’s) 908-MW Davis-Besse and 1.3-GW Perry plants with an estimated $150 million a year during the 2021 to 2027 period to keep the reactors in service. (FES, which was FirstEnergy Corp.’s competitive arm, last year re-emerged from bankruptcy as an independent firm, Energy Harbor Corp.)   

A federal investigation led to an 80-page criminal complaint, and the ultimate arrest of Householder and four lobbyists in July 2020. Householder in September 2020 pleaded not guilty to the charges. A FirstEnergy internal review meanwhile found former CEO Chuck Jones and two other company executives violated company policies in connection with the alleged bribery scheme. Jones was fired in October 2020.

On Thursday, the U.S. Attorney’s Office of the Southern District of Ohio said FirstEnergy admitted that it used 501(c)(4) entities, including one it controlled, “to further the scheme because it allowed certain FirstEnergy Corp. executives and co-conspirators to conceal from the public the nature, source, and control of payments.”

FirstEnergy in its public statement said it used 501(c)(4) entities to influence the legislative process “because the law does not require disclosure of donors to a 501(c)(4), and there is no ceiling that limits the amount of expenditures that can be paid to a 501(c)(4) entity for the purpose of influencing the legislative process.” The effort would not have been possible—”both in the nature and volume of money provided”— without the use of a 501(c)(4) entity, it said. 

The company also acknowledged that it paid $4.3 million dollars to a second public official. “In return, the individual acted in their official capacity to further FirstEnergy Corp.’s interests related to passage of nuclear legislation and other company priorities,” the attorney’s office said.

$230M Penalty, Full Cooperation Required for Dismissal of Charge

The U.S. Department of Justice on Thursday said FirstEnergy “has cooperated substantially with the government.” However, “the company must continue to cooperate fully with the U.S. in all matters related to the company’s conduct described in the agreement and other conduct under investigation by the government, among other obligations,” it said.

Under the agreement, FirstEnergy will be required to pay—within the next 60 days—$115 million to the U.S. government and $115 million to the Ohio Development Service Agency’s Percentage of Income Payment Plus Plan, a state program that provides assistance to Ohioans in paying their regulated utility bills.

FirstEnergy must also publicly disclose contributions to 501(c)(4) entities and “entities known by FirstEnergy Corp. to be operating for the benefit of a public official, either directly or indirectly, and making various provisions to improve corporate compliance moving forward.”

“As part of the agreement, FirstEnergy Corp. admitted to the facts alleged in the Information and outlined in the Statement of Facts, which detail actions by FirstEnergy Corp. executives to pay money to public officials in return for official action,” the attorney’s office said. “As a corporation, FirstEnergy Corp. is responsible for the acts of its current and former officers, directors, employees, and agents.”

FirstEnergy Pledges Culture of Compliance and Ethics

In a statement on Thursday, Donald T. Misheff, nonexecutive chairman of FirstEnergy’s board of directors, said FirstEnergy plans to fully cooperate with the U.S. Attorney’s Office. The company also plans a political engagement overhaul, he said.

“This resolution and the actions we have agreed to implement build on the substantial steps we have taken over the past several months to strengthen our leadership team, ensure we have a best-in-class compliance program, and significantly modify our approach to political engagement as we work to regain the trust of our stakeholders,” he said.

Steven E. Strah, FirstEnergy’s new president and CEO, meanwhile, said the company will “redouble” its commitment to live up to its core values and behaviors, which include “integrity, openness, and trust.” Moving forward, the company is “intently focused on fostering a strong culture of compliance and ethics, starting at the top, and ensuring we have robust processes in place to prevent the type of misconduct that occurred in the past.”

The company said it has already taken “substantial remedial actions across four broad categories,” including employment consequences for executives and employees who engaged in misconduct; enhancements to the company’s compliance program; improvements to the company’s policies and procedures; and monetary remediation to ratepayers. 

Other specific efforts outlined by the government  in the resolution agreement as part of its decision to defer prosecution include:

• Establishing an executive director role for the Board of Directors, which supports the development of enhanced controls and governance policies and procedures;
• Hiring a new chief legal officer, who oversees the company’s legal and internal audit departments;
• Separating the chief legal officer and chief ethics and compliance officer (CECO) functions, and hiring a new CECO who reports directly to the Audit Committee of the Board and administratively to the chief legal officer;
• Working to establish a culture of ethics, integrity, and accountability at every level of the organization;
• Creating a Compliance Oversight Subcommittee of the Audit Committee to implement compliance recommendations received from outside counsel; and
• Reviewing and revising political activity and lobbying/consulting practices, including requiring robust disclosures about lobbying activities.

—Sonal Patel is a POWER senior associate editor (@sonalcpatel, @POWERmagazine)