FirstEnergy to pay $230 million penalty in bribery probe

Jul. 22—COLUMBUS — Akron-based FirstEnergy Corp., the utility at the heart of a $61 million Ohio Statehouse bribery scandal, has agreed to pay a $230 million penalty for its role in the scheme.

"That's the largest criminal penalty ever collected as far as anyone can recall in the history of this office," said Acting U.S. Attorney Vipal J. Patel at a Thursday news conference in Cincinnati.

The corporation has been charged with conspiracy to commit "honest services wire fraud," devising a scheme to use interstate wiring of monies to engage in bribery of public officials—former House Speaker Larry Householder and former Public Utilities Commission of Ohio Chairman Sam Randazzo—and to hide the true purpose of the funds.

VIEW COURT FILING OF AGREEMENT

However, the charge could be dismissed as a result of FirstEnergy's continued cooperation with prosecutors. The filing says the utility has provided "substantial cooperation."

FirstEnergy admits that it conspired with public officials and others to use non-profit entities to conceal its actions and the purpose of its cash.

It also admitted to paying $4.3 million to a second public official to act in his official capacity to further FirstEnergy's interests in connection with two nuclear power plants owned by what was then a subsidiary.

While not specifically named, that individual is Mr. Randazzo, a powerful former utilities lobbyist appointed PUCO chairman by Republican Gov. Mike DeWine. FirstEnergy as a major Randazzo client, something Mr. DeWine has said was well known before he made the appointment.

Mr. Randazzo resigned as chairman late last year after the FBI raided his home. He is not among those who have been charged.

When the other charges were filed a year ago, then U.S. Attorney David DeVillers said the governor's office was not a target of the investigation. When asked whether that was still true given revelations affecting people close to Mr. DeWine, his successor, Mr. Patel, declined to respond.

FirstEnergy must pay half of its $230 million penalty to the U.S. Treasury and the remaining $115 million to the Ohio Development Services Agency, which must use the funds to benefit Ohio electricity customers. FirstEnergy is barred from passing the cost onto its ratepayers.

As for the size of the penalty, Mr. Patel said, "Criminal monetary penalties are meant to hurt. We can't put corporations in jail...So the principle here is try to come up with a number that stings but doesn't annihilate.

"...What about the innocent employees and customers?...," he said. "It's not to be a slap on the wrist but not enough that it's going to drive them out of business and force employees to start looking for jobs."

The size of the penalty was also reduced in recognition of FirstEnergy's cooperation to date with the investigation.

Rob Kelter, senior attorney for the Environmental Law and Policy Center, said a $230 million penalty doesn't "sting" enough for a company that made $1.1 billion last year.

"This penalty should sting a lot harder if it's going to discourage corruption," he said. "The public has a right to know all the details of FirstEnergy's wrongdoing, and to learn how the US attorney's office settled on what seems like a very low penalty in light of the financial rewards to FirstEnergy and the massive scale of its wrongdoing."

Mr. Patel said the filing of additional charges against individual FirstEnergy executives is possible, but he declined to discuss whether that might happen. The same was true for Energy Harbor, the post-bankruptcy corporate successor to FirstEnergy Solutions, the former FirstEnergy subsidiary and owner of the nuclear plants.

In addition, FirstEnergy will forfeit $6 million left in the account of Partners for Progress, one of the non-profit conduits used in the scheme that was fully funded by the utility.

"These are supposed to be, to the (federal) code, social welfare organizations...," Mr. Patel said. "You all see a lot of social welfare going on? I don't. What about these names? Why this one, Partners for Progress?...What is the progress they're talking about? Progress in obtaining passage of HB 6? We can do better. You don't need obfuscating names for our (non-profit) entities."

Mr. DeWine's current legislative lobbyist, Dan McCarthy, also a former FirstEnergy lobbyist, was president of Partners prior to joining the administration.

As part of the agreement, FirstEnergy posted a statement on its corporate website in which it admitted that it exploited non-profit organizations that are supposed to be for social causes because it allowed them to hide the sources of the "dark money."

Separately, the company said it has worked quickly to respond to the investigation and to regain trust.

"FirstEnergy's core values and behaviors include integrity, openness, and trust," said Steven E. Strah, president and chief executive officer. "As an organization, we are redoubling our commitment to live up to these values and the standards that we know our stakeholders expect of us.

"Moving forward, we are 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," he said.

Thursday's court filing said FirstEnergy paid millions to "Public Official A," not named by clearly Mr. Householder, through the Generation Now, in return for the nuclear legislation.

"Use of (non-profit) entities was central to the scheme because it allowed certain FirstEnergy Corp. executives and co-conspirators to conceal from the public the nature, source, and control of payments to and for the benefit of (Mr. Householder)," the filing reads.

FirstEnergy pursued the nuclear bailout bill in part because of "decoupling" language that would have allowed the utility to lock in revenues at 2018 levels despite House Bill 6's elimination of energy efficiency mandates to which those funds were tied.

That's where Mr. Randazzo came in, prosecutors allege. In November, 2019, the Randazzo-led PUCO terminated the requirement that FirstEnergy had to file a new rate case in 2024.

"FirstEnergy believed that the expiration of (its current rate case) and filing of the new rate case in 2024 would result in decreased revenue and negatively impact FirstEnergy Corp's financial outlook and, therefore, sought a 'fix for the Ohio hole'," the filing reads.

Thursday's filing states certain FirstEnergy executives pushed for Mr. Randazzo's appointment by Mr. DeWine as chairman. In a text conversation that never mentions Mr. Randazzo by name, he told a FirstEnergy CEO, "I think I said this last night but just in case—if asked by the administration to go for the Chair spot, I would say yes."

Mr. DeWine announced his appointment of Mr. Randazzo on Feb. 4, 2019.

The filing notes that FirstEnergy specifically sought help from Mr. Householder to add the "decoupling" language and a failed attempt to extend the duration of the nuclear bailout to 10 years. The final law provided for seven, although both the nuclear subsidies and decoupling provision have since been repealed.

The FirstEnergy charge came one day after the one-year anniversary of the arrest of Mr. Householder, four other individuals, and a non-profit corporation.

The charges were in connection with the bribery scheme with the end goal of enacting the $1 billion bailout of the Davis-Besse plant near Oak Harbor and Perry plant east of Cleveland.

Mr. Householder and lobbyist and former Ohio Republican Party Chairman Matt Borges have pleaded not guilty and are awaiting trial on federal racketeering charges that could carry 20 years in prison.

The Cleveland law firm representing Mr. Householder, McCarthy, Lebit, Crystal & Liffman Co., said the utility had previously contended that its contributions to Generation Now were legal political contributions.

"This reversal presumably amounts to an effort by FirstEnergy to protect its share price," it said. "It does not change the fact that these contributions were and are protected by the First Amendment.

"Our client, Larry Householder, pleaded not guilty for a simple reason—because he is not guilty," it said. "He did not enter into a quid pro quo agreement with FirstEnergy, and he has never been bribed. We look forward to our day in court to defeat the government's allegations."

Two other individuals — Jeff Longstreth, a Columbus political consultant and close Householder ally, and Juan Cespedes, a Columbus lobbyist — have pleaded guilty for their roles in the scheme. So has Generation Now, the non-profit corporation at the scandal's center.

A fourth individual, powerful Columbus lobbyist Neil Clark, was also charged, but he committed suicide in Florida in February.

"One year later, the connections between the DeWine Administration and top-level operatives leading this alleged bribery scheme only continue to grow," Ohio Democratic Party spokesman Matt Keyes said. "Mike DeWine should come clean about his discussions with FirstEnergy executives and provide an accounting to the public and the press about any role he and his staff played in the ongoing scandal."

According to prosecutors, FirstEnergy and related entities provided the cash that flowed through Generation Now and other non-profits to help elect lawmakers loyal to Mr. Householder in 2018, help elect him speaker again in 2019, and then get House Bill 6 across the finish line.

The scheme then continued to successfully thwart a petition effort that would have subjected the controversial new law to voter referendum in 2020.

Mr. Householder's House colleagues took away his speaker's gavel shortly after charges were filed in July, 2020. Last month they voted to remove him from the chamber altogether, the first time in 150 years that such a vote had taken place.

Thursday's court filing also states that Mr. Householder sought the help of FirstEnergy in February, 2020, in funding a ballot initiative that would have changed Ohio's legislative term-limits, which could have allowed the speaker to stay in office up to 16 more years.

That ballot initiative never came about as Mr. Householder was criminal charges months later.

First Published July 22, 2021, 9:34am