FirstEnergy (NYSE:FE) has agreed to pay a $230 million fine for its role in the Ohio House Bill 6 scandal, in what federal officials described as the largest bribery scandal in state history.
Federal attorneys on Thursday filed a 49-page deferred prosecution agreement against the company in U.S. District Court in Cincinnati. FirstEnergy is charged with conspiracy to commit honest services fraud but could eventually have the charge expunged from its record with continued cooperation in the case.
FirstEnergy allegedly spent $61 million in bribes and “dark money” campaign contributions and advertising to elect the speaker of the Ohio House of Representatives and allies, who won $1.5 billion in subsidies for the company’s struggling nuclear plants under H.B. 6, passed in 2019.
Former Ohio House Speaker Larry Householder, FirstEnergy lobbyist Juan Cespedes, lobbyist Neil Clark, former state Republican Party Chair Matt Borges and Householder political strategist Jeff Longstreth were all arrested on racketeering charges almost exactly one year ago. (See Feds: FE Paid $61 M in Bribes to Win Nuke Subsidy.)
The alleged scheme helped pass the bill authorizing zero-emission credits for FirstEnergy Solutions’ (FES) money-losing Perry and Davis-Besse nuclear plants. FirstEnergy no longer owns the nuclear plants after FES emerged from bankruptcy in February 2020 as Energy Harbor.
Within 60 days of the filing, FirstEnergy must pay $115 million to the U.S. government and $115 million to the Ohio Development Services Agency’s Percentage of Income Payment Plan Plus, a program that assists Ohioans in paying their regulated utility bills.
Vipal J. Patel, acting U.S. Attorney for the Southern District of Ohio, said the $230 million fine was the largest in the history of the district and would be a significant deterrent to corporate crime.
"The principle here is trying to come up with a number that stings but doesn’t annihilate," Patel said.
FirstEnergy announced last October it had fired CEO Charles Jones and Michael Dowling, senior vice president of external affairs, after an internal investigation determined they had violated the company’s code of conduct in the alleged scheme. (See FirstEnergy Fires Jones over Bribe Probe.) While not directly named in the deferred prosecution agreement released Thursday, Jones can be identified as “Executive 1” and Dowling as “Executive 2” based on company records and news reports.
Also featuring prominently in the deferred prosecution agreement are Householder, listed as “Public Official A,” and Sam Randazzo, former chair of the Public Utilities Commission of Ohio (PUCO), listed as “Public Official B.” Randazzo resigned in November after the FBI raided his house in Columbus. (See PUCO Chair Randazzo Resigns.)
While many of the high-level details of the alleged conspiracy between FirstEnergy, Ohio government officials and social welfare organizations (501(c)(4)s) had been disclosed in previous court document releases, some new specifics about the case emerged Thursday in the agreement.
Officials said Partners for Progress Inc., which appeared to be an independent 501(c)(4) on paper, was “controlled in part by certain former FirstEnergy Corp. executives, who funded it and directed its payments to entities associated with public officials.” Partners for Progress was incorporated in Delaware in February 2017, just a few weeks after senior FirstEnergy executives traveled with Householder on the company’s private jet to President Donald Trump’s inauguration in January 2017.
The agreement said FirstEnergy executives directed the formation of Partners for Progress and incorporated the entity in Delaware, rather than Ohio, because “Delaware law made it more difficult for third parties to learn background information about the entity.” Before it was officially organized, Dowling directed that $5 million be “designated for an unnamed 501(c)(4) in December 2016.”
Officials said that between 2017 and March 2020, FES paid more than $59 million ($16.9 million attributed to FirstEnergy and $43 million attributed to FES) to Generation Now, the 501(c)(4) entity controlled by Householder, in return for him pursuing legislation to benefit the company. The agreement said the use of 501(c)(4) entities was “central to the scheme” because it allowed FirstEnergy executives and co-conspirators to “conceal from the public the nature, source and control of payments” to Householder.
The agreement said on March 7, 2017, an unnamed “Individual A” emailed wiring instructions for Generation Now to Dowling, saying that “this is the organization that [Jones] and [Householder] discussed.” In his response, Dowling forwarded the email internally and carbon copied Individual A, stating, “Let’s do $250,000 asap, and we will do $1 million by year-end 2017.”
The FirstEnergy payments began in 2017 as Householder began his bid to regain the house speaker role, officials said, which was “consistent with the strategy” that Dowling outlined in an internal presentation. Dowling’s presentation explained that political contributions were “strictly money spent to influence issues of key importance to FirstEnergy in 2017, such as saving our baseload generation” and that FirstEnergy’s “preferred manner of giving is through section 501(c) groups, as these are considered ‘dark money’ because they are not required to disclose where the donations come from.”
In 2017, the agreement said, FirstEnergy, through FES, wired $1 million to Generation Now consisting of four quarterly payments for Householder’s “benefit” following the inauguration trip.
“These payments were intended to contribute to [Householder’s] power and visibility for the speakership and allowed him to support other candidates who would in turn support his speakership,” the agreement said.
In another episode in October 2018, FES paid Generation Now $500,000 to Householder, $400,000 of which was hand-delivered during an in-person meeting. About a week before the payment, officials said, Dowling told Jones, “I know you know this, but this is where companies and people get in political trouble — everyone is in a rush, and they all need a ton of hel$p [sic]. Let me gather everything. I’ll bring it to you, and you/we can decide.”
On the day of the meeting, Jones texted Dowling, saying, “FES meeting with [Householder] today. I told him to be nice but listen to us.”
Dowling replied, “He’ll learn about the $400k at this [meeting],” and Jones responded by saying, “They better get it done quick or he won’t be able to spend it.” Following the meeting, Householder thanked Jones via a text for the money from FES, stating, “$400k… thank you.”
Officials said that when H.B. 6 was signed into law on July 23, 2019, Dowling texted Jones a screenshot showing the bill passing with 51-38 votes and a message that said, “Boom! Congrats. This doesn’t happen without CEO leadership.” Jones responded by saying, “We made a bbiiiiiiiig bet and it paid off. Actually, two big bets. Congrats to you and the entire team! See if [unnamed person] has any Pappy, and we’ll all head to Columbus tonight,” referring to the rare and expensive Pappy Van Winkle’s Family Reserve bourbon.
In February 2020, officials said, Householder approached FirstEnergy about funding a ballot initiative to change Ohio law to increase term limits for Ohio public officials, which would allow Householder to potentially remain in power as speaker for up to 16 additional years.
The agreement said Jones had a text conversation with an unnamed individual, with Jones calling Householder an “expensive friend” after talking to him about his term limit initiative. In the messages, Jones says, “[Householder] told me he’ll retire from there but get a lot done in 16 more years,” with the unnamed individual responding, “Probably more than five previous speakers combined. He will make Ohio great again.”
On March 2, 2020, FirstEnergy wired $2 million from Partners for Progress to Generation Now for Householder’s term limits initiative.
Besides payments to Householder, officials said FirstEnergy paid more than $4.3 million to Randazzo through his consulting company in return for his actions as chair of PUCO to “further FirstEnergy’s interests relating to passage of nuclear legislation and other specific FirstEnergy legislative and regulatory priorities, as requested and as opportunities arose.”
In December 2018, Randazzo discussed the $4.3 million payment with Jones and Dowling, with the FirstEnergy executives meeting at Randazzo’s condominium, prosecutors said. After the meeting, Randazzo texted Jones and Dowling detailing the remaining payments under his consulting agreement with FirstEnergy from 2019 to 2024.
In the text, Randazzo said, “Thanks for the visit. Good to see both of you,” to which Dowling immediately responded, “Got it, [Randazzo]. Good to see you as well. Thanks for the hospitality. Cool condo.”
Later that day, Jones texted Randazzo and Dowling, “We’re gonna get this handled this year, paid in full, no discount. Don’t forget about us, or Hurricane [Jones] may show up on your doorstep! Of course, no guarantee he won’t show up anyway.” Jones then attached an image of a venomous snake protruding from a hurricane.
Randazzo replied, “Made me laugh — you guys are welcome anytime and anywhere I can open the door. Let me know how you want me to structure the invoices. Thanks.” He then added, “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.’”
After Randazzo was appointed as PUCO chair, officials said, he performed official actions related to H.B. 6 and the elimination of FirstEnergy’s requirement to file a new base rate case in 2024, which the company was seeking.
When H.B. 6 passed in July 2019, Jones sent a “photoshopped” image to Randazzo of Mount Rushmore with the face of Randazzo, Dowling, the “Ohio Director of State Affairs” and “Company C Executive” imposed over the four presidents’ faces. A caption read, “HB 6 FUCK ANYBODY WHO AINT US,” and Randazzo wrote back, commenting that his picture was “smaller than the others.”
In another incident in November 2019, after a PUCO rate case policy change that benefited FirstEnergy, Jones thanked Randazzo through a text message and an image showing the company’s stock increase, saying, “Thank you!!” Randazzo responded, “Ha — as you know, what goes up may come down.”
Aside from the wire fraud charge and the deferred prosecution agreement, FirstEnergy also agreed to engage in “appropriate reviews of its existing internal controls, policies and procedures and to address any deficiencies in its internal controls, compliance code, policies and procedures regarding compliance with U.S. law.”
The agreement said FirstEnergy will modify its compliance program, including internal controls, compliance policies and procedures to “ensure that it maintains an effective system of internal accounting controls designed to ensure the making and keeping of fair and accurate books, records and accounts.”
FirstEnergy must also report to the U.S. Attorney’s Office “periodically” during a three-year term regarding “remediation and implementation of the compliance program and internal controls, policies and procedures.” The reports will include “proprietary, financial, confidential and competitive business information.”
“All of these efforts, along with today’s agreement, demonstrate that we are positioned to move forward as a stronger, integrity-bound organization,” FirstEnergy CEO Steven Strah said in a videotaped message to the company on Thursday.
Reaction to FirstEnergy’s decision varied from outrage and the assertion that the company is ducking real punishment, to calls for Ohio lawmakers to finish abolishing H.B. 6.
H.B. 6 also created a publicly funded bailout of two aging coal-fired power plants, one of which is in Indiana. The plants are operated by the Ohio Valley Electric Corp. (OVEC), a consortium of utilities including AEP Ohio and Duke Energy.
“A paltry $230 million for admitting to a bribery scheme to gouge consumers for more than $2 billion is a small drop in a very large bucket for FirstEnergy,” fumed Tom Bullock, executive director of the Citizens Utility Board of Ohio.
Bullock said the agreement does nothing to end the $700 million subsidy of the OVEC power plants. H.B. 6 also dismantled energy-efficiency programs aimed at helping consumers save on energy bills.
“For a company that made $1.1 billion last year, this penalty doesn’t seem to sufficiently ‘sting,’ to quote the U.S. Attorney’s Office. This penalty should sting a lot harder if it’s going to discourage corruption,” said Environmental Law & Policy Center Senior Attorney Rob Kelter.
Neil Waggoner, senior campaign representative for Sierra Club’s Beyond Coal Campaign in Ohio, also said the fine was insufficient, calling it “a drop in the bucket compared to the incalculable cost from a loss in trust in the elected officials and regulators who are supposed to safeguard against corruption.” He called upon the governor and the legislature to repeal the OVEC subsidies.
The Ohio Environmental Council Action Fund also used FirstEnergy’s admission as an occasion to push for the complete repeal of H.B. 6.
“Today’s FBI announcement confirmed what we already knew: FirstEnergy bribed former Speaker Householder and former PUCO Chair Sam Randazzo to pass legislation and influence decisions benefiting their bottom line at the expense of Ohioans,” the organization’s president, Heather Taylor-Miesle, said in a statement. “Even with this settlement, ratepayers continue to pay the egregious costs of H.B. 6 and this corruption scandal every month on their electric bills. The legislature has only repealed portions of H.B. 6. Leaving the coal plant subsidies in place fails to restore the public’s trust in the legislative process, hurts Ohioans’ health and pocketbooks, and sets Ohio further back in the fight against climate change.”
Ohio Consumers’ Counsel Bruce Weston, whose agency testified against H.B. 6 and has in recent months waged a legal battle before PUCO to reverse all of FirstEnergy’s subsidies, called the agreement only a beginning.
“Today the public got some justice regarding the Ohio House Bill 6 scandal and FirstEnergy. But justice is also a longer road. And that road should lead to government reforms — reforms that curb the utilities’ political influence. Utility influence has been costing Ohioans money on their utility bills.”
“We are thrilled to see this decision come out today,” said Jason Smith, associate director of advocacy for AARP Ohio. “We have been very concerned from the onset that H.B. 6 did not prioritize consumers and put them first.”
State Rep. Casey Weinstein (D) called for his GOP colleagues, who control both the House and the Senate, to repeal the last remnants of H.B. 6.
“FirstEnergy has undermined the integrity of our democracy while costing Ohioans millions in corruption taxes. We must continue to call for the full repeal of H.B. 6,” he said.
FirstEnergy’s share price spiked upward upon news of the agreement, which was announced the day before the company’s second-quarter earnings call. The company’s stock ended Thursday up $1.61 (4.29%), closing at $38.85.