Electric services company FirstEnergy Corp. on Thursday agreed to pay a $230 million criminal penalty as part of a settlement with the U.S. Attorney’s Office for the Southern District of Ohio surrounding the state’s nuclear bailout federal corruption scandal.
The company admitted to its role in the scandal, which resulted in the arrest of Ohio Speaker of the House Larry Householder and four others back in July 2020. FirstEnergy entered into a three-year deferred prosecution agreement (DPA) that could result in the dismissal of the Justice Department’s charge of conspiracy to commit honest services wire fraud if the terms of the agreement are met.
FirstEnergy disclosed in a regulatory filing in April that it was anticipating a DPA as part of the resolution of the case.
Between 2017 and March 2020, FirstEnergy Service Company, a wholly owned subsidiary of FirstEnergy, paid $60 million to Generation Now—a purported 501(c)(4) nonprofit which FirstEnergy knew was operated for the benefit of, and controlled by, Householder—in exchange for Householder pursuing nuclear legislation for FirstEnergy’s benefit.
FirstEnergy further acknowledged it paid $4.3 million to Sam Randazzo through his consulting practice in exchange for him performing official actions in his capacity as then-chairman of the Public Utilities Commission of Ohio to further the company’s interests “relating to passage of nuclear legislation and other specific FirstEnergy Corp. legislative and regulatory priorities, as requested and as opportunities arose,” the DPA stated.
On March 31, 2021, Ohio Governor Mike DeWine signed legislation repealing the nuclear bailout and other provisions of the earlier bill.
“This is a humbling moment for our company, and we should take this moment to recognize that this type of conduct, at the highest levels in the company, was wrong and unacceptable,” FirstEnergy President and CEO Steven Strah said in a video message to employees. “We have to ensure that something like this never happens again.”
Payment of the $230 million fine will be split equally between the U.S. Treasury and the Ohio Development Service Agency for the benefit of Ohio utility customers. FirstEnergy must also publicly disclose on its Website any contributions it makes to 501(c)(4) entities and entities it knows to be operating for the benefit of a public official, either directly or indirectly.
In the agreement, the Department of Justice noted FirstEnergy “provided substantial cooperation, including conducting a thorough internal investigation; proactively identifying issues and facts that would likely be of interest to the government; making regular factual presentations to the government; sharing information that would not have been otherwise available to the government; and making such material available to the government on an expedited basis.”
According to the DPA, FirstEnergy further represented it has implemented four broad categories of remedial measures, including employment consequences for executives and employees who engaged in misconduct; enhancements to its compliance program; improvements to its policies and procedures; and monetary remediation to ratepayers.
Specific enhancements made by the company include the following:
- Establishing an executive director position at the board level to support the development of enhanced controls and governance policies and procedures;
- Creating a compliance oversight subcommittee of the audit committee to implement compliance recommendations received from outside counsel and enhanced compliance trainings;
- Appointing a new chief legal officer and a new chief ethics and compliance officer. The latter reports directly to the audit committee and administratively to the chief legal officer;
- Reviewing and revising political activity and lobbying and consulting policies, which will include robust disclosures about its lobbying activities.
“FirstEnergy’s board of directors moved swiftly and decisively to investigate this matter and, along with the management team, has cooperated and will continue to fully cooperate with the U.S. Attorney’s Office that is investigating the matter,” said Donald Misheff, nonexecutive chairman of FirstEnergy’s board of directors, in a statement. “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.”
“FirstEnergy’s core values and behaviors include integrity, openness, and trust,” Strah said. “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.”
Former FirstEnergy CEO Chuck Jones, fired in the aftermath of the scandal, released a statement criticizing the company for “falsely implicat[ing] so many hard working and dedicated employees in wrongdoing who were committed to implementing the Board’s stated goals.” Jones also stated his innocence regarding any unlawful activity.