By John Stang
FirstEnergy Corp. faces at least eight class action lawsuits from stockholders and ratepayers, as well as possible legal action from the Ohio Attorney General’s Office, regarding an alleged $60 million bribery scheme to keep two of the power company’s nuclear plants operating, according to an Aug. 17 filing with the U.S. Securities and Exchange Commission.
All the class action lawsuits — five in federal court and three in county common pleas courts in Ohio — are roughly similar. They seek unspecified amounts of damages because FirstEnergy and its top officers breached their fiduciary duties by pursuing the purported bribery scheme. The lawsuits alleged FirstEnergy actions led to rate increases and plummeting stock values.
The value of FirstEnergy’s stock fell from $41.26 per share on July 20, the day before the unveiling of an FBI indictment against then-Ohio House Speaker Larry Householder (R) and four other suspects in the case, to $22.85 on July 22, according to one of the shareholder lawsuits. The stock was valued at $28.04 as of Friday morning.
“The outcome of any of these lawsuits is uncertain and could have a material adverse effect on FE’s or its subsidiaries’ financial condition, results of operations and cash flows,” according to FirstEnergy’s quarterly 10-Q filing.
The document adds that “The Ohio Attorney General may be considering legal action and, in a letter dated July 24, 2020, notified FE of its duty to not destroy documents in its custody or control regarding Ohio House Bill 6.”
As of Friday, Ohio Attorney General Dave Yost had not announced any charges against FirstEnergy.
On July 21, the FBI unsealed a criminal affidavit against Householder, three lobbyists, and another political operator in an alleged scheme to funnel and launder $60 million from “Company A” to advance legislative action to prevent planned closures by May 2021 of the financially troubled Davis-Besse and Perry nuclear power plants.
Federal authorities have not denied that Company A is Akron-based FirstEnergy Corp. The plants were owned by a subsidiary, FirstEnergy Solutions, which has since become the stand-alone company Energy Harbor.
The money was allegedly used to support the elections of roughly 20 candidates in 2018 who became freshmen legislators in the Ohio House, who then successfully supported Householder becoming the House speaker. The FBI said the money was also used to pay bribes to Householder and the other four; to support the campaign for legislation passed last year to bail out the two plants; and to finance opposition to a proposed, ultimately failed ballot initiative to repeal the rate hikes.
“On July 21, 2020, and in connection with the investigation, FirstEnergy received subpoenas for records from the U.S. Attorney’s Office for the [Southern District of] Ohio,” the 10-Q says. “FirstEnergy was not aware of the criminal allegations, affidavit or subpoenas before July 21, 2020. FirstEnergy is cooperating fully in the investigation.”
Householder allegedly oversaw writing of the legislation — House Bill 6 — that established a $150 million annual bailout for the Davis-Besse and Perry reactors. The rate hikes established by the bill range from $0.85 per month for a home up to $2,400 per month for a large industrial business. All Ohio ratepayers must pay the rate hike, regardless of if they are FirstEnergy Corp. customers. The increase goes into effect in 2021.
FirstEnergy’s SEC filing noted that in late July, bills were introduced in the Ohio Senate and House to repeal that rate hike. Ohio Gov. Mike DeWine (R) supports the repeal of House Bill 6, but said it should be replaced with new legislation to support the nuclear plants. Yost has also said the Attorney General’s Office could take legal action to block the subsidies, according to Cleveland.com.
In late July, the Ohio House stripped Householder of his speakership, replacing him with Rep. Bob Cupp (R). This week, the state filed 162 alleged violations of campaign finance law against Householder and the other four suspects in the federal case, the Cincinnati Enquirer reported.
