American Electric Power CEO Nick Akins said Monday that his company is innocent of wrongdoing in the alleged bribery scheme that resulted in the passage of Ohio House Bill 6, echoing a similar protestation by FirstEnergy CEO Charles Jones on Friday.
Jones said FirstEnergy, its political action committee and FirstEnergy Service Co. were subpoenaed July 21 after federal officials arrested Ohio House Speaker Larry Householder and four others on racketeering charges for allegedly accepting almost $61 million in bribes and “dark money” campaign contributions.
“I believe FirstEnergy acted properly in this matter, and we intend to cooperate fully with the investigation to, among other things, ensure our company and our role in supporting House Bill 6 is understood as accurately as possible,” Jones said during the company’s second-quarter earnings call.
“This is a serious and disturbing situation. Ethical behavior and upholding the highest standards of conduct are foundational values for the entire FirstEnergy family and me personally. … We strive to apply these standards in all business dealings including our participation in the political process.
“We let the merits of our arguments carry the day when we’re operating in the political environment,” he added.
Akins issued a statement Monday in response to a report by The Columbus Dispatch that AEP paid a dark-money group $350,000 in funds that were used to elect Householder and win passage of H.B. 6, which authorized subsidies to two former FirstEnergy nuclear plants and two coal-fired plants in which AEP has an interest.
The Dispatch reported that Empowering Ohio’s Economy, a nonprofit funded solely by AEP, gave $150,000 to Generation Now, another dark-money group that received $60 million from FirstEnergy-related interests. Empowering Ohio also gave $200,000 to the Coalition for Opportunity & Growth, which it said is related to a political action committee that spent $1 million in the 2018 campaigns of Householder and his Republican allies.
Akins responded Monday: “I want to be clear that as the investigation of the activities surrounding House Bill 6 continues, none of the alleged wrongful conduct in the criminal complaint involves AEP or its subsidiaries,” Akins said. “We engaged and participated in the legislative process surrounding H.B. 6 legally and ethically. To date, we have not been contacted by the authorities conducting the investigation, but if at any point we are, we will cooperate fully and transparently.
“Neither AEP nor any of its subsidiaries made any contributions to Generation Now,” Akins continued. “AEP has made contributions to Empowering Ohio’s Economy to support its mission of promoting economic and business development and educational programs in Ohio. These contributions were done appropriately, and we have every reason to believe that the organizations we support have acted in a lawful and ethical manner.”
H.B. 6 included a six-year-plus extension of a ratepayer surcharge that subsidizes the Kyger Creek and Clifty Creek generating plants. AEP owns 43% of the plants.
Not a ‘Single Dollar’
Jones said FirstEnergy supported H.B. 6 to save the jobs of workers at the Perry and Davis-Besse nuclear plants and the carbon-free power they provide. The plants are owned by Energy Harbor, the company that emerged from the bankruptcy and spinoff of FirstEnergy Solutions’ (FES), FirstEnergy’s competitive generation unit.
“We gave our support because FirstEnergy has the obligation to serve 2 million customers in the state of Ohio, including looking out for their long-term energy supply, even though we are no longer in the competitive generation business and would not get a single dollar of the House Bill 6 funding for those plants,” Jones said.
After making a statement about the scandal, Jones opened the question-and-answer period with stock analysts with a request to focus on “the great quarter we just reported on.” FirstEnergy reported second-quarter earnings of $309 million ($0.57/share) on revenue of $2.5 billion, compared with $308 million ($0.58/share) on $2.5 billion in revenue a year earlier.
But questions from the first six analysts were about the fallout from the scandal.
Although FES didn’t emerge from bankruptcy until February 2020, Jones said his control over the unit ended in November 2016, when FirstEnergy declared it “non-core” and FES “separated fiduciarily, financially and operationally from being a part of FirstEnergy. They put in place an independent board, and from November of ’16, I’ve had no input into any of the decisions that they’ve made,” Jones said.
FES filed for Chapter 11 bankruptcy reorganization in March 2018. Although FE continued providing FES some services such as human resources, financial services and IT during the bankruptcy proceedings, Jones said FES began running its own external affairs shortly after the 2016 separation, hiring its own lawyers and lobbyists.
“We created corporate separation for a reason. We had to get about negotiating a plan of separation with FES, its bondholders, its creditors. There’s no way we could have done that by operating on both sides. We severed those ties. We were not involved in any way in the decisions made by FES.”
Although the 81-page affidavit that accompanied the criminal complaint shows most of the alleged bribes were paid by FirstEnergy Service Co., Jones said that the parent company contributed only one-quarter of the $61 million that federal investigators said were used to elect Householder and allies who supported H.B. 6 and to defeat a referendum drive to allow voters to reject the law. Much of the money was funneled through Generation Now, a 501(c)(4) nonprofit.
“Are these payments being made on behalf of FE or FES/[Energy Harbor]?,” chartered financial analyst Robert Howard said in an article Friday. “We can’t tell.”
Jones declined to answer a question about the utility’s vetting process for payments to 501(c)(4) organizations, saying only, “We do make prudent decisions to spend corporate funds on issues that we believe are important to our customers and shareholders.
“I’ve bracketed the amount of money that we spent on House Bill 6. I’m not going to get into the details of how we spent it,” he said.
Jones also said opponents of H.B. 6 also used 501(c)(4) organizations.
“I don’t know the amount that was spent on the other side. Clearly this was a provocative, difficult issue in the state of Ohio. A lot of money was spent on both sides of this issue, particularly after House Bill 6 was passed and it got into the referendum process. The process of gathering signatures, the media ads — there was a lot of money spent on both sides, and 501(c)(4)s were used on both sides.”
Jones also declined to discuss when he learned of the investigation or his phone conversations with Householder. The affidavit, which referred to FirstEnergy as “Company A,” said the company’s CEO had 87 phone contacts with Householder from February 2017 until July 2019, when H.B. 6 was signed into law, including 30 contacts between January to July 2019.
“I talk to a lot of people; I text with a lot of people,” he said. “I can tell you this: In every meeting, every phone call, every text message that I participate in, I talked about our obligations to conduct our business transparently, ethically, professionally. I have no worries that I did anything that wasn’t that way.”
In May, FirstEnergy announced that Jones would be relinquishing his title as president to Steven Strah as part of a succession plan. Jones remained CEO and a member of the board. But the scandal won’t hasten his retirement, he said.
“I think I’ve said that I have made no definitive retirement plans, and it certainly won’t be this year,” he said, adding that he will “do my part to restore the reputation of this company to what it duly deserves.”
Credit Downgrade
FirstEnergy stock price has taken a drubbing since news of the scandal broke, falling about $11/share since the investigation became public. Shares closed Friday at $29.48, up $2.08 (8%) on the day, but down more than $12 (29%) from its Monday close. With about 540 million shares outstanding, the losses cost the company about $6.5 billion in market capitalization.
Nevertheless, Jones said the company has “plenty of liquidity” and is not concerned by S&P’s decision to place FirstEnergy on a 90-day credit watch for a potential downgrade.
Jones said that after the arrests, he met with analysts for S&P Global Ratings and Moody’s Investors Service. “I told them they should not put the … integrity of their ratings on the line for FirstEnergy,” Jones said. “But I also told them that we’re the same underlying company that existed before Tuesday [July 21]. We’ve got an improving balance sheet, FFO [funds from operations] to debt that’s moving into the 12 to 13% range. Strong earnings CAGR [compound annual growth rate].
“It’s our job to get this news behind us, and when that happens, I would expect them to restore the rating that’s appropriate,” he added.
Potential Repeal
On Thursday, Ohio Gov. Mike DeWine said the state legislature should repeal H.B. 6 in light of the allegations. (See related story, Ohio Gov. Calls for Repeal of Nuke Bailout.)
Jones said a repeal of H.B. 6’s nuclear subsidies would have no significant impact on FirstEnergy’s finances. Nor, he said, would the company face any liabilities for nuclear decommissioning or coal ash cleanups if Energy Harbor fell into financial trouble. FirstEnergy has a surety bond to cover any coal ash costs, he said.
“There’s no change in our settlement with FES. The plan of reorganization was not contingent on House Bill 6 or any other support for the nuclear plants. There’s no true-ups, any other financial obligations from FE to FES other than what was in our agreement that was approved by the court.
“Last I [heard],” he added “they [Energy Harbor] were sitting on $900 million of cash. … I’m not sitting here at all worried about that part of what used to be part of our company.”
