FirstEnergy has disclosed it is negotiating with the U.S. Department of Justice regarding its role in a $60 million bribery and racketeering scheme involving Ohio Rep. Larry Householder (R), the former speaker of the House of Representatives.

Householder and four associates were indicted in July 2020 on corruption charges in connection with the legislative approval of a seven-year bailout of the company’s former Ohio nuclear power plants that would have cost the public an estimated $1.1 billion. FirstEnergy has not been indicted, though the investigation is ongoing.

That bailout has already been blocked, first by a suit brought by the Ohio attorney general and more recently by the General Assembly in legislation to remove the language from a law created through the passage of H.B. 6 in 2019. (See Ohio Lawmakers Repeal Nuclear Subsidy for Energy Harbor.)

“As previously disclosed, FirstEnergy has been cooperating with the [U.S. Attorney for the Southern District of Ohio] regarding the ongoing investigation,” the company stated in its first-quarter 10-Q filed late Thursday night.

“Discussions have begun with the U.S. Attorney’s Office regarding the resolution of this matter, including the possibility of FirstEnergy entering into a deferred prosecution agreement,” the company revealed. “As these discussions are preliminary, FirstEnergy cannot currently predict the timing, the outcome or the impact of a possible resolution of this ongoing investigation.”

In a deferred prosecution agreement, a corporation typically pays a fine and formally agrees to continue to cooperate with prosecutors. For example, Commonwealth Edison, a subsidiary of Exelon, entered a deferred prosecution agreement in 2019 with the Justice Department and agreed to pay a $200 million fine.

FirstEnergy said it is too early say what a deferred prosecution agreement would cost the company but that it faces a “probable loss.”

“While no contingency has been reflected in its consolidated financial statements, FirstEnergy believes that it is probable that it will incur a loss in connection with the resolution of this investigation,” the company wrote in the 10-Q.

The deferred prosecution disclosure comes just weeks after former U.S. Attorney David DeVillers revealed what had happened to the probe over the winter. (See Icahn Capital Given 2 Seats on FirstEnergy’s Board.) After federal grand jury sessions were canceled for five months because of the COVID-19 pandemic, the Justice Department began presenting evidence again in March.

The company continues to maintain that it knew nothing about the nearly two-year federal investigation until the morning of July 21, 2020, when FBI agents arrested Householder and his associates, charging them with federal racketeering conspiracy in the creation of a complex network in which FirstEnergy and its subsidiaries, referred to only as “Company A,” allegedly contributed more than $60 million to a nonprofit corporation. The nonprofit then funneled the funds — without having to disclose their origin — to Householder, who allegedly used the money to back candidates willing to support the company’s request for the bailout of its nuclear plants.

After receiving federal subpoenas on that same July day when Householder was arrested, FirstEnergy vowed it would launch an internal investigation. The company fired CEO Charles Jones and two others in October as a result, and in November it announced in an 8-K that it had fired its chief legal officer and chief ethics officer.

“Such former members of senior management did not maintain and promote a control environment with an appropriate tone of compliance in certain areas of FirstEnergy’s business, nor sufficiently promote, monitor or enforce adherence to certain FirstEnergy policies and its code of conduct,” the company stated in its 10-Q. “Furthermore, certain former members of senior management did not reasonably ensure that relevant information was communicated within our organization and not withheld from our independent directors, our Audit Committee and our independent auditor.”

During Friday’s first-quarter earnings call with financial analysts, new CEO Steve Strah stressed that FirstEnergy and its board of directors are not only cooperating with federal prosecutors but also working diligently to create internal ethics rules and stand-up new compliance departments.

“As we discussed on our fourth-quarter call, we are committed to taking decisive actions to rebuild our reputation and focus on the future and continuing to cooperate with the ongoing government investigations,” Strah said at the beginning of the public discussion with analysts, now available as a recording on the company’s website.

“Our goal is to take a holistic and transparent approach with a range of stakeholders across the spectrum of matters under review,” Strah told analysts. “This approach is consistent with the changes we’re making in our political and legislative engagement and advocacy. For example:

• We are stopping all contributions to 501(c)(4) organizations.
• We paused all other political disbursements, including from our political action committee, and we’ve limited our participation in the political process.
• We have also suspended and/or terminated various political consulting relationships.
• We’ll be expanding our disclosures around political spending in order to provide increased transparency.
• We have committed to post updates on our website on our corporate political activity, relationship with trade associations and our corporate political activity policy, which is under revision.”

FirstEnergy’s drive to find public money to subsidize its nuclear operations began in 2014, when the company proposed that because its nuclear plants were temporarily uncompetitive in PJM, the Public Utilities Commission of Ohio should approve a plan in which the company’s distribution subsidiaries buy the nuclear-generated power at whatever it cost to generate and immediately sell it into the PJM market, making up the loss with adjustable-rate increases. PUCO approved the plan, but FERC intervened.

The company had argued that combined cycle gas turbines were outbidding its nuclear plants but that the price of natural gas would soon rise, so the arrangement would produce discounts for customers. Gas prices have not risen significantly, and renewable generation has replaced gas as the new threat to nuclear power. Ohio lawmakers at the time were not interested in approving statewide charges to fund a public bailout, and bills offered to do that died in committees.