Environmental groups have filed a asking a federal appeals court to tell FirstEnergy Solutions鈥� judge to take action in light of the alleged corruption cases in and court.
The Environmental Law & Policy Center, Environmental Defense Fund, Ohio Citizen Action, and the Ohio Environmental Council want the judge to consider suspending execution of the reorganization plan that was confirmed earlier this year. The groups also hope the bankruptcy court will consider if it should revise that confirmation order and conduct additional hearings. The groups filed the motion on Oct. 5.
鈥淲e鈥檙e asking the 6th Circuit to deal with these truly extraordinary circumstances,鈥� in which federal and state corruption charges relate directly to assets involved in the bankruptcy case, said Howard Learner, executive director at the Environmental Law & Policy Center. Among other things, Ohio House Bill 6 authorizes roughly $1 billion in subsidies over the next six years for two nuclear plants owned by Energy Harbor, formerly known as FirstEnergy Solutions.
The federal and state cases allege that an unlawful conspiracy used organizations to hide the source of spending from FirstEnergy (known as 鈥淐ompany A鈥� in some documents), its current and former affiliates, and others in order to secure passage of HB 6 and to prevent a referendum on the law.
鈥淭he remedy that we鈥檙e asking in the 6th Circuit complements what the Ohio attorney general has already asked for in its lawsuit,鈥� Learner said. As he sees it, that case effectively asks the state court to 鈥渞escramble the eggs鈥� and undo the reorganization.
Among other things, the state鈥檚 asks that 鈥渆ach Defendant business entity and nonprofit [in the case] be dissolved or reorganized such that no agent, officer or representative found to have engaged in acts in furtherance of [the alleged wrongful conduct] retains a position within the defendant business or nonprofit entity.鈥� The state case also seeks to prevent FirstEnergy Solutions, Energy Harbor, FirstEnergy or other defendants 鈥渇rom receiving any monetary benefit, supplement, credit or offset created by or through鈥� HB 6.
Energy Harbor, FirstEnergy and certain current and former subsidiaries have denied any illegal activity. They were not named as parties in the federal case but are defendants in the state case. Likewise, former House Speaker Larry Householder and other defendants have pled not guilty, and no allegations in either case have yet been proven. Nonetheless, the environmental groups say the requested relief is within the court鈥檚 authority.
鈥淲e have framed it very carefully within the 6th Circuit鈥檚 equitable power to ask the bankruptcy court to consider whether it should reassess its confirmation order approving the reorganization, in light of the extraordinary revelations that have occurred since the court approved the order,鈥� Learner said.
The bankruptcy court has already of final fees in the case, and a hearing is scheduled for . If the appeals court grants the groups鈥� motion, it could open the door to a complete reexamination of the case by the bankruptcy court.
The timing on the appeals court鈥檚 response is unclear. , did not respond to requests for comment.
鈥淚 think transparency is always good, and I think more information about what their actual financial situation is would be helpful,鈥� said Gov. Mike DeWine during an , noting that questions had been raised from the beginning about the nuclear plants鈥� need for subsidies.
But, DeWine quickly added, HB 6 鈥渘eeds to be repealed because the process was so flawed that it has cast a light on this bill that it can never recover from. We鈥檝e got to repeal it and figure out where we鈥檙e going from there.鈥�
Bills to repeal HB 6 remain pending in the Ohio House, although further have not been scheduled. Additional charges are currently slated to kick in starting in January.
鈥淲e opposed HB 6 last year and are seeking its repeal this year,鈥� said Ohio Consumers鈥� Counsel Bruce Weston. 鈥淥hioans should not have to pay a penny to subsidize coal and nuclear power plants. But the problem of undue influence from FirstEnergy and other utilities runs much deeper against the public interest than just HB 6. What consumers need is an overhaul of utility regulation in Ohio.鈥�
FirstEnergy CEO Chuck Jones said in the company鈥檚 second quarter that a repeal of HB 6 would not affect obligations in the settlement agreement between the company and its former subsidiary in the bankruptcy case. Energy Harbor is now considered to be separate from FirstEnergy.
鈥淭he plan of reorganization was not contingent on House Bill 6 or any other support for the nuclear plants,鈥� Jones said.
Questions of transparency
The environmental groups鈥� motion before the federal appeals court goes beyond a possible HB 6 repeal, said Environmental Law & Policy Center attorney Margrethe Kearney. Instead, the focus is on the alleged 鈥渋mproper expenditures of these 鈥� companies in bankruptcy to lobby for this bill.鈥�
A reorganization in bankruptcy lets a company restructure its debts so it can move forward as a viable business with a mostly clean slate. But full disclosure is generally a condition for the bankruptcy court鈥檚 confirmation of any reorganization plan.
鈥淭he question really is what kinds of expenditures were being made here and not being disclosed to the court and not disclosed to parties that reached settlement agreements,鈥� Kearney said. 鈥淭his is something that really goes to the essence of bankruptcy.鈥�
There have been numerous cases of companies using bankruptcy 鈥渁s a tool for polluters to escape their liability,鈥� Kearney added. As she sees it, the bankruptcy court should care whether companies might have engaged in illegal activity, and not just focus on whether a company can come out of the proceedings and .
鈥淭hat can鈥檛 be what our bankruptcy system was designed to do,鈥� Kearney said.
Full disclosure is also at the heart of the Ohio Consumers鈥� Counsel recent move to appeal a September decision from the Public Utilities Commission of Ohio that of the consumer advocate鈥檚 earlier request for a full independent audit.
That decision told FirstEnergy鈥檚 utilities to file information, and commission spokesperson Matt Schilling said stakeholders would have 鈥渁n opportunity to be involved and weigh in on the case through a formal comment period. 鈥� It is a first step.鈥�
Nonetheless, the Ohio Consumers鈥� Counsel filed a motion for an early appeal on Sept. 21. The consumer advocate said regulators erred 鈥渂y not ordering the hiring of an independent auditor.鈥�
FirstEnergy鈥檚 Sept. 30 basically just told the utilities commission that any costs for political or charitable spending for HB 6 鈥渨ould not have been recorded in accounts that are used to calculate the Companies鈥� riders and charges. Therefore, the Companies鈥� ratepayers have not paid riders or charges that include HB 6 costs.鈥�
FirstEnergy also the Environmental Law & Policy Center鈥檚 motion to intervene in that case, claiming that the utilities commission review 鈥渋nvolves only the filing of initial and reply comments by interested parties.鈥�
Commission Chair had suggested to lawmakers on Sept. 16 that other parties could well intervene in the proceedings and implied that those parties might conduct discovery. He declined to answer a lawmaker鈥檚 question about possible remedies because 鈥渄iscussions like this can have implications for publicly traded companies.鈥�
However, a detailed and independent investigation into whether utilities used ratepayer money improperly is 鈥渆xactly the PUCO鈥檚 domain,鈥� said former commission member Ashley Brown, who now heads the Harvard Electricity Policy Group. Arguably, not doing that could hurt a company鈥檚 stock price, he added.
Basically, if an independent audit investigation confirmed that a company caught up in a scandal did nothing wrong, that should help prevent a further fall in . Alternatively, if an investigation did reveal wrongdoing, the company could then strengthen its internal governance 鈥� thus theoretically shoring up the value of its shares.
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鈥楢 lot more yet to go鈥�
Meanwhile, an by the U.S. Securities and Exchange Commission of FirstEnergy鈥檚 actions has . or are also underway.
And although Franklin County Judge Chris Brown ruled against the Ohio attorney general鈥檚 opening move to stop Energy Harbor, FirstEnergy and others from lobbying against the repeal of HB 6, Yost鈥檚 afterward said that was just the start.
鈥淭here鈥檚 a lot more yet to go,鈥� Yost said. He also advised policymakers to use caution.
鈥淚t would be foolish for anyone to accept campaign contributions from these defendants 鈥� or, I might add, to engage in private discussions with these defendants or their lobbyists,鈥� his statement said. 鈥淎nything they have to say 鈥� and there is much for them to say 鈥� should be said in public, where the people鈥檚 business ought to be conducted.鈥�