American Electric Power Co. Inc. stock fell sharply July 27 as a report linked the company to a "dark money" group which provided funding to entities at the center of a federal racketeering case in Ohio.
AEP has denied any wrongdoing related to its support for House Bill 6, legislation signed into law in Ohio in July 2019 that provides $150 million in annual subsidies for the state's nuclear plants, owned by Energy Harbor Corp. The law also provides ratepayer-backed funding for two Ohio Valley Electric Corp.-operated coal plants, one of which is in Indiana, and funnels $20 million each year to a renewable generation fund. Three AEP utilities own interests in the Ohio Valley Electric plants.
"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," AEP Chairman, President and CEO Nicholas Akins said in a July 27 statement. "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."
Shares of Columbus, Oho-headquartered AEP dropped 5.44% on close to 8x average volume on July 27, finishing at $83.26.
An investigation by The Columbus Dispatch in Ohio published July 25 shows AEP provided all of the funding for a group called Empowering Ohio's Economy Inc., which in turn provided $150,000 to Generation Now and $200,000 to the Coalition for Opportunity & Growth.
Generation Now, a 501(c)(4) nonprofit group, is charged in a federal indictment that has implicated Akron, Ohio-headquartered FirstEnergy Corp., its FirstEnergy Service Co. subsidiary and the company's political action committee in a federal investigation into more than $60 million in bribes allegedly paid to advocate for the passage of House Bill 6. Former FirstEnergy subsidiary FirstEnergy Solutions Corp., now Energy Harbor, also has received subpoenas as part of the corruption probe.
The case has led to federal charges against Ohio House Speaker Larry Householder and four associates, including lobbyists, who are accused of using "dark money" to steer the nuclear subsidy bill through the Ohio Legislature.
'Another energy company that supported HB 6'
An affidavit filed by an FBI special agent describes the "Coalition" as another 501(c)(4) entity and mentions the resume for Householder political consultant Jeffrey Longstreth, also charged in the investigation, stating he "oversees political activities for the Coalition."
The affidavit states that for calendar years 2017 through 2019, the Coalition received "$90,000 from Company A," or FirstEnergy based on descriptions in the affidavit; $300,000 from an "energy pass-through" account; and "$200,000 from an interest group that was funded exclusively by $13 million from another energy company that supported HB 6 and separately paid $150,000 to Generation Now during the relevant period."
The Columbus Dispatch identified the energy company as AEP based on confirmation by "a source close to the investigation."
"Neither AEP nor any of its subsidiaries made any contributions to Generation Now," Akins said. "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."
The affidavit notes 501(c)(4) is the Internal Revenue Service's designation for a "tax-exempt, social welfare organization."
Under H.B. 6, utilities collect up to $1.50 per month from residential customers and up to $1,500 monthly from commercial and industrial customers to subsidize the Ohio Valley Electric-operated Kyger Creek and Clifty Creek coal plants. AEP utilities subsidiaries have a combined 43.5% ownership interest in the two plants, according to S&P Global Market Intelligence data.
FirstEnergy offers a clarification
FirstEnergy CEO Charles Jones Jr., meanwhile, issued a statement July 27 through which he hoped to "clarify" comments made on the company's July 24 earnings call, held days after the bribery charges were announced by the U.S. Department of Justice.
Jones told analysts and investors on July 24 that FirstEnergy "severed" ties with FirstEnergy Solutions, or FES, in November 2016, at which time his "decision-making authority" ended.
FirstEnergy management in November 2016 said the competitive business was under strategic review and could end up filing for bankruptcy, which it did in late March 2018. When the review was launched, a new board was installed to oversee FES.
"FirstEnergy and FES independently engaged legal and financial advisers to help guide each of us through the complicated strategic review," Jones said in the July 27 statement. "At that point, I and other members of FirstEnergy leadership no longer had any decision-making power regarding the strategic direction of FES. This fell under the purview of the FES board. ... As events unfolded, FES' focus turned increasingly to bankruptcy as the sole alternative, culminating with the bankruptcy filing in March 2018. Immediately after, FES was deconsolidated from FirstEnergy's financial statements."