FirstEnergy CEO: 'There were fundamental things that had to be corrected' after scandal

The job of steering a company accused of masterminding Ohio's largest bribery scandal through multiple government investigations, shareholder lawsuits and public outrage fell on Steve Strah 13 months ago.

Strah, who began his career as a meter reader in 1984, replaced fired FirstEnergy Corp. CEO Chuck Jones while the Akron-based company faced a criminal investigation revealed in an astonishing indictment of five people in July 2020. Senior vice presidents Mike Dowling and Dennis Chack also were fired.

Strah said the company needed to make major changes after it was accused of paying $61 million in bribes to put then Republican House Speaker Larry Householder and his team into power and then pass a bailout bill worth $1.3 billion to FirstEnergy and other utilities. The cash was also used to defend House Bill 6 from a referendum.

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In his first extensive interview as CEO, Strah explained why the company agreed to pay $536 million in fines and refunds as part of a three-year deferred prosecution agreement with the Department of Justice and discussed FirstEnergy's effort to impose new ethics and compliance rules and training.

"Where I think we're at is, there were a number of items that occurred with a group of folks who are no longer with our company. During that process of review and discovery, we learned things had to change here significantly," Strah said from his office at 76. S. Main St. in downtown Akron.

"Obviously there were fundamental things that had to be corrected," Strah said.

While he answered most questions, Strah said he can't and shouldn't talk or speculate on any ongoing discussions and investigation. With Householder's federal charges pending, the deferred prosecution agreement also limits comments by FirstEnergy.

"I certainly don't want to comment on a process because I want to respect that process and really make sure it can run its course," he said. "And we're going to be right there in an open nature to work with it. Very difficult to speculate at this point. But we're engaged."

Strah declined to say if he had any role in the drafting and passage of House Bill 6, saying the deferred prosecution agreement speaks to the issue with the conclusions of the company and the Department of Justice. "It does speak for itself," he said.

FirstEnergy, HB 6 investigations continue

FirstEnergy still faces multiple shareholder lawsuits, an investigation by the Securities & Exchange Commission, an audit by the Federal Energy Regulatory Commission and multiple lines of inquiry by PUCO.

In the prosecution agreement announced in July, FirstEnergy admitted it conspired to pay millions of dollars to public officials to benefit the utility. The agreement, signed by Strah, imposes remedial actions FirstEnergy needs to take as part of a new corporate compliance program.

Terms include: continued cooperation, payment of a $230 million fine — money it can’t try to recoup from customers or seek a tax deduction, forfeit $6.3 million in a dark money account, publish on its website political and dark money contributions made in 2021 and going forward, and continue improving its ethics and compliance program.

The fine coupled with giving Ohio customers a $306 million refund in upcoming years actually signals significant progress for the company, Strah said.

"While I want to stay focused on our future, the events of the past year have been very humbling for our company, it's been humbling for our management team," he said. "But what I think is essential is that we have learned from a number of those issues in that we apply lessons forward at this point, and we've done that. Even though we've had to do some very difficult things along the way."

FE DPA (1) by Darrin Werbeck on Scribd

The core of FirstEnergy's business is a renewed focus on ethics, compliance and accountability, Strah said.

"The investment community had the instincts to kind of bake in potential impacts" of the investigations and potential settlements, Strah said.

"What they are looking for is certainty," he said. "Even though it was a challenging yet fair process, we were able to get the deferred prosecution agreement completed. That added certainty for all stakeholders."

Strah declined to say whether the $230 million settlement with the Department of Justice was negotiated down from a larger figure. He called the fine "significant. And I understand its significance."

"It was an effort by our company to fully cooperate with the Department of Justice," he said. "And I think that was well received. Therefore, we were able to reach the agreement. ... I think the agreement, at the end, speaks for itself. It really does. ... It was a very open and collaborative process. At the end, it was fair."

"We thought it was important to place that chapter behind us. And very fortunately, we were able to do that," he said.

Moving FirstEnergy forward

FirstEnergy is doing a significant amount of work in the ethics and compliance area, Strah said.

"Where we want to be as a company with regard to ethics and compliance is best in class," he said.

The changes include adding new directors to the board who provide fresh perspectives, as well as hiring new top level executives to oversee legal issues, ethics and compliance, risk, rates and regulatory affairs, and auditing, he said. They are working through key policies and practices and strengthening them, he said.

"That sets a new tone for our company. I'm setting a new tone for the company in terms of openness and being collaborative," he said. "We are focused as a company all the way to every individual in this organization to simply just do the right thing. ... The only obligation you have is to raise your hand and speak up."

The result should be not top executives holding employees accountable but employees holding each other accountable and be able to raise their hands in an open environment if they see something that doesn't look or feel right, Strah said.

Political contributions limited

Beyond the Householder payments, in November 2020, FirstEnergy disclosed to the Securities & Exchange Commission that it paid $4.3 million in January 2019 to someone who went on to be an Ohio utility regulator. Days later, FBI agents executed a search warrant at the Columbus condo of attorney Sam Randazzo, who was chair of the Public Utilities Commission of Ohio.

Strah said the company also has thoroughly reviewed how it makes political contributions.

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"I think what you're going to find is that we will limit our involvement to a smaller portion of that arena. And it will be directly germane to those initiatives we need to move forward on from a customer or company view," Strah said. "I should be able to sit at a customer's kitchen table and explain why we are involved in an issue. ... We have also elevated our transparency in terms of our reporting."

In particular in Ohio, all employees felt the impact of the scandal and investigations involving FirstEnergy, Strah said.

"There was really a sense of deep disappointment," he said. "It promoted tremendous uncertainty. ... Eventually you have to be patient enough to understand a number of matters were under investigation and you couldn't really tell employees exactly what was going on, just for the sanctity of the investigation and not getting out in front of anything, which would be a breach of that trust and confidence."

FirstEnergy needed to demonstrate a significant and rapid pathway to the future of the company, Strah said.

"I think the employee mindset now is one of ongoing excitement, to go out and embrace the future, and not necessarily let the future come to us," Strah said.

Significant issues in 'rearview mirror'

When he became CEO in the early part of the scandal, he and FirstEnergy's management team and board needed to understand the circumstances they were in, what transpired and how they would deal with it, Strah said. "Our board of directors were very active participants in the process" and worked hard and fairly to investigate, he said.

"At the time I was president of the company, So I was running the operation," Strah said. "Even as things transpired, I quickly flipped to understand that we had to keep the company moving ahead and develop our renewed plan for the future. That's what we've done and that's what we're fully focused on."

He's largely focused on the future, not House Bill 6.

"I really view that, with all respect, to be something that's behind us, in our rearview mirror," Strah said. "We're moving ahead in a very good way as a company, the things that we've had to do to rebuild trust and confidence, the things that we're doing to make our company more efficient, moving forward. ... I am spending my energy literally on moving the company ahead."

Beacon Journal reporter Jim Mackinnon can be reached at 330-996-3544 or jmackinnon@thebeaconjournal.com. Follow him @JimMackinnonABJ on Twitter or www.facebook.com/JimMackinnonABJ.

This article originally appeared on Akron Beacon Journal: FirstEnergy CEO Steve Strah fields questions on HB 6 scandal