Energy Department probing grant linked to Hagan

Posted January 13, 2016

U.S. Sen. Kay Hagan

— The federal stimulus grant obtained by a business owned by former U.S. Sen. Kay Hagan's family is the subject of a U.S. Department of Energy investigation more than a year after controversy over the matter played a part in the Democrat's failed 2014 re-election bid.

It is unclear what, if any, rules investigators with the DOE's Office of Inspector General believe may have been violated by JDC, a company owned by Hagan's husband, Chip, and two of his brothers.

However, a federal investigator and the top lawyer for the State Auditor's Office discussed questions about "self-dealing" – whether the Hagans, through JDC, improperly awarded work related to a renewable energy project to companies owned by or employing family members – according to emails obtained through a state public records request. That is a charge that the Hagans, through their lawyer, Greensboro's Bill Cary, have strongly denied over the past two years.

"Frankly, this entire process has been baffling," said Cary, who is himself a former general counsel at the Department of Environment and Natural Resources, which lawmakers renamed to the Department of Environmental Quality last year. "We remain confident that JDC has acted appropriately at every turn and are hopeful that this will be resolved in a timely manner."

Officials with the Energy Department have declined to discuss their inquiries into JDC with WRAL News, citing policy that prohibits confirming or denying the existence of such an investigation.

Questions reach back to recession response

The $250,644 grant to JDC was a minute slice of the $800 billion 2009 federal stimulus bill, more formally known as the American Reinvestment and Recovery Act. President Barack Obama, a Democrat who at the time was just beginning his first term, pushed the measure as a way to spark economic recovery following the 2008 mortgage financing meltdown and subsequent recession.

@NCCapitol Read the Documents: State Energy Office files contain invoices, correspondence, other material related to JDC Manufacturing grant Kay Hagan and Thom Tillis, 2014 U.S. Senate race Hagan stimulus story hits the ad wars Of that overall total, the Energy Department funneled $812 million to North Carolina in the form of various grant programs. The bulk of those were designed to subsidize renewable energy projects that would both employ workers in the short term and lead to long-term investments in fossil fuel alternatives. JDC's efforts to refit an industrial building in Rockingham County to use solar energy certainly fit that bill and was typical of the sort of projects funded.

However, the JDC grant took on an outsized importance late in 2014 as Hagan, who was finishing her first six-year term in the Senate, ran for re-election. Republicans at the time were critical of Obama's record on the economy and used what they viewed as failures of the 2009 stimulus bill to pillory his Democratic allies. A September 2014 story in Politico, a national political news website, titled "How Hagan's husband won stimulus cash", played into this narrative and touched off a series of stories in conservative and mainstream news outlets. Hagan's Republican rival, then-state House Speaker Thom Tillis, and his allies used the story in campaign ads.

After Tillis won the campaign, JDC and its stimulus grant dropped off the public radar, even as the environmental regulators quietly continued their inquiries. Then, in April and May of 2015, a federal inquiry into a separate renewable energy project brought the JDC grant to the attention of the Energy Department, blocking efforts by JDC to obtain a public exoneration from the state. So, 14 months after a bruising political battle reached its conclusion, the Hagans' company is still marked by the conflict.

Family ties at center of inquiries

JDC is a limited liability company owned by Chip Hagan and his brothers, John and David. The company owns a building in Reidsville occupied by Plastic Revolutions, a plastics recycling company owned by John Hagan. The two companies were already looking at ways to make the building more environmentally friendly when, in June 2010, federal stimulus grants for energy efficiency projects became available.

JDC applied for and received a $250,644 grant for a project that included installing solar panels and new lighting and heating components. The project's total estimated cost was expected to be $438,027. Although records and correspondence related to the project provided by what is now DEQ's State Energy Program run hundreds of pages, three central points appear to be at issue in the ongoing inquiries:

  • Documents list Plastics Revolutions was a subcontractor on the project. Various investigators have asked whether this relationship would have violated conflict-of-interest policies and commitments to openly bid any work related to the grant. JDC representatives have argued Plastics Revolutions was listed as a subcontractor as a precaution. Cary, for example , had pointed out JDC is a real estate holding company with no employees, and Plastics Revolutions, as an operating business, had both employees and insurance to cover their work if boxes of solar panels needed to be shifted or stored. JDC ended up doing little in terms of the real work of the project.
  • Tilden Hagan, Chip and Kay Hagan's son, did work for Circuit Makers, the company JDC hired to do electrical work on the contract. JDC has said this relationship was well known to energy office workers overseeing the grant. Tilden Hagan earned $3,405 in hourly wages for his work on the project.
  • Tilden Hagan also helped JDC order solar panels for the project and arrange an interconnection agreement with Duke Energy. Tilden Hagan's company, which at the time was called Solardyne, was invoiced at one point by the company that sold the project solar panels. JDC has argued this invoice was made in error and paid directly by JDC. Records appear to confirm that the only money the younger Hagan was paid as part of the project was due to his work for Circuit Makers.

Questions from state and federal officials investigating the project appear to revolve around whether the interplay of those companies would have diverted grant money from the project to the Hagans personally. Cary, on behalf of JDC, has argued that the interactions were either so small as to be irrelevant, outside the scope of the grant or purely accidents related to erroneous invoices.

Those points have bounced between a revolving list of reviews but have never been resolved.

'There was never any real ask'

After the initial Politico story but before coverage of the grant had reached its apex, then-DENR Secretary John Skvarla and then-Commerce Secretary Sharon Decker wrote to State Auditor Beth Wood, an independently elected Democrat, asking her to review a pair of stimulus programs.

That letter, dated Oct. 21, 2014, did not name JDC or Hagan directly and didn't ask for an investigation. Rather, it asked for "assistance in determining what steps need to be taken to close out the grants, to identify if any monies are owed to the federal government, and to ensure all ARRA funds are accounted for and were properly handled."

Wood said she initially agreed to take up a financial review that would have been squarely in her department's wheelhouse. However, after she saw the letter used in news reports to suggest that her office was investigating the JDC grant, she set the inquiry aside.

"Somebody leaked the two documents trying to make the media come to the conclusion that the State Auditor's Office was investigating JDC," Wood said, saying she quickly came to the conclusion that Skvarla's letter had more to do with politics than accounting.

"There was never any real ask for me to do anything," she said. "Nobody really wanted to know anything about that ARRA money."

That's when the State Auditor's Office let the matter drop, Wood said. The matter would eventually make its way back to her office.

Expo center draws federal attention

For some months, the agency that is now DEQ continued to ask questions about the JDC grant. Records show that, by April 2015, the company and state regulators had exchanged written information regarding the grant and had met in person about the matter at least once. The last written state inquiry was dated April 9, 2015.

On April 17, Kevin Gordon, a special agent with the Energy Department's Office of Inspector General called state environmental regulators for information related to the Mountain Heritage Expo Center. The expo center was a separate project entirely from JDC, but records show that it used Solardyne as a subcontractor. Records show that the expo center encountered a raft of legal and administrative problems unrelated to SolarDyne's involvement and entirely divorced from anything to do with JDC.

Emails to and from various state officials and Gordon outline a series of phone calls about the Mountain Heritage Expo Center.

It wasn't until a May 8, 2015, letter to Gordon that documents show JDC was pulled into the conversation. That letter says Gordon had requested information related to the expo center and details the material provided. It then goes on to say, "In addition, DENR is providing DOE with the following materials concerning the JDC Project." The letter cites the fact that JDC had been mentioned in stories by the Carolina Journal, a conservative media outlet, as a reason for including the material.

"JDC was a related issue, so in the interest of being transparent and cooperating with federal investigators, DEQ included both companies in the information it sent to DOE," said Stephanie Hawco, a spokeswoman for the department.

After DEQ supplied that information to Gordon, Hawco said her agency's "involvement" in the inquiry ended. Over the summer of 2015, the investigation would be in federal investigators hands.

'Prohibited from self-dealing'

Reached by phone this week, Gordon declined to speak about the JDC investigation. Similarly, a spokeswoman for Energy Department's Office of Inspector General also declined to discuss the investigation in December. Both cited department policy that prohibited them from either confirming or denying that a particular entity was under investigation.

However, in a letter responding to a federal Freedom of Information Act request by WRAL News, Assistant Inspector General John Dupuy declined to provide records related to JDC, citing an exemption related to ongoing investigations. Saying that there had been "no final determination" in the matter, Dupuy wrote, "release of the withheld material at this time could prematurely reveal evidence and interfere with the ongoing enforcement proceeding."

Emails released in response to state Open Records Act requests to DEQ and the State Auditor's Office show that, in September 2015, Gordon asked Tim Hoegemeyer, the general counsel for the State Auditor's Office, for an opinion about the JDC contract. In a November email, Hoegemeyer tackled questions as to whether a grant recipient like JDC would be allowed to use contractors owned by family members or that employed family members.

Hoegemeyer told Gordon that, under state and federal rules governing the stimulus grant, the kind of relationships between JDC, Plastics Revolutions, Solardyne and Circuit Makers were "not allowed" and may have run afoul of prohibitions on self-dealing. But he also pointed out that, if state energy officials knew about those relationships – something public records suggest and JDC's lawyer insists is the case – "then it would certainly negatively affect any effort to hold these parties accountable."

He went on to stress that his opinion was not the result of a formal audit or investigation and that he had not independently gathered facts in the case. In a December interview, Wood also reiterated that point, saying she was "surprised" a federal investigator would ask the State Auditor's Office for what amounted to a legal opinion. Her office, she said, usually "gets out of the way" when federal investigators are probing a topic.

Either in late December or the first weeks of 2016, Hoegemeyer's opinion came to the attention of JDC. In an email dated Jan. 11, Cary points out to Hoegemeyer that JDC had spent the $250,644 of its grant before contracts with Circuit Makers and a general contractor were signed. Cary's suggestion is that JDC couldn't have violated rules related to self-dealing because it had already spent the money subject to those regulations.

Hoegemeyer replied the same day that whether that information was "significant would depend on the wording of the grant contract and also DOE regulations." He added that those were items "I have little knowledge or experience with, and therefore defer to DOE to make the call on their significance."

As part of a written statement, Cary said he is confident JDC and the Hagans will be cleared.

"Since the first day this grant was awarded, JDC cooperated with the State Energy Office, answering every question and providing every piece of documentation ever requested. In fact, the State Energy Office administered this grant and approved all actions taken by JDC over the course of the project," he said.

It is unclear when the Energy Department will conclude its investigation, although the typical windows for either civil or criminal complaints are drawing to a close over the next 12 months.


Please with your WRAL.com account to comment on this story. You also will need a Facebook account to comment.

Oldest First
View all
  • Greg Klayton Jan 15, 2016
    user avatar

    Form Image
    They may be sisters.

  • Rudy Bizzell Jan 14, 2016
    user avatar

    And is going to keep right on doing things like this.