By Rich Heidorn Jr.

Exelon CEO Chris Crane said Thursday the utility is cooperating with a federal investigation into its lobbying of the Illinois legislature and will make changes to ensure the “highest possible” ethical standards in the future.

The grand jury probe led to the retirement of Exelon Utilities CEO Anne Pramaggiore on Oct. 15, less than a week after the company disclosed it had received a subpoena seeking communications between Exelon and state Sen. Martin Sandoval, a Chicago Democrat whose home and offices were raided by FBI agents in September. Sandoval’s daughter was hired by Exelon’s Commonwealth Edison during Pramaggiore’s tenure.

The subpoena is part of a wide-ranging pay-for-play investigation, according to the Chicago Tribune. The Illinois Senate said it had been subpoenaed for “items related to ComEd, Exelon [and] any issue supported by any of those businesses … including, but not limited to, rate increases.”

The Tribune dates the ComEd lobbying investigation to at least mid-May, when the FBI searched the homes of former lobbyist Mike McClain, an ally of House Speaker Michael Madigan and former Chicago Alderman Michael R. Zalewski, seeking records about attempts to get ComEd lobbying work for Zalewski.

Public radio station WBEZ reported that federal officials are probing whether ComEd hired “multiple politically connected employees and consultants in exchange for favorable government actions.” Many did “little or no work,” and some had ties to Madigan, the station reported.

In May, the FBI raided the Chicago home of Alderman Marty Quinn’s brother, Kevin, a Madigan aide who was fired over sexual harassment allegations. The Tribune has reported that investigators are interested in $10,000 in payments that five current or former ComEd lobbyists made to Quinn after his firing.

Outside Investigation

Speaking during the company’s third-quarter earnings call Thursday, Crane said the company’s outside lawyers are conducting “an exhaustive investigation of the facts relevant to the subpoenas” and briefing a special committee of Exelon’s board, which is represented by its own outside counsel.

“Exelon’s outside lawyers are sharing the results of the investigation with the government in an ongoing basis. Their investigation is enabling us to determine what changes are necessary internally to ensure that going forward, we operate at the highest possible standards — not whether actions have been legal or not, but rather which go beyond the ethical reproach,” Crane said in a halting prepared statement.

Crane said the company will “immediately take action” to correct any problems it learns of from the attorneys doing the investigation. “Cooperation with the government — full cooperation, very open cooperation — is the imperative here. We’re not passing judgment on [whether] anything [is] legal or illegal in some of our past practices with contract lobbyists or consultants.”

‘Eye on the Ball’

Although he acknowledged the investigation is dominating the news about Exelon and ComEd, he insisted executives were “keeping our eye on the ball by staying focused on the operational and strategic path that has delivered the [company’s] success.”

The company reported net income of $772 million ($0.79/share) for the quarter, an increase over the $733 million ($0.76/share) a year earlier. Non-GAAP operating earnings were also up slightly to $900 million ($0.92/share) versus $856 million ($0.88/share) in 2018.

But the disclosures appear to have shaken investors. Shares have dropped 8% since July 11, the day before the company disclosed it had received its first subpoena. After falling to a low of $44.40 on Aug. 1, prices rallied to $48.45 before sliding again after the company disclosed the second subpoena Oct. 4. Shares closed Thursday at $45.49, down $1.17 (-2.5%).

In its first disclosure, Exelon said it was asked to produce “information concerning [Exelon and ComEd’s] lobbying activities” in Illinois. The second subpoena sought “records of any communications with certain individuals and entities, including Illinois state Sen. Martin Sandoval,” the company disclosed.

In between the two disclosures, Fidel Marquez, senior vice president at ComEd in charge of government affairs, retired Oct. 2.

Nuke Plants at Risk

The investigation comes as Exelon is trying to persuade the Illinois legislature to prop up the finances of its four nuclear plants in the state that are not already receiving zero-emission credits.

Crane said the drafting of the legislation will be dependent on FERC’s ruling in response to PJM’s proposal to create a resource-specific fixed resource requirement (FRR). PJM’s filing was in response to FERC’s June 2018 ruling that the RTO’s capacity market rules were not just and reasonable because they failed to address growing subsidies that are suppressing prices. (See Glick Recusal May Mean No MOPR Ruling Before December.)

“I can’t stress how important this spring legislative session will be for the four sites not coved by ZECs,” Crane told analysts Thursday. “The first half of 2020 will be a real critical point in decision-making and potential retirement announcements. … If for some reason we don’t garner support … to go forward with the legislation [based on] what we see in the market forwards today, plants will start to shut down. That’s the reality. … Without being able to get capacity revenue for those eight reactors, and the market forwards being as low as they are right now, it’s uneconomic. And the one thing we’re not going to do is sit around and damage the balance sheet.”

Former Heir Apparent

Pramaggiore began working for Exelon in 2006, when she joined ComEd as an attorney. She was named CEO of the utility in 2012 and promoted to oversee all of Exelon’s six utilities in May 2018, making her a leading candidate to succeed Crane.

She was credited with helping ComEd win several legislative initiatives, including a 2011 law that authorized $2.6 billion in grid-modernization investments over a decade. The company’s delivery rates reportedly jumped 37% from 2013 to 2019 under the law. Exelon and ComEd have one of the biggest lobbying forces in Springfield. Pramaggiore reportedly donated more than $240,000 to Illinois politicians since 2005.

In addition to retiring from Exelon, Pramaggiore resigned as chair of the Federal Reserve Bank of Chicago. Calvin G. Butler Jr., the CEO of Baltimore Gas and Electric, replaced her as interim CEO of Exelon Utilities.

[Editor’s Note: An earlier version of this story incorrectly stated that Pramaggiore had resigned as a member of the DePaul University board of trustees.]