The Illinois Public Interest Research Group is calling on Exelon to divest itself from Commonwealth Edison in the wake of the bribery scandal that has ensnared the company and the powerful House Speaker Michael Madigan (D) over the passage of the 2011 Energy Infrastructure Modernization Act (EIMA).

In a report issued Tuesday, “Guaranteed Profits, Broken Promises: How ComEd and Exelon turned utility regulation on its head,” the nonprofit organization examined the impact of EIMA on Illinois ratepayers. The report also delves into claims ComEd initially made to pass the legislation and continues to make defending its effects on the company and its regulator, the Illinois Commerce Commission.

Federal officials in July said bribes by ComEd aided in the passage of EIMA, which approved a formula rate mechanism, and the 2016 Future Energy Jobs Act (FEJA), which authorized subsidies for Exelon’s Clinton and Quad Cities nuclear generators. (See ComEd to Pay $200 Million in Bribery Scheme.)

Abe Scarr, director of Illinois PIRG and co-author of the report, said ComEd has continued to push the narrative that EIMA has been beneficial to consumers, while the evidence has shown that the law has provided “financial windfalls” for ComEd and Exelon without delivering the promised benefits.

“Customers and the public were harmed by the formula rate law — both in terms of higher delivery rates and in terms of a failure to realize or maximize the potential benefits of the smart grid and other investments ComEd made since the law was passed,” Scarr said. “Illinois policymakers need to take action to right these wrongs and to ensure utilities like ComEd cannot amass so much political influence in the future.”

Background

In 2011, ComEd angled to convince Illinois lawmakers to allow it to make billions in smart grid investments, switching to a formula ratemaking process allowing the company to recover its costs more quickly.

According to the U.S. Justice Department, some of ComEd’s persuasion came in the form of bribes to Madigan, the chair of the state Democratic Party and the most powerful official in the state. Federal officials said the scheme involved ComEd paying Madigan’s associates through jobs and internships and the appointment of a Madigan ally to the company’s board of directors.

In return for the alleged bribes, federal investigators said ComEd gained support for EIMA and later for FEJA, which provided Exelon’s nuclear plants a 10-year, $2.35 billion ratepayer subsidy. (See How ComEd Got its Way with Ill. Legislature.)

When the Justice Department announced ComEd’s deferred prosecution agreement in July, Scarr was one of the most vocal opponents, saying the scheme confirmed long-held fears that EIMA and FEJA were put forward through corruption at the expense of ratepayers in Illinois. Scarr said ComEd “was in crisis” in the decade before the passage of EIMA as the company suffered through reliability problems stemming from mismanagement.

In a statement, ComEd noted that “the deferred prosecution agreement does not contain any allegations that consumers were harmed by legislation passed in Illinois. In fact, the bipartisan legislation that was passed — EIMA and FEJA — resulted in substantial benefits for ComEd’s customers, including reliability that has improved more than 70% since 2012 to record levels.”

Scarr later challenged ComEd officials at a contentious hearing of the ICC in late July, saying the corruption surrounding the company required a “comprehensive audit” to determine if alternative investments to EIMA would have yielded better results. (See ComEd on Hot Seat at ICC Hearing.)

Former ComEd CEO Anne Pramaggiore and three others were indicted last month in the alleged scheme. (See Ex-ComEd CEO, Officials Charged in Ill. Bribery Scheme.)

Report Findings

The 111-page report said EIMA has proven to be an “unquestionable success” for the companies, creating a “profit machine” that went above what was originally proposed.

Between 2013 and 2019, the report said, ComEd earned $4.7 billion more than what it would have made if the revenue requirement from its 2011 formula rate case been in place over the same period.

Over an eight-year period, the report said, ComEd’s authorized profits grew by 47%, and its rate base, the value of its assets the company earns a profit off of, increased by 84%.

The report found that if EIMA’s regulatory framework continues without any changes and announced spending by ComEd remains in place, the utility’s authorized profits will reach almost $1 billion per year by 2023.

“Nine years after EIMA’s passage, the record is clear: EIMA delivered guaranteed, record profits and other benefits to ComEd and its parent company, Exelon Corp., while leaving ComEd customers and the public with broken promises,” the report said.

EIMA delivered revenue and profits to ComEd that are far beyond what was “necessary” to fund infrastructure upgrades, the report said. Instead of a 10-year smart meter deployment that peaked at 500,000 meters per year, according to the legislation, ComEd completed the smart meter deployment in six years with a peak of more than 1 million meters per year.

“ComEd’s energy efficiency programs, which grew significantly under the legislation, have enabled customers to save more than $5 billion on their bills since 2008,” the utility said in its statement. “In 2019, ComEd completed — ahead of schedule — the installation of 4.2 million smart meters that give customers more control over their energy use, enable quicker response times during outages, contributing millions of dollars in storm cost savings, and provide access to money-saving programs.”

But the report said the accelerated deployment of smart meters, which required more financial resources than originally planned, demonstrated that EIMA gave ComEd more resources than necessary to complete the upgrades.

In 2019 ComEd customers paid 37% more for delivery service than they did in 2011, the report said, with EIMA’s “customer protection policy” not protecting customers by design. It said a mandated report on rate impacts was deliberately timed to obscure EIMA rate increases.

Scarr said he was most surprised to find out how the financial benefits to ComEd and Exelon will continue even after the EIMA investments are almost over, leading to almost $1 billion in annual profits by 2023.

“EIMA was a radical and unwelcome inversion of traditional utility regulation, which aims to ensure and maximize the public good through the creation of the opportunity for private profit,” the report said. “EIMA, on the other hand, guaranteed ComEd and Exelon’s private profit while failing to adequately ensure the public good.”

ComEd countered that “the average residential bill is lower than it was nearly a decade ago, and ComEd has requested delivery rate decreases in five of the last 10 years; regulators must review and must approve every dollar of investment that ComEd seeks to recover.”

Recommendations

The report makes several recommendations for Illinois legislators who have raised questions regarding the passage of EIMA and FEJA and their links to the alleged corruption.

Exelon should be forced to divest from ComEd or from Exelon Generation to address conflicts of interest in its ownership of both the nuclear power plants and ComEd, the report said.

It also suggests bans on political contributions by investor-owned utilities and using ratepayer, rather than shareholder, money to make charitable contributions.

The report also calls for the restoration of “effective regulation” of ComEd’s assets through an audit of the company’s grid to determine its actual value and to prevent overpayment by ratepayers.

“The most immediate action the legislature can take is to end formula ratemaking, as the governor has outlined in his energy principles,” Scarr said. “There is a general expectation that a broader energy/utility bill will come together in the 2021 legislative session, so I think they have the opportunity to address all of the recommendations we make, and we will be calling on them to do so.”