In 2011, Exelon’s Commonwealth Edison sought to persuade Illinois lawmakers to allow it to make billions in smart grid investments and switch to a formula ratemaking process to allow it to recover its costs more quickly.
But the utility didn’t depend only on its powers of persuasion to get its way. According to a U.S. Justice Department investigation announced Friday, the company also began currying favor with House Speaker Michael Madigan, the chair of the state Democratic Party and the most powerful official in the state.
It began a scheme to pay Madigan’s associates through jobs and internships, and appointed a Madigan ally to its board of directors. (See related story, ComEd to Pay $200 Million in Bribery Scheme.)
In return, the company won Madigan’s support for the 2011 Energy Infrastructure Modernization Act (EIMA) — which approved the formula rate mechanism — and the 2016 Future Energy Jobs Act (FEJA), which authorized subsidies for Exelon’s Clinton and Quad Cities nuclear generators. Exelon’s return on investment? More than $150 million, according to the Department of Justice.
“Today’s filing confirms what we have long suspected and feared: that ComEd and its parent company Exelon’s remarkable public policy success since 2011 was made possible through a corrupt and illegal political influence operation,” Illinois PIRG Director Abe Scarr said in a statement.
Scarr said ComEd “was in crisis” in the decade before the passage of EIMA. “Its distribution system suffered from chronic reliability problems stemming from decades of mismanagement. ComEd was in a financially and politically precarious position, threatening bankruptcy. Former Exelon CEO John Rowe said Speaker Madigan was, through this time, a ‘foe.’ ComEd’s political and financial fortunes then changed dramatically, starting with the passage of EIMA in 2011.”
This account is based on the “statement of facts” attached to ComEd’s deferred prosecution agreement. Although the statement identified those allegedly involved in the bribery scheme by pseudonyms, its descriptions of many of them pointed to specific individuals. (See “Who’s Who” at end of story.)
The Most Powerful Official in Illinois
A protégé of legendary machine pol Richard J. Daley, Madigan has ruled the Illinois House of Representatives as speaker for all but two of the last 37 years, outlasting seven governors and more than 700 state regulators, according to a profile by Illinois Policy, an independent public policy group. The only interruption in the reign of the man known as “the velvet hammer” was when Republicans briefly controlled the House.
Illinois Policy said the House’s parliamentary rules give Madigan more power than any other state legislative leader in the U.S., allowing him to assign committee chairs, block votes on key legislation and decide on the state’s political boundaries.
Madigan also wielded power in his role since 1998 as chairman of the state Democratic Party, a position through which he doled out more than $15 million in campaign contributions to 60 sitting state representatives.
In addition, his law firm specializes in Cook County property tax appeals, handling appeals for more than 4,200 parcels totaling more than $8.6 billion in assessed value from 2011 to 2016, the Chicago Tribune and ProPublica Illinois have reported. “Owners of some of the region’s most valuable real estate can feel pressured to hire Madigan & Getzendanner, which Madigan founded in 1972, in an attempt to lower their property tax burdens,” Illinois Policy said.
Radio station WBEZ reported last month that Illinois Commerce Commission Chair Carrie Zalewski was one of almost three dozen people appointed to state positions by Gov. J.B. Pritzker at Madigan’s request. Zalewski is the daughter-in-law of former Chicago Alderman Michael R. Zalewski, one of the Madigan associates who allegedly received no-work jobs in the bribery scheme.
Pass-through Payments
According to the Justice Department, Madigan’s intermediary with ComEd officials was Michael McClain, who became a ComEd lobbyist after a decade as a state legislator. WBEZ has reported that McClain maintained a “magic lobbyist list” that special interests could hire to ingratiate themselves with the speaker.
Although the Justice Department alleged ComEd’s bribery scheme began in 2011, it quoted McClain telling ComEd officials “that for decades, [Madigan] had named individuals to be ComEd employees, such as meter readers, as part of an ‘old-fashioned patronage system.’”
In or around 2011, McClain and John T. Hooker, ComEd’s executive vice president of legislative and external affairs, developed a plan to direct money to two unnamed Madigan associates (“Associate 1” and “Associate 2”). ComEd agreed to pay them indirectly as subcontractors to Jay Doherty, president of the City Club of Chicago, a public-affairs forum founded in 1903 whose luncheons draw a revolving cast of leaders of Illinois politics, business and media.
McClain explained Associate 1’s importance to Fidel Marquez Jr., the utility’s senior vice president for legislative and external affairs, calling him “one of the top three precinct captains” who also “trains people how to go door to door.”
Doherty’s invoices to ComEd falsely claimed the payments were all in return for his advice on “legislative issues,” “legislative risk management activities” and related matters, “when in fact a portion of the compensation paid … was intended for ultimate payment to [Madigan’s] associates, who in fact did little or no work for ComEd,” the statement of facts said. “Certain senior executives and agents of ComEd were aware of these payments from their inception.”
Doherty’s contract with ComEd was increased to cover payments to the subcontractors. Between 2011 and 2019, indirect payments made to Madigan’s associates who performed little or no work for ComEd totaled about $1.3 million, federal officials said, including payments through Doherty’s company and other third-party vendors. Doherty reportedly earned more than $3 million over a decade as a ComEd lobbyist.
In about May 2018, Madigan, through McClain, asked then-ComEd CEO Anne Pramaggiore to hire Michael Zalewski, who was retiring from the Chicago City Council at the end of the month.
Pramaggiore, in coordination with Doherty and Marquez, agreed that ComEd would pay Zalewski about $5,000/month as a subcontractor through Doherty’s company.
When she approved the arrangement, Pramaggiore was aware that other Madigan associates also were paid indirectly as subcontractors through Doherty’s company, which she “referred to as the ‘roster,’” DOJ said. Pramaggiore also agreed that Madigan, rather than someone from ComEd, would advise Zalewski of the payment arrangement. (A spokesman for Pramaggiore on Friday declined to comment to the Chicago Tribune on whether she is cooperating with the department but insisted: “Ms. Pramaggiore has done nothing wrong and any inference to the contrary is misguided and false.”)
In a revised contract including the payments to Zalewski, Doherty falsely claimed the additional $5,000/month was necessary because of the company’s “expanded role with [the] Cook County Board president’s office and Cook County commissioners and department heads.”
In February 2019, McClain advised Marquez about how to present information within ComEd concerning the renewal of Doherty’s company’s contract for 2019, warning “I would say to you don’t put anything in writing … [because] all it can do is hurt ya.”
About the same time, McClain had a conversation with Hooker, who had retired from ComEd but had continued to work as an external lobbyist for the company. If asked about the renewal of Doherty’s contract, McClain told Hooker he should explain, “We had to hire these guys because [Madigan] came to us. It’s just that simple.” Hooker agreed, the statement of facts said, adding, “It’s clean for all of us.”
Beginning in 2013, ComEd also set aside a number of internships for students who primarily resided in Madigan’s Chicago ward and were recommended by McClain and others of the speaker’s associates.
Board Post
In 2017, McClain told Pramaggiore that Madigan wanted another associate, Juan Ochoa, former CEO of the Metropolitan Pier and Exposition Authority, appointed to the ComEd board.
Internal company opposition to Ochoa’s appointment prompted Pramaggiore to ask McClain in May 2018 if the speaker would be satisfied if she arranged a part-time job that paid as much as the board position: $78,000/year.
McClain told Pramaggiore that Madigan wanted her to “keep pressing” for Ochoa’s appointment. Pramaggiore agreed to do so, later telling McClain, “You take good care of me and so does our friend [Madigan], and I will do the best that I can to, to take care of you.”
In April 2019, Pramaggiore sent McClain a text message that Ochoa’s appointment had been approved. His appointment was announced the following day in a notice with the U.S. Securities and Exchange Commission.
“Although ComEd and Exelon conducted due diligence on [Ochoa] and ultimately determined he was qualified for a board position, no one at ComEd or Exelon recruited [Ochoa] to serve as a director, and ComEd did not interview or vet other outside candidates for the vacant board seat,” the statement of facts said.
ComEd also had agreed beginning in 2011 to retain a law firm — described as Law Firm A — with a minimum of 850 hours of attorney work annually. It is unclear if the firm was Madigan’s, but the statement of facts says the hiring was intended “to influence and reward” the speaker.
In 2016, ComEd sought to reduce the hours in the firm’s retainer because there was not enough appropriate legal work to give the firm 850 annual hours.
In January 2016, McClain wrote Pramaggiore that a lawyer with the firm (“Lawyer A”) had complained about the utility’s efforts to reduce the contract.
“I am sure you know how valuable [Lawyer A] is to our friend [Madigan],” McClain wrote. “I know the drill and so do you. If you do not get involve [sic] and resolve this issue of 850 hours for his law firm per year, then he will go to our friend [Madigan]. Our friend [Madigan] will call me, and then I will call you. Is this a drill we must go through?”
Pramaggiore apologized: “Sorry. No one informed me. I am on this.” She assigned a ComEd employee who was serving as “project manager” for obtaining legislative approval of FEJA to ensure that the law firm’s contract was renewed.
“The project manager had no oversight authority over ComEd’s legal department and was not otherwise involved in deciding what legal professionals the legal department retained,” according to the statement of facts. “The project manager was assigned the task of ensuring Law Firm A’s contract was renewed because the work provided to Law Firm A was, in part, designed to influence and reward Public Official A in connection with Public Official A’s official duties, including the promotion and passage of FEJA.”
ComEd agreed around June 2016 to renew the firm’s contract but with reduced annual hours.
Utility-backed Legislation Approved
The Justice Department said ComEd’s support of Madigan helped produce two major legislative wins for the utility: FEJA, which included billions in subsidies for two Exelon nuclear generating plants, and EIMA, which authorized ComEd and Ameren Illinois to spend $3.2 billion over 10 years for upgrades, distributed automation and smart meter implementation.
The spending was done under a streamlined formula rate process to reduce regulatory lag and allow quicker inclusion of costs into rates. The rate of return on equity, incentive compensation, rate-case expense and other variables were set in advance. ROEs could be reduced for failing to meet performance targets. Passed by the Illinois House in May 2011 and the Senate in August, EIMA was vetoed by former Gov. Pat Quinn (D) but overridden by the legislature October.
An analysis by Scott Madden management consultants after the first six annual formula rate filings concluded that the utilities had increased their earnings despite below-average ROEs. It said ComEd’s and Ameren’s rate bases had increased by 34% and 24%, respectively, boosting their authorized earnings by 16% and 6% since 2012.
Ameren’s and ComEd’s formula rates have been extended twice beyond their initial sunset in 2017. The current extension ends in 2022.
ComEd is currently running an advertisement claiming the formula rates are responsible for a 60% increase in reliability, $2.1 billion in “customer benefits,” 3,000 jobs and $12 billion in investments in the state economy. The ad is running on the website of Capitol Fax, a newsletter covering state politics, adjacent to the site’s timeline of the federal investigation.
Critics, however, say formula rates have allowed utilities to pass through costs without adequate review and that utilities are effectively guaranteed their authorized rate of return.
ComEd also won Madigan’s support for FEJA, which — in addition to increasing energy efficiency requirements and creating a community solar program — authorized $2.4 billion in zero-emission credits for Exelon’s Clinton and Quad Cities nuclear units.
“Since the passage of FEJA, ComEd has had a continuing interest in advancing legislation in the General Assembly favorable to its interests and opposing legislation that was not consistent with its operational and financial success,” the Justice Department said.
ICC Under Scrutiny
Gov. Pritzker said Friday that Madigan must step down if the allegations against him are true. But a spokesman for the governor told the Chicago Tribune that Pritzker “still has confidence in Carrie Zalewski, who is an accomplished regulator.”
WBEZ said last month it had obtained emails showing Madigan’s top aide recommended Zalewski for the ICC in December 2018, about four months before the governor named her to a five-year term as chairwoman. She was confirmed by the Senate in May, about two weeks after the FBI raided her father-in-law’s home in the bribery probe, although the raid did not become public until July.
“ComEd’s business model relies on favorable relationships with regulators like the ICC to ensure they get the best possible deal, even if it’s at the expense of ratepayers,” Liz Kantor, a co-coordinator of the Democratize ComEd campaign, told WBEZ. “Clearly a system where regulators are clandestinely appointed by friends of the companies being regulated is not one that is operating in the public interest.”
The ICC announced Friday it had summoned ComEd executives to appear before the commission at its open meeting July 29 in response to the Justice Department allegations.
“Since the beginning of the [Pritzker] administration, the commission has been committed to fostering a culture of transparency, accountability and inclusivity at the agency. This includes holding utility companies accountable for their compliance with ethics reforms required by a law enforcement agency,” the ICC said. “At the open meeting on July 29, the commission will have an opportunity to ask ComEd executives about the ethics reforms that the company says it has implemented.”
ICC spokeswoman Victoria Crawford said the allegations do not involve the chair and should not affect her position.
“There is no conflict of interest, actual or perceived,” Crawford said in a statement. “Chairman Zalewski remains committed to the important work of the Illinois Commerce Commission.”
The ICC pointed to Zalewski’s efforts to increase transparency by broadcasting commission meetings via livestream and providing more detailed explanations about votes.
The commission has been criticized in the past for being too close to ComEd, however.
The Tribune cited the ICC’s “aggressive and unsuccessful battle to shield ComEd from scrutiny” in a wrongful death suit, saying it spent months fighting a court order to turn over documents related to an electrocution that killed cable line worker Robert Zulauf in November 2016. Jordan Zulauf, the victim’s nephew, suffered severe injuries in the accident and had to have both arms amputated. ComEd engineers said the accident was the result of an improperly insulated guy wire.
Stephan Blandin, the attorney for the victim’s widow, told the Tribune on Friday that Zalewski should be removed from the commission.
“The whole purpose of Commonwealth Edison bribing state government is to get favorable rates … and so they don’t face any scrutiny from the ICC,” Blandin said. “What happened to Robert and Jordan is a manifestation of the corruption.”
Zalewski’s predecessor as chair, Brien Sheahan, also was criticized as too close to ComEd.
In April, the ICC announced it would not release a final draft of its “NextGrid: Illinois’ Utility of the Future” study after quietly settling a lawsuit that claimed Sheahan had allowed ComEd and Ameren to exclude some consumer advocates and others from participating in the study. (See ‘NextGrid’ Goes off the Rails.) The report was later published by the University of Illinois.
Who’s Who?
Below is a list of the pseudonyms in the DOJ statement of facts and how the individuals named in the story above were identified.
- “Public Official A is the speaker of the Illinois House of Representatives and the longest serving member of the House of Representatives.”
- “Individual A served in the Illinois House of Representatives for approximately 10 years beginning in 1972. After Individual A’s service in the Illinois House of Representatives, Individual A served as a lobbyist and/or consultant for ComEd until 2019. During that time, Individual A made known to ComEd that Individual A had a close personal relationship with Public Official A.” Retired lobbyist Michael McClain, whose home was raided by the FBI in mid-May 2019, “fits all of those details,” WBEZ reported.
- “CEO-1 was the chief executive officer of ComEd between in and around March 2012 and May 2018. From June 1, 2018, to Oct. 15, 2019, CEO-1 served as a senior executive at Exelon Utilities and had oversight authority over ComEd’s operations.” That is a reference to Anne Pramaggiore, who abruptly retired in October, less than a week after Exelon disclosed it had received a second subpoena in the investigation. The company said investigators were looking for “communications” between Exelon, ComEd and state Sen. Martin Sandoval, a Chicago Democrat whose home and offices had been raided by FBI agents in September. Sandoval’s daughter worked for ComEd as a senior account representative.
- “Senior Executive 1 served as ComEd’s senior vice president for legislative and external affairs from in or around March 2012 until in or around September 2019.” WBEZ said this appeared to be a reference to Fidel Marquez Jr., “who held that title as ComEd’s top in-house lobbyist and left the company at that same time.”
- “Lobbyist 1 served as ComEd’s executive vice president of legislative and external affairs from in and around 2009 until Lobbyist 1’s retirement in and around 2012. From 2012 to 2019, Lobbyist 1 served as an external lobbyist for ComEd.” ComEd announced in a press release that John T. Hooker was retiring as executive vice president of legislative and external affairs effective Feb. 24, 2012.
- “Consultant 1 was the owner of Company 1, which performed consulting services for ComEd until in and around 2019.” WBEZ identified that person as Jay Doherty, who resigned in December after 27 years as president of the City Club of Chicago public affairs group. Doherty, whom WBEZ reported was being investigated for being a “pass through” for ComEd’s payments to politically connected individuals, resigned several months after federal investigators raided City Club’s offices. Doherty had earned more than $3 million over a decade as a ComEd lobbyist.
- “Associate 3” was “a political ally of Public Official A who was retiring from the Chicago City Council at the end of” May 2018. Michael R. Zalewski retired from the city council May 31, a year before the end of his term amid speculation he was seeking to avoid a primary fight in his increasingly Hispanic district. Federal agents raided his home in May 2019.
