For the past nine years, Chicago-based utility ComEd has earned excessive profits from a regulatory structure set in place by a 2011 state law whose passage has been linked to a bribery scandal that’s embroiled key state lawmakers and ComEd’s former CEO.
That’s the charge leveled in a Tuesday report from the Illinois Public Interest Research Group (PIRG) asking state lawmakers to force the utility to align its capital investments with its customers' interests. The consumer watchdog group says that should start with reforming the regulatory structure set in place by 2011’s Energy Infrastructure Modernization Act.
EIMA, passed over broad objection from the state’s governor and attorney general and an array of consumer watchdog groups at the time, has now been linked to the federal bribery investigation that led to ComEd’s deferred prosecution agreement in July, which included paying a $200 million fine and complying with a three-year enhanced regulatory oversight regime in exchange for avoiding a criminal trial.
ComEd stands accused of steering jobs, contracts and payments to associates of Illinois House Speaker Michael Madigan in exchange for favorable treatment in the state legislature, including Madigan’s efforts to pass EIMA.
“We now know that one reason this campaign was successful was because it involved an illegal and corrupt bribery scheme to attempt to influence the Speaker and his associates,” Illinois PIRG claimed.
Madigan has not been charged with a crime in association with the investigation. Former ComEd CEO Anne Pramaggiore, who left the company in October, was indicted by the U.S. Attorney’s Office of the Northern District of Illinois earlier this month, along with John Hooker, former ComEd legislative and external affairs director, and two other men close to Madigan who had been involved in lobbying and consulting for the utility.
The workings of the 2011 Energy Infrastructure Modernization Act
EIMA was framed by ComEd and its backers as providing certainty to recovering the costs of a $2.6 billion smart grid investment plan that included a 4.2-million-unit smart meter rollout meant to give its customers access to real-time data and services to more efficiently use energy.
ComEd has defended EIMA, noting that it has led to a 70 percent improvement in grid reliability since 2012 and has facilitated the implementation of energy-efficiency programs that have delivered $5 billion in savings to customers since 2008.
“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,” Shannon Breymaier, ComEd communications director, said in an email. “Regulators must review and must approve every dollar of investment that ComEd seeks to recover.”
But EIMA’s formula rate structure has allowed ComEd to avoid much of the scrutiny and control over the costs and benefits of its capital spending plans from the Illinois Commerce Commission. The utility’s annual authorized profits grew by 47 percent from 2011 to 2019, largely driven by an increase in delivery rates that added roughly $4.7 billion to what its customers otherwise would have paid over that time, according to Illinois PIRG's analysis.
EIMA did set up performance metrics to ensure that smart meters delivered customer benefits such as reducing outages and improperly billed energy usage. But Illinois PIRG contends that EIMA was “carefully drafted so that ComEd could easily avoid delivering on all of its promises, and has notably failed to deliver the promised customer benefits most threatening to Exelon” — that is, customer services that could reduce the use of energy provided by Exelon’s nuclear generation fleet.
Specifically, the report cites ComEd’s failure to offer services supported by its smart meter network, such as robust data-sharing via the Green Button Connect standard or enabling consumer devices to make use of time-varying rates to save money. ComEd promoted these efforts as key customer benefits from its deployment of smart meters, but they have largely failed to materialize, the report states.
EIMA also supported grid improvements that have increased service reliability. But Illinois PIRG questions whether those improvements could have been achieved without a formula rate structure that has led to a 37 percent average increase in the “delivery service” portion of customer bills since EIMA was passed. Falling prices for electricity have allowed ComEd customer bills to remain relatively flat over that time despite this increase.
ComEd’s current $9.53 billion capital plan for 2020 through 2023 is slightly higher than the $9.51 billion it spent from 2015 to 2018, the height of its smart grid spending. ComEd will be able to secure spending for this new plan through EIMA’s formula ratemaking, giving regulators little leeway to challenge it.
The new capital plan will also increase customer bills in future years by adding $5 billion to ComEd’s rate base of capital assets, which has drawn opposition from ratepayer watchdog groups.
Calls to end formula rates, open up planning processes and divest generation business
Illinois Governor J.B. Pritzker and state lawmakers have turned against ComEd’s efforts to extend the EIMA’s formula rates past 2024. Lawmakers are also promising greater scrutiny over Exelon’s attempts to win support for its languishing nuclear power plant fleet.
Illinois PIRG wants lawmakers to “end the overly utility-friendly ratemaking process created by EIMA” with legislation that would return the utility to submitting more typical multiyear capital investment plans that can be reviewed by regulators and stakeholders.
The report also proposes a “top-to-bottom audit of ComEd’s grid to better establish its value and prevent overpayment by customers,” as well as a creating a grid investment planning process, known as “integrated grid planning,” that will expose costs and benefits in a more public and transparent process.
Abe Scarr, director of Illinois PIRG, noted that these proposals are contained in the energy policy principles laid out by Gov. Pritzker this summer, as well as in the Clean Energy Jobs Act, a bill designed to align Illinois energy policy with Gov. Pritzker's and legislators’ goals of decarbonizing its electricity system by mid-decade.
That bill failed to pass this year and last year, after the bribery scandal galvanized opposition to a regulatory construct within the bill, supported by ComEd and Exelon, that would have led the state to exit the capacity market of mid-Atlantic grid operator PJM in favor of a new state market structure. The utilities have said this step will be critical to restoring the financial viability of its nuclear power plant fleet and thus allowing the state to retain its carbon-free generation capacity.
“There’s a general expectation, at least among energy advocates, that there will be an effort to pass a comprehensive energy bill in the next session,” Scarr said. “And I think it’s impossible for something to pass that doesn’t have some kind of reforms in it, given the magnitude of the scandal.”
Scarr added that ComEd’s continued ownership by parent company Exelon complicates the utility’s efforts to use its smart grid investments to enable customers to save energy since that could reduce power sales from Exelon’s Illinois nuclear generation fleet. Exelon has warned for years that it could be forced to close the money-losing plants, and this summer it moved ahead with plans to close two plants in 2021.
Illinois PIRG wants Exelon to separate its generation business from ComEd to avoid the potential for future conflicts of interest on this front. Earlier this month, Exelon CEO Chris Crane confirmed that Exelon is considering a restructuring that could separate its generation business from its six regulated utilities serving about 10 million customers in Delaware, the District of Columbia, Illinois, Maryland, New Jersey and Pennsylvania.