Commonwealth Edison executives have admitted the huge power company bribed its way to lucrative legislative wins in Springfield – and millions of customers in Illinois can see the steep price they’re paying for it on every electric bill.
During the eight-year bribery scheme, the amount of state-approved revenue Chicago-based ComEd collected for delivering power to its many customers across northern Illinois increased more than 30%, according to a WBEZ analysis of records from the state agency that oversees the electric company and other public utilities.
Over the same period, ComEd’s net annual operating income swelled more than 50%, the documents from the Illinois Commerce Commission show.
“It affected our electrical bills, yours and mine,” said Juliet Sorensen, a former federal prosecutor who investigated corruption cases. “It’s really a prime example of the fallacy that public corruption is a victimless crime.”
About 4 million homes and businesses are feeling the financial pain from the sharp increase in rates because ComEd enjoys a near-monopoly in Chicago and far beyond, delivering power to roughly 70% of the people of Illinois.
Last week, ComEd and federal prosecutors in Chicago announced that the company would pay a $200 million fine to the U.S. government to settle allegations it engaged in the long-running bribery scheme in state government.
The company concedes it was all part of a push to curry and keep favor with “Public Official A,” a clear reference to longtime state House Speaker and Democratic Party of Illinois boss Michael Madigan. He has not been charged and has vehemently denied wrongdoing.
But in its agreement with the feds, the power company executives admitted ComEd secretly paid more than $1.3 million from 2011 through 2019 to Madigan-connected consultants for little or no work.
Clout hiring to win influence also impacted ComEd’s internship program, which drew “primarily” from the students in Madigan’s 13th Ward, and even a seat in the corporate boardroom, according to court records.
The politically connected “subcontractors” mentioned in court records included a former Chicago alderman and one of Madigan’s top three precinct captains from his ward organization, who trained others to work effectively on campaigns for the speaker’s vaunted political army.
The payments to the politically blessed, ghost consultants and other clout hires have provided a big return on ComEd’s investment. The corrupt behavior won concessions in Springfield that have been worth exponentially more than the payments “indirectly” funneled to Madigan-connected consultants through a ComEd lobbyist and other third parties, according to court records.
ComEd’s agreement with the feds pointedly notes how the speaker from Chicago’s Southwest Side and other Illinois lawmakers favored the company with two pieces of lucrative state legislation, in 2011 and 2016.
“ComEd acknowledges that the reasonably foreseeable anticipated benefits to ComEd of such legislation exceeded $150,000,000,” according to the court records unsealed a week ago.
But WBEZ’s analysis of state regulatory documents suggests the scheme’s true benefits for ComEd may have been far higher than that minimum, estimated figure in the federal settlement or even the $200 million fine.
“Just plain wrong”
ComEd needs state officials on its side in order to make money. That’s because state government “regulates the rates that ComEd may charge its customers, as well as the rate of return ComEd may realize from its business operations,” according to court documents.
The 2011 “Smart Grid” law was passed over the objections of the then-governor and baked in rate increases for ComEd for years.
Since that law passed, revenues from the company’s state-approved delivery rates have jumped from a little over $2 billion in 2012 to nearly $2.7 billion last year, the state commerce commission documents show. That increase was about 2-1/2 times the roughly 12% rate of inflation during the same period.
The state-sanctioned “net operating income” reaped by ComEd rose even faster, from about $500 million a year at the time the bribery scheme in Springfield began to to $739 million last year, according to the state documents and court records.
In federal court, the government and ComEd say the 2011 law allowed for the company to “more reliably determine rates it could charge customers” and “helped improve ComEd’s financial stability.”
Wall Street also views the law as a “significant” positive factor for the company’s financial outlook, according to a report on ComEd from Moody’s Investors Service in March. Moody’s noted that the state rate structure created by the 2011 law assures “predictable cash flows” and means the company enjoys lower “business risk” than other electric utilities across the country.
Pat Quinn, who was the Democratic governor at the time, vetoed the Smart Grid legislation. The Illinois General Assembly overrode Quinn’s veto in October 2011.
Madigan was the speaker then. He is the longest-serving state House speaker in the country, having led a majority of the chamber for all but two years since 1983.
This week, Quinn told WBEZ he believes the power company should be forced to repay customers for its illicitly-obtained gains in Springfield. He said he believes the proceeds from the corruption scheme “may be much more than $150 million.”
“Commonwealth Edison has unclean hands,” said Quinn, who lost his re-election bid in 2014. “They cannot stand to benefit [to that extent] to the detriment of the consumers, the people, the customers…Why in the world would they be allowed to keep $150 million or more because of their wrongdoing?”
The pandemic only exacerbates the pain of the higher rates, said Quinn, who made his reputation decades ago in Chicago and state politics as an advocate for taxpayers and consumers.
“Right now is a tough time for everybody in our country and certainly our state,” he said. “To pay unlawfully high electricity bills while you’re at home is just plain wrong.”
Quinn said Madigan should recuse himself from having anything to do with reform legislation that stems from the ComEd scandal.
Hundreds of millions in “extra revenue”
In 2016, two years after Quinn’s re-election defeat, ComEd lobbied for and won approval for another highly valuable measure known as the Future Energy Jobs Act, or FEJA.
According to the power company’s July 17 agreement with the feds, FEJA represented “a renewal of the regulatory process that was beneficial to ComEd.”
The law also was a bailout that allowed ComEd’s publicly traded parent, Chicago-based Exelon Corp., to continue to operate two nuclear plants it owns in Illinois. This victory at the state Capitol cleared the way for Exelon to take in an extra $235 million a year in “extra revenue” for 10 years, according to the Citizens Utility Board, a consumer-watchdog group that first opposed the bill, but ultimately backed it.
By approving FEJA, Illinois lawmakers enabled Exelon to collect more than $2.3 billion from ComEd’s ratepayers. Records show the legislation yielded more than $935 million in the first four years after the Springfield decision.
As part of the effort to ensure Madigan’s support for FEJA, court records show, the then-CEO of ComEd tasked an employee with making sure to ensure the renewal of the electric company’s contract with a law firm favored by the speaker.
A source close to the investigation said the clout-heavy lawyer referred to in the settlement with ComEd was Victor Reyes, once a top aide and political operative for former Chicago Mayor Richard M. Daley.
Reyes did not return messages this week. His firm also was mentioned in a subpoena served last week at Madigan’s state office.
In a statement Thursday to WBEZ, a spokesman for Exelon said both pieces of legislation had the support of a “broad coalition” of community groups “who recognized the importance of sound energy policies to power our economy and support local jobs.”
“Passage of these two laws was not dependent on any one lawmaker or legislative body,” Exelon said. “They were widely recognized as good policy then, and they remain good policy now, and the U.S. attorney’s investigation doesn’t conclude otherwise.”
Public left “none the wiser”
The allegations against ComEd were publicly revealed at the same time the company and the feds announced they had come to a settlement of the criminal case through a legal mechanism known as a “deferred prosecution agreement.”
Executives agreed to report back to prosecutors on their efforts to reform the company each year for the next three years. If ComEd complies with the agreement and continues to cooperate with authorities, the single bribery count against the company would be dropped.
But the feds could have made it harder on ComEd and more effectively protected the public by forcing the company to submit to the oversight of an independent ethics monitor, said Mihailis Diamantis, a law professor at the University of Iowa. Diamantis is a longtime critic of the U.S. Justice Department’s use of deferred prosecution agreements to settle criminal cases against big business.
“They want a corporate fine that will grab headlines and persuade a naive public that they are being tough on corporate crime,” Diamantis said. “I guarantee you that corporations would prefer to pay a fine than to have an independent corporate monitor overseeing compliance reform.”
Without a monitor, he said, the perpetrators of corruption are left to police themselves.
Under ComEd’s deal, the annual compliance reports from the company will go to prosecutors and are meant to remain “non-public.”
The way the agreement is structured in this case, Diamantis said, ComEd gets “a clean break” and the public ends up “none the wiser.”
He and other experts on corporate corruption said the $200 million fine would not prove difficult for the multi-billion-dollar company to pay.
Prosecutors have said the fine against ComEd is the biggest financial penalty levied against a company in the federal court system’s Northern District of Illinois. A spokesman for the U.S. attorney in Chicago, John Lausch, declined to comment for this story.
“Windfall” for U.S. government – not consumers
The sentencing guidelines for ComEd’s misdeeds called for a fine of $240 million or as much as $480 million, according to the agreement in the case.That range in the guidelines gave ComEd credit for cooperating with the investigation.
But the feds further reduced the fine, dropping it by $40 million below the minimum in the guidelines. In doing so, the feds again cited the company’s “substantial remediation and cooperation” with authorities.
ComEd vowed to pay half of the fine within 30 days and the other $100 million within 90 days.
But none of that money will go back to the rate-payers who are bearing the costs of the tainted legislation in Springfield.
“Ultimately, we were cheated by them, and the windfall from it is going to the United States Treasury,” said former federal prosecutor Renato Mariotti of Chicago.
ComEd’s parent company will fork over the $200 million, Exelon said in a filing with securities regulators.
“The payment will not be recovered in rates or charged to customers,” according to the filing on July 17.
But ComEd and Exelon would not specify how they will come up with the fine money.
Potential legal efforts to claw back money for ComEd customers or the state also could prove frustrating.
After a federal corruption scandal, the Chicago Board of Education in 2016 sued a crooked schools CEO and two district contractors who bribed her, seeking tens of millions of dollars in restitution. More than four years later, the case remains pending, according to Cook County Circuit Court records.
In forging last week’s deal, the feds and ComEd avoided a potentially long criminal trial with an uncertain outcome.
And Mariotti said the company’s public admission of wrongdoing now gives investigators a tool to use “to try to get other people to flip.”
Prosecutors also may be more interested in building cases against individuals than in solely punishing the company more severely than the agreement does, said Vikramaditya Khanna, an expert on corporate law and white-collar crime at the University of Michigan Law School.
“Usually, when you get cooperation credit that means the company has let the government go through their records and help them get information that can be used to go after other entities or individuals,” Khanna said.
Michael McClain – who was the lobbyist for ComEd and a close Madigan friend and political advisor for decades – told WBEZ earlier this year that prosecutors had asked him to cooperate in the probe, but he indicated he was not inclined to help.
An Exelon spokesman said executives had “cooperated fully with the U.S. attorney from the beginning, which included providing information that might not otherwise have been available to the government.”
Second federal probe “remains ongoing”
Authorities say the criminal investigation of Springfield corruption is continuing.
On the same day their agreement with ComEd was disclosed, federal agents delivered a grand-jury subpoena to Madigan’s state office. The subpoena called on the speaker to give investigators documents relating to a long list of influential associates, many of whom also have ties to ComEd.
The wide-ranging probe of Madigan and ComEd first emerged into public view a year ago, when WBEZ and the Better Government Association reported the FBI searched the home of ex-23rd Ward Ald. Michael Zalewski. That story revealed that agents sought records from Zalewski relating to the speaker, ComEd and the former City Council member’s own consulting deal.
Then, in October 2018, WBEZ reported the feds also had visited the offices of the City Club of Chicago, a civic organization, and its then-leader, the lobbyist Jay Doherty, as they investigated allegations of multiple Madigan-connected consultant hires in exchange for favorable legislation.
Exelon and ComEd disclosed receiving two federal subpoenas last year from prosecutors here. But Exelon CEO Chris Crane described the media coverage of the investigation as “a lot of speculation in news articles.”
“They’re guessing, to say that the best,” Crane said in October 2019, adding that he did not believe the investigation would harm Exelon.
In addition to the criminal probe, the U.S. Securities and Exchange Commission opened an investigation into ComEd and Exelon last year. The SEC is not finished with them, according to a filing by Exelon last week with the agency, whose main mission is to protect investors. Exelon is traded on the NASDAQ stock exchange.
“The SEC’s investigation remains ongoing and Exelon and ComEd have cooperated fully and intend to continue to cooperate fully with the SEC,” Exelon officials revealed in the filing on July 17.
Dan Mihalopoulos is an investigative reporter on WBEZ’s Government & Politics Team. Dave McKinney covers state politics.
via WBEZ Chicago
July 23, 2020 at 09:24PM