New report: Formula rate law at center of ComEd scandal cost consumers billions, under-delivered promised benefits

Media Contacts
Abe Scarr

State Director, Illinois PIRG; Energy and Utilities Program Director, PIRG

Illinois PIRG

ComEd is reaping record profits and its customers are paying 37 percent higher electricity delivery rates while the utility has under-delivered on its promises to its customers and the public, according to Guaranteed Profits, Broken Promises, a report released by Illinois PIRG on Tuesday. 

The report thoroughly examines the 2011 Energy Infrastructure Modernization Act (EIMA), one of the laws at the center of the federal investigation into ComEd and Illinois government officials. EIMA is commonly known for facilitating investments in reliability upgrades and “smart grid” technology and for granting ComEd and downstate utility Ameren Illinois automatic rate hikes through so-called “formula” ratemaking.

Given the report’s findings, Illinois PIRG is calling on legislators to end formula ratemaking, order an independent audit of ComEd’s assets, break up ComEd and its parent company Exelon, and establish more effective checks on utilities’ political power. 

“EIMA turned utility regulation, which aims to promote the public good through the opportunity for private profit, on its head,” said Illinois PIRG Director and report co-author Abe Scarr. “EIMA guaranteed ComEd and Exelon’s profits while failing to adequately ensure customer and public benefits.”

In a July deferred prosecution agreement, ComEd admitted to years of actions that, according to federal prosecutors, constitute a corrupt bribery scheme intended to win favorable legislation, starting with EIMA. While the company maintains that the legislation passed as the scheme was ongoing did not harm customers or the public, this new report demonstrates that is untrue. The report further argues that one reason for ComEd’s failure to deliver customer benefits may be to protect the business interests of Exelon and its expensive nuclear power plants.

The report found that concerning customer rates and ComEd profits:

  • In 2019, ComEd customers paid 37 percent more for delivery service than they did in 2011;

  • Since 2012, ComEd customers have paid $4.7 billion more than they would have had the formula created by EIMA not increased delivery rates over the level in 2012;

  • Over the past six years, ComEd has earned more than $1 billion more in profits than it earned over either of the previous six-year periods while it has been an Exelon subsidiary.

In 2011, then-ComEd President and COO Anne Pramaggiore promised “a smart meter in every home opening a world of consumer information and pricing options that provide opportunities for customers to save money.” Regarding ComEd’s failure to deliver customer benefits, the report notes that:

  • Time-of-use rates, a critical customer benefit from smart meters, will not be broadly available to ComEd customers until at least 2024;

  • Highly touted programs that were supposed to drive customer value from smart meters, such as the smart grid “Test Bed” and “Green Button Connect,” have been outright failures;

  • Even benefits that have arrived, including reliability improvements and increased operational efficiency, have not been properly evaluated or scrutinized, so that it is currently impossible to know whether those gains are worth the billions of dollars customers paid to achieve them.

“ComEd did not need formula rates to improve upon its chronically poor reliability performance, or to improve service through new smart grid technology,” said Jeff Orcutt of Chapman Energy Strategies and report co-author. “Instead, ComEd used misleading promises of a customer-centered vision to win itself guaranteed profits and less accountability.”

Over the course of 2020, Gov. JB Pritzker convened a series of stakeholder meetings geared towards crafting comprehensive energy legislation. The report makes a series of recommendations, some of which Gov. Pritzker put forward himself when he released his guiding energy principles in August. The Illinois PIRG report recommends:

  • An immediate end to formula ratemaking

  • A thorough and independent audit of ComEd’s investments over the past decade and of the current status of ComEd’s grid

  • Integrated distribution planning, a public and transparent process for grid planning and investment decisions 

  • Forcing ComEd to immediately offer customer-friendly time-of-use rates

  • Forcing Exelon to divest from ComEd, or, short of that, establishing better procedures to mitigate well-established risks posed by conflicts of interest inherent to Exelon’s ownership of both expensive nuclear power plants and ComEd

  • Establishing more effective checks on utility political power by limiting utility political giving, making permanent the ethics changes included in the deferred prosecution agreement, and ending utilities’ ability to charge customers for charitable contributions, rather than making such contributions out of utility profits.

“ComEd and other utilities have held too much power in Springfield for too long,” concluded Scarr. “We look forward to working with Gov. Pritzker, members of the Illinois General Assembly and other stakeholders to right the wrongs of the past decade by passing an energy bill that places customers and the public interest at the center of Illinois’ transition to the 100% clean energy future.”