Loyola University Chicago School of Law, JD/MPP 2022
The current franchise agreement between the City of Chicago and Commonwealth Edison (“ComEd”) was signed in 1992 by Mayor Daley and is set to expire at the end of 2020. Since 1990, ComEd has generated approximately $60.7 billion in revenue in Chicago alone. In July 2020, Chicago officials announced the results of a feasibility study regarding a potential municipal takeover of ComEd’s electric utility infrastructure. In the same month, ComEd executives admitted to having orchestrated an eight-year bribery scheme where they made payments to Public Official A, later revealed as Illinois House Speaker Mike Madigan, in return for political favors.
Deferred prosecution agreement
As part of a deferred prosecution agreement, ComEd will pay a fine of $200 million, which is equal to about one year’s worth of profit the company makes in Chicago. Under the agreement, the government will defer prosecution on the charge for three years and then seek to dismiss it, if ComEd abides by certain conditions. The conditions include continuing to cooperate with ongoing investigations of individuals or other entities related to the conduct described in the bribery charge. ComEd’s other commitments under the deferred prosecution agreement include enhancing its compliance program and providing annual reports to the government regarding implementation of those compliance measures.
In recent weeks, former ComEd executive and lobbyist Fidel Marquez Jr. plead guilty to conspiracy to commit bribery. During the eight-year bribery scheme, the Illinois General Assembly passed “formula rates” bills that allowed ComEd to increase the rates of millions of customers in Northern Illinois by more than 30% while they saw their own profits rise more than 50%. In response to the public’s continued distrust of ComEd, many Chicago residents and local organizations are pushing for the city to buy-out ComEd’s infrastructure and run the electric utility themselves.
Municipalization feasibility study
NewGen, a management consulting firm specializing in providing economic, strategic, stakeholder, and sustainability services to public and private sector utilities, was retained in November 2019 to determine whether or not the City should consider the establishment of a Municipal Electric Utility. With municipalization, Chicago would stand to collect up to $225 million per year after an approximately $5 billion acquisition price.
Still, the study determined a municipal takeover would not be financially feasible due to the average price for electricity being 43% higher than under the current ComEd system. The increased price is in large part due to the cost of severing ComEd’s infrastructure from their larger grid. Even though NewGen recommends that the City not pursue municipalization, they believe that the City can likely accomplish many of its public policy objectives without it.
“Though the City of Chicago municipalizing the electric utility does not appear to be financially feasible, we will continue negotiating a Franchise Agreement with a laser-like focus on Mayor Lightfoot’s policy objectives of utility affordability, energy and sustainability, equitable economic development, and transparency,” said Chicago Department of Assets, Information and Services (AIS) Commissioner David Reynolds.
Current franchise agreement negotiations
Mayor Lori Lightfoot cautioned ComEd’s CEO Joseph Dominguez that the city would not renew the franchise agreement unless she gets a substantive plan regarding clean energy goals, ethics reform, and an end to residential disconnections during the pandemic. The mayor stated over a dozen demands under an “Energy and Equity Agreement” that must be included in a new agreement. Among these demands are eliminating fees and disconnections, improving infrastructure out the South and West sides, committing to hiring more diverse employees, support for CTA bus electrification, and the creation of community solar sites.
In an effort to tackle ComEd’s corrupt relationship with State legislators, Mayor Lightfoot is demanding for ComEd to stop using “formula rates”. The formula rates were passed in 2011 and allows ComEd to bypass state utility regulators to implement rate increases on customers to cover their own losses. This essentially guaranteed that ComEd turned a profit at the direct expense of Illinois residents. Even with municipalization of ComEd being off the table, Mayor Lightfoot is finding ways to hold ComEd accountable through the leverage afforded to her by the franchise agreement negotiations and the ongoing bribery investigation.