SECTION 1. Chapter 39-1 of the General Laws entitled "Public Utilities Commission" is hereby amended by adding thereto the following section: 39-1-27.14. Setting authorized common equity ratios and rates of return on equity.
(a) Definitions. For purposes of this section:
(1) “Actual common equity ratio” means the actual percentage of a regulated utility’s total capitalization that consists of common equity during a given rate period.
(2) “Actual rate of return on equity” means net income divided by shareholders’ equity during a rate period.
(3) “Authorized common equity ratio” means the percentage of a regulated utility’s total capitalization that consists of common equity, including retained earnings and capital surplus, as approved by the commission.
(4) “Authorized rate of return on equity” or “ROE” means the return on the equity portion of a regulated utility’s rate base authorized by the commission for recovery through rates.
(5) “Generic financing methodology” means a standardized methodology adopted by the commission for determining authorized common equity ratios and authorized rates of return on equity for regulated utilities.
(6) “Publicly available data” means data accessible to the public through published sources, internet resources, or public libraries.
(7) “Rate period” means the period during which rates approved by the commission are in effect.
(8) “Regulated utility” means any electric distribution company, gas company, water utility, or other public utility subject to the jurisdiction of the public utilities commission pursuant to this title.
(b) Adoption of generic financing methodology. On an annual basis, the commission shall, through rulemaking:
(1) Update and maintain a generic financing methodology that relies, to the greatest extent practicable, on publicly available data;
(2) Establish a fair and reasonable authorized common equity ratio for each regulated utility and a single authorized rate of return on equity applicable to all regulated utilities, unless otherwise justified; and
(3) Reconcile the authorized rate of return on equity from the prior rate period with the actual average monthly rate of return on equity produced by the generic financing methodology, including the use of a true-up mechanism.
(c) Surcredits and surcharges.
(1) If a regulated utility’s actual rate of return on equity exceeds the authorized rate of return on equity, revenues attributable to such excess shall be returned to ratepayers through a surcredit applied during the subsequent rate period.
(2) If a regulated utility’s actual rate of return on equity is less than the authorized rate of return on equity, the commission may authorize recovery of the shortfall through a surcharge applied during the subsequent rate period.
(d) Transparency and public participation. All methodologies, ratios, rates of return, and reconciliation calculations adopted pursuant to this section shall:
(1) Clearly explain the data sources, assumptions, and analytical methods used;
(2) Be subject to notice and comment in accordance with chapter 35 of title 42 (“administrative procedures”); and
(3) Include opportunities for participation by ratepayers, consumer advocates, public interest organizations, utilities, and other interested parties. In adopting final determinations under this section, the commission shall give preference to the best interests of ratepayers.
(e) Rebuttal by regulated utilities.
(1) A regulated utility may rebut the authorized common equity ratio or authorized rate of return on equity by petitioning the commission for a public hearing.
(2) The burden of proof shall rest exclusively with the regulated utility to demonstrate, by a preponderance of the evidence, that the authorized values are insufficient to:
(i) Maintain financial integrity;
(ii) Attract capital on reasonable terms; or
(iii) Provide a fair and reasonable return.
(3) Upon a successful rebuttal, the commission and the regulated utility may engage in settlement negotiations pursuant to this title.
(f) Annual reporting. The commission shall annually submit a report to the governor, the president of the senate and speaker of the house of representatives summarizing:
(1) Authorized common equity ratios and authorized rates of return on equity;
(2) Any surcredits or surcharges applied; and
(3) Any deviations from the generic financing methodology and the justification therefor. Such report shall be published on the commission’s website.
SECTION 2. This act shall take effect on July 1, 2027.
