S 2777Finance

Public Utilities and Carriers - Public Utilities Commission

This bill limits the annual profit margin (return on equity) for large electric and gas utility companies to 4% starting in 2026.

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Introduced Mar 4, 2026Committee Senate Commerce

Plain-English Summary

This legislation amends the existing laws governing the Rhode Island Public Utilities Commission regarding revenue decoupling. The primary change introduced by this bill is a strict cap on the profit margins of large electric and gas distribution companies. Specifically, effective July 1, 2026, these utility companies will be prohibited from having a profit margin—defined as the return on equity—that exceeds four percent (4%) in any calendar year. The Public Utilities Commission is required to update its regulations to enforce this new limit.

For younger readers

This bill creates a new rule for the big companies that bring electricity and gas to our homes. Sometimes, these companies make a lot of extra money, which is called profit. This law says that starting in the year 2026, the government will put a limit on how much profit these companies are allowed to keep from the bills people pay. The limit is set at four percent. This means the companies cannot make as much money as they might want to, and they have to follow this new rule.

Who & Where It Applies

Impacted groups

Electric distribution companiesGas distribution companiesRatepayersUtility shareholdersUtility employees

Impacted communities

All

Constitutional & Fiscal Check

This bill carries a high constitutional risk. Under Supreme Court precedents like *FPC v. Hope Natural Gas*, regulated utilities are constitutionally entitled to a "just and reasonable" return that allows them to maintain credit and attract capital. A statutory hard cap of 4% on Return on Equity (ROE) may be deemed "confiscatory" under the Takings Clause of the 5th and 14th Amendments if it falls significantly below the market cost of capital for similar risk profiles.

Estimated cost

None

Estimated revenue

None

Bill Analysis

Both viewpoints

For Progressives

Directly combats corporate profiteering by placing a strict cap on the return on equity for monopoly utility providers, ensuring essential services are not treated merely as investment vehicles for shareholders.
Potentially reduces energy costs for low-income and working-class families by preventing utilities from extracting excessive profits from ratepayers, thereby keeping monthly bills more manageable.
Asserts stronger public control and regulatory oversight over critical infrastructure, prioritizing the financial welfare of the community over the financial gains of private corporations.
May inadvertently stifle necessary investments in renewable energy infrastructure and grid modernization if the lower rate of return makes capital projects for green energy financially unviable for the utility.
Could lead to labor reductions, layoffs, or stagnant wages for utility workers as the company seeks to drastically cut operational costs to maintain viability under the new profit cap.
Risk of reduced service reliability and slower response times to storm outages if the utility defers maintenance and infrastructure upgrades to offset the revenue limitations.

For Conservatives

Prevents a state-sanctioned monopoly from exploiting captive customers, ensuring that businesses and homeowners are not price-gouged for essential services where they have no choice of provider.
Forces the utility company to operate more efficiently and cut administrative bloat to maintain financial viability within the tighter profit margins.
Reduces the overhead costs for local businesses and manufacturers by potentially stabilizing or lowering energy rates, which aids the local economy and competitiveness.
Represents extreme government overreach and price-fixing, effectively imposing a socialist command-and-control structure on a private enterprise, which violates free-market principles.
Destroys the incentive for private capital investment in the state, signaling to all businesses that the government can arbitrarily seize or limit earnings, which drives away commerce.
Will likely lead to a degradation of infrastructure and service quality, as the utility will lack the capital to maintain the grid, ultimately harming the economy and property values.

Votes

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Full Bill Text

Changes to existing Rhode Island law · 9 additions

SECTION 1. Section 39-1-27.7.1 of the General Laws in Chapter 39-1 entitled "Public Utilities Commission" is hereby amended to read as follows: 39-1-27.7.1. Revenue decoupling.

(a) The general assembly finds and declares that electricity and gas revenues shall be fully decoupled from sales pursuant to the provisions of this chapter and further finds and declares that any decoupling proposal submitted by an electric distribution company as defined in § 39-1- 2(a)(12) or gas distribution company included as a public utility in § 39-1-2(a)(20) that has greater than one hundred thousand (100,000) customers, shall be for the following purposes:

(1) Increasing efficiency in the operations and management of the electric and gas distribution system;

(2) Achieving the goals established in the electric distribution company’s plan for system reliability and energy efficiency and conservation procurement as required pursuant to § 39-1- 27.7(d);

(3) Increasing investment in least-cost resources that will reduce long-term electricity demand;

(4) Reducing risks for both customers and the distribution company including, but not limited to, societal risks, weather risks, and economic risks;

(5) Increasing investment in end-use energy efficiency;

(6) Eliminating disincentives to support energy-efficiency programs;

(7) Facilitating and encouraging investment in utility infrastructure, safety, and reliability; and

(8) Considering the reduction of fixed, recurring customer charges and transition to increased unit charges that more accurately reflect the long-term costs of energy production and delivery. (b)(1) Each electric distribution company as defined by § 39-1-2(a)(12) and gas distribution company included as a public utility in § 39-1-2(a)(20) having greater than one hundred thousand (100,000) customers shall file proposals at the commission to implement the policy set forth in subsection (a) of this section. The commission shall approve these proposals, provided they contain the features and components set forth in subsection (c) of this section, and that they are consistent with the intent and objectives contained in subsection (a) of this section. Actions taken by the commission in the exercise of its ratemaking authority for electric and gas rate cases shall be within the norm of industry standards and recognize the need to maintain the financial health of the distribution company as a stand-alone entity in Rhode Island.

(2) Provided, effective July 1, 2026, the profit margin of any public utility company that is an electric distribution company or gas distribution company as further defined in § 39-1-2, shall not have a profit margin greater than or exceeding four percent (4%), in any given calendar year. The public utilities commission shall amend its rules and regulations as needed, consistent with the provisions of this chapter. As used herein, a “profit margin” means and shall refer to the return on equity, which shall be the return on the equity portion of the base rate, that is allowed by the commission.

(1) A revenue decoupling reconciliation mechanism that reconciles annually the revenue requirement allowed in the company’s base distribution-rate case to revenues actually received for the applicable twelve-month (12) period. Any revenues over-recovered or under-recovered shall be credited to, or recovered from, customers, as applicable; and

(2) An annual infrastructure, safety, and reliability spending plan for each fiscal year and an annual rate-reconciliation mechanism that includes a reconcilable allowance for the anticipated capital investments and other spending pursuant to the annual pre-approved budget as developed in accordance with subsection (d) of this section.

(d) Prior to the beginning of each fiscal year, gas and electric distribution companies shall consult with the division of public utilities and carriers regarding their infrastructure, safety, and reliability spending plan for the following fiscal year, addressing the following categories:

(1) Capital spending on utility infrastructure;

(2) For electric distribution companies, operation and maintenance expenses on vegetation management;

(3) For electric distribution companies, operation and maintenance expenses on system inspection, including expenses from expected resulting repairs; and

(4) Any other costs relating to maintaining safety and reliability that are mutually agreed upon by the division and the company. The distribution company shall submit a plan to the division and the division shall cooperate in good faith to reach an agreement on a proposed plan for these categories of costs for the prospective fiscal year within sixty (60) days. To the extent that the company and the division mutually agree on a plan, such plan shall be filed with the commission for review and approval within ninety (90) days. If the company and the division cannot agree on a plan, the company shall file a proposed plan with the commission and the commission shall review and, if the investments and spending are found to be reasonably needed to maintain safe and reliable distribution service over the short and long term, approve the plan within ninety (90) days.

(e) The commission shall have the following duties and powers, in addition to its existing authorities established in this title:

(1) To maintain reasonable and adequate service-quality standards, after decoupling, that are in effect at the time of the proposal and were established pursuant to § 39-3-7.

(2) The commission may exclude the low-income rate class from the revenue decoupling reconciliation-rate mechanism for either electric or gas distribution. The commission also may exclude customers in the large commercial and industrial rate class from the gas-distribution mechanism.

(3) The commission may adopt performance incentives for the electric distribution company that provide a shared-savings mechanism whereby the company would receive a percentage of savings realized as a result of achieving the purposes of this section while the remaining savings are credited to customers.

(4) The commission shall review and approve, with any necessary amendments, performance-based, energy-savings targets developed and submitted by the Rhode Island energy efficiency and resources management council. The performance-based targets shall also be used as a consideration in any shared-savings mechanism established by the commission pursuant to subsection (e)(3) of this section.

(f) The Rhode Island energy efficiency and resources management council shall propose performance-based, energy-savings targets to the commission no later than September 1, 2010. The targets shall include, but not be limited to, specific energy kilowatt-hour savings overall and peak- demand savings for both summer and winter peak periods expressed in total megawatts as well as appropriate targets recommended in the opportunities report filed with the commission pursuant to § 39-1-27.7(d)(3). The council shall revise, as necessary, these targets on an annual basis prior to the reconciliation process established pursuant to subsection (c) of this section and submit its revisions to the commission for approval.

(g) Reporting. Every electric distribution company, as defined in subsection (a) of this section, shall report to the governor, general assembly, division of public utilities and carriers, and public utilities commission on or before September 1, 2012. The report shall include, but not be limited to, the following elements:

(1) A comparison of revenues from traditional rate regulation and how the revenues have differed as part of an approved decoupling structure;

(2) A summary of how the company is achieving the performance-based targets that may have been adopted pursuant to subsection (e)(4) of this section;

(3) A summary of any shared savings the company may have received pursuant to the performance incentives authorized in subsection (e)(3) of this section;

(4) A summary of how the company is achieving the service-quality standards required in subsection (e)(1) of this section;

(5) An overview of how decoupling is impacting revenue stabilization goals that have resulted from decoupling; and

(6) A summary of any customer education programs provided.

SECTION 2. This act shall take effect upon passage.