Enough is enough
Sen. Victoria Gu has introduced a pair of
bills to put a limit on the profit that can be made by utilities distributing
electricity and natural gas in Rhode Island and to ensure that future
transactions made between utilities are reviewed in a public, transparent
process that serves the broad public interest.
Photo by Steve Ahlquist
“Every winter, constituents come to me asking why their utility bills are so high. People are struggling and frustrated. We need to do a better job of regulating our utilities, which are monopolies, and controlling costs,” said Senator Gu (D-Dist. 38, Westerly, Charlestown, South Kingstown).
“It is our job as legislators to make sure that utilities serve the public
interest and are not profiting excessively while residents suffer.”
The first bill (2025-S 0018) would limit the return on equity (the industry
term for profit margin) of public electric or gas distribution utilities in
Rhode Island to 4 percent in any year.
In Rhode Island, utility companies are not allowed to make
profit on procuring energy to supply ratepayers. They instead earn a rate of
return on the delivery of the energy, based on the infrastructure they build in
Rhode Island. Rhode Island Energy, which distributes both electricity and
natural gas to most of Rhode Island, is allowed a return on equity of 9.275% on
its distribution of gas and electric under the rate agreement that took effect
in September 2018, before the company was sold by National Grid to PPL in 2022.
Investor-owned utilities, like Rhode Island Energy, have an
incentive to build more expensive infrastructure projects in order to increase
profits for their investors.
“Excessive profit margins drive excessive infrastructure spending, which drives up costs for customers,” said Senator Gu. “For illustrative purposes, building a new $2 million power line would net its investors nearly $200,000 in profits at a 9.275% profit margin, so a utility would much rather do that than spend a smaller amount to maintain their existing power lines in order to avoid costly replacements. Maintenance doesn’t net the investors any profit because it’s considered an operational expense, not a capital investment. So with no incentive to control costs, customers suffer.”
According to the 2024 PPL (Rhode Island Energy’s parent company) earnings report, it increased planned infrastructure investments to $14.3 billion from 2024 to 2027 compared to the prior plan of $11.9 billion from 2023 to 2026.
Senator Gu
asserts that the 9.275% profit margin is excessive: According to a report from the American Economic Liberties Project,
across the country investor-owned utilities have been awarded average returns
on investment over the last 15 years that are twice what is considered “just
and reasonable” under a 1944 Supreme Court precedent.
In 2023, the most recent full year for which data is
available, PPL’s CEO Vincent Sorgi received a 31% raise, taking home $11.97
million. Meanwhile, Rhode Island Energy customers faced a 47% electric rate
hike in October 2022.
Rep. Megan L. Cotter (D-Dist. 39, Exeter, Richmond,
Hopkinton) has introduced companion legislation (2025-H 5018) in the House.
The second bill (2025-S 0379) would amend the procedures governing the
approval of transactions between utilities — such as when Rhode Island Energy
was sold in 2022 — to give the Public Utilities Commission (PUC) jurisdiction
over their approval. It would also mandate that hearings be public and allow
interested residents, businesses or other parties to participate in the
approval process, amend the definition of the “public interest” to ensure that
a wide range of perspectives and goals are considered during the approval
process and make any order by the commission subject to judicial review.
“We missed an opportunity just three years ago when our
electric and gas utility was sold for $5.3 billion — reported as the largest
business transaction in RI history. There was a lot at stake, yet interested
citizens concerned about the public impact of the sale were not allowed to
participate,” said Senator Gu. “This bill will ensure that we don’t repeat our
mistake in the future by mandating a public process under the PUC that serves
the public interest and encourages full public participation.”
The Attorney General’s office appealed the 2022 sale,
arguing that the wrong legal standard was used when reviewing it and that the
sale agreement failed to consider the public interest in a variety of
ways. PPL agreed to settle and provide credits to some
customers, forgive balances to low-income and protected customers and forgo
recovery from ratepayers of some transition costs.
“I’m thankful the Attorney General stepped in during that
sale,” said Senator Gu. “But legal action after the fact is not a substitute
for a robust, public and transparent review process before a sale is approved.”
Rep. Arthur Handy (D-Dist. 18, Cranston) has introduced
companion legislation (2025-H 5821) in the House.
