High utility prices that have become a costly frustration for D.C. residents and a potent political rallying cry took center stage in the D.C. Council on Tuesday, where lawmakers gave initial approval to a bill that proponents say will help bring down bills. Critics, however — including utility companies — argue it could have unintended consequences for an already strained grid.
“Energy prices continue to go up,” said Ward 6 council member Charles Allen, who authored the bill. “It’s a crisis.”
According to the Urban Institute, D.C. has seen some of the country’s biggest price jumps for electricity.
When it was introduced by Allen in February, the bill — known as the GRID Act — started as a modest attempt to speed the process of connecting solar panels to the electric grid and to allow renters to install solar panels on their balconies. But by the time it received its first vote this week, it had ballooned into a 43-page omnibus that Allen said could lead to more than $50 million in annual savings for ratepayers.
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On top of those initial provisions, the bill would also expand the D.C. Public Service Commission — which can approve or reject rate increases from utilities — from three to five members. It would impose an 18-month pause on multiyear rate increases that have drawn controversy and legal challenges in recent years; impose a new price cap on third-party energy suppliers that critics say can overcharge residents; and allow D.C. residents and businesses to create “virtual power plants” that could help manage supply and demand during peak periods of electricity use.
But the most controversial provision — and the one fought most vigorously by Pepco and Washington Gas — would ask the Public Service Commission to reevaluate the current standard that allows both companies a 9.8% profit when considering the rates they charge, known as the return on equity. While the bill wouldn’t mandate another specific rate, it does recommend the commission consider a rate close to 7%.
“It’s estimated that about 15% of your bill is the profits for utilities,” said Allen. “The way to make a change is by changing what their guaranteed return in profit is. They can still make 7% profit. Find me any small business that gets a guaranteed 7%. They’ll take that every day.”
The debate over returns on equity has bubbled up across the country. Last December, the California Public Utilities Commission decreased the return utilities could claim by 0.3 percentage points, and earlier this year the Pennsylvania House of Representatives similarly passed a bill restricting mandated profit levels for utilities. It was also included in a bill introduced in Congress earlier this year by Rep. Greg Casar (D-Texas), which would mandate that the federal government set a “reasonable rate of return” for utility companies.
This week, lawmakers in Baltimore similarly pushed a resolution opposing a rate increase — and backing a decrease in the return on equity from 9.5% to 7.3%. “There is something deeply wrong when a utility can make that kind of profit while the people who pay their bills are falling further into poverty,” the Baltimore City Council president, Zeke Cohen, wrote on social media Monday.
Still, both Pepco and Washington Gas aggressively argued against any change to their return on equity, sending officials and lobbyists en masse to the Wilson Building to directly make their cases to lawmakers. Both said the return on equity reflected significant capital investments they made in D.C., and cutting that wouldn’t have the impact Allen and others promised.
“There is no evidence from any jurisdiction that legislatively restricting a utility’s authorized return on equity lowers customer bills,” Brandon Todd, Washington Gas’ vice president for government affairs and a former Ward 4 council member, wrote in a letter to the council this month. “Instead, it will weaken Washington Gas’s ability to attract investments, access capital at the lowest possible borrowing costs, and finance the infrastructure projects necessary to maintain a safe and reliable energy system.”
Pepco argued much the same, saying that restricting profit would increase the cost of borrowing to pay for grid upgrades, “ultimately putting upward pressure on customer bills.”
Lobbyists pointed to Connecticut, where some utilities saw their credit rating downgraded amidst debates over their return on equity, thus increasing their costs for borrowing money.
Those concerns were echoed by Ward 7 council member Wendell Felder, who initially said he would instead favor that the Public Service Commission simply study whether changing the return on equity would help lower customer’s bills. “I’m thinking about the unintended consequences,” he said of how Allen’s bill was approaching returns on equity and whether it would make it more expensive for Pepco or Washington Gas to borrow money.
“That could make critical investments more expensive and limit the creation of good-paying jobs, especially when the District needs investment and economic opportunity,” he said.
Allen pushed back. “Yes, in Connecticut the [credit] downgrade led to higher borrowing costs. But the increase in borrowing costs is a magnitude smaller than the savings generated,” he said. “It’s a trade-off I am willing to make because ratepayers win.”
The bill — which was approved unanimously, and faces a final vote later this month — also drew support from Mayor-elect Janeese Lewis George, who made high utility prices a key issue in her mayoral campaign ahead of the city’s June Democratic primary.
“Residents of the District asked us to do something around the affordability of utilities,” she said. “A lot of utility pricing is outside our direct control, from data centers to shifting priorities of the presidential administration. What this bill represents is some of the actions we said we could take.”
A separate bill that would require that low-income D.C. residents be auto-enrolled in existing utility discount programs has also passed the council.
Still, Allen conceded relief wouldn’t be immediate. Changes to utility companies’ required profit might not happen for years, but he said other provisions — including one allowing residents to more quickly set up solar panels — could provide quicker relief. One thing he said wasn’t an option: doing nothing.
“If anyone thinks the status quo is working,” he said, “open your utility bill.”
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