Public Utilities

• Author: Jeffrey Lehman, Shirelle Phelps

Page 173

Businesses that provide the public with necessities, such as water, electricity, natural gas, and telephone and telegraph communication.

A public utility is a business that furnishes an everyday necessity to the public at large. Public utilities provide water, electricity, natural gas, telephone service, and other essentials. Utilities may be publicly or privately owned, but most are operated as private businesses.

Typically a public utility has a MONOPOLY on the service it provides. It is more economically efficient to have only one business provide the service because the infrastructure required to produce and deliver a product such as electricity or water is very expensive to build and maintain. A consequence of this monopoly is that federal, state, and local governments regulate public utilities to ensure that they provide a reasonable level of service at a fair price.

A public utility is entitled to charge reasonable rates for its product or service. Rates are generally established according to statutes and

Page 174

regulations. The utility usually files a proposed rate schedule with the state public utility com mission for approval. The commission holds public hearings to help decide whether the pro posed schedule is fair. The commission may also require increased levels of service from the utility to meet public demand.

Until the 1930s public utilities were subjected to minimal regulation. The enactment of the Public Utility Holding Company Act of 1935 (49 Stat. 803 [15 U.S.C.A. §§ 79?92z-6]) signaled a change. A holding company is one that owns stock in, and supervises management of, other companies. The law regulates the purchase and sale of SECURITIES and assets by gas and electric utility holding companies and limits holding companies to a single coordinated utility system. The law ended abuses that allowed a small number of public utilities to control large segments of the gas and electricity market and to set higher utility rates.

Public regulation of utilities has declined since the late 1970s. Public policy is now based on the idea that competition rather than regulation is a better way to manage this sector of the economy. Airline and telephone...