Opinions differ as to the characteristics that an industry must possess to merit classification as a public utility, since all industries in a sense serve the public. By its nature a public utility is often a monopoly and as such is not prevented by competing companies from charging exorbitant prices. It usually operates under a license or franchise by which it enjoys special privileges, such as the right of eminent domain. Finally, it may supply an essential service, such as water or light, the unavailability of which would injuriously affect public health and welfare. From an early period there was public regulation of canals, turnpikes, toll roads and ferries, inns, gristmills, and pawnshops. Docks, sleeping cars, commodity exchanges, warehouses, insurance companies, banks, housing, milk, coal mines, and (in the 20th cent.) broadcasting, are other types of goods and services held to be affected with public interest. Important utilities that satisfy the vital needs of large populations include water, gas, and electric companies; transportation facilities, such as subways, bus lines, and railroads; and communication facilities, such as telephones and telegraphs. In most European nations such industries have often been owned by the state, although many have been privatized in recent years. In the United States, however, many public utilities are privately owned.
Public utility rates and standards of service are established by direct legislation and are administered by state regulatory commissions and by such federal agencies as the Federal Energy Regulatory Commission (FERC), the Securities and Exchange Commission (SEC), and the Federal Communications Commission (FCC). These federal agencies supervise utilities conducting interstate business. Rates are subject to review by the courts, which have held that they must provide a "fair" return on a "fair" valuation of investment. How valuation is to be determined, whether on the basis of prudent investment, present earning power, or present cost of production, has been the subject of much controversy. That a utility may not earn excessive profits is an established principle of regulation. The means of regulation include supervision of accounting and control of security issues.
Municipalities dissatisfied with the results of public regulation of privately owned local utilities have often acquired ownership of such enterprises, especially in the case of urban public transportation systems (see public ownership). To keep rates down and make utilities available to more people, the United States has formed public corporations or agencies, such as the Tennessee Valley Authority, which also has served as a yardstick for measuring the efficiency of privately owned utilities, and the National Railroad Passenger Corporation (Amtrak; see railroad), which operates virtually all intercity passenger rail lines in the United States.
In the 1970s and 80s, U.S. government agencies broke up some utilities and deregulated others. In 1974 an antitrust suit was filed against American Telephone and Telegraph (AT&T); in 1982 the company settled the suit by agreeing to divest itself (1984) of 22 local telephone operating companies. In return, AT&T was given the right to enter new businesses. Since then federal regulators have made it easier for companies to enter the telecommunications industry and for phone companies to set rates for long-distance services. Legislation passed in 1978 partially deregulated natural gas prices in 1985 and legislation passed in the late 1970s and early 80s deregulated trucking, railroad, and airline rates, which had been set by the federal government.
In the 1990s state regulators began to end utilities' monopolies, by permitting business and residential consumers to select utilities (primarily electricity and gas suppliers) based on rates and service; lower rates were expected to result. Such deregulatory efforts have not been entirely successful. In 2000-2001, parts of California experienced an energy crisis that was due, at least in part, to the way deregulation had been set up several years earlier, The deregulated electrical companies had been required to divest themselves of their power plants and purchase power on the spot market (rather than through long-term contracts) and were not allowed to pass the price increases they eventually experienced along to consumers. Evidence also later emerged that other deregulated energy companies had contributed to the crisis through market manipulation and price gouging.
Tighter regulatory controls designed to limit acid rain and other environmental problems have, however, been imposed on electricity companies that run coal-fired generators or nuclear power plants. The cable television industry, which had been regulated by local governments, was deregulated in 1984, and cable operators were allowed to set their own rates. Consumer complaints, however, led to a 1992 law that allowed the FCC to regulate cable rates.
See E. Hungerford, The Story of Public Utilities (1928); M. Crew, The Economics of Public Utility Regulation (1986); L. Hyman, America's Electric Utilities: Past, Present and Future (1988).
Enterprise that provides certain classes of services to the public, including common-carrier transportation (buses, airlines, railroads); telephone and telegraph services; power, heat and light; and community facilities for water and sanitation. In most countries such enterprises are state-owned and state-operated; in the U.S. they are mainly privately owned, but they operate under close regulation. Given the technology of production and distribution, they are considered natural monopolies, since the capital costs for such enterprises are large and the existence of competing or parallel systems would be inordinately expensive and wasteful. Government regulation in the U.S., particularly at the state level, aims to ensure safe operation, reasonable rates, and service on equal terms to all customers. Some states have experimented with deregulation of electricity and natural-gas operations to stimulate price reductions and improved service through competition, but the results have not been universally promising.
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In the United States of America they are often natural monopolies because the infrastructure required to produce and deliver a product such as electricity or water is very expensive to build and maintain. As a result, they are often government monopolies, or if privately owned, the sectors are specially regulated by a Public Utilities Commission.
Developments in technology have eroded some of the natural monopoly aspects of traditional public utilities. For instance, electricity generation, electricity retailing, telecommunication and postal services have become competitive in some countries and the trend towards liberalization, deregulation and privatization of public utilities is growing, but the network infrastructure used to distribute most utility products and services has remained largely monopolistic.
Public utilities can be privately owned or publicly owned. Publicly owned utilities include cooperative and municipal utilities. Municipal utilities may actually include territories outside of city limits or may not even serve the entire city. Cooperative utilities are owned by the customers they serve. They are usually found in rural areas. Private utilities, also called investor owned utilities, are owned by investors. Unlike private companies, private utilities may be listed on the stock exchange. Private, in this context, means not owned by the public or the government.
In poorer developing countries, public utilities are often limited to wealthier parts of major cities, as used to be the case in developed countries in the nineteenth century, but in some developing countries utilities do provide services to a large share of the urban population, such as in the case of water and sanitation in Latin America.
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