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Public Utilities

From dKosopedia

Public Utilities provide public goods/collective goods such as electricity, natural gas supplies, land line phone services, water, sewage service and meet a variety of other infrastructure needs.


Economic Organization

Most public utilities are either publicly owned enterprises (typically, but not always, supported by user fees), or a private firms granted a government monopoly that are regulated to prevent customers from being overcharged or provided with inferior service that would normally be expected from a monopoly provider. Publicly owned utilities are typically owned either by municipalities or by special districts created for the purpose of providing utility type services. For historical and tax reasons, public utilities are also the primary issuers of "preferred stock" which is a hyrbrid of bonds, in that they have an expected fixed rate of income returns, and stocks, in that they do not have a contractual obligation to pay stockholders their dividends on time if their cash resources do not permit them to do so.

When organized as private corporations, public utilities are not subject to many of the governmental rules related to government contracting and civil service rules that apply to true governmental agencies, although public utilties do tend to have high rates of unionization.

Descriptive Features

Public utilities tend to be optimized for reliability, rather than innovation, tend to have relatively transparent billing and pricing practices, and tend to be kept simple with few, highly homogeneous product lines. While not traditionally through of as a public utility, the United States Postal Service is organized as a publicly owned public utility.

This flows largely from the regulatory process.

Public utilities often have a good record for providing services at a reasonable price. For example, the United States Postal Service charges less to mail a letter than postal services in almost any other country in the developed world, despite serving a much larger geographical area than most postal systems, despite receiving only very modest government subsidies and experiencing eroding monoply, as overnight delivery services, faxes and e-mail eat into its letter delivery market.

Enviromental Impact

Public utilities are typically the companies that make the operational decision on what kinds of power plants to build, what pollution controls to invest in, how to dispose of solid waste from urban areas, and how to treat drinking water. Public utilities are the wholesale purchasers or producers of the vast majority of coal, natural gas, wind power, hydroelectric power and nuclear power in the United States. Public utilities also have a decisive impact on sprawl because high density subdivisions cannot be built without power, natural gas, landline phone, water and sewage service.


Conservatives have pushed hard to deregulate public utilities, although arguments for deregulation of public utilities have often been weaker than those in other industries.

Many observers have attributed the Enron collapse, in part to efforts to deregulate electricity markets, as Enron was the biggest player in the newly deregulated energy trading markets and is known to have manipulated those markets in order to exploit California utility consumers with artificially high prices.

Long distance phone service has been completely deregulated (most local service phone companies in existence today are sucessors to a one time monopoly Bell telephone company), with mixed results (one of the major bankrupcies of the 1990s was the MCI-World Com, one of the leading providers of long distance service and the Qwest phone company is being investigated on multiple fronts for alleged improprieties).

Local phone line deregulation is partial at best, because competitors use existing local phone lines in exchange for a governmentally set fee, and has only been allowed in markets where there is some genuine competition.

Another difficulty in utility regulation is seperating unregulated services (such as premium phone packages) from regulated services (such as basic long distance services). In theory, regulated activities are not supposed to be used to subsidize unregulated services, and regulated services are supposed to be insulated from the financial misfortunes of unregulated businesses, so that after the fact subsidies do not occur.

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This page was last modified 22:42, 22 February 2007 by dKosopedia user Heurisdick. Based on work by Andrew Oh-Willeke. Content is available under the terms of the GNU Free Documentation License.

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