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{{Short description|Entity which operates public service infrastructure}}
{{Redirect|Utilities||Utility (disambiguation)}}
{{Globalize|2=USA|2name=the United States|3=United Kingdom|4=Ireland|date=April 2016}}
{{Public Infrastructure}}

A '''public utility company''' (usually just '''utility''') is an organization that maintains the [[infrastructure]] for a [[public service]] (often also providing a service using that infrastructure). Public utilities are subject to forms of [[State ownership|public control]] and [[regulation]] ranging from local community-based groups to statewide [[state monopoly|government monopolies]].

Public utilities are meant to supply goods and services that are considered essential; [[water industry|water]], [[gas industry|gas]], [[Electric utility|electricity]], [[Telephone company|telephone]], [[waste management industry|waste disposal]], and other [[Communications system|communication systems]] represent much of the public utility market. The transmission lines used in the transportation of [[electricity]], or natural [[Pipeline transport|gas pipelines]], have natural [[monopoly]] characteristics. A monopoly can occur when it finds the best way to minimize its costs through economies of scale to the point where other companies cannot compete with it.<ref>{{Cite web |title=What is a public utility? Definition and meaning |url=https://marketbusinessnews.com/financial-glossary/public-utility-definition-meaning/ |access-date=2023-04-25 |website=Market Business News |language=en-US}}</ref> For example, if many companies are already offering electricity, the additional installation of a power plant will only disadvantage the consumer as prices could be increased. If the infrastructure already exists in a given area, minimal benefit is gained through competing. In other words, these [[Industry City|industries]] are characterized by ''[[economies of scale]]'' in production.<ref>{{Cite web|title=Public Utility {{!}} Encyclopedia.com|url=https://www.encyclopedia.com/social-sciences-and-law/economics-business-and-labor/businesses-and-occupations/public-utility|access-date=2021-04-27|website=www.encyclopedia.com}}</ref> Though it can be mentioned that these natural monopolies are handled or watched by a public utilities commission, or an institution that represents the government.<ref>{{Cite web |title=What is a public utility? Definition and meaning |url=https://marketbusinessnews.com/financial-glossary/public-utility-definition-meaning/ |access-date=2023-04-25 |website=Market Business News |language=en-US}}</ref>  

There are many different types of public utilities. Some, especially large [[Company|companies]], offer multiple products, such as electricity and natural gas. Other companies specialize in one specific product, such as water. Modern public utilities may also be partially (or completely) sourced from clean and [[renewable energy]] in order to produce sustainable electricity. Of these, [[wind turbine]]s and [[solar panel]]s are those used most frequently.

Whether broadband internet access should be a public utility is a question that was being discussed with the rise of internet usage. This is a question that was being asked due to the telephone service being considered a public utility. Since arguably broadband internet access has taken over telephone service, perhaps it should be a public utility. [[Federal Communications Commission|The Federal Communications Commission]] in the United States in 2015 made their stance on this issue clear.<ref>{{Cite web |title=What is a public utility? Definition and meaning |url=https://marketbusinessnews.com/financial-glossary/public-utility-definition-meaning/ |access-date=2023-04-25 |website=Market Business News |language=en-US}}</ref> Due to the telephone service having been considered a public utility, the [[Federal Communications Commission]] made broadband internet access a public utility in the United States.<ref>{{Cite web |title=What is a public utility? Definition and meaning |url=https://marketbusinessnews.com/financial-glossary/public-utility-definition-meaning/ |access-date=2023-04-25 |website=Market Business News |language=en-US}}</ref>

==Management==
Public utilities have historically been considered to be a [[natural monopoly]]. This school of thought holds that the most cost-efficient way of doing business is through a single firm because these are capital-intensive businesses with unusually large economies of scale and high fixed costs associated with building and operating the infrastructure, e.g. power plants, telephone lines and water treatment facilities.<ref>{{cite journal |last1=Ulbrich |first1=Holley H. |title=Natural Monopoly in Principles Textbooks: A Pedagogical Note. |journal=The Journal of Economic Education |year=1991 |volume= 22 |issue=2 (Spring 1991) |pages=179–182 |doi=10.1080/00220485.1991.10844706 |jstor=1182423 |url=https://www.jstor.org/stable/1182423}}</ref> However, over the past several decades, traditional public utilities' monopoly position has eroded. For instance, wholesale [[electricity generation]] markets, electric transmission networks,<ref>{{cite web |title=FERC Order 888 |url=https://www.ferc.gov/industries-data/electric/industry-activities/open-access-transmission-tariff-oatt-reform/history-oatt-reform/order-no-888 }}</ref> [[electricity retailing]] and customer choice,<ref>{{cite web |last1=Clark |first1=Doug |title=Electricity customer choice program participation examined (Nov, 15, 2019) |url=https://dailyenergyinsider.com/news/22704-electricity-customer-choice-program-participation-examined/ |website=Daily Energy Insider |date=5 November 2019 |access-date=14 May 2021}}</ref> [[telecommunication]], some types of [[public transit]] and [[mail|postal service]]s have become competitive in some countries and the trend towards [[liberalization]], [[deregulation]] and [[privatization]] of public utilities is growing. However, the infrastructure used to distribute most utility products and services has remained largely monopolistic.{{citation needed|date=February 2017}}

Key players in the public utility sector include:<ref name=":0">{{Cite web|last=Murphy|first=Chris B.|title=How the Utilities Sector is Used by Investors for Dividends and Safety|url=https://www.investopedia.com/terms/u/utilities_sector.asp |website=Investopedia|language=en}}</ref>
* '''Generators''' produce or collect the specific product to be used by customers: for example, electricity or water. 
* '''Network operators''' (grid operators, regional network operators, and [[Distribution network operator|distribution network operators]]) sell access to their networks to retail service providers, who deliver the product to the end user.
* '''Traders and marketers''' buy and sell the actual product and create further complex structured products, combined services and derivatives products. Depending on the product structure, these companies may provide utilities and businesses with a reliable supply of a product like electricity at a stable, predictable price, or a shorter term supply at a more volatile price. 
* '''Service providers and retailers''' are the last segment in the [[supply chain]], selling directly to the final [[consumer]]. In some markets, final consumers can choose their own [[retail]] service provider.

Public utilities must pursue the following objective given the [[social responsibility]] their services attribute to them: 
* Ensuring services are of the highest quality and responsive to the needs and wishes of [[Patients' rights|patients]]; 
* Ensuring that [[health]] services are effectively targeted so as to improve the health of local [[population]]s;
* Improving the efficiency of the services so the volume of well-targeted effective services is the widest, given the available [[resource]]s.<ref name=":1">{{Cite book|last=Gilardoni|first=A|title=Public Utilities e Infrastrutture. Profili economici e gestionali|publisher=Agici|year=2015}}</ref>

The [[management]] of public utilities continues to be important for local and general [[government]]s. By creating, expanding, and improving upon public utilities, a governmental body may attempt to improve its image or attract investment. Traditionally, public services have been provided by public legal entities, which operate much like corporations, but differ in that profit is not necessary for a functional business. A significant factor in government ownership has been to reduce the [[risk]] that an activity, if left to private initiative, may be considered not sufficiently [[Profit (economics)|profitable]] and neglected. Many utilities are essential for human life, national defense, or commerce, and the risk of public harm with mismanagement is considerably greater than with other goods. The principle of [[Universality (philosophy)|universality]] of utilities maintains that these services are best owned by, and operating for, the public. The [[government]] and the [[society]] itself would like to see these services being economically accessible to all or most of the population. Furthermore, other economic reasons based the idea: public services need huge [[investment]]s in [[infrastructure]]s, crucial for competitiveness but with a slow [[return of capital]]; last, technical difficulties can occur in the management of plurality of networks, example in the city [[subsoil]].<ref name=":1" />

Public pressure for [[renewable energy]] as a replacement for legacy fossil fuel power has steadily increased since the 1980s. As the technology needed to source the necessary amount of [[energy]] from renewable sources is still under study, public [[energy policy]] has been focused on short term alternatives such as natural gas (which still produces substantial [[carbon dioxide]]) or [[Nuclear power]]. In 2021 a power and utilities industry outlook report by Deloitte identified a number of trends for the utilities industry:

* Enhanced [[competition]], sparked by regulations such as [[Federal Energy Regulatory Commission|FERC]]'s Order 2222 that open up the market to smaller, innovative firms using renewable energy sources, like wind or [[solar power]]
* Expansions in infrastructure, to manage new [[renewable energy]] sources
* Greater [[electrification]] of transportation, and longer-range batteries for cars and trucks
* [[Oil companies]] and other traditional-energy players entering the renewable-energy field
* A greater emphasis on disaster readiness <ref>{{Cite web|title=2021 Power and Utilities Industry Outlook|url=https://www2.deloitte.com/us/en/pages/energy-and-resources/articles/power-and-utilities-industry-outlook.html|access-date=2021-04-29|website=Deloitte United States|language=en}}</ref>

== Finance ==
Issues faced by public utilities include:
* Service area: [[Competition regulator|regulators]] need to balance the economic needs of the companies and the [[social equity]] needed to guarantee to everyone the access to [[Primary servicer|primary services]]. 
* [[Autonomy]]: Economic efficiency requires that markets be left to work by themselves with little [[Intervention (law)|intervention]]. Such instances are often not equitable for some consumers that might be priced out of the market. 
* [[Pricing]]: Equity requires that all citizens get the service at a fair price.<ref>{{cite book |title=Public-Private Partnerships for Infrastructure |date=2018 |isbn=9780081007662 |url=https://www.sciencedirect.com/book/9780081007662/public-private-partnerships-for-infrastructure |last1=Yescombe |first1=E. R. |last2=Farquharson |first2=Edward }}{{page needed|date=July 2021}}</ref>

Alternative pricing methods include:{{Citation needed|reason=statement\paragraph should be supported by inline citation to a reliable source. See https://en.wikipedia.org/wiki/Wikipedia:Reliable_sources| date=May 2021}}
* '''Average [[Production (economics)|production]] costs''': the utility calculates the break-even point and then set the prices equal to [[average cost]]s. The equity issue is basically overcome since most of the market is being served. As a defect regulated firms do not have [[incentive]]s to minimize [[cost]]s.
* '''[[Rate of return]] regulation''': regulators let the firms set and charge any price, as long as the rate of return on [[invested capital]] does not exceed a certain rate. This method is flexible and allows for pricing freedom, forcing regulators to monitor prices. The drawback is that this method could lead to [[overcapitalization]]. For example, if the rate of return is set at five percent, then the firm can charge a higher price simply by investing more in capital than what it is actually needed (i.e., 5% of $10&nbsp;million is greater than 5% of $6&nbsp;million). 
* '''Price cap regulation''': regulators directly set a limit on the maximum price. This method can result in a loss of service area. One benefit of this method is that it gives firms an incentive to seek cost-reducing technologies as a strategy to increase utility [[Profit (economics)|Profit]]s.

Utility stocks are considered stable investments because they typically provide regular [[dividend]]s to [[shareholder]]s and have low [[Volatility (finance)|volatility]].<ref>{{Cite web|last=Murphy|first=Chris B.|title=How the Utilities Sector is Used by Investors for Dividends and Safety|url=https://www.investopedia.com/terms/u/utilities_sector.asp|access-date=2021-04-27|website=Investopedia|language=en}}</ref> Even in periods of [[Economic downturn of 2008|economic downturns]] characterized by low [[interest rate]]s, such stocks are attractive because [[dividend yield]]s are usually greater than those of other stocks, so the utility sector is often part of a long-term [[Buy and hold|buy-and-hold]] strategy.<ref name=":0" />

Utilities require expensive critical infrastructure which needs regular [[Maintenance (technical)|maintenance]] and replacement. Consequently, the industry is [[Capital intensive industry|capital intensive]], requiring regular access to the capital markets for external financing. A utility's [[capital structure]] may have a significant debt component, which exposes the company to [[interest rate risk]].<ref name="kalkine">{{cite web |title=Utilities Sector Definition & Meaning in Stock Market with Example |url=https://kalkinemedia.com/definition/u/utilities-sector |website=kalkinemedia.com |access-date=December 14, 2022}}</ref> Should rates rise, the company must offer higher yields to attract [[Bond (finance)|bond]] [[investor]]s, driving up the utility's interest expenses. If the company's debt load and interest expense becomes too large, its credit rating will deteriorate, further increasing the cost of capital and potentially limiting access to the capital markets.<ref>{{Cite book|last=Berg, Sanford, Tschirhart|title=natural monopoly regulation|publisher=Cambridge University|year=1998}}{{page needed|date=December 2022}}</ref>

==By country==
===Azerbaijan===
{{main|Utilities in Azerbaijan}}

===Chad===
{{main|Utilities in Chad}}

===Colombia===
{{main|Public utilities in Colombia}}

===Turkey===
{{see also|Utilities in Istanbul}}

===United Kingdom and Ireland===
In the [[United Kingdom]] and [[Ireland]], the state, private firms, and charities ran the traditional public utilities. For instance, the [[Sanitary District]]s were established in [[England and Wales]]  in 1875 and in Ireland in 1878.{{Citation needed|reason=statement\paragraph should be supported by citation to a reliable source. See https://en.wikipedia.org/wiki/Wikipedia:Reliable_sources| date=May 2021}}

The term can refer to the set of services provided by various organizations that are used in everyday life by the public, such as: [[electricity generation]], [[electricity retailing]], [[Electric utility|electricity]] supplies, [[Natural gas utility|natural gas]] supplies, [[Water utility|water]] supplies, [[Sewage treatment|sewage works]], [[Water industry|sewage]] systems and [[broadband]] [[internet]] services.<ref>{{cite web |url=http://www.uk250.co.uk/Utilities/ |title=Utilities Websites |publisher=Uk250.co.uk |access-date=2011-10-11 |url-status=live |archive-url=https://web.archive.org/web/20111104133007/http://www.uk250.co.uk/Utilities/ |archive-date=2011-11-04 }}</ref> They are regulated by [[Ofgem]], [[Ofwat]] and [[Ofcom]]. Disabled community transport services may occasionally be included within the definition. They were mostly privatised in the UK during the 1980s.

===United States===
{{see also|Utilities of Seattle}}
The first public utility in the United States was a [[grist mill]] erected on [[Mother Brook]] in [[Dedham, Massachusetts]] in 1640.<ref name=growth/>

In the U.S., public utilities provide services at the consumer level, be it residential, commercial, or industrial consumer. Utilities, merchant power producers and very large consumers buy and sell bulk electricity at the wholesale level through a network of [[regional transmission organization]]s (RTO) and independent system operators (ISO) within one of three grids, the [[Eastern Interconnection]], the [[Texas Interconnection]], which is a single ISO, and the [[Western Interconnection]].{{citation needed|date=February 2017}}

U.S. utilities historically operated with a high degree of financial leverage and low interest coverage ratios compared to industrial companies. Investors accepted these credit characteristics because of the regulation of the industry and the belief that there was minimal bankruptcy risk because of the essential services they provide. In recent decades several high-profile utility company bankruptcies have challenged this perception.<ref>{{cite book |last1=Howe |first1=Jane Tripp |title=Handbook of Fixed Income Securities; Frank J. Fabozzi, editor |date=1997 |publisher=McGraw-Hill |location=New York NY |isbn=0-7863-1095-2 |pages=392–393 |edition=Fifth}}</ref>

====Monopoly vs. competition====
Public utilities were historically regarded as [[natural monopoly|natural monopolies]] because the infrastructure required to produce and deliver a product such as electricity or water is very expensive to build and maintain. Once assets such as power plants or transmission lines are in place, the cost of adding another customer is small, and duplication of facilities would be wasteful.<ref>{{cite book |last1=Tomain |first1=Joseph |last2=Cudahy |first2=Richard |title=Energy Law in a Nutshell |date=2004 |publisher=West Publishing Company |location=St. Paul, Minnesota |isbn=0-314-15058-7 |pages=120–121}}</ref> As a result, utilities were either government monopolies, or if investor-owned, [[regulation|regulated]] by a [[public utilities commission]].<ref name="merriam-webster1">{{cite web|title=Public utility - Definition|url=http://www.merriam-webster.com/dictionary/public%20utility|url-status=live|archive-url=https://web.archive.org/web/20111105062903/http://www.merriam-webster.com/dictionary/public%20utility|archive-date=2011-11-05|access-date=2011-10-11|publisher=Merriam-Webster Dictionary}}</ref><ref name="investorwords1">{{cite web|title=public utility definition|url=http://www.investorwords.com/3949/public_utility.html|url-status=live|archive-url=https://web.archive.org/web/20110928072215/http://www.investorwords.com/3949/public_utility.html|archive-date=2011-09-28|access-date=2011-10-11|publisher=Investorwords.com}}</ref>

In the electric utility industry, the monopoly approach began to change in the 1990s. In 1996, the [[Federal Energy Regulatory Commission]] (FERC) issued its [https://www.ferc.gov/industries-data/electric/industry-activities/open-access-transmission-tariff-oatt-reform/history-oatt-reform/order-no-888 Order No. 888], which mandated that electric utilities open access to their transmission systems to enhance competition and "functionally unbundle" their transmission service from their other operations. The order also promoted the role of an independent system operator to manage power flow on the electric grid.<ref>{{cite web |last1=Melvin |first1=Jasmin |title=Former FERC, DOE officials mull Texas, climate, transmission policy quandaries (28 Feb 2021) |url=https://www.spglobal.com/platts/en/market-insights/latest-news/electric-power/022621-former-ferc-doe-officials-mull-texas-climate-transmission-policy-quandaries |website=S&P Global Platts |date=26 February 2021 |access-date=15 May 2021}}</ref><ref>{{cite web |title=Order No. 888 |url=https://www.ferc.gov/industries-data/electric/industry-activities/open-access-transmission-tariff-oatt-reform/history-oatt-reform/order-no-888 |website=Federal Energy Regulatory Commission |access-date=14 May 2021}}</ref> Later, FERC Order No. 889 established an electronic information system called OASIS (open access same-time information system) which would give new users of transmission lines access to the same information available to the owner of the network.<ref>{{cite book |title=Tomain and Cudahy op cit |pages=278–279}}</ref> The result of these and other regulatory rulings was the eventual restructuring of the traditional monopoly-regulated regime to one in which all bulk power sellers could compete. A further step in industry restructuring, "customer choice", followed in some 19  states, giving retail electric customers the option to be served by non-utility retail power marketers.<ref>{{cite web |last1=Clark |first1=Doug |title=Electricity customer choice program participation examined (Nov, 5, 2019) |url=https://dailyenergyinsider.com/news/22704-electricity-customer-choice-program-participation-examined/ |website=Daily Energy Insider |date=5 November 2019 |access-date=14 May 2021}}</ref><ref>{{cite web |title=Can electric utility customers choose their electricity supplier? |url=https://www.eia.gov/tools/faqs/faq.php?id=627&t=3 |website=U.S. Energy Information Administration |access-date=14 May 2021}}</ref><ref>{{cite web |title=Participation in electricity customer choice programs has remained unchanged since 2013 |url=https://www.eia.gov/todayinenergy/detail.php?id=41853 |website=U.S. Energy Information Administration |access-date=14 May 2021}}</ref>

====Ownership structure====
Public utilities can be [[private company|privately owned]] or [[government-owned company|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. [[Utility cooperative|Cooperative utilities]] are owned by the customers they serve. They are usually found in [[rural]] areas. Publicly owned utilities are non-profit.{{citation needed|date=February 2017}} Private utilities, also called [[Investor-owned utility|investor-owned utilities]], are owned by [[investment|investors]],<ref>{{cite web|url=http://www.energyvortex.com/energydictionary/investor_owned_utility_(iou)__private_utility__private_power_company.html|title=investor-owned utility (IOU), private utility, private power company|website=www.energyvortex.com|access-date=8 May 2018|url-status=live|archive-url=https://web.archive.org/web/20170202010009/http://www.energyvortex.com/energydictionary/investor_owned_utility_%28iou%29__private_utility__private_power_company.html|archive-date=2 February 2017}}</ref><ref>{{cite web|url=http://www.utilityconnection.com/page2b.asp|title=Electric Utilities|website=www.utilityconnection.com|access-date=8 May 2018|url-status=live|archive-url=https://web.archive.org/web/20171027164945/http://www.utilityconnection.com/page2b.asp|archive-date=27 October 2017}}</ref><ref>{{cite web|url=https://www.forbes.com/sites/williampentland/2011/09/18/investor-owned-utilities-asleep-at-the-switch-or-above-the-law/|title=Investor-Owned Utilities: Asleep at the Switch or Above the Law?|first=William|last=Pentland|website=forbes.com|access-date=8 May 2018|url-status=live|archive-url=https://web.archive.org/web/20170729171942/https://www.forbes.com/sites/williampentland/2011/09/18/investor-owned-utilities-asleep-at-the-switch-or-above-the-law/|archive-date=29 July 2017}}</ref> and operate for profit, often referred to as a [[rate of return]].

====Regulation====
A [[public utilities commission]] is a governmental agency in a particular jurisdiction that regulates the commercial activities related to associated electric, [[natural gas]], telecommunications, water, railroad, rail transit, and/or passenger transportation companies. For example, the [[California Public Utilities Commission]] (or CPUC) <ref name="Cpuc.ca.gov">{{cite web|date=2007-03-23|title=California Public Utilities Commission|url=http://www.cpuc.ca.gov/puc/|url-status=dead|archive-url=https://web.archive.org/web/20111010054840/http://www.cpuc.ca.gov/puc|archive-date=2011-10-10|access-date=2011-10-11|publisher=Cpuc.ca.gov}}</ref> and the [[Public Utility Commission of Texas]] regulate the utility companies in California and Texas, respectively, on behalf of their citizens and ratepayers (customers). These public utility commissions (PUCs) are typically composed of commissioners, who are appointed by their respective governors, and dedicated staff that implement and enforce rules and regulations, approve or deny rate increases, and monitor/report on relevant activities.<ref name="puc">{{cite web|url=http://www.puc.state.tx.us|title=Public Utilities Commission of Texas|website=Public Utilities Commission of Texas|access-date=17 February 2017|url-status=live|archive-url=https://web.archive.org/web/20120814230946/http://www.puc.state.tx.us/|archive-date=14 August 2012}}</ref>

Ratemaking practice in the U.S. holds that rates paid by a utility's customers should be set at a level which assures that the utility can provide reliable service at reasonable cost.<ref>{{cite journal |last1=Louiselle, Bruce M. and Heilman, Jane E. |title=The Case for the Use of an Appropriate Capital Structure in Utility Ratemaking: The General Rule Versus Minnesota. |journal=William Mitchell Law Review, Mitchell Hamline School of Law |date=1982 |volume=8 |issue=2 |page=426 |url=https://open.mitchellhamline.edu/cgi/viewcontent.cgi?article=2654&context=wmlr |access-date=12 May 2021}}</ref>

Over the years, various changes have dramatically re-shaped the mission and focus of many public utility commissions. Their focus has typically shifted from the up-front regulation of rates and services to the oversight of competitive marketplaces and enforcement of regulatory compliance.{{Citation needed|reason=statement\paragraph should be supported by citation to a reliable source. See https://en.wikipedia.org/wiki/Wikipedia:Reliable_sources| date=May 2021}}

==See also==
*[[Building block model]], form of public utility regulation common in [[Australia]]
*[[Public utility building]]

==References==
{{reflist|colwidth=30em|refs=
<ref name=growth>{{cite news | title = Where Growth Centers | url = https://www.newspapers.com/clip/2003162/mother_brook_as_driver_of_development/ | newspaper = The Salina Evening Journal | location = Salina, Kansas | date = November 6, 1922 | access-date = March 17, 2015 | via = [[Newspapers.com]] | page = 13 | url-status = live | archive-url = https://web.archive.org/web/20150402124207/http://www.newspapers.com/clip/2003162/mother_brook_as_driver_of_development/ | archive-date = April 2, 2015 }} {{Open access}}</ref>
}}

== External links ==
{{Wiktionary|utility}}
* [http://water.worldbank.org/water/publications/water-electricity-and-poor-who-benefits-utility-subsidies/ World Bank report on Water, Electricity and Utility subsidies]
* [http://www.refabrica.com/ Latest News in Utilities and Information Technology] {{Webarchive|url=https://web.archive.org/web/20160410082812/http://www.refabrica.com/ |date=2016-04-10 }}
* [http://www.businessadvisoryservice.co.uk/?news Latest in UK business utility news]

{{Public services}}

{{Authority control}}

{{DEFAULTSORT:Public Utility}}
[[Category:Public utilities| ]]
[[Category:Economics of transport and utility industries]]
[[Category:Flow meters]]
[[Category:Monopoly (economics)]]
[[Category:Public services]]