What are Utilities?

Utilities are business enterprises that provide essential public services, and they are highly regulated by the government. Utilities include electricity, natural gas, water, and sewer services. Because of the infrastructure required to deliver services, a monopoly is often the most economical way for a utility service to operate. Typically, one Utility provider serves all of the customers for a particular service in a given geographical area.

Utilities may be publicly owned enterprises or private companies. In both cases, the primary source of revenue supporting the Utility is user fees paid by customers. In the case of publicly owned Utilities, the assets of the Utility are owned by a government entity, but it operates as a self-sustaining public enterprise supported by its own revenues rather than relying on taxes to fund operations.

In most states, Utilities are regulated by a Public Services Commissions or similar entity. Public Services Commissions are necessary when monopolies exist or in cases where competition is very limited, to ensure that consumers receive safe, reliable, and reasonably priced services from competent and financially viable companies. Utilities must receive approval for the rates they charge, and they are also required to demonstrate to the Public Services Commission that they have plans to maintain an infrastructure capable of supporting current and future demand for services.

Of the major Utility services, Electric Utilities are the most likely to function as a hybrid of monopoly and competitive services. Only one system for transmitting and delivering electricity to customers is feasible in a given service area. Therefore, transmission and distribution of electricity operates as a monopoly and customers do not have a choice when selecting their Utility. However, the electricity in the grid may come from numerous suppliers. In many states, the supply of electricity is deregulated, allowing customers to choose from multiple suppliers who may compete on pricing and service.

Water Utilities provide potable tap water directly to residential, commercial, industrial, and institutional customers through a distribution system. Sewer Service Utilities receive wastewater from customers via sanitary sewers at a wastewater treatment plant. The Sewer Utility treats the wastewater to reduce pollutants before it is released into waterways. Natural Gas Utilities are essentially local distribution companies that deliver natural gas received from large capacity interstate or intrastate pipelines to individual customers through small diameter distribution pipelines.