Public utility
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The examples and perspective in this article deal primarily with the United States, the United Kingdom, and Ireland and do not represent a worldwide view of the subject. (April 2016) |
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 public control and regulation ranging from local community-based groups to statewide government monopolies.
Public utilities are meant to supply goods and services that are considered essential;
There are many different types of public utilities. Some, especially large 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 turbines and solar panels 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. The Federal Communications Commission in the United States in 2015 made their stance on this issue clear.[4] 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.[5]
Management
Public utilities have historically been considered to be a
Key players in the public utility sector include:[9]
- 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 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;
- Ensuring that health services are effectively targeted so as to improve the health of local populations;
- Improving the efficiency of the services so the volume of well-targeted effective services is the widest, given the available resources.[10]
The management of public utilities continues to be important for local and general governments. 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 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 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 investments in infrastructures, 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.[10]
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 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 companiesand other traditional-energy players entering the renewable-energy field
- A greater emphasis on disaster readiness [11]
Finance
Issues faced by public utilities include:
- Service area: regulators need to balance the economic needs of the companies and the social equity needed to guarantee to everyone the access to primary services.
- Autonomy: Economic efficiency requires that markets be left to work by themselves with little 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.[12]
Alternative pricing methods include:[citation needed]
- Average production costs: the utility calculates the break-even point and then set the prices equal to average costs. The equity issue is basically overcome since most of the market is being served. As a defect regulated firms do not have incentives to minimize costs.
- 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 million is greater than 5% of $6 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 Profits.
Utility stocks are considered stable investments because they typically provide regular
Utilities require expensive critical infrastructure which needs regular
By country
Azerbaijan
Chad
Colombia
Turkey
United Kingdom and Ireland
In the
The term can refer to the set of services provided by various organizations that are used in everyday life by the public, such as:
. Disabled community transport services may occasionally be included within the definition. They were mostly privatised in the UK during the 1980s.United States
The first public utility in the United States was a
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
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.[18]
Monopoly vs. competition
Public utilities were historically regarded as 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.[19] As a result, utilities were either government monopolies, or if investor-owned, regulated by a public utilities commission.[20][21]
In the electric utility industry, the monopoly approach began to change in the 1990s. In 1996, the Federal Energy Regulatory Commission (FERC) issued its 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.[22][23] 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.[24] 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.[25][26][27]
Ownership structure
Public utilities can be
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) [31] 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.[32]
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.[33]
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]
See also
- Building block model, form of public utility regulation common in Australia
- Public utility building
References
- ^ "What is a public utility? Definition and meaning". Market Business News. Retrieved 2023-04-25.
- ^ "Public Utility | Encyclopedia.com". www.encyclopedia.com. Retrieved 2021-04-27.
- ^ "What is a public utility? Definition and meaning". Market Business News. Retrieved 2023-04-25.
- ^ "What is a public utility? Definition and meaning". Market Business News. Retrieved 2023-04-25.
- ^ "What is a public utility? Definition and meaning". Market Business News. Retrieved 2023-04-25.
- JSTOR 1182423.
- ^ "FERC Order 888".
- ^ Clark, Doug (5 November 2019). "Electricity customer choice program participation examined (Nov, 15, 2019)". Daily Energy Insider. Retrieved 14 May 2021.
- ^ a b Murphy, Chris B. "How the Utilities Sector is Used by Investors for Dividends and Safety". Investopedia.
- ^ a b Gilardoni, A (2015). Public Utilities e Infrastrutture. Profili economici e gestionali. Agici.
- ^ "2021 Power and Utilities Industry Outlook". Deloitte United States. Retrieved 2021-04-29.
- ISBN 9780081007662.[page needed]
- ^ Murphy, Chris B. "How the Utilities Sector is Used by Investors for Dividends and Safety". Investopedia. Retrieved 2021-04-27.
- ^ "Utilities Sector Definition & Meaning in Stock Market with Example". kalkinemedia.com. Retrieved December 14, 2022.
- ^ Berg, Sanford, Tschirhart (1998). natural monopoly regulation. Cambridge University.
{{cite book}}
: CS1 maint: multiple names: authors list (link)[page needed] - ^ "Utilities Websites". Uk250.co.uk. Archived from the original on 2011-11-04. Retrieved 2011-10-11.
- ISBN 0-7863-1095-2.
- ISBN 0-314-15058-7.
- ^ "Public utility - Definition". Merriam-Webster Dictionary. Archived from the original on 2011-11-05. Retrieved 2011-10-11.
- ^ "public utility definition". Investorwords.com. Archived from the original on 2011-09-28. Retrieved 2011-10-11.
- ^ Melvin, Jasmin (26 February 2021). "Former FERC, DOE officials mull Texas, climate, transmission policy quandaries (28 Feb 2021)". S&P Global Platts. Retrieved 15 May 2021.
- ^ "Order No. 888". Federal Energy Regulatory Commission. Retrieved 14 May 2021.
- ^ Tomain and Cudahy op cit. pp. 278–279.
- ^ Clark, Doug (5 November 2019). "Electricity customer choice program participation examined (Nov, 5, 2019)". Daily Energy Insider. Retrieved 14 May 2021.
- ^ "Can electric utility customers choose their electricity supplier?". U.S. Energy Information Administration. Retrieved 14 May 2021.
- ^ "Participation in electricity customer choice programs has remained unchanged since 2013". U.S. Energy Information Administration. Retrieved 14 May 2021.
- ^ "investor-owned utility (IOU), private utility, private power company". www.energyvortex.com. Archived from the original on 2 February 2017. Retrieved 8 May 2018.
- ^ "Electric Utilities". www.utilityconnection.com. Archived from the original on 27 October 2017. Retrieved 8 May 2018.
- ^ Pentland, William. "Investor-Owned Utilities: Asleep at the Switch or Above the Law?". forbes.com. Archived from the original on 29 July 2017. Retrieved 8 May 2018.
- ^ "California Public Utilities Commission". Cpuc.ca.gov. 2007-03-23. Archived from the original on 2011-10-10. Retrieved 2011-10-11.
- ^ "Public Utilities Commission of Texas". Public Utilities Commission of Texas. Archived from the original on 14 August 2012. Retrieved 17 February 2017.
- ^ Louiselle, Bruce M. and Heilman, Jane E. (1982). "The Case for the Use of an Appropriate Capital Structure in Utility Ratemaking: The General Rule Versus Minnesota". William Mitchell Law Review, Mitchell Hamline School of Law. 8 (2): 426. Retrieved 12 May 2021.
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: CS1 maint: multiple names: authors list (link)