Public Utilities

I

Introduction

Public Utilities, business operations that provide essential services to the public—for example, electricity, gas, water supply, sewage disposal, and telecommunications. Utilities are an essential part of the infrastructure of modern developed countries, which require highly integrated networks of distribution or coordination for many essential services, such as the national grid for electricity suppliers. Many operate under favourable cost regimes whereby the unit cost of service to a customer falls as the network grows. However, the existence of these networks often gives public utilities a natural monopoly of provision of service within their area.

II

Ownership

Because utilities are so vital, they were and are subject to a high degree of governmental control, or even nationalization. The monopoly status of many utilities, however, eroded during the 1980s, largely because of government deregulation and privatization. There is now competition in such areas as long-distance telephone services, electricity supply, railways, and gas supply.

In some countries all public utilities are publicly, or municipally, owned—for example, water supply systems and sewerage systems. The proper scope of public ownership remains a subject of debate. The relative cheapness and efficiency of service, coupled with local conditions, are the chief factors to be considered in deciding between public and private ownership.

Utilities differ from other businesses in that utility companies are normally obligated to serve all who ask for their services. They are also usually closely regulated by economic and, in some cases, environmental supervisors appointed by the government.

III

Regulation

Strictures regulating utilities can be found in early English common law. The rationale of regulation is that since a utility company usually has a monopoly over provision of a service in a given area, the prices and provision of services to customers will not be subject to free competition, and government must substitute regulation instead. The aim in theory is to ensure a cheap and reasonable service for customers while allowing the utility company to make a fair profit, some of which in any case must be reinvested in the utility service.

Systems of regulation vary from country to country. In cases where the utility is still fully state-controlled, prices and levels of service are simply set by the government. In other countries, such as Great Britain, prices and service are carefully monitored by appointed supervisors, and price rises are only allowed in accordance with the rules set by the regulator; whereas in the United States prices are disregarded in favour of monitoring the rate of return to shareholders for utility companies.

IV

Impact on the Environment

Since the operations of most utilities affect the landscape, many countries now require that public-utility power lines for telephone, telegraph, and electricity be placed below ground. Much attention has been focused on the damage that some public utilities can inflict on the environment. For example, soot and other emissions from power stations in the United Kingdom are thought to be responsible for killing coniferous forests in large areas of Germany and Scandinavia. Equally, growing concern over the potential dangers of nuclear power plants has led to conflicts between advocates and opponents of nuclear energy, and to the slowing or abandonment of nuclear power plant construction programmes in many countries.