Public Utilities

I

Introduction

Public Utilities, business enterprise set up to provide essential services to the public, for example, electricity, gas, water, sewerage, telephone, and telegraph.

II

Ownership

Because public utilities are so vital, they were usually operated as a natural monopoly and were subjected to a high degree of governmental control. Beginning in the 1980s, however, the monopoly status of many utilities began to erode, largely due to government deregulation. There is now competition in such areas as long-distance telephone service, natural gas pipelines, interstate railroads, electric and gas utilities, and intercity bus service.

Some public utilities are publicly, or municipally, owned—for example water-supply systems and sewerage systems. The proper scope of municipal 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. Sufficient methods of financing municipally owned undertakings must also be planned so as not to increase municipal debt beyond prudent limits. In addition, recent changes in federal tax laws have made it more difficult for municipalities to raise capital for the acquisition of utility property through tax-exempt financing.

The vast majority of public utilities in the United States are owned by private corporations. These private firms differ from other businesses in that utility companies are obligated to serve all who ask for their services and in that they must usually make a very large capital investment in relation to the revenues they receive.

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III

Regulation

Control of most public utilities lies with public service commissions, agencies formed to protect the safety of the people and property under their jurisdiction. These commissions operate at the federal, state, and local levels, sharing the responsibility for determining rates and supervising the service provided. The grant by a governmental authority to a privately owned utility company giving the company the right to use public streets for placement of poles, wires, mains, tracks, and the like is called a franchise. Franchises are now extended to public utilities for a limited number of years, in contrast to the previous practice of unlimited franchises. Present franchises usually allow for governmental review of revenues, expenses, and income; provide for arbitrations of disagreements; and explain the conditions that must be met by the utility in order for it to retain the franchise. The purpose of granting a franchise is to protect the public interest and to allow the utility the right to use public property.

As part of the deregulation trend that phased out government oversight of public utilities, a number of federal agencies went out of existence in the late 20th century. Until its abolition, the Federal Power Commission regulated interstate transmission of electricity and gas and set pipeline rates charged to local utility companies. In 1978 most of its functions were transferred to the Federal Energy Regulatory Commission in the Department of Energy. In 1995 the U.S. Congress abolished the Interstate Commerce Commission, which had regulated most public utilities classified as common carriers, such as railroads, trucks, and buses. Only the Federal Communications Commission, which regulates telephone, telegraph, and broadcasting companies, remains intact.

At the state level utility companies are regulated under the constitutional power of the state to enact laws exercising control of private interests for the protection of its people and property; this power is known as the police power. State commissions generally are responsible for regulating the standards of service and safety, and fix rates and charges.

States also may delegate regulatory authority to the cities in which the public utilities are located. City control over utilities usually concerns street uses and safety standards for installations. In return for granting the privilege of operating a utility in a municipality, some cities receive payments as part of the franchise or levy utility taxes against the gross receipts of a public utility.

The deregulation trend came under scrutiny in the early 21st century when a scandal involving the Enron Corporation revealed how the state of California had paid billions in unnecessary charges for electricity. The Federal Energy Regulatory Commission barred Enron from selling electricity and natural gas in the United States after finding that it had manipulated prices during an alleged energy shortage. The California Public Utilities Commission concluded that five energy-trading companies had withheld energy to create the semblance of an energy crisis and to drive up prices. See also California; Enron Scandal.

IV

Impact on the Environment

Since most utilities affect the appearance of the landscape, many municipalities and states now require that public-utility power lines for telephone, telegraph, and electricity be placed below ground. Much attention has been focused on the destructive effect that some public utilities have had on the environment. Certain utilities, such as sewage-disposal systems, are directly connected to the rapidly increasing pollution of air, land, and water throughout the world. In the United States in the 1960s and 1970s, federal funds and legislation were channeled toward control and upgrading of these utilities.

In the 1980s growing concern over the potential dangers of nuclear power plants led to conflicts in many nations between advocates and opponents of nuclear energy. In the United States several nuclear power plants remain incomplete or unopened. Currently, it is unclear as to whether adequate safeguards will ever be developed to satisfy public and government doubts about the safety of nuclear facilities.

See also Air Pollution; Sewage Disposal; Water Pollution; Water Supply and Waterworks.

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