Public Utilities

Public Utilities

Management Challenges for the 21st Century

David E. McNabb

An introduction to the current issues and challenges facing managers and administrators in the investor and publicly owned utility industry, this engaging volume addresses management concerns in three sectors of the utility industry: electric power, natural gas, and water and wastewater systems. Beginning with a brief overview of the historical development of the industry, the author looks at policy issues and discusses management ethics. He then examines a number of the major challenges in these organizational functions: management and leadership, planning, marketing, accounting and finance, information technology, governance, and human resources. In the final section of the volume he looks at issues specific to each of the three industry sectors.

Chapter 4: The Public Utility Regulatory Challenge

David E. McNabb

Subjects: economics and finance, industrial organisation


Public utilities are subject to a wide variety of local, state, and federal government regulations. These regulations began with the early attempts during the 1870s to control railroad and grain elevator trusts. The scope of utility regulations was broadened extensively with passage of antitrust legislation during the first two decades of the twentieth century. The severe shocks to the world economic systems that followed the global depression that began in 1929 and continued through the 1930s resulted in passage of many more regulatory laws, including regulations on company ownership and governance, rules on methods and timing of raising capital, limits to transactions between separate company units, and controlling how utilities are permitted to produce and distribute their products and services. More recent regulations have included limiting any action which might adversely affect the environment, standards for promoting public and worker safety, and initiating provisions for anti-terrorist activity against utility facilities. As ‘natural monopolies,’ utilities are considered to be holders of a special public trust and therefore legitimately subject to government oversight. This chapter discusses some of the more important of the federal regulations under which utilities operate. The rationale for regulation of business activities lies in our reliance upon market competition to set and control prices (Brennan et al. 2002). Businesses often use price competition to best their competitors. Consumers pay what it costs to produce and distribute goods, with suppliers’ profits limited by these competitive actions of businesses. Moreover, market competition helps provide consumers with a...

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