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How are utilities regulated? | Careers in Utilities

How are utilities regulated? | Careers in Utilities

The utilities sector is heavily regulated in the United States. The majority of all American customers obtain their utility services from private companies that are governed by public service commissions at the state level. The government runs several large federal and state power utilities as well as many rural and municipal utilities directly.

Almost no aspect of the utility industry is exempt from government regulation. Many governments regulate the prices utility firms charge their customers, their budgeting methods, their ability to construct new facilities, the services they are allowed to provide, and even energy efficiency initiatives.

Electric Utility Regulations

Federal Energy Regulatory Commission (FERC)

The Department of Energy Organization Act of 1977 established the Federal Energy Regulatory Commission (FERC) as an independent agency that regulates the transmission of electricity, oil, and natural gas across state lines. The overall official objective of FERC is to provide customers with accessible, efficient, and long-lasting power. The 1977 Act, in addition to the Energy Policy Act of 2005, has given FERC a host of regulatory powers over utilities, including the authority to:

  • Oversee hydroelectric dam licensing and safety
  • Review certain electric company mergers and acquisitions
  • Approve plans for new interstate natural gas pipelines
  • License and inspect private, municipal, and state hydroelectric projects

Power Purchase Agreement (PPA)

A government agency signs a power purchase agreement (PPA) with a private utility company. The private utility generates power for the government agency under a PPA, which is generally between 15 and 25 years in length. In other words, the government becomes the only client of the private utility firm.

FERC regulates power purchase agreements. In this capacity, FERC has a lot of power in the utility business. FERC may issue contracts, establish pricing, and start or stop litigation against electricity generators.

Environmental Regulations

All utilities are heavily influenced by regulations. For example, over 95% of the electricity in the U.S. comes from sources that are part of highly regulated industries. FERC's responsibilities consist of overseeing environmental matters related to a utility company's projects in natural gas and hydroelectricity. FERC also will issue environmental impact statements reporting potential effects on the environment by proposed natural gas or electricity-generating projects. PPA contracts might include stipulations regarding the environment that the PPA partner must abide by in order to maintain their contracts.

Water Utility Regulations

Water is the most contentious of all the regulated utilities, in part because it symbolizes life itself. This is especially true when drought lingers on, as it does in California.

Water authorities limit production, prices, and distribution in the most heavily regulated areas. Economists have long recognized that interfering with any one of these pillars produces inefficiency; yet when it comes to water, sometimes rules are overlooked or ignored.

The water industry, like all formerly monopolized industries, has a significant benefit from scale and large sunk infrastructure costs. Water is not only difficult to transport around a city in a pressurized, safe, and environmentally safe manner; it's also extremely heavy. The profession of selling water promotes waste, drives up prices, and benefits certain entrenched political groups.

Gas Utility Regulations

The Federal Energy Regulatory Commission regulates domestic natural gas markets in part. The interstate natural gas market is one of the commission's main priorities.

In the United States, natural gas is most often transported by pipeline. The Department of Transportation's Office of Pipeline Safety is concerned with the safety of those pipelines.


Two landmark acts serve to regulate the telecom industry: the Communications Act of 1934 and the Telecommunications Act of 1996. The Act of 1934 created the governing body of the Federal Communications Commission (FCC), which has since gone on to introduce more rules and regulations. The Act of 1996 was designed to allow anyone to start any type of communications business venture. This was followed by many more rules and regulations.

Both acts were used as antitrust measures. This is because the telecom industry is highly reliant on significant existing infrastructure to operate, which means it has a large barrier to entry. Thus, regulations are in place to prevent any single company from taking over and controlling the entire market. 

Regulations also exist to ensure no discriminatory practices are used to withhold telecom services from certain users, or unfairly prioritize one line of communication over another. This ensures all consumers have access to emergency communication, law enforcement, and similar necessities.