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Generation Vs. Transmission

Electric and gas utilities have been regulated for some time. Phone companies, less so, although they perhaps should be. Because now, the phone utilities have problems similar to the other two. Other industries in this category are airlines (transportation), and banking and insurance.

Electric utilities have two basic functions; generation, and transmission/distribution. The hard part of the business is generation; building enough plant to generate some electricity. The easy part is transmitting it over electric wires to peoples' houses.

A business like that is prone to overcapacity and price-cutting and cutthroat competition, because while it is hard to build the plants, once the plants are built, the incremental costs of producing and selling extra electricity are minuscule. Ditto, nowadays with phone lines (the costs are in the handsets, and in the exchange "towers.") Airlines operate under a similar model ("transmitting" or selling seats on planes is much easier than building the planes themselves).

That's how the public utility model got set up. The government carved out service areas for each producer. To prevent them from charging monopoly profits, rates were regulated to allow for a target rate of return. At the same time, the companies were forced to serve "undesirable"  (hard to serve) customers, because these were public "utilities," but the extra costs were built into the rate structure.