Editing Public utility (section)

== Finance ==
Issues faced by public utilities include:
* Service area: [[Competition regulator|regulators]] need to balance the economic needs of the companies and the [[social equity]] needed to guarantee to everyone the access to [[Primary servicer|primary services]].
* [[Autonomy]]: Economic efficiency requires that markets be left to work by themselves with little [[Intervention (law)|intervention]]. Such instances are often not equitable for some consumers that might be priced out of the market.
* [[Pricing]]: Equity requires that all citizens get the service at a fair price.<ref>{{cite book |title=Public-Private Partnerships for Infrastructure |date=2018 |isbn=9780081007662 |url=https://www.sciencedirect.com/book/9780081007662/public-private-partnerships-for-infrastructure |last1=Yescombe |first1=E. R. |last2=Farquharson |first2=Edward |publisher=Elsevier Science }}{{page needed|date=July 2021}}</ref>

Alternative pricing methods include:{{Citation needed|reason=statement\paragraph should be supported by inline citation to a reliable source. See https://en.wikipedia.org/wiki/Wikipedia:Reliable_sources| date=May 2021}}
* '''Average [[Production (economics)|production]] costs''': the utility calculates the break-even point and then set the prices equal to [[average cost]]s. The equity issue is basically overcome since most of the market is being served. As a defect regulated firms do not have [[incentive]]s to minimize [[cost]]s.
* '''[[Rate of return]] regulation''': regulators let the firms set and charge any price, as long as the rate of return on [[invested capital]] does not exceed a certain rate. This method is flexible and allows for pricing freedom, forcing regulators to monitor prices. The drawback is that this method could lead to [[overcapitalization]]. For example, if the rate of return is set at five percent, then the firm can charge a higher price simply by investing more in capital than what it is actually needed (i.e., 5% of $10&nbsp;million is greater than 5% of $6&nbsp;million).
* '''Price cap regulation''': regulators directly set a limit on the maximum price. This method can result in a loss of service area. One benefit of this method is that it gives firms an incentive to seek cost-reducing technologies as a strategy to increase utility [[Profit (economics)|profit]]s.

Utility stocks are considered stable investments because they typically provide regular [[dividend]]s to [[shareholder]]s and have more stable demand.<ref>{{Cite web|last=Murphy|first=Chris B.|title=How the Utilities Sector is Used by Investors for Dividends and Safety|url=https://www.investopedia.com/terms/u/utilities_sector.asp|access-date=2021-04-27|website=Investopedia|language=en}}</ref> Even in periods of [[Economic downturn of 2008|economic downturns]] characterized by low [[interest rate]]s, such stocks are attractive because [[dividend yield]]s are usually greater than those of other stocks, so the utility sector is often part of a long-term [[Buy and hold|buy-and-hold]] strategy.<ref name=":0" />

Utilities require expensive critical infrastructure which needs regular [[Maintenance (technical)|maintenance]] and replacement. Consequently, the industry is [[Capital intensive industry|capital intensive]], requiring regular access to the capital markets for external financing. A utility's [[capital structure]] may have a significant debt component, which exposes the company to [[interest rate risk]].<ref name="kalkine">{{cite web |title=Utilities Sector Definition & Meaning in Stock Market with Example |url=https://kalkinemedia.com/definition/u/utilities-sector |website=kalkinemedia.com |access-date=December 14, 2022}}</ref> Should rates rise, the company must offer higher yields to attract [[Bond (finance)|bond]] [[investor]]s, driving up the utility's interest expenses. If the company's debt load and interest expense becomes too large, its credit rating will deteriorate, further increasing the cost of capital and potentially limiting access to the capital markets.<ref>{{Cite book|last=Berg, Sanford, Tschirhart|title=natural monopoly regulation|publisher=Cambridge University|year=1998}}{{page needed|date=December 2022}}</ref>