Utilities for dummies: How they work and why that needs to change“, a compact introduction, from grist.org. And there’s an additional article in the series, and yet another suggesting additional reading.

An excerpt:

There are a few key things to note about the regulatory compact.

First, note that this arrangement looks almost nothing like a “free market” as envisioned by classical economists. These are entities legally protected from competition, charging government-approved prices, receiving guaranteed returns. It is the most Soviet of economic sectors. (Keep this in mind the next time someone glibly refers to “the market” in discussions of coal or solar.)

Second, note that the utility makes money not primarily by selling electricity, but by making investments and receiving returns on them. If it builds more power plants and power lines, it makes more money.

Add these together and you see the basic incentive structure at work. In most economic sectors, businesses live in fear of competing businesses coming in and providing customers with a better value proposition. They must be vigilant, cut costs, and innovate. That is the power of markets.

But utilities do not fear competition. Their customers cannot live without their product, or purchase it elsewhere. Their profits are guaranteed so long as they can justify their rates to a PUC. All they need to do to increase profits is to build more stuff — more power plants, more substations, more power lines, more.