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BOOK 98 FA�r 107 ITEM 13-A Adam W. Kubik, 173 Congress Street, Vero Beach, FL. 32966, (561) 562-2839 Memo to: Hon. Fran Adams, the Chair, and Members of Indian River County Commission. Date:. May 14, 1996 Subject: General Criteria for Regulation and Governance of Public Utilities, and the possible scope of this Project. INTRODUCTION: This subject is not often on the radar screen of most Americans because the bulk of the nation's public utilities are large investor-owned companies with keen sense of the need for good public relations. Such relations are so Important for smooth sailing In the rate cases before State Public Service Commissions which have regulatory control over those enterprises. But most local and regional water/sewer utilities are publicly owned, non-profit operations exempt from PSC oversight and thus often are assumed to be unregulated. This assumption is not correct, because the local governing Boards of municipalities are by law regulators of those utilities, whether those Boards exercise such control or not. At any rate, when things go wrong, it is those governing boards, as well as the utilities which they are supposed to control, that become the targets of public displeasure. Section 1 - Public Utilities. Public utilities are enterprises organized to provide service which is essential to public health and safety (hence the adjective upublic," - it does not denote the manner of ownership). Utilities may be investor-owned, publicly -owned, or consumer -owned (e.g. the co- ops). Utilities are highly capital -intensive (very high investment -to -revenue ratio). They are natural monopolies, generally sheltered from competition by a public franchise. As such, they are not subject to price control by market forces, and therefore their profits (or prices) must be subject to regulation. For the purpose of this discussion, and as to the manner in which public utilities are regulated, those utility enterprises in the United States fall into two broad categories: A - The for profit, tax paying investor-owned utilities which are regulated by State Public Service Commissions in a process that is formal, semi judicial in form and staffed by experienced professionals; and B - The non-profit, tax exempt publicly owned utilities, generally under the sole reaulatory control of the elected aovernina board of the oDerati ncimunicicality (unless a separate, independent Utilities Commission has been established for the governance of the Utility). Municipal utilities are not under the jurisdiction of State Public Service Commissions. Regulation of utility rates is the ultimate responsibility of the elected municipal governing boards and is subject to review only by the Courts, if or when challenged. 102 May 14, 1996