How do utilities make money?

Answer 1

Regulated Utilities operate in industries where there is a natural monopoly. This means that the service can be provided better and cheaper by a single operator. Electricity is a good example. If there was competition, there would have to be redundant infrastructure everywhere (transmission lines) - each system costing the same but serving fewer people thereby driving up costs for everyone. In these circumstances, governments have decided that the best bet is to grant a monopoly to a single firm. However, in exchange, these firms have agreed not to exert monopoly power to maximize profits. They are overseen by regulatory commissions, which have to approve their actions. It is expected that they will, however, make a modest (but fairly guaranteed) return on their investments, and this is "allowed" by the regulators.