Utilities are companies involved in providing electricity, gas, water and similar services to consumers and businesses. The sector includes firms that produce these services (such as companies that operate power plants) and those that deliver it (such as companies that operate electricity transmission networks).
“Upstream” energy companies (such as those that extract gas from the ground) are not utilities. Demand for the services offered by utility companies is generally not greatly affected by the state of the economy, so profits tend to be relatively stable. Consequently, this sector is usually considered a fairly steady, defensive investment.
However, utility companies need to invest in and maintain infrastructure, such as water treatment plants and gas pipeline networks, which may require significant capital expenditure. This is sometimes funded through high levels of debt, meaning that utility profits can be sensitive to changes in interest rates.
Companies in other industries that also have predictable demand for their services, steady cash flows and slow growth may be referred to as “utility-like” to imply that they are similarly unexciting but safe investments.
