Essential facility

An essential facility is a gas or electric company that has some competition but, due to the nature of the business, competition is severely restricted. There are a few characteristics that result in companies being defined as essential facilities:

  • The service being provided is necessary to society
  • There are barriers to entry such as necessary high capital investments and limited geographical areas available in which to build infrastructure.
  • There are few companies with the technical knowledge, expertise, and regulatory savvy to obtain permits and to successfully build a major new project

Essential facilities differ from natural monopolies in that there are a limited number of competitors and it is not necessarily inefficient to have multiple providers.

Essential facilities in the energy business include electric transmission lines, interstate gas pipelines, natural gas storage facilities, and LNG terminals.  Because competition is limited and the service is necessary, essential facilities are regulated, although in some cases regulation is more flexible than regulation for natural monopolies.