This paper analyzes the industrial organization of public utility and its cause and synthetically researches government direct regulating pricing methods of public utility, mostly the static or dynamic cost mark-up pricing methods. It is indicated by the means of game theory and imperfect contract theory, under the conditions of imperfect information and the government's inferior position, It's impossible to develop the incentive mechanism to utility enterprise, makes low productivity in public utility. The inefficiency of the cost monitor and control is inevitable when the direct regulation pricing system be used. The thought of direct pricing methods is a mechanical obstruction to improve the effectiveness of public utility. It's the radical approach for the government to reform the regulation modes in order to improve the effectiveness and social surplus of public utility.