Utility mutual funds invest in the securities of public utilities companies, and companies that provide goods and services to public utilities companies. Although "public utilities companies" include companies that provide electricity, natural gas, water and communications services to the public, the Utilities funds are currently heavily biased toward electric power and natural gas, thus providing you with yet another opportunity to deliberately or inadvertently over-weight the Energy sector.
Prior to deregulation, the Utility funds were good "widows and orphans" investments, as they provided a relatively high and secure stream of income, but their yields are now nearly as low or just as low as the S&P 500 in general.
Over the past 10 years (through 2007), the Utility funds have shown a strong correlation with the S&P 500. However, the degree of correlation has dropped to moderate over the past three years. If this persists, the sector would have some potential as a diversifier. But I suspect that the change in correlation is due to the current concentration in the Energy sector, which is also moderately correlated to the S&P 500, and that the higher degree of correlation will reemerge when and if the Utilities funds return to their former level of diversification across the Utilities sector.
There are, however, some Utility funds that have a low correlation with the S&P 500. Given that, they may be worthy of your consideration as a diversifier if adding one or more to your portfolio didn't cause an extreme over-weighting of the Energy component.
As the Utilities sector is well represented in the general market, it no longer is a good source of income and it is strongly biased toward the Energy sector, I see no reason to deliberately over-weight this sector unless you have some compelling personal reason for doing so or you happen to find a Utility mutual fund with very little correlation to the general market.