CHAPTER II PROBLEMS IN THE REGULATION AND CONTROL OF PUBLIC UTILITIES THE NATURE OF THE UTILITIES PROBLEM The Distinction Between Public and Private Utilities.The enterprises for the satisfaction of the common needs of man may be classified as private and public. Most of man's wants are satisfied by individuals who provide commodities and perform services for the profit that may thereby be gained. In the cases where the rendering of these commodities and services becomes of interest to the public the agencies performing them have come to be known as public utilities. Some of these utilities have become so important that the government has taken them over and operates them at cost or for a very slight return in addition. Sometimes the service may even be supplied at a loss and the deficit made up by means of taxation. Among the utilities which have become public in nature, and are either operated by the state or placed under public control are carriers, ferries, roads, wharves, telegraphs and telephones, and, to a limited extent, grist mills and lumber mills. Furthermore, if the individual puts private business to a use in which the public has an interest, it becomes subject to supervision and control. Instances of this character include the grain elevators and insurance companies which the United States Supreme Court has held are of such a character as to justify the regulation and control thereof by the public.1 Another example is afforded by the press. 1 See cases of Munn vs. Illinois, 94 U. S. 113, and German Alliance Insurance Company vs, Ike Lewis, 233 U. S. 389. The Associated Press [says Justice Philips], from the time of its organization and establishment in business, sold its news reports to various newspapers who became members, and the publication of that news became of vast importance to the public, so that public interest is attached to the dissemination of that news. The manner in which that corporation has used its franchise has charged its business with a public interest. It has devoted its property to a public use, and has, in effect, granted to the public such an interest in its use that it must submit to be controlled by the public for the common good to the extent of the interest it has thus created in the public in its private property.1 To quote the language of one of the courts, ... one of the great requirements which the government demands of every institution impressed with a public interest . . . is the duty to act impartially to all. They are under obligations to extend their facilities to all persons on equal terms, who are willing to comply with their reasonable regulations, and to make such compensation as is exacted from others in like circumstances.2 Importance of Public Utilities.-The regulation and ownership of public utilities are among the most difficult and intricate problems of modern government. For the average citizen the government renders many services. It takes care of the roads, streets, and sidewalks. It gives protection from theft, from trespass upon property, and from the spread of contagious diseases. It renders aid in case of fire or of threatened injury to life. It establishes systems of education and means of caring for the sick, the defective, and the insane. But in addition to being dependent upon all of these services, the comfort and welfare of citizens are greatly dependent upon the large public utilities owned and controlled usually by private corporations. The citizen who lives in a city or town must rely in no small degree, and in some cities entirely, upon private corporations for transportation by street railways and for communication by telephone and telegraph, and in many cities he must look to private agencies for water, gas, and light. The three utilities last mentioned, however, are Bruce Wyman, Cases on Public Service Companies (Second Edition), (Harvard Law Review Association, 1909), p. 43. 2 Ibid., p. 35. passing more and more under municipal control. For the general conveniences, then, the average citizen is dependent upon private corporations; for the protection of life and property, and for educational facilities, streets, and roads he is dependent upon the agencies of the government. Few indeed realize the vast scope and increasing importance of public utilities. In a recent tabulation all of the active capital in the United States in the year 1910 was estimated at 47,961 millions, and of this amount 23,319 millions was accredited to public utilities. The significance of the public utilities of municipalities and their relation to the general welfare may be gathered from the following table, prepared by a former director of public works of the city of Philadelphia.1 PUBLIC UTILITIES Paper Value or Value Measured by $391,000,000 An Estimate of Actual $242,200,000 When these amounts are compared with the estimated value, $246,869,000, of all other public property in Philadelphia, their importance is obvious. As indicated in these estimates, the paper value of the public utilities is greater than that of all the other property of the city, while if the conservative estimate of Director Cook may be accepted, the actual value is just about equal to that of all the remaining municipal property. Thus it is evident that in a large city, on account of the peculiar dependence of the citizen upon the public utilities in the conduct of his business and social affairs, and on account of the investment of such vast amounts of capital, the problem of the regulation and control of public utilities is one which in a certain measure overshadows all other municipal problems. To deal efficiently with, and to regulate M. W. Cooke, "Snapping Cords," Comments on the Changing Attitude of American Cities Toward the Utility Problem, p. 9. justly, private corporations which furnish so many of the conveniences, comforts, and necessaries of life, equivalent in value to all the houses, buildings, lands, and improvements of a city, constitute a problem which requires the most careful consideration and the most thorough treatment by those who are interested in the public welfare. Charters and Franchises.-The public utilities which render such important services secure their right to do business through legislative acts or through similar authorizations granted by municipal councils. The authority by virtue of which private individuals and corporations exercise the right to use the roads and the streets in distributing commodities and rendering services to citizens is commonly known as a franchise. Franchises are in the nature of special privileges by virtue of which the owners can render services to the public for private gain. Formerly, when franchises were granted, it was customary for the state legislature or the city council to grant perpetual or long-term charters without specifying conditions of service or determining rates or limiting the amount of capital stock to be issued. An illustration of the condition which prevails under such franchises was recently furnished when the gas company of a large city increased the rates on gas 20 per cent and it was publicly announced that the company could raise its rates at will and, if it so desired, without even the formality of advising the city council. Freedom from Regulation and the Development of Evils.— The public at first had little or no defense against corruption or the evils resulting from the selfish designs of utility owners and managers. There was a proceeding known as 'quo warranto," by which the charters of corporations might be forfeited, but this remedy was so difficult to apply that it was seldom called into use. It was customary not only to grant freely these long-term or perpetual franchises, but also to give encouragement to corporations to begin undertakings for the benefit of the public. Communities were thought thereby to gain in importance, and the de velopment of such utilities was looked upon as a measure of progress which the community ought in every way to encourage. The existence of these conditions, permitting the bartering away of valuable rights through bribery and other corrupt practices, and resulting in the dominance and control of politics by these recklessly created corporations, forms a discouraging chapter in the story of machine politics in the United States. The lack of regulation and control under the long-term franchises resulted also in the development of certain evils which have rendered this unregulated condition intolerable, and have called for a well-defined system of national and state regulation of utilities. The street railway, gas, and electric companies, once having secured their charters, proceeded to devise ways and means by which their profits might increase. Unfortunately, these companies prospered most under the conditions obtaining in what is known as the "wide-open town." The highest profits were secured when pleasure resorts, saloons, and all sorts of social centers were encouraged. It thus became a matter of special interest to the utility companies to join with the liquor interests in keeping the saloons and pleasure resorts wide open. According to Doctor Wilcox: A street railway has to be operated seven days in the week and in the larger cities all night long. The profits of the enterprise depend largely on the stimulation of traffic at odd hours. A crowd of people in town on a Sunday means profit to the street railways. A bunch of revelers going home in the wee, small hours makes the owl cars profitable. Gas and electric companies were similarly interested in wide-open policies, and particularly in securing profits from resorts which run into the late hours of the night. This 1 1 Cf. C. E. Russell, Stories of the Great Railroads (Charles H. Kerr & Co., 1912), and statement by Albert M. Todd, president of the Public Ownership League of America, before the Committee on Interstate Commerce, Sixtyfifth Congress, Third Session, February 21, 1919. |