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 http://www.archive.org/details/cu31924032441143 
 
THE REGULATION OF 
 MUNICIPAL UTILITIES 
 
NATIONAL MUNICIPAL LEAGUE SERIES 
 
 THE REGULATION OF 
 MUNICIPAL UTILITIES 
 
 
 
 EDITED BY 
 
 CLYDE LYNDON KING, Ph.D. 
 
 NEW YORK AND LONDON 
 D. APPLETON AND COMPANY 
 
 1914 
 
 s 
 
<Vs. *•* 
 
 °\^ 
 
 Copyright, igi2, by 
 D. APPLETON AND COMPANY 
 
 Published, April, 1918 
 
 Printed in the United States of America 
 
INTRODUCTION 
 
 At the first meeting of the National Municipal 
 League, held in Minneapolis in December, 1894, a paper 
 on " Some Essentials of Good City Government in the 
 Way of Granting Franchises," by Edward W. Bemis, 
 was presented. From that time on the subject of public 
 utility franchises has been considered at length at the 
 various sessions of the League. There have been numer- 
 ous papers describing local conditions, with comments 
 on the lessons involved; there have been numerous sug- 
 gestions as to the ways and means of handling the fran- 
 chise problem in American cities; there have been 
 authoritative articles on the various movements, state 
 and municipal, to control franchises in the interest of 
 the people; there have been sundry propositions looking 
 toward a solution of the several phases of the problem: 
 there have been carefully prepared reports; and, above 
 all, there were the formal recommendations of the Com- 
 mittee on Municipal Program promulgated in 1900, 
 which have been widely followed and generally con- 
 curred in. 
 
 In this way the League has accumulated a large 
 amount of information and discussion, a greater part of 
 which is no longer available to the increasing circle of 
 the League's members and followers because the edi- 
 
vi INTRODUCTION 
 
 tions of the volumes in which the papers appeared are 
 now exhausted. It is not feasible to reprint all the pa- 
 pers presented to the League, so the Publication Com- 
 mittee, acting in cooperation with the Executive Com- 
 mittee, has invited Dr. Clyde L. King, of the University 
 of Pennsylvania, to prepare a volume embodying the 
 more important papers presented to the League, bring- 
 ing them up to date and supplementing them with such 
 additional information and discussion as the situation 
 demands. 
 
 Dr. King has been signally successful in preparing a 
 volume which we are persuaded will be of widespread 
 usefulness alike to publicists, officials and instructors. 
 He has approached the whole subject with deep interest 
 in it, and with a careful training as evidenced in his 
 important volume on " The History of the Government 
 of Denver with Special Reference to Its Relations with 
 Public Service Corporations." A very considerable por- 
 tion of the volume is entirely new matter from Dr. 
 King's own pen, and represents the latest thought on 
 this subject of pressing importance. The volume is sent 
 out with the hope that it will aid in a clearer compre- 
 hension of the principles to be followed in the granting, 
 control and management of public utility franchises and 
 in guiding an aroused public sentiment on the subject 
 along lines of a sound public policy. 
 
CONTENTS 
 
 PART I 
 
 INTRODUCTION 
 
 CHAPTER PAGE 
 
 V I. — The Need for Regulation . • • • 3 
 
 \J II. — Municipal Ownership versus Adequate Regu- 
 lation . -23 
 
 III. — The Minneapolis Gas Settlement: A Typical 
 Struggle for a City's Rights. By Stiles 
 P. Jones 56 
 
 PART II 
 
 regulation through franchise 
 IV. — Franchise Essentials ... 75 
 
 J V. — The Sliding Scale Method of Regulation as 
 Applied to Gas Companies in Massachu- 
 setts. By Edgar N. Wrightington ... 99 
 
 V VI. — Is a Rational Basis Possible for Telephone 
 
 Rates? By Professor Dugald C. Jackson . 103 
 
 VII. — A Rapid Transit Policy for Greater New 
 York. By Dr. Milo R. Maltbie 
 
 VIII. — Elements of a Constructive Franchise Policy. 
 
 By Dr. Delos F. Wilcox . . 137 
 
 IX. — Suggestions for a Model Street Railway 
 Franchise. By Dr. Delos F. Wilcox and 
 
 James W. S. Peters 165 
 
 vii 
 
 t/ 
 
viii CONTENTS 
 
 PART III 
 
 REGULATION THROUGH MUNICIPAL UTILITY COMMISSIONS 
 
 CHAPTER PAGE 
 
 X. — The Need for Public Utility Commissions . 185 
 
 XI. — The Board of Public Utilities of Los Angeles. 
 
 By Hon. Lewis R. Works .... 208 
 
 XII. — The Utilities Commission of Kansas City, 
 
 Missouri. By Jacob A. Harzfeld . .219 
 
 XIII.— The St. Louis Public Service Commission. By 
 
 Roger N. Baldwin 231 
 
 PART IV 
 
 regulation through state public utility commissions 
 ( XIV. — State versus Municipal Utility Commissions, 253 
 
 XV. — Uniform Accounting: Its Needs and Results. 
 
 By Edwin H. Gruhl 264 
 
 XVI. — The Public Utilities Commissions of Massa- 
 chusetts. By Joseph B. Eastman . . 276 
 
 XVII. — The Wisconsin Public Utilities Commission. 
 
 By Hon. Balthasar H. Meyer, Ph.D. . . 296 
 
 XVIII. — The Public Service Commissions of New York: 
 
 (1) The Public Utility Law of New York. 
 
 By Hon. Thomas M. Osborne . . 318 
 
 A (2) The New York Public Service Com- 
 mission for the Second District. By 
 George R. Grant 326 
 
 / (3) The Work of the Public Service 
 Commission for the First District, 
 New York. By Dr. Robert H. Whitten . 341 
 
CONTENTS ix 
 
 PART V 
 
 CONCLUSION 
 
 CHAPTER PAGE 
 
 XIX. — In Conclusion 379 
 
 BIBLIOGRAPHY 
 
 XX. — A Selected Bibliography 387 
 
 INDEX 395 
 
PART I 
 
 INTRODUCTION 
 
CHAPTER I 
 
 THE NEED FOR REGULATION 
 
 The big fact of the 20th century is that the happi- 
 ness, health, and prosperity of the urban dweller will 
 largely shape the happiness, health, and prosperity of 
 our nation as a whole. 
 
 In the evolution of municipal activities it has come 
 to pass that the urban dweller's most important needs 
 are secured through public service corporations. But 
 relatively few of the present-day needs of the inhabitants 
 of our cities are secured by the machinery of city govern- 
 ment. Through the city police the urban citizen is pro- 
 tected from an occasional theft or from a possible tres- 
 pass on his property. Through the city's fire depart- 
 ment he is given prompt assistance in case of fire. He 
 shares the city's sidewalks and paved streets. He may 
 enjoy an occasional municipal park. If fortunate in the 
 city in which he chances to dwell, he may have a munici- 
 pal social center for himself, and play-grounds and recre- 
 ation centers for his children. But for the light with 
 which he reads, he is dependent upon a private corpora- 
 tion. Perchance for the steam that warms his house, 
 certainly for the water that determines sickness or health, 
 he must rely upon private corporations. For the tele- 
 phone that saves his steps, for the street railway service 
 that gives value to his property and determines the ease 
 
 3 
 
4 MUNICIPAL UTILITIES 
 
 and dispatch with which he can perform his business ob- 
 ligations and the amount of time he may spend in his 
 home and in recreation, he is dependent upon private 
 corporations. For the protection of his life and property 
 from brute violence he has the aid of public agencies ; but 
 for the advancement of his financial, physical, and moral 
 well-being and happiness he must depend upon the effi- 
 ciency of private agencies. The urban dweller is,- there- 
 fore, more dependent upon the degree of thoroughness 
 with which these private agencies are regulated than he 
 is upon the efficiency of his city govenrment proper. In 
 the interest of his well-being these concerns must be 
 thoroughly regulated. 
 
 Our present attitude toward utility regulation, and 
 the adequacy of present-day methods of regulation, may 
 best be gotten at by a summary review of the history of 
 the regulation of public callings. 
 
 The right to regulate public utilities in the interests 
 of the common weal is as old as the common law itself. 
 The one principle that is essential to the most primitive 
 of community life is that no one individual shall so use 
 
 i his own as to bring injury and decadence upon the many. 
 The second principle, more ancient than the English 
 common law, the basic principle in that law, indeed, is 
 that he who devotes his private property to a public use 
 thereby clothes it with a public interest. That public 
 interest, in the eyes of the law, has ever justified public 
 
 . : regulation. 
 
 There is, therefore, a memorial and fundamental 
 distinction between a public and a private calling. Upon 
 those who profess a public calling, law and custom im- 
 pose affirmative duties ; upon those who profess a private 
 calling, law and custom impose negative duties only. He 
 who professes a private calling may refuse to sell, but he 
 
THE NEED FOR REGULATION 5 
 
 who professes a public calling must serve all who come. 
 To those in a private calling the law says, you must not 1 
 do this, or, if you do it, you must do it thus ; to those in 
 a public calling the law says, you must do this for all \ 
 applicants and you must do it thus. That is, the duties 
 of those in a public employment are affirmative, not nega- 
 tive. 
 
 What particular employments are held to be suffi- 
 ciently freighted with public interest to classify them as 
 public employment, and hence subject to public control, 
 has ever varied with economic conditions and social 
 standards. 
 
 In manorial days, he who secured from his lord a 
 franchise to operate the manorial bake-house or mill had 
 to serve all fairly, or answer to the courts of the manor. 
 In mediaeval days, not only the baker, the miller, and the 
 inn-keeper, but the barber, the tailor, the victualer, and 
 the smith were held to be in public callings, and hence 
 had to supply all patrons on equal and customary terms. 
 When physicians and surgeons were rare, their callings I 
 were also classified as public callings, and they had to 
 serve and serve reasonably all who might call upon them. 
 
 When the manorial system broke down and the gov- 
 ernmental unit came to embrace not one but many 
 manors, and, more important still, one or more towns, a 
 new set of callings were held to be fraught with public 
 interest, and hence subject to public regulation. Chief 
 of these were the ferryman, the wharfinger, and the car- 
 rier. Long before the common law idea of contracts was | 
 sufficiently developed to hold one in ordinary dealings to 
 his contracts, one in these public callings could be held to 
 his bargains. 
 
 The mediaeval state, moreover, regulated the prices \ 
 of all commodities held to be necessary to the well-being 
 
6 MUNICIPAL UTILITIES 
 
 of the community. Thus the early Assemblies in Massa- 
 chusetts generally regulated the price of corn, tobacco, 
 bread, and beef. In 1635, shop-keepers and merchants 
 were specifically forbidden by the Massachusetts Assem- 
 bly to charge excessive prices. In 1668, with the grow- 
 ing scarcity of lumber, Plymouth fixed the prices of 
 boards that the building of homes might not be seriously 
 impeded. 
 
 In these earlier days monopolies were recognized and 
 the price of their output was regulated. Monopolies 
 were recognized in our own colonial history. For in- 
 stance, the general court of Massachusetts, in 1648, 
 granted a license to the shoe-makers of Boston to form 
 a guild for the better regulation of their trade and in- 
 vested this guild with the monopoly of the market. In 
 the same year similar privileges were granted to the 
 coopers of Boston and Charlestown. Monopolies, that 
 is, were held to be public callings just because they were 
 monopolies, and their prices subject to public regulation. ; 
 
 During the closing years of the 18th century, social 
 classes that before had had no influence in governmental 
 circles began to demand that their industrial interests be 
 at least not thwarted and subverted in order to further 
 the industrial interests of the well organized minority, 
 the gentry, who controlled the machinery of government. 
 On every hand were new industrial opportunities. Men 
 but asked for freedom to make the most of those oppor- 
 tunities without interference from the old governing 
 classes. This freedom was put into the form of the so- 
 called " laws " of laissez faire and competition. The rad- 
 icals of the day, that is, sought industrial freedom by 
 demanding that the government keep hands off and leave 
 each individual free through competition to work out his 
 own industrial status and salvation. Such were the 
 
THE NEED FOR REGULATION 7 
 
 " theories " that men were using to justify their social 
 and industrial demands at the time when the United 
 States was throwing off the status of colonies and assum- 
 ing the status of an independent nation. In the United 
 States these theories found complete acceptance. Their 
 acceptance was all the more rapid because their adoption 
 would bring to an end the exploitation of the colonies in 
 the interests of the governing class in England, and be- 
 cause industrial opportunities here were so numerous that 
 the aid of the government was not essential to success. 
 Our industrial history, therefore, begins with the general 
 acceptance of the principles of laissez fctire and compe- 
 tition. 
 
 Laissez faire and competition were policies well fitted 
 to the conquest of the forest and the prairie. They were 
 not policies, however, that were adapted to thickly popu- 
 lated communities and to the services needed by cities. 
 Men may well be given a free hand in exploiting the ma- 
 terial world, but exploitation of the social world is 
 fraught with many public dangers. Hence the demand 
 of the 20th century is for the substitution of govern- 
 mental regulation for competition as a regulative agency 
 in municipal utilities. 
 
 As to these and related concerns, laissez faire and 
 competition have outlived their usefulness. Along with 
 the principles of individualism, society is now accepting 
 the principles of collectivism. It is substituting a group 
 economy for an individual economy. Industrial success 
 in the 19th century lay in exploiting forests and prairies ; 
 industrial success in the 20th century lies in exploiting 
 communities and in capitalizing future social needs. 
 Those who profess to serve the public needs of cities can 
 therefore no longer be allowed to contemplate merely 
 their own benefit in all they do. They must be made to 
 2 
 
8 MUNICIPAL UTILITIES 
 
 include in their motives some sense of social responsi- 
 bility. 
 
 Great, however, as was the change from the mediae- 
 val view of state and community regulation to the 19th 
 century view of non-interference by the state, the change 
 -was never complete. Even when the principles of com- 
 petition and laissez faire were most rampant, there were 
 certain callings that were still held to be sufficiently 
 vested with public interest to warrant public regulation. 
 The chief of these were the callings that had to do with 
 highways. The success of the industrial order of the 
 19th century depended as much upon free and efficient 
 transportation, as it did upon non-interference by the 
 state and upon industrial competition between individuals 
 and corporations. Hence the common law principles as 
 to public callings were perpetuated as to turn-pikes, toll 
 bridges, canals, ferries, and waterways. With increas- 
 ing population, other callings were added, the most fa- 
 mous of which was the inclusion of the railroads as com- 
 mon carriers by the Supreme Court in its epoch-making 
 decision in Munn vs. Illinois. The distinctions of the 
 common law as to public and private callings still exist, 
 therefore, and are held to be capable of indefinite exten- 
 sion. Upon these common law distinctions, the 20th 
 century must rely for the enforcement of governmental 
 regulation of municipal utilities. 
 
 The courts were very slow, however, in holding that 
 public services in cities were vested with sufficient public 
 interest to justify public regulation. They first held 
 that these utilities could not be subjected to public con- 
 trol. Then for a brief period, about the middle of the 
 19th century, they held that such utilities could not be 
 regulated by the public unless the right to regulation was 
 stated in express clauses in the company's charter of in- 
 
THE NEED FOR REGULATION 9 
 
 corporation. For instance, a New Jersey Court in 1858 
 held (3 Dutch N. J. 245, 72 Am. Dec. 360) as to the 
 rights of a gas company under its charter : " The lan- 
 guage of the charter is throughout permissive and not 
 compulsory. The company may organize, may make and 
 sell gas, or not at their pleasure. And I see no more 
 reason to hold that the duty of doing so is held to be im- 
 perative than to hold that other companies incorporated 
 to carry on manufactories, or to do any other business, 
 are bound to serve the public any further than they find 
 it to be to their interest so to do." 
 
 About this time a new judicial impediment to the 
 public regulation of municipal utilities was erected 
 through the interpretation of the 14th amendment of the 
 National Constitution. This amendment was adopted to 
 secure for the emancipated slave and for such " persons " 
 only, equal protection before the laws, including the de- 
 nial to any state to take the property of such " persons " 
 without due process of law. The Supreme Court inter- 
 preted such " persons " to include corporations. But in 
 the meantime the courts were classifying other municipal 
 utilities as public callings. 
 
 Even a quarter of a century ago the public services 
 that were recognized were still few, and the law as to 
 those imperfectly stated. For instance, the courts rec- 
 ognized all sorts of excuses as to the duty to serve, and 
 there was no standard as to reasonableness of rates, un- 
 less it was the customary charge. As to adequate facili- 
 ties, the courts recognized nothing beyond the general 
 principles as to negligence, while the duty not to discrim- 
 inate was denied altogether by the weight of authority. 
 Urged on by virulent public opinion, by advanced legisla- 
 tion, and by the urgent and vital needs of thickly settled 
 communities, however, the courts have extended the pub- 
 
IO MUNICIPAL UTILITIES 
 
 lie calling to include all municipal utilities, and have 
 clothed all corporations, firms, and individuals carrying 
 on such business with certain vital, affirmative duties. 
 
 Our courts now hold that all corporations, firms and 
 individuals engaged in municipal utilities are charged 
 with the following legal duties: (I) To perform all rea- 
 sonable duties prescribed by the statutes; (II) To per- 
 form the following common law duties : (a) serve all 
 who apply ; (b) provide safe and adequate facilities ; 
 (c) charge just and reasonable rates; (d) make no dis- 
 criminations. 
 
 So far as private properties devoted to municipal 
 utilities is concerned, therefore, we have clearly passed 
 from the principles of competition and laissez faire to the 
 recognition of the principle that all such callings are 
 public and hence subject to public regulation. This fur- 
 nishes the basis for a constructive policy for adequate 
 regulation. It is not in itself regulation. 
 
 The basic justification for rigid public regulation of 
 municipal public service corporations is that they are 
 essentially natural monopolies, and hence subject to no 
 other regulative force. Competition does not persist 
 among natural monopolies and no amount of legislation 
 can make it persist. Every state in the union, save six, 
 has stringent legislation which purports to make compe- 
 tition persist among this class of monopolies and com- 
 petitive combinations ; but none of these laws have in the 
 slightest inhibited the formation of such monopolies. 
 
 The explanation as to why we were so long in throw- 
 ing over competition as a regulative factor in such serv- 
 ices, lies in the fact that American cities did not have 
 such services until late in the 19th century. In 1800 
 there were public waterworks in but five American cities, 
 and not until 1842, when the New York Croton Reser- 
 
THE NEED FOR REGULATION n 
 
 voir was completed, was there a modern water system of 
 any size. Candles did not give way to gas-lighting until 
 the third decade of the 19th century, and electric lighting 
 was not in vogue until much later. Street railways as 
 commercial successes are scarcely over half a century 
 old. In these facts lies the explanation as to why com- 
 petition was so ldng thought to be a regulative factor, 
 and as to why public legislation only recently frankly 
 admits that there is no advantage in even trying to force 
 competition to persist. 
 
 The limitation of supply, as with water companies, 
 large scale service, as with telephone companies, waste 
 through duplication both of fixed and circulating capital 
 in all competing municipal utilities, the necessity of con- 
 suming products or services in connection with the plants 
 from which they are supplied, and the difficulties of dis- 
 tribution, as with gas, water, steam and electric compa- 
 nies, the fact that two companies cannot occupy the same 
 street for identical service, as with street railways, and 
 that even if such were physically possible, as with water, 
 gas and telephones, it would prove so wasteful as to be 
 unprofitable, — all these are economic forces, much 
 stronger than any opposing legislation, that inevitably 
 and rapidly make for thorough-going monopoly in all 
 municipal utilities. Competition has never, and will 
 never for any length of time, fix rates on such services. 
 Without yjrile public regulation these rates will be deter- 
 mined by the principle of maximum returns. The denser 
 the population, and hence the greater the social need, the 
 more iniquitous becomes this basis for fixing rates. The 
 abiding social and industrial interests of every commu- 
 nity demand that the community that is being served, as 
 welT-as the individual or corporation that affords the 
 Service, must be given adequate consideration when rates 
 
12 MUNICIPAL UTILITIES 
 
 are fixed, when standards of service are determined upon, 
 and when extensions are made. This can be accom- 
 plished only through constructive regulation. Society 
 cannot afford to allow those who have a monopoly upon 
 the most salient needs of urban life to exploit the many 
 simply to bring added s heke ls into the pockets of the 
 
 few. ef/ell fotcK^ ! 
 
 The very value of all such public utilities has been 
 made, indeed, by the community at large, as well as by 
 the proprietors themselves. If the public has in part 
 made these values, it should have the right to determine 
 how the profits arising from them should be distributed, 
 and the right and duty of seeing that these values shall 
 be so administered as not to be inimical to the best inter- 
 ests of the community. 
 
 The character of the need for regulation must largely 
 shape the method of regulation. It is hence advisable to 
 review the character of the abuses that regulation must 
 correct, and the character of constructive policies that 
 regulation will make possible. 
 
 In the first place, regulation is needed for the protec- 
 tion of the individual. The individual must be protected 
 against discrimination as to rates and services. There 
 can be no actual equality before the law, and none before 
 the community in the prosecution of business, unless mu- 
 nicipal utilities serve all on equal terms. Discrimination 
 by municipal serving corporations is much more preva- 
 lent than it is commonly supposed to be. Soon after the 
 Wisconsin public utility law went into effect, it was esti- 
 mated that the discrimination in rebates to favored cus- 
 tomers of telephone, water, heat, and light companies 
 amounted to as much as $2,000,000 annually. Even as 
 late as August, 1909, fifty-two per cent, of the telephone 
 companies, sixty per cent, of the water, thirty-five per 
 
THE NEED FOR REGULATION 13 
 
 cent, of the gas, and fifty-six per cent, of the electric 
 companies of Wisconsin, admitted that they still main- 
 tained discriminatory rates. In Lacrosse, 113 out of 
 2,319 users of electricity got reductions amounting to a 
 monthly rebate of $1,942. In Madison, 1,359 out of 
 5,000 telephone users received reductions amounting to 
 $11.20 per month. In one city of 4,000 inhabitants, the 
 water companies served seven big consumers free of 
 charge. Discrimination is not more prevalent in Wis- 
 consin than in most of the other states in the Union. 
 Wisconsin, indeed, is but a typical example. 
 
 Discrimination in services is even more prevalent and 
 is brought about through the guise of " reasonable " reg- 
 ulations. The courts have uniformly held that, since 
 regulations must play such a large part in the conduct of 
 business, great freedom and discretion must be given to 
 those who are confronted with the problem of reducing 
 to order a business as complicated as the activities of 
 municipal utilities usually are. Hence, our judicial de- 
 cisions have usually justified regulations made by utility 
 companies in good faith, unless they are " plainly out- 
 rageous," no matter how great the hardship may be on 
 any particular individual. This puts the burden of proof 
 upon the consumer. In order to get the regulations as 
 to his water, light, heat, telephone or other service 
 changed, he must prove existing regulations to be plainly 
 " outrageous " in their general operation. This the small 
 consumer will not do. Even if he does and gets redress, 
 the rule may be so mildly modified as to suit his particu- 
 lar case, but to bring no redress to the wrongs of his 
 neighbors. A utility company cannot be prevented, there- 
 fore, from so framing its rules and regulations that they 
 will suit the favored customer admirably, while thwart- 
 ing the needs of the average consumer. 
 
14 MUNICIPAL UTILITIES 
 
 Thus regulations may be issued, governing the time, 
 place, manner and. form in which the service will be ren- 
 dered. They may establish priorities in service, provided 
 only that adequate provision be made for all business 
 conditions. They may "pro rate" the available facilities. 
 They may lay down " reasonable " conditions on which 
 alone the company will perform services. They may 
 establish " reasonable " limits as to districts within which 
 alone service will be rendered. They may provide for 
 " reasonable " time for performing any and all of its 
 services. Mere " delay " in performing services, the 
 courts will not object to until the delay is so great as to 
 amount to an abandonment of the contract, or is so gross 
 as to indicate departure from the undertaking, and then 
 the burden of proof is upon the consumer to show that 
 the delay might have been avoided by proper precautions. 
 The company has only to show the intervention of un- 
 foreseen obstacles or some " act of God or other sudden 
 disaster," as a certain law puts it. Such a costly, cum- 
 bersome, ineffecive manner of securing readjustment of 
 bad regulations, with no actual power of securing rea- 
 sonable regulations, is so " plainly outrageous " as to 
 point to the urgent need of substituting some other 
 method. No community can put aside its duty to pro- 
 vide for its every citizen equality in rates and services. 
 Not to do so is to undermine the very foundation of 
 social and governmental progress. 
 
 Not only is the individual entitled to be free from dis- 
 crimination in rates and services, but he is also entitled to 
 fair and reasonable rates and services. Without compe- 
 tent public regulation, the urban dweller has no me^ans 
 by which he can secure reasonable rates and services, no 
 means, indeed, by which he may know what a reasona- 
 ble rate and service is. He is wholly at the mercy of the 
 
THE NEED FOR REGULATION 15 
 
 public service corporation. Regulation by law-suit offers 
 no relief. The cost of a unit of service to the average 
 consumer is so small that he will not go to the expense 
 and trouble of a suit to have his rates reduced or his 
 service improved. This the utility corporation knows 
 full well. This knowledge gives it practically a free hand 
 in making such rates, and in offering such services as it 
 pleases. 
 
 There is need, not only for regulation, but for a 
 method of regulation that will be fair and just alike to 
 the consumer, the corporation, and the community. For 
 instance, just what a reasonable rate is, is a very com- 
 plex question. The interest both of the company serving 
 and the customer served must be considered. A rate 
 which is reasonable from the point of view of one, may 
 be quite unreasonable from the point of view of the 
 other, and a rate which is reasonable to both may be 
 eminently unfair to the community at large. The com- 
 pany is interested in making a rate that will bring in the 
 largest returns; the consumer is interested in making 
 a rate that will bring to him the largest possible returns 
 with the least possibly outlay. There should be a com- 
 mon tribunal with adequate facilities and sufficient infor- 
 mation for the fair determination of such problems. 
 
 Public regulation of municipal utilities is also neces- 
 sary in order to protect the utility companies themselves. 
 The corporation that has organized and equipped a plant 
 to serve the public is entitled to adequate protection from 
 unwarranted encroachments from the public. The same 
 principle that makes such corporations amenable to pub- 
 lic regulation, that they are freighted with public interest, 
 necessitates that these corporations be protected from 
 hasty and ill-advised public encroachments upon their 
 property. The rights and privileges of the corporation 
 
16 MUNICIPAL UTILITIES 
 
 must be as clearly recognized as the rights and privileges 
 of the consumer and the community. The greatest need 
 for regulation at the present time is for the adequate 
 protection of the honest public utility and the innocent 
 investor therein. Speculators and promoters of public 
 utilities must not be free to exploit the consumer and the 
 investor. They can no longer be allowed to place such 
 capitalization as they please upon their public utilities, 
 and then make the public support that capitalization 
 through high rates and poor service. This principle the 
 United States Supreme Court has recognized in the case 
 of Covington and Lexington Town Pike Railroad Com- 
 pany vs. Sandf ord ( 164 U. ' S. 596) . In this case the 
 Court said: 
 
 A corporation is not entitled as of right and without 
 reference to the interests of the public to realize a given per 
 cent, upon its capital stock. Speculators are not the only 
 persons whose rights or interests are to be considered. The 
 rights of the public are not to be ignored. The public can- 
 not properly be subjected to unreasonable rates in order 
 simply that stockholders may earn dividends. A leading 
 need for regulation is that all may know when capitalization 
 is unreasonable and when rates and services are not adequate 
 to meet public needs. The interests of the corporation de- 
 mand such regulation, as well as the interests of the con- 
 sumer. 
 
 As important and as of deep import as the rights and 
 needs of the individual and of the corporation, are the 
 rights and interests of the city as a whole. The rights 
 of the individual and the corporation should not be over- 
 looked. ^.Neither should the rights and needs of the city 
 fail to receive their due and equal recognition. The city 
 must protect itself, as well as the individuals that com- 
 
THE NEED FOR REGULATION 17 
 
 pose it and the corporations that serve it. The corpora- 
 tion is primarily an association instituted, sanctioned, and 
 legalized by the city to promote the city's ends, not to 
 promote solely the ends of the consumer and the cor- 
 poration. To enforce this principle, thorough-going reg- 
 ulation is necessary. 
 
 The city must protect its health. This it can do only 
 through complete control over its water, light, heat, elec- 
 tric and allied public services. Unjustifiable over-crowd- 
 ing must be prevented. This can be done only by stern 
 regulation of the city's transportation facilities. Street 
 railways must not be allowed to increase land values in 
 favored sections at the expense of community degenera- 
 tion through over-crowding. Even where there is no 
 immediate danger of over-crowding, the city cannot abdi- 
 cate to its public utilities power to determine what urban 
 real estate shall have value, and what real estate shall 
 have no urban value at all. It has been stated that the 
 increase in land values in northern Manhattan and the 
 Bronx, due to the construction of the present subway, 
 would not only have built the entire line, but would have 
 equipped it, provided its rolling stock, built its power 
 houses, paid all capital expenses, and left a margin. 
 Why should not this increased value go in part to the 
 public, as well as to the railway and its allied industrial 
 concerns ? 
 
 The community as a whole must have something to 
 say about the direction in which it shall expand, whether 
 into wholesome or unwholesome surroundings, whether 
 into areas that will inhibit or promote future expansion. 
 A sensible constructive city plan is the urgent present- 
 day need of American cities. But city plans, unaccom- 
 panied by energetic control over the expansion of muni- 
 cipal utilities, will ever remain mere paper plans, to be 
 
18 MUNICIPAL UTILITIES 
 
 developed or neglected, as those utilities may see fit to 
 determine. The public service corporations must be 
 made to serve the future city, not to burden it. Herein 
 lies the most potent reason for adequate public regula- 
 tion. 
 
 There is no use side-stepping the fact that, in Ameri- 
 can cities, municipal utilities are too often the city's 
 actual governing power. If the utilities cannot, unaided, 
 dominate a city's governmental machinery, they dominate 
 it through alliances with other interests, such as the 
 liquor interests, vice interests, suburban development 
 concerns, public contractors, and by liberal campaign 
 contributions to the successful political party. 
 
 The motive that tempts municipal utility corporations 
 thus to dominate the city government, is the valuable 
 special privileges that they can thereby obtain at little 
 cost. The temptation to secure these valuable franchise 
 rights by resorting to bribery, or any other means of 
 corruption, is too strong for the average corporation 
 promoter to resist. Especially is it impossible to resist a 
 temptation to put into city offices, through party machin- 
 ery, men who will obey every command of the city's 
 serving corporations. 
 
 Not only is there an ever-present and strong tempta- 
 tion to subsidize and dominate a city's governmental ma- 
 chinery in order to obtain franchise rights, but there is 
 an equally strong temptation to keep it subsidized and 
 dominated in order to secure the numerous advantages 
 arising from a friendly interpretation and administra- 
 tion of franchise provisions. Obtaining franchises in- 
 vites occasional corruption and municipal subversion ; the 
 interpretation and administration of those franchises in- 
 vite permanent corruption and subversion. The com- 
 pany's first interest is to obtain a franchise that will give 
 
THE NEED FOR REGULATION 
 
 19 
 
 it the best possible autonomy as to rates, service, and ex- 
 tensions : its next interest is to see that the city govern- 
 ment interprets and administers that franchise in the 
 way that the company would itself interpret and admin- 
 ister it. The battle that wins a good or a bad franchise 
 is but an incident in the long struggle between a city's 
 public needs and the greed of its serving corporations. 
 Unfortunately it is the one on which public attention is 
 almost wholly focused. But to the corporation it is not 
 the most important struggle. To the corporation, the 
 important thing is the daily interpretation and enforce- 
 ment of the franchise it may thus secure. A lax or sub- 
 servient city government may, by friendly interpreta- 
 tions and flaccid administration, completely change the 
 terms of the contract. To the corporation lax enforce- 
 ment means greater gains, and strict enforcement les- 
 sened profits. Hence, the public utilities keep themselves 
 entrenched in the city's government and the city's courts, 
 and throw the whole of their potent influence against vig- 
 orous enforcement and interpretation of their franchise 
 contracts. So long as the same group of men runs the. 
 municipal government and also enforces franchises, these ' 
 corporations will attempt to see to it that they maintain 
 copper-riveted control over that group of men. They 
 may not obtain and exercise this control so blatantly in 
 the future as they have in the past, but their control will 
 be none the less potent because they discard hob-nail and 
 go pussy- foot. 
 
 Of all trie malevolent results arising from prostrating 
 the will of public officials to the will of utility officials, 
 the least malevolent is that thereby rates are raised, 
 service standards lowered, and extensions neglected. 
 More malevolent and more pernicious than these are the 
 results upon the efficiency and standards of the city gov- 
 
20 MUNICIPAL UTILITIES 
 
 ernment. City officials who are chosen primarily because 
 they will minister to the needs and wishes of the city s 
 serving corporations, will not be fitted by aptitude nor 
 inclination to minister to the city's social and gov- 
 ernmental needs. Under such a policy, fitness to govern 
 is but a secondary consideration in making nominations 
 to city positions. If by accident the city official possesses 
 governmental fitness, he will deferentially yield to the 
 corporation whenever there is a clash between the city's 
 interests and the interests of the corporation. For this 
 he was elected. So long as such a condition of peonage 
 exists, effective city government is unthinkable. Efficient 
 city government can be obtained only by placing first 
 emphasis upon the ability and readiness of the city offi- 
 cial to minister well and faithfully- to the city's needs. 
 The only way that this can be assured is to adopt a vig- 
 orous and competent method of regulating municipal 
 utilities, that municipal utilities may be made to serve the 
 city, not to rule it. Until this is done, municipal govern- 
 ment will be inefficient and subservient. 
 
 Closely allied to this need for regulation, and separa- 
 ble from it only for the sake of emphasis, is the need of 
 divorcing public utilities and political parties. Public 
 service corporations have ever been the ward-heeler's 
 most fruitful source for campaign contributions. The 
 parties desire funds ; the corporations desire protection ; 
 the alliance, known well to all, results. Indeed, the muni- 
 cipal utilities may contribute to both parties, and thus be 
 sure that no candidates are nominated who are not " safe 
 and sane." For instance, previous to 1905, members of 
 both the Republican and Democratic committees in Syra- 
 cuse, New York, maintained " spheres of influence " in 
 the lighting and traction companies, and named the mo- 
 tormen and conductors and the other employees of these 
 
THE NEED FOR REGULATION 21 
 
 utilities. The utilities in turn got all they wanted from 
 the city. The situation of the Philadelphia Gas Works, 
 when it was privately operated before 1887, is typical of 
 the kind of alliance that is frequently made between the 
 city's utilities and the city's officials. Prof. Leo S. Rowe, 
 commenting upon that situation, says in his report to the 
 National Civic Federation -, 1 " The trustees of the Gas 
 Works had, through the skillful use of patronage, gradu- 
 ally secured control of the local machine. They ap- 
 pointed their friends and dependents to the chief places 
 under the trust, and required them to fill the ranks of 
 even ordinary workmen with persons upon whom they 
 could depend. These employees were expected to know 
 all the voters in their districts ; they attended and swayed 
 the primaries, and when an election was held they can- 
 vassed and brought out the voters. Their power, there- 
 fore, went far beyond their mere voting strength, for 
 100 energetic workers meant at least a thousand votes." 
 In this way the gas ring made itself indispensable to 
 the Republican party in the city and commanded a ma- 
 jority in both the Common and the Select council. 
 
 To prevent such a subversion of our municipal insti- 
 tutions, there must be regulation of municipal utilities, 
 and regulation of a kind that will tend to make unneces- 
 sary party and corporate alliances. 
 
 Another need for regulation is that our courts may be 
 freed from many cumbersome cases, and thus be left 
 free to perform the primary functions for which they 
 were created. Our courts must not bear the whole bur- 
 den of saving property from confiscation and of regulat- 
 ing utilities in the interests of the public. That burden 
 should be borne by highly specialized and independent 
 
 1 Report on Public Utilities, Part II, Vol. I, page 502. 
 
22 MUNICIPAL UTILITIES 
 
 administrative tribunals that will devote all their time to 
 utility problems. To freight our judges with duties 
 foreign to their training and inclinations is to endanger 
 them to the same kind of corporate dominance as has 
 just been discussed for the city and the political party. 
 
 A leading and primary function of the municipality is 
 the regulation of all the municipal utilities within its bor- 
 ders whose activities are at all affected with the public 
 interest — and that includes them all. The adequate regu- 
 lation of such concerns is the most pressing problem of 
 the hour. The consumer, the corporation and the city 
 cannot be left subject to exploitation, one by the other. 
 This exploitation can be prevented only by the creation 
 of a highly specialized regulative institution, isolated 
 from other governmental machinery, that responsibility 
 may be inescapably fixed, and that the other political in- 
 stitutions may not be dominated by influences foreign to 
 their specific functions. 
 
 The interests of the individual that is served, of the 
 company that does the serving, and of the organized 
 community whose well-being depends entirely upon the 
 efficiency and impartiality with which that service is ren- 
 dered, all urge the adoption of a progressive and ade- 
 quate policy of regulation. 
 
CHAPTER II 
 
 MUNICIPAL OWNERSHIP VERSUS ADEQUATE 
 REGULATION 
 
 , All now seem to assent to the proposition that muni- 
 cipal utilities must be regulated. The point of difference 
 is as to the method and extent of regulation. Methods 
 of regulation may be roughly classed as (i) regulation 
 by governmental authorities under private ownership of 
 public utilities, and (2) governmental operation and 
 ownership of such utilities. A more accurate statement 
 of these two methods of regulation is that, in the first, 
 there is centralization of regulation and diffusion of 
 ownership, while in the second there is centralization of 
 both regulation and ownership. 
 
 The forces that have made for the adoption of muni- 
 cipal ownership as a means of regulation are two. In 
 the first place, drastic franchise provisions have made 
 private ownership relatively unprofitable. In the second 
 place, municipal ownership has been the only avenue 
 open for the solution of the numerous and obnoxious 
 ills that result from non-regulation. The first factor has 
 not been a very potent one in the United States for the 
 quite sufficient reason that American cities have never 
 had the machinery by which franchise provisions could 
 be adequately enforced. The administration and enforce- 
 ment of franchises, in American cities, has been left to 
 3 23 
 
24 MUNICIPAL UTILITIES 
 
 the companies themselves. Save in the few states that 
 have recently adopted public service commissions, no 
 public official or body has had ample power to see that 
 franchises are administered in the interests of the pub- 
 lic and the consumer as well as in the interests of the 
 public service corporation. We have naively assumed 
 that franchises are self-executory. The result has been 
 that our public service corporations have evaded or have 
 neglected to enforce all the provisions of their franchises 
 that protect the public, while strictly enforcing and fa- 
 vorably interpreting all the provisions of their franchises 
 that " protect " the corporations. The inevitable result 
 of such a scheme of franchise enforcement and non-en- 
 forcement is that the company's interests are always pro- 
 tected, the public's interests forever neglected. Hence, 
 no matter how carefully a franchise is drawn, no matter 
 how carefully it safeguards the public's interests, no mat- 
 ter how severely it appears to punish the neglect or re- 
 fusal of the corporation to comply with its every pro- 
 vision, the corporation, as its sole executive and inter- 
 preter, may so administer and interpret it as to make it 
 serve well the corporation, no matter how poorly it may 
 chance to serve the public. 
 
 Such has not been the situation in European coun- 
 tries. In European municipalities special administrative 
 machinery for the enforcement of franchises has long 
 existed. Hence, private corporations conducting public 
 utilities could not complacently neglect all such fran- 
 chise provisions about extensions, rates, quality of serv- 
 ice, etc., as they might choose to neglect. It is one thing 
 to carefully safeguard public franchises; it is quite an- 
 other thing to strictly enforce them. American cities 
 have done only the former, and have not always done 
 even that; European cities have done both. Hence, in 
 
OWNERSHIP VERSUS REGULATION 25 
 
 Europe the returns to such corporations have been so 
 reduced as to make private ownership of certain utilities 
 in certain cities relatively unprofitable. With competent 
 regulation the exact rates of profit were known; hence, 
 the city authorities tended to require lower rates or bet- 
 ter service until the corporation's profits were reduced 
 to a point where private ownership was not highly pro- 
 fitable. Unfortunately this adequate enforcement of 
 franchise provisions was unnecessarily accompanied by 
 short-term grants. Under short-term grants and low 
 returns, private ownership became relatively unprofitable. 
 Hence, there was a heavy movement toward municipal 
 ownership. This is especially true of street railways in 
 the United Kingdom. As Professor Rowe has pointed 
 out, 1 these short-term franchises " made it difficult, if not 
 impossible, for the British street railway companies to 
 undertake improvements on a large scale. With each 
 demand for the extension of the service to the suburban 
 districts the question presented itself whether such ex- 
 tension could be made to pay, in view of the compara- 
 tively short duration of the franchise. Endless contro- 
 versies arose between the municipalities and the com- 
 panies, which finally forced a clear-cut issue — either to 
 permit the companies wider freedom of action and longer 
 franchise terms, or to accept the alternative of municipal 
 ownership. The traditions of rigid public control over 
 private companies were so strong, and the reluctance to 
 grant long-term franchises so great, that municipal own- 
 ership was adopted as the only solution of the difficulty." 
 Such situations led to a rapid adoption of public owner- 
 ship. Thus, in January, 1894, there were about three 
 public street railway systems in operation in the United 
 
 1 "Problems of City Government," page 225. 
 
26 MUNICIPAL UTILITIES 
 
 Kingdom ; in March, 1906, there were one hundred and 
 twenty-three. That is, from 1894 to 1906, the number 
 of publicly-owned street railway systems had increased 
 from two to forty-nine per cent, of the whole number 
 of tramways in the United Kingdom. 
 
 It is needless to say that the potent force making for 
 municipal ownership in this country has not been the 
 reduction of profits due to virile enforcement of fran- 
 chise provisions. The tendency toward municipal own- 
 ership in this country has been due almost solely to the 
 fact that municipal ownership has been the only weapon 
 with which the American city could successfully abate 
 the evils necessarily arising from having its most impor- 
 tant public needs and service performed by corporations 
 over which it had no effective means of control. These 
 corporations carried on their operations solely on the 
 principle of the greatest maximum return to the cor- 
 porations. The interests of the city demanded that the 
 welfare of the public should have equal consideration 
 with the corporation. Having at hand no other instru- 
 ment for securing such consideration, the American city 
 has been compelled either to let those interests go unpro- 
 tected, or to protect them through municipal ownership 
 and operation. That is, in American cities, municipal 
 ownership has been adopted because it was the only 
 means by which the public's interest could be adequately 
 safeguarded. 
 
 The following chapter on the Minneapolis Gas Set- 
 tlement aptly illustrates the use that a city can make of 
 its power to provide for itself its own public services. 
 The same fact is brought out by Honorable James H. 
 Head, formerly Mayor of Nashville, Tennessee, in an 
 article entitled, "One Mayor's Experience," published 
 in the Proceedings for the National Municipal League 
 
OWNERSHIP VERSUS REGULATION 27 
 
 for 1906. In recounting his experience in endeavoring 
 to get adequate service from the city's public utility cor- 
 porations, Mayor Head, in part, said : 
 
 The next proposition that I had to contend with was to 
 meet the electric light company. I found the electric light 
 company with a contract with the city for ten years, about 
 five years of which had expired. They supplied the city 
 with lights at eighty-five dollars per arc light per annum. 
 They were charging the people of the city eighteen cents per 
 kilowatt for electricity, both of which charges I regarded 
 as extortionate. I went to the company and asked for a 
 readjustment, and the cancellation of their contract with the 
 city. I was laughed at. No consideration was given to me, 
 and I was again up against a serious proposition. Fortu- 
 nately, however, in looking back through the acts of the Leg- 
 islature, I found authority for the city to issue one hundred 
 and fifty thousand dollars of bonds, to buy or build an elec- 
 tric light plant to light the streets, but with no power to sell 
 electricity to private consumers' — simply to light the public 
 buildings and streets of the city. The Legislature assem- 
 bled in 1901, and I concluded that I would ask the Legis- 
 lature to amend the city charter and give the city the power 
 to sell electric light, heat, and power to private consumers. 
 It was a matter in which no one was concerned but the peo- 
 ple of Nashville. The City Council unanimously endorsed 
 it. The people of Nashville were practically unanimous for 
 it, all except those interested in public service corporations, 
 and I went before the Legislature thinking I would have no 
 trouble. I had the fight of my life. Every corporate influ- 
 ence in Tennessee was represented before that Legislature 
 with its personal, financial and other influences to defeat 
 that bill and prevent the city of Nashville from acquiring 
 that little right to sell electric light, heat, and power to pri- 
 vate consumers. I spent nearly my entire time during the 
 session of the Legislature trying -to secure that right for the 
 city. 
 
28 MUNICIPAL UTILITIES 
 
 Finally I succeeded by a very close vote. After acquiring 
 that power, I again endeavored to readjust the contract 
 which the private company had with the city. They refused, 
 and I immediately undertook the building of an electric light 
 plant. By the time the foundations of that electric light 
 plant were laid, the private company came forward and vol- 
 untarily ( ?) reduced the price of electricity to private con- 
 sumers from eighteen cents to twelve cents per kilowatt. 
 Before the plant was completed, the private company was 
 making every contract it possibly could with private con- 
 sumers for a term of years at five and six cents per kilowatt. 
 When the plant was completed, there were about three years 
 of their contract with the city unexpired. 
 
 I went to the representatives of the private company and 
 told them that the city was now ready to engage in the elec- 
 tric light business, and wanted to know what they would do. 
 At first they would do nothing. But finally they concluded 
 that the contract with the city did not pay them anything, 
 anyway; that it was an expense to them, and that they had a 
 demand for all of the light and power that their plant could 
 furnish, and, if I wanted to, I could take over the lighting 
 of the streets and public buildings of the city. So, on the 
 first of September, 1902, the city took over the lighting of 
 its public streets. For the year prior to that, the city had 
 paid $49,270 for lighting its streets and public buildings. 
 
 For the year after the city took charge of its lighting it 
 furnished to the city more than double the amount of light 
 that it had previously had at a cost of $33,500. The cost 
 of producing electricity, including operating expenses, in- 
 terest upon bonds, repairs, improvements and everything 
 except an estimate for the depreciation of the plant, was, 
 for the first year, a little over two and one-half cents per 
 kilowatt, and it is being produced to-day at about 2.10 cents 
 per kilowatt. 
 
 When the private company agreed that the city could 
 take over the lighting of its streets and public buildings, I 
 agreed with them as Mayor that, during the remainder of my 
 
OWNERSHIP VERSUS REGULATION 29 
 
 term of office, the city would not engage in any private busi- 
 ness, provided the company continued to furnish electricity 
 at the prices they were then charging. I understand that 
 since my retirement from office, that agreement has been 
 kept. The lighting company is making more money to-day 
 than it did when it charged eighteen cents. The city is 
 lighting its streets and public buildings and is not engaging 
 in private work. But if the city had never turned a wheel 
 of that plant, costing $150,000, it would more than have paid 
 for itself in three years in the reduction that it obtained for 
 the private consumers of the city in the price of electricity. 
 It could afford to keep that plant standing idle, and never 
 turn a wheel, and it would save to the people the interest 
 upon the investment ten times over every year. 
 
 Municipal ownership was the only means by which 
 Mayor Head could adequately protect the interests of 
 the public. He had either to leave those interests un- 
 protected or resort to municipal ownership. Such has 
 been the only alternative open to the average city, and 
 even this alternative, sad to relate, many an American 
 city has not and does not possess. Thus the role of mu- 
 nicipal ownership has been and still is a most important 
 one. It is, so to speak, " the gun behind the door." Its 
 importance has long been recognized by the National 
 Municipal League, and many pages of its Proceedings 
 are given over to the consideration of its merits and de- 
 merits. Among these papers is one by Charles Richard- 
 son, which gives, among other things, a splendid resume 
 of the arguments for and against municipal ownership. 1 
 This resume is so pointed and yet so inclusive as to be 
 worthy of reproduction in its entirety. It was as follows : 
 
 » See Proceedings of the National Municipal League for 1898. 
 The article is entitled "Municipal Franchises." 
 
30 MUNICIPAL UTILITIES 
 
 The methods which have been most advocated for the 
 management of municipal properties and services may be 
 classified under two heads, viz. : 
 
 Those which are equivalent to a lease for a period of 
 years, and 
 
 Those which involve the direct control and operation by 
 the local government. 
 
 The principal arguments in favor of the lease system may 
 be stated briefly as follows : 
 
 First: That it is the quickest and easiest method for a 
 city to obtain large sums of money or large annual revenues 
 without borrowing, and that the success of this method will 
 be in proportion to the length of the periods for which the 
 franchises are granted. 
 
 Second: That with city management there is sure to be 
 a great deal of fraud and corruption in the procurement of 
 labor and materials. 
 
 Third: That municipal officials and legislators are so 
 generally ignorant, negligent or corrupt that they are inca- 
 pable of conducting public business with intelligence, effi- 
 ciency and economy. 
 
 Fourth : That by carefully drawn leases and agreements 
 the city's interests can be fully protected and its revenue 
 assured and increased. 
 
 Fifth : That under our form of government the require- 
 ments of party politics and the frequent changing of public 
 employees make it impossible for the people to secure as good 
 service -at as reasonable rates as a private corporation. 
 
 Sixth: That under municipal operation the employees 
 and patronage will be used for political, partisan, or factional 
 purposes to such an extent that the spoils system will be 
 greatly strengthened, and it will become much more difficult 
 for the people to overthrow a political machine. 
 
 The advocates of municipal ownership and operation 
 reply to these arguments : 
 
 First: That even if we should ignore the influence of a 
 full treasury in encouraging folly and extravagance, it would 
 
OWNERSHIP VERSUS REGULATION 31 
 
 still be true that neither the raising of money nor obtaining 
 an income can justify a city in depriving its citizens and 
 their posterity of the control of matters essential for their 
 own service and protection, or in selling important privileges 
 for much less than they are worth, or in granting them to 
 persons whose private interests will thus be made adverse to 
 those of the public. 
 
 Second: That as such arrangements are practically cer- 
 tain to be unfair to the city, the evils which they will inflict 
 upon the people will be much greater if the grants are 
 made for long periods than if they were limited to short 
 terms. 
 
 Third : That in aggregate amounts and in multiplicity 
 and variety of direct and indirect methods, the bribery and 
 corruption chargeable to corporations seeking and enjoying 
 municipal franchises are undoubtedly far in excess of the 
 totals of similar evils from all other sources combined, and 
 that the way to abolish bribery is to abolish the corporations 
 which do the bribing, by adopting the policy of municipal 
 operation in every conceivable case. 
 
 Fourth : That if the city's representatives are unfit to 
 conduct a business from year to year, it would be the height 
 of folly to entrust them with the vastly more difficult and 
 responsible task of selecting and installing a management 
 which could not be changed for a long period of years. 
 
 Fifth : That in making a lease for fifty years the bribes 
 are much larger, and the necessity for expert knowledge, 
 shrewdness, sagacity, foresight and honesty is much greater, 
 so that the damage resulting from the lack of suitable quali- 
 fications in the city's representatives is likely to be very much 
 more than fifty times what it may be under a management 
 that is limited to a single year and can then be changed by 
 the voters if it is unsatisfactory. 
 
 Sixth: That under the existing conditions the chances 
 of any city's obtaining a fifty-year or other long-term agree- 
 ment which will be entirely fair and desirable for the people, 
 or* of securing what might be even more difficult, a full 
 
32 MUNICIPAL UTILITIES 
 
 and satisfactory enforcement of such an agreement if one 
 could be made, seem to be too slight for serious considera- 
 tion. 
 
 Seventh: That even if it was practicable to secure an 
 agreement and its continuous enforcement, its effect upon 
 the character of the local government must necessarily be 
 exceedingly injurious. A bad servant who can be dismissed 
 is much better than a master from whom it is impossible to 
 escape. Republican institutions are based upon the principle 
 that the people should have the power to change their rulers 
 without resorting to assassination or revolution, and a long 
 lease of an important municipal service is simply the sub- 
 stitution of a limited monarchy for a popular government, _ 
 so far as it relates to that particular function. 
 
 Eighth : That as the character of every Republican gov- 
 ernment must depend in the last analysis upon the active 
 interest of the voters, it is obvious that every lease or agree- 
 ment which ties the hands of the local government and 
 lessens its ability to serve and protect the voters must tend 
 to diminish their interest in supporting or improving it. 
 While it is not possible to strip a city government so entirely 
 of power as to make it incapable of attracting the efforts or 
 serving the purposes of bad men, it is possible to render it 
 so powerless to accomplish good or restrain evil that the 
 average citizen can no longer be induced to take an active 
 interest in it. 
 
 The merits of municipal ownership, however, do not 
 have to depend for their demonstration upon arguments 
 only. It has been amply justified in the experience of 
 both European and American cities. 
 
 Its success in continental cities has long been known 
 to all. As to its success there it will suffice to submit 
 here statements only as to ( 1 ) its success in gas and elec- 
 tric lighting in British cities; (2) the financial result of 
 Glasgow's tramway for the year ending May 31, 1910, 
 
OWNERSHIP VERSUS REGULATION 33 
 
 and (3) the results obtained in the current year for the 
 four largest municipally owned plants in Nottingham. 
 
 Speaking of the results obtained by municipal gas 
 and electric plants in British cities, Mr. John Martin of 
 New York City, in a paper read before the National 
 Municipal League in 1905, said in part : x 
 
 But you will ask, Do the results show that the manage- 
 ment of these undertakings has been accompanied by the 
 notions of business efficiency, resulting in low prices, good 
 dividends, and high wages, which we expect, but don't 
 always get, from private undertakings? With the cogency 
 of a proposition in Euclid, they do. 
 
 For refreshment and solace, listen to a few figures. Fig- 
 ures, I know, like spirit photographs, sometimes deceive; 
 but mine shall be so simple that even an investor in the ship- 
 building trust could not be misled by them. The statistics 
 I shall quote are vouched for by the British Board of Trade, 
 a body as dignified and impeccable as the Supreme Court. 
 Uniform municipal accounting, the goal for which one of 
 your committees pants, has been reached in these business 
 undertakings in the United Kingdom. No financial juggling 
 is possible. 
 
 No less than 260 cities supply their whole population with 
 gaslight and power, having invested over $185,000,000 in the 
 works — a sum so large that I fear the ship-building in- 
 vestor will not grasp it. They charge on an average, taking 
 large and small, those distant from and those near to coal 
 fields all together, sixty-four cents a thousand cubic feet for 
 gas. Therefore the consumer is benefited, for the private 
 companies, on an average taken in the same way, charge a 
 little over seventy cents. What they would charge were 
 they not held in check by municipal competition, Cousin 
 Jonathan could tell John Bull. 
 
 1 Proceedings of the New York Conference on Good City gov- 
 ernment, 1905, page 154. 
 
34 MUNICIPAL UTILITIES 
 
 Has the taxpayer been mulcted to make up? No, indeed. 
 The net revenue has been 7 per cent, on the capital, and, if 
 anything, the taxpayer has been too well cared for. In Man- 
 chester he received $350,000 last year to help to pay for the 
 schools, etc., the price of gas being sixty cents; in Leicester 
 he got $190,000 with gas at fifty-six cents, and in the other 
 places lesser sums in proportion to their size and the success 
 of the management. 
 
 And the workman? He has not been forgotten; for 
 everywhere he gets slightly higher wages than he would from 
 a private corporation and somewhat more generous treatment 
 with respect to hours and holidays. 
 
 Electric lighting tells the same tale. While I am writing 
 this, there comes a return compiled by the London County 
 Council showing that the fourteen local authorities in the 
 metropolitan district which supply electric light sell it at 
 an average of slightly less than eight cents a kilowatt hour, 
 nearly 20 per cent, less than corporations charge in adjacent 
 districts, and nearly half as much as submissive New Yorkers 
 pay. And yet, after paying all expenses and the interest on 
 the debt, they had a surplus of $1,244,515. Clearly they un- 
 derstand the notion of thrift in production. 
 
 The Glasgow tramway, owned and operated by the 
 city, in the year ending May 13, 191 1, as shown in the fol- 
 lowing excerpts from an official report, put 9.04 per cent, 
 of its total receipts into a sinking fund, put 20.4 per cent, 
 more of it into depreciation and permanent way renewal 
 funds, and yet charged an average fare of not quite 
 two cents per passenger, or at the rate of not quite one 
 cent per mile: 
 
OWNERSHIP VERSUS REGULATION 35 
 
 THE GLASGOW TRAMWAYS UNDERTAKING 
 For Year Ending May 31st, 1911.1 
 
 Capital expenditure to that date £3.503,173 
 
 Total sinking fund to date 608,147 
 
 Ordinary income for year 949,488 
 
 Working expenses for year 533,178 
 
 Net revenue £416,309 
 
 The net balance paid into the "Common Good" was, 68,678 
 Sinking fund for the year, £89,794 or 9-°4% of total receipts. 
 Depreciation fund, £117,129 
 
 , ,, , 20.40% of total receipts 
 
 Permanent way renewals fund, £85,499 J 
 
 The average fare charged per mile was 46d. 
 
 The average fare paid per passenger was 954<1 
 
 The following official report, prepared by one of the 
 city auditors of Nottingham, England, and published in 
 the Municipal Journal of November 11, 1911, shows that, 
 while setting aside large reserve, sinking, and depre- 
 ciation funds, and liberally aiding the municipal treasury, 
 the city's four leading municipally owned plants still 
 made an average profit of 8.97 per cent, on the capital 
 invested. The report is for the year 1910-11 : 
 
 • Municipal Journal. Vol. XX. September 23, 191 1. 
 
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OWNERSHIP VERSUS REGULATION 37 
 
 Municipal ownership in the United States is of rela- 
 tively recent origin. Not until 1854 did Chicago own 
 its own water plant; Cleveland followed in 1856 and 
 Minneapolis in 1871. Wheeling adopted municipal own- 
 ership of its gas plant in 1851, Norfolk in 1854, and 
 Atlanta in 1855. The first municipally owned and oper- 
 ated electric plant was Chicago's, which began operation 
 on December 24, 1887. Detroit followed on April 1, 
 1895. Although of comparatively recent origin, munic- 
 ipal ownership in the United States has also, as a rule, 
 been highly successful. The National Municipal League 
 at its Annual Meeting in 1906 devoted a large part of 
 its deliberations to the consideration of municipal own- 
 ership. Many papers were presented giving in detail 
 the results of municipal ownership in different cities. 
 These papers cannot, for want of space, be reproduced 
 here. As a whole they tended to establish the success 
 of municipal ownership and operation. The following 
 excerpts from three of them must suffice to show the 
 character and nature of the all but unanimous testimony 
 that was offered in behalf of the successfulness of 
 municipally owned plants. 
 
 Speaking of " Municipal Operation in Duluth, Minne- 
 sota," Mr. L. M. Case of that city said : 
 
 The water and gas plants were purchased by the city 
 August 1st, 1898, from the private company operating them. 
 Previous to that time the rates for water were by meter Z7 l A 
 cents per 100 feet for ordinary consumption, and for families 
 on flat rate $9.00 in five rooms, and $1.00 for each room in 
 excess : for bath each $5.00, water closets each $5.00 and 
 wash basins $4.00 each. This will be sufficient of the sched- 
 ule for comparison. 
 
 Rates for gas were: Net lighting $1.90, and $1.00 for 
 fuel. The amount of " gas sold " the year the city bought 
 
38 MUNICIPAL UTILITIES 
 
 the plant was twenty million feet, in round numbers. For 
 some time previous to the purchase a great and growing dis- 
 content pervaded all classes, not only with the character of 
 the service rendered, but also with the quality of the water 
 furnished. . . . 
 
 Now, briefly, as to the results of municipal operation of 
 the two plants. The service is improved at least to this 
 extent: no discriminations exist as to charges, discounts, 
 rebates, etc., etc. In other words : The principle of " equal 
 rights to all and special privileges to none" is rigidly main- 
 tained. Gradual but continuous reductions in rates have 
 been made, regulated simply by the amount of reduction 
 that the surplus earnings would permit, without any re- 
 gard, up to the present time, of the obligation resting upon 
 the city of providing a fund for the redemption of the 
 bonds. The main endeavor so far has been to get the 
 water rates down to a point where they would cease to be 
 burdensome, and as to the gas to make it so cheap that 
 the people could not afford to use electric light or coal 
 for cooking. 
 
 The result as to the quantity of gas sold is almost phe- 
 nomenal. Last year over no million feet were sold, and 
 that of January last was 53^ per cent, increase over that of 
 January, 1905. 
 
 The present water rates are : 17J4 cents per 100 feet for 
 ordinary consumption, with flat rates for families $6.00 per 
 annum in five rooms, with 50 cents each additional room; 
 bath tubs, water closets and wash basins, $2.00 each ; less 
 than one-half those of the company. 
 
 Gas, 75 cents net for all consumption, excepting for heat- 
 ing of premises and gas engines, which is 50 cents. 
 
 The interest on the supplementary system, which is the 
 price Duluth has paid for its pure and wholesome water, and 
 which is additional to the cost of its supply by the private 
 company, aggregates, in the seven years of operation, $386,- 
 800. Reduction of rates, both water and gas, aggregate on 
 January 1st, 1906, $630,961.99. The accumulated savings 
 
OWNERSHIP VERSUS REGULATION 39 
 
 of the board, most of which have been invested in new exten- 
 sions, aggregate $121,181.25. 
 
 As a loss or partial offset to these benefits the department 
 received from the tax levy an aggregate of $65,206,29, pro- 
 vided in the city charter at a half mill rate, "to be used 
 exclusively in the reduction of water rates." The taxes 
 voided by the purchase aggregate $116,651.65 to January 1, 
 1906. The subsequent purchase of the West Dul'uth water 
 plant for $140,000 voided a possible water rate from the pri- 
 vate company of $15,000 for three years. This leaves a bal- 
 ance of $942,085.30, which is the aggregate result in cash 
 profits to the people of Duluth during the seven years' oper- 
 ation of the plants. 
 
 After showing that municipal ownership had not only 
 materially reduced rates, but had also brought large 
 profits to the city, Mr. J. M. Barrs, City Attorney of 
 Jacksonville, concluded a paper upon "Municipal Own- 
 ership in Jacksonville, Florida," with these paragraphs : 
 
 With the tremendous growth of profits to the city from 
 the operation of the waterworks and electric plants has 
 grown up the idea that, if the city also owned and operated 
 its street railroad, gas works and telephone exchange with 
 the same success which has attended municipal operation of 
 waterworks and electric plants, these public utilities could 
 be furnished to the citizens at very small cost compared with 
 the cost when furnished by private companies and still abol- 
 ish all direct taxation. 
 
 About the only difference of opinion now existing among 
 the friends of municipal ownership exists over the question 
 as to whether the price of water and electricity should be 
 much reduced below the present very low prices, thereby 
 relieving the users of water and electricity to the extent of 
 the reductions, or should the large profits from these public 
 utilities be used by the city for public improvements. So 
 far, owing to the very rapid growth of the City of Jackson- 
 4 
 
4 o MUNICIPAL UTILITIES 
 
 ville, the profits can be very profitably used by the city in 
 public improvements. 
 
 Mr. Frederick F. Ingram, previously the President 
 of the Public Lighting Commission of Detroit, in a paper 
 upon "Municipal Operations in Detroit," said that by 
 owning its lighting plant, Detroit had not only secured 
 lower rates, but had profited in many other ways. He 
 said: 
 
 For instance, this service has been taken out of politics, 
 but few changes in the personnel of the working force cccur, 
 appointments and promotions depend on merit, while city 
 politics is freed from the corrupting influence of political 
 deals, so far as the public lighting service is concerned. 
 
 My personal views are, that cities should own and oper- 
 ate all public utilities within their boundaries without any 
 qualifications or exceptions whatever. Without reference 
 to a city's inability to acquire or exercise ownership, there 
 should be in such a city no farther franchise grants what- 
 ever. 
 
 A well-governed city must be a self-governed city. Self- 
 government is impossible if the people's control is weakened 
 and made ineffective through grants of government functions 
 to private corporations. The private corporations under such 
 circumstances of necessity must either govern the city or 
 practically destroy its government in so far as a government 
 is a reflection of the wishes or aspirations or average moral- 
 ity of the citizens. 
 
 There cannot be efficient city government with public 
 utilities in private hands. The first consideration should be, 
 to get them out of private hands, when other reforms will 
 be possible. As in European cities under such improved con- 
 ditions, city governments here will become more efficient and 
 less corrupt. Fighting inefficiency and corruption will be a 
 losing battle so long as the governmental functions of mu- 
 nicipalities are divided between the municipality and private 
 corporations. 
 
OWNERSHIP VERSUS REGULATION 41 
 
 Evidence from numerous other sources and cities 
 tend to point to the same conclusion. For instance, Los 
 Angeles, which resumed control of its water system in 
 February, 1902, in addition to paying out of its water 
 rents the accruing principal and interest of the bonds 
 issued for the repurchase of the water works, has rebuilt 
 the entire water system, has purchased additional sources 
 'of water supply, and has extended its water mains to 
 meet the demands of a two hundred per cent, growth in 
 population. In addition the plant, under municipal Own- 
 ership, has shown large profits. In 1902 it made, above 
 expenses, in round figures, $408,000; in 1903, $537,000; 
 in 1904, $664,000; in 1905, $758,000; in 1906, $819,000; 
 in 1907, $866,000; in 1908, $902,000, and, in the period 
 from November 30, 1908, to June 30, 1909, when a 
 charter amendment changed the fiscal year so that it 
 ends in June instead of November, it earned $474,000. 
 
 Municipal ownership in the United States, as in 
 Europe, has met with no small meed of success. Its 
 success has been all the more pronounced here, indeed, 
 because it has to be contrasted with rates, service and 
 results obtained by unregulated private concerns. 
 
 To be sure there have also been many seeming fail- 
 ures of municipal ownership. These failures, however, 
 may be traced in every instance either to a complex ma- 
 chinery that permits such diffusion of responsibility as to 
 make efficiency impossible or to the fact that the plant 
 was actually owned, not by the public, but by a "clique" 
 that controlled the city's government. 
 
 Among the alleged failures, for instance, was the City 
 Lighting Plant of Allegheny, Pennsylvania. Examina- 
 tion reveals, however, that the superintendent of the 
 plant was administratively responsible to all the follow- 
 ing men or groups of men: (1) to the Director of 
 
42 MUNICIPAL UTILITIES 
 
 Public Works; (2) to the Mayor; (3) to the joint 
 Finance Committee of the Council, composed of four 
 members of the Select Council and twelve members of 
 the Common Council; (4) to the Public Works Com- 
 mittee, composed of six members of the Select and twelve 
 members of the Common Council; (5) to this Commit- 
 tee's Sub-committee on Lighting, composed of two mem- 
 bers of the Select and four members of the Common 
 Council; (6) to the fifteen members of the Select Coun- 
 cil as a unit; (7) to the Common Council as a unit; and 
 (8) to the Council as a whole! Is it any wonder that 
 the plant was a failure? Is it any wonder that it came 
 to be the football of politics ? But was it municipal own- 
 ership per se that failed, or was it this method of ad- 
 ministering municipal ownership that failed ? 
 
 Other failures of municipal ownership are to be set 
 down to the exploitation of the city by the few that 
 control the city's governmental machinery. There is a 
 distinction between governmental ownership and public 
 ownership. Governmental ownership is not public own- 
 ership unless the people own- the government. Among 
 the failures of municipal ownership that may be ascribed 
 to governmental ownership as distinct from public own- 
 ership are the Municipal Gas Works of Wheeling and 
 of Philadelphia. In neither city was there actual public 
 ownership of the plant in question. In Wheeling the 
 Gas Works was conducted by a board of Gas Trustees 
 appointed and controlled by the City Council. In order 
 to subvert the state policy of restrictive legislation as 
 to saloons, brewery and saloon interests united to control 
 the Council. This was made easy because a large per 
 cent, of the population was of German descent. The 
 largest brewery proprietor was also a leading stockholder 
 -in a leading bank and the principal owner of one of the 
 
OWNERSHIP VERSUS REGULATION 43 
 
 two street car systems. He and his associates were also 
 interested in a local telephone company and were affil- 
 iated with the interests controlling the Electric Light 
 Company and the Natural Gas Company. This com- 
 bination of liquor and franchise interests always ruled 
 through the City Council. Positions in the Municipal 
 Gas Plant were given as a reward for political sub- 
 serviency. Indeed the superintendent of the Gas Works, 
 as Republican Committeeman, actually dominated the 
 Board of Gas Trustees — presumably his master. It is 
 needless to add that the gas plant was not a great finan- 
 cial success. 1 In discussing the situation in Philadelphia 
 when that city was owning and operating its Gas Plant, 
 Professor Rowe has said: 2 "The pay rolls were bur- 
 dened with large numbers of incompetents whose only 
 recommendation was that they lived in a certain ward 
 and were party friends to men powerful in politics. 
 . . . The average wage paid at the works was 
 $1.75 per day, although the Director of Public Works 
 declared that he could obtain equally competent men 
 for $1.25. This policy of paying fifty cents a day above 
 the market value of labor involved an additional annual 
 expense of $275,000." Of course, under such circum- 
 stances industrial competency in both cities was impos- 
 sible. But in each case the failure was due to nothing 
 inherently bad in municipal ownership, but to " ring " 
 domination of every municipal interest. The streets were 
 as poorly cleaned as the public utilities were badly 
 operated. 
 
 It has not been these instances of failure, however, 
 
 1 Report of the Civic Federation on Municipal and Private 
 Operation of Public Utilities, part 2, Vol I, page 491. 
 
 2 Ibid., page 603. 
 
44 MUNICIPAL UTILITIES 
 
 that have been the chief obstacle to the wider adoption 
 of municipal ownership in the United States. The main 
 obstacle to a more rapid adoption of municipal owner- 
 ship in the United States in its earlier history was the 
 narrow canon of interpretation adopted by American- 
 courts as to the powers municipalities could exercise. 
 This canon was that a city could exercise only those 
 powers expressly enumerated to it by the State Legis- 
 lature or the State Constitution. This meant that no 
 city could have the power to own and operate any one 
 or all of its public utilities unless the State Legislature 
 or Constitution had specifically given it this power, and 
 this the average municipal code and State Constitution 
 did not do. Hence only the few cities to which this 
 power had happily been expressly granted could adopt 
 municipal ownership. Our State Legislatures have been 
 very slow in extending to municipalities plenary powers 
 in this field. 
 
 Not nearly all our cities, perchance not half of them, 
 have even yet succeeded in getting this power in full. 
 But the tendency to grant it to them has been most 
 pronounced in the last two decades. Accompanying this 
 tendency has been a willingness on the part of the courts 
 in some of our states to overthrow the principle that 
 the power must be expressly given and accept the doc- 
 trine that it may be implied. For instance, the Missouri 
 Supreme Court in 1891 (178 Mo. 555, City of Craw- 
 fordsville v. Braden) held that the right of a city to 
 own and operate its public utilities was implied in its 
 " power to enact and enforce reasonable by-laws and 
 ordinances for the protection of health, life and prop- 
 erty." In a similar decision, the Wisconsin Supreme 
 Court (Ellinwood v. Reedsburg, 91 Wis., 131) held that 
 " it is not necessary to seek for an expressed delegation 
 
OWNERSHIP VERSUS REGULATION 45 
 
 of power to the city to build a water works and an elec- 
 tric lighting plant, because the power expressly granted 
 to the city to pass ordinances for the preservation of 
 the public health and the general welfare includes the 
 power to use the usual means of carrying out such 
 powers, which includes municipal water and lighting 
 services." The courts of other states also have held 
 that the power to adopt municipal ownership could be 
 implied from the general grants of power such as those 
 to provide for the general welfare and to further "munic- 
 ipal purposes." The Supreme Court of North Caro- 
 lina L in speaking of the relation of the court to the 
 matter of municipal ownership said : " It would seem, 
 however, that the city ownership of water as well as 
 an electric lighting plant is a matter vested in the dis- 
 cretion of the city government. Light and water, sewer- 
 age and sanitation, paving and fire protection are neces- 
 sities, and are objects to be obtained by municipal or- 
 ganization. . . . The general movement of the age 
 in which we live is toward the ownership and operation 
 of these franchises by the people of towns and cities, 
 for themselves, through the agency of their municipal 
 corporations, as one of the recognized and chief purposes 
 of town and city charters." 
 
 However, while there is thus a decided tendency to 
 allow and grant to cities the right to municipal owner- 
 ship, too many of our cities still do not have the 
 right. This omission should be at once corrected by the 
 adoption of the needed constitutional provisions and 
 statutes. The best interests of all our municipalities 
 
 1 In the case of Mayo v. Washington, 122 N. C, 5, decided in 
 1898 in a dissenting opinion by Justice Clark, later expressly upheld 
 by the Court in the case of Fawcett v. Mt. Airy, 134 N. C, 125. 
 
46 MUNICIPAL UTILITIES 
 
 demand that our cities have the unquestioned right to 
 adopt municipal ownership at their pleasure. 
 
 Another factor wrnch_hajjr£y£nted_aJ3toxe_ rapid, 
 spread of municipal ownership in the United States has 
 been the limit placed by State Constitutions and statutes 
 upon the total debt that municipalities may incur. This 
 limit has been so low as to make municipal ownership 
 practically impossible. And thus our cities have been 
 left unable to defend themselves against the greed of 
 the persons and corporations that supply their public 
 services. Happily the fallacy of thus restricting the 
 city's power to protect itself no longer finds universal 
 acceptance. In all parts of the United States cities are 
 receiving greater financial freedom. In 1903, Illinois, 
 by statute, provided for the issue of interest bearing 
 street railway certificates in lieu of bonds for the pur- 
 chase of street railways by the city of Chicago. These 
 certificates are secured by a mortgage on the plant, in- 
 volve no general liability to the city, and hence cannot 
 properly be counted in estimating the amount of debt 
 permissible under the constitutional debt limit. Missouri, 
 in 1905, and Iowa, in 1906, passed somewhat similar 
 acts relating to the acquisition of water works. In 1907, 
 Wisconsin passed the same kind of a law as to municipal 
 railway terminals in cities of the first class. In the same 
 year, Minnesota provided by statute for the issuance of 
 certificates in lieu of bonds for the purchase and con- 
 struction of any and all municipal utilities. In the 
 autumn of 1909, the people of New York State adopted 
 a constitutional amendment allowing New York City 
 to exclude from the computation of the city's debt limit 
 all bonds issued for purposes which produce revenues 
 in excess of maintenance. In the November election in 
 Pennsylvania, in 191 1, a constitutional amendment was 
 
OWNERSHIP VERSUS REGULATION 47 
 
 passed allowing Philadelphia to increase her debt limit. 
 These statutes and amendments are indicative of a most 
 wholesome and praiseworthy tendency. It is to be hoped 
 that the movement will continue to spread until no Amer- 
 ican city is unreasonably restrained from advancing the 
 public good by municipal ownership, because of some 
 "bogy" provision about debt limits. 
 
 Even in those cities which unquestionably possess 
 the right to own and operate their own utilities, and 
 which also have no debt limit that will automatically 
 inhibit all such undertakings, the process by which muni- 
 cipal ownership and operation must be adopted has 
 sometimes been made so complex or so wholly subject 
 to the veto of those whose interests will not be furthered 
 by municipal ownership, as to make municipal ownership 
 and operation practically an impossibility. 
 
 The procedure in Denver's Home Rule Charter il- 
 lustrates both these methods of thwarting the city's 
 power to acquire any or all of its public utilities. Den- 
 ver's first Home Rule Charter Convention was controlled 
 by those desirous of regulating the city's utilities in the 
 interests of the public as well as solely in the interests 
 of the serving corporations. Hence the Charter framed 
 in this Convention made municipal ownership easy. It 
 was consequently opposed at the polls by the city's util- 
 ity corporations and was defeated — counted out, say 
 many competent observers. The succeeding Charter 
 Convention was controlled by those willing to allow the 
 city's government to continue under the control of poli- 
 tical party and utility corporations. The Charter framed 
 by this Convention, the existing Charter, made municipal 
 ownership so difficult as to be directly impossible. To 
 be specific the Charter gives severally to the mayor, 
 the city attorney, and the Board of Public Works, power 
 
48 MUNICIPAL UTILITIES 
 
 to veto any and all plans for municipal ownership. To 
 be more specific, in the first place the procedure for " the. 
 acquisition of any public utility work or way " can be 
 initiated only by " a petition signed by twenty-five per 
 cent, of the next preceding vote for mayor." This peti- 
 tion, if adequate, is then presented to the council. The 
 council thereupon directs the Board of Public Utilities, 
 a Board whose every duty and self interest makes it 
 opposed to municipal ownership, " to investigate the feas- 
 ibility of the acquisition of such public utility, work, or 
 way, all costs and expenses which would be incurred by 
 such acquisition . . . whether and how such pub- 
 lic utility, work, or way may be acquired," and whether 
 " it can be operated by the city and county at a profit 
 or advantage." If, as a result of this investigation, the 
 Board should by any chance become convinced that city 
 ownership of the utility in question was advisable, it may 
 then, if it chooses, report " to the mayor and council, in 
 writing, its findings in the premises, together with all 
 the data on which such findings are based, with sufficient 
 particularity that the mayor and council may judge of 
 the correctness of such findings." If the proposition 
 runs successfully the gauntlet of both the mayor and the 
 council, it is then presented to the city-attorney. If he, 
 too, has succumbed to the siren of public ownership, 
 the city may then acquire the utility in question PRO- 
 VIDED ! that the mayor again endorses his concurrence, 
 the Board of Public Works draws up the needed speci- 
 fications, the council passes the required ordinances, and 
 these ordinances are adopted by a majority of the " tax- 
 paying electors who shall have paid taxes in the cal- 
 endar year next preceding," and the bonds issued there- 
 fore are sold at not less than par! 
 
 The mere recital of this routine is in itself sufficient 
 
OWNERSHIP VERSUS REGULATION 49 
 
 to reveal that it was put into the Charter not to safe- 
 guard municipal ownership but to make it impossible. 
 The procedure is so complex and the proposition is sub- 
 ject to the veto of so many different officials and official 
 bodies, all of whom have since been successfully dom- 
 inated by the utility trust, that it is a very easy matter 
 to shunt off all attempts at municipal ownership. 
 
 To be sure, the process for acquiring city ownership 
 must be safeguarded, but it must not be safeguarded with 
 such care as to make it impossible, nor should it be sub- 
 ject to the veto of the very concerns which are naturally 
 opposed to it. The process should be simple and direct 
 so that the city may take over the ownership and opera- 
 tion of any given utility whenever the electorate of the 
 city so demands. 
 
 A simple and direct method by which the city may 
 acquire the ownership of its utilities is essential in order 
 that it may meet its public utility companies on a fair 
 basis. Unless both the city and the corporation are 
 fully aware that the city can with relative ease and at 
 any time dispense with private ownership and build and 
 operate its own utilities, utility corporations will always 
 have the upper hand in drawing up and enforcing fran- 
 chise contracts. The city may never deem it expedient 
 to exercise this power, but the power, nevertheless, must 
 be in reserve. In no other way can the city get adequate 
 terms from its serving companies. 
 
 Under a scheme of competent regulation, such as is 
 outlined in the succeeding chapters, the municipality will 
 probably rarely, if ever, have occasion for resorting to 
 municipal ownership and operation. In New York and 
 Wisconsin, where virile public service commissions have 
 been longest in operation, there has been little or no 
 desire on the part of the municipalities to turn to muni- 
 
50 MUNICIPAL UTILITIES 
 
 cipal ownership. Under such a scheme of regulation the 
 city becomes, in effect, a partner in the concern and hence 
 is able adequately to protect the public's interests. But 
 the keynote to the success of this very scheme of regu- 
 lation is the unequivocal right of the city to acquire, 
 construct, maintain, lease, and operate any and all of its 
 public utilities. This right should, first of all, be granted 
 in no uncertain terms in the state constitution and be 
 specifically provided for in the state statutes. It should 
 then be carefully guarded in every franchise granted by 
 the city. In this way and in this way only can the city 
 be sure that its public utilities will serve it, not burden it. 
 
 Nor is it sufficient that the city merely reserve to 
 itself the right either to purchase and operate any given 
 utility or to transfer the utility to a new grantee upon 
 the payment of the purchase price. (.The franchise must 
 go farther and contain provisions for sinking and amor- 
 tization funds which will be gradually amassed out of 
 earnings so that, at the end of the franchise period, 
 the city will have available, without any bond issues, all 
 the funds necessary for the purchase of the plant. With 
 such a fund in existence municipal ownership is an actual 
 alternative. Should the city not desire to undertake the 
 ownership and operation of the utility, the fund can be 
 used in liquidating the debts of the corporation concerned 
 so that it may start out on its new tenure free from old 
 financial obligations. Under such circumstances the city 
 can readily and justly require greater returns from the 
 corporation in the way of extensions, lower rates, or bet- 
 ter services. 
 
 The public interest cogently necessitates that the debt 
 that is represented by public utilities, if they are owned 
 by the city, or their capitalization, if they are owned by 
 private companies, be kept down to the minimum. Other- 
 
OWNERSHIP VERSUS REGULATION 51 
 
 wise the city will find itself less and less able instead of 
 more and more able, as time goes on, to take over the 
 ownership and operation of such of its utilities as the 
 public interest may acquire. Hence the purchase clause 
 of the franchise must be carefully drawn. If the cor- 
 poration can pile up capitalization without let or hin- 
 drance, and then compel the city to buy, if it buys at all, 
 at this capitalization, the corporation has, in effect, full 
 power to veto any and all attempts at public ownership, 
 thereby making the purchase clause wholly valueless as 
 a means of franchise enforcement. If the purchase price 
 is fixed beforehand, the corporation, after helping itself 
 to liberal dividends, will allow its plant to go into such 
 a ramshackle condition that the city cannot afford to 
 take it over. In order to be master of the situation, 
 the city must be able to keep the debt of publicly owned 
 utilities, and the capitalization of private utilities, down 
 to the minimum and then also create through current 
 earnings sufficient funds to amortize this debt of capital- 
 ization. This can be done only through uniform and 
 scientific accounting and- through the adoption of all the 
 rest of the machinery for control described in succeed- 
 ing chapters on public service commissions. 
 
 It was the purpose of the earlier pages of this chap- 
 ter to show that city governments were not incapable 
 of managing industrial concerns. However, there is no 
 desire to blink the fact that municipal ownership is 
 fraught with certain definite evils and dangers. To be 
 sure, these evils are not so great as are the evils result- 
 ing from non-regulation, but they are sufficiently great 
 to warrant serious consideration of the relative merits, 
 not of municipal ownership and non-regulated private 
 ownership, but of the relative merits of municipal owner- 
 ship and thorough-going, scientific regulation of private 
 
52 MUNICIPAL UTILITIES 
 
 ownership. Is it not possible to evolve a method of con- 
 trol that will retain all the regulative advantages of 
 municipal ownership and also retain the unquestioned 
 advantages of private ownership and operation ? To the 
 author's mind such a method of control is afforded 
 through expert public service commissions. By such 
 means regulation may be made so effective as to do away 
 with the abuses of private ownership while still retaining 
 many of its advantages. In other words, regulation 
 through the centralization of control and the decentrali- 
 zation of ownership has all of the advantages and none 
 of the disadvantages of the centralization of ownership, 
 operation and control in the hands of city officials. 
 
 In the first place municipal ownership trebles the al- 
 ready complicated problems of managing municipal utili- 
 ties. To the problems of regulation, it adds all the prob- 
 lems of proprietorship, and all the problems of operation. 
 Under municipal ownership the city official is laden with 
 the three-fold problems of owner, consumer and public. 
 Regulation, as distinct from ownership, has in the main 
 to do with public problems only. Hence it is more simple 
 and consequently more efficient. Centralization of con- 
 trol with diffusion of ownership places upon the public 
 official, in the main, only the problems of service and 
 leaves to the owner the problems of proprietorship and 
 operation. To place upon the public official the problems 
 not only of service but also of operation and proprietor- 
 ship is to overburden him and consequently to make him 
 inefficient. Neglect or under emphasis of the problems 
 of service, or of proprietorship, or of operation are sure 
 to follow. The chief dangers are that the problems of 
 proprietorship will be neglected, capital invested will not 
 be economically used, depreciation funds will not be 
 formed, the plant will be allowed to get into a rundown 
 
OWNERSHIP VERSUS REGULATION 53 
 
 condition, and old inefficient methods of operation will 
 not be displaced by new and efficient methods. 
 
 In the second place, municipal ownership will dis- 
 pense with none of the machinery necessary for adequate 
 regulation, and will require added expenses incident to 
 administering the problems of proprietorship and of op- 
 eration. Under private ownership these two latter serv- 
 ices are compensated out of profits. In all probability, 
 the city's expenses in these two fields will be greater 
 lhan the profits amounted to. This will be true because 
 of the pressure for shorter hours for the laborer, for 
 ■' political jobs," and " government snaps," for the party 
 worker, and for cheap rates to the ordinary consumer. 
 Those who serve the public are not wont to be as efficient 
 agents as those who serve private owners. There can 
 be no doubt that the expense of proprietorship and of 
 operation will be greater in public than in private own- 
 ership. If the public can be adequately protected by 
 regulation, there is no justification for this added expense. 
 
 In the third place, the expense of regulation will be 
 no less under municipal ownership and operation than 
 it is under private ownership and operation. Public 
 ownership and operation does not dispense with the ne- 
 cessity for regulation. The problems remain the same 
 as under private operation. Under both there must be 
 economy, efficiency, and fidelity. The two arms of ad- 
 ministration by which these qualities are obtained are 
 inspection and scientific accounting. When the Wiscon- 
 sin Commission investigated the books of municipal 
 plants, it found that books were kept by but few, and 
 that, in the main, the only memoranda were check book 
 stubs. The bookkeeping affairs of one municipal plant 
 were kept in a vest-pocket account book, tied with a 
 woolen string. A majority of the municipal plants re- 
 
54 MUNICIPAL UTILITIES 
 
 ceived no credit for the service rendered to the city. "The 
 revenue went into the general fund and when there was 
 an expense the city made an appropriation. Business 
 system was unknown. The accounts of municipal plants 
 are in the same need of efficient supervisions as the ac- 
 counts of private plants, and for the same reason: In 
 no other way can competent public service be assured. 
 Slipshod accounting methods and political financial re- 
 ports may cover up the real cost of utilities and thus 
 mislead the public into thinking that a great saving is 
 being made when the fact is just the opposite. Patrons 
 of municipal plants are entitled to the same protection 
 as patrons of private plants. The same is true of in- 
 spection. It is as necessary to watch for the infidel in 
 the public employ as it is to watch for the infidel in the 
 private employ. It will take as an efficient corps of in- 
 spectors to keep municipal property up to high standards 
 as to keep private property up to a high standard. That 
 is to say, by adopting municipal ownership and opera- 
 tion, the city will save none of the expenses of regula- 
 tion, and it will add the expenses of proprietorship and 
 operation. If these added expenses can be avoided, as 
 it is believed they can under the kind of regulation de- 
 scribed in the succeeding chapters, the public purse will 
 be that much better off. 
 
 Each of our various political and social institutions 
 has been evolved in answer to specific human needs. So 
 long as these needs persist the institution must persist 
 in order to give to these needs adequate avenues for 
 expression. When one of these institutions has to as- 
 sume the functions of other institutions, it becomes to 
 that extent overburdened and hence incapable of ade- 
 quately fulfilling the main purpose for which it was 
 evolved. Herein, to the author's mind, lies the chief 
 
OWNERSHIP VERSUS REGULATION 55 
 
 danger in municipal ownership and operation. The poli*'*" 
 tical institutions of our cities have already all the func- 
 tions that they can adequately perform. Hence, if pos- 
 sible, they should be saved the extra burdens incident 
 to the ownership and operation of a city's numerous 
 utilities. These extra burdens they can be saved through 
 the introduction of competent regulation. Competent 
 regulation will not only save these institutions from 
 extra burdens but will also retain to the public the chief 
 advantages of private ownership of such properties. 
 
 While this is true, it must also be ever borne in mind 
 that the abuses of non-regulation are far greater and 
 more pernicious than the evils arising from over- 
 burdening already heavily burdened city officials. Only 
 in case these abuses of private ownership can be abated, 
 should the tendency toward municipal ownership be 
 checked. Investors, corporations, managers, consumers, 
 and public officials must recognize that the question is no 
 longer whether or not such concerns are subject to pub- 
 lic regulation, but whether or not virile, thorough-going 
 public regulation can be substituted for municipal own- 
 ership and operation. Only in case thorough-going 
 regulation is accepted, should the tendency toward muni- 
 cipal ownership be checked. The following chapters 
 are devoted to the consideration of competent and ade- 
 quate means of regulation with the belief that in such 
 only lies the solution of the tremendous problem of how 
 our American cities are going to secure and protect their 
 most urgent public needs and necessities. 
 
CHAPTER III 
 
 THE MINNEAPOLIS GAS SETTLEMENT: A TYPICAL 
 STRUGGLE FOR A CITY'S RIGHTS 
 
 The experience of three short years has made the city 
 of Minneapolis a well-educated community along fran- 
 chise lines. Previous to 1907, there had been little to 
 develop a franchise sense in the community, and the pub-* - 
 lie service companies dwelt in a condition of immediate 
 peace and of comparative serenity regarding the future. 
 Previous to that year, it would have been possible to put 
 through the city council, without any notable protest, 
 franchise grants that would have very inadequately 
 guarded the public's interests. This would not have been 
 because the city council was more neglectful of the larger • 
 community interests than those of other cities where the 
 people had been more vigilant in this regard, nor that 
 the citizenship was necessarily less intelligent or alert. 
 It was simply a case of an undeveloped sense of the* 
 meaning of a public utility franchise and its. value and 
 economic significance in a large and growing community. 
 The way in which the city came to know the value of 
 franchises, and came to appreciate the significance of the 
 city's power to own and operate its own utilities is told 
 by Stiles P. Jones, secretary of the Voters' League of 
 Minneapolis, as follows i 1 
 
 1 This paper was first published in the Proceedings of the 
 Buffalo meeting of the National Municipal League, 1910. The au- 
 thor has revised it for this volume. 
 
 56 
 
MINNEAPOLIS GAS SETTLEMENT 5; 
 
 The real education of the Minneapolis public, in a 
 franchise way, began early in 1907, when the campaign 
 was inaugurated for a new franchise agreement between 
 the city of Minneapolis and the General Electric Com- 
 pany. This company is one of the concerns controlled by 
 Stone & Webster of Boston, and it practically has a 
 monopoly in furnishing electric energy in Minneapolis. 
 
 The General Electric campaign covered about two 
 years, and was a long drawn out and bitter controversy. 
 The company bent every energy toward securing a favor- 
 able franchise agreement to replace a somewhat legally 
 doubtful combination of odds and ends of grants made 
 at various times to the different companies which were 
 finally merged into the General Electric Company, while 
 the mayor and part of the city council, backed by assist- 
 ance from some prominent business sources, insisted 
 'upon a settlement that, in larger measure, would pro- 
 ject the public interests. 
 
 It was a notable contest, with the usual invasion of 
 high-priced experts testifying for the company, and with 
 the public's representatives comparatively uninformed 
 and for a long time groping in the dark. 
 
 The campaign began with the repeal by the city coun- 
 cil of all the company's job lot of ordinances, and culmin- 
 ated in the adoption of a new general ordinance which 
 fairly well conserved the public welfare. 
 
 The ordinance, as adopted, failed to meet the stand- 
 ard made by Mayor Haynes, who, along with some 
 others, had been getting educated in this regard, and he 
 vetoed it. The friends of the ordinance were never able 
 to muster enough votes to pass it over the mayor's veto, 
 ) and matters between the company and the city have been 
 in statu quo since, the company operating presumably 
 without a legal franchise and making its own rates and 
 
58 MUNICIPAL UTILITIES 
 
 classifications. The company has, however, voluntarily 
 put in effect rates lower than those prevailing under the 
 old regime, but yet somewhat above those made in a pre- 
 vious ordinance applying to rates only, which had been 
 adopted by the council and signed by the mayor. The 
 company has steadfastly refused to accept this rate ordi- 
 nance, while thoroughly satisfied with the provisions of 
 the general ordinance vetoed by the mayor. 
 
 The main provisions of the general ordinance are as 
 follows : 
 
 The term of the grant is thirty years, with full publicity 
 of records and no discrimination as between customers in 
 the same class ; an initial rate to the city of $33.00 per horse- 
 power, and $65.00 per lamp for street lighting for a total of 
 3,650 hours; for the private customers, 9 cents net for resi- 
 dence and commercial lighting for the first 52 hours, with a 
 secondary rate of 6j3 cents; for manufacturing purposes, 
 y/t cents for the first 52 hours, with a secondary rate of 2j4 
 cents, with 10 per cent, discount. 
 
 The city is given the right to regulate rates once a year, 
 but it is provided that such rates shall be just and reason- 
 able and insure a fair return on the capital investment. The 
 company may appeal to the courts as to reasonableness of the 
 rate. The city is granted the right of purchase as a " going 
 concern," with no value for franchise. To make such pur- 
 chase requires a two-thirds vote of the council, and the city 
 has three years to pay for the same. It is expressly stated 
 that the ordinance is not exclusive, and consolidation is pro- 
 hibited. 
 
 The supporters of the ordinance insisted that it 
 was a model arrangement with the company, both as to 
 rates and regulation of service. They held that, in view 
 of the right of purchase by the city and the right to regu- 
 late rates each year, there could be no valid objection to 
 
MINNEAPOLIS GAS SETTLEMENT 59 
 
 the length of the franchise term; that it amounted to 
 practically an indeterminate franchise, and that every 
 right properly belonging to the city was well conserved. 
 
 The ordinance was adopted by a vote of 14 to 12. 
 Mayor Haynes, as before stated, came back promptly 
 \ with a veto. He objected to the length of the term of 
 Vthe grant, on the grounds that it was not an original 
 grant, but only an extension of a franchise to an estab- 
 lished company that had long been making large profits. 
 He declared that, as a principle, frequent renewals of 
 franchises were necessary to compel good service to the 
 public. The right to regulate rates by the city, he 
 showed, did not necessarily mean lower rates, as the 
 company could secure higher rates on a proper showing 
 to the courts. He also objected to the ordinance because 
 _^t did not provide for a basic valuation of the plant be- 
 fore the franchise was granted. He insisted, also, that 
 provision should be made to safeguard the public against 
 unfair contracts between the company and the Taylor 
 Falls Power Company, the outside concern generating 
 the power and organized as a distinct corporation, but 
 owned by the same parties. 
 
 It is of interest to note that Mayor Haynes made this 
 General Electric issue the keynote of his campaign for 
 re-election in 1908, and won out by a small plurality, as 
 a Democrat, in a community normally 10,000 to 12,000 
 Republican; 
 
 While the General Electric franchise remains yet un- 
 settled, the controversy helped materially to educate the 
 community in the intricacies of the franchise problem 
 and to lay a foundation for the future. 
 
 A year later, in June, 1909, began the second lesson 
 that still further perfected the franchise education of the 
 community. The city and the Gas Company were the 
 
60 MUNICIPAL UTILITIES 
 
 contending factors this time. This was an even more 
 notable struggle than the other, with still larger stakes 
 at issue. Every point was strenuously contested. Every 
 inch of ground gained by either side was secured and 
 held only after persistent effort. 
 
 For eight months the contest waged. Its conclusion 
 Neft the mayor broken in health, while the company's 
 chief counsel sought warmer climes to restore his shat- 
 tered nerves. The chairman of the special committee 
 having the franchise in charge retired from public life 
 this year through sheer weariness with the exacting la- 
 bors of his job, and the animosities created among the 
 conflicting elements of the citizens over the merits of the 
 controversy will not soon heal. 
 
 ^The actual settlement was a distinct victory for the 
 city and for the advanced school of franchise thought in 
 the community. But it fell just short of being a com- 
 plete triumph by the final action of the council in elimin- 
 ^iiting the right-of-purchase clause contained in the origi- 
 nal ordinance, and twice passed by the council and signed 
 by the mayor. With this one point excepted, the radical 
 franchise element secured practically all their demands, 
 and the city secured a franchise grant that, all in all, may 
 be considered a well-nigh model document. 
 
 To understand the difficulties of the gas situation 
 that confronted the city, it is necessary to recite a few 
 of the provisions of the original gas ordinance of 1870. 
 This gave the company a grant for forty years, but 
 added : 
 
 That if, at the expiration of forty years, the said city 
 shall desire to purchase said franchise and said gas works, 
 it shall have the privilege of doing so upon the following 
 terms, namely: That said city may purchase the franchise 
 
MINNEAPOLIS GAS SETTLEMENT 61 
 
 pertaining to its territory, and gas-pipes, works, fixtures and 
 other property pertaining to said business at the actual value 
 of the same, the value to be fixed by three arbitrators, who 
 are to be chosen as follows: One by said city, one by the 
 owners of the franchise, and the third by the arbitrators thus 
 chosen; and the arbitrament, or award, of value made by 
 these three, or a majority of them, shall be the price at 
 which said city may purchase said franchise and property. 
 That should the city decline to purchase at the valuation 
 as aforesaid, then said rights, franchise and privileges are 
 to continue twenty years longer to the said persons, their 
 heirs, executors, administrators and assigns, with the condi- 
 tions herein before in this ordinance stated. 
 
 The contention of the company was that the fran- 
 chise, in legal fact, was a sixty-years' grant and that, 
 should the city fail to exercise its right of purchase in 
 1 910, at the end of the forty-year period, the franchise 
 was thereby automatically extended for twenty years 
 longer, with the old terms and conditions continuing. 
 . With this view of the situation, the company, in June, 
 1909, formally submitted to the city council a proposi- 
 tion embodying certain concessions it would make in con- 
 sideration of the waiver by the city of its rights to pur- 
 chase the property and franchise of the company. The 
 city's right of purchase expired February 24, 1910. 
 
 The company took the view that the negotiations it 
 I desired to begin with the city did not involve the granting 
 of a new franchise at all, but was simply a bargain 
 proposition — the company would concede certain things 
 to the city and the private consumers in return for a 
 waiver of the right of purchase — and it declared that it 
 did not deem it necessary or advisable to discuss the 
 respective rights of the company and the city. , 
 
 There is no question that the company and the city's 
 
62 MUNICIPAL UTILITIES 
 
 representatives at this time took about the same view of 
 the situation. Neither side expected that it was facing a 
 more serious situation than that described as " amicable 
 negotiations," to end with an early and easy settlement 
 involving no material change in existing conditions, ex- 
 cept as to rate concessions to the city and the public. 
 
 ^The company's proposition, submitted at the early 
 session of the special committee of the city council, was, 
 in brief, that it would reduce the price of gas to the 
 consumers from $1.00 to 90 cents, and to the city from 
 90 cents to 80 cents, and, as a further concession, would, 
 during the twenty-year period, furnish gas free of charge 
 to 2,112 new street lamps already installed and 300 addi- 
 tional lamps each year. In return for these concessions, 
 the company asked for a reduction in the candle power 
 of the gasvfrom 23 to 18 and a standard heating value 
 of 600 B. T. U., the standard fixed by the Wisconsin 
 Commission. This was about 40 B. T. U. less than the 
 company had been voluntarily furnishing under the ex- 
 isting contract with the city. 
 
 Subsequent sessions between the company and the 
 committee found the negotiations getting nowhere. The 
 committee had no expert information to guide its course, 
 and the company, with all the facts available, seemingly 
 had the situation well in hand, and a settlement based on 
 the above proposition seemed likely. 
 
 jjAt this juncture Mayor Haynes brought an expert on 
 the scene in the person of Prof. W. D. Marks, of New 
 York City. He sat with the committee for several 
 weeks and furnished much useful information bearing 
 on the subject. From the day of his appearance the 
 aspect of the situation changed materially. The city's 
 representatives began to see their way clearer, and the 
 hope of settling the controversy by " amicable negotia- 
 
MINNEAPOLIS GAS SETTLEMENT 63 
 
 tions " along the lines originally laid out was gone. Both 
 sides now settled down to a long-drawn-out struggle, 
 with every point contested, but with the prospect of 
 securing a more advantageous settlement for the city 
 greatly improved. 
 
 A little later in the negotiations, Judge F. C. Brooks 
 entered the controversy as legal expert in behalf of the 
 city. This was the master stroke of the council commit- 
 tee. *In a comprehensive legal opinion Judge Brooks 
 denned the rights of the city and the company under the 
 original franchise. This opinion cleared up some pre- 
 viously obscure legal questions involved, and, up to this 
 time, interpreted against the city, knocked out some 
 props from under the company's claims, and put life and 
 hope into the city's representatives. The city's case 
 gained steadily from this time on. 
 
 The company, on its part, slowly gave ground, but 
 yielded nothing except under the hardest pressure, and 
 with each concession declared that the last ditch had been 
 reached; that there would be no further concessions. 
 There were many of these "last ditches" before the con- 
 troversy was finally settled. 
 
 Professor Marks, who is an advocate of the London 
 sliding-scale system of regulating the price of gas in 
 municipalities, recommended at the start the application 
 of this system to the Minneapolis situation. He sug- 
 ygested a basic rate of 90 cents, with a 7 per cent, divi- 
 dend. He contended that this system would unite the 
 interests of the company and the municipality, promote 
 harmony, and perpetuate cordial relations between all 
 parties concerned. The company's officials entered a 
 mild objection on the spot, and later, following a visit 
 to the office of the United Gas Improvement Company, 
 in Philadelphia, owner of one-half of the stock of the 
 
64 MUNICIPAL UTILITIES 
 
 company, declared unequivocally against this innovation. 
 The wide disparity between the amount of the stock and 
 the bonds made it a practical impossibility, they claimed. 
 The capitalization at this time was about $6,000,000, of 
 which only $800,000 was capital stock. 
 
 Later on, near the close of the struggle, the company 
 changed front on this proposition and voluntarily sug- 
 gested its willingness to consider Professor Mark's plan 
 as a means of ending the controversy. The council com- 
 mittee, now thoroughly awake and on its mettle, promptly 
 entered an emphatic " no " to the company's suggestion. 
 In fact, the committee at no time endorsed on its part 
 the sliding-scale proposition; but if the company had, 
 shown a willing spirit at the time the matter was first 
 suggested, it is possible that a settlement might have 
 been made on that basis. 
 
 The struggle was then resumed along the old lines, 
 with many weeks of laborious hearings. A contractual 
 ordinance was finally perfected, adopted by the council, I 
 and promptly signed by the mayor. It contained the fol- 
 lowing essential terms : 
 
 Surrender by the city of the right to purchase and an 
 
 extension of the franchise for twenty years, i. e., until 1930. 
 
 A net price of 85 cents for gas to private consumers and 
 
 65 cents to the city. 
 
 The right of the city to regulate rates at the expiration^ 
 of three years, and at five-year periods thereafter, such rates 
 and prices, however, to be reasonable and so fixed as to 
 afford a fair and reasonable return upon the company's capi- 
 tal investment, the reasonableness of such rates being always 
 subject to review, in behalf of the company, by the courts, 
 and the term capital investment defined as " the fair and 
 reasonable value of its plant as a going concern," no value, 
 however, to be placed on good will or franchise, and no 
 
MINNEAPOLIS GAS SETTLEMENT 65 
 
 regard to be had to the company's capitalization, as repre- 
 sented by its stock and bonds. 
 
 Prohibition from disposing by the company of any of its 
 securities, except in good faith and at a fair value, and for 
 actual cash put into its treasury and appropriated to the 
 making of betterments or extensions or to the payment of 
 its preexisting bona fide bonds or obligations. 
 
 Complete publicity of accounts, including an annual re- 
 port to the city containing a statement of all assets and lia- 
 bilities, the gross receipts for the year, expenditures, im- 
 provements, betterments, extensions, etc., also net earnings 
 and dividends paid, and an inventory of all property, real and 
 personal. 
 
 The right of purchase by the city at the end of five-year 
 periods, the purchase price to be determined by appraisal 
 and the city given three years to pay for the property. 
 
 Regulation by the city of the hours and wages of the 
 company's employees, contained in a provision that declared 
 that no manual laborer should be required to work more 
 hours in a day than should be required by law upon work 
 done for any contract involving the employment of laborers 
 made by or on behalf of the state, and that all laborers 
 should receive wages that were just and reasonable, and not 
 less than customarily paid for labor of like character and 
 requiring like skill or experience. 
 
 The inspiration for the last provision came from one 
 of the aldermen of the ward in which the gas works are 
 located, and was an expression of protest against the 
 long hours of labor imposed upon the employees. The 
 suggestion to incorporate this clause in the ordinance 
 met at first with ridicule and open expressions of hos- 
 tility, both on the part of the company and some members 
 of the committee. The author of the provision kept 
 pounding away, however, and eventually the committee 
 came to see that it might be a dangerous political propo- 
 
66 MUNICIPAL UTILITIES 
 
 sition to turn the measure down, and it was finally in- 
 corporated into the ordinance by a unanimous vote. The 
 effect of this clause in the ordinance is to impose the 
 eight-hour day upon the company. It is a unique pro- 
 vision in a franchise grant, but significant as showing 
 the growth of sentiment towards the new view of the 
 responsibility of a municipality to conserve the health 
 and improve the social conditions of the people. 
 •v- The price made to consumers and the city was the 
 'company's own proposition. Every other essential pro- 
 vision was forced into the ordinance by the city's repre- 
 sentatives, and conceded by the company reluctantly and 
 only after repeated protests. 
 
 On several occasions it seemed that the negotiations 
 were bound to come to a disastrous end. Three times 
 the mayor, wearied with the length of the negotiations 
 and aggravated by the attitude of the company, urged 
 the council to abandon negotiations and proceed to con- 
 demn the property for municipal ownership and opera- 
 tion under the " Eminent Domain Act." Twice the com- 
 pany, on its part, declared that it could go no further, 
 and that rather than yield another inch it would prefer 
 to sell the property to the city under the terms named in 
 the ordinance of 1870. But there was a shrewd, and 
 patient, and long-enduring man at the head of the coun- 
 cil committee, and he held his committee together suc- 
 cessfully and kept it working steadily toward the goal 
 of an ultimate settlement that would obviate abandon- i 
 ment of negotiations and purchase by the city. 
 
 The company's response to the city's action was a flat ] 
 refusal to accept the ordinance in the form adopted. It ' 
 made its chief objections the right of purchase and the 
 labor clause. The company explained that it would be 
 necessary to borrow a large amount of money to rehabili- 
 
MINNEAPOLIS GAS SETTLEMENT 67 
 
 tate and enlarge the plant, and contended that inclusion 
 of the purchase clause would make this task impossible 
 on any terms that it could accept. Rather sell to the city 
 than concede this point, was its ultimatum. 
 
 The council committee stood pat, and apparently 
 there was a hopeless deadlock. 
 
 y^ At this crisis a new factor entered into the contest — 
 a committee representing some of the banks and large 
 business interests, who were much worried over the situ- 
 ation, fearing an abandonment of the negotiations and 
 the taking up of the dread alternative of municipal own- 
 ership. In their view, city ownership and operation of 
 the plant was a consummation to be avoided at all haz- 
 ards; and they constituted themselves a board of con- 
 ciliation with the purpose of bringing the contending 
 parties together. 
 
 The first suggestion of the business men's committee 
 to effect a settlement was for the council to drop its con- 
 tention for the right of purchase. The committee agreed 
 to this programme, but was unable to make wholly good 
 on the floor of the council, the more radical element 
 forcing through an amendment to the committee's report 
 /Which provided for a ten-year purchase clause, as a sub- 
 stitute for the former five-year clause. The ordinance 
 / as thus amended was passed and, for a second time, 
 * signed by the mayor. 
 
 The company, however, still held out, and municipal 
 ownership now seemed imminent. But the citizens' com- 
 mittee, more determined than ever to bring about a set- 
 tlement, buckled down to its task again. Its next move 
 was to offer the suggestion that there be no purchase 
 clause included except at the end of the twenty-year 
 /period. The company consented to accept the ordinance 
 /in this shape, with the labor clause included, subject to its 
 
68 MUNICIPAL UTILITIES 
 
 ability, however, to make the necessary financial deal. 
 The ordinance as thus amended passed the council with 
 seven dissenting votes out of a total of twenty-six. Some 
 who up to this stage had stood staunchly for a five or 
 ten-year purchase clause yielded to the pressure from 
 the citizens' committee and went over to the other side. 
 
 The substitution of the twenty-year for the ten-year 
 right of purchase failed to meet the approval of Mayoiy 
 Haynes. The mayor now found himself in a real pre- 
 dicament. He felt that he could not sign the ordinance ; 
 nor could he see his way clear to veto it, as a veto might 
 have defeated the ordinance, with the probable result of 
 endless litigation and possible ultimate public disapproval 
 on account of the delay of the day of lower gas rates. 
 He was ready for municipal ownership himself, and so 
 was a fair minority of the council. He finally worked 
 out of the predicament by allowing the ordinance to be- 
 come a law without his signature. The company shortly 
 made advantageous financial arrangements and accepted 
 the ordinance, and it went into effect promptly, thus 
 finally closing a settlement that left the property in pri-, 
 vate hands. 
 
 The city and the company then came together with- 
 out great difficulty on the terms of a second ordinance ' 
 prescribing regulations of service. This ordinance makes 
 specific requirements as to candle-power, heating effi- 
 ciency, pressure conditions, extensions, etc. The power 
 to make reasonable regulations of service at any time had 
 all along been admitted to be vested in the council. This 
 ordinance has a special interest to the expert as repre- 4 
 senting perhaps the most up-to-date ideas as to proper 
 service regulations. In the hands of a vigilant and fear- 
 less gas inspector it is adequate to safeguard the con- 
 sumer's interest at every point. 
 
K 
 
 MINNEAPOLIS GAS SETTLEMENT 69 
 
 The abandonment by the council of the right to pur- 
 chase the property of the company at stated periods 
 within the life of the grant is not fairly explained with- 
 out some reference to the Eminent Domain law of 1909. 
 This law had an important bearing on this point, and 
 was the excuse assigned by some of those who failed to 
 stand to their guns in this regard. 
 
 The eminent domain act was forced upon the atten- 
 tion of the legislature in 1909 by Mayor Haynes, with 
 the aid of a few of the aldermen and some other patri- 
 otic citizens, who saw the necessity for the city to be in 
 a more strategic position to deal with the gas company 
 upon the expiration of the forty-year term. The act, in 
 hrief, gives the city of Minneapolis the right to take over 
 the property of gas, electric, and water companies for 
 city operation, upon a two-thirds vote of the council, 
 ratified by a four-sevenths vote of the people at a special 
 election. The purchase price is to be determined by 
 appraisal. The bonds issued for this purpose are not 
 counted against the city's debt limitation, and the city 
 must make rates " sufficient to pay interest and maintain 
 and operate the plant at a high standard of efficiency." 
 
 The power of condemnation contained in this act was 
 deemed by many a sufficient corrective of any possible 
 bad management or other lapses on the part of the com- 
 pany without the addition of the contractual right of 
 purchase. But with the ever-present possibility of the 
 repeal or emasculation of the act by subsequent legisla- 
 tures, the mayor and others insisted that the incorpora- 
 tion of the right of purchase in the contract agreement 
 was no less a necessity on account of the existence of the 
 statute. 
 
 One of the undoubted defects of both the electric 
 and gas ordinances is the lack of a basic valuation of the 
 
v^ 
 
 70 MUNICIPAL UTILITIES 
 
 properties, as furnishing more accurate means of getting 
 at a fair rate to consumers. This matter was considered 
 in the course of both negotiations, but neither company 
 was ready to concede the point, and there was not suffi- 
 cient support in the city council to force the issue. Lack 
 of time to make a thorough appraisal was a factor in de- 
 termining the city's attitude in the case of the gas com- 
 pany. 
 
 It is the general opinion that the General Electric 
 Company will shortly again be an applicant for a fran- 
 chise. In anticipation of that event a committee of citi- 
 zens recently presented a report on the situation and 
 made recommendations for the settlement of this con- 
 troversy. This committee meets the plant valuation issue 
 by recommending that the price, in case of purchase, be 
 the actual cost of reproduction plus 10 per cent., instead 
 of a more complicated method of reaching the same re- 
 sult. The committee recommends a twenty-five-year, in- 
 stead of a thirty-year, grant, with privilege of purchase 
 at the end of five-year periods; also elimination of the 
 term " going concern." 
 
 The apparent discrimination in favor of the gas com- 
 pany as against the General Electric in the exclusion 
 of the right of purchase is in part explained by the fact 
 that the council believed itself to be in. a position to 
 impose harder conditions upon the General Electric than 
 on the gas company. In one case the company was ask- 
 ing practically for a new franchise, while the other com- 
 pany had certain legal rights under its original grant 
 that gave it both a moral and strategic advantage. An- 
 other factor of importance in this connection was the dis- 
 position on the part of an influential element, in office 
 and out, to do everything possible to preclude city own- 
 ership of the gas utility. 
 
MINNEAPOLIS GAS SETTLEMENT 71 
 
 The clause in the gas ordinance giving the city the 
 right of purchase at the end of twenty years, the term 
 of the grant, was a vote-catching proposition put for- 
 ward by the business men's committee as a final effort to 
 effect a compromise between the contending forces. 
 There is doubt in the minds of some, however, regarding 
 its value or advisability from the point of view of the 
 city's advantage. In fact, Judge Brooks, the city's legal 
 adviser, early in the negotiations advised the committee 
 not to include it. He declared it was to the city's advan- 
 tage to leave the relations between the city and company 
 at the end of the grant entirely open. The company at 
 the conclusion of the twenty-year period would be with- 
 out any legal rights in the city, he explained, and the city 
 council in a position to deal with the situation wholly 
 unhampered. 
 
 Judge Brooks' advice was either forgotten or ignored 
 in the haste to reach a settlement that would head off 
 municipal ownership. As a matter of fact, the municipal 
 ownership men never for a moment expected to secure 
 city ownership of the property at this time, nor did they 
 take seriously the company's refusals to accept the first 
 two ordinances adopted by the council, feeling sure that 
 the company would eventually accept all the terms made 
 in the original ordinance rather than turn the property 
 over to the city. The mayor and the leaders of the radi- 
 cal franchise element in the community were charged 
 with deliberately attempting to provoke a situation that 
 would end negotiations and force municipal ownership. 
 This is far from the truth. These men, while for muni- 
 cipal ownership in principle, had effectually held their 
 followers in leash throughout the negotiations, holding 
 that a proper settlement without city ownership at this 
 time was the wiser course. But they insisted strenuously 
 6 
 
?2 MUNICIPAL UTILITIES 
 
 that the way be left open for ultimate municipal owner- 
 ship, through the right of purchase by the city at fairly 
 frequent intervals. 
 
 An interesting legal point involved in the controversy 
 was the value to be put on the company's franchise at the 
 end of the forty-year period, in case the city should pur- 
 chase the property under the old agreement. The com- 
 pany's attorneys insisted that the franchise had a large 
 value at this period, and that the city would have to pay 
 it. City Attorney Healy had coincided with this claim, 
 Judge Brooks, however, took quite a different view of 
 the situation. In his opinion, the franchise expired at 
 the end of the forty-year period ; therefore, there was no 
 franchise to purchase. Mr. A. E. Clarke, additional 
 counsel employed by the city to pass upon the city's legal 
 rights, declared that the company had, in effect, a sixty- 
 year franchise, as asserted by the company's counsel, but 
 that the franchise had only a nominal value at the end 
 of the forty years. 
 
 The claim put forward by the company and some of 
 its friends that there was an implied obligation on the 
 part of the city to assist the company in financing 
 its affairs by giving a liberal franchise was another in- 
 teresting point brought out in the negotiations. This also 
 was used as an argument by the General Electric Com- 
 pany for the desired long-term franchise. Both argued 
 that the public would inevitably share in the benefits 
 through the better rates accompanying the lower fixed 
 charges. 
 
PART II 
 
 REGULATION THROUGH 
 FRANCHISES 
 
 
CHAPTER IV 
 
 FRANCHISE ESSENTIALS 
 
 A franchise is the contract hy virtue of which private 
 individuals and corporations exercise their right to use 
 the city's streets in distributing to consumers given serv- 
 ices and commodities. It is by virtue of their franchises 
 that these individuals and concerns collect tolls for their 
 public services. Anyone attempting to perform such a 
 service without the proper franchise would be a tres- 
 passer. It is this special privilege that in its very essence 
 is before the law inequality — licensed inequality. Fran- 
 chises are special privileges by virtue of which their 
 owners, unless there be adequate public control, can ex- 
 ploit the public for private gain. It is because they are 
 special privileges of this character that they should be 
 drawn with care, and the individuals or corporations to 
 which they are granted should be held continuously sub- 
 ject to virile public regulation. A business that would 
 not exist but for specific social authorization stands in a 
 different category from a business that requires no 
 definite social authorization. The former business so- 
 ciety has a definite claim upon; it is its right and duty 
 to see that its creature shall not proceed altogether ac- 
 cording to its own will, but shall respect the will and the 
 needs of the power that created it. 
 
 These rights so to use the city's streets are hence of 
 
 75 
 
76 MUNICIPAL UTILITIES 
 
 inestimable financial value. Just how great their value is 
 depends: (i) Upon the city's rapidity of growth, and 
 (2) upon the extent of freedom from public control and 
 regulation. 
 
 To the financier a franchise means an opportunity 
 to capitalize the city's future needs. In static cities it 
 may represent only opportunity for good investment, but 
 in dynamic cities it represents unlimited opportunities 
 for speculation as well. In rapidly growing cities the 
 returns to public service corporations increase far more 
 rapidly than the proportional increase in population. For 
 instance, with a thirty per cent, increase in population, 
 the number of street railway rides will increase over 
 sixty per cent. The same ratio largely holds as to other 
 public utilities. It is the right to capitalize these in- 
 creased returns that gives to franchises their great value. 
 By their very nature all franchises are exclusive. An 
 exclusive franchise gives to its owners the power to capi- 
 talize income above the average interest on investment, 
 either in the higher price of the stock, or in additional 
 stock divided among those that control the corporation. 
 If the franchise is also perpetual, its owners may capi- 
 talize a practically perpetual income. This will give an 
 immense capitalization which can be divided up among 
 the corporation's managers and owners. If the franchise 
 is limited, there is only a limited series of privileged in- 
 comes that may be capitalized, but even in this instance, 
 capitalization will be, if uncontrolled, large, indeed; and 
 it may be enhanced if the managers can maintain suf- 
 ficient control of the city's government to make it prac- 
 tically sure that their franchise can be renewed at any 
 time on their own terms. 
 
 It is to obtain and maintain these privileges of capi- 
 talizing future incomes, of turning into private pockets 
 
FRANCHISE ESSENTIALS 
 
 77 
 
 all the unearned increment, that is the motive force back 
 of the attempt of financiers to secure franchise grants. 
 To get these grants they have resorted and will proba- 
 bly continue to resort to the use of all the means at their 
 command, including bribery and domination of city and 
 public officials, the selling of valuable stock on easy and 
 low terms to those in influential positions, and the com- 
 bining with other industrial groups of like needs to keep 
 the " safe and sane " on the bench and in governmental 
 positions. 
 
 The value of franchises and the method of securing 
 them are suggestively brought out by Mr. James C. Car- 
 ter of New York City, in his Annual Presidential Ad- 
 dress to the National Municipal League at its Boston 
 meeting in 1902. President Carter said: 
 
 What is the value of the street railway franchises of 
 the city of New York, do you suppose ? Well, we know some- 
 thing about them from the extent of the capitalization of the 
 street railways. They are worth at least $200,000,000. Of 
 that, after you take out the money expended in the laying 
 down of rails and the building of cars and all other furniture 
 that belongs to the proper operation of a street railway, 
 amounting to $50,000,000, there remains the franchise, which 
 has been given by the city for nothing, and which is well 
 worth the remaining $150,000,000. How does that happen 
 to be given? You cannot get such a thing as that without 
 going to the man who stands above all others. What will he 
 do? He must be "seen" in some manner. Somebody must 
 go to him and say, " We want to operate a street railway on 
 such and such streets ; we know that you are very influential 
 and that you can give it to us." Well, no bones are made 
 about stating the terms of these transactions. His answer is, 
 "How much do you suppose that it is worth, gentlemen?" 
 " Well, we don't know ; how much do you suppose it is 
 worth ? " Now, no one knows the figures that are eventually 
 
78 MUNICIPAL UTILITIES 
 
 fixed in order to secure grants of that sort, and I may say 
 no one absolutely knows — I do not absolutely know from any 
 distinct evidence — that any money is paid for them. But 
 if anyone has credulity enough to believe that Mr. Richard 
 Croker, or any of his tribe, used the power which they un- 
 doubtedly possess to grant or withhold those franchises with- 
 out payment, he is credulous, indeed; and I suppose that the 
 amount that is paid for them is measured not by hundreds 
 or by thousands or by hundreds of thousands, but by mil- 
 lions of dollars. 
 
 The growth of our cities to a point where public serv- 
 ices become essential and hence profitable occurred dur- 
 ing the early half of the nineteenth century, when it was 
 the custom to incorporate all such service by a special 
 act of the State Legislature. Long after this method of 
 incorporation was supplanted by laws and constitutional 
 provisions requiring incorporation under general stat- 
 utes, State Legislatures continued to grant special privi- 
 leges to municipal utilities. Not until 1867 did Con- 
 gress deny to Territorial Legislatures the power " to 
 grant private charters or special privileges.'' 
 
 Examples of the sort of special legislation that muni- 
 cipal utilities obtained in these early days are found in 
 the acts of the Territory of Colorado in granting exclu- 
 sive privileges to public service corporations desirous of 
 using the streets of Denver. 1 In 1864 the Territorial 
 Legislature incorporated " The Occidental Gas Light 
 Company of the City of Denver " and gave it for thirty 
 years " the exclusive privilege of supplying the City of 
 Denver with illuminating gas." Again in January of 
 1867, two months before the passage of the national act 
 forbidding such legislation, the Legislature incorporated 
 
 ' See "History of the Government of Denver," King, pp. 63-64. 
 
FRANCHISE ESSENTIALS 79 
 
 " the Denver City Horse Railway Company " and gave 
 it for " a period of thirty-five years the sole and exclusive 
 right and privilege of constructing and operating a horse 
 railroad in the City of Denver." 
 
 It was abuses of this nature that led to the introduc- 
 tion into most, if not all, of our State constitutions 
 clauses forbidding Legislatures from granting franchises 
 and rights in city streets without the consent of the local 
 authorities. This era of special legislation may be re- 
 garded as the first period in the history of franchise 
 grants in the United States. 
 
 Following this era was a period, occupying the lat- 
 ter half of the nineteenth century, in which companies 
 were incorporated under general laws and obtained their 
 franchises from local councils. 
 
 These general incorporation laws, however, have 
 never afforded, and, with but very few notable exceptions, 
 do not yet afford to municipalities any protection what- 
 soever. In no sense do they protect over-capitalization, 
 fraudulent capitalization, exorbitant or discriminatory 
 charges, or any other abuse of corporate power. Our 
 legislators have said much about corporate evils, but 
 they have done little or nothing to correct them. Slack 
 and inefficient incorporation laws have been responsible 
 for the defeat of many a city in its attempt to gain con- 
 cessions from its serving companies. 
 
 City councils at first granted franchises to whomso- 
 ever would apply, making no reservations or restrictions 
 in the interest of the city and the public. It was held 
 that public regulation was unnecessary because competi- 
 tion would be a better regulative force. For a time the 
 supposition that the competition of rival concerns would 
 adequately protect the city and the consumer found some 
 justification. In Philadelphia at one time no less than a 
 
80 MUNICIPAL UTILITIES 
 
 dozen and a half street railways were seemingly compet- 
 ing for the city's traffic. Such situations existed in other 
 cities and in other utilities. But competition did not per- 
 sist for the quite sufficient reason that such concerns are 
 in their very nature monopolistic. Unfortunately this 
 fact was not known to all until, through free, unpro- 
 tected franchise grants, the towns of the nineteenth cen- 
 tury had bound hand and foot the cities of the twentieth 
 century. 
 
 Denver again offers a splendid illustration of the 
 kind of franchises that were granted during this period. 
 Its council, on February 3, 1880, granted a general elec- 
 tric franchise to all comers in a resolution which pro- 
 vided solely " that permission be granted to any com- 
 pany desiring to supply the city with electric lights, to 
 erect posts and such other appliances as may be necessary 
 to carry on their business ; provided, that said companies 
 do not obstruct the public thoroughfares." For the last 
 decade the city has been struggling unsuccessfully with 
 the lighting corporation that first secured the use of the 
 city's streets through this kind of a free grant. 
 
 Toward the end of the nineteenth century, however, 
 urban dwellers began to appreciate more clearly the value 
 and significance of franchise rights. An effort was then 
 made to protect the franchise of the future by strict pro- 
 visions in charters and statutes as to procedure in grant- 
 ing franchises. These provisions usually required ample 
 publicity, due consideration by the council, and some- 
 times, reserved to the city power to regulate. Some 
 states, as Montana, Nebraska, Arizona, and Colorado, 
 required, by constitutional or statutory provisions, that 
 all franchises be referred to popular vote before they 
 could become valid. Other states, including Utah, South 
 Dakota, Indiana, and Iowa, required a popular vote on 
 
FRANCHISE ESSENTIALS 8l 
 
 a formal petition. Still other states, such as Missouri, 
 Louisiana, Nebraska, New Jersey, Ohio, Kansas and 
 New York, required the consent of abutting property 
 owners for all street railways. Still another character- 
 istic feature of this restrictive legislation was the adop- 
 tion of a maximum limit as to the number of years for 
 which franchises could be granted. The usual limit was 
 from twenty to twenty-five years. The New York char- 
 ter of 1897, for instance, accepted the latter limit. In 
 other charters and statutes the tenure was fixed at 
 twenty years. 
 
 A third period in the method of granting franchises 
 dates, in effect, only from 1907, though the idea dates 
 from the creation of the Massachusetts Gas and Electric 
 Light Commission in 1885. In this period specialized 
 administrative tribunals, public service commissions, have 
 been created solely to pass upon and to administer fran- 
 chise and utility problems. This is the twentieth century 
 method of regulation. In it lies the possibilities of a com- 
 petent solution of the public utility problems that are 
 confronting every city in the whole country. Its impor- 
 tance has led to its being given a large and important 
 place in the later chapters of this volume. 
 
 Throughout all this franchise history certain vexing 
 franchise problems have continued to tax to the utmost 
 the ingenuity of those who are wrestling with the prob- 
 lems of proper relations between a city and its utility 
 corporations. As social and industrial methods have 
 changed, the method of dealing with these problems has 
 changed. The problems still persist, however, and are 
 of vital present-day import. They may be summarized 
 under the heads of: (1) Tenure. (2) Compensation. 
 (3) Rate, service and extensions. (4) Laborers and 
 strikes. (5) Reversion of the plant to the city. 
 
82 MUNICIPAL UTILITIES 
 
 Like all social and industrial questions, there are no 
 hard and fast solutions of these problems that are good 
 for all times and places. But there are solutions that 
 are in keeping with existing social and industrial' condi- 
 tions. It is the purpose of the following paragraphs to 
 discuss different phases of these problems, to point out 
 their significance, and to indicate the way in which they 
 may best be met under existing conditions. 
 
 The earlier franchise grants were given without re- 
 strictions and for long periods. A few were granted for 
 fifty years, many more were granted for ninety-nine 
 years, some, as, for instance, one. given by Albany, were 
 granted for a thousand years, while in numerous cases, 
 as in Massachusetts and New York, franchise grants 
 were in perpetuity. As late as 1879, indeed, the elevated 
 railroad in New York City was constructed with no limit 
 on its occupation of the streets. 
 
 But by this date, in most cities and states, public 
 opinion had begun to demand that unconditional, long- 
 term grants be no longer made. It is to be regretted that 
 this public awakening did not occur until after the city 
 had given away its most valuable privileges, and had 
 reserved to itself no means of self-protection, no means 
 of regulation, no means of securing concessions even 
 through refusing to grant new franchises. The placing 
 of statutory and constitutional limits upon the length of 
 franchise tenures, etc., came too late. Only the desire 
 of formerly competing utility concerns to consolidate 
 into one concern gave to many a city its opportunity to 
 substitute short-term for perpetual franchise grants. 
 
 This short term has, of late, been demanded by all 
 our city councils, though there have been some notable 
 exceptions. New services and enterprises have been 
 encouraged, however, with longer grants. Thus the aver- 
 
FRANCHISE ESSENTIALS 83 
 
 age water franchise of to-day runs for a period of from 
 twenty to thirty years, only occasionally for fifty years, 
 and only in rare instances for ninety-nine years, or in 
 perpetuity. Street railway franchises are rarely given 
 for over twenty-five years, although so late as 1909 Seat- 
 tle voted to the Northern Pacific a perpetual franchise 
 around the Lake Union basin. But lighting franchise 
 terms are longer than the tenures of these older services, 
 while the franchise tenures for telephone, telegraph, 
 steam, conduit and pneumatic pipe concerns are usually 
 for very long periods — often for half a century — and, in 
 rare instances, in perpetuity. 
 
 No definite tenure can be established for all franchise 
 grants. Where there is not continuous regulation with 
 an alternative for city ownership, the grant should un- 
 doubtedly be for as short a term as will secure the in- 
 vestment of private capital. 
 
 In large, rapidly growing, dynamic cities, a twenty- 
 year tenure will probably be long enough ; as in that 
 period the social and industrial conditions in such cities 
 will have so completely changed as to necessitate entirely 
 new contracts. 
 
 In static, or slowly growing, cities, however, a forty- 
 year tenure may not be too long. But certainly there is 
 no necessity for a franchise tenure of over forty years. 
 
 In any case franchises for extensions should be made 
 to terminate with the expiration of the franchise for the 
 main system. Otherwise the city's hands will be so com- 
 pletely tied that it can do nothing when the main fran- 
 chise expires. 
 
 In the interest of keeping these corporations out of 
 city politics, it may also be advisable to make it impossi- 
 ble to renew a franchise until within one year of its 
 expiration. This may prevent the company's taking ad- 
 
84 MUNICIPAL UTILITIES 
 
 vantage of a complacent or corrupt city council to secure 
 a new and liberal franchise long before the old one has 
 expired, and before the public is alive to the situation. It 
 must be noted, however, that so long as franchise en- 
 forcement is vested in the city council, such provisions 
 will not entirely divorce the council from the untoward 
 influences of utility corporations. The daily administra- 
 tion of franchises is so vital that the corporation will 
 ever keep its lobby in the council chamber in order to 
 avert franchise enforcement and to secure favorable in- 
 terpretation of franchise clauses. 
 
 However, under adequate and persistent regulation, 
 with full power in an expert regulative body to secure 
 complete information and to enforce its every rule, 
 the term franchise should give way to the indeterminate 
 franchise. This should be done, it must be clearly un- 
 derstood, only when the concern is under virile and con- 
 tinuous public regulation. The indeterminate franchise 
 is granted during good behavior. It differs from the 
 perpetual franchise in that it may be revoked at any 
 time that the regulating body decides that the corpora- 
 tionis not properly serving the public's interest. 
 
 The indeterminate franchise frankly recognizes two 
 principles, the frank recognition of which alone will make 
 adequate and intelligent regulation possible. These are : 
 (i) That municipal utilities are monopolies, and (2) 
 that the investor, as well as the public, must be protected. 
 The indeterminate franchise, coupled with adequate pub- 
 lic regulation, recognizes the monopolistic nature of such 
 concerns, and hence makes them subject to continuous 
 regulation. It also recognizes that, in the interests of 
 the public, unreasonable returns to these monopolies 
 should be reasonably diminished by requiring lower rates, 
 or extensions or improvements of service. 
 
FRANCHISE ESSENTIALS 85 
 
 The Wisconsin, New York and other adequate pub- 
 lic service laws provide that corporations with short- 
 lived franchises may exchange them for indeterminate 
 franchises. This does away with the speculative element 
 in public utility investments, and does away with the un- 
 necessary augmentation of fixed charges in order to pro- 
 vide against competition. And sums thus saved can go 
 to the public in the way of lower rates, extensions and 
 improvements. As soon as this law went into effect in 
 Wisconsin, seventy-two corporations, representing 37 per 
 cent, of the gross earnings from utility business in the 
 state, exchanged their term franchises for indeterminate 
 franchises. Others did so soon afterwards. The mar- 
 ket price of the securities of those utilities accepting the 
 indeterminate franchises at once rose, and has, as a rule, 
 been higher than those concerns operating under time 
 franchises. 
 
 When franchises are not terminable before their ex- 
 piration, fixity of tenure makes control difficult. With 
 franchises revocable at will, or at least at brief succeed- 
 ing intervals, control is always possible. The indeter- 
 minate franchise, accompanied by public regulation, can- 
 not only secure this control, but can also compel the crea- 
 tion of an amortization fund, by which the city may pur- 
 chase the plant or by which the debt of the plant may 
 be canceled at the expiration of a given period. The 
 indeterminate franchise has undoubted merits over the 
 term franchise. 
 
 ^Another vital franchise problem is that of compensa- 
 tion. Numerous, indeed, have been the methods adopted 
 for securing to the city a compensation for its franchise 
 grants that was somewhat commensurate with the value 
 of the grant. 
 
 The method that first met with general favor was to 
 
S6 MUNICIPAL UTILITIES 
 
 require license fees. The right to carry on public occu- 
 pations of this character was placed upon the same basis 
 as the right to run a saloon, peddle goods, or to have 
 rooster fights. In the street car service this license was 
 usually fixed at so much per car, $20 in the Baltimore 
 street railway franchise of 1859, and $25 in New York, 
 Chicago and Philadelphia grants made soon after this. 
 The result of the license method was, of course, to cause 
 a reduction in the number of cars, and hence overcrowd- 
 ing. The same results obtained when the license princi- 
 ple was applied to other public utilities. The unit sub- 
 ject to license was always reduced to a minimum at 
 great public inconvenience. 
 
 The evils of this method of compensation were so ob- 
 vious that, in time, concerns were required, in lieu of 
 license fees, to perform stated municipal services. Thus 
 the street car companies were required to pave between 
 their tracks, and two feet, or some such distance, on 
 each side thereof, or to clean and repair the entire street 
 over which the railway operated. Philadelphia at one 
 time required the railway to pave the entire street over 
 which it ran. Many evils arose from this method of 
 compensation, chief of which was that the companies 
 did their work poorly, or kept a lobby in the council to 
 prevent their being required to do any work. Hence, 
 in time, this methodof compensation was generally aban- 
 doned as a failure. 
 
 The next method adopted was to require the payment 
 of definite lump sums per annum ; that is, to frankly farm 
 out the city's services to the highest bidder, as Athens 
 farmed out her public services, and Rome farmed out her 
 taxes. This method of compensation is the basis of the 
 existing laws in Kentucky, Louisiana, Virginia, Califor- 
 nia and Nevada, which require that municipal franchises 
 
FRANCHISE ESSENTIALS 87 
 
 be let to the highest bidder. While definite financial com- 
 pensation was a great improvement over no compensa- 
 tion, whether financial or social, yet it had the definite 
 defect of having no necessary relation to the actual value 
 of the franchise to the company, nor to the actual value 
 of the corporation's services to the city. It usually re- 
 sulted in mere bickering between the representatives of 
 the corporation and the members of the city's council, 
 with the result that the councilmen often got the remu- 
 neration instead of the city. 
 
 The next method devised for securing adequate com- 
 pensation for franchise grants has met with no small 
 degree of success. It is still used with profit in cities 
 where no adequate regulative tribunals exist. This 
 method is to require the corporation to pay to the city a 
 given per cent, of its gross receipts. In most instances, 
 as in New York, Providence, Philadelphia, Newark and 
 Richmond, the company was to pay to the city annually 
 five per cent, of its gross receipts. Cincinnati gets six 
 per cent. ; Chicago receives fifty-one per cent, of the 
 net profits of its tramway corporation. Recently there 
 has been a tendency to supplant or accompany this 
 method of securing compensation by uniform state fran- 
 chise tax laws. In Massachusetts the franchise tax 
 brings in $3,500,000 annually. In Virginia, for the year 
 1909, the franchise tax on street railways alone brought 
 in $35,935.04. As a method of acquiring compensation 
 from municipal utilities that are not subject to adequate 
 public regulation, the payment of a certain per cent, of 
 gross receipts commends itself over all the other methods 
 previously discussed for obtaining compensation. Gross 
 receipts can usually be learned with some degree of 
 accuracy. 
 
 There are, however, three main objections to re- 
 7 
 
88 MUNICIPAL UTILITIES 
 
 quiring high financial compensation from municipal 
 utility corporations. These are: (1) That the 
 person served, not the serving company, pays for 
 it; (2) that it tends to dispense with expenditures 
 for extensions and improvements, and is used by 
 the company as a pretext for high rates and for 
 stringent regulations; and (3) franchise values per se 
 should not be taxed. 
 
 It is evident that, if high financial remuneration is 
 demanded, the company secures it through high rates, 
 stringent regulations, refusals of transfers, etc., all of 
 which the patron pays for. It is equally evident that a 
 high taxation makes adequate extensions and proper im- 
 provements in service impossible. Even if extensions 
 or improvements are made, they are made by added 
 levies upon the pockets of the consumers, not by dimin- 
 ishing the profits of the concerns. Proper principles of 
 regulation demand that the franchise value be reduced 
 through proper regulation until it represents no value 
 in itself. That is to say, through requirements as to 
 rates, improvements and extensions, the franchise value 
 should be so reduced that the company's capitalization 
 represents only the actual physical value of the plant; 
 then there will be no franchise value left to tax. This 
 method will prevent fraud and speculation, and will give 
 maximum values to the public. 
 
 Under a scheme of non-regulation, however, high 
 financial compensation may properly be exacted; as in 
 no other way can the community get proper returns from 
 its serving utilities. But where adequate facilities and 
 powers for regulation exist, a far better form of com- 
 pensation is to require lower rates, better services, and 
 adequate extensions. American cities must follow the 
 lead of Germany and other European countries, and 
 
FRANCHISE ESSENTIALS 89 
 
 stress their rights to fair rates, adequate service and 
 needed extensions. 
 
 Rates should be subject to change by the city at brief 
 intervals, if regulation through franchise obtains, or upon 
 order, if regulation through a public service comrriission 
 obtains. Out of 138 lighting franchises examined under 
 the auspices of the American Economic Association in 
 1889, but sixty-three reserved to the city the right to 
 regulate lighting rates. Such is typical of the usual neg- 
 lect in this field. 
 
 For fixing gas rates, Massachusetts has adopted the 
 sliding scale method. This method is ably described by 
 Mr. Wrightington in the succeeding chapter of this 
 volume. 
 
 More important than the regulation of rates is the 
 regulation of service standards and of adequate facili- 
 ties. It is only when the service of a city's utilities are 
 of high standard, and their facilities are wholly adequate, 
 that the urban dweller can live in ordinary comfort, 
 health, and happiness. The power to require needed ex- 
 tensions of equipment and services is of the greatest pub- 
 lic necessity. Unless this power vests in the city, the 
 corporation, not the city, can determine under what con- 
 veniences or inconveniences the city dweller must live. 
 Social remuneration is of vastly greater import than 
 financial remuneration. 
 
 In order to secure reasonable remuneration, to pro- 
 tect the consumer and the community, and to protect the 
 investor, the city must have comprehensive powers over 
 the capitalization and accounting of their utility con- 
 cerns. The first and most essential step toward adequate 
 control and regulation is the city's power and readiness 
 to compel its every utility to keep their accounts in the 
 manner prescribed by an expert regulative authority. In 
 
90 MUNICIPAL UTILITIES 
 
 this way, and in this way only, can. the city secure the 
 data essential to wise and just action. Hence, there must 
 be, in every franchise, clauses granting and reserving to 
 the city effective control over capitalization, including 
 the issuance of bonds and stocks, and the methods by 
 which the corporations keep their accounts. Without 
 such rights the city's power to tax, to regulate rates, to 
 require higher standards of service, and to order ex- 
 penditures would be utterly impotent. 
 
 One problem that has not been adequately solved as 
 yet is the place and function that the city shall assume 
 in case of strikes and lockouts. One principle seems to 
 be clear, and that is that the public has the right to de- 
 mand uninterrupted service. If this principle is adopted, 
 the city will have to guarantee adequate wages and proper 
 treatment to the employees on the one hand, and to 
 secure the corporation from undue destruction and idle- 
 ness of its property and capital on the other. There 
 is no reason why the consumer should pay higher 
 rates or endure poor service in order to insure the pro- 
 prietors of public utilities from loss by strikes and lock- 
 outs. It must be clearly understood that, where strikes 
 and lockouts occur, the consumer, not the corporation, 
 pays for them. If the city takes the stand that its service 
 must not be interrupted, it must also be prepared to give 
 adequate means of redressing wrongs to the laborer de- 
 nied the right to strike, and to the corporation denied 
 the right to lock out recalcitrant employees. The la- 
 borer and the owner of the city's utilities must be thought 
 of as employees of the city with no right vesting in either 
 to subvert public service. The city must be recognized 
 to be in a real and vital sense part owner of its public 
 utilities. The chief duty of its proprietorship is to see 
 that public interests are not thwarted through the fail- 
 
FRANCHISE ESSENTIALS 91 
 
 ure of either the owner or the employee to afford con- 
 tinuous service. 
 
 Other franchise problems are discussed in succeeding 
 pages. For the sake of completeness and of emphasis, it 
 will be well here to reiterate the principle elsewhere dis- 
 cussed, that franchise should contain ample provision for 
 amortization funds, and for the easy reversion of ' the 
 plant to the city. 
 
 The wording and the complexity of a franchise, and 
 the care with which it should be drawn, will vary with 
 the degree of public regulation possible. Where public 
 regulation is adequate and persistent, a franchise need 
 contain little more than the mere vesting in a given cor- 
 poration the right to serve a given need of a given city. 
 But in cities where public regulation is inadequate or 
 spasmodic, franchises must be drawn with greatest care, 
 and must be most minute in their provisions. In all 
 cases a full knowledge of their import and their prob- 
 lems is essential to anything like wise municipal action. 
 To these problems the following chapters are particularly 
 devoted. 
 
 Franchise essentials have been studied by carefully 
 selected committees of two well-known organizations, 
 the National Municipal League and the National Civic 
 Federation. Their conclusions make the most valuable 
 and permanent contribution that, up to that time, had 
 been made to this all-important subject. The National 
 League appointed its committee in 1900, and its conclu- 
 sions were published in the League's Municipal Pro- 
 gram published by the Macmillan Company in that year. 
 The committee was composed of Horace E. Deming, 
 New York, chairman; Hon. George W. Guthrie, since 
 mayor of Pittsburgh ; Prof. Frank J. Goodnow, Colum- 
 bia University; Charles Richardson, Philadelphia; Prof. 
 
92 MUNICIPAL UTILITIES 
 
 Leo S. Rowe, University of Pennsylvania; Dr. Albert 
 Shaw, editor, Review of Reviews; and Clinton Rogers 
 Woodruff, Philadelphia. The committee's most impor- 
 tant conclusions follow. The references are to the pages 
 in the Municipal Program : 
 
 "Every grantee should be obliged to render to the 
 city complete accounts of its financial conditions, includ- 
 ing its receipts from all sources and its expenditures for 
 all purposes, such accounts to be public records ; 
 
 "The books and accounts of the grantee should be at 
 all reasonable times open to the examination of the city's 
 fiscal officer or his representatives. (Pages 126-127.) 
 
 "The tendency of successful companies to try to con- 
 ceal or disguise the extent of their profits makes it neces- 
 sary for the agents of the city to have very full powers 
 of investigation. 
 
 "The numerous instances in which public opinion has 
 been unable to reach any definite conclusions — owing to 
 the lack of systematic presentation of financial data — 
 would seem a sufficient reason for these provisions in the 
 Program. One of the most striking instances is the re- 
 cent leasing of the Philadelphia Gas Works. The con- 
 flicting statements of opposing interests were supported 
 by data taken from the same reports. The classifica- 
 tion of receipts and expenditures was so confusing that 
 almost any proposition could be read into it. We can- 
 not expect the citizen to subject every public financial 
 statement to critical analysis. He is at the mercy of 
 conflicting interpretations unless the official information 
 furnished him is so clear and unequivocal as to leave 
 no room for doubt. (Page 93.) 
 
 " However they may differ among themselves in 
 other respects, neither the advocates nor the opponents 
 of municipal ownership and operation .can deny the 
 
FRANCHISE ESSENTIALS 93 
 
 strong probability of great public advantage in enforced 
 publicity of accounts of the grantees of franchises from 
 the city ; and that it is obvious that, with the rapid growth 
 of our cities and the consequent changes in the conditions 
 which make and unmake the values of such franchises, 
 both to grantees and to the city, a sound public policy 
 would seem to forbid the tying of the hands of the next 
 generation by the bargains of this generation. Nor can 
 those who believe in clothing a city with the requisite 
 power to live its own life and to work out the solution 
 of its local problems in the light of its own needs and 
 its own experience consistently oppose granting to a city 
 authority to decide for itself whether it will undertake 
 to supply on its own account those public services which 
 are the usual subjects of the grants of franchises to 
 private corporations. 
 
 " The Committee on Municipal Program is unanimous 
 in the opinion that the city should be free to choose for 
 itself between the policy of leasing its franchises or of 
 retaining and operating them for its own benefit in any 
 given case, and should be clothed with ample power for 
 acquiring and managing public properties. 
 
 " The committee regards the possession of this power 
 as essential to protect the interests of the city, and as 
 supplying an added motive for the watchful and intelli- 
 gent participation of the people in the affairs of their 
 local government. 
 
 " The committee is also convinced that it has been 
 demonstrated by abundant experience that in the interest 
 of the public, when a city grants a franchise to a private 
 corporation, association, or individual : 
 
 " The term of such grant should be limited to a defi- 
 nite period, not exceeding twenty-one years ; 
 
 " The question whether it should be the policy of a 
 
94 MUNICIPAL UTILITIES 
 
 city to try to obtain the largest pecuniary returns in re- 
 lief of taxation, or to provide for the lowest practicable 
 charges for the services to be rendered to the citizens is 
 a difficult one. But that each city should have the power 
 to decide this question in its own way, in the light of its 
 own need and experience, is clear." It is also clear that 
 
 " In addition to any other form of compensation the 
 grantee should pay the city a percentage of the gross 
 receipts from the exercise of the franchise; 
 
 " At the end of the period the plant of the grantee 
 should become the property of the city if the latter should 
 so desire, either without further compensation than the 
 original grant, or, if additional compensation be paid, it 
 should not in any way include or be based upon any 
 valuation of or allowance for the franchise itself, which, 
 at the termination of the grant should ipso facto revert 
 to the public; 
 
 " Every grant of a franchise should contain ample 
 provisions enforceable by forfeiture of the grant, or 
 otherwise, to secure efficient public service at reasonable 
 rates." 
 
 In 1907 the National Civic Federation appointed a 
 Commission on Public Ownership. This Commission, 
 through its Investigating Committee, made a long and 
 laborious and entirely independent investigation. The 
 committee was composed of Melville E. Ingalls, Presi- 
 dent of the Board of Directors of the Big Four Rail- 
 road and chairman of the committee; Dr. Albert A. 
 Shaw, Editor of the Review of Reviews, vice-chair- 
 man; Edward A. Moffett, secretary; Edward W. 
 Demis, Superintendent of Water Works, Cleveland, 
 Ohio ; William J. Clark, General Manager of the- for- 
 eign department of the General Electric Company ; Pro- 
 fessor John R. Commons, of Wisconsin University; 
 
FRANCHISE ESSENTIALS 
 
 95 
 
 Charles L. Edgar, President of the Edison Electric and 
 Illuminating Company, of Boston; Walter L. Fisher, of 
 Chicago ; Professor Frank J. Goodnow, of Columbia 
 University; Professor John H. Gray, of Northwestern 
 University; Timothy Healy, President of the Interna- 
 tional Brotherhood of Stationary Firemen; Daniel J. 
 Keefe, President of the International Longshoremen's 
 Association; Milo R. Maltbie, Member of the Public 
 Service Commission for Greater New York; H. B. F. 
 Macfarland, President of the Board of Commissioners of 
 the District of Columbia; Frank J. McNulty, President 
 of the International Brotherhood of Electric Workers, 
 Springfield, 111. ; Professor Frank Parsons, President of 
 the National Public Ownership League, Boston; J. W. 
 Sullivan, Editor of Clothing Trades' Bulletin, New 
 York; Talcott Williams, editorial writer of The Press, 
 Philadelphia; and Albert E. Winchester, Superintendent 
 of South Norwalk (Conn.) Electric Works. This com- 
 mittee was assisted by a corps of expert engineers and 
 accountants. Its investigations and reports involved the ex- 
 penditure of over $50,000 and the unremitting and un- 
 interrupted attention of a staff of competent officials. 
 Its statements and conclusions are, therefore, entitled to 
 great weight. It will be noted that its recommendations 
 largely parallel and corroborate those written by the 
 National Municipal League's committee seven years be- 
 fore. The committee's more important conclusions were 
 as follows : 
 
 " Public utilities, whether in public or private hands, 
 are best conducted under a system of legalized and regu- 
 lated monopoly. 
 
 " Public utilities in which the sanitary motive largely 
 enters should be operated by the public. 
 
 " The success of municipal operation of public utili- 
 
96 MUNICIPAL UTILITIES 
 
 ties depends upon the existence in the city of a high 
 capacity for municipal government. 
 
 " The committee takes no position on the question of 
 the general expediency of either private or public owner- 
 ship. The question must be solved by each municipality 
 in the light of local conditions. What may be possible 
 in one locality may not be in another. In some cities 
 the companies may so serve the public as to create no 
 dissatisfaction, and nothing might be gained by experi- 
 menting with municipal ownership. Again^ the govern- 
 ment of one city may be good and capable of taking 
 charge of these public utilities, while in another it may 
 be the reverse. In either case the people must remem- 
 ber that it requires a large class of able men as city offi- 
 cials to look after these matters. They must also re- 
 member that municipal ownership will create a large 
 class of employees who may have more or less political 
 influence. 
 
 " Our investigations teach us that no municipal oper- 
 ation is likely to be highly successful that does not pro- 
 vide for: 
 
 " First — An executive manager with full responsi- 
 bility, holding his position during good behavior. 
 
 " Second — Exclusion of political influence and per- 
 sonal favoritism from the management of the under- 
 taking. 
 
 " Third — Separation of the finances of the undertak- 
 ing from those of the rest of the city. 
 
 " Fourth — Exemption from the debt limit of the nec- 
 essary bond issues for revenue-producing utilities, 
 which shall be a first charge upon the property and reve- 
 nues of such undertaking. 
 
 " There are no particular reasons why the financial 
 results from private or public operation should be differ- 
 
FRANCHISE ESSENTIALS 97 
 
 ent if the conditions are the same. In each case it is a 
 question of the proper man in charge of the business and 
 of local conditions. 
 
 " We have come to the conclusion that municipal 
 ownership of public utilities should not be extended to 
 revenue-producing industries which do not involve the 
 public health, the public safety, public transportation, or 
 the permanent occupation of public streets or grounds, 
 and that municipal operation should not be undertaken 
 solely for profit. 
 
 " We are also of the opinion that all future grants to 
 private companies for the construction and operation of 
 public utilities should be terminable after a certain fixed 
 period, and that meanwhile cities should have the right 
 to purchase the property for operation, lease or sale, pay- 
 ing its fair value. 
 
 " To carry out these recommendations effectively, 
 and to protect the rights of the people, we recommend 
 that the various States should give to their municipali- 
 ties the authority, upon popular vote under reasonable 
 regulations, to build and operate public utilities, or to 
 build and lease the same, or to take over works already 
 constructed. In no other way can the people be put upon 
 a fair trading basis and obtain from the individual com- 
 panies such rights as they ought to have. We believe 
 that this provision will tend to make it to the enlightened 
 self-interest of the public utility companies to furnish 
 adequate service upon fair terms, and to this extent will 
 tend to render it unnecessary for the public to take over 
 the existing utilities or to acquire new ones. 
 
 " Franchise grants to private corporations should be 
 terminable after a fixed period and meanwhile subject to 
 purchase at a fair value. 
 
 " Municipalities should have the power to enter the 
 
98 MUNICIPAL UTILITIES 
 
 field of municipal ownership upon popular vote under 
 reasonable regulation. 
 
 " Private companies operating public utilities should 
 be subject to public regulation and examination under a 
 system of uniform records and accounts and of full pub- 
 licity. 
 
 " Furthermore, we recommend that provision be made 
 for a competent public authority, with power to require 
 for all public utilities a uniform system of records and 
 accounts, giving all financial data and all information 
 concerning the quality of service and the cost thereof, 
 which data shall be published and distributed to the pub- 
 lic like other official reports ; and also that no stock or 
 bonds for public utilities shall be issued without the 
 approval of some competent public authority. 
 
 " We also recommend the consideration of ' the slid- 
 ing scale,' which has proved successful in some cases in 
 England with reference to gas and has been adopted in 
 Boston. By this plan the authorized capitalization is set- 
 tled by official investigation, and a standard rate of divi- 
 dend is fixed which may be increased only when the price 
 of gas has been reduced. The subway contracts and 
 their operation in Boston and New York are also en- 
 titled to full consideration. 
 
 " In case the management of public utilities is left 
 with private companies, the public should retain in all 
 cases an interest in the growth and profits of the future, 
 either by a share of the profits or a reduction of the 
 charges, the latter being preferable, as it inures to the 
 benefit of those who use the utilities, while a share of 
 the profits benefits the taxpayers." 
 
CHAPTER V 
 
 THE SLIDING SCALE METHOD OF REGULATION AS 
 APPLIED TO GAS COMPANIES IN MASSACHUSETTS 
 
 In the endeavor to provide a means of regulating the 
 price of gas in the city of Boston that would be satis- 
 factory both to the public and to the company, a plan 
 was adopted similar to a system long employed in Eng- 
 land but having no example in this country at that time. 
 This method has been applied specifically to gas com- 
 panies and is called the " Sliding Scale." Mr. Edgar 
 N. Wrightington, Second Vice-President of The Bos- 
 ton Consolidated Gas Company, describes as follows the 
 principles and results of this method as applied to gas 
 companies in Massachusetts : 1 
 
 The principle of the " Sliding Scale " is as follows : 
 
 A standard price of gas is established and a stand- 
 ard rate of dividends. Both the price and the rate of 
 dividends are intended to be fixed on such a basis as 
 to secure an adequate return on the money invested in 
 the business. For every reduction in the price the com- 
 pany is allowed to increase correspondingly the rate 
 of dividends which may be paid. 
 
 In Boston the standard price for gas was fixed by 
 an Act of the Legislature at 90 cents per thousand cubic 
 
 1 This chapter is a revision of an article in the Proceedings of the 
 National Municipal League for 1910. 
 
 99 
 
IOO MUNICIPAL UTILITIES 
 
 feet. The standard rate of dividends was fixed at 7 per 
 cent. For every reduction of 5 cents in the price of 
 gas the company may, during the following year, in- 
 crease the dividend rate 1 per cent. 
 
 The Act provides a reserve fund for emergencies 
 which may be set aside each year up to 1 per cent, of 
 the capital, until the fund becomes equal to 5 per cent. 
 of the capital stock. If an excess is earned above the 
 amount provided in the reserve fund such excess is to 
 be paid to the towns in which gas is sold in proportion 
 to the miles of main in each. 
 
 Issues of additional stock are to be valued by the 
 Board of Gas and Electric Light Commissioners. Be- 
 fore the new shares are offered to the stockholders of 
 the company they shall be offered for sale by public 
 auction, and no bid is to be accepted for less than the 
 price fixed. Any stock not sold at auction is to be of- 
 fered at the fixed price to the stockholders. Any stock 
 so offered and not sold shall again be offered for sale 
 at public auction. 
 
 After ten years' time, upon the petition of. the com- 
 pany, or upon the petition of the mayor or selectmen 
 of the cities and towns in which the company is supply- 
 ing gas, the Board of Gas and Electric Light Commis- 
 sioners shall have the authority to lower or raise the 
 standard price to such extent as may justly be required 
 by reason of greater or less burdens which may be im- 
 posed upon the company by reason of improved methods 
 in the art of manufacture, by reason of changes in the 
 prices of material and labor, or by reason of changes 
 in other conditions affecting the general cost of manu- 
 facture or distribution of gas. 
 
 Since the passage of this Act, the price of gas has 
 been twice reduced, on July 1, 1906, to 85 cents, and 
 
THE SLIDING SCALE METHOD 101 
 
 on July i, 1907, to 80 cents. At the same time the rate 
 of dividends has been increased from 7 per cent, to 9 
 per cent. For the year ending June 30, 1907, the first 
 year in which the ' Sliding Scale ' was put into effect, 
 the sales were about three and three-quarter billion cubic 
 feet. The reduction of five cents that year amounted 
 to about $190,000, while the extra 1 per cent, of divi- 
 dends which were allowed amounted to about $150,000. 
 
 During the year ending June 30, 1908, sales were 
 about four billion cubic feet, and the additional reduc- 
 tion at that time, together with the previous reduction 
 mentioned above, resulted in a saving to the public of 
 about $400,000. The company received an extra 1 per 
 cent, in dividends, making the rate 9 per cent., or an 
 increase in the total amount of about $300,000 per year 
 for the stockholders. 
 
 In this connection it may be mentioned that the 
 various companies which went to make up what is known 
 as the Boston Consolidated Gas Company, were con- 
 solidated on June 15, 1905, and between that time and 
 the date that the ' Sliding Scale ' went into effect, the 
 new Consolidated Company reduced its price of gas 10 
 cents per thousand feet, so that the public, between 
 June 15, 1905, and July 1, 1907, receives a reduction in 
 price of 20 cents per thousand cubic feet, this reduction 
 being brought about by the consolidation and the ' Slid- 
 ing Scale.' 
 
 The sales for the year ending June 30, 1910, were 
 four billion, four hundred million cubic feet, and the 
 saving on this amount to the public at the present price 
 as compared with the price in June, 1905, was about 
 $880,000. It is evident that the proportion of profits given 
 to the public is increasing and will increase more rapidly 
 than the amount of the profits given to the company. 
 
I02 MUNICIPAL UTILITIES 
 
 It should also be stated that although the actual 
 book value of the property represented by the invest- 
 ments of the company amounts to nearly $25,000,000, 
 the capitalization is only about $15,000,000. Conse- 
 quently a dividend of 9 per cent, on the capital of about 
 $15,000,000 is equivalent to about 5% per cent, on the 
 actual book value of the properties. 
 
 The public is interested primarily in low prices 
 and good service. The amount of dividends paid to the 
 stockholders of the company does not interest the public 
 unless such payments prevent them from getting low 
 prices. 
 
 When the payment of extra dividends is not only 
 prohibited unless reductions in the price are made, but 
 increases in the rate of dividend are actually offered 
 as a reward for reduced prices, then the public joins 
 willingly in the partnership. 
 
 With the incentive of increased dividends before 
 them as a result of the display of special energy and 
 ability in conducting the business, managers of such 
 undertakings will use every effort to introduce economies 
 and to increase sales in order that the price may be 
 reduced and the dividends increased. The public will 
 receive the benefit of this increased effort in lower prices. 
 
 As far as the public is concerned nothing but praise 
 is heard of the application of the ' Sliding Scale ' in 
 Boston, as would naturally be expected when their share 
 of the profits has actually been greater than that of the 
 company. Besides the reductions in price which have 
 resulted, it is believed that the partnership with the 
 public which this Act creates develops that mutual good- 
 will and confidence which are essential in the relations 
 of all public-service corporations with the public. 
 
CHAPTER VI 
 
 IS A RATIONAL BASIS POSSIBLE FOR TELEPHONE RATES ? 
 
 Dugald C. Jackson, Consulting Engineer and Pro- 
 fessor of Electrical Engineering in the Massachusetts 
 Institute of Technology, discussed the basis for telephone 
 rates before the Annual Meeting of the National Munici- 
 pal League for 1910. This paper he revised and extended 
 for this volume. It follows : 
 
 The rates charged for telephone service in all the 
 important American cities grew up in accordance with 
 expediency and as a result of the judgment and expe- 
 rience of the telephone officials, and in most cases have 
 so remained. It is, therefore, not unnatural that the 
 telephone companies have become accustomed to assert 
 that rational methods of analysis cannot be applied to 
 test the reasonableness of such rates. Ready means of 
 intercommunication are now so essential a part of busi- 
 ness and social life that it is also not unnatural for sub- 
 scribers to view askance the efforts at telephone rate- 
 making which depend only upon expediency or on the 
 judgment of certain officials. Skepticism of the fairness 
 of telephone rates fixed in that manner has led to in- 
 vestigations in a number of the more important Ameri- 
 can cities and states, and has produced reports like those 
 made by the Merchants' Association of New York in 
 1905, the Special Telephone Commission of Chicago in 
 8 io 3 
 
104 MUNICIPAL UTILITIES 
 
 1907, the Board of Trade of New Orleans in 1908, the 
 Travelers and Merchants Association of Baltimore in 
 1910, and the recent studies by the Commissions of the 
 City of Los Angeles and of the states of Maryland, Mas- 
 sachusetts, Washington, and Wisconsin. 
 
 The activity thus stirred up seems to give promise 
 of the general adoption of a more rational basis of 
 charges for service. It is undeniable that the judgment 
 displayed by telephone officials has built up their busi- 
 ness marvelously, and has made the telephone a neces- 
 sary tool of commercial and social intercourse; but the 
 very importance thereby given to the telephone service 
 makes indefensible any opposition to legitimate efforts 
 to get rates on a more rational basis. Guiding prin- 
 ciples in so complex a subject can be evolved only as 
 the result of a thorough-going statistical study of the 
 problem. This has not yet been completely accomplished. 
 This article, therefore, can be only preliminary and sug- 
 gestive in nature. 
 
 The startling complexity of the telephone rate prob- 
 lem is illustrated by the introductory statement of the 
 Special Commission, which, in 1907, made a compre- 
 hensive report on the telephone situation in Chicago. I 
 will quote three paragraphs from that report: 
 
 A telephone company in a large city must face a problem 
 in many respects more complex than that of any other pub- 
 lic utility corporation. The water department is called upon 
 to sell a single commodity, namely, water, and at prices 
 which are fixed with comparative readiness. The gas com- 
 pany also< is called upon to sell a single commodity, metered 
 for nearly every customer, and its conditions in dealing with 
 customers are relatively simple. It may sell some additional 
 by-products, as coke, tar and ammonia, but the quantities 
 and market values of these are readily arrived at. The trac- 
 
BASIS FOR TELEPHONE RATES 105 
 
 tion company has a more complex problem than some of the 
 other purveyors of public utilities, but even here the price 
 paid by the several patrons is uniform and the substantial 
 difference between patrons lies only in the lengths of the 
 rides which they may choose to take. 
 
 The telephone problem, on the contrary, involves many 
 complexities, partially caused by the relatively large number 
 of classes of service which the telephone company must offer 
 to its patrons for the purpose of fully developing the tele- 
 phone service of the city, and partially by the intangible 
 character of the electric medium with which the telephone 
 business is carried on, the delicacy of the apparatus used, 
 and the wide differences in the manner and extent of the use 
 of the apparatus by the various subscribers. 
 
 If a telephone company properly extends the telephone 
 service in the city, it must be prepared to take care of the 
 requirements of a range of patrons as wide as the interests 
 of the city itself, including the largest business organizations, 
 the hotels, the newspapers, the professional men, the small 
 business houses, and residences of all classes. It must pro- 
 vide apparatus for the service of each class of patrons which 
 will enable it to furnish the service to each subscriber at an 
 appropriate price within his means. It is desirable for the 
 prices to be graded so that the largest user shall not pay 
 less than his fair share of the expense of maintaining the 
 traffic and the remuneration to the company for its invest- 
 ment, and equally so that the smallest user may get his tele- 
 phone service at a price which is within his means and yet 
 is reasonably remunerative to the company for its outlay. 
 
 There are four general principles that cannot be 
 safely departed from when considering rates of a pub- 
 lic-service company. These may be stated in the follow- 
 ing words : 
 
 1. The company is granted certain privileges by the 
 public for the purpose of enabling it to furnish readily 
 
106 MUNICIPAL UTILITIES 
 
 some type of service to the people, and it should be ex- 
 pected to furnish service fitting the needs of the people, 
 good of its kind, and at prices which are reasonable 
 when judged by the conditions. 
 
 2. The company must not be unnecessarily har- 
 assed, but must be afforded reasonable opportunity for 
 economically transacting the business related to giving 
 the service for which the company was organized; and 
 it must be allowed to make sufficient returns on its in- 
 vestment to enable it to attract the best and fairest minds 
 to the management, and to maintain a position of stable 
 credit with the investing public. 
 
 3. A public service company in a new and develop- 
 ing country must see before it opportunity to earn re- 
 turns on its invested capital which are large compared 
 with those adequate in stable and thickly-settled regions, 
 in order that it may secure the capital needful for de- 
 veloping its plant and extending its service to meet the 
 apparent needs of an expanding but not yet stable 
 population. 
 
 4. A new company, even in a stable country, ought 
 to earn more than current rates of interest for its in- 
 vestors whose enterprise enables them to take the risks 
 of establishing the business, but the rate of return on 
 the investment may be expected to approach current 
 rates of interest after the business has become profitable 
 and is firmly established on fixed franchise rights cover- 
 ing a long period. 
 
 I will not here give the arguments to show the valid- 
 ity of these principles, or attempt to explain their sig- 
 nificance. Such arguments and explanations are put 
 forth in my article on Equitable Rate Making by Public 
 Service Companies, which was published in the Tech- 
 nology Quarterly for December, 1908. It is sufficient 
 
BASIS FOR TELEPHONE RATES 107 
 
 to say here that an acceptance of those general prin- 
 ciples leads to recognizing, (1) that a sum equaling the 
 aggregate of expense for administration, operating, re- 
 pairs, depreciation, taxes and interest must be collected 
 from its customers by the operating company, and, (2) 
 that an equitable system of telephone rates should deter- 
 mine the proportions collected from the individual users 
 with reasonable consideration of the part of the expense 
 which is caused by the service for each of the several 
 classes into which the users may be classified for the pur- 
 poses of the service ; and the classes of service should.-be 
 subdivided in such a manner that subscribers with rela- 
 tively similar wants will naturally group themselves to- 
 gether. 
 
 The ideal method of charging for telephone service 
 is to charge each customer in proportion to the service 
 Ije receives from the company, measured in quantity 
 received and of the quality corresponding to his needs; 
 and the charges to all customers should be as low as is 
 consistent with the cost of operating and maintaining the 
 property, accompanied by the payment of a fair return 
 on the money invested. When unlimited service rates 
 are charged, two kinds of customers, namely, business 
 customers and residence customers, are ordinarily differ- . 
 entiated from each other. Each of these kinds may be 
 grouped in various classes by arranging individual sub- 
 scribers on special lines, associating two or more sub- 
 scribers on a party line, providing private branch ex- 
 changes, etc., according to the needs of the customers ; 
 and the rates charged for service in the several classes 
 may be expected to differ, on account of differences in 
 the cost of equipment required in different classes and 
 on account of differences in the average amounts of use 
 of the telephone by customers in different classes, 
 
108 MUNICIPAL UTILITIES 
 
 Message rates for telephone service have decided 
 advantages over unlimited service (flat) rates. Message 
 rates manifestly make it possible to reduce the prices 
 of telephone service to the small users to the smallest 
 fair annual charge for what they actually receive; and 
 this is particularly true if effective and convenient means 
 for curbing extravagant use of the service are intro- 
 duced, such as the introduction of prepayment service 
 and of convenient means for promptly collecting ac- 
 counts. 
 
 ^The smallest fair annual charge should probably be 
 sufficient to cover reasonable interest, taxes, depreciation 
 and current repair expenses for the portion of the 
 plant that must be provided for the use of the average 
 of the individual users in the subscriber's particular class, 
 plus an amount proportional to the average number of 
 messages transmitted from his telephone in a year. 
 
 The average expense per subscriber of supplying ■ 
 service in the different classes of service usual to tele- 
 phone companies operating in large cities differs widely 
 as between subscribers in the different classes. The 
 range as between classes may be greater than 20 to 1 ; 
 and the difference between the most expensive customers 
 in the most expensive class and the most modest cus- 
 tomers in less expensive classes is much wider. The / 
 celerity of service required by the subscriber and the 
 amount of his traffic at hours of peak (maximum) use, 
 have a greater effect upon the cost of telephone service 
 than is often realized. The investment in plant oc- 
 casioned solely by these factors may be many times as 
 great as the investment required to provide the cus- 
 tomer's connection with a central office and the means 
 by which he may, when convenient, be connected with 
 Other subscribers. Celerity of service and amount of 
 
BASIS FOR TELEPHONE RATES 109 
 
 Jtraffic at time of peak use are closely related in their 
 effects on the cost of service. If attention to subscribers' 
 calls may be deferred by the operators, large drafts for 
 investment in switchboards and interconnecting circuit 
 wires and for operating expenses may be saved, com- 
 pared with the investment necessary to carry out the 
 usual American practice of providing switchboard posi- 
 tions and operators in sufficient numbers to answer every 
 call within a few seconds. 
 
 All legitimate expenses of the operating company 
 must obviously be provided out of the revenue obtained 
 from the rates, and the rates should raise only enough^ 
 revenue to meet these expenses, provided the word " ex- 
 penses " is used comprehensively so as to include return 
 on the investment. The expenses may be grouped as 
 administrative (general), operating, current repairs, re- 
 newals (depreciation, etc.), taxes, and the return on 
 the investment. The last item is sometimes referred to 
 as " interest " and sometimes as " interest and profit." 
 In the latter phrasing, I presume that the interest re- 
 ferred to must be taken at current rates for secured in- 
 vestments, and that any additional return required to 
 support the solvency of projects referred to in the third 
 and fourth of the above-mentioned general principles, 
 may be called the " profit." A reasonable standing sur- 
 plus is needed as a reservoir to maintain a parity of con- 
 ditions from y«ar to year, and if this has been drawn 
 down it must be replenished as earnings warrant. 
 
 If the rates by which the revenue is raised are to be 
 put on a rational basis, there must be some better reason 
 for the differences between the charges for differei*fc~| 
 classes of service than only the judgment of company 
 officials, however able and experienced those officials 
 may be. These differences now rest, in most instances, 
 
no MUNICIPAL UTILITIES 
 
 on expediency, what the traffic will bear as shown by the 
 growth of the service, and a certain bulk judgment of 
 the possibilities of each situation. To improve on this, 
 it is necessary to obtain an intimate statistical knowledge 
 of the traffic of each class of subscribers, the plant invest- 
 ment required to provide that traffic, the effect of the 
 traffic on the wear of the plant, the expenses of operation 
 associated with the traffic, and other like information 
 that telephone companies have not been in the habit of 
 gathering or recording. The plant statistics, the finan- 
 cial statistics, and the traffic statistics must be brought 
 into association. The telephone companies have hereto- 
 fore been satisfied to hold their accounting as a species 
 of auditing capable of showing what dividends can be 
 paid after leaving some surplus as the result of any year 
 of operation, and they have failed to erect the account- 
 ing into a statistical structure which will afford data for 
 judging the relative reasonableness of their various 
 schedules of charges. The hesitancy of company man- 
 agements to enter upon the keeping of full statistical 
 records and the making of statistical studies of the busi- 
 ness, when not compelled to do so by the influence of 
 keen competition such as exists in some branches of 
 manufacturing, is perhaps not unnatural, but it is a hesi- 
 tancy that needs to be overcome for the joint good of 
 the public and the serving companies. 
 
 As a basis for determining the reasonableness of 
 rates, the following factors must be taken into ac- 
 count : 
 
 ( i ) The annual cost entailed by the' investment which 
 is needed to care for the subscriber's wants, which in- 
 vestment depends not only on the cost of the plant re- 
 quired to connect the subscribers to the exchanges, but 
 also on the amount of traffic which is handled over the 
 
BASIS FOR TELEPHONE RATES in 
 
 subscribers' lines; and (2) the cost per message entailed 
 in caring for the subscribers' traffic. 
 
 The property required for each class of service must 
 be maintained day by day. It must also be renewed 
 when it becomes depreciated from any cause below an 
 efficient condition. Taxes must be paid and interest 
 must be earned upon the investment. The expenses 
 occasioned by these should not be apportioned among 
 the classes of service directly in proportion to the 
 number of subscribers in the classes, but should 
 be apportioned in proportions depending jointly on 
 the number of subscribers, the character of the plant 
 required, and the amount of traffic in the several 
 classes. This is because these respective expenses oc- 
 casioned on account of plant are influenced by all of these 
 factors. The annual cost entailed by the investment 
 which is needed to care for the subscribers' wants, 
 therefore, depends upon two things. One is the mere 
 fact of the subscribers' taking telephone service, and 
 therefore requiring the company to furnish equipment 
 whereby it may be ready to serve them — the cost of 
 which equipment is affected by the kinds of lines they 
 subscribe for, as special line, two-party, private branch 
 exchange, etc. The other is the extent and kind of their 
 traffic, since, in general, a large number of messages 
 originated by a subscriber calls for a larger investment 
 in certain portions of the plant than would be requisite to 
 care for the wants of a subscriber with a similar line but 
 smaller traffic thereover. The subscriber who imposes 
 most of his messages within the hour or two of maxi- 
 mum business also imposes on the operating company a 
 larger investment in plant than a subscriber who dis- 
 tributes an equal number of messages uniformly over 
 the business hours. 
 
112 MUNICIPAL UTILITIES 
 
 The costs over and above the return on the investment 
 are made up of (a) an operating cost ; (b) the costs of 
 general expenses (including taxes), superintendence, ad- 
 vertising, current repairs, instrument rentals, messenger 
 expense, conduit, pole and roof rentals, and the like ; 
 and (c) the depreciation expense, including insurance 
 against the effects of extraordinary action of the ele- 
 ments and the cost of reconstruction required by muni- 
 cipal or other statutory enactments. 
 
 The investment required per subscriber in the vari- 
 ous classes of service is a complex quantity. For in- 
 stance, each subscriber requires one sub-station and 
 one drop wire, regardless of the character of service; 
 special line subscribers each require one subscriber's 
 telephone circuit with central office switchboard connec- 
 tion; party-line subscribers are each chargeable with a 
 part of the cost of one subscriber's line and central office 
 switchboard connection, etc. 
 
 Interest and depreciation (renewals) carry a larger 
 influence in the affairs of a public service company than 
 in average business affairs, particularly because the total 
 annual income of a public service company is a fraction 
 of the actual money invested instead of being a multiple 
 thereof. It is, therefore, manifest that a detailed knowl- 
 edge of the cost of producing the property required for 
 sustaining the public service is one of the features of 
 prime importance in the problem of arriving at rational 
 rates. This points to the need of appraisals of the prop- 
 erty of the telephone companies, such as have been made 
 in Massachusetts and Wisconsin. The companies them- 
 selves seldom have adequate records of either property 
 quantities or property costs. It may be safely asserted 
 that no finally satisfactory rate adjustments can be ac- 
 complished without such an intimate and comprehensive 
 
BASIS FOR TELEPHONE RATES 113 
 
 knowledge of the plant as is given by a thorough inven- 
 tory and appraisal, and this is what most telephone com- 
 panies do not possess. 
 
 The apportionment of investment and annual ex- 
 penses between classes of service for the purpose of test- 
 ing the reasonableness of existing rates or fixing new 
 ones, requires the assumption of factors and the utiliza- 
 tion of averages which the old-type telephone man may 
 criticise, but such criticism is likely to be captious rather 
 than just. The whole fabric, for instance, of charges by 
 life insurance companies depends upon careful actuarial 
 computations founded on the use of averages, and it 
 works out advantageously for both the insurer and the 
 insured. A careful insurer would have a profound dis- 
 trust of an insurance company which failed to gather, 
 record, and use all pertinent statistics in connection with 
 its rate making. 
 
 One of the difficulties of the situation is to devise a 
 test of the equitableness of rates which, as a test, will 
 be satisfactorily applicable to all cases. It is urged 
 in some quarters that the cost of specific service 
 performed shall be the determining factor. In other 
 quarters, it is urged that the " value of the service " to 
 the subscribers shall be the determining factor. The 
 latter seems but another way of proposing to make 
 charges according to " what the traffic will bear," when 
 that phrase is used in its objectionable sense of taking as 
 much as the subscribers will give up. As a matter of 
 fact, the charges made for service should be adjusted as 
 between the company and each group of its customers, 
 so that the company finds the dealings profitable with 
 each group, when the full situation is considered, and 
 each customer receives service which, as nearly as prac- 
 ticable, meets his requirements and costs a price which 
 
114 MUNICIPAL UTILITIES 
 
 makes the service advantageous to him ; while no unjust 
 discriminations between classes of service or customers 
 are allowed. 
 
 In passing, I will make a note that the last phrase 
 does not involve equal prices to all customers, because 
 different subscribers may demand different qualities of 
 service as well as different quantities. 
 
 It seems to me that the tests of the reasonableness or 
 equitableness of the rates maintained by a public service 
 corporation are found in: (i) The effectiveness and 
 simplicity with which the schedule classifies the cus- 
 tomers, so that the total income required to maintain the 
 service company is collected in a manner which secures 
 the same rate for all customers in each class obtaining 
 service of approximately like character, though cus- 
 tomers belonging in different classes may be subject to 
 quite different rates because they obtain service with 
 differences of character which essentially affect the cost 
 per unit or impose a higher standard of service upon 
 all classes than would be required by some of them ; and 
 (2) the certainty with which the rates secure from each 
 class of customers the full annual operating cost of the 
 service in that class and such a proportion of the reason- 
 able return on the investment as the customers' traffic 
 warrants. It then becomes a matter of public policy to 
 determine whether a company receiving a public grant 
 shall be privileged to take a larger proportion of profit 
 from one class of customers than from another, the word 
 " profit " being used to signify the aggregate return on 
 the investment. This is relatively a new question in pub- 
 lic policy, and the ultimate limitations of the policy must 
 rest with experience and the judgment of our best ju- 
 dicial minds. It would be a manifest injury to the nation 
 if the policy became so circumscribed that the railroads 
 
BASIS FOR TELEPHONE RATES 115 
 
 would feel that equal proportions of profit must be earned 
 on all parts of their systems and from all kinds of traffic. 
 What the effect of so circumscribed a policy would be 
 in the case of corporations giving service within the 
 limits of a single city or a single state like many of the 
 telephone companies is not so clear, but it probably would 
 be undesirable. 
 
 The cost of performing the service seems to me the 
 most important factor in determining rates in stable and 
 well developed territory, but its application to telephone 
 service must be made with a cautious consideration of 
 all of the facts. Reasons for this are obvious when the 
 problem of telephone service is Carefully scrutinized. In 
 city service, the large business users demand a celerity 
 and accuracy (quality) for the service which adds much 
 to its cost. Physical conditions prevent providing this 
 fast service for one class of subscribers and not for 
 others in intimate intercommunication therewith. But 
 some of the latter classes, as, for instance, the residence 
 users of moderate means, may have no interest in or 
 care for the remarkable speed and accuracy which 
 characterizes the telephone service of many American 
 cities. Service of a lower grade of speed and ac- 
 curacy, which is less costly to produce, would equally 
 well satisfy the desires and needs of such subscribers. 
 A distinction should, therefore, probably be made in class 
 rates, so that the cost of the extraordinary speed and 
 accuracy may be placed on the classes of subscribers 
 who demand it. 
 
 A similar condition exists in the relations of city to 
 rural telephone service. The business subscribers of the 
 city demand the speediest and most accurate service ob- 
 tainable at any cost, but rural subscribers are usually 
 well satisfied by a more leisurely grade of service. How- 
 
n6 MUNICIPAL UTILITIES 
 
 ever, the city conditions are forced, by the demands of 
 the city, to be spread over both the city and the closely 
 related rural communities. Here again, the extra cost 
 of the speedy service presumably ought to be borne by 
 the classes of subscribers imposing it. As the provision 
 of the speedier service requires greater investment in the 
 rural plant and greater operating expense than might 
 otherwise be necessary, it is obvious that the cost of per- 
 forming a specific service in the suburban communities 
 may not be a fair basis of rates in case the cost is to be 
 put where it belongs. 
 
 The foregoing indicates that city business rates may 
 reasonably be expected to be higher than residence rates 
 or the rates for service in rural districts. A differentia- 
 tion between business and residence users under flat 
 rates has heretofore been common, and this is further 
 justified by the lower average calling rate which is 
 usually characteristic of residence subscribers where 
 flat rates are in vogue, and by the fact that the maximum 
 traffic of residence subscribers may not occur at the hours 
 when business messages are pressing upon the central 
 offices. The relations pointed out above apparently jus- 
 tify an adjustment in favor of residence users of moder- 
 ate requirements even when measured rates are adopted. 
 The policy of some telephone companies apparently is in 
 this direction. 
 
 Progress is plainly being made in the direction of 
 rationalizing telephone rates. One of its indications is 
 found in the syllabus of an opinion delivered in a tele- 
 phone rate case by the Wisconsin Railroad Commission, 
 which says: 
 
 No reasonable objection can be taken to a schedule of 
 rates based upon the actual quantity of the service rendered. 
 
BASIS FOR TELEPHONE RATES 117 
 
 It would be difficult to quarrel with this, provided 
 " quantity " is construed to comprehend the number of 
 messages and a reasonable consideration of time, length, 
 and distance of the message transmission; it being un- 
 derstood, however, that any comparison must rest be- 
 tween users needing service of equal quality. If the lat- 
 ter condition is not tactily understood, the statement 
 ought to be amended so as to read that " no reasonable 
 objection can be taken to a schedule of rates based upon 
 the actual quality of the service required and quantity 
 rendered." 
 
 As also showing the tendency toward rationalizing 
 rates, I will quote from a recent finding of the Massa- 
 chusetts Highway Commission in respect to telephone 
 rates in the large city of Boston and its surrounding 
 important suburban districts. Knowing that a certain 
 revenue must be raised, the Massachusetts Commission 
 pointed out : 
 
 That the district to be covered by a given telephone rate 
 should be the territory generally used by the great majority 
 of the subscribers therein, rather than a much larger terri- 
 tory, the greater portion of which is seldom used by the 
 majority of subscribers. 
 
 That the company should collect its revenues for calls 
 between more distant portions of the territory from those 
 who make use of such service, rather than from those who 
 use only local service involving the use of a much smaller 
 portion of the plant. 
 
 That the suburban exchanges have of necessity so much 
 occasion for calling into Boston and vice versa that the five- 
 cent toll rate between Boston and suburban exchanges should 
 be extended to cover the longest distance consistent with a 
 well-balanced schedule and with fairness to the company. 
 
 That business service, at least, except for essentially local 
 service, should be placed on a measured basis; and 
 
n8 MUNICIPAL UTILITIES 
 
 That, so far as it is possible to do so, the rate schedule 
 should be so made as to furnish telephone service to the 
 small user at the lowest yearly charge that is fair and equita- 
 ble, and, on that as a basis, adjusted to meet the requirements 
 of the medium user. 
 
 Telephone companies still assert that no rational basis 
 for telephone rates can be found. A few of the com- 
 panies have adopted their rate schedules as the result of 
 certain actuarial operations, but most of them have ar- 
 rived at their schedules by the path of expediency and 
 gradual modification. Few can support the reasonable- 
 ness of their schedules on a foundation of facts pro- 
 duced from their accounting records. I believe that this 
 condition not only ought to be overcome, but that it 
 is gradually being overcome. The willingness of the 
 telephone companies to cooperate with supervisory com- 
 missions, in gathering, and, to some degree, in studying, 
 cost and traffic statistics, is an encouraging indication. 
 With the accumulation of statistics which will give a 
 clearer understanding of the cost of service and the rela- 
 tion of speed and accuracy of service to its cost, each 
 modification of rate schedules under the supervision of 
 wisely-constituted commissions ought to approach closer 
 to a rational basis. A more effective organization of cost 
 keeping than has yet come into vogue should be insisted 
 upon. It must also be constantly remembered that traf- 
 fic is a factor of the utmost importance, and traffic sta- 
 tistics must be made of record and carefully studied. 
 This makes it important for the cost keeping to be car- 
 ried out as a joint project of the accountants and en- 
 gineers, rather than of the accountants alone as hereto- 
 fore. 
 
 The telephone rate problem seems as complex as any 
 
BASIS FOR TELEPHONE RATES 119 
 
 problem before the public service commissions, not ex"-^ 
 cepting the problem of railroad freight rates. But tele- 
 phone rates are usually made for the territory of an 
 individual city, or, at most, an individual state, which 
 gives ground for expecting more rapid progress in im- 
 proving the basis of fixing telephone rates than can 
 probably be reasonably expected for freight rates. This 
 is a matter which must be treated by engineers for the 
 facts and by judicial commissions for the conclusions, 
 and not by legislatures or city councils acting in the 
 ordinary processes of legislation, except as they may 
 refer the matters to engineers or commissions. (System- 
 atic study of the factors which enter into and affect the 
 cost of supplying telephone service usually proves capa- 
 ble of showing the adequacy or inadequacy of classes 
 of telephone service existing in a city and its environs, 
 and of disclosing the possibilities of fuller economic de- 
 velopment of the use of this important servant of com- 
 munity life. If each community would provide for such 
 a systematic study of the problem, the joint problem of 
 reasonable and rational rates would soon be in a fair 
 way to be solved. 
 
CHAPTER VII 
 
 A RAPID TRANSIT POLICY FOR GREATER NEW YORK 
 
 The Rapid Transit Problem of New York City is 
 of greatest interest because it is one of the most difficult 
 of all utility problems and because its solution will af- 
 ford most valuable precedents for the solution of like 
 problems in all our cities. A large constructive policy is 
 needed. Fortunately Dr. Milo R. Maltbie, a member of 
 the Public Service Commission for the First District, 
 New York, since its creation in 1907, and a well-known 
 publicist on municipal and utility questions, has worked 
 out just such a policy. Dr. Maltbie's plans and conclu- 
 sions are of deep import to all interested in utility prob- 
 lems, and in street railway problems in particular. His 
 paper 1 follows : 
 
 The movement for an adequate system of rapid 
 transit in New York City originated so far distant in 
 the past that no definite date can be fixed. The first legis- 
 lative investigation was made nearly fifty years ago, and 
 the first rapid transit commission was appointed in 1875. 
 Practically nothing was accomplished towards the build- 
 ing of lines for the next twenty years, or until the [crea- 
 tion of the Rapid Transit Commission by the act of 1894."! 
 
 1 Read before the National Municipal League at its Cincinnati 
 meeting in 1909. 
 120 
 
A RAPID TRANSIT POLICY 121 
 
 This commission — the predecessor of the present 
 Public Service Commission — encountered the same diffi- 
 culties which had blocked the efforts of previous com- 
 missions. (Existing transportation companies have al- 
 ways opposed, more or less strenuously, the efforts to 
 secure construction of new lines with public or private 
 funds. It was only after it was definitely decided in 
 1894 to use municipal funds to construct a subway that 
 any definite progress was made.l Even then the cry 
 was raised that the city was in sucn a wretched financial 
 condition that it could not afford to issue bonds for 
 the construction of a subway. The constitutional debt 
 limit was said to be in the way, " unfortunately ". The 
 courts were persuaded to disapprove the route proposed 
 by the Rapid Transit Commission upon these grounds, 
 causing a delay of two years. Then the corporation 
 counsel withheld his opinion upon the form of contract 
 for nearly a year and a half. The mayor opposed the 
 plan, declaring that no solution of the rapid transit prob- 
 lem could be worked out through the use of the city's 
 credit and urged that the needed relief must be obtained 
 by the extension of the existing facilities — the elevated 
 roads. 
 
 The Rapid Transit Commission then went to the leg- 
 islature and urged that it be allowed to grant franchises 
 to private companies in perpetuity. This proposal met 
 with such a storm of protest and with such unanimous 
 public disapproval that the project died before it was 
 born. Indeed, fit was not until the new assessments 
 for the year 18^99 had been confirmed and a constitu- 
 tional amendment adopted, excluding some $30,000,000 ^ 
 of debt from the constitutional limitation, that the con- 
 tract for the construction of the present subway from 
 municipal funds was finally signed.! Five years had 
 
122 MUNICIPAL UTILITIES 
 
 thus been practically lost, thanks to the efforts of those 
 who wanted no more rapid transit except upon their 
 own terms, and thanks to a bugaboo born of a wrong 
 construction of the constitution. 
 
 [The years 1907-1909 saw a duplication of the situa- 
 tion from 1894-1900. The Public Service Commission 
 has proposed the construction of the rapid transit lines 
 from public funds, and has had six contracts before 
 the Board of Estimate and Apportionment for nearly 
 a year and six months^ The work could have been be- 
 gun and would be one-half finished to-day if prompt 
 action had been taken. At least two other lines could 
 also have been put under way. [_But the debt limit cry 
 has again been raised, an obstructive suit was brought, 
 and only within the last few months has the Court of 
 Appeals decided that the city had a considerable mar- 
 gin when it was said to have nothing/] 
 
 Thus, as a result of 59 years of agitation for rapid 
 transit and of a particularly strenuous fight during the 
 last few years, only one subway has been built and put 
 in operation, and only part of one other had been put 
 under contract up to a few days ago, when the Board 
 of Estimate approved six contracts for a portion of an- 
 other line. [The great increase in the borrowing capacity 
 of the city, due to rising values of real estate, a higher 
 valuation of property and the amendment of the con- 
 stitution, has been squandered and spent upon various 
 "public improvements", with a niggardly allowance for 
 subways. Between January 1, 1904, and November 1, 
 1908, over $298,000,000 in corporate stock were issued 
 by the city of New York. Of that amount only $19,- 
 000,000, or less than 7 per cent., were devoted to rapid 
 transit. But a considerable portion of the stock issued 
 was for expenditures authorized prior to January 1? 
 
A RAPID TRANSIT POLICY 123 
 
 1904. Since that date down to November 1, 1908, the 
 city issued corporate stock for expenditures authorized 
 since January 1, 1904, amounting to $147,000,000, and 
 of this amount less than $3,400,000 went for rapid 
 transit, or less than 3 per centi Who that is familiar 
 with traffic conditions in New York City is bold enough 
 to uphold such a distribution of municipal expenditures 
 as wise, proper or just? But whatever may have been 
 the ethics or the wisdom of such large expenditures 
 for everything but rapid transit, the fact remains that 
 the city was again forced into the position where the 
 debt-limit cry was effectually raised and where further 
 construction was blocked for a time. The embargo was 
 raised only a few days ago, just before election. 
 
 /The basic law relating to rapid transit was for many 
 years an act passed in 1891, which created a board of 
 rapid transit railroad commissioners."? The act was gen- 
 eral in form, but was intended to apply only to New 
 York City. /Five persons were named therein, who with 
 the mayor, the comptroller and the president of the 
 Chamber of Commerce were to administer the law. This 
 board was to fill vacancies in its own membership"] and 
 until 1906 was one of the few instances in the whole 
 United States of a cooptated body. ,The growing dis- 
 satisfaction with this plan came to a focus in 1906 when 
 the mayor was given power to fill vacancies, but a year 
 later the entire commission was abolished and its powers 
 transferred to the public service commission for the first 
 district appointed by Governor Hughes. 7 
 
 The Act of 1891 was amended nearly every year 
 after its adoption. Originally it conferred very broad 
 powers upon the rapid transit board, but during the 
 first half of the present decade these powers were greatly, 
 reduced, hedged about, and restricted. Many believed 
 
124 MUNICIPAL UTILITIES 
 
 that too little discretion remained, but the public gen- 
 erally seemed reluctant to remove the barriers. Suc- 
 cessive amendments have made portions of the law obso- 
 lete. In other parts, it was so confused, involved and 
 verbose that the average citizen could hardly understand 
 it. In the attempt to escape from the long-term fran- 
 chise or contract, a very short period with rigorous 
 limitations had been adopted. Yet in many ways, the 
 interests of the city were not amply protected, and the 
 law cannot be said to have represented a clear, har- 
 monious, progressive policy. 
 
 As soon as the Public Service Commission was or- 
 ganized, we began at once to redraft the law. A bill 
 was presented to the legislature — a bill that was some- 
 what crude and imperfect in certain respects. The leg- 
 islature passed it, but not until several changes had been 
 made that were very objectionable. Governor Hughes 
 wisely vetoed the bill, and the matter went over until 
 1909. 
 
 Between the two sessions, the preparation of a new 
 law went on, and the details of the proposed amend- 
 ments were revised and perfected, and several new fea- 
 tures introduced. The bill was presented to the legisla- 
 ture of 1909, met with practically no opposition and was 
 signed by the governor, no amendments opposed by the 
 commission this time having been made. The law needs 
 still further amendments, and details must be perfected; 
 but as it now stands, it represents a practically har- 
 monious policy which is probably more modern and 
 progressive than any heretofore formulated in law. It 
 is believed to combine adequate protection of public 
 interests and yet to allow reasonably free range to pri- 
 vate initiative. 
 
 Probably the most important change in the law was 
 
A RAPID TRANSIT POLICY 125 
 
 the introduction of the indeterminate principle for fran- 
 chises and operating leases. Under the old law, the 
 duration of the lease was a most prolific source of dis- 
 cussion. Originally, the Rapid Transit Board was au- 
 thorized to lease a municipally-owned road for any term 
 of years without limitation. The first contract made 
 thereunder was for 50 years with the privilege to the 
 lessee of a 25-year renewal. The second contract, made 
 three years later, was for 35 years with a 25-year re- 
 newal. The subway built under these contracts was 
 such a success financially from the very start that imme- 
 diately a movement for the limitation of the powers of 
 the board was started. After a few years of agitation, 
 [there was passed in 1906 an amendment which restricted 
 the duration of the original lease to twenty years and 
 renewals to twenty years more in case the road was con- 
 structed at city expense."] If the city paid for equip- 
 ment as well, the original term could not exceed ten 
 years and renewals ten years. 
 
 I Even before this amendment was passed, many in- 
 sisted it was so restrictive that private companies would 
 not accept their terms. Others were equally positive 
 that it was not only reasonable but necessary to protect 
 the welfare of the city. As yet it has not been tried, 
 but the short-term franchise or lease has so many ob- 
 jectionable features from the standpoint of the public 
 and the company that the commission undertook to work 
 out a plan which would not only give better control and 
 protection to the city, but also be fairer to the operator, 
 provided he gave good service at reasonable rates and 
 respected the city's interestsTj 
 
 The plan finally perfected was based upon the in- 
 determinate idea. Under all future franchises or oper- 
 ating contracts under this plan, the city will have the 
 
126 MUNICIPAL UTILITIES 
 
 right to terminate the grant or contract at any time 
 after ten years and to take over whatever the company 
 may have provided in the way of road or equipment 
 upon paying an amount to be provided for in the con- 
 tract, which shall not exceed the investment made by 
 the company plus 15 per cent., and which amount shall 
 decrease from year to year as the grant continues, until 
 finally all the property in the street shall revert to the 
 city free and clear without payment upon some date 
 fixed in the grant. 'The date at which such reversion 
 shall take place is to be fixed at the earliest time within 
 which the investment made by the company in the road 
 can be amortized out of earnings. In no case is any 
 payment to be made to the company for the franchise 
 or the termination of the lease or the contract. If any 
 rapid transit line is thus taken over, the city may operate 
 the line itself or lease it to another company or transfer 
 it directly from the old company to the new company. 
 In other words, the hands of the city shall be untied and 
 left free to minister to the needs of the community as 
 conditions from time to time demand. 
 
 ( The important points to be noted are the short mini- 
 mum period (not more than 10 years), the limitation 
 of the amount to be paid (cost plus 15 per cent.), the 
 diminution of the amount as time runs on, the fact that 
 equipment will be paid for according to its then value, 
 and the fact that the more profitable roads will revert 
 to the city in a shorter time than the less profitable ones. 
 The principal reason for differentiating equipment from 
 roadway is that the former would doubtless be allowed 
 to deteriorate as the date approaches at which the city 
 is to receive it free. But if the payment is to be based 
 upon its then value, it is likely that the equipment will be 
 
A RAPID TRANSIT POLICY 127 
 
 maintained in good condition. In the case of street sur- 
 face railroads, this argument would' apply with much 
 force to roadway as well. 
 
 This plan will, we believe, judging from the expe- 
 rience of other countries and states, adequately protect 
 whatever investment may be made by private companies 
 and will furnish sufficient inducement to attract such 
 private capital as may be needed. If a company knows 
 in advance that the capital it invests will be repaid to it, 
 less such amount as may have been accumulated in the 
 amortization fund, in case the city decides to terminate 
 the grant, and that if the city does not terminate the 
 grant, it — the company — will be allowed to continue 
 operation, it will at once perceive that the only risks it 
 runs are those of mismanagement and mis judgment. 
 These are the ordinary risks which every business man 
 encounters, and in the case of urban transportation, they 
 are at a minimum. Indeed, experience has shown that 
 public utilities will often stand mismanagement which 
 would immediately bankrupt a company doing. a com- 
 petitive business. 
 
 This principle, for which the Public Service Com- 
 mission stands, means that the city shall always and 
 continuously be in a position to control transit develop- 
 ment. Nothing is more vital to a city than adequate 
 transportation, and it is no more important that a city 
 should control its streets than that it should control the 
 special arteries of traffic, its rapid transit lines. Under 
 an irrevocable franchise or operating contract which 
 gives a company the exclusive right to operate a line 
 for 30, 40, 50 or 100 years, the city loses complete con- 
 trol, and there is no way by which it can be regained 
 before the expiration of the term except at enormous 
 
128 MUNICIPAL UTILITIES 
 
 expense and under such difficulties as make it imprac- 
 ticable. 1 
 
 ^ . The second important principle of the new law is the 
 sharing of profits, above a certain fixed minimum, be- 
 tween the operating company and the city. Under the 
 old law an operator might make 6, 8, io, 15, or 20 per 
 cent, profit, and the city would receive no more in the 
 last than in the first case. It was also true that, if the 
 rental was too small, there was no way by which the 
 city would receive a share of the unexpected profits. 
 Yet it is practically impossible to determine in advance 
 what the profits will be and to fix a rental which will 
 be adequate from the viewpoint of the city and still fair 
 to the operating company. Further, it is usually true 
 that the profits vary from year to year and are normally 
 much larger during the later years than at the beginning. 
 Attempting to meet these various conditions and diffi- 
 culties, the commission worked out a profit-sharing plan. 
 It provides that there will be deducted from income all 
 operating expenses, taxes, payments to reserve and 
 amortization funds and a return upon the investment 
 not to exceed in any case 6 per cent. The remainder 
 is to be divided equally between the company and the 
 city. In other words, if the company were to make 9 
 per cent, in any one year after paying all charges ex- 
 cept interest and dividends, and if the agreement fixed 
 5 per cent, as the point at which a sharing of profits 
 should begin, the city would get 2 per cent., and the 
 company 5 per cent., plus 2 per cent., the latter as an 
 
 1 It is impossible here to discuss as fully as is desirable the rela- 
 tive advantages of the indeterminate grant as compared with per- 
 petual and short-term franchises. Those who are interested may 
 find of some value a report upon this subject to the Public Service 
 Commission, New York City, made by me in December of last year. 
 
A RAPID TRANSIT POLICY 129 
 
 extra dividend to its stockholders. If only 7 per cent, 
 were earned, the city would get 1 per cent, and the 
 company 1 per cent., i. e., 6 per cent, in all. 
 
 The theory upon which this plan is based is that the 
 city, by permitting a company to lease its property or 
 to use its streets, has become a partner in the enter- 
 prise, and that as such it ought to have a share of the 
 profits above a fair return to capital. Further, when 
 the city and the company are partners and share profits, 
 each is more likely to consider the rights and interests 
 of the other. 
 
 Special attention should be called to the use which 
 may be made of the profits thus accruing to the city. 
 It has been customary to turn over to the general city 
 treasury all such receipts from public utilities. As a 
 result the users of such services as water, gas, elec- 
 tricity, and transportation have paid an indirect tax, a 
 sort of tax upon consumption. The commission con- 
 siders that this is improper and unjust, that rapid transit 
 should be furnished at cost as nearly as possible and 
 that all receipts from the traveling public over and above 
 cost should be used to improve, extend, or multiply 
 transportation facilities. 
 
 The commission's plan provides, therefore, that all 
 funds received from such sources or from the rental 
 of any rapid transit property or rights shall be used 
 first to pay interest and sinking-fund charges upon muni- 
 cipal bonds issued to build or equip rapid transit lines, 
 and that the remainder shall go into " the Rapid Transit 
 Fund " to be used only for the construction, equipment 
 or operation of rapid transit lines; it is not to be used 
 to decrease taxation. In case the city's share of the 
 profits shall be sufficient to warrant a reduction in fares, 
 it may be utilized for this purpose. For example, if the 
 
130 MUNICIPAL UTILITIES 
 
 city's share should be equivalent to 20 per cent, of the 
 gross earnings upon a five-cent fare basis, the fare could 
 be reduced thereafter to four cents. Of course, this 
 would result in a reduction of the city's share of the 
 net profits for the following year, the passengers hav- 
 ing received the benefit directly. 
 
 /in the original Rapid Transit Act of 1891, no pro- 
 vision was made for municipal construction or owner- 
 ship ; only private management was contemplated. When 
 the board advertised its first line and offered a franchise 
 for sale to the highest bidder in 1892, none appeared. 
 In 1894 the act was revised and municipal ownership 
 introduced as an alternative. The Rapid Transit Board 
 was not authorized, however, to exercise discretion in 
 the selection of a method, for it was directed to offer a 
 franchise for sale only if " it shall not have been deter- 
 mined by the vote of the people . . . that such rail- 
 way or railways shall be constructed for and at the 
 expense of such city. . . ." After the adoption of 
 plans and routes, the question was submitted to the voters 
 in November, 1904. The result was overwhelming in favor 
 of municipal ownership, the vote being 132,647 for and 
 42,916 against. Whether this vote, taken in the old City 
 of New York before the boroughs of Brooklyn, Queens 
 and Richmond were annexed, bound the board to muni- 
 cipal ownership of all lines, until another referendum 
 authorized private ownership, is a question which has 
 been much discussed. It has been generally admitted, 
 however, that no franchise should be or could be granted 
 until amendment of the law was secured^ 
 
 [in view of the imperative need of more rapid transit 
 and of the various safeguards thrown about the grant, 
 the commission believed that the public was ready to 
 entrust to it the power to grant a franchise to a private 
 
A RAPID TRANSIT POLICY 131 
 
 company. The proposed amendment to the law pro- 
 vided for the restoration of that power, and it met with 
 practically no opposition. The commission may proceed, 
 therefore, either to construct and equip with public funds 
 or to allow a company to do so, subject to limitations 
 already enumerated."! Under certain conditions the city 
 may operate also, but the statute contemplates private 
 operation as a general rule and municipal operation as 
 the exception. 
 
 j^The most novel feature of the whole scheme is the 
 construction of lines from funds raised by assessment 
 of cost in part or in whole, upon the property benefited^! 
 It has been stated that the increase in land values in 
 northern Manhattan and the Bronx, due to the con- 
 struction of the present subway, would not only have 
 built the entire line but would have equipped it, pro- 
 vided rolling stock, built power-houses and paid every 
 other capital expense, and left a margin. Is it not fair 
 and just that the property directly benefited by the con- 
 struction of a rapid transit line should bear at least a 
 part of the cost of constructing that line? The prin- 
 ciple has been applied to a multitude of public improve- 
 ments, such as sewers, streets, parks, water-works and 
 paving. Why should it not be applied to an improve- 
 ment which more immediately and directly benefits prop- 
 erty than any one of those just named? An increase in 
 transportation facilities inevitably increases the value of 
 real estate and brings population. This is not neces- 
 sarily true of streets, sewers, parks or paving. It is 
 true that, without them, people cannot live, but no mat- 
 ter how elaborate the system of streets, sewers, parks, 
 etc., may be, they will amount to little unless there are 
 transportation facilities. Not infrequently officials of 
 transportation companies have formed or have become 
 
132 MUNICIPAL UTILITIES 
 
 interested in real-estate enterprises adjacent to new rail- 
 road lines in order to obtain for themselves or then 
 companies a part of the increased value of land which 
 the construction of new lines has caused. 
 
 Let no one think for a moment that the landowner 
 is burdened in any way or that he is deprived of any- 
 thing to which he is entitled by a rapid transit assess- 
 ment. If the city builds a line or permits its streets 
 to be used for its construction, and thereby increases the 
 value of the adjoining land very considerably, the net 
 gain to the community is the increase in value less the 
 cost of making the increase. If the land owner gets all 
 of the net gain, he has obtained not only all there is to 
 be had, unless he takes from the community or from 
 others, but he has obtained a profit which he has in 
 no way aided in making any more than have other 
 citizens and certainly not more than those who are to 
 use the line and thus make its operation possible. Hence, 
 by allowing the landowner to have all the net increase, 
 the community has not deprived him of anything, but 
 it has made him a present of something to which he is 
 not entitled as a matter of legal right or equity. 
 
 If the construction development of rapid transit lines 
 by special assessment is to be adopted in a few cases, 
 it ought to be followed as uniformily as the facts will 
 permit. Otherwise all localities will not be treated with 
 equal justice. If, for example, one suburban locality 
 with little population is provided with a rapid transit line 
 by special assessment, and another locality with similar 
 conditions is provided with a line without special as- 
 sessment, the landowners in the first locality get only 
 the net increase in values, while those who happen to 
 live in the favored locality get much more. This is 
 neither just nor expedient, for all parts of the city should 
 
A RAPID TRANSIT POLICY 133 
 
 be given equal treatment and none selected for special 
 favors. 
 
 Construction by special assessment also provides a 
 method whereby all sections of the city may be provided 
 with rapid transit upon a fair basis. Without it certain 
 localities are given rapid transit at the expense of others. 
 Take, for example, the present subway. It runs the 
 length of Manhattan and to the northern part of the 
 Bronx. The Brooklyn branch barely extends beyond 
 the business center of that borough. The line was built 
 from the proceeds of the city bonds without any as- 
 sessment, and the operating company is paying the in- 
 terest upon these bonds and a sinking fund of one per 
 cent., sufficient to retire the bonds in about fifty years. 
 Now the residents of northern Manhattan and the Bronx 
 who ride the entire length of the island are carried at 
 a loss normally. But this loss is more than offset by 
 the profit made from carrying those who ride only a 
 short distance in lower Manhattan. Eliminating the 
 traffic to and from Brooklyn, which is not only self- 
 supporting but very profitable, this means that all of the 
 profitable business in the heart of Manhattan is used 
 for the benefit of two narrow areas. The property own- 
 ers in these districts have seen their land increase enor- 
 mously in value without expenditure of one dollar upon 
 their part. They have been given rapid transit for a 
 five-cent fare from the Bronx to lower Manhattan and 
 Brooklyn. But because there is not a sufficient amount 
 of short-distance riding in Manhattan to carry long lines 
 in Brooklyn and the Bronx, Brooklyn has been deprived 
 and the Bronx has been blessed abundantly. 
 
 Let us suppose that a part of the cost of the north- 
 erly branches had been paid for by special assessment. 
 In the first place, the landowners would still have reaped 
 
134 MUNICIPAL UTILITIES 
 
 'a handsome profit. Secondly, the Bronx would have 
 had a five-cent fare as it has now. But there would be 
 no interest and sinking-fund to pay upon the amount 
 raised by special assessment, and the operating company 
 could extend the zone of five-cent fares further into 
 Brooklyn or further into the Bronx if the latter were 
 thought to be desirable. The only other way it can 
 be done is to rent rapid transit lines at less than interest 
 and sinking-fund, raising the deficit by taxation. But 
 who would attempt to justify the taxation of the city 
 at large when the result would be that landowners in 
 certain limited area would reap a large, unearned in- 
 crement therefrom? 
 
 Much more might be said regarding construction by 
 special assessment, its numerous advantages, the va- 
 rious precedents and the beneficial results to the city 
 socially and financially; but the time and space allotted 
 me will not suffice. 
 
 Reference has been made to the part which the pro- 
 vision in the state constitution limiting the city debt 
 has played in connection with rapid transit plans. It 
 was felt that it ought not to be allowed to continue to 
 prevent the construction from public funds of lines 
 which are self-supporting. Thus for two years the com- 
 mission has advocated an amendment which will exempt 
 from the constitutional limitation upon the borrowing 
 capacity of New York City, all bonds issued for rapid 
 transit lines which are self-sustaining. Debts incurred 
 for such purposes are not burdens upon the taxpayers, 
 and there is no reason why the city should not be al- 
 lowed to acquire revenue-producing property. Further, 
 , unless the city has the financial ability to build and equip 
 Its own lines, it is not in a position to make a fair bar- 
 gain with private companies. The city would be forced! 
 
A RAPID TRANSIT POLICY 135 
 
 |to accept what corporations may offer or do without 
 the needed relief from present intolerable conditions. 
 The city ought not to be limited to such alternatives?] 
 This view has been endorsed by the people of the state 
 at a state election, and the amendment will become effec- 
 tive when the legislature passes an act creating the ma- 
 chinery for determining when an enterprise is self-sus- 
 taining. 
 
 I' have attempted to outline briefly only the most 
 characteristic features of the rapid transit law. A few 
 other provisions may be summarized without discussion. 
 Previously to the enactment by the legislature of our 
 proposed amendments, the commission could not lease 
 a rapid transit line for less than interest upon the bonds 
 issued by the city for construction and equipment and 
 a sinking-fund payment. If no one would pay such a 
 rental, the commission had to operate the line. Now, 
 there is no minimum rental ; it may be much less than 
 interest if it is thought necessary or desirable. The priv- 
 ilege of municipal operation remains as another alter- 
 native. 
 
 In the case of additional tracks on elevated roads 
 and of extensions constructed by a company with its 
 own funds,, it was recognized that certain modifications 
 must be made because of the peculiar conditions. In 
 these cases the system of profit-sharing might not work, 
 as it might not be possible to differentiate the receipts 
 from the additional tracks or extensions from the re- 
 ceipts on the old lines. Consequently, the commission 
 may fix a different compensation for a period not to 
 exceed 25 years, and it is to be readjusted every 20 
 years thereafter. For similar reasons, the duration of 
 the franchise may not exceed that for the existing line, 
 sd that all may terminate together. 
 10 
 
136 MUNICIPAL UTILITIES 
 
 / No contract, franchise or grant may be let until bids 
 have been invited by public advertisement, except in the 
 few cases where only one party would bid if bids were 
 invited. Everything has been done to open up the field 
 and to increase the opportunity for competition where 
 competition is possible. No important action may be 
 taken hastily. Usually public hearings must be held. 
 [The approval of the Board of Estimate and Apportion^ 
 ment — the financial body of the city — must be secured 
 upon all important mattersJ 
 
CHAPTER VIII 
 
 ELEMENTS OF A CONSTRUCTIVE FRANCHISE POLICY 
 
 At the annual meeting of the National Municipal 
 League, held in Buffalo, in November, 1910, Dr. Delos 
 F. Wilcox, Chief of the Bureau of Franchises of the 
 Public Service Commission for the First District, New 
 York, read a paper on the subject of a constructive fran- 
 chise policy. This paper has been revised and extended 
 for this volume. It is of particular value, because it dis- 
 cusses the exact problems that must be considered in 
 drawing up a proper public utility franchise. Dr. Wilcox 
 says: 
 
 For the sake of simplicity and directness I shall confine 
 myself in this discussion to street railway franchises. The 
 principles suggested, however, will be applicable, with due 
 allowance for modifying conditions, to franchises under 
 which any local public utility is operated. 
 
 So far as the discussion of past and present fran- 
 chise policies is concerned, I shall confine myself for the 
 most part to the experience of New York City, for the 
 double reason that I have a more intimate knowledge of 
 franchise conditions there than elsewhere, and that the 
 franchises of New York apply to public utility services of 
 greater magnitude than are found in any other city of 
 the United States. 
 
 137 
 
138 MUNICIPAL UTILITIES 
 
 The street railway franchise policy of New York City 
 was inaugurated about sixty years ago by " The Forty 
 ^jgThieves," who at that time controlled the destinies of 
 New York by reason of membership in the board of 
 aldermen and the board of assistants. In the first fran- 
 chises, granted in 1851 to the Sixth and Eighth Avenue 
 Railroad Companies, it was provided that the city should 
 have the right to cause the companies' rails to be removed 
 from the streets at any time, and furthermore, that the 
 city should have the option of buying the companies' 
 lines at any time upon payment of the cost of construc- 
 tion, plus a bonus of ten per cent. The good example set 
 by " The Forty Thieves " in these original franchises was 
 never followed by them or by their innumerable succes- 
 sors in the common council and the state legislature 
 through whose liberality the metropolis of the American 
 continent has been despoiled of the control of its streets. 
 It turned out that, at the time these original fran- 
 chises were granted, the City of New York did not pos- 
 sess lawful authority to grant street railway franchises. 
 In 1854, after the local authorities had attempted to make 
 grants to several companies for the construction of lines 
 on the important north and south avenues of the city, 
 the legislature passed a general act confirming these 
 grants, and conferring upon cities of the state generally 
 the right to grant street railway franchises subject to the 
 consent of the majority in interest of the abutting prop- 
 erty owners. Many years later, at a time when the 
 Metropolitan Street Railway Company was gathering to- 
 gether all the competing lines of old New York into" one 
 gigantic monopoly, the Court of Appeals was called upon 
 to determine the effect of the Act of 1854, confirming the 
 original grant to the Eighth Avenue Railroad Company. 
 The court held substantially that what the Act of 1854 
 
A CONSTRUCTIVE FRANCHISE POLICY 139 
 
 did was to confirm the privileges of the company and 
 release it from its obligations. In this manner the ju- 
 diciary effectively corrected the original aldermanic error 
 of starting right. In i860, however, a new act, applica- 
 ble to New York City alone, was passed by which the 
 legislature arrogated to itself the exclusive right to 
 grant street railway franchises in the streets of the me- 
 tropolis. During the next fifteen years this right was 
 liberally exercised from legislative headquarters at Al- 
 bany. 
 
 The franchise policy under which the principal streets 
 of New York were covered by local or legislative grants, 
 or both, prior to 1875, was fundamentally wrong in three 
 most important particulars. 
 
 In the first place, the grants were unlimited, which, 
 under the decisions of the New York courts, means per- 
 petual; that is to say, the privilege granted to a private 
 company to construct street railway fixtures in a public 
 street without a specific limitation of the period during 
 which those fixtures may be maintained is construed in 
 New York as a vested right that cannot be taken away 
 either by local or by legislative action, either with or 
 without compensation for the physical property. While 
 such a franchise might perhaps be condemned, the city 
 would, in that case, be compelled to pay not only for the 
 physical property, but also the full present value of the 
 perpetual right to occupy the street. 
 
 In the second place, the fatal mistake was made of 
 relying upon competition in the street railway business as 
 practically the only means of securing adequate service at 
 reasonable rates. The state and the city absolutely failed 
 to recognize in the charters and franchises. of the various 
 street railway companies any obligation resting upon any 
 of these companies to extend their lines beyond the routes 
 
140 MUNICIPAL UTILITIES. 
 
 originally selected by the companies themselves. The 
 rule was laid down, although by no means always fol- 
 lowed, that every company should within a certain time 
 construct the entire route which it had selected, but when 
 extensions or new routes were to be built, it was left 
 for the existing companies or other companies, impelled 
 solely by the desire for profit, to apply for the privilege 
 of building them. 
 
 In the third place, no public control whatever was 
 exercised over the disposition of the companies' gross 
 earnings. No adequate provision was made for the con- 
 tinual upkeep and improvement of the lines, and no pro- 
 vision whatever for the writing-off of the capital or any 
 part of it out of earnings. 
 
 The results were : perpetual franchises, a multiplicity 
 of companies, and no check upon over-capitalization. 
 
 By 1875 the people of New York had learned that 
 something was wrong with this franchise policy, but 
 instead of changing the fundamental principles upon 
 which the policy was founded they began to apply vari- 
 ous remedies which were recommended by the political 
 doctors from time to time. The gold cure, limited diet, 
 bleeding and gymnastic exercises in a hobble skirt have 
 all been tried with indifferent success. To begin with, a 
 constitutional amendment was adopted, effective Janu- 
 ary 1, 1875, by which the legislature was forbidden to 
 authorize the construction of a street railway without the 
 consent of both the local authorities and the abutting 
 property owners, or in lieu of the consent of the prop- 
 erty owners, a determination by commissioners appointed 
 by the general term of the Supreme Court that the pro- 
 posed railway ought to be constructed and operated. This 
 provision effectually stopped the practice of legislative 
 grants by special acts. It also stopped the construction 
 
A CONSTRUCTIVE FRANCHISE POLICY 141 
 
 of street railways for a number of years. Nine years 
 later the legislature finally brought itself to acquiesce in 
 the new conditions resulting from the adoption of this 
 constitutional amendment, and passed a general street 
 railroad law providing for the incorporation of com- 
 panies and prescribing the manner in which the requisite 
 consents of the local authorities and of the property own- 
 ers or the court should be obtained. By this time the 
 prosperity of the companies had attracted the attention 
 of the public, and there was incorporated in the new law 
 a provision that companies thereafter organized should 
 pay to the city three per cent, of their gross earnings dur- 
 ing the first five years of operation, and five per cent, 
 thereafter. Existing companies were authorized to ex- 
 tend their lines, but were required to pay similar percent- 
 ages on the earnings of the extensions. Such earnings 
 were to be estimated, however, on the basis of the 
 company's earnings per mile of track for its entire system, 
 old and new. This policy, in the first place, established 
 a discrimination between the old and the new companies. 
 The new companies, which, in the nature of the case, 
 would have to build their lines in outlying and less prof- 
 itable territory, were compelled to pay a considerable tax 
 on their receipts, while the old companies which had for 
 many years been fattening on the profits of congested 
 traffic in the most important downtown streets, were not 
 required to make these payments. This general policy 
 was calculated to discourage the building of new lines 
 or the extension of old ones into undeveloped territory. 
 The basis prescribed for the calculation of the earnings 
 of extensions was such as to put a premium upon the 
 construction of extensions, if they were to be constructed 
 at all, by new companies organized as dummies of exist- 
 ing ones. 
 
142 MUNICIPAL UTILITIES 
 
 In 1886 the famous Cantor Act was passed, which re- 
 quired the sale of all new franchise grants in New York 
 City at public auction. The practical effect of this act 
 was to induce rival interests to bid against each other un- 
 til a proposed franchise would be struck off at a pro- 
 hibitive rental, with the result that the line would not 
 be built at all, or at least not until after several years 
 of financial floundering and a final readjustment and re-, 
 duction of the percentage payments agreed upon. Two 
 of the crosstown lines were, at different times, bid in for 
 thirty or thirty-five per cent, of the gross receipts, but 
 when they were struggling finally to get into operation 
 about ten years later, the city, under authority of a special 
 act of the legislature, compromised with the companies 
 by reducing their percentage payments in excess of the 
 minimum required under the railroad law, in one case to 
 one-half of one per cent., and in another case to one-fifth 
 of one per cent. In still another case, when two or three 
 rival factions in the political' and traction world were bid- 
 ding against each other for an important system of routes 
 in the Bronx, the bids were run up to several thousand 
 per cent, of the gross receipts. At this point the city 
 comptroller was conscience-smitten, being in doubt as to 
 his right to strike off the franchise at such an exorbitant 
 price. Accordingly, after some litigation and delay, the 
 franchise was awarded to the People's Traction Company 
 at a rental for the first five years of operation of ninety- 
 seven per cent, of its gross receipts, in addition to the 
 three per cent, required under the railroad law, and for 
 the period commencing at the end of the first five years 
 of operation and continuing in perpetuity, of ninety- 
 five per cent, of its gross receipts, in addition to the five 
 per cent, required under the railroad law. It is need- 
 less to say that this company's lines have never been 
 
A CONSTRUCTIVE FRANCHISE POLICY 
 
 143 
 
 built. We are even in a position to say with approxi- 
 mate certainty that this franchise,' granted some fifteen 
 years ago, is now dead. The kind of certainty referred 
 to is moral rather than strictly legal certainty, for in the 
 present condition of the New York railroad law there 
 is no such thing as legal certainty until the Court of 
 Appeals has finally and definitely spoken upon the par- 
 ticular point in question. Even then, doubt may arise 
 at a later time when the highest court affirms without 
 opinion a decision of the lower court wholly inconsistent 
 with an earlier decision of the higher court supported by 
 a well-reasoned opinion. 
 
 By 1897 public opinion in New York had become 
 sufficiently enlightened to put into the charter under 
 which old New York, Brooklyn and various outlying 
 municipalities were consolidated into Greater New York, 
 certain provisions quite inconsistent with some of the 
 franchise policies theretofore established. A limit was 
 placed upon the duration of franchises. Original grants 
 could no longer be made for a greater period than 
 twenty-five years, with a provision for renewals, not to 
 exceed twenty-five years in the aggregate, upon a re- 
 valuation of the franchise. The charter also provided 
 that any franchise grant might contain a provision either 
 for the reversion of the grantee's property to the city 
 without cost at the expiration of the franchise, or for 
 the purchase of the property at a fair valuation at that 
 time. Although the charter did not confer upon the 
 city any specific authority to acquire and operate exist- 
 ing street railway lines, it did provide that any utility 
 acquired by reversion or purchase under the terms of a 
 franchise thereafter to be granted might be operated 
 by the city. In place of the old law requiring the sale 
 of franchises at public auction, the charter required that 
 
144 MUNICIPAL UTILITIES 
 
 the value of any particular franchise and the conditions 
 upon which it was to be granted should be determined 
 by the Board of Estimate and Apportionment. Other 
 important franchise provisions of the charter related to 
 procedure in making grants, £tnd are of no particular 
 interest in this discussion. 
 
 Two years later, in 1899, the special franchise tax 
 law was passed, under the provisions of which the com- 
 panies' fixtures in the streets and their intangible rights 
 were defined as real estate, to be assessed annually by 
 a state board and to be taxed at the same rate as other 
 real estate. A provision was inserted in this law, how- 
 ever, authorizing the companies to subtract from their 
 franchise tax all payments made to the city on account 
 of any other form of special tax. Under these provi- 
 sions, not only the gross receipts tax established in 1884, 
 but even the rentals paid by the companies for using 
 the big bridges over the East River, are subtracted from 
 the special franchise tax. The obvious purpose of this 
 provision was to equalize conditions among all the com- 
 panies, old as well as new. The special franchise tax 
 has involved in all important instances heavier payments 
 than had been made by the companies under preceding 
 laws and franchises. The city, however, has refused to 
 accept this equalization, and, in recent years, has followed 
 the policy of compelling companies acquiring new street 
 railway privileges to contract away their lawful right to 
 subtract the percentage payments and other compensation 
 required from their special franchise tax. 
 
 Under these various schemes for fixing the relations 
 between the street railway companies and the public, 
 things went from bad to worse, until the public service 
 commissions law was enacted in 1907, upon the theory 
 that the state should assume definite and specific super- 
 
A CONSTRUCTIVE FRANCHISE POLICY 145 
 
 vision of the rates charged, the equipment provided, 
 and the service rendered by the various companies oper- 
 ating within its limits. The law was grafted upon the 
 jumble of already existing legislation, a large portion 
 of which passed under the pseudonym of " the railroad 
 law." No franchise policies were reversed by the es- 
 tablishment of the public service commissions, and no 
 franchise laws were repealed. The people of the state 
 set out to try a new and additional remedy by means 
 of which, without regard to the perpetuity of the com- 
 panies' rights, and in spite of the absence of specific 
 provisions in their franchises, adequate and safe service 
 at reasonable rates was to be wrung from the street 
 railway companies by means of uniform accounting, pub- 
 licity, and intimate supervision. 
 
 In spite of all the remedies that have been tried, the 
 street railway franchise situation in New York City re- 
 mains in an utterly chaotic condition, founded upon prin- 
 ciples that are fundamentally faulty and that foredoom 
 public regulation to failure, or at least to partial and 
 halting success, unless they can be supplanted by radi- 
 cally different principles. 
 
 The policy of New York with regard to rapid transit 
 franchises offers a gleam of light in a situation that 
 would otherwise be enveloped in moonless and starless 
 night. Away back in 1875 the congestion of population 
 in lower Manhattan had already for a score of years 
 impressed upon the enlightened people of the city the 
 desperate need of rapid transit. Out of this need grew 
 the recognition that rapid transit was a public function 
 to be initiated by the city itself, primarily for the relief 
 of intolerable social and economic conditions rather than 
 as an enterprise out of which private capital could ex- 
 tract profits. Accordingly, provision was made for the 
 
146 MUNICIPAL UTILITIES 
 
 appointment of commissioners by the mayor to deter- 
 mine upon the necessity of the construction of rapid 
 transit lines, to lay out the routes along which they 
 should be constructed, to formulate and prescribe the 
 plans of construction and the conditions of operation, 
 to organize companies for the purpose of constructing 
 and operating them, and to turn over to these companies 
 all the rights and privileges necessary to bring about the 
 fulfilment of the purposes for which they were incor- 
 porated. Under this early legislation, the state recog- 
 nized the principle that rapid transit at least is a public 
 function to be undertaken on the initiative of the public 
 authorities. It failed, however, to limit the terms of 
 the franchises granted, to recognize the principle of 
 monopoly operation or to preserve the control and direc- 
 tion of rapid transit development continually in public 
 hands. When the elevated railroads had become inade- 
 quate to meet the demands for rapid transit on Manhat- 
 tan Island, the city undertook to develop subways. A 
 new rapid transit commission was appointed, with au- 
 thority to lay out routes and to grant franchises for 
 subway construction and operation, but the enormous ex- 
 pense involved in subway building and the experimental 
 character of the project interfered to prevent private 
 capital from volunteering to accept and exercise the 
 privileges offered as it had done in the case of the ele- 
 vated roads. Accordingly, under the stress of the in- 
 creasing demand for better transit facilities, the people 
 voted for the municipal construction of subways, and 
 finally, after long delay, and in spite of enormous diffi- 
 culties, a subway was actually constructed and put in 
 operation. The timidity of the city, however, and its 
 failure to recognize frankly the public nature of the 
 function to be performed, impelled it to seek the assist- 
 
A CONSTRUCTIVE FRANCHISE POLICY 147 
 
 ance of private enterprise to the extent of the equipment 
 and operation of the new transit line. It might almost 
 be said that both in the case of the elevated roads and 
 in the case of the subway, the city gave away rights and 
 privileges just as far as it could induce anybody to take 
 them. The subway was leased in advance of construc- 
 tion for private operation for a period of fifty years, 
 with a renewal of twenty-five years upon a readjustment 
 of the rentals. This lease was given without imposing 
 upon the operating company any obligation whatever to 
 construct or operate any extensions of the original line 
 or to exchange transfers with the city or any other com- 
 pany operating extensions or connecting lines, but pro- 
 vision was made for the amortization of the construction 
 cost of the subway itself, not including equipment, dur- 
 ing the period of the lease. 
 
 The result is that, with transit needs again crowding 
 upon transit facilities, the city has to resort to the doubt- 
 ful expedient of providing for a competing subway, or 
 of making such extensions of the existing subway sys- 
 tem as will be acceptable from time to time during the 
 next sixty or seventy years to the private company now 
 in control. It is not a pleasant dilemma to face. 
 
 The rapid transit plan of 1875 recognized the neces- 
 sity of public initiative and stopped there. The rapid 
 transit plan of 1894 recognized the necessity not only of 
 public initiative, but of construction and ownership of 
 the subways by the city, but stopped there without in- 
 sisting that the city should maintain continuous control 
 of the development of the system which had been built 
 with its own money. At last, by the bitter experience 
 of more than thirty years, the people of New York were 
 pushed another step forward in 1909. In that year the 
 Rapid Transit Act was amended so as to make possible 
 
148 MUNICIPAL UTILITIES 
 
 the construction of subways and elevated roads under 
 indeterminate franchises, the right being reserved to the 
 city to terminate such grants at any time after the ex- 
 piration of ten years from their original date, upon the 
 purchase of the property. The price to be paid for the 
 property in case of the termination of the grant was 
 not to exceed the cost of construction plus a bonus of 
 fifteen per cent. If the termination of the grant was 
 delayed, the purchase price was to decrease gradually, 
 until at the end of a definite period to be specified in the 
 franchises, the railroads would revert to the city with- 
 out cost, except for the equipment, which the city would 
 be under obligation to purchase. During the period of 
 operation by a private company, the gross receipts of 
 the railroad were to be devoted, .first, to the payment 
 of operating expenses, taxes and reserve and amortiza- 
 tion charges ; second, to the payment of an annual allow- 
 ance not exceeding six per cent, upon the capital actually 
 invested by the company, and third, the net profits were 
 to be divided equally between the city and the company. 
 The 1909 amendments also provided for the construction 
 of rapid transit lines with funds secured by the levy of 
 special assessments upon property specially benefited. 
 
 An effort to enlist private capital in the construction 
 and operation of an immense new subway system under 
 this indeterminate franchise, and without the help of 
 city funds, failed in the fall of 1910. Thereupon, plans 
 for independent municipal construction and plans for 
 cooperation between the city and the existing rapid 
 transit companies were earnestly considered by the pub- 
 lic service commission and the city authorities. As an 
 outcome of long negotiations with the companies and 
 patient consideration of the intricate problems involved, 
 •the public authorities formulated, in June, 1911, in the 
 
A CONSTRUCTIVE FRANCHISE POLICY 149 
 
 so-called " McAneny Report", the general outlines of 
 a policy intended to control all future rapid transit de- 
 velopment in New York. Ten fundamental principles 
 were laid down, as follows: 
 
 I. — That future rapid transit lines should follow as closely 
 as possible the development of a logical and well-ordered city 
 plan. 
 
 II. — That the city should provide, as rapidly as the means 
 at its command permit, not only for relief of congested areas, 
 but for the opening of lines through those sections that, 
 though relatively undeveloped, offer promising opportunity 
 for the better distribution of population. 
 
 Ill- — That the location of particular routes should be 
 determined by the city, for the city's reasons, and not neces- 
 sarily to conform to plans proposed by operating companies. 
 
 IV. — That the occupation of lines in the hands of pri- 
 vate operators should be kept within the city's control, and 
 that the city should always have the power to retake the 
 component parts of a system capable of independent opera- 
 tion at any time that it may deem such a measure necessary. 
 
 V. — That where a proper measure of control can be main- 
 tained, it is good policy and correct economy to utilize and 
 extend the facilities offered by existing rapid transit lines 
 already at the service of the city, rather than to reduce the 
 uses of such lines through wasteful competition. 
 
 VI. — That the available funds of the city should be used 
 for new construction work and placed where they will aid 
 best in preserving the city's strategic position. 
 
 VII. — That the city should have a full and fair share in 
 all profits derived from the operation of new lines; not only 
 as a matter of the rightful enjoyment of the fruits of its 
 own franchises, but as a means of hastening the release of 
 its self-supporting investments from the constitutional debt 
 limit and of the construction of additional transportation 
 facilities. 
 
 VIII. — That the basis of operation, in every case, shall 
 
150 MUNICIPAL UTILITIES 
 
 be such as to secure a proper contribution from the earnings 
 of the more profitable inside or short-haul lines to help sup- 
 port the less profitable or outlying lines; thus assuring to 
 the city proper service and equitable returns from each sys- 
 tem as a system, and not as a section of scattered routes, with 
 the gains of those most profitable reserved for private en- 
 joyment. 
 
 IX. — That the actual operation of the lines should con- 
 tinue under strict control; and that the contracts for opera- 
 tion should embody not only the essential provisions of the 
 Public Service act, but such other guarantees of the charac- 
 ter of equipment furnished or the adequacy of operating 
 service as the city may exact; and 
 
 X. — That no plan should be adopted or proposal accepted 
 that will prevent the development of the entire city as a 
 social and economic unit or hinder the logical extension of 
 transportation facilities in the future. 
 
 This policy was unanimously approved by the public 
 service commission and the board of estimate and ap- 
 portionment, and may therefore be considered as the 
 present official rapid transit policy of New York City. 
 
 Although no rapid transit grants have yet been made 
 under the indeterminate franchise, and no lines have 
 been constructed on the assessment plan, there has at 
 last been established in the rapid transit law a recog- 
 nition of several of the most important fundamental 
 principles of a correct franchise policy. It is for this 
 reason that I have referred to rapid transit development 
 preliminary to the elaboration of my suggestion for a con- 
 structive street railway franchise policy. 
 
 In making suggestions for a model street railway 
 franchise, we must stipulate at the beginning that exist- 
 ing perpetual, unlimited, or indeterminate grants and 
 grants expiring at different times should be terminated 
 either by purchase, by condemnation, by forfeiture, or 
 
A CONSTRUCTIVE FRANCHISE POLICY 151 
 
 by negotiation. It is certainly impossible fully to in- 
 augurate a correct franchise policy without being in a 
 position to make this policy apply to existing lines. 
 
 We may start off, therefore, with the assumption that 
 neither the city nor the state should show any mercy to 
 forfeited or forfeitable franchises granted years ago in 
 the days of dense darkness and corruption. 
 
 A. constructive franchise policy must recognize the 
 following objects to be attained : 
 
 1. Adequate and continuous service. 
 
 2. The protection of the capital invested in the 
 business. 
 
 3. The permanent upkeep of the property at the 
 highest practicable standard of efficiency. 
 
 4. Extensions of service as needed. 
 
 5. Reasonable and uniform rates. 
 
 6. Unity in operation, subject to public supervision. 
 
 7. The gradual amortization of the investment out 
 of earnings. 
 
 8. Continuous and effective control of the streets 
 by the city, through the right at any time or at reason- 
 able intervals to take over the lines and operate them 
 or transfer them to other agents. 
 
 I believe that the fundamental characteristic of a 
 model franchise would be the terminable nature of the 
 grant. I do not favor the indeterminate franchise in its 
 Massachusetts form, under which the public authorities 
 have a right to revoke the locations of a street railway 
 company without making any provision for the purchase 
 of the property. In practice, an indeterminate franchise 
 of this nature is almost necessarily a perpetual fran- 
 chise, except in the case of particular streets where new 
 traffic conditions require the transfer of surface lines 
 to other routes or to subways. The form of the indeter- 
 11 
 
152 MUNICIPAL UTILITIES 
 
 minate franchise which I favor would permit the city 
 at any time after a certain initial period or at frequent 
 intervals after such period to terminate the grant upon 
 taking over the entire property of the company at a price 
 to be determined by the cost of construction less the 
 amount of the amortization fund already accumulated. 
 This provision for purchase should not, however, apply 
 to the revocation of locations on specific streets not in- 
 tegral and necessary portions of the company's route 
 where such revocations are made necessary by changes 
 in traffic conditions. In case of relocations, however, 
 of any portion of the route, the net cost of the changes 
 should be added to the capital account and become a 
 part of the purchase price unless amortized before the 
 city takes over the property. The purpose of the inde- 
 terminate franchise as here outlined is threefold. In the 
 first place, it provides for continuous public control of 
 the city's street railway policy. The desirability of muni- 
 cipal ownership and operation is a mooted question, but 
 it can hardly be disputed that this generation ought not 
 to attempt to foreclose the question against reconsidera- 
 tion and resettlement by generations to come. The in- 
 determinate franchise leaves the city in full possession 
 of its powers, so that its policy with reference to muni- 
 cipal ownership may be determined from time to time 
 as future exigencies require. In the second place, the 
 indeterminate franchise opens a way for the unification 
 of street railway systems where competition still lingers. 
 Where there are several operating companies under the 
 indeterminate franchise as here described, the city would 
 be able to bring about the consolidation of all lines by 
 taking them over for a new company to operate, or by 
 causing the transfer to one of the existing companies 
 of the lines of all the other companies. The advantages 
 
A CONSTRUCTIVE FRANCHISE POLICY 153 
 
 of unity of operation both from the standpoint of the 
 public and from the standpoint of those responsible for 
 rendering street railway service are too well recognized 
 to require discussion here. In the third place, the in- 
 determinate franchise even where operation is already 
 unified and where the city does not desire to establish 
 municipal ownership, would permit the city to transfer 
 the entire system to new agents whenever the company 
 already in control proves unable or unwilling to adjust 
 itself to the conditions of intelligent and humble service. 
 I may add that I think it would be fair to provide that, 
 in case the city terminates the franchise for the purpose 
 of transferring the property to another private company, 
 a bonus of ten or fifteen per cent, should be paid in ad- 
 dition to the price for which the city can take over the 
 property for municipal operation. This principle has 
 been recognized in the Chicago settlement franchises. 
 
 In my judgment the intimate control of the street 
 railway service demanded by modern conditions can be 
 made most effective by the inclusion in the franchise 
 contract of certain definite requirements in regard to the 
 disposition of revenues. Particularly if the purpose of 
 such intimate control is to compel adequate service at 
 reasonable rates, the maintenance of the property at the 
 highest practicable standard of operating efficiency, and 
 the gradual writing off of the capital invested, it appears 
 absolutely necessary to lay down the general rules which 
 shall govern the company in the use of its gross earnings. 
 
 I would therefore stipulate that out of street railway 
 revenues there shall first be paid whatever may be neces- 
 sary to meet operating expenses in the broadest sense 
 of that term. I would include in operating expenses 
 such taxes as may be levied against the company or its 
 property under the laws of the state. I would include 
 
154 MUNICIPAL UTILITIES 
 
 specific provision for the insurance of the car barns, 
 power houses and rolling stock against destruction by 
 fire. I would include specific provision for the main- 
 tenance of an accident fund, out of which shall be paid 
 the claims of tort creditors as well as the necessary legal 
 expenses of the company in settling or defending dam- 
 age suits. To meet this particular class of expenses 
 requires from three or four to eleven per cent, of the 
 gross earnings of the various surface street railway sys- 
 tems of New York City. Under present conditions of 
 street railway operation not less than eight per cent, of 
 gross receipts should be set aside for the accident fund, 
 at least until experience in the case of a particular rail- 
 way proved this allowance to be unnecessarily large. 
 Inasmuch as the cost of accidents is a legitimate charge 
 against operating expenses during the year in which the 
 accidents occur, and inasmuch as the companies are, on 
 the average, perhaps two years behind in the settlement 
 of personal-injury claims, I think it is desirable that 
 there should be set aside from earnings a sufficient 
 amount to keep the balance in the accident fund approxi- 
 mately equal to the estimated liabilities of the company 
 on account of accidents that have already occurred, but 
 for which settlement has not yet been made. 
 
 " Operating expenses", in the broadest sense of the 
 term, includes the expenditure for maintenance and re- 
 pairs of a sufficient amount to preserve the integrity of 
 the property represented by the capital invested. It is 
 obvious, however, that an operating street railway sys- 
 tem cannot be maintained at one hundred per cent, of its 
 reproduction value. Rails that have been in constant 
 use for ten years may still be as good for immediate 
 service as they were when new, and cannot be discarded, 
 in spite of the fact that their life is half gone. It is 
 
A CONSTRUCTIVE FRANCHISE POLICY 155 
 
 estimated that the highest practicable standard of main- 
 tenance would keep a street railway property up to from 
 seventy to eighty per cent, of its reproduction value. 
 I would, therefore, stipulate in the franchise contract 
 that the plant should be maintained at a definite stand- 
 ard, say seventy-five per cent, of its value when new. 
 In order to compel the operating company to maintain 
 this standard, I would provide for a general maintenance 
 and depreciation fund. Approximately twenty per cent, 
 of the gross revenues of the railway should be put into 
 this fund from year to year, and such portions of the 
 fund as cannot profitably be expended on current main- 
 tenance and renewals should be permitted to accumulate 
 for future use. This fund should be sufficient to provide 
 for depreciation of every kind, including obsolescence, in- 
 adequacy, age and deferred maintenance, excepting only 
 the depreciation allowed from the' one hundred per cent, 
 standard of a new plant to the seventy-five per cent, 
 standard of an old plant maintained at its maximum effi- 
 ciency. This last item of depreciation is sometimes 
 called normal wear. It represents the necessary shrink- 
 age of the property provided at the start by the original 
 investment. This shrinkage is something that cannot 
 and need not ever be restored. It should be taken care 
 of, not by a depreciation fund, but by the early amor- 
 tization of a portion of the capital. While it seems 
 desirable to insert in the franchise contract specific 
 percentages of gross revenues to be set aside for the 
 various funds, provision should be made for the read- 
 justment of these percentages from time to time if 
 such readjustment seems necessary in the light of experi- 
 ence. 
 
 After providing for the payment of operating ex- 
 penses of every kind and nature as hereinbefore de- 
 
156 MUNICIPAL UTILITIES 
 
 scribed, the franchise should authorize the company, as 
 the next draft upon revenues, to withdraw a sum suffi- 
 cient to pay a reasonable minimum return, say, five or 
 six per cent., upon the amount of the capital actually 
 invested. The amount of the investment, so far as the 
 franchise is concerned, should not be determined by the 
 aggregate par value of the stocks and bonds of the com- 
 pany outstanding at any particular time. The regulation 
 of nominal capitalization may well be left to the state 
 authorities. The local franchise should make definite 
 provision, however, for determining from time to time 
 the capital value to be carried on the company's books 
 as the basis for the semi-guaranteed returns upon in- 
 vestment, and as a basis for the purchase price . of the 
 property if the city should at any time determine to 
 take it over. Suffice it to say at this point that the 
 capital upon which the company is allowed a fixed an- 
 nual return should represent the cost of construction, 
 including the element of preliminary and organization 
 expenses and all other elements legitimately entering into 
 such cost in its most comprehensive sense. 
 
 After the earnings of the road have paid a fixed mini- 
 mum upon capital invested, the next item to be provided 
 for is the amortization of the capital itself. In the first 
 place, immediate provision should be made, if possible, 
 for the amortization of twenty-five per cent, of the capi- 
 tal, representing that portion of the property which will 
 be worn out in approximately ten years after the com- 
 mencement of operation, never to be restored. Theoreti- 
 cally, this portion of the capital should be amortized 
 within the first ten years of operation, but inasmuch as 
 in the case of an entirely new road the earnings of the 
 property during the first few years may be comparatively 
 scant, it will not be possible in all cases to follow this 
 
A CONSTRUCTIVE FRANCHISE POLICY 157 
 
 rigid rule. Regular payment to the amortization fund 
 should be made in the shape of a certain percentage 
 upon the capital invested rather than as a percentage 
 of gross receipts. It would require the payment of ap- 
 proximately two per cent, a year, with the fund accumu- 
 lating at the rate of four per cent, per annum, to pro- 
 vide for the retirement of twenty-five per cent, of the 
 capital at the end of ten years. While it may not be 
 possible in some cases to set aside this full amount in 
 the early years of operation, there is no reason why this 
 amortization charge should not be made before the in- 
 vestors are permitted to earn anything more than the 
 fixed minimum rate of profits. After the accumulations 
 in the amortization fund have become equal to twenty- 
 five per cent, of the original investment, provision should 
 be made for the permanent writing-off of that portion 
 of the company's capital account, and thereafter the al- 
 lowance for interest on investment should be based upon 
 the capital as so reduced. What further provision shall 
 be made for amortization after the capital has been 
 brought down to correspond with the permanent status 
 of the property will depend upon the controlling theory 
 as to the permanent capitalization of utility plants. To 
 my mind, it is of as much importance that a street rail- 
 way system under private operation should be paid for 
 as that a water-works plant under municipal operation 
 should be paid for. It seems to me to be a desideratum 
 in the case of all public utilities, whether municipally or 
 privately owned, that provision should be made for the 
 amortization of the entire capital out of earnings within 
 a period of from twenty-five to fifty years. The increas- 
 ing burden of municipal debt, even though city bonds 
 are retired when due, practically prohibits the acquisition 
 by the city of public utilities whose capital account has 
 
158 MUNICIPAL UTILITIES 
 
 been steadily increasing from the day they were first 
 constructed. The legitimate burdens of the future in a 
 growing city are always greater than the burdens of the 
 present. Every new utility should pay for itself within 
 a generation or two, so as to prevent the heaping-up of 
 burdens on the shoulders of the citizens of the future. 
 When an energetic young man goes into debt to buy a 
 farm, he is not satisfied to pay interest indefinitely on 
 the amount of his mortgage. He considers it a matter 
 of plain business sense and patriotic duty to pay off the 
 mortgage so that he and his children after him will ac- 
 tually own the farm. In like manner, the city that is 
 guided by common sense and regard for its future will 
 see to it that the public streets and all the fixtures in 
 them are paid for as soon as possible and relieved of the 
 enormous burden of debt that is originally laid upon 
 them, by the issuance of municipal bonds and public- 
 utility securities. 
 
 The amortization fund provided for in street railway 
 franchises should be put into the hands of trustees, with 
 authority to invest in the bonds of the company wherever 
 that is possible, and otherwise in approved outside secur- 
 ities bearing interest or paying dividends at not less than 
 a specified rate. 
 
 After providing for operating expenses, interest on 
 investment and amortization charges, the franchise 
 should provide for the accumulation of a contingent re- 
 serve fund for the purpose of taking care of any deficits 
 which may occur in lean years in respect to any of the 
 obligations already provided for. Into this reserve fund 
 should be paid perhaps one per cent, of gross revenues, 
 until the accumulations of the fund reach a maximum of, 
 say, five per cent, on the amount of capital invested in 
 the property. 
 
A CONSTRUCTIVE FRANCHISE POLICY 159 
 
 Any balance of gross receipts remaining in the treas- 
 ury of the company at the 'end of any fiscal year, after 
 operating expenses, return on capital and amortization 
 and contingent reserve charges have been paid, should 
 be treated as net profits, and should be divided in some 
 equitable proportion between the company, the city and 
 the employees of the road. I would provide, however, 
 that the city's share in the net profits, whatever that 
 share may be, should be turned into the amortization 
 fund, in addition to the regular payments to that fund, 
 so as to hasten the time when the capital can be written 
 off and the street railways can be operated either as a 
 municipal or as a private enterprise without the burden 
 of fixed charges. Careful students of public utility prob- 
 lems are pretty well agreed that franchise utilities should 
 not be operated for the purpose of bringing into the city 
 treasury a revenue for the relief of the general tax- 
 payers. 
 
 As a tentative basis for the division of net profits, 
 I would suggest that fifty per cent, be assigned to the 
 city to be used as I have already indicated; twenty-five 
 per cent, be turned over to the company as an additional 
 return upon investment, and twenty-five per cent, be 
 turned into an employees' benefit fund. I would provide 
 for the distribution of this fund by trustees according 
 to plans devised from time to time to encourage and 
 reward efficiency, economy, and care in the operation 
 of the road. At the present time, without taking into 
 account the grave dangers and the enormous losses at- 
 tendant upon street railway strikes, we find all too many 
 cases where the employees, falling victims to petty temp- 
 tation or attempting to imitate on a small scale the pecu- 
 lations of the man higher up in the street railway 
 business, " knock down " fares or neglect to collect them 
 
160 MUNICIPAL UTILITIES 
 
 to such an extent as to cause a serious direct loss to the 
 company and an indirect loss to the public, which must 
 depend upon the earning power of the road for the main- 
 tenance of adequate service. It is certainly of the ut- 
 most importance to the city in the granting of a street 
 railway franchise to a private company, that all possible 
 provision shall be made to insure the loyalty and effi- 
 ciency of the employees. The distribution to the em- 
 ployees of a share of the net profits of the business 
 according to some wise plan, based on the recognition 
 of special merit, would, I am sure, redound to the com- 
 mon benefit of the public and the investor. 
 
 No street railway franchise contract is adequate un- 
 less it reserves to the city the right to require from time 
 to time the construction of extensions as needed. The 
 proper development of the local transit system is so 
 important a factor in the social, economic and political 
 welfare of a city, that the right to initiate and control 
 this development in accordance with the demands of 
 public policy should never be surrendered by the muni- 
 cipal authorities. The arbitrary right to compel exten- 
 sions wherever desired might be abused by an ignorant 
 or reckless city government. It is probably necessary, 
 therefore, that provision should be made for an appeal 
 as to the necessity and reasonableness of a proposed ex- 
 tension from the order of the local authorities to a state 
 commission or to the courts. 
 
 . The procedure in cases where extensions are ordered 
 should be very carefully worked out, so as to prevent 
 impossible requirements on the one hand, and unreason- 
 able delay and litigation on the other. In order to re- 
 lieve the situation where extensions are needed which 
 the company could not in justice be required to build 
 at its own expense, the city should reserve the right to 
 
A CONSTRUCTIVE FRANCHISE POLICY 161 
 
 require the company to operate the extensions con- 
 structed by the city out of its general funds or on the 
 assessment plan, or by the property owners specially in- 
 terested in securing the extensions. 
 
 In order to assist the company in making betterments 
 and building extensions, the franchise should permit the 
 temporary use for these purposes of the cash accumu- 
 lated in the accident, depreciation and reserve, and amor- 
 tization funds, provision being made for proper book- 
 keeping and for the replenishment of these funds' 
 whenever necessary by the issuance of new stocks and 
 bonds. It is obvious that, if the books are kept properly, 
 no harm can result from such use of cash accumulations, 
 and considerable advantage will be gained by the avoid- 
 ance of delay and brokerage charges incident to the 
 retirement of old securities and the issuance of new 
 ones in place of them. 
 
 In a street railway franchise drafted in accordance 
 with the principles here proposed, I would provide for 
 flexible rather than arbitrary rates. It is highly desir- 
 able that every urban community constituting a single 
 unit of street railway operation should have uniform 
 rates of fare, with universal transfers, subject to reason- 
 able regulation. The particular rates to be charged, how- 
 ever, should be determined by the necessities of the case. 
 There is no reason to believe that, unless possibly in the 
 very largest urban territories, a higher rate than five 
 cents for adults, with half fare for children between the 
 ages of six and twelve years, would be required. We 
 should not flinch, however, from the fixing of a rate that 
 will meet the requirements of a constructive street rail- 
 way policy as here outlined. It might be desirable to 
 incorporate in the franchise a sliding scale of rates to 
 be. readjusted automatically, in a manner similar to that 
 
162 MUNICIPAL UTILITIES 
 
 set forth in the settlement ordinance that is now being 
 tried out in Cleveland. 
 
 Continuity of operation is so fundamental a requisite 
 in street railway service, that every necessary means 
 should be taken to insure it. On this account the rela- 
 tions between the company and its employees whenever 
 they are such as to threaten interruption or disintegra- 
 tion of service, become a matter of paramount interest 
 to the city. I would therefore stipulate in the granting 
 of any street railway franchise that the company shall 
 bind itself to submit any questions of dispute arising be- 
 tween it and its employees to arbitration when requested 
 to do so by the city. 
 
 There are two methods of determining the price at 
 which a public utility may be taken over by the city or 
 its licensee. According to one method, the property is 
 appraised at the time of purchase. According to the 
 other method, the value of the property is agreed upon 
 in the franchise itself or at the time of construction. 
 The uncertainties attendant upon appraisal at some in- 
 definite time in the future are so great that I believe 
 the city's interests will, in general, be better conserved 
 if the purchase price is based upon the cost of construc- 
 tion less the amount of capital amortized, than by any 
 other plan. 
 
 It seems to me, therefore, that when a street railway 
 franchise is granted, a definite valuation should be agreed 
 upon for the existing plant, or in the case of a new sys- 
 tem, careful provision should be made for the determina- 
 tion of the cost of construction at the time the railway 
 is built. The approval of the city should be required 
 for all construction contracts, and the proper city de- 
 partment should have supervision both of plans of con- 
 struction, materials used, and the actual performance of 
 
A CONSTRUCTIVE FRANCHISE POLICY 163 
 
 the work. No leeway should be given for padding the 
 construction account. Every extension or betterment 
 should be treated as original construction, and the actual 
 cost, audited and approved by the city authorities, should 
 be added to capital account, provision being made for 
 the payment of interest on additional investment and for 
 amortization charges, the same as in the case of original 
 construction. If the franchise is a renewal grant, and 
 a valuation can be agreed upon that takes into account 
 the necessary diminution of value through normal wear, 
 it will not be necessary to make provision for the amor- 
 tization of that portion of the original investment repre- 
 sented by the part of the property that has disappeared, 
 never to return. In most cases, however, under existing 
 franchises the companies have made no provision what- 
 ever for the amortization of this or any other portion of 
 their capital account. 
 
 I am convinced that, in order to get a scientific street 
 railway franchise policy actually established, a city may 
 well afford, if necessary, to accept a valuation of an ex- 
 isting plant, properly maintained, that would include this 
 element of capital representing property that has disap- 
 peared. Under such circumstances, the same provision 
 would have to be made for amortization as if the plant 
 were new. 
 
 In closing, I desire to quote a brief passage from an 
 article by Mr. Charles V. Weston, President of the South 
 Side Elevated Railway Company of Chicago, published 
 in the Electric Railway Journal of October 14, 1910. Mr. 
 Weston says : 
 
 " Referring specifically to the matter of speculation, 
 if the street railways are to be recognized and tolerated 
 as legitimate business enterprises, in which the owners 
 and the people have a mutual and equally important in- 
 
164 MUNICIPAL UTILITIES 
 
 terest, these enterprises must be permanently removed 
 from the field of stock manipulation, which has for its 
 sole purpose the drawing out of the people's money in 
 payment for that which does not represent intrinsic 
 value." 
 
CHAPTER IX 
 
 SUGGESTIONS FOR A MODEL STREET RAILWAY 
 FRANCHISE 
 
 At its annual meeting in 1910, the National Muni- 
 cipal League appointed a Committee on Franchises to 
 report suggestions for model franchises. A sub-com- 
 mittee of this committee reported suggestions for a model 
 street railway franchise to the Richmond Conference, 
 on November 16, 191 1. The sub-committee was com- 
 posed of Mr. James W. S. Peters, President of the City 
 Club, of -Kansas City, Missouri, and Dr. Delos F. Wil- 
 cox, Chief of the Bureau of Franchises for the Public 
 Service Commission for the First District, New York. 
 The report was as follows : 
 
 After full consideration, we are of the opinion that 
 the circumstances under which new franchise contracts 
 are made, varying as they do with the size of the city, 
 with the laws and constitutional provisions of the state 
 and the municipal charter, with the character of the fran- 
 chise contracts already in force and with the physical 
 lay-out and peculiar needs of each particular community, 
 are such as to make it difficult, if not impossible, to draft 
 a model franchise suitable for universal use, except pos- 
 sibly in the form of a general outline showing different 
 
 165 
 
166 MUNICIPAL UTILITIES 
 
 points which must be considered in connection with any 
 particular franchise, and a statement of certain general 
 principles in accordance with which, so far as practicable 
 under local conditions, every franchise settlement should 
 be worked out. 
 
 It is our opinion that the provisions of a street rail- 
 way franchise may be simplified largely in proportion to 
 the continuing right of regulation and control vested in 
 the city and state authorities under existing laws, and 
 particularly in proportion to the effectiveness of the ma- 
 chinery provided for the exercise of such regulatory 
 powers. Given a properly constituted state or local com- 
 mission, with sufficient authority to regulate a street 
 railway company's stock and bond issues and to compel it 
 to render safe and adequate service at reasonable rates, 
 to extend its lines so as to keep pace with the needs of 
 the community, to readjust its routes as public exigencies 
 require, to keep accounts and make financial reports with 
 scientific honesty, and to refrain from expending moneys 
 and conferring favors for political purposes, and with 
 ample funds to employ and train experts for this super- 
 visory service, a local franchise may be reduced prac- 
 tically to a simple permit to occupy the streets, subject 
 to the right of the city to terminate the grant, and upon 
 equitable terms take over the property or transfer it to 
 another grantee whenever public policy shall so dictate. 
 This may be called the minimum requirement for a model 
 franchise. The maximum is quite different, including as 
 it does all of the points which must be covered by a com- 
 plex contract between the city and its grantee where the 
 relation between the parties is purely contractual, no con- 
 tinuing right of regulation being vested in the public 
 authorities or no machinery for the exercise of such right 
 being available. 
 
MODEL STREET RAILWAY FRANCHISE 167 
 
 In order to be of service to any city, no matter how 
 unusual its position in regard to franchises may be, an 
 outline of model franchise requirements must be explicit 
 and worked out in great detail. In the time at our dis- 
 posal it has been wholly impossible to do more than pre- 
 pare a tentative outline of the matters to be kept in view 
 in determining the relations between the state and local 
 authorities and the patrons on the one hand, constituting 
 the public, and the investors and operatives on the other, 
 constituting the private beneficiary of the franchise. The 
 presentation of such an outline will be of service in sev- 
 eral ways. It will enable any city official or other person 
 interested in or responsible for the drafting or criticism 
 of a specific street railway grant, to check it up for the 
 purpose of seeing whether or not it covers the points 
 required by the circumstances of the case. It will serve 
 to direct the thought of the public toward a comprehen- 
 sive and logical treatment of franchise problems. It will 
 enable the members of your committee and the members 
 of the League in general to crystallize their franchise 
 ideas and contribute them to a later and more elaborate 
 general discussion of street railway problems. 
 
 The outline suggested and referred to above is sub- 
 mitted as an appendix to this report. 
 
 At the present time we are prepared to submit certain 
 suggestions as to general principles that should control 
 in the drafting of street railway franchises, as follows : 
 
 While we do not favor the granting of a street rail- 
 way franchise that is exclusive in legal form, we do be- 
 lieve it to be for the best interest of all concerned that 
 the entire street railway system of a given community 
 should be operated as a unit under one comprehensive 
 franchise. In other words, we favor a practical though 
 not a strictly contractual monopoly. 
 12 
 
168 MUNICIPAL UTILITIES 
 
 We would even go so far as to suggest the advisa- 
 bility, under certain conditions, of a practical consolida- 
 tion of the street railway and the electric light, heat and 
 power systems, because of the economies to be effected 
 by joint management. 
 
 In our opinion, every franchise should describe the 
 specific routes over which the lines are to be operated, 
 with an adequate provision for extensions or relocations 
 of original lines under the terms of the franchise, thus 
 avoiding the necessity of negotiating a new contract 
 whenever a modification or extension of routes is to be 
 made. 
 
 It is our opinion that one of the necessary corollaries 
 of monopoly in street railway service is the obligation on 
 the part of the franchise holder to extend its lines from 
 time to time when required by the city, subject to review 
 as to the reasonableness of the requirement. It should 
 not be necessary to show that a particular proposed ex- 
 tension will be an immediate source of profit. The test 
 of the reasonableness of an extension from a financial 
 standpoint should be whether or not the entire system 
 will still be able to earn a fair profit on investment after 
 the extension is made. Within these financial limits 
 extensions should be made so as not only to furnish 
 transit facilities to districts already built up, but also to 
 relieve and prevent congestion of population and provide 
 for the esthetic development and symmetrical growth of 
 the city. 
 
 The city should reserve the right to build extensions 
 either out of its general fund or out of the retirement 
 fund or by means of special assessments on benefited 
 property, and to require the grantee of the franchise to 
 operate such extensions as a part of its street railway 
 system upon fair terms as to rental. 
 
MODEL STREET RAILWAY FRANCHISE 169 
 
 We are of the opinion that all franchises should be 
 indeterminate within the maximum limits permitted by 
 law, and that when the indeterminate principle is ac- 
 cepted as the policy of the state, such maximum limita- 
 tions should be eliminated by a change in the law. 
 
 By an " indeterminate franchise " we mean a fran- 
 chise that may be revoked by the city upon due notice 
 given, either at any time, or at any time after a short 
 minimum period, or at regular intervals not more than 
 five years apart, such revocation in any case to be con- 
 ditional upon the city's taking over the physical plant at 
 a fair price or designating another grantee to do so. 
 
 An essential element in the purchase clause is the fix- 
 ing of the price at which the property may be taken over, 
 or the exact description of the method by which such 
 price is to be determined in the future. In our judgment, 
 it is preferable that the price should be agreed upon be- 
 tween the parties at the time of entering into the fran- 
 chise contract, provision being made for adding to this 
 price from time to time the legitimate cost of extensions 
 and betterments. An essential element in arriving at the 
 price originally agreed upon is a valuation of the physical 
 property. Our reasons for preferring a present valua- 
 tion to a future appraisal are that by this means the city 
 is enabled to know at any time exactly what the property 
 will cost if taken over; that the franchise itself, supple- 
 mented by the extension and betterment accounts, will 
 furnish at all times a definite basis of capital investment 
 for regulation and for amortization charges, and that 
 all the financial relations between the city and the com- 
 pany will be upon the basis of protecting the actual 
 original investments without reference to appreciation 
 or depreciation of land values, prices of labor and mate- 
 rial, cost of street work, etc. 
 
170 MUNICIPAL UTILITIES 
 
 The fixing of the purchase price and capital value in 
 the contract itself releases the city from any necessity of 
 providing for the supervision of stock issues. As to 
 bonds, it is desirable to provide in the franchise that they 
 shall be sold at the fair market price and shall be callable 
 for amortization purposes at a small premium over the 
 price at which sold. 
 
 We believe that, in order to make the city's control 
 of its streets effective, a practicable method of substitut- 
 ing municipal fir private ownership should be available 
 to the city at all times. In view of the enormous burdens 
 of a city, increasing in even greater proportion than pop- 
 ulation, it is clear that the mere provision of a purchase 
 clause in a street railway grant does not leave the way 
 open practically to municipal ownership in the future 
 unless in the grant itself some method is provided for 
 the reduction of the purchase price or for the accumula- 
 tion of a fund with which to effect the purchase. If the 
 compensation and taxes paid to the city by the franchise 
 holder are treated as an item of revenue, to be used for 
 the relief of general taxation, the city will not be accumu- 
 lating a purchase fund. Furthermore, if the franchise 
 holder pursues the usual policy of public service corpora- 
 tions, of continuous increase in capital investment with- 
 out any decrease by amortization, the purchase price will 
 become greater and greater as time goes on, and thus 
 tend to make purchase by the city at some future time 
 even more difficult than at the date of the contract. 
 
 We therefore suggest that either the city should set 
 aside all or a sufficient portion of the revenues received 
 by it from the street railway company as an amortization 
 or sinking fund for the purchase of the company's bonds 
 from time to time, and ultimately to offset the company's 
 entire equity in the property, or that the company itself 
 
MODEL STREET RAILWAY FRANCHISE 171 
 
 be required as one of the conditions of its franchise to 
 set aside annually in the hands of trustees a certain per- 
 centage on its investment sufficient, with the normal ac- 
 cumulations, to amortize the capital within a period of 
 from thirty to fifty yeais. All accumulations of the 
 amortization fund should, under the contract itself, go 
 to reduce the purchase price in case the franchise is 
 terminated. At the end of the amortization period, if 
 the city has not already purchased the property, the 
 entire physical plant will revert to the city without fur- 
 ther cost, either to be operated by it or to be leased for 
 operation, as public policy may at the time dictate. In 
 either case the plant can be operated free from capital 
 charges. This plan recognizes the essentially public 
 nature of the street railway business, and puts it upon 
 the same basis, as, for example, a water works system 
 owned by the city, where the bonds issued for a certain 
 period of years have to be paid when due out of earn- 
 ings. Indeed, in the City of New York at the present 
 time, the subway is being operated under a lease which 
 provides for amortization of its cost out of earnings 
 within a period of less than fifty years. The same prin- 
 ciple prevails in the contracts under which the Boston 
 subways are operated. Moreover, many street railway 
 franchises granted under the Greater New York charter 
 and accepted by companies now in operation, provide for 
 the ultimate reversion of the entire plant located within 
 street limits without cost to the city. 
 
 We would also suggest that the franchise contain a 
 clause binding the grantee in case of purchase by the 
 city to accept mortgage bonds of the city in payment, 
 to as great an extent as would be compatible with their 
 being readily negotiable, such bonds to be secured only 
 upon the property and revenues of the street railway 
 
172 MUNICIPAL UTILITIES 
 
 plant, including the right in case of foreclosure to retake 
 and operate the plant upon the same terms as before. If 
 existing laws in any particular state do not permit the 
 issuance of city bonds so secured, we suggest that the 
 necessary statutory or constitutional changes be made. 
 The new constitution of Michigan contains such an en- 
 abling provision (Article VIII, Section 24). A clause 
 requiring the company and its mortgage holders to ac- 
 cept such bonds to the extent of a large part of the capi- 
 tal value of the property at the date of purchase will 
 simplify the financial problems involved in the change 
 to municipal ownership, by eliminating brokerage 
 charges and at the same time leaving the company's in- 
 vestment largely undisturbed. As to bonds issued 
 against the general credit of the city for investment in 
 self-sustaining enterprises, the principle that they should 
 not be included in the general debt limit was recognized 
 by the National Municipal League more than ten years 
 ago in the " Municipal Program," and has recently 
 been adopted in the constitution and laws of New York. 
 In our opinion, the general adoption of this principle 
 would render the purchase clause in street railway fran- 
 chises more practicable, while at the same time inciting 
 the city to a careful and conservative financial policy in 
 the management of the utility after it was taken over. 
 
 The actual fixing of the purchase price is one of the 
 most important points to be considered in negotiating a 
 franchise contract. If the price is swollen by too liberal 
 an allowance for promotion, discounts on bonds, devel- 
 opment charges, neglected maintenance, dead capital lost 
 in experiments and mechanical changes, unexpired fran- 
 chise values and other items added to the money cost 
 of reproducing the physical property, the result may 
 be that the earnings of the street railway under any prac- 
 
MODEL STREET RAILWAY FRANCHISE 173 
 
 ticable scale of fares will be insufficient to provide first- 
 class service, yield a satisfactory return upon capital and 
 at the same time provide for an amortization fund. In 
 other words, excessive over-capitalization carried into 
 the purchase price may in advance doom the experiment 
 in municipal ownership to failure. Irrespective of his 
 opinions as to the merits of the municipal ownership 
 policy, no one can honestly advocate a purchase clause 
 that is a mere sham. 
 
 We recognize that the elements entering into the pur- 
 chase price will vary considerably with the particular 
 circumstances of each case. In the case of a street rail- 
 way that has long been in operation it is practically im- 
 possible to agree upon a purchase price based upon actual 
 original cost, for the reason that inadequate or mislead- 
 ing methods of accounting have been all but universal. 
 The standard most generally accepted at the present time 
 as the basis for an appraisal is the cost of reproduction, 
 less depreciation. Generally speaking, this rule results 
 in a liberal valuation. The franchise owner secures the 
 benefit of the appreciation in the value of land occupied 
 for a power plant, car-houses, terminals and other pur- 
 poses, which in the case of large and growing cities is 
 certain to be considerable. It also secures the benefit 
 of the appreciation in the cost of labor and materials. 
 Whether or not this is an advantage depends upon the 
 general trend of prices, which during the past twelve or 
 fifteen years has been decidedly upward. A third benefit 
 accruing to the franchise owner is the increase in the 
 present cost of street structures over the original cost, 
 resulting from congested traffic conditions and the occu- 
 pation of the streets by other fixtures. An advantage 
 even more important than the three already enumerated 
 accrues to the franchise holder in cases where through a 
 
174 MUNICIPAL UTILITIES 
 
 long period of profitable operation, after the payment of 
 liberal dividends, a portion of the earnings has still been 
 available for extensions and betterments. Indeed, some 
 companies that were originally grossly over-capitalized 
 have made good their capitalization out of surplus ac- 
 cumulated by means of excessive rates. On the other 
 hand, the city derives certain advantages from the adop- 
 tion of the reproduction cost theory in the fixing of the 
 purchase price. In the first place, if the property has 
 not been kept up to the highest practicable standard the 
 price is diminished by a depreciation allowance. In the 
 second place, if in the past the franchise holder has 
 changed its motive power or superseded its old equip- 
 ment with new, and has made no provision for writing 
 off its dead capital by an obsolescence fund, it will now 
 be compelled to stand the loss, inasmuch as discarded 
 equipment is not included in the appraisal. As generally 
 applied, the reproduction cost theory does not take into 
 consideration the cost of the establishment of the business 
 as a going concern with its present earning power, al- 
 though in some cases a franchise holder has not earned 
 dividends and has even incurred serious deficits in the 
 early years of operation. On the whole, it may be con- 
 sidered that the advantages to the two parties offset each 
 other and make the reproduction cost theory the most 
 practicable one for use as a basis in fixing the value of 
 an already established utility where it is impracticable to 
 get at the original cost. 
 
 Where the negotiation of a new franchise settlement 
 involves the surrender by the company of existing un- 
 expired franchises, held under conditions already fixed 
 by contract, it may in some cases be necessary to include 
 their estimated value in the purchase price. If this is 
 done, the new franchise should certainly provide for 
 
MODEL STREET RAILWAY FRANCHISE 175 
 
 amortization within the original period of the old grants 
 of at least the part of the purchase price allowed for 
 unexpired franchise value. Care should be taken, how- 
 ever, in valuing an existing franchise not to take into 
 consideration merely its earning power during its unex- 
 pired term, but also the fact that under old grants in 
 most cases the physical investment itself would be left 
 " up in the air " when the franchise expired. The value 
 of the greater certainty offered by the new franchise 
 should be counted as an offset against the unexpired 
 earning power of the old one. 
 
 The upsho't of the whole matter is, that while a city 
 can well afford to allow a fair price in providing for the 
 purchase of an existing utility, for the sake of getting 
 its complex relations with the former franchise owners 
 disentangled, it cannot afford under any circumstances 
 to pay a price approximating the capitalization which has 
 already bankrupted the private owners. 
 
 A street railway should be regarded as a public ne- 
 cessity, to be maintained at all times at the highest prac- 
 ticable standard of efficiency, irrespective of the expira- 
 tion or termination of the franchises and irrespective of 
 changes in ownership or in management. While this 
 policy is necessary in any case, it becomes doubly neces- 
 sary when the city enters into a contract reserving the 
 right to take over the property at a fixed price at some 
 future time. The franchise should, therefore, contain 
 specific provisions in regard to the disposition of earn- 
 ings, to the extent of requiring certain percentages of 
 gross receipts to be set apart from year to year for main- 
 tenance and depreciation, including obsolescence. 
 
 In our opinion, the first consideration in the operation 
 of a street railway should be the rendering of sufficient 
 first-class service. In order to secure this result prac- 
 
176 MUNICIPAL UTILITIES 
 
 tically, the franchise should not only reserve to the city 
 specific and comprehensive regulatory powers, but in all 
 cases where there is no existing state or local authority 
 for the purpose should make provision in detail for a 
 supervising commission or officer, with adequate means 
 for enforcing the contract and compelling the grantee 
 to give such service. 
 
 The second consideration, in our judgment, should 
 be the protection of the capital legitimately invested in 
 this public service. The aim should be to make street 
 railway securities approximately as safe as municipal 
 bonds. We esteem it a disgrace to a city either to lend 
 the use of its streets for the exploitation of the credulity 
 of unwary investors or to impose such severe restric- 
 tions upon capital honestly invested in a public utility 
 as to drive the franchise-holder into bankruptcy. We 
 also think it to be a lamentable error in public policy for 
 a city by laxity in supervision to permit the grantee of its 
 franchises so grossly to mismanage a public utility and 
 overload its capitalization as to deprive the public of 
 adequate service and at the same time endanger the 
 security of invested capital. 
 
 We consider that, while the question of street rail- 
 way fares is of great importance, it is, after all, second- 
 ary to the furnishing of adequate service, to the honest 
 protection of necessary investment, and to the gradual 
 amortization of the capital for the benefit of the city. 
 We think that the franchise should prescribe an initial 
 rate of fare, but should provide for an occasional read- 
 justment either through regulation or by means of an 
 automatic schedule of rates specified in the grant itself. 
 An interesting experiment with the latter policy is now 
 being made in Cleveland, and the final results there will 
 throw important light upon this method of adjusting 
 
MODEL STREET RAILWAY FRANCHISE 177 
 
 rates. Whatever rate may be in force at any particular 
 time, we think that, as far as practicable, it should be 
 uniform within the city limits, and that a general sys- 
 tem of transfers without extra charge should be pro- 
 vided. 
 
 We have considered with care the question of com- 
 pensation for franchises. In our judgment, the car riders 
 should not be taxed for the relief of the general tax 
 rate. While there are strong arguments for the policy 
 of requiring a franchise holder to pay taxes at the regu- 
 lar rate on the value of its property outside of the streets, 
 we think that at least all compensation in excess of this 
 requirement, whether in the form of general city taxes, 
 car license fees, a percentage of gross receipts or a di- 
 vision of net profits, should be applied either to the con- 
 struction of extensions on the city's account, or to the 
 amortization fund, or should be remitted for the benefit 
 of service or for the reduction of rates. 
 
 The public necessity of maintaining continuous serv- 
 ice on a street railway system is so great that in our 
 judgment the franchise should provide some method for 
 the arbitration of labor disputes so as effectively to pre- 
 vent strikes. 
 
 We have been impressed by observation and experi- 
 ence with the tremendous cost in human vitality repre- 
 sented by the time and energy wasted in transit. It is 
 often true that a half hour or an hour spent on a 
 crowded, poorly lighted, badly ventilated street car at the 
 end of a hard day's work is a greater tax upon a per- 
 son's strength than an extension of the day's labor for 
 the same time would be. The cost of transportation is 
 not to be measured merely by the fares paid. The repre- 
 sentatives of the city in framing a street railway fran- 
 chise contract and in the regulation of street railway 
 
178 MUNICIPAL UTILITIES 
 
 service should constantly keep in mind the conservation 
 of human energy as well as financial considerations. 
 
 Outline of Sections for a Model Street Railway Franchise 
 
 1. The grant — Renewal of existing franchise — For spe- 
 cific routes — General nature of construction — Obligation to 
 begin and complete work. 
 
 2. Publication of franchise — Referendum required — 
 Other consents required and time allowed for securing them 
 — Property owners — The courts — Approval of state commis- 
 sion — Permits from city departments. 
 
 3. Future extensions — When permitted — When required 
 — Subject to conditions of original grant — Subject to 
 amortization plan from date of construction — Built by city 
 or special assessments. 
 
 4. Gauge of tracks — Joint use of tracks by interurban 
 roads — Free territory in business district — Joint use of poles 
 and other fixtures — Switch connections with other railroads. 
 
 5. Terms of purchase clause — Price fixed in contract 
 — Appraisal of physical property — Cost of reproduction — Un- 
 expired franchise values — Paving — Depreciation — Apprecia- 
 tion in value of land and cost of labor, materials and street 
 work — Displaced investments — Development charges — In- 
 vestments from surplus earnings — Going value — Cost of fu- 
 ture extensions — Cost of future additions and betterments — 
 Cost of relocations — Supervisory control of new expenditures 
 bn capital account — Bonus for early termination of grant — 
 Bonus for turning property over to new company — Method 
 of payment — In cash — In general city bonds — In street rail- 
 way certificates with security franchise — Purchase subject to 
 outstanding mortgages — Accumulation of purchase fund out 
 of compensation for franchise — Purchase of company's bonds 
 for extension and betterments — Purchase of company's bonds 
 called at request of city or at market price — Amortization out 
 of earnings to retire capital and reduce price — Disposition 
 of property when purchased — Transferred to new grantee — 
 
MODEL STREET RAILWAY FRANCHISE 179 
 
 Owned by city and leased for operation — Operated by city. 
 6. Duration of grant — Terminable at any time, after 
 minimum period, or at fixed intervals, upon purchase of 
 plant by city or city's licensee. 
 
 7. Service requirements — Standard of regularity — Stand- 
 ard of frequency, minimum schedule, varied schedule, " Owl" 
 service — Transfer accommodations — Through-routing — Max- 
 imum and minimum speed — Carrying capacity required — Sub- 
 ject to regulation by public service commission — Character 
 of cars — Passenger houses — Lost articles — Right to use cars 
 assured. 
 
 8. Health and convenience — Standards of cleanliness 
 and ventilation, heating and lighting — Subject to future ordi- 
 nances, orders of public service commission and police regu- 
 lations. 
 
 9. Safety requirements — Standard set for brakes, fenders 
 and wheel-guards — Location of tracks in street — Distance 
 between tracks — Care of poles and wires — Subject to future 
 ordinances, orders of public service commission and street 
 permits. 
 
 10. Public control of the streets — Plans to be filed — 
 Tracks and fixtures to be adjusted to public improvements 
 and other utilities — Tracks and fixtures to be removed and 
 routes changed to meet new traffic conditions — Municipal 
 ownership of tracks — Viaducts and bridges — Reconstruction 
 requirements — Terminals — Subways. 
 
 11. Motive power — Provision for present or future 
 changes. 
 
 12. Paving and paving obligations — City's right to do 
 the work itself — Track foundations — Width of street occu- 
 pied by tracks — Overhead trolleys — Underground trolleys. 
 
 13. Maintenance of street surface — Cleaning the streets 
 — Sprinkling — Removal of snow and ice — Repair of paving 
 — Repair of rails and conduits — Cleaning and sprinkling as 
 city's agent. 
 
 14. Prevention of noise and jar. 
 
 15. Protection of city from damage claims. 
 
180 MUNICIPAL UTILITIES 
 
 1 6. Penalty fund to enforce company's obligations. 
 
 17. Rates of fare — Lower fares — Higher fares — Five- 
 cent fares — Uniform rate — Differentiated rate — Free service 
 — Higher rate for night service — Special rate for rush hours 
 — Transfers — Tickets — Through service — Regulation of rates 
 — Automatic readjustment of rates according to franchise 
 schedules. 
 
 18. Advertising — To be artistic — Free for public procla- 
 mations — Not to be used for propaganda by company. 
 
 19. Carrying mail, express and freight — Loading of cars 
 — Operation of cars — Hand baggage — Hauling materials for 
 street work — Special city service. 
 
 20. Special and chartered cars — Observation cars — Fu- 
 neral cars. 
 
 21. Forms of accounts — Investigations — Reports — Pub- 
 licity. 
 
 22. Filing of corporate documents and reports. 
 
 23. Limitation of bonds — Sale in open market — Dis- 
 counts — Brokerage — Relation to purchase price or capital 
 value. 
 
 24. Construction account — Approval of construction 
 contracts — Certification of cost. 
 
 25. Valuation for rate regulation and return on capita! 
 to be same as purchase price fixed in contract. 
 
 26. Disposition of earnings — Operating expenses — Main- 
 tenance and depreciation — Taxes — Interest on investment — 
 Reserve — Profits. 
 
 27. Limitation of cost of power and supplies — Limita- 
 tion of salaries paid to officers. 
 
 28. Reserve for accidents — Mode of disposing of acci- 
 dent claims. 
 
 29. Insurance. 
 
 30. Maintenance and depreciation — Rehabilitation of old 
 lines — Renewals — Normal wear — Obsolescence. 
 
 31. General taxes — Franchise taxes — Car license fees — 
 Special assessments — Compensation to city. 
 
 32. Minimum allowance on capital — Amount of invest- 
 
MODEL STREET RAILWAY FRANCHISE 181 
 
 ments — Rate of interest — Distinction between stocks and 
 bonds. 
 
 33. Amortization of capital. 
 
 34. Temporary use of special funds for additions, bet- 
 terments and extensions. 
 
 35. Contingent reserve. 
 
 36. Division of surplus — Sliding scale according to qual- 
 ity of service given, upkeep of property, and accounts ren- 
 dered. 
 
 37. Employees' benefit fund. 
 
 38. Sale of property no longer needed. 
 
 39. Supervising authority to approve plans, hear com- 
 plaints, audit accounts, pass on company's contracts, certify 
 expenditures, inspect equipment, see that franchise obliga- 
 tions are complied with — Public utility commission — Super- 
 vising engineers — Local transportation bureau — Arbitration 
 — Trustees for funds — Trustees to control stock of holding 
 company — Commission for laying out and constructing rapid 
 transit lines. 
 
 40. Obligations to employees — Hours of work — Condi- 
 tions of work — Wages — Arbitration of labor disputes. 
 
 41. Protection of company against interference with its 
 property — Cars to have right of way in streets — Right of 
 company to sell power as a by-product. 
 
 42. Forfeiture clause — Forfeiture not to be effective as 
 against bondholders up to safe proportion of capital value. 
 
 43. Acceptance of grant. 
 
 44. Rights of city in case of receivership. 
 
 Exhibit A. Specifications for the railway and its equip- 
 ment — Character and weight of rails — Gauge of tracks — 
 Strengthening of bridges where necessary, etc., etc. 
 
PART III 
 
 REGULATION THROUGH MUNI- 
 CIPAL PUBLIC UTILITY 
 COMMISSIONS 
 
 13 
 
CHAPTER X 
 
 THE NEED FOR PUBLIC UTILITY COMMISSIONS 
 
 The preceding chapters have discussed franchise 
 problems and have stated the provisions that social fore- 
 sight demands that franchises should contain. More im- 
 portant, however, than the drawing up of a high order 
 of franchise, as important as that is, is the securing of 
 means by which franchise provisions may be enforced. 
 Without enforcement they are valueless, and may as 
 well have never been written. 
 
 The methods by which franchises have been enforced, 
 and the means by which public service corporations have 
 been regulated, may be roughly classified as follows : 
 Enforcement and regulation (i) by law suit; (2) by 
 legislative bodies; (3) by the people through the initia- 
 tive and referendum; (4) by public service commissions. 
 
 Before examining the relative efficiency of each of 
 these methods of enforcement and regulation it is neces- 
 sary to get a clear idea as to what information is essen- 
 tial to the adequate enforcement of franchises and to the 
 competent regulation of a city's utilities. 
 
 Before there can be any intelligent movement toward 
 either enforcement or regulation, it is absolutely neces- 
 sary to have thorough and accurate information as to 
 the following phases of utility ownership and operation : 
 
 185 
 
186 MUNICIPAL UTILITIES 
 
 (I) THE LAW AND ITS INTERPRETA- 
 
 TION. 
 
 (II) THE CONSTRUCTION, MAINTE- 
 
 NANCE AND OPERATION OF PROP- 
 ERTIES. 
 
 (III) THE TARIFFS AND RULES MADE FOR 
 
 THE REGULATION OF BUSINESS. 
 
 (IV) THE ADMINISTRATION OF THE COR- 
 
 PORATION'S FINANCES. 
 
 Let us examine each of these in turn. 
 
 (I) The Law and Its Interpretation. — To secure 
 adequate data as to the law and its interpretation, it is 
 essential that all the franchises granted in the city, and 
 the decisions and opinions pertinent thereto be_collected 
 and classified. To do this competently, there is needed : 
 ( i ) a street record containing maps, diagrams and docu- 
 ments showing the location and history of all the utility 
 fixtures above, below, or on the surface of every-'jyjReet 
 in the city; (2) a franchise record containing cojnplete^ 
 and correct copies of all franchises or grants fot T public 
 utility purposes; (3) a public utility record for^each 
 separate person or corporation owning or openating a 
 public utility within the city. This record must contain 
 copies of all the franchises granted to such concerns, 
 copies of their annual reports, inspection reports", and* 
 other available information relating to rates, property 
 and operation. 
 
 (II) The Construction, Maintenance and ^Opera- 
 tion of Properties. — Adequate information as to the con- 
 struction, maintenance and operation of utilityfpVo^ter- 
 ties requires a mass of detailed information such as only 
 competent, highly trained experts can secure. Not only 
 is data needed as to construction, maintenance; and op- 
 
NEED FOR UTILITY COMMISSIONS 187 
 
 eration expenses, but there are also needed competent 
 reports upon the value of the physical property of such 
 concerns, and upon the adequacy of their facilities and 
 quality of service. 
 
 To pass any reasonable legislation as to rates or 
 any other phase of utility regulation, necessitates a con- 
 sideration of other factors than those advanced by the 
 consumer, desirous of minimum fares, and by the cor- 
 poration, desirous of maximum returns. The former 
 will adopt the principle of " the lowest rate we can get " ; 
 the latter will adopt the principle of " what the traffic 
 will bear". Neither is just. The company must have 
 reasonable compensation ; the consumer a fair price. To 
 determine what reasonable compensation and a fair price 
 is, requires detailed and accurate information not only 
 as to the cost of construction, maintenance and operation 
 of the utility in question, but also as to its present 
 physical valuation, and as to what is a reasonable profit 
 on such a venture. The most- that has been done to se- 
 cure such information in the past has been the appoint- 
 ment, by some legislative body, of experts to report on 
 these subjects. Now, in cities of any size, no expert can 
 make, unaided, an accurate valuation of such concerns. 
 He can make a more or less reliable guess, but that is 
 the best that he can do. Reliable information of this kind 
 can be secured to the public only through the public's 
 own experts working under the supervision of men suffi- 
 ciently expert to judge as to methods and results. 
 
 (Ill) The Tariffs and Rules Made for the Regu- 
 lation of Business. — This requires, in the first place, a 
 thorough-going study of existing conditions, rates, and 
 regulations, in order to see that no rebates are given, 
 and that no unfair or anti-public regulations are in force. 
 To be of any value, data of this nature cannot be col- 
 
188 MUNICIPAL UTILITIES 
 
 lected once for all, but must be gathered from day to 
 day, and subjected to daily inspection. 
 
 As above stated, the company is entitled to a fair 
 compensation for its capital and risks. To arrive at, 
 what is a fair compensation, it is necessary to distinguish 
 carefully between the schedule as a whole and separate 
 rates. The schedule as a whole, to be reasonable, must 
 yield a fair return to the proprietors of the service. If 
 it does not allow a fair return upon a proper capitaliza- 
 tion, it will be declared illegal and the utilities will be 
 authorized by the courts to raise their rates. If it does 
 allow a fair return, a problem of even greater difficulty 
 then arises; and that is as to what is a reasonable sep- 
 arate rate. It should not be necessary that the company 
 make a given per cent, of profit upon every service it 
 performs. It should be possible to determine that, pro- 
 viding the company makes a fair return upon its whole 
 schedule, separate rates may be charged that do not 
 give this average return. To pass upon these questions 
 requires detailed and technical knowledge as to the 
 proper basis for rates, as to what reasonable rates are, 
 and as to the significance and import of the different 
 kinds of regulations that may be adopted. 
 
 (IV) The Administration of Finances. — Com- 
 petency in both public regulation and public ownership 
 is dependent upon the public's possessing a complete 
 knowledge of facts. Periodic statements from public 
 utilities as to their financial operations will be valueless 
 unless the public can prescribe the methods of account- 
 ing and then have full power of audit and inspection of 
 all such accounts. The eagerness of managers to de- 
 clare dividends will tend to the curtailment of operating 
 expenses, and to the neglect of renewal and depreciation 
 funds. In the first instance the consumer and the public 
 
NEED FOR UTILITY COMMISSIONS 189 
 
 will suffer; in the second, the bondholder, because of 
 the diminished values of his security. Power over ac- 
 counts must include, to quote the Wisconsin law, power 
 to determine " what are the proper and adequate rates 
 of depreciation of the several classes of property of each 
 utility", and power to require that " every public utility 
 shall carry a proper and adequate depreciation account 
 whenever the commission, after investigation, shall de- 
 termine that such depreciation accounts can be reason- 
 ably required." Control over accounting must also speci- 
 fically include full power over stock and bond issues, 
 including knowledge as to the basis for which these is- 
 sues were made and as to their market quotations. 
 Without such control, all attempts at competent regula- 
 tion can be prevented. The New Public Service Com- 
 mission for the First District, under its power to approve 
 the issuance of the securities of all concerns subject to 
 its jurisdiction, has, after searching investigation, ap- 
 proved, up to 191 1, $80,000,000 in securities out of $300,- 
 000,000 requested. The difference between these sums — 
 $220,000,000 — represents unwarranted watered capital, to 
 sustain which the citizens of New York would have had 
 to pay higher rates, and put up with poorer service. 
 
 Adequate supervision of accounts also necessitates 
 that some basis be determined upon for a maximum 
 capitalization that will have a direct relation to value. 
 With most utilities capitalization and values have long 
 since parted company. Qnly with an adequate basis 
 for capitalization, such as the actual value of the prop- 
 erty used in the public service, is competent regulation 
 possible. Over-capitalization can then be reduced through 
 persistent and proper measures. Adequate regulation 
 also necessitates full control over mergers and consoli- 
 dations. This power the supervising body must have,. 
 
igo MUNICIPAL UTILITIES 
 
 not to prevent mergers and consolidations, but in order 
 to get information adequate for intelligent regulation. 
 Without scientific accounting and uniform reports it is 
 impossible to determine what a reasonable capitalization 
 is, and hence impossible to know when regulation is in- 
 telligent. 
 
 Turning now to the adequacy of the methods of 
 enforcement enumerated above, we have first to discuss 
 the adequacy of regulation and enforcement by law-suit. 
 Our courts were long practically the only agents for the 
 regulation of such concerns. No matter how efficient 
 they may have been in the past, the question now is as 
 to their efficiency in the present and as to their probable 
 efficiency in the future. Does regulation by law-suit 
 regulate ? 
 
 To the author's mind, regulation by law-suit is 
 wholly inadequate. It is inadequate, in the first place, 
 because it deals only with past offenses. At the best it 
 is but a means of redressing wrongs; it is not a means 
 of regulation nor an adequate means of enforcing pub- 
 lic rights. The basic principle of our judicial system is 
 that the courts must limit themselves to deeds and acts 
 already committed. Unless we are going to allow them 
 to pass upon any present utility problem, and to take 
 measures for meeting future needs, they must remain 
 wholly incompetent for the solution of present and fu- 
 ture wrongs in the field of municipal utilities. 
 
 But regulation by law-suit is not adequate even for 
 the redress of past wrongs of the kind that are involved 
 in the regulation of municipal utilities. It is entirely too 
 slow and expensive a method for the use of the average 
 individual in securing redress of his grievances. The 
 New York Public Service Commission for the First Dis- 
 trict in the year 1907-08 examined 991,924' gas % meters. 
 
NEED FOR UTILITY COMMISSIONS 191 
 
 How many would have been tested if the individual had 
 been compelled to have a law-suit in order to get his gas 
 meter regulated? How many water consumers would 
 even think of " going to law " to secure adequate water 
 pressure for their upper floors? The problems in the 
 regulation of municipal utilities, taken individually, are 
 small problems. It is only when taken collectively that 
 they loom up large. But no single individual is going 
 to heavy expense to gain but little for himself, even 
 though by so doing he may gain ever so much for his 
 community. 
 
 Regulation by law-suit is too expensive a method of 
 regulation even for the corporations. This expense 
 might be cheerfully borne were immunity from efficient 
 regulation to be forever secured thereby, but such will 
 not be the case. Nothing is more patent than that virile 
 public regulation has come to stay. It may as well be 
 by a method that is less costly to the corporation as well 
 as to the individual and the public. 
 
 Again, the courts are not the proper machinery for 
 the determination of the present and future problems 
 that must come up in the adequate regulation of muni- 
 cipal utilities. They do not possess the data, the special 
 training, nor the aptitude required for passing upon 
 such problems. The only data they could be expected 
 to have is adequate information as to the law and its 
 interpretation. As a rule, they do not even have this, 
 for there is not in any city of the United States a complete 
 collection of such data. One of the greatest services of 
 the public service commissions later described has been 
 the collection of material of this kind. The Franchise 
 Bureau of the Public Service Commission of the First 
 District in New York has given, under the ablest direc- 
 tion, many months of time, and the services of many 
 
192 MUNICIPAL UTILITIES 
 
 experts, to the collection of just such data, and the in- 
 formation is still far from complete. As to the data 
 described under the other three heads mentioned a"bove, 
 the courts not only do not have it, but they have no 
 means of securing it. 
 
 And finally, assuming that the courts might possess 
 themselves of the required data, their training has been 
 such as to make them unfitted for the application of it. 
 Its application requires a long look ahead instead of a 
 long look into the past to conform with precedents. For 
 want of material and for want of training, our judiciary 
 are wholly incapable of formulating and enforcing a 
 constructive policy for the regulation of municipal utili- 
 ties. 
 
 What, then, as to the second method of regulation — 
 regulation by legislative bodies? 
 
 The discussion of this method necessitates a clear 
 distinction between delegated legislative regulation and 
 regulation by the legislative body itself without any aid 
 save that which its members and committees can afford. 1 
 The question here is not as to whether legislative bodies, 
 be they city or state, can adequately regulate municipal 
 utilities with the aid of public service commissions, but 
 whether or not they can adequately regulate municipal 
 
 i Public service commissions act solely as the agents of the state 
 legislature. In the state legislature all legislative power in the state 
 is vested. It may,"however, delegate its power to subordinate com- 
 missions. This it may do by giving to these commissions limited 
 and enumerated powers only, or by giving them full and plenary 
 powers. In the latter case only does the commission have sufficient 
 power to be an adequate regulative body. It must be recalled, too, 
 that municipal legislative assemblies have only those powers that 
 have been delegated to them by the state legislature. Hence mu- 
 nicipal public service commissions can, at the most, exercise only 
 those powers that the city may exercise. 
 
NEED FOR UTILITY COMMISSIONS 193 
 
 utilities without the aid of such commissions. Are legis- 
 lative bodies competent to handle the complex problems 
 of regulation? 
 
 Legislative bodies do not have at hand adequate in- 
 formation for the regulation of rates, let alone for the 
 regulation of services and of extensions. Rate regula- 
 tion by guess is unfair to the consumer, to the public, 
 and to the corporation. What a fair and reasonable rate 
 is, can be determined only after careful and minute in- 
 spection of the data suggested above. This data legis- 
 lative bodies do not have. 1 
 
 As 7 an illustration of the impotency of regulation by 
 legislative bodies, let us try to determine what an aver- 
 age municipal council could do were it confronted with 
 the simplest of utility problems, the problem of rate 
 regulation. In a recent daily paper, in large headlines, 
 were the words "WILL PROBE PHONE RATES: 
 COUNCIL APPOINTS COMMITTEE TO INQUIRE 
 INTO THE JUSTICE OF PRESENT RATES." He 
 who feels that the council could make any adequate in- 
 quiry as' to the justness of existing rates should 
 read Professor Jackson's preceding chapter upon, 
 " Is a Rational Basis Possible for Telephone Rates ?", 
 and reflect upon how much success a council committee 
 would have in arriving at a rational basis for telephone 
 rates in their own municipality. The most that the com- 
 mittee could do would be to take a little desultory testi- 
 mony. Without the aid of a special tribunal, such as a 
 competent public service commission, it would be entirely 
 dependent upon the information the corporation may 
 volunteer to give. Again, he who thinks that a legislatoi 
 can secure the data for intelligent enactments as to elec- 
 tric light rates, for instance, should analyze with care 
 the appended foot-note, taken from an address by the 
 
194 MUNICIPAL UTILITIES 
 
 Honorable John H. Roemer, Chairman of the Railroad 
 Commission of Wisconsin, in an address to the Illinois 
 Gas Association on March 16, 191 1, 1 giving the informa- 
 tion necessary for fixing rates for electric utilities. 
 
 'Information Necessary for Working Out a Schedule of 
 Rates for Electric Utilities. 
 
 J. General Information. 
 
 1. Location of plant. 
 
 2. Population of city supplied. 
 
 3. Municipal or private plant. 
 
 4. Method of generation. 
 
 (a) Steam, (b) Hydraulic, (c) Gas. (d) Combined. 
 
 5. Is utility operated singly or in combination with a water, 
 
 gas or other utility? 
 
 6. Branches of service rendered. 
 
 (a) Lighting. 
 
 Municipal lighting. 
 Street lighting. 
 
 Arcs. Incandescents. 
 Public buildings. 
 
 Arcs. Incandescents. 
 Commercial lighting. 
 
 Residences. Business houses. Factories. 
 
 (b) Commercial power. 
 
 II. Valuation of Plant. 
 
 1. Book value 
 
 2. Original cost. 
 
 3. Additions or extensions since plant was first built — by 
 
 years. 
 
 4. Cost of reproduction new. 
 
 5. Present value. 
 
 6. Going value. 
 
 7. Working capital. 
 
 8. Details of investment. 
 
 A separation of investment into land, buildings, 
 
 power plant equipment, distribution system, etc. 
 Statement of equipment — inventory. ( Continued on 
 P- I95-) 
 
NEED FOR UTILITY COMMISSIONS 195 
 
 This kind of data legislative bodies do not have. The 
 following three chapters upon municipal commissions 
 reveal that paid commissions with nothing else to do find 
 it difficult to act with competence and intelligence. How 
 can the average legislator, with numerous other legisla- 
 
 9. Apportionment of investment. 
 
 Where plant is a combined water and electric plant, 
 gas and electric, etc., the investment should be ap- 
 portioned between the several utilities according to 
 actual use where this is feasible, or on some reason- 
 able basis. 
 Where street lighting, commercial lighting, and com- 
 mercial power or other classes are served, an appor- 
 tionment of the investment between these classes is 
 necessary. 
 
 10. Unit cost of investment. 
 
 For purposes of comparison, analysis and as a basis 
 for analyzing expenses, a number of unit costs of 
 investment should be obtained, as illustrated below: 
 Power plant equipment kw. of generator capac- 
 ity, consumer. 
 Distribution system per mile of main; per con- 
 sumer. 
 Services per consumer, etc. 
 
 11. Percentage distribution of investment. 
 
 Proportion of total plant investment represented in 
 land, buildings, power plant, equipment, distribu- 
 tion, system, etc. 
 
 12. Physical Data. 
 
 No. of boilers and rated capacity — h. p. 
 
 No. of engines, turbines, water-wheels, etc., and rated 
 
 capacity of each in kws. 
 No. of generators and capacity of each, kws. 
 Miles of wire — different systems or circuits. 
 No. of services and meters, etc. 
 
 III. Consumer Data and Operating Statistics. 
 I. Connected load, 
 
 (a) Total. 
 
 (b) Of each class of service. (Continued on p. 196.) 
 
196 MUNICIPAL UTILITIES 
 
 tive and outside duties, be expected to act with anything 
 like competence and intelligence ? The most potent force 
 in the corruption of American councils has been the fact 
 that they have been expected to do this very thing. With 
 no adequate data of his own, the alderman soon decides 
 that he may as well take someone else's word, especially 
 when that word is accompanied with liberal rewards. 
 
 Nor is a legislative body a proper tribunal for the 
 enforcement of franchises. At the best its action is spas- 
 modic. Usually it does not act at all. Through looking 
 well to the kind of men nominated to such positions, 
 utility concerns can readily make sure that there will 
 
 2. Maximum demand. 
 
 (a) Peak load on station. 
 
 (b) Demand of each class of consumers or branch of 
 
 service, and time of such demand. 
 
 3. Output. 
 
 (a) Current generated. 
 Total. 
 
 For each class. 
 
 (b) Current sold. 
 Total. 
 
 For each class. 
 
 (c) Monthly variation of total sales and sales to each 
 
 class. 
 
 4. Detailed consumer data. 
 
 (a) Current sold to, and installation of each consumer 
 for year. 
 
 IV. Earnings and Expenses. 
 
 1. Statements of earnings and operating expenses each year 
 
 from date of installation. 
 
 2. Indebtedness and interest rates. 
 
 3. Stock issues and dividends paid. 
 
 4. Unit costs. 
 
 This should show the unit costs of operation each year 
 per kw. hr. output. Principal items, such as fuel, 
 labor and repairs should be computed on bases of 
 (Continued on p. 197.) 
 
NEED FOR UTILITY COMMISSIONS 197 
 
 be no efficient action. Even if there should be an honest 
 and earnest attempt to enforce existing franchise pro- 
 visions, these attempts can be thwarted through the use 
 of all the dilatory practices known. In the meantime, 
 the municipality suffers. 
 
 The tribunal for the proper enforcement of fran- 
 chise grants should be a distinct, isolated body, to the 
 end that responsibility may be inescapably located, and 
 that the council may be free to look after other municipal 
 affairs. 
 
 When regulation by law-suit and by legislative bodies 
 was proved to be a failure, it was alleged that the pan- 
 acea for all utility ills was that the people should be 
 given ultimate control through the initiative and refer- 
 
 unit cost per unit generated, per kw. generator ca- 
 pacity, per consumer, per meter, per mile of wire, etc. 
 
 5. Percentage distribution of operating expenses. 
 
 Proportion of total operating expenses each year which 
 is represented in generation, distribution, consump- 
 tion, commercial, general, and undistributed ex- 
 penses and taxes. 
 
 6. Normal year. 
 
 The year selected as that whose expenses shall be the 
 basis of the rates must be a normal year. This may 
 be determined by comparison of total cost and unit 
 costs of the several items with the same items for 
 other years. Curves showing the variation of the 
 chief items of expense year by year may be con- 
 structed. 
 
 7. Depreciation. 
 
 (a) " Straight line " basis, (b) "Sinking fund" basis, 
 (c) Per cent, of total property. 
 
 8. Reasonable return. 
 
 (a) Interest earned, (b) Local conditions as affecting 
 rates of return to be allowed.' (c) Condition of 
 plant, (d) Service, (e) Probable future growth of 
 utility, (f) Competition. 
 
198 MUNICIPAL UTILITIES 
 
 endum. This is the third method of regulation enumer- 
 ated above. 
 
 To vest either in the people or in the corporation sole 
 or co-equal powers of initiating franchises and other 
 utility legislation, is to vest in one party to a contract 
 power to make the terms for the other party. The peo- 
 ple will have no adequate knowledge for making fran- 
 chises ; they certainly will have no more data than their 
 aldermen have, and this, it has already been shown, is 
 totally inadequate. The corporations will have the nec- 
 essary data, but they will desire, not to give to the pub- 
 lic as reasonable a franchise as this data will warrant, 
 but to get from the public everything they can. A con- 
 crete illustration of the kind of franchises obtained 
 where corporations may initiate and the people adopt 
 franchises, is found in the recent franchise history in 
 Denver. 
 
 The amendment to the Colorado constitution passed 
 in 1902 giving to Denver home rule, and the Home Rule 
 Charter adopted thereunder, provided that franchises and 
 utility " measures " could be initiated either by the peo- 
 ple or by the corporation, and that all franchises could 
 be adopted only by vote of the city's tax-paying electors. 
 At the municipal election held May 15, 1906, two fran- 
 chises and one ordinance were thus put before the elec- 
 torate. The two franchises were initiated respectively 
 by the Tramway and the Gas and Electric Company; 
 the ordinance was initiated by certain citizens as agents 
 of the people. The Tramway's franchise was so drawn 
 as to threaten endless litigation if it were not adopted. 
 It contained just a sufficient number of concessions to 
 make its adoption probable. It specified " certain ex- 
 tensions, betterments, new constructions and improve- 
 ments " which the Tramway would undertake, provided 
 
NEED FOR UTILITY COMMISSIONS 199 
 
 the franchise was adopted. Such extensions were speci- 
 fied as would tempt voters along all the proposed and 
 existing lines to vote for the franchise. But the fran- 
 chise contained no provisions by which these extensions 
 and improvements could be obtained from the Tram- 
 way, should the Tramway itself not desire to complete 
 them. Like a party platform, that is, the franchise made 
 the maximum of promises with the minimum amount 
 of possible enforcement of those promises. The light- 
 ing franchise is a similar kind of a contract. Drawn by 
 the company's experts, with no representative of the peo- 
 ple at hand to bargain for terms, it granted just as lit- 
 tle as it dared grant and risk defeat. The ordinance 
 initiated by the people sought to fix rates on the city's 
 leading utilities. It was adopted but has never been 
 enforced, as the city's political machinery has ever since 
 been in the hands of the friends of the very concerns 
 whose rates the ordinance sought to regulate. Denver's 
 Water Company initiated at the municipal election in 
 May, 1910, its own franchise and asked the tax-paying 
 electors to adopt it. Unlike the franchises adopted in 
 1906, it made few concessions to the public, and, like 
 those franchises, it omitted all penalties for the violation 
 of the few concessions that it did make. This franchise 
 the electors rejected, and adopted in its stead a charter 
 amendment providing for public ownership of the water 
 plant. The defeat of this franchise will probably cause 
 future .franchise grants to be more considerate of the 
 rights of the people. 
 
 The referendum in Denver has thus accomplished 
 something. It has educated the public as to the value 
 and meaning of franchise grants — a result of the greatest 
 possible significance. It has secured better franchises 
 than were secured through the council ; but it has secured 
 14 
 
200 MUNICIPAL UTILITIES 
 
 only a better franchise, it has not secured the best fran- 
 chise — and it never will. Worse than this, it will never 
 secure persistent and rigorous enforcement of franchises. 
 The initiative and referendum omits the important thing, 
 and that is a distinct administrative tribunal to look 
 after the public's interests as the corporations have of- 
 ficials to look after their interests. The initiative and 
 referendum cannot secure fair and adequate franchise 
 grants, and it cannot enforce those grants after they 
 are adopted. This is not, therefore, an adequate means 
 of regulation. 
 
 This leaves for examination the third of the regula- 
 tory methods enumerated above — regulation by public 
 utility commissions. 
 
 Utility commissions, being created by legislative en- 
 actment, have only such powers as the legislative body 
 may care to confer upon them. Two methods of creat- 
 ing utility commissions have been used. In one the legis- 
 lative body grants only limited and enumerated powers; 
 in the other the legislative body vests the commission 
 with full and complete power. In accordance with 
 whether the first or the second of these methods are 
 used, utility commissions are either advisory or regula- 
 tive. The former is better than none, to be sure, but the 
 adequate utility commission is the one with full regula- 
 tive powers. The legal position and the administrative 
 possibilities of a commission of this character are stated 
 in an advanced and comprehensive decision by the Wis- 
 consin Supreme Court in The Minneapolis, St. Paul and 
 Sault Ste. Marie Railway Company vs. The Railroad 
 Commission of Wisconsin. In this decision the Supreme 
 Court upheld the Wisconsin utility law and its executive 
 commission, the Wisconsin Railroad Commission, in the 
 following words: 
 
NEED FOR UTILITY COMMISSIONS 201 
 
 This law establishes, and thenceforth assumes, the exist- 
 ence of rates, charges, classifications and services, discovera- 
 ble by investigation, but undisclosed, which are exactly rea- 
 sonable and just. It commits to the Railroad Commission 
 the duty to ascertain and disclose that particular rate, charge 
 or service declared by the legislature in general terms to be 
 lawful and to be in force. 
 
 The notion that commissions of this kind should be 
 closely restricted by the courts, and that justice in our day 
 can be had only in courts, is not conducive to the best re- 
 sults. Justice dwells with us as with the fathers; it is not 
 exclusively the attribute of any office or class, it responds 
 more rapidly to confidence than to criticism, and there is 
 no reason why the members of the great Railroad Commis- 
 sion of this state should not develop and establish a system 
 of rules and precedents as wise and beneficent within their 
 sphere of action as those established by the early common- 
 law judges. We find the statute well framed to bring this 
 about. 
 
 Utility commissions alone can secure the data out- 
 lined above as necessary for intelligent and adequate 
 regulation of municipal utilities. For this purpose they 
 are created, and for this purpose they are specifically 
 organized and equipped. 
 
 With this data they are competent to draw up fran- 
 chises which'will adequately protect the public's interests, 
 and which will not be full of jokers and evasive clauses. 
 Whether or not these franchises should then be subject 
 to an optional referendum will depend upon conditions 
 in the different communities. An optional referendum 
 may not be inadvisable in order that the people may 
 keep in full touch with what the commission is doing. 
 
 Utility commissions are also competent to enforce 
 franchise provisions, because of their powers of daily 
 inspection and supervision. 
 
202 MUNICIPAL UTILITIES 
 
 But the greater usefulness of public utility commis- 
 sions is outside of the field of franchise enforcement and 
 regulation. No one can foresee the improvements 
 that a quarter of a century may bring in any public 
 utility service, or foretell the changes in. the needs 
 of the community during that time. The attempt to do 
 so, an attempt that all franchises must make, will usually 
 result in placing impediments in the way of urban 
 progress. To meet conditions as they arise is the only 
 way that the best interests of the consumer, the public, 
 and the utility corporation can be adequately conserved. 
 This necessitates the existence of a public service com- 
 mission with adequate powers of regulation. 
 
 Regulation by utility commissions is especially to be 
 commended because it affords an avenue for the informal 
 and inexpensive redress of the individual's and the pub- 
 lic's grievances. In the first three years of the existence 
 of the Wisconsin Commission, it disposed of but 207 
 formal utility cases, and 886 informal ones. Before the 
 Public Service Commission for the Second District in 
 New York has come 7,950 matters of sufficient impor- 
 tance to warrant filing, 5,397 of which were amicably 
 arranged. This represents a great saving in law-suit 
 expenses. It is the only adequate means by which utility 
 problems can be solved, because it makes the redress to 
 be obtained commensurate with the expense in obtaining 
 it. A public tribunal where complaints can be promptly, 
 informally and inexpensively handled is a vital step 
 toward intelligent and competent regulation. 
 
 Regulation by utility commissions is further to be 
 commended in that it frankly recognizes that the com- 
 munity is a party to all such activities and services, and 
 hence entitled to have its own rights heard and respected. 
 Hence, the jurisdiction of such tribunals should not be 
 
NEED FOR UTILITY COMMISSIONS 203 
 
 limited to complaints only. Representing the public, it 
 should have the power and should be willing to enter and 
 prosecute vigorously any improvements that the public 
 weal may demand. 
 
 Public utility commissions are the only adequate 
 method by which reasonable, intelligent legislation as to 
 rates, extensions and service can be passed and enforced. 
 They alone can secure the required data. They are the 
 only tribunals which take into adequate consideration the 
 interests of all the parties in utility regulation — the in- 
 terests of the individual, the corporation and the public. 
 Proper service standards can be secured only through 
 the supervision of such things as value and purity of 
 gas, accuracy of meters, care of lamps, voltage, disturb- 
 ances in electric currents, adequacy of signs and notices, 
 methods of water purification, water and steam pres- 
 sure, car wheels, car fenders, car noises, carrying ca- 
 pacity, reasonable peak service, expert telephone informa- 
 tion, etc. It is just this kind of supervision that an ex- 
 pert administrative tribunal can give. 
 
 The courts have properly held that the power to make 
 regulations carries with it the power to enforce them. 
 So long as these regulations are made by the utility 
 corporations themselves, the courts must be inclined to 
 make presumptions in their favor, and hence make it 
 harder for the individual and the consumer to get 
 changes in their behalf. Now, when the initiatory power 
 to fix the time, place, form and manner in which services 
 must be requested and accepted are wholly with the cor- 
 poration, and the presumption is in favor of the ade- 
 quacy and reasonableness of those regulations, the con- 
 sumer and the community have relatively little power to 
 obtain redress of their grievances. But when the initia- 
 tory power to make regulations is vested in a public 
 
264 MUNICIPAL UTILITIES 
 
 utility commission, the presumption is in favor of rates 
 so made. Wise action by public commissions created for 
 this definite service, when based on adequate knowledge, 
 the courts respect. Under such a regulative method, the 
 consumer and the community have equal rights with the 
 corporation in determining what regulations shall be 
 made, what standard of services shall be offered, and 
 what extensions shall be undertaken. The public utility 
 commission of Wisconsin and New York, while reducing 
 rates to some extent, have vastly improved the services 
 of the utilities in their charge. As to the results ob- 
 tained by the Wisconsin commission in these fields, Gov- 
 ernor McGovern says in the Engineering News for Oc- 
 tober 12, 191 1 : 
 
 Hand in hand with reduction in rates has gone an 
 equally important improvement in service. Better service 
 has ever been placed first, and reduction in rates made to 
 wait upon it. Transportation facilities have been vastly im- 
 proved; new stations have been built as ordered by the com- 
 mission; cleanliness and sanitary precautions have been ob- 
 served as never before ; close connections have been made 
 at junction points, and more and better trains have been 
 provided. And also of express, lighting and heating, tele- 
 phone and telegraph service; they have all responded to the 
 demand for a higher standard of efficiency in numerous 
 ways, more forcibly felt and plainly evident than it is possi- 
 ble for us briefly to describe. 
 
 The public utility commission is farther to be com- 
 mended because through it adequate protection can be 
 given to the investor and to the corporation. If there 
 is regulation of a kind that will lower profits, great care 
 must be taken that profits are not reduced so low as 
 to be unfair and as to repel capital permanently from 
 such concerns. While insuring the public good service 
 
NEED FOR UTILITY COMMISSIONS 205 
 
 and fair rates, the utility commission must also insure 
 the investor fair returns and the corporation entrepre- 
 neur fair profits. This it can and does do by supervis- 
 ing the issuance of securities in the interests of the in- 
 vestor, and by refraining from lowering rates and re- 
 quiring improvements beyond which fair profits will war- 
 rant. The viewpoint of the utility corporation, as well 
 as of the steel corporation, was admirably stated by El- 
 bert H. Gary before the Stanley Investigating Commit- 
 tee when he said: 
 
 We must come to enforced publicity and government con- 
 trol. The Steel Corporation would be glad to know where 
 it stands. We want to be free from danger, free from criti- 
 cism by the public. If we had some place we could go and 
 say, here are the facts and figures of our property, our cost 
 prices; tell us what we have a right to charge; if we had 
 some governmental body we would be glad to avail ourselves 
 of the opportunity. Corporations have no right to ignore 
 public questions and public interests. I wish that this com- 
 mittee would take advantage of this opportunity to bring 
 about the enactment of proper legislation calculated to prop- 
 erly protect the property interests of the country, the inter- 
 ests of the government, and the people at large, so as to 
 permit us to continue business along lines of prosperity. 
 Constructive legislation is what is needed in this country, if 
 we are to retain our position in the ranks with the compet- 
 ing nations of the world. 
 
 And, finally, regulation by public service commissions 
 is to be commended because it isolates the utility prob- 
 lem. By this isolation political institutions are relieved 
 to discharge without burdens the duties they are specifi- 
 cally created to perform. By this isolation responsibility 
 can be fixed, and thus efficiency assured. By this isola- 
 tion petty politics alone will not shape utility policies. 
 
206 MUNICIPAL UTILITIES 
 
 The most significant result obtained by the utility com- 
 mission of Wisconsin has been this step toward the di- 
 vorce of corporations from political machinery. In dis- 
 cussing this fact, Wisconsin's Governor, in the article 
 previously cited, said : " Times were in Wisconsin when 
 the railroads ran or tried to run the government of the 
 state and the minor utilities sought to boss the cities, 
 towns and even villages. They contributed liberally to 
 campaign funds, urged their supporters and lobbyists to 
 become candidates for public office, and in close election 
 districts colonized voters in the old conventional way. 
 Now, one and all, they are in this sense absolutely out 
 of politics. There is, indeed, no reason now why public 
 service corporations in Wisconsin should wish to dabble 
 in public affairs. Their relations to the people of the 
 state have been definitely and finally determined. They 
 no longer have anything to gain or lose by intermeddling 
 in politics, and apparently they have decided to retire for 
 good. What the elimination of public service corpora- 
 tions from participation in political campaigns signifies 
 in the purification of public life, no one here needs to be 
 reminded." 
 
 If this isolation of the utility problem will but result 
 in specialization, in efficiency, in freeing municipal gov- 
 ernment from the control of corporations, and the cor- 
 porations from the grasp of petty politics, it will do more 
 than has any other institution yet devised toward giving 
 American cities efficient and intelligent government, as 
 well as adequate and competent administration of their 
 most vital interests. 
 
 A franchise is not self-enforcing. In this simple fact 
 lies the justification for the creation of public utility com- 
 missions. 
 
 Without such commissions franchises are adminis- 
 
NEED FOR UTILITY COMMISSIONS 207 
 
 tered and interpreted solely by the corporations operat- 
 ing them without protection to the needs of the consumer 
 and the public. In this fact lies the urgent necessity for 
 the creation of public utility commissions. 
 
 Intelligent regulations as to rates, services and exten- 
 sions can be passed only after adequate data has been 
 obtained, data which can be secured only by the sus- 
 tained work of experts. In these facts lies the business 
 justification for utility commissions. 
 
 A problem' yet remaining to be discussed is as to 
 whether these commissions should be city or state com- 
 missions. The three succeeding chapters discuss the 
 duties, powers, problems, and results obtained by three 
 typical city commissions. These chapters will throw 
 much light upon the services municipal commissions can 
 render, and hence will serve as a basis for the determina- 
 tion of whether the municipal utility commission, un- 
 aided by the state utility commission, is adequate. 
 
CHAPTER XI 
 
 THE BOARD OF PUBLIC UTILITIES OF LOS ANGELES 
 
 Hon. Lewis R. Works, of Los Angeles, California, 
 contributes, especially for this volume, the following arti- 
 cle upon the Board of Public Utilities of Los Angeles. 
 A leading counsellor-at-law and a member of the Com- 
 mission, he writes with special authority. 
 
 State regulation of public utilities is the order of the 
 day to such an extent that an account of the endeavors 
 of a city in the same direction is so unique as to provoke 
 interest at the outset. The people of. Los Angeles for 
 many years have been believers in a purely local control 
 of the service corporations. The constitution of Califor- 
 nia has long contained a provision to the effect that rates 
 to be charged for the furnishing of water to the inhabi- 
 tants of municipalities shall be fixed by their governing 
 bodies. But Los Angeles did not content itself with 
 exercising the rate-regulating function within that nar- 
 row compass, and, under the broad system of local 
 self-government allowed California cities by the state 
 constitution, early inserted a section in its charter em- 
 powering the city council to fix compensation for the 
 sale of other public utility service or commodities as 
 well. Under this charter provision the council has an- 
 nually established the rates for gas, electric lights and 
 
 308 
 
THE BOARD OF LOS ANGELES 209 
 
 power, and for telephone service, in addition to fixing 
 the water rates under the constitutional provision men- 
 tioned. 
 
 It is only within recent years that the people of the 
 city began to realize that a city council, elected by them, 
 is not a proper body to fix rates. It is a truism that 
 such a body is practically incapable of doing justice to 
 the corporations. Its members owe their official exist- 
 ence to the people, and, perhaps expecting again the 
 favor of their suffrages, consciously or unconsciously 
 lean toward an improper basis for rate regulation. The 
 members of an elective body constantly consider, and 
 are pressed to consider, what the people " can afford to 
 pay," as a criterion for the fixing of the charges, when 
 such a consideration is not even remotely related to the 
 subject. The price to be paid for gas, for electric lights, 
 or for telephone service is to be fixed under certain sim- 
 ple and well-defined rules, just as truly as the price to be 
 paid for ham or potatoes is fixed by the laws of supply, 
 demand, and competition. 
 
 The creation of an independent rate-fixing tribunal 
 for the city was considered first, in all probability, dur- 
 ing 1907. The first public mention of the subject was 
 undoubtedly on February 24, 1908, when a speaker be- 
 fore the City Council advocated the project. Interest in 
 the plan grew, more or less steadily, from that time 
 forth, until the people, acting under the initiative pro- 
 vision of the city charter, adopted an ordinance creating 
 a Department of Public Utilities. The election was held 
 December 7, 1909, and the ordinance carried by a vote 
 of 16,626 to 9,696. The department was to be presided 
 over by three commissioners. These commissioners 
 Mayor Alexander immediately appointed. 
 
 As to the power of the board to fix rates, the ordi- 
 
2IO MUNICIPAL UTILITIES 
 
 nance, which was the organic law of the department, 
 provided no more than that the commission should rec- 
 ommend to the Council, " prior to the first day of March 
 of each year a schedule of charges for the services " re- 
 ferred to in the enactment. The scope of the board's 
 work was thus limited because, under provisions of the 
 city charter, which could be varied, not by ordinance, but 
 by charter amendment only, the Council was required to 
 fix the charges. 
 
 The board made its initial effort as a rate-regulating 
 body early in 1910. Its recommendations, admirable 
 in character, considering the fact that the data gathered 
 by it in a first attempt at regulation was necessarily in- 
 complete, was not, in all respects, followed by the coun- 
 cil. The question of telephone charges is annually a 
 burning one in Los Angeles. The Council declined to 
 accept the schedule of telephone charges recommended 
 by the board and adopted an ordinance fixing lower rates. 
 One of the two telephone companies immediately brought 
 action in the United States Court and procured a tem- 
 porary order to the effect that the rate established by 
 the Council was unjust to the company. It is conceded 
 by the city attorney that the ruling was correct and that 
 the final decree in the case must make it permanent. 
 
 Shortly prior to the fixing of these rates the City 
 Council appointed a committee to prepare amendments 
 to the city charter. In order to make the commission a 
 charter institution, instead of a mere creature of ordi- 
 nance, the charter amendments proposed by this com- 
 mittee provided for a Department of Public Utilities. 
 Realizing the impropriety, from the standpoint of strict 
 justice, of allowing a legislative body elected by the 
 people to fix charges for commodities and service to be 
 furnished to the people, the framers of the amendments 
 
THE BOARD OF LOS ANGELES 21 1 
 
 provided by them that rates should be finally and con- 
 clusively fixed, except for the revisory power of the 
 courts, of course, by the Board of Public Utilities. This 
 was with the exception of rates for water, which, for 
 the reason above stated, must be fixed by the governing 
 bodies of cities. 
 
 In December, 1910, the Charter Revision Committee 
 made its report to the City Council. That body, after a 
 careful presentation of the question, positively declined to 
 submit the amendments as they stood. The members of 
 the Council insisted that it was their duty, as the elected 
 servants of the people, to protect the people from the 
 great corporations. They insisted that the Council 
 should have the final power to fix the rates. They were 
 finally prevailed upon to allow those rates established by 
 the Board of Utilities to be made conclusive, in each 
 instance, unless the Council were appealed to by some 
 dissatisfied person, when the Board's rate might be set 
 aside by a two-thirds vote of the Council. The amend- 
 ment, thus finally framed, went before the people on 
 March 6, 191 1, and was adopted by a vote of 10,913 to 
 3,346. Under these charter amendments, now in force, 
 the board is authorized : 
 
 1. To make, at such times as may be prescribed by 
 ordinance, an investigation into the affairs of public 
 utility servers and to compile such data as may be neces- 
 sary to determine charges. Such data must include a 
 valuation of physical properties; a detailed statement of 
 gross and net earnings, expenses, capitalization and in- 
 debtedness; such other matters as the board may deem 
 proper; and also such matter as may be obtainable re- 
 garding the maintenance and operation of similar utili- 
 ties elsewhere. The board is given complete power of 
 access to all property, books, and papers of the utility 
 
212 MUNICIPAL UTILITIES 
 
 companies, and also full power to require reports from 
 them. 
 
 2. To fix rates and compensation, the same to be 
 effective during such periods as may be prescribed by 
 ordinance of the Council (the ordinances now in effect 
 require rates to be fixed annually), but in no event for 
 a period of less than one year, nor for more than three 
 years. If any interested person objects to the. rate fixed 
 by the Board, the Council may order a rehearing. Upon 
 such rehearing the rate may be modified in any respect 
 whatever, but only upon a two-thirds vote of the nine 
 members of the Council. 
 
 3. To investigate complaints against the service ren- 
 dered by any company and to recommend to the Council 
 appropriate corrective legislation. 
 
 4. To superintend the inspection of utility com- 
 panies, as to their compliance with their franchise grants 
 or with law, and as to their treatment of the public gen- 
 erally, and to recommend such legislation as may be 
 proper on those questions. 
 
 5. To prepare and keep a detailed and indexed rec- 
 ord of all public service franchises that have been granted 
 or that may hereafter be granted by the city, with all 
 particulars concerning the same; and to prepare and 
 keep, so far as is practicable, a similar record of all other 
 public franchises exercised in the city. 
 
 6. To pass upon applications for franchises. Such 
 applications are made to the Council and must be re- 
 ferred to the Board before the Council may act. No 
 franchise may be sold contrary to the recommendation of 
 the Board except upon a three-fourths vote of the entire 
 Council. 
 
 7. To make and enforce, subject to ordinance 
 
THE BOARD OF LOS ANGELES 213 
 
 adopted by the Council, rules and regulations respecting 
 the operation of public utilities in the city. 
 
 8. To require the attendance of witnesses and the 
 production of books and papers in any investigation or 
 hearing conducted by it. Each member of the Board 
 may administer oaths. 
 
 Under these charter provisions the Board of Public 
 Utilities proceeded to announce rates for the year. Their 
 figures, although probably just and equitable to all con- 
 cerned, and certainly honestly arrived at, were met with 
 such a storm of popular disapproval that, on June 30, 
 191 1, the entire board resigned. 
 
 As usual, the principal difficulty was over telephone 
 rates. There are two companies operating in the city. 
 Though their investments and operating expenses were 
 necessarily different and, for that reason, and on strict 
 principles, slightly differential rates would have been 
 proper; yet, in all things furnishing a basis for rates, 
 the companies were so nearly alike that the Board con- 
 sidered that both would fare better under a single sched- 
 ule, and accordingly proposed identical rates for them. 
 The Board profited, also, by the experience gained 
 through the litigation above mentioned and fixed a rate 
 above that established by the Council for the year before. 
 It was figured that the rate now proposed would allow 
 one of the companies about a five per cent, profit and the 
 other about seven. 
 
 The Council then, in response to many thoughtless 
 petitions, which merely averred that the rates proposed 
 " are too high " or "are more than the people can pay," 
 so materially changed the rates to be collected by the 
 company to which the Board had allowed a seven per 
 cent, profit, that it is extremely probable that the com- 
 
214 MUNICIPAL UTILITIES 
 
 pany will be denied, for the year, the revenue to which 
 it is entitled under the law. 
 
 It has been noted that all applications for franchise 
 grants must first be made to the Council; but, before 
 action is taken upon them, they must be referred to the 
 Board for its recommendation. The city has just been 
 witness to interesting and important events growing out 
 of this recommendatory power of the Board. 
 
 Ever since 1901 franchises in California cities have 
 been sold under a loosely-drawn and unsatisfactory en- 
 actment of the Legislature, known as the Broughton Act. 
 The Charter Revision Committee, above mentioned, pro- 
 vided, as part of the amendment adopted by the people 
 in March, 191 1, for the relief of the city from the opera- 
 tion of this state franchise-selling law. Through the 
 vote then taken, the charter now contains a provision 
 allowing the municipality itself to control and regulate the 
 sale of its own franchises, the procedure governing such 
 sales to be regulated by ordinance. In the latter part of 
 July the Board of Public Utilities, its special counsel, and 
 the City Attorney, to whom the question had been re- 
 ferred for attention, presented to the Council a tentative 
 form of ordinance covering the rules to govern future 
 franchise sales by the city. The proposed measure was 
 referred to a committee of the Council for considera- 
 tion and public hearings upon the subject were com- 
 menced. 
 
 After the ordinance had been referred, the owner of 
 the trolley lines of the city, encouraged by some of the 
 city officials, applied for a franchise for certain cross- 
 town lines through districts in which such lines had long 
 been needed. The application was made in the hope 
 that the franchise would be granted before the contem- 
 plated general franchise ordinance was adopted, and 
 
THE BOARD OF LOS ANGELES 215 
 
 hence free from the restrictions which it was expected 
 would be required as to all franchises to be sold after 
 the enactment of the ordinance. The application was 
 referred to the Board. Some of the people in those por- 
 tions of the city most interested in the cross-town lines 
 began a crusade for a recommendation that the franchise 
 be granted before the adoption of the new ordinance and 
 with no restrictions, save such as had characterized 
 grants under the Broughton Act. 
 
 After holding several public hearings, at which the 
 project was most warmly discussed by the citizens, the 
 Board recommended to the Council that the application 
 be denied. In its written report on the subject the Board 
 said: 
 
 We recognize the great need for cross-town car lines, 
 not only to the people of the south and west, but to the peo- 
 ple of all parts of the city. They are not required so badly, 
 however, by any section of the city that we can afford to 
 sacrifice, in providing for them, the sacred interests of time 
 to come. It can be said of Los Angeles, probably more truly 
 than of any other city in the world, that we are building, 
 and building ordinarily with care and judgment, for a glori- 
 ous future. We are committed to many advanced move- 
 ments here which are destined, in their consummation, to 
 play a great part in the emancipation of man from conditions 
 which have distressingly enthralled him since the birth of 
 the race. We have labored hand in hand for the working out 
 of these problems and we owe it to ourselves and to the 
 future to continue in the work. It is proper that we should 
 make necessary sacrifices to carry it on. It will doubtless 
 seem a sacrifice to many to be compelled to lay aside the 
 building, even for a brief time, of these car lines; but it is 
 the opinion of this board that there are great principles in- 
 volved in the settlement, once and for all, of the franchise 
 question in Los Angeles. That settlement will be a part of 
 15 
 
216 MUNICIPAL UTILITIES 
 
 the general work the city is doing for the freedom of man- 
 kind from all undue political, social and economic restraints. 
 
 The report was met with the most violent assault 
 in the sections of the city most vitally interested. Public 
 meetings were held, in those sections, for several days 
 after the decision of the Board. But the fevered condi- 
 tion soon abated, especially as the people of the city at 
 large recognized the soundness of the views of the Board, 
 and all are now awaiting the adoption of the " model 
 franchise ordinance," as the newspapers of the city 
 term it. 
 
 An effort is being made to incorporate into this ordi- 
 nance the most approved ideas as to the sale of municipal 
 franchises. It is hoped that the ordinance may be so 
 well framed as to govern franchise sales by the city for 
 many years. A somewhat unusual spectacle is furnished 
 in the fact that the legal representatives of the street and 
 interurban railroads are invariably present at the hear- 
 ings, and the points presented are being considered with 
 great frankness by all concerned. Citizens are also pres- 
 ent and state fully their views. This course of action 
 can but redound to the interest of the city, because it 
 will bring about a better feeling between the people and 
 the corporations. 
 
 The city may, sooner or later, be called upon to de- 
 termine whether it will give up its present system of 
 regulation and allow its utility corporations to pass under 
 state control. At the session of the Legislature, held 
 early in 191 1,- a constitutional amendment was proposed, 
 which provided for the creation of a State Board to have 
 EXCLUSIVE control of all utilities, whether operating 
 in or out of cities. The introduction of the measure 
 prompted a warm discussion of the subject in the City 
 
THE BOARD OF LOS ANGELES 217 
 
 Club of Los Angeles, a non-partisan civic clearing-house 
 composed of a thousand members and an institution of 
 great value to the interests of the municipality. The de- 
 bate resulted in the appointment of a special committee of 
 nine to " report and make recommendations at the next 
 meeting of the club." 
 
 At the succeeding meeting the committee presented 
 a report of sufficient interest to merit its partial repeti- 
 tion here. It was said, inter alia: 
 
 Upon the broad question of state or municipal control of 
 public utilities a difference of opinion exists in your com- 
 mittee. Mr. Hunsaker and Mr. Anderson are opposed to 
 any jurisdiction of a state commission in the matter of rate- 
 fixing or physical control of utility corporations in munici- 
 palities. The rest of your committee agree that, upon a 
 purely logical basis, a state board having control of the 
 issuance of stocks and bonds of public service corporations, 
 with the means and the ability to secure a physical valua- 
 tion of the property, should also have the rate-fixing power 
 now lodged by the constitution in the municipalities of the 
 state. It has been stated that those states which best regu- 
 late public utility corporations do so through state control. 
 In none of these states, however, do the municipalities have 
 the power to regulate, Having so long enjoyed the largest 
 measure of home rule, and possessing, among other things, 
 the right to fix rates to be charged by public utilities for 
 services rendered, your committee believes that the people 
 of California residing in municipalities would not be willing 
 now to surrender this power to a state board, even if as- 
 sured of the successful operation of state boards of control 
 in Wisconsin, in New York, and elsewhere. We, therefore, 
 have come to the unanimous conclusion that it would be 
 unwise to attempt so to amend the state constitution at this 
 time as to transfer the rate-making power from the munici- 
 palities to the state. 
 
218 MUNICIPAL UTILITIES 
 
 The report was adopted, together with appropriate 
 resolutions. The result was that the measure under fire 
 never came to vote, but another was offered in its place 
 and adopted. This latter, adopted by popular vote at the 
 state election of October 10, 191 1, enlarges the functions 
 of the State Railroad Commission by giving it the most 
 ample powers over utility corporations generally, subject 
 to the proviso, however, that utilities operated within 
 cities are not to come under the jurisdiction of the Com- 
 mission until the cities severally, by a vote of their elec- 
 tors, relinquish the right to control which is now guar- 
 anteed to them by the constitution. The Commission 
 may, nevertheless, at once regulate utilities operating 
 wider than locally, or those which operate anywhere out- 
 side of cities. The Commission is also given ample 
 powers of control over stock and bond issues by all the 
 utility corporations of the state, wherever operating, and 
 to gather and preserve data of general interest concern- 
 ing them. 
 
 If we may judge from the present views of her citi- 
 zens, it is likely to be long before Los Angeles relin- 
 quishes her right to control utilities operated within her 
 own limits. It is felt that the machinery now in exist- 
 ence is adequate to deal with any situation which may 
 arise, provided the people, to say nothing of the City 
 Council, can be made to understand the proper functions 
 of such a body and can be- taught to rely upon it. Ex- 
 perience has shown that education in the direction indi- 
 cated is much needed, but there is no reason to feel that 
 the instruction cannot be imparted. 
 
CHAPTER XII 
 
 THE UTILITIES COMMISSION OF KANSAS CITY, MISSOURI 
 
 Jacob A. Harzfeld, President of the Commission, 
 gives the following account of the powers and functions 
 of the Utilities Commission of Kansas City, Missouri. 
 
 On June I, 1905, the Supreme Court of Missouri 
 decided that Kansas City had never been given authority 
 to regulate the rates of such of its Public Service Cor- 
 porations as operated in Kansas City under the general 
 statutes and not by virtue of a special franchise. 1 
 
 Kansas City had been suffering from high charges 
 and poor service from the telephone company. This de- 
 cision of the Supreme Court quickened a public demand 
 that the city be granted full power to regulate and deal 
 with all public service corporations using its streets and 
 highways. 
 
 Public-spirited citizens thereupon perfected an or- 
 ganization with the avowed purpose of obtaining such 
 powers for Kansas City. A large delegation of citizens, 
 at their own expense, went to Jefferson City with a draft 
 of a new law at the next session of the Legislature, in 
 1907, and introduced an Act that would accomplish this 
 purpose. It was defeated. Thereafter they prevailed 
 
 1 State exrel. Garner vs. Telephone Company, 189 Mo. 83. 
 
 219 
 
220 MUNICIPAL UTILITIES 
 
 upon Governor Folk to call a special session of the Leg- 
 islature. In this session they again introduced an Act 
 granting to. all cities of the state the right to fix by or- 
 dinance reasonable rates of charge for service by public 
 utility companies and giving such cities the right to en- 
 force such ordinance, reserving to the public utility com- 
 panies the right to have the reasonableness of the rates 
 determined by regular court proceedings. The Act also 
 provided that all cities should have the power to estab- 
 lish a commission to investigate all facts and matters 
 touching the reasonableness of rates, to enforce the pro- 
 duction of books and papers, and to compel the attend- 
 ance of witnesses, This Act, quoted in full in the ap- 
 pended footnote, 1 was finally passed and approved on 
 May 8, 1907. 
 
 'Sec. 1. Cities Empowered to Regulate Charges for 
 Gas, Telephone. Etc — A'l persons, firms and corporations owning 
 or operating a telephone or telegraph line, system, or a tunnel, sub- 
 way, conduit or viaduct, or engaged in furnishing gas, steam or elec- 
 tricity for lighting, heating or power, or engaged in furnishing water, 
 heat and refrigeration, under franchises granted by this State or any 
 of the cities thereof, or otherwise operating in such cities, and all per- 
 sons, firms and corporations owning or operating any other public 
 utilities under franchises granted by this State, or any of the cities 
 thereof, or otherwise operating in such cities, are hereby required to 
 charge no more for the service of such util't'es than such rates as 
 shall be fixed from time to time by ordinance, by the cities in this 
 State in which such utilities are operated; and all cities in this State, 
 whether organized under the provisions of section 16 of article IX 
 of the Constitution, or otherwise, are hereby granted power and 
 authority to fix, by ordinance, the rates of charge for the services of 
 such utilities within their corporate limits, and to provide and en- 
 force fines and penalties for the violation thereof, and to charge such 
 rates, by ordinance, from time to time, as often as may be deemed 
 necessary: provided, however, that such rates must be reasonable, 
 and shall not be changed oftener than once every two years. (Con- 
 tinued on page 221.) 
 
THE COMMISSION OF KANSAS CITY 221 
 
 In May, 1908, Kansas City took advantage of the 
 act and established a Public Utilities Commission of 7 
 members. The size of this Commission proved to be 
 cumbersome, the salary paid to its members was merely 
 nominal, so after one year's experience it was aban- 
 doned and a new ordinance adopted. This ordinance 
 provided for a Commission of 3, with a Secretary, and 
 
 Sec. ia. Aggrieved Party may Appeal. — Any such person, 
 firm or corporation owning or operating any of the utilities men- 
 tioned in section 1 of this act and claiming to be aggrieved by the 
 rates fixed by such ordinance shall have the remedy herein provided, 
 to have the validity of such ordinance and the reasonableness of such 
 rates determined by the circuit court of the county in which such 
 city may be situated. The party so complaining shall, as plaintiff, 
 file in the circuit court within twenty days after the passage of such 
 ordinance, a petition against such city, as defendant, setting forth 
 the objections to such ordinance, whereupon summons shall issue 
 and be served upon such city, and pleadings shall be filed and pro- 
 ceedings had as in other cases. The plaintiff or defendant shall have 
 the right of appeal to the proper appellate court of the State as in 
 other cases. Said cause shall be speedily heard and determined, and 
 shall have precedence in time in the circuit and appellate courts over 
 other civil actions. Nothing contained in this section shall be con- 
 strued to mean that any power or jurisdiction is conferred upon said 
 courts to fix such rates or regulate the charges of any such public 
 utilities. 
 
 Sec. ib. City may Appoint Commission. — Duties. — Any 
 such city or town may, by ordinance, provide for and establish a 
 committee or commission to make investigation into all facts and 
 matters touching the establishing of such just >and reasonable rate 
 or rates of charge, and after such investigation said commission shall 
 report its findings and recommendations to the City Council And 
 all such cities and towns shall have power and authority, by ordi- 
 nance, to require and enforce the production of books and papers, 
 and compel the attendance of witnesses before the City Council, or 
 any duly constituted committee or commission thereof, for the pur- 
 pose of ascertaining what is a just and reasonable rate or rates. 
 
222 MUNICIPAL UTILITIES 
 
 gave the Commission permanent quarters and a per- 
 manent force of inspectors. 1 
 
 The duties of the Commission are ( i ) to investigate 
 all the facts and matters relating to the establishing and 
 fixing of reasonable rates of charge and quality and man- 
 ner of service and all matters connected with or incident 
 thereto; (2) to carefully examine the ordinances under 
 which Public Utilities Corporations are now acting; (3) 
 to investigate whether such corporations are complying 
 with the terms of their franchise and all law ful ordi- 
 nances of Kansas City ; (4) to make reports to the Com- 
 mon Council and the Mayor in such matters as they 
 may deem to be advisable; (5) to examine all ordinances 
 under which Public Service Corporations are permitted 
 to occupy or cross streets, alleys, or highways of the 
 city; (6) to study the manner and location, arrange- 
 ment, operation and maintenance of terminal facilities; 
 
 (7) to tabulate and make record of the location of all 
 property of public service corporations in Kansas City; 
 
 (8) to make comparative investigations as to the opera- 
 tion of public service corporations in other cities for com- 
 
 1 The new Commission was appointed in May, 19 10. The new 
 ordinance provides for 3 members, no more than 2 to belong to the 
 same political party, all the members to hold office for 2 years after 
 their appointment; the members not to be directly or indirectly in- 
 terested : n any contract or franchise of the City or any department 
 thereof; nor in furnishing supplies to the City or to any contractor 
 having a contract with the City; nor to be the owner of any stock 
 or in any manner interested or connected with any public service 
 corporation doing business in the City. If any member becomes 
 interested in any manner in such affairs, he is thereby immediately 
 disqualified to act upon the Commission. Each commissioner must 
 take oath to all of the foregoing qualifications. The Mayor has the 
 power of removal of any member at any time with or without cause. 
 No member shall receive free transportation, rebate or any other 
 gratuity from any Public Service Corporation. 
 
THE COMMISSION OF KANSAS CITY 223 
 
 parison; (9) to make orders upon public service cor- 
 porations to comply with any ordinances that they have 
 failed to comply with, and in the event of their refusal 
 so to do, to make report thereof to the City Counselor 
 and request the City Counselor to take legal action 
 thereon. 1 And finally the commission is empowered to 
 hire inspectors, not to exceed four, and hire such experts 
 as may be necessary to aid them. In the event, however, 
 that the total cost of such experts is more than four 
 thousand dollars ($4,000.00) per year, a special ordi- 
 nance is required. 
 
 A Counselor is provided for the Commission, ap- 
 pointed by the Mayor and subject to his removal. The 
 Commission is granted power to summon witnesses, com- 
 pel their attendance and testimony, and to compel wit- 
 nesses to produce books and papers. The refusal of a 
 witness to attend, or to give testimony, or to produce 
 books or papers, is made a misdemeanor, punishable by 
 a fine not exceeding five hundred dollars ($500.00). 
 Every day's refusal is made a separate offense. 
 
 Since its organization the new Commission has had 
 regular meetings, held at least weekly, and has generally 
 met with the approval of the public in its attempt to 
 discover and remedy inefficiency in service and operation 
 by the utility companies. 
 
 Street Railway Companies. — The commission has 
 made a complete, detailed investigation of the condition 
 of every foot of track and pavement of the local Street 
 Railway Company. It had pictures made of the worst 
 places, over one thousand in number. It then sum- 
 moned the President of the Company before it, and or- 
 
 1 The duty is imposed upon the City Counselor to take all steps 
 and proceedings to compel such public service corporations to cease 
 to violate such franchise obligations. 
 
224 MUNICIPAL UTILITIES 
 
 dered the report read and the pictures shown. The Presi- 
 dent of the Company immediately promised to put men 
 to work. This he did, though he thereby increased fhe 
 company's expenditure for this class of work about 
 seventy-five per cent. (75%) over the previous year. 
 The contract between the Street Railway Company and 
 the City provided that the Company should build exten- 
 sions to their lines as required by the Common Council 
 in an amount equal to two miles of double track per 
 year. For the first time a complete survey was made 
 and it was discovered that, under its agreement, the 
 Company had not fulfilled its obligations to the City and 
 could be required to make a great many more miles of 
 extensions. 
 
 The Commission made an investigation into the 
 crowded condition of the street cars in Kansas City, 
 and made a complete observation on four different days 
 on each line entering the business district. It found that 
 cars with a seating capacity of forty-four often carried 
 more than one hundred people. Tabulated statements 
 of these conditions were placed upon file showing the' 
 exact condition of every car. This clearly indicated the 
 need of more cars. Sixty new cars were added during 
 the year, and twenty-five more cars are now being pro- 
 vided. 
 
 In making this investigation it was discovered that 
 the routing of the cars was responsible for some of the 
 overcrowding. Hence a detailed investigation was made 
 showing the number of cars passing given points at cer- 
 tain times. As a result of this investigation a re-routing 
 ordinance was passed which relieved the congestion. 
 
 Kansas City owns a beautiful park of more than thir- 
 teen hundred acres, the playground of the City. It was 
 discovered that the present car line thereto was not ade- 
 
THE COMMISSION OF KANSAS CITY 225 
 
 quate to serve the people who desired to use this play- 
 ground. The Commission decided that a new line should 
 be built in the near future to approach this park from 
 another direction. 
 
 Gas Companies. — Kansas City is supplied with nat- 
 ural gas. A local company, which has the contract 
 directly with the City, owns the distributing system. 
 Another company owns the supplying system and the 
 pipe lines running from Kansas City to the Oklahoma 
 gas fields. The local company refused, whenever pos- 
 sible, to extend gas mains unless it saw a profit in those 
 mains. The Commission took upon itself the duty of 
 seeing to it that all complaints were adjusted and that 
 ordinances were properly prepared to the end that exten- 
 sions should be made and made without unnecessary 
 delay. 
 
 During certain days in winter, when the thermometer 
 was below zero, certain portions of the City suffered on 
 account of the lack of pressure. While some districts 
 had a pressure sufficient for heating, cooking, and light- 
 ing, other districts were without enough gas to supply 
 light. Under the direction of the Commission, the pres- 
 sure, on such days as these, was equalized all over the 
 City so that no portion was entirely without gas. 
 
 An .investigation showed that the supplying company 
 did not have adequate pipe line facilities to the fields nor 
 adequate storage capacity in Kansas City. After an 
 amicable meeting with the Company, it was agreed that 
 a storage tank of 5,000,000 cubic feet capacity would 
 immediately be built. It is now about completed. This 
 will greatly relieve the situation. The Commission, how- 
 ever, was not satisfied merely with greater storage ca- 
 pacity. The company has maintained that, since the 
 Oklahoma and Kansas fields are being depleted, it would 
 
226 MUNICIPAL UTILITIES 
 
 be unjust to require them to invest in the building of 
 additional pipe lines. The Commission is now having 
 experts investigate the entire field in relation to what 
 gas fields the Company now owns and controls, the prob- 
 able life of such gas fields, what gas wells could be 
 purchased at a reasonable price by the Company, and a 
 complete investigation as to the possibilities of the entire 
 gas field and the needs of the distributing system. 
 
 The Telegraph Companies. — Since 1898 Kansas City 
 has been in a controversy with the Western Union Tele- 
 graph Company. It has attempted to compel the Com- 
 pany to place its wires under ground, but has always 
 been unsuccessful. The Commission took up this con- 
 troversy. After negotiations of several months' dura- 
 tion, the company agreed to place all of its wires, in cer- 
 tain districts, under ground. An ordinance was passed 
 requiring them so to do. The work is now completed. 
 
 Electric Lighting. — On entering office, the Commis- 
 sion found that, under the ordinances then in force, 
 customers' meters were inspected by an officer whose 
 salary was paid by the Company, whose assistant was 
 a direct employee of the Company, and that the instru- 
 ments used were instruments belonging to the Company, 
 the City owning none of its own. Under the direction 
 of the Commission, an ordinance was at once drafted, 
 providing for a city electric meter inspector, giving him 
 an assistant, and providing him with his own instruments. 
 
 The Commission made an investigation into the rates 
 charged for electric light. It found that the Company 
 was not operating under any franchise, that the City had 
 never attempted to control its rates, that its rates varied 
 from 3 cents per kilowatt hour to 10 cents per kilowatt 
 hour, that the Company had a large number of classifi- 
 cations of its customers by which residents operating in 
 
THE COMMISSION OF KANSAS CITY 227 
 
 the same line of business upon the same street and using 
 approximately the same amount of current were receiv- 
 ing different rates. After consultation with the officers 
 of the Company, it was agreed that, until some ordinance 
 was passed regulating rates, there should be no discrim- 
 ination in rates, when the same amount of current is used 
 under the same conditions. It will be necessary for the 
 Commission, in the near future, to make an inventory 
 of the Company's properties in order to fix and establish 
 fair and reasonable rates for its services. This is one 
 of the projects that the Commission has in mind for the 
 near future. 
 
 An incident illustrative of the value of such a Com- 
 mission to any City is the fact that, from the informa- 
 tion and data collected by the Commission, it was pos- 
 sible to raise the valuation of the Company's personal 
 property from $400,000 to $1,000,000. This will mean 
 an increase of $7,500 in the taxes of the Company dur- 
 ing the next fiscal year, or almost three-fourths the entire 
 amount expended by the Commission during the previous 
 year for all of its expenses. 
 
 Steam Railways. — Steam railway companies in Kan- 
 sas City had been in the habit of so neglecting their 
 crossings that many of them were almost impassable. 
 Inspectors were sent out and detailed reports and photo- 
 graphs made of all steam railway crossings. Under the 
 direction of the Commission, all of these crossings were 
 immediately repaired. 
 
 Comparative Statistics. — The Commission has 
 gathered comparative statistics from all the larger cities 
 of the United States, showing comparative rates for 
 electric light companies which furnish commercial light- 
 ing, power current, or residence lighting, showing in- 
 vestment in the plant, the source of power, the equip- 
 
228 MUNICIPAL UTILITIES 
 
 ment, price of coal, price of water, price of street lights, 
 the manner of inspection, and whether they are operat- 
 ing as a monopoly or in competition. Similar investiga- 
 tions were made as to the various telephone companies 
 throughout the United States. This information is sys- 
 tematically filed and indexed. 
 
 Franchises. — The Commission discovered that there 
 never had been gathered any information as to what 
 franchises of the City were still valid. It therefore had 
 copies made of every franchise or grant that had been 
 made to any corporation or individual to date. Now the 
 City can, at a glance, determine what its rights are and 
 what rights any utility company operating in Kansas 
 City may claim. 
 
 The Commission, while interfering as little as pos- 
 sible with the internal affairs of the utility companies, 
 has, at the same time, made every effort to require those 
 companies to give the service they had contracted to give, 
 and to compel them to do those things that they had 
 promised to do. The Commission was also willing at all 
 times to defend the companies from unjust taxes and 
 burdens. 
 
 The Commission believed in the value of publicity. 
 When it discovered that any company was failing to 
 carry out its contractual obligations it did not hesitate 
 to give out the facts and see to it that the newspapers 
 gave full publicity. In a large number of the cases this 
 publicity was all that was needed to effect a remedy. 
 
 The law and ordinances under which the Public Utili- 
 ties Commission of Kansas City is operating is by no 
 means ideal. The first objection is that it is the creature 
 of an ordinance and could be abolished by the Common 
 Council at any meeting. The Commission should be 
 created by Charter, its members should not all be ap- 
 
THE COMMISSION OF KANSAS CITY 229 
 
 pointed at the same time, and for the same period that a 
 majority of the Commission may, at all times, be ex- 
 perienced members. The present ordinance of Kansas 
 City gives the power to the Mayor to appoint or remove 
 any member of the Commission. It also gives him power 
 to appoint the attorney for the Commission. It is doubt- 
 ful whether the Commission should have an attorney 
 whose sole duty it is to perform services for the Com- 
 mission. It would be better, perhaps, if an additional 
 Associate City Counselor were appointed and assigned 
 to the Commission and, when not needed by the Com- 
 mission, used in other work for the City. The present 
 Counselor for the Commission has voluntarily devoted 
 all of the time that was not necessary for the Commis- 
 sion to other work for the City, but it probably would 
 be better to make it his duty so to do. 
 
 The Commission, under the present State law, has 
 power only to investigate the matter of rates and no 
 power to enforce those rates after it has determined what 
 the rates should be. An act should be passed by the 
 State Legislature granting to the Commission wider 
 power so that the Commission would be independent of 
 the City Council in the matter of its investigations, so 
 that, after it had determined a reasonable rate, it could 
 enforce that rate. It would not appear to be wise to 
 abolish the present Commission and in lieu thereof to 
 establish a State Commission, but it would be wise to 
 establish a State Public Utilities Commission with broad 
 power, such as the Commission of the State of New 
 York. Such Commission could afford to have, at all 
 times, a corps of experts who would be competent to 
 investigate and determine the value of street railway 
 plants, gas plants, electric light plants, telephone plants, 
 and general public serving institutions. These experts 
 
230 MUNICIPAL UTILITIES 
 
 could be loaned to the various cities and the expense in 
 that way divided throughout the whole State. 
 
 There is no question as to the valuable service that 
 a local public utilities commission can perform. A Local 
 Commission is necessary because the men who compose 
 it are citizens of the City and daily come in contact with 
 the citizen and receive complaints as to service and rates. 1 
 
 » The street car company of Kansas City was recently placed in 
 the hands of a receiver; were it not for the fact that Kansas City 
 had a Public Utilities Commission, the City would have been help- 
 less in Court. With such a Commission Kansas City was enabled to 
 file an intervening petition in the Federal Court setting out in detail 
 all of its grievances against the Street Railway Company in the matter 
 of paving, in the matter of track repairs and quality of service. 
 These grievances the city could support from the records in the 
 office of the Public Utilities Commission. 
 
CHAPTER XIII 
 THE ST. LOUIS PUBLIC SERVICE COMMISSION 
 
 In accordance with the provisions of the Missouri 
 statute of 1907, quoted in full in the preceding chapter, 
 page 219, the City of St. Louis, on February 24, 1909, by 
 ordinance provided for a municipal Public Service Com- 
 mission. Roger N. Baldwin, secretary of the Civic 
 League of St. Louis, describes as follows the powers and 
 functions of that commission : 
 
 The ordinance, quoted in full in the appended foot- 
 note, 1 provided for a commission of three to be ap- 
 pointed by the Mayor and confirmed by the Council. 
 
 '"ORDINANCE 24196." 
 
 "An ordinance to create a public service commission, to pre 
 scribe its powers and duties, and to make an appropriation to pay 
 the expenses and outlays which may be thereby incurred." 
 
 Sec. 1. Commission. — Appointment of. — There is hereby 
 created a commission to be known as "The Public Service Commis- 
 sion" which shall consist of three members appointed by the Mayor 
 and confirmed by the Council. 
 
 Sec. 3. Term of Office. — Each commissioner shall be ap- 
 pointed for a term of three years and until his successor is duly 
 appointed and qualified, provided that the first appointment here- 
 under shall be for terms of one, two and three years, respectively. 
 Any vacancy shall be filled by appointment only for the unexpired 
 term. 
 
 Sec. 4. Duties of. — The duties of said Public Service Commis- 
 sion shall be: 
 
 16 23* 
 
232 MUNICIPAL UTILITIES 
 
 The Commission authorized by this ordinance was 
 appointed by the Mayor in March, 1909. It consisted of. 
 Mr. Joseph L. Hornsby, Chairman, attorney and former 
 President of the City Council; Mr. James E. Allison, 
 Consulting Engineer, and Mr. James A. Waterworth 
 of the St. Louis Insurance Surveys. The members 
 
 First: To make investigations into all matters connected with all 
 rights, privileges ind franchises held or claimed by any and all per- 
 sons, firms, or corporations owning or operating a telephone or tele- 
 graph line, system or exchange, or a street railway line, or system, or 
 a tunnel, subway, conduit or viaduct, or engaged in furnishing gas, 
 steam or electricity for lighting, heating or power, or engaged in fur- 
 nishing water, heat or refrigeration, under franchise granted by the 
 City of St. Louis or by the State of Missouri, effective or operative 
 within the limits of the City of St. Louis, to collect, revise and pub- 
 lish all laws, ordinances and permits dealing with such rights, privi- 
 leges and franchises and to report to the Municipal Assembly all 
 material violations of any of the said rights, privileges or franchises, 
 or of any Charter provision or State law relating to said rights, 
 privileges or franchises, together with the recommendations of such 
 laws or ordinances in this regard as shall in its opinion be advisable 
 to protect the best interests of the City of St. Louis and the public. 
 
 Second: To make investigations into the methods of operation, 
 the facilities offered, the quality of service rendered and such other 
 matters connected with the operations of such persons, firms or cor- 
 porations as concern the general welfare, and to recommend to the 
 Municipal Assembly such changes and improvements in the opera- 
 tions and conduct of such persons, firms or corporations as will best 
 promote the public interests, preserve the public health and safety 
 and protect the general welfare of the City of St. Louis and the 
 inhabitants thereof. 
 
 Third: To make investigations into all facts and matters tending 
 to show the just and reasonable rate or rates charged for the services 
 of all persons, firms or corporations mentioned in this ordinance in 
 so far as it is within the power of the City of St. Louis to regulate 
 such charges, and to report to the Municipal Assembly its findings, 
 together with recommendations of what, in ics opinion, constitutes 
 
THE ST. LOUIS COMMISSION 233 
 
 of the Commission were appointed by a Democratic 
 Mayor, and two were, nominally at least, members of 
 
 a reasonable rate or rates of charge for such services in the City of 
 St. Louis. 
 
 Fourth: To investigate and report upon any and all matters con- 
 nected with the said public utilities, upon request of either House of 
 the Municipal Assembly, or of any committee thereof, or of any 
 officer of the City of St. Louis acting in the course of his duties. 
 
 Sec. 5. Shall Make Rules. — Employ and Fix Compensa- 
 tion of Secretary, Etc. — Regulate Expenditures. — -The Com- 
 m'ssion may make all rules for its guidance and procedure within 
 the limits of this ordinance and regulate the mode and manner of 
 all investigations and hearings before it, provided all hearings and 
 all records of the Commission shall be open to the public. The 
 Commission may appoint a secretary, who shall hold office during 
 its pleasure at such compensation as may be determined by the 
 Commission, and may employ such attorneys, experts and other 
 persons as in its judgment may be necessary to carry out the pro- 
 visions of this ordinance and shall fix their compensation. The 
 Commission shall be sole judge of the propriety of any expenditure 
 within the limits of the appropriation made in section 10 of this 
 ordinance, and the accounting and disbursing officers of the City of 
 St- Louis shall honor warrants of the chairman and secretary of the 
 Commission up to the amount of said,appropriation. The commis- 
 sion shall have an office in the new City Hall, and shall be provided 
 with a suitable room or rooms, necessary office furniture and sup- 
 plies, which shall be paid for out of the sum appropriated for the 
 expenses of the Commission. 
 
 Sec. 6. Empowered to Administer Oaths and to Require At- 
 tendance of Witnesses and Production of Papers, Etc. — City 
 Marshal to Serve Processes. — Each commissioner is hereby au- 
 thorized and empowered to administer oaths and affirmations in all 
 matters incident or belonging to the exercise of the duties or powers 
 of the Commission. Said Commission is hereby authorized and 
 empowered to require, by subpoena, the attendance and testimony 
 of witnesses, and the production of books, papers and documents, 
 in any investigation conducted by said Commission, in respect to 
 any matter or ihing which said Commission is authorized to investi- 
 
234 MUNICIPAL UTILITIES 
 
 the Democratic Party. The terms of two members of the 
 Commission expired during the administration of a Re- 
 publican Mayor, but the incumbents were re-appointed 
 
 gate, provided, that any person so required to testify or to produce 
 any book, paper or document, as aforesaid, may excuse himself be- 
 fore the said Commission for failure to testify or to produce any 
 book, paper or document, upon the same grounds and for the same 
 reasons that would constitute a valid excuse in a court of record of 
 this State. The subpcenas authorized as aforesaid shall be issued 
 and signed by the Chairman of said Commission. Services of pro- 
 cess: The City Marshal is hereby authorized and directed to serve 
 any and all notices, subpcenas, attachments and other forms of 
 process which may be issued by said Commission from time to time. 
 
 Sec. 7. Commissioners Shall Have no Pecuniary Interest 
 in any Concern Subject to the Provisions of this Ordinance. — 
 Before entering upon the duties of his office, each commissioner shall 
 in addition to the oath of office prescribed by the Charter, take oath 
 that he is not pecuniarily interested directly or indirectly in any 
 company, firm or corporation subject to the provisions of this or- 
 dinance, and no person shall be employed by said Commission or 
 hold any office or position under said Commission who is pecuniarily 
 interested, directly or indirectly, in any such company, firm or 
 corporation. 
 
 Sec. 8. Shall Report to the Municipal Assembly. — When. 
 — The Commission shall report to the Municipal Assembly once 
 every six months and in addition thereto shall report at the close of 
 the investigation of any one subject and at such time as either 
 branch of the Assembly may ask for such reports. 
 
 Sec. 9. Compensation of Commissioners. — Expenditures. — 
 Each commissioner shall receive for his services the sum of Twenty- 
 four Hundred Dollars per annum, and all actual and necessary 
 traveling and other expenses incurred by him under the authority 
 of the Commission in the discharge of official duties, shall be repaid 
 to him. Said salary shall be paid in monthly installments. 
 
 Sec. 10. Appropriation. — There is hereby appropriated and 
 set apart out of the Municipal Revenue Fund of the City of St. 
 Louis the sum of Twenty-five Thousand Dollars for the expenses 
 and outlays which may be required for the objects and purposes 
 of this ordinance." 
 
THE ST. LOUIS COMMISSION 235 
 
 without any question whatever. It is practically a non- 
 partisan Commission. It was recognized from the first 
 that the Commission consisted of men of high character 
 and of the utmost integrity, men who have won the con- 
 fidence and respect of public officers and the community 
 at large. 
 
 The Commission maintains an office in the City Hall, 
 and an office force under the direct supervision of the 
 Chief Engineer, Mr. Allison, who is also a member of 
 the Commission. The Commission employs fifteen to 
 twenty employes, varying according to the work in hand. 
 They consist of inspectors, draughtsmen, engineers, stat- 
 isticians, and clerical help. The appropriation of $25,- 
 000 granted under the first ordinance has been increased 
 to $30,000. 
 
 The work of the Commission has been to examine 
 in detail the operation of each one of the public utilities 
 in St. Louis. In addition to that, the Municipal Assem- 
 bly has referred practically all general franchise matters 
 to the Public Service Commission. The recommenda- 
 tions of the Commission have been followed in practi- 
 cally every instance. It was, however, only after a year 
 and a half's work on the part of the Commission that 
 its influence and power began to be acknowledged on all 
 sides. There was considerable criticism and discussion 
 the first year on account of the apparent delay on the 
 part of the Commission in reporting on the vital prob- 
 lems in public service matters, for which the community 
 had long been demanding a remedy. Mr. Allison, the 
 Chief Engineer of the Commission, in speaking of the 
 Commission's work during this period, says: 1 
 
 1 The extracts here given are from several papers and addresses 
 by Mr. Allison, 
 
236 MUNICIPAL UTILITIES 
 
 In the early part of our work the Commission was some- 
 what concerned at the apparent misunderstanding on the 
 part of the newspapers as to the character of good public 
 service work, and the time required to do it. 
 
 We believe that now, however, the newspaper men of 
 the city have a pretty clear understanding of the time re- 
 quired to do this work well, and we think that we no longer 
 have to fear hostile criticism from the press on this point. 
 
 As a matter of fact, taking into account the size of the 
 property under investigation, the time consumed by the St. 
 Louis Commission so far will compare favorably with simi- 
 lar work done by other commissions or by first-class en- 
 gineering firms. 
 
 The appraisal by the St. Louis Commission of the prop- 
 erty of the Union Electric Light & Power Company was 
 begun about the first of July last year (1909) and finished 
 about the first of February following, requiring about seven 
 months' steady work for a force of some fourteen or fifteen 
 engineers and their assistants, to arrive at what we call the 
 tentative valuation figures. 
 
 Even before February, a part of the force was already 
 at work on the property of the United Railways Company, 
 and as fast as they were released from the work of the 
 Union Electric Company's property they were transferred to 
 that of the railways. . . . 
 
 I have had engineers say to me, " Why does the Commis- 
 sion go so much into detail in its valuation work? I could 
 give an opinion as to the value of these plants in a month 
 or two months, as the case may be." Any engineer who 
 makes such a statement simply shows that he is absolutely 
 ignorant of the requirements and conditions of public service 
 valuations. It is true that an engineer might go into an 
 electrical plant and note the number and capacity of the 
 boilers, prime movers, and generators, and then, by taking 
 into account the miles of wire, etc., as reported to him by 
 the company, give an opinion as to the value or cost of the 
 plant; but when he had finished, he could give nothing but 
 
THE ST. LOUIS COMMISSION 237 
 
 an opinion, and his estimate would be entirely valueless to 
 withstand attack or criticism, and not worthy of being made 
 part of a public record. 
 
 No responsible public service commission in the country 
 will now accept such work as worthy of consideration. It 
 is necessary that the valuation work of a public service com- 
 mission shall show facts, not opinions, and shall show and 
 record these facts in such manner that they cannot be dis- 
 puted successfully. In short, the records must be made with 
 the view of their being clear, convincing and complete to 
 anyone who may care to investigate. 
 
 Before going into detail in the valuation work of the 
 Commission, I wish to point out the importance of research' 
 and investigation of the legal rights of the corporations as 
 defined by the ordinances of the city. Without knowledge of 
 these legal rights, it is impossible to proceed intelligently 
 with regulation work. So important does this commission 
 consider having readily available a complete record of these 
 laws and ordinances, that the first work undertaken by it 
 was the collection, arrangement and publication of all the 
 laws, ordinances and permits of St. Louis pertaining in any 
 way to the rights of the companies now performing public 
 service under franchises granted by the city. The work 
 involved research through some 25,000 ordinances and their 
 selection, arrangement, and indexing. 
 
 The Commission, during its second year, denned with 
 some care its attitude toward the problems with which 
 it deals, and this attitude has met with a singularly favor- 
 able response from all classes in the community — not 
 only the business interests and men interested in public 
 affairs, but from the radical and labor elements, who 
 have regarded the Commission with a degree of confi- 
 dence which they do not often accord public officials in 
 their dealings with public service corporations. 
 
 In regard to its policies, the Chief Engineer of the 
 
238 - MUNICIPAL UTILITIES 
 
 Commission contributes the following interesting dis- 
 cussion : 
 
 A public service commission should be a conservative 
 body whose most important function is to prevent injustice 
 toward the companies and to correct injustices against the 
 consumers. 
 
 But if the members of commissions or other regulating 
 bodies allow themselves to be influenced to accept exagger- 
 ated or unreasonable statements of values, or if they hesitate 
 to fearlessly point out and correct discrimination or extor- 
 tion against the consumers, not only are they derelict in 
 their duty as public officials, but they are, in the end, work- 
 ing against conservative property interests and are acting as 
 the allies of the demagogue and the social disturber. 
 
 A business or professional man who has not the courage 
 to face the possible vindictiveness of those whose interests 
 or plans may be affected by impartial official action has no 
 rightful place on a public service commission. 
 
 Up to very recent times, the investor and the exploiter 
 have been the only two of the three parties who have had 
 much to do with the situation. Generally the exploiter ob- 
 tains his franchise or makes his consolidations, builds his 
 plant or railroad, manufactures his securities and begins to 
 sell them to the investor, if he can, and in nearly every case 
 the fact that there is a third party in interest, namely, the 
 public, seems to have been entirely forgotten. Now, while 
 these rights of the public may have been forgotten or ig- 
 nored, it by no means follows that they have been destroyed, 
 and it becomes the plain duty of regulating officials to see 
 that they are given due weight in the solution of the prob- 
 lems presented. 
 
 The foundation of all rate regulation, so far as the ques- 
 tion has been passed upon by the courts, seems to be that a 
 public utility, when it accepts a franchise or other special 
 privilege, enters into an obligation expressed or implied, that 
 
THE ST. LOUIS COMMISSION 239 
 
 it will furnish adequate service and will charge therefor no 
 more than will bring a reasonable return on the value of the 
 investment in the service of the public. 
 
 The application of this principle to the investor who has 
 paid good money for the water in his securities seems a hard- 
 ship. It is a hardship, and one which the Commission should 
 make as light as is consistent with its duty; but a hard- 
 ship is not necessarily an injustice, and if an investor has 
 bought watered stock in a public utility with the idea that it 
 entitles him to all the traffic will bear, without regard to 
 the rights of the consumer, he is doomed to speedy disap- 
 pointment whenever his particular corporation comes under 
 efficient and conscientious regulation. 
 
 The buyer of watered stock in a public utility is very 
 much in the position of the purchaser of land which has a 
 flaw in its title. He is to be pitied and perhaps let down as 
 easily as possible, but the rights of the case must be adjusted, 
 nevertheless. 
 
 The statement that a utility may earn a reasonable return 
 on the value of the investment in the service of the public 
 seems simple enough, but really it may have many and com- 
 plicated meanings, for the word " reasonable " is subject to 
 many definitions, and the true meaning of the word " value " 
 is the despair of all our ablest writers and teachers of eco- 
 nomics, If you should get commissions subservient enough 
 or unreasoning enough to accept without question exagger- 
 ated theories and unreasonable figures, the day of public own- 
 ership and the condemnation of properties is not far off, for 
 that will be the only means of self-defense left to the public. 
 
 If the scientific regulation of public utilities can be car- 
 ried out to a successful conclusion, we shall have a system 
 of regulated and protected monopolies in which the invest- 
 ment will be perfectly safe and the return and charges cor- 
 respondingly low, but in order to do this the public must 
 be taught that for every added risk the natural laws of 
 commerce will inevitably add to the price of the service 
 or detract from its quality. 
 
240 MUNICIPAL UTILITIES 
 
 The first company examined in detail by the Commis- 
 sion was the Union Electric Light & Power Company. 
 In March, 191 1, the Commission published an exhaustive 
 report going into all matters necessary for calculating 
 fair rates of electric light and power. The report com- 
 bined a history of the many companies preceding the 
 Union Electric Light & Power Company, in order to de- 
 termine their fiscal relations to it. It also contained the 
 report of the Chief Engineer on the underlying principles 
 in rate-making. The Commission, in this report, quoted 
 more fully below, 1 decided upon a maximum rate of nine 
 
 ' The Commission's Conclusions and Recommendations. 
 
 Maximum rate, nine and one-half cents per kilowatt hour. 
 (Present rate 12 cents). 
 
 Minimum bill, for consumers paying minimum rate, fifty cents 
 per month. (Present minimum $1.00). 
 
 Minimum bill for all other consumers, one dollar per month. 
 
 Guarantees abolished except in cases necessitating special in- 
 vestment. 
 
 Depreciation charge, five per cent, per annum. 
 
 Net return above depreciation charge on property in the service 
 of general consumers, eight per cent, per annum. 
 
 Earning value of property in service of general con- 
 sumers $13,441,360 
 
 Earning value of property in service of United Rail-' 
 
 ways Co 2,693,033 
 
 Total earning value $16,134,393 
 
 Within a few days of the printing of this report, the Company 
 has submitted a statement of additions to property, from the date of 
 the Commission's inventory, to January 1st, 191 1. 
 
 Making the additions according to this statement to figure before 
 depreciation in Table XXVIII, the result ist" 
 
 Total value as of January 1, 191 1, (Undepreciated 
 
 for condition) $17,857,078. 
 
THE ST. LOUIS COMMISSION 241 
 
 and a half cents per kilowatt hour (the existing rate was 
 twelve cents), valuing the company's property at 
 $17,857,078. 
 
 The Company, although it had had every oppor- 
 tunity for being heard and submitting its report 
 of experts on its valuation, immediately raised a 
 protest when the Commission's report was made pub- 
 lic. It issued a long statement, claiming that it had not 
 had a fair chance to be heard; that its own valuation 
 of $30,000,000 was based on the work of experts and it 
 should be allowed to base its earnings on that valuation. 
 The company, however, admitted that the difference in 
 estimated cost of construction between the report of its 
 engineers and that of the Commission was only 5^2 per 
 cent. The Commission issued a lengthy and carefully 
 prepared reply in which it was clearly shown that the 
 Company had been given every opportunity to be heard, 
 and that the difference in valuation was due to a funda- 
 mental difference in assigning what are generally called 
 intangible values. 
 
 With this report as a basis, the Commission intro- 
 duced an ordinance into the Municipal Assembly which, 
 after much discussion, passed both houses and was 
 signed by the Mayor. Taking advantage of the provisions 
 of the statute allowing an appeal to the courts, the Com- 
 pany filed, within the required time, its protest, which is 
 still pending before the courts. 
 
 In regard to the Commission's report as to rates and 
 valuation, the Commission's Chief Engineer says : 
 
 The valuation of so extensive a property as that of the 
 Union Electric rUght and Power Company, by detailed in- 
 ventory and appraisal, was a work of some magnitude, re- 
 quiring considerable time and labor, but as a result the city 
 
242 MUNICIPAL UTILITIES 
 
 has obtained a complete record of the location and value 
 of the property as it now exists, and any future valuation 
 can be made by adjustment from the current property ac- 
 counts of the company, together with the proper inspection 
 of the items of increase or decrease. 
 
 In applying the term " tentative figures " to the first 
 results of these appraisals, I might explain that we regard 
 all figures as tentative until the companies have had a full 
 and complete opportunity to go over them in detail, and to 
 point out such errors as they may find, and to present such 
 comments and claims so they may see fit. Any other method 
 of procedure would be eminently unfair, and would be almost 
 like trying a man without giving him or his counsel the 
 right of a hearing. 
 
 After we had arrived at a tentative valuation in the 
 Union Electric Light and Power Company's case, the com- 
 pany asked for and were given the opportunity of going over 
 our work in complete detail. Some little time at first was 
 consumed by the company in deciding exactly how they 
 would go at the work, but finally they engaged the services 
 of a well-known engineering firm of New York to handle 
 the case for them. 
 
 The result of the checking of the company's engineers 
 showed a difference of only 5^ per cent, in the two esti- 
 mates of construction costs. 
 
 In speaking here of the approximation of the figures of 
 the company's engineers and the engineers of the commis- 
 sion, I am speaking only of the figures representing the value 
 of the present existing physical property of the company. 
 
 These values all deal with absolute physical facts, and it 
 is to be expected that a close agreement would be possible 
 between fair-minded men. 
 
 But as to the so-called intangible values, that is another 
 question. 
 
 It is under the head of " intangible values," however, that 
 some of the most interesting problems of public service work 
 present themselves. Take, for instance, the valuation of 
 
THE ST. LOUIS COMMISSION 243 
 
 franchises. In some instances, the courts have allowed fran- 
 chise values, especially in cases where the valuation was 
 being made for purchase or condemnation purposes, but in 
 rate-making cases the best practice by commissions has been 
 to hold that the franchise, having been given free by the 
 public, should not be valued against the public in making up 
 the rate. 
 
 The difference between the company's total claim for 
 land value and the commission's allowance is $2,649,220. 
 
 Another point of theoretical difference between the claims 
 of the company and the allowance of the commission, was in 
 an item called " General Contractor's Profit." Under this 
 head the company claimed that, as in theory they were re- 
 constructing their plant new, they should be allowed to add 
 to the value 10 per cent, of the construction cost, as a profit 
 to an imaginary party who would undertake the entire work 
 of reproducing the plant. As there was in fact no general 
 contractor concerned in the actual building of the present 
 plant, and seldom is in creating such plants, the commission 
 considered this item as entirely imaginary and theoretical, 
 and did not allow it. The item amounted to $1,328,000. 
 
 Another point where the theory of the company made a 
 large difference between the claim and the allowance, was 
 in the item of interest during the period of construction. 
 This item is meant to account for the interest on money 
 used in construction, while it is lying idle, before the prop- 
 erty for which it is paid comes into operation, and it is a 
 just and necessary element of cost; but under the company's 
 assumed hypothetical case the period of idleness was much 
 longer in the aggregate than the records and estimates of 
 the actual building of the plant showed to have been the case. 
 
 The company's claim for interest during construction, 
 based upon theory and a hypothetical case, amounted to 
 $2,490,000, while the commission's allowance, based upon the 
 facts, as evidenced from the records of the company, 
 amounted to $725,000, a difference of $1,765,000. 
 
 The company also claims $2,400,000 as cost of financing, 
 
244 MUNICIPAL UTILITIES 
 
 and $4,400,000 as cost of establishing the business. This 
 cost of establishing the business is a legitimate element of 
 value, and the commission made an allowance of $1,000,000 
 to cover it, but could not agree with the company's claim 
 of $4,400,000. 
 
 As to the claim for cost of financing, it is sufficient to 
 say that the commission could not accept what it believes to 
 be an exaggerated estimate of such costs. 
 
 These five items of difference between the claims and the 
 allowances in this case represent mainly fundamental dif- 
 ference in theory, and amount to 82 per cent, of the entire 
 disagreement between the two valuations. 
 
 The total claims of the company sum up to over thirty 
 million dollars, and it is assumed in building up this sum 
 that the public must give the franchises, pay for getting the 
 money, guarantee all the losses and pay the company a 10- 
 per-cent. profit as a contractor for building its own plant. 
 
 After the commission has made the valuation of the phys- 
 ical property, has allowed the proper amount for intangible 
 values, has fixed, as nearly as possible, the correct amount 
 of the depreciation, and has arrived at the gross income 
 which the company should earn, it then becomes its duty to 
 determine the rates which will produce this gross income, 
 and to divide the burden of the rates as justly as possible 
 between the different classes of consumers. 
 
 The rate question for electricity is one which has been 
 puzzling the managers of companies and the members of 
 commissions since the beginning of the companies and the 
 beginning of the commissions. It is still puzzling them and 
 will probably continue to do so for a long time to come. 
 
 At first sight, it appears that the ideal rate must be one 
 under which each individual shall pay in direct proportion 
 to the cost to serve him. 
 
 In attempting to devise a rate which will cause each indi- 
 vidual consumer to pay in direct proportion to the cost of 
 
THE ST. LOUIS COMMISSION 245 
 
 rendering him his required service, the entire cost is gener- 
 ally divided into three elements: 
 
 First: The Per Customer Charge, which is the element 
 of cost caused by the mere connection of the consumer, irre- 
 spective of his use of current. Costs assignable to this ele- 
 ment being such as the cost of reading the meter, making 
 the bills, keeping the accounts, etc., etc. 
 
 Second : The Manufacturing Charge, or the cost of man- 
 ufacturing and delivering the current, irrespective of the in- 
 vestment. 
 
 Third : The Investment Charge, consisting of the return 
 on the investment, the taxes and insurance, the depreciation 
 and perhaps other minor charges. 
 
 The just apportionment of charges between the con- 
 sumers, under the first two elements, is largely a matter of 
 correct accounting; but when we come to consider the third 
 element, i. e., the investment charge, we are confronted with 
 the problem of determining the share of the investment 
 caused or used by each individual consumer and his conse- 
 quent proportional responsibility for the amount of income 
 necessary to pay the investment charges. 
 
 ********* 
 
 If it can be shown conclusively that it costs less to serve 
 a large consumer, a discount or lower rate is justifiable un- 
 der the " cost to serve " principle, but it is justifiable only 
 so far as it is cheaper to serve him, or the low rate may be 
 justifiable under the "expediency" principle, 1 but there can 
 be no justification of a wholesale discount, except under 
 these two principles, for under public regulation, where in- 
 come is approximately a fixed amount, no consumer can 
 escape a part of his proportion of charges without shifting 
 the burden to another. 
 
 The admission of the " expediency " principle into rate 
 
 1 The departure from "cost to serve" rates necessary to main- 
 tain the output at the point where the lowest cost can be obtained 
 for the consumers as a whole. 
 
246 MUNICIPAL UTILITIES 
 
 regulation, while in some cases necessary, and for the benefit 
 of the consumer will, if followed too far, result in the absolute 
 destruction of any plan; or mode of calculation based upon 
 equity "between the consumers; and the very difficult problem 
 presents itself to the commission of determining how far it 
 is wise to depart from the sound and just principle of " cost 
 to serve/' for the sake of a possibly lower rate resulting from 
 the increased volume of business. . . . 
 
 The Commission at the end of its second year has 
 practically completed its investigation of the United 
 Railways Company, the only electric traction company 
 in the city, and is also doing work preparatory to taking 
 up the several other public utilities in the city. 
 
 Not a small portion of the work of the Commission 
 has been the special franchise matters referred to it by 
 the Municipal Assembly. In one instance the Commis- 
 sion prepared an admirable franchise for a short street 
 railroad extension, setting forth definitely the principle 
 of indeterminate franchises, which the Commission so 
 strongly favors. 
 
 The Commission's actual power over franchises can 
 best be seen by the fate of several proposed franchises 
 which have been before the Municipal Assembly. 
 
 During the last Assembly, which ended in April, 
 191 1, a compromise bill was drawn up by joint commit- 
 tees of the House and Council, acting in conference with 
 the United Railways Company, to settle the long stand- 
 ing differences between the company and the city revolv- 
 ing chiefly around the payment to the city of the mill- 
 per-passenger-tax, in force since 1903, but no portion of 
 which was ever paid to the city, although the right of 
 the city to levy such a tax has been affirmed by the 
 United States Supreme Court. The Company offered 
 to compromise with the payment of about half the tax and 
 
THE ST. LOUIS COMMISSION 247 
 
 accrued interest ; to issue universal transfers, and to meet 
 other obligations which they had long neglected. The 
 representatives of the city were ready to extend the 
 franchises of the United Railways Company and the sub- 
 sidiary corporations which make it up, from 19 17, when 
 they expire, to 1948. This the Company was very anx- 
 ious to have done, because of the great difficulty it has 
 experienced in maintaining a sound financial condition in 
 view of what is generally considered to be an excessive 
 overcapitalization. The question was debated in the pub- 
 lic press and in the Assembly, and feeling grew very 
 strong. The newspapers demanded that the bill be re- 
 ferred to the Public Service Commission for a report, 
 and sentiment in the Assembly finally came to the same 
 conclusion. The bill was referred to the Commission, 
 and it promptly issued a lengthy and clear report, con- 
 demning the extension of definite franchises for any 
 such period of years. The result was that the bill was 
 promptly killed. 
 
 During the same Assembly there was introduced a 
 bill giving to a corporation known as the " Southern 
 Traction Company " a fifty-year franchise for the use 
 of the new Municipal Free Bridge, in the course of con- 
 struction over the Mississippi River. This bridge is 
 being built by the City of St. Louis in order to furnish 
 an absolutely free highway from the Illinois to the Mis- 
 souri shore, the present bridges being entirely controlled 
 by the Terminal Railroad Association, which charges 
 tolls. The proposition embodied in the bill was to grant 
 the Southern Traction Company a franchise for the use 
 of certain streets in the city, and to permit it to use the 
 bridge to operate its cars, the use of the bridge, however, 
 not to be in any sense exclusive, the cars of other com- 
 panies being permitted to use the tracks on which the 
 17 
 
248 MUNICIPAL UTILITIES 
 
 cars of the Southern Traction Company should operate. 
 
 The bill was lengthy, amended a number of times, and 
 protected the city's interests better, perhaps, than they 
 have been in any similar ordinance ever enacted by St. 
 Louis. The fifty-year-franchise provision, however, met 
 strenuous opposition on the part of certain members of 
 the Assembly, and on the part of the members of many 
 semi-public organizations. The desire for an absolutely 
 free bridge did not seem to be consistent with a fifty-year- 
 grant to a company which was not yet operating, and for 
 the use of a bridge several years removed from comple- 
 tion. The difficulty was further increased by the fact that 
 the former Chairman of the Republican City Committee, 
 on whose ticket most of the members of the Assembly 
 were elected, engineered the bill through the Assembly. 
 Frequent demands were made for the reference of this 
 bill to the Public Service Commission, but it was success- 
 fully passed and signed by the Mayor without being sub- 
 mitted to it. 
 
 That franchise has been in the public mind 
 ever since and contributed doubtless very greatly to the 
 defeat of an issue of bonds in November, 191 1, for the 
 completion of the Municipal Free Bridge. The argu- 
 ment was used that it would not be an absolutely free 
 bridge if encumbered, among other things, by a fifty- 
 year-franchise, however well that franchise protected the 
 city's interests. 
 
 The new Assembly, which was elected in April, 191 1, 
 immediately requested, however, a report of the Public 
 Service Commission in regard to the Southern Traction 
 franchise. The Commission published, in August, 191 1, 
 a comprehensive report advising its amendment, not its 
 repeal, substituting for the fifty-year provision an inde- 
 terminate franchise for the use of the streets; providing 
 
THE ST. LOUIS COMMISSION 249 
 
 also that all special rights to the use of the bridge be 
 revoked and the use of the bridge be given to this com- 
 pany and to all other companies alike under the pro- 
 visions of a general bridge ordinance making the bridge 
 an open highway to all roads desiring to use it. The 
 press and various public organizations have given these 
 recommendations of the Commission warm support. 
 
 These instances indicate that the situation concerning 
 public utilities in St. Louis is greatly improved over that 
 of even a year or two years ago. The public's confidence 
 in the Commission as a regulating body is daily becoming 
 stronger, and, although the Commission is only advisory, 
 its moral power has become very great. 
 
PART IV 
 
 REGULATION THROUGH STATE 
 PUBLIC UTILITY COMMISSIONS 
 
CHAPTER XIV 
 STATE VERSUS MUNICIPAL UTILITY COMMISSIONS 
 
 The state public utility commission has been an evo- 
 lution from the state railroad commission. In time it be- 
 came evident that there were other utilities that were in as 
 great need of regulation as transportation concerns. The 
 field and power of railroad commissions were therefore 
 greatly expanded; first, by giving them real regulative 
 power, not advisory and publicity powers only, and, sec- 
 ond, by gradually adding to their supervision other utili- 
 ties. In most of the states public utility commissions are 
 simply enlarged railroad commissions. Indeed, the Wis- 
 consin, and other utility commissions, still bear the title 
 of " railroad commission.'' 
 
 The history of distinct public utility commissions be- 
 gins with the creation, in. 1885, of the Massachusetts Gas 
 & Electric Light Commission, discussed in a succeeding 
 chapter. Following this, telegraph and telephone com.- 
 panies were placed under the supervision of railroad 
 commissions. State supervision of municipal utilities 
 really dates, however, from the creation of the Wisconsin 
 and New York commissions in 1907. Since their crea- 
 tion, the movement toward state supervision of municipal 
 utilities by means of state commissions has spread rap- 
 idly. In 1908 Vermont adopted a public utility law, 
 transforming the " Board of Railroad Commissioners " 
 
 253 
 
254 MUNICIPAL UTILITIES 
 
 into a " Public Service Commission," giving the new 
 commission supervisory powers, however, only over gas 
 plants, electric light plants, telephone lines, and express 
 companies. In 1910, New Jersey adopted a flabby sort 
 of a public utility commission, and in 191 1 transformed 
 it into a full-fledged regulative commission under the 
 model of the New York and Wisconsin laws. In 191 1 
 seven states adopted virile public utility laws. These 
 were New Hampshire, Kansas, Oregon, Ohio, Wash- 
 ington, Connecticut, and California. 
 
 Before going on to discuss the need for a state com- 
 mission and the relative merits of state and municipal 
 commissions, it would be well to state the characteristic 
 and striking provisions of each of these later laws. The 
 Massachusetts, Wisconsin, and New York laws are fully 
 described in succeeding chapters. 
 
 In New Jersey, the jurisdiction of the Board of Pub- 
 lic Utilities extends to all public utilities, including sewer 
 concerns and oil companies, and to all common carriers, 
 including canals, pipe lines, and subways. The Board 
 may proceed on complaint or on its own initiative to in- 
 vestigate and fix rates or standards of service. It has 
 power also to require joint rates and service, to require 
 extensions of facilities or service, uniform accounts, de- 
 tailed reports and depreciation funds, and to determine 
 the reasonableness of proposed changes. The Board's 
 approval is essential to all stock and bond issues, mort- 
 gages, or discontinuance of service. No franchise is 
 valid until approved by the Board. The Board's orders 
 may be set aside by the Supreme Court on the grounds 
 of want of jurisdiction or of unreasonableness. 
 
 The New Hampshire law applies to all common car- 
 riers, telegraphs, telephones, and ferries, and to heat, 
 light, water, and power companies. These must furnish 
 
STATE VS. MUNICIPAL COMMISSIONS 255 
 
 " such service and facilities as shall be reasonable, safe, 
 and adequate." The Commissioners, three in number, 
 may investigate on their own initiative or on complaint, 
 and they may make such orders as to service and price 
 as they may deem just, essential, or reasonable. To be 
 valid, franchises must have the approval of the commis- 
 sion. No franchise can be transferred, assigned, or 
 leased without the commission's permission. 
 
 The Railroad Commission of Oregon is given power 
 to regulate telephones, telegraphs, wireless telegraphs, 
 street railways, and heat, light, water, and power com- 
 panies. Municipally-owned utilities are unfortunately 
 excepted. The Commissioners may be removed after a 
 hearing by the board that appoints them — the Governor, 
 Secretary of State, and State Treasurer — on grounds of 
 inefficiency, neglect of duty, or malfeasance in office. 
 
 The Ohio Railroad Commission is transformed in 
 name and power into the Public Service Commission of 
 Ohio, with power " to supervise and regulate public utili- 
 ties and railroads." It may establish uniform accounts 
 and depreciation funds, and is required to fix standards 
 and units of measurements. Franchises may not be capi- 
 talized for more than the amount paid for them. Co- 
 operation and consolidation are allowed with the consent 
 of the commission, and telephone companies can be com- 
 pelled to make connections and fix joint rates. Rates 
 made by cities are subject to appeal to the commission 
 by the utility whose rates are affected, or by one per cent, 
 of the city's electors. The Commission's rate is final. 
 
 The Connecticut law, signed July 11, 191 1, has one 
 unique feature in that the public utility commissioners 
 are subject to a conditional recall. On petition of 100 
 voters the attorney-general of the state must take steps 
 to determine whether the commission, or any member of 
 
256 MUNICIPAL UTILITIES 
 
 it, is incompetent, or guilty of misconduct. If either is 
 proved, removal results. 
 
 The constitutional amendment in California, adopted 
 by popular vote October 10, 191 1, provides for an ap- 
 pointive railroad commission of five, with powers over 
 all public utilities. Any municipality in California may 
 create or retain its own utility commission. 
 
 It has been pointed out in the preceding chapter on 
 the need for public service commissions, that such ad- 
 ministrative tribunals are positively essential to the intel- 
 ligent regulation of municipal utilities. The provisions 
 and problems of three tyrjcal municipal commissions have 
 been discussed in the three preceding chapters. It now 
 remains to inquire whether municipal commissions for 
 each of the largest cities of the state will suffice, or 
 whether, under ordinary circumstances, there is neces- 
 sity for a state utility commission as well. For the fol- 
 lowing reasons the author is convinced that a state com- 
 mission is essential, whether or not separate municipal 
 commissions exist. 
 
 In the first place, only a state commission can secure 
 all the data essential to intelligent regulation. Relatively 
 small cities will not go to the expense of securing even 
 partial information, and hence their only reliance must 
 be upon state commissions. But even the larger cities 
 cannot afford to duplicate the costly, elaborate equipment 
 necessary for securing all the data essential to sane and 
 adequate regulation. In addition to its own equipment, 
 the Wisconsin commission was glad to use the extensive 
 laboratory facilities of the University of Wisconsin. The 
 cost of instrumental equipment alone is quite heavy, and, 
 once purchased, will be adequate for both the state and 
 the city. Duplication of laboratory equipment is avoided 
 through the creation of a single state commission. 
 
STATE VS. MUNICIPAL COMMISSIONS 257 
 
 Only a state commission can secure the required data 
 because of the extensive intercorporate relations of mu- 
 nicipal utilities. Interurban street railways now fcraverse 
 considerable portions of almost every state in the Union. 
 Municipal water concerns have alliances of all kinds with 
 other industrial concerns in the state. So also do electric, 
 gas, and sewer companies. For example, the Denver 
 Street Railway Company has direct corporate and indus- 
 trial relations with (1) the interurban service; (2) the 
 railroads of the state; (3) the coal beds of Routt County 
 and other sources of the state's fuel supply ; (4) the large 
 water and power concerns. Denver's lighting company 
 is inter-related with the state's water, power, and electric 
 companies. The Denver Union Water Company is as- 
 sociated with the state's irrigation concerns, and inter- 
 ested in the state's laws and regulations as to water rights 
 and irrigation. The telephone company that has a 
 monopoly in Denver, has a monopoly over the entire 
 state. Such is typical of the intercorporate relations of 
 utility concerns everywhere. It is clear that a munici- 
 pality with only limited and enumerated powers could 
 never endow a commission with adequate power to probe 
 into all the data essential to wise regulation of even the 
 city's own affairs. The problem is a state-wide one, and 
 hence can be adequately coped with by the state only. 
 It would be just as reasonable to expect any one state in 
 the Union to secure all the data essential to regulate in- 
 telligently all the affairs entrusted to the existing Inter- 
 state Commerce Commission as to expect a City Utility 
 Commission to secure all the data required to regulate 
 the utilities that operate within a city's limits. The same 
 reasons of uniformity, equality, efficiency, and impar- 
 tiality demand a state commission for the regulation of 
 municipal utilities, that demand a national commission 
 
258 MUNICIPAL UTILITIES 
 
 for the regulation of interstate commerce. Moreover, 
 there are numerous problems, such as the regulation of 
 the right-of-way between cities and counties, regulation 
 of the transmission of electrical energy, water-power, 
 and regulation of irrigation, that can be coped with only 
 by a state board. 
 
 Again, a state commission is necessary in order to 
 secure the comparative data necessary for intelligent 
 regulation in any city. To be of value this data must 
 be uniform. There must be uniformity as to the methods 
 of determining capitalization, uniformity as to deprecia- 
 tion funds, uniformity as to issues of stocks and bonds. 
 The marked defect of the Massachusetts scheme, as de- 
 scribed in the succeeding chapter, is the conspicuous want 
 of uniformity between the three state commissions. The 
 defect would be all the more glaring if there were in 
 effect several distinct city commissions. Only where 
 there is uniformity of accounts and accounting terminol- 
 ogy will comparative data be of any value. This is so 
 important that the following chapter by Edwin H. Gruhl, 
 Esq., chief statistician of the Wisconsin commission, has 
 been set aside especially for its consideration. Through 
 a state commission only can the needed uniformity be 
 secured. 
 
 A state commission is also necessary in order to pro- 
 tect interurban and intercounty services. It should not be 
 
 in the power of local governing bodies to inflict great in- 
 jury on other cities or other parts of a city either by ad- 
 verse legislation or by hostility in administration. One 
 city should no more have the power to thwart public ser- 
 vice in another city than one state should have the power 
 to thwart the commerce of another state by adverse reg- 
 ulation of interstate commerce. The use of county roads 
 and county bridges by utilities, especially street railways 
 
STATE VS. MUNICIPAL COMMISSIONS 259 
 
 doing an extensive state-wide business, must be subject 
 to state-wide supervision. Crossings of interurban elec- 
 tric railways will be ever more and more in need of 
 supervision as such crossings increase. The public serv- 
 ice of our cities will more and more be furnished by 
 monopolies of state-wide operation for the same reasons 
 that our commerce is now carried on by single nation- 
 wide railway monopolies — such monopolies are more eco- 
 nomical and efficient. The telephone service is already 
 monopolized. Electrical light and power is rapidly be- 
 coming so. The same is true of gas. There are also 
 other problems inherent in the water supply that require 
 state supervision. Philadelphia citizens should not for- 
 ever be compelled to drink the sewage of the numerous 
 cities that line the rivers above her. There is a necessity 
 for 6tate-wide protection because the services are state- 
 wide. This state-wide protection a State Commission 
 only, with state-wide jurisdiction, can adequately secure. 
 A state commission is necessary in order to give ade- 
 quate protection to the investor in utility concerns. Bank 
 Commissioner J. N. Dolley of Kansas, after careful in- 
 vestigation, decided that Kansas investors had lost a 
 total of from four to six millions of dollars in the worth- 
 less stocks and bonds, the " Blue Sky," of mining, wire- 
 less telegraph, oil, rubber, land, building, investment, 
 utility and other concerns. He concluded that the state 
 should protect its investors by giving them reliable in- 
 formation as to any and all concerns in which they con- 
 templated investment. He accordingly drafted a law, 
 familiarly known as the Kansas " Blue Sky " law, which 
 .he succeeded in getting the Legislature of 191 1 to pass. 
 This law compels all individuals, firms or corporations to 
 file with the banking department a detailed financial 
 statement of their company, copies of their constitution 
 
2 6o MUNICIPAL UTILITIES 
 
 and by-laws, and such other information as the Bank 
 Commissioner may desire, and to secure a permit before 
 they can sell any stocks, bonds or other securities. The 
 Bank Commissioner has full powers of inspection. The 
 result of this law Mr. Dolley describes as follows : x 
 
 The law has now been in operation some six months, and 
 Kansas is becoming fairly free from these fakirs and " blue 
 sky " merchants. Immediately upon the taking effect of the 
 law they began to leave for all parts of the country. 
 
 The law has become so thoroughly advertised/ in Kansas 
 that when an agent approaches an investor the first thing 
 the investor wants to see is his permit from the Banking 
 Department. It has not been necessary to make many prose- 
 cutions under the law, although v some have beem made, for 
 the reason that a company that is not all right will not try 
 to comply with the law, or try to do business Without com- 
 plying, but will leave the state for territory Which is more 
 favorable. / 
 
 The law is considered by all who know/its workings as 
 one of the best laws ever placed upon our/Statute Books, as 
 it not only keeps the fakir from stealing the money, but 
 keeps it in Kansas, where it can be used for Kansas institu- 
 tions and Kansas enterprises, and where every citizen of 
 Kansas should be interested in keeping it. The law is right 
 in principle, and all good and legitimate companies are in 
 favor of it. The average investor does not know how to 
 judge an investment, and is justf as apt to accept a bad in- 
 vestment as a good one. Because of this fact there is an 
 enormous amount of bad stock on the market, and one who 
 has not investigated the matter has no idea of the kind, class 
 and number of people, not Only the poorer and medium class 
 of people, but some of our most responsible people as well, 
 who are wasting their money on this class of investments. 
 
 Why should not a state have a bureau or some place that 
 
 l In a special communication to the author, November, 191 1. 
 
STATE VS. MUNICIPAL COMMISSIONS 261 
 
 all of these companies must report to and be investigated by, 
 so that any investor may have the advice of an expert when 
 he wishes to make an investment ? 
 
 It is just this kind of a bureau that each utility com- 
 mission should be for all who may wish to invest in 
 utility concerns. All the reasons that could be given for 
 justifying the Kansas " Blue Sky " law justify special 
 protection to investors in public utility concerns. Public 
 utility investors are entitled to special protection, indeed, 
 because their concerns are, or soon will be, subjected 
 to rigid regulation. The interests of the public demand 
 that investments in concerns whose special duty it is to 
 furnish and distribute public necessities should be sub- 
 jected to careful public protection. The results of such 
 protection, even when heavy construction accounts have 
 been acquired, are amply illustrated by the report of the 
 Wisconsin Commission, which shows that, during the 
 year 1910, " the operating revenues of electric utilities 
 increased 20 per cent., their net income 29 per cent., and 
 new construction for the year 145 per cent. The oper- 
 ating revenues of water utilities meanwhile increased 
 7 per cent., their income 13 per cent., and the new con- 
 struction 24 per cent. Gas utilities increased their oper- 
 ating revenues 3 per cent., their net income 15 per cent., 
 the new construction 24 per cent. Telephone utilities in- 
 creased their operating revenue n per cent., their net in- 
 come 9 per cent., and construction for the year, 14 per 
 cent. Railway and traction lines on the average in- 
 creased their operating revenues 13 per cent., their net 
 income 8 per cent., and construction an equal amount. 
 All utilities in Wisconsin are in a more flourishing con- 
 dition now than ever before and are planning to extend 
 their operating expenses far into the future." 
 
262 MUNICIPAL UTILITIES 
 
 With such protection to investors, capital for utility 
 investments will never be wanting. 
 
 It is worthy of note in passing that a small fee for 
 the issuance of corporate securities will alone pay for a 
 State Commission. The cost of the Wisconsin Commis- 
 sion, including the expense of earnings, of furnishing 
 transcripts of proceedings free of charge to all interested 
 parties, of appraisals, of public service and accounting 
 inspections, is about $100,000 a year. Hereafter, the 
 revenue derived from the prescribed rate of $1 for each 
 $1,000 of the face value of corporate securities thus 
 issued will, in all probability, be sufficient to defray the 
 entire annual cost of the commission. 
 
 And finally a state commission is needed in order 
 that municipal commissions may be effective regulative 
 agents. Our courts have held that while the state legis- 
 lature has plenary power to legislate as to rates, services, 
 and extensions of utilities, and may delegate that power 
 to the city, yet the city does not have the power unless 
 it has been enumerated to it by the state in express 
 terms, or by necessary implication. Just because the 
 state's powers are larger, a state commission will often 
 be advantageous in assisting a city to cope with its pub- 
 lic utility problems. Moreover, municipal regulation 
 must be " reasonable," say our courts. It will be more 
 difficult in many cases to justify a rate as reasonable 
 when it applies to one municipality only, than when it 
 applies to the whole state. A common state-wide rate 
 may bring a reasonable return, and hence will be upheld 
 by the courts when it wquld not bring in a reasonable 
 return if adopted for a single city or group of cities. 
 Without state aid, any given city, moreover, would find 
 it difficult to secure accurate information for the just as- 
 sessment of its public service concerns, especially if they 
 
STATE VS. MUNICIPAL COMMISSIONS 263 
 
 do interurban or intercounty business. The city will find 
 the assistance of a state commission to be indispensable. 
 
 These considerations point to the necessity of the 
 existence of a state commission with full powers. But 
 the existence of a state commission will not, even under 
 ordinary circumstances, especially in states with large 
 urban populations, dispense with the need for municipal 
 commissions. Quite to the contrary, municipal commis- 
 sions will still be essential in the very large city. 
 
 A local commission should exist in such cities in 
 order to secure data for the proper solution of local 
 problems. City councils will ever be in need of much 
 information that only a local public service commission 
 can secure. This is amply illustrated in the chapter on 
 the St. Louis Public Service Commission. Moreover, 
 there will ever be local utility problems in large cities 
 that can be competently administered only by expert 
 local commissions. The local commission will also be of 
 value in representing the city's interests before the state 
 legislature when utility legislation is before that body. 
 Our cities should have all the autonomy consistent with 
 efficient state control. 
 
 A division of powers between state and municipal 
 commissions, which secures all the advantages of state 
 supervision, and leaves to the city ample autonomy and 
 power to deal with local problems, is found in the New 
 York law. The work and results of the New York State 
 Commissions, described in a succeeding chapter, amply 
 justify the wisdom of such legislation. 
 
 If a choice must be made, however, between state 
 and municipal commissions, the state commission must 
 be chosen. The state commission in existence, local mu- 
 nicipal commissions may then be advantageously created 
 for the largest cities. 
 18 
 
CHAPTER XV 
 UNIFORM ACCOUNTING: ITS NEEDS AND RESULTS 
 
 The consideration of present-day problems affecting 
 uniform accounting for municipal utilities is necessarily 
 preceded by a definite understanding of the uses to which 
 such uniformly compiled information will ultimately be 
 put. Required results will, in a measure, determine 
 methods, and the importance of results will determine 
 the extent to which such methods can be economically 
 carried. The needs and results of required uniform ac- 
 counting are thus described by Edwin H. Gruhl, Statis- 
 tician for the Railroad Commission of Wisconsin. 
 
 The anticipated purposes of publicity of accounts 
 are threefold. To begin with, if earnings are properly 
 credited and expenses properly charged, the knowledge 
 of net cost of conducting the utility company can be 
 obtained and form the basis of forecasting future oper- 
 ating income. To a municipally-owned plant operated 
 upon a definite budget allowance, this information is 
 indispensable, determining where an allowance has ex- 
 ceeded or fallen short of the amount set aside to con- 
 duct the utility department and the necessity pointed out 
 of retrenchment and saving. To the privately owned 
 plant, such a published cost statement is frequently nec- 
 essary to preserve credit and to quiet an unwarranted 
 demand for extended service or lower rates. To the in- 
 264 
 
UNIFORM ACCOUNTING 265 
 
 vestor, compelled to glean obscure facts from the pub- 
 lished reports to stockholders or summary statements in 
 financial handbooks, such publicity furnishes a reliable 
 basis for estimating earning power. To a regulative 
 body entrusted with general powers to secure adequate 
 service, reasonable rates and to supervise the issuance 
 of stock and bonds, the published statement discloses 
 what is frequently the most important question of fact, 
 the margin of anticipated net profits. Publicity is neces- 
 sary to effective regulation whether such regulation is at- 
 tempted by a state_ commission, a local body, or by spe- 
 cific franchise provisions. 
 
 In the second place, if financial statements are pub- 
 lished at stated intervals and if the revenue and expendi- 
 ture items summarized in such a statement have been 
 carefully classified in accordance with a uniform scheme 
 of accounts, attention will be directed to the possibility 
 of better economy by enabling comparison of one estab- 
 lishment with its neighbor, and cost of one year or one 
 administration with its predecessor. The well-planned 
 uniform accounting system will bring to light those con- 
 trasts in operating conditions frequently noted, for exam- 
 ple, in private as compared with publicly-owned plants, 
 and, if cost data for years of operation and for a multi- 
 tude of similar plants is available, something more than 
 the plea that operating conditions are probably different 
 must excuse the discrepancy. 
 
 Finally, statistical information of this character will 
 furnish an admirable index of the economic development 
 of the separate communities. Those who have studied 
 the prosperity cycles of the separate utility plants as 
 reflected in their net earnings have been struck by the 
 similarity of the trend of such earnings and the move- 
 ment of population, post office receipts, bank clearances, 
 
266 MUNICIPAL UTILITIES 
 
 manufacturing returns, and other indices of the growth 
 and development of the community served. It is of in- 
 terest, moreover, to measure the net effects of regulation, 
 and to know whether such regulation is resulting in the 
 legitimate development of the public utility enterprise. 
 
 To supply these needs a classification of accounts 
 must be prepared which will not only conform with the 
 fundamental principles of good accounting, but which 
 will, in addition, be sufficiently flexible to provide for 
 every variety of local operating condition. The progress 
 which has been made thus far along these lines has been 
 brought about partly by the efforts of large holding cor- 
 porations to secure systematic accounts for a variety of 
 utility plants operated under their control, partly by the 
 efforts of national technical organizations such as the 
 Street and Interurban Railway Accountants' Association, 
 the National Electric Light Association, the New Eng- 
 land Water Works Association, the American Water 
 Works Association and other societies to standardize 
 accounting practice and, finally, by the action of public 
 service commissions, empowered by statute to provide* 
 for uniform publicity of accounts. Such provisions are 
 included in the Massachusetts Gas and Electric Commis- 
 sion Act of 1885, and the New York and Wisconsin Pub- 
 lic Utility Acts of 1907. They are included, moreover, 
 in the large number of statutes providing for public util- 
 ity control passed in other states during the last year. 
 It is usually conceded that the ideal uniform standards of 
 accounts must be national rather than local in scope. 
 Utility managers have recognized this fact, and in line 
 with such a movement many utility companies through- 
 out the country have voluntarily adopted classifications 
 such as those prescribed by the state commission. While 
 the idea of uniformity in accounting procedure for utility 
 
UNIFORM ACCOUNTING 267 
 
 plants is not new, definite action is of comparatively re- 
 cent date. A record of results must therefore be in the 
 nature of a progress report. 
 
 Conformity of the uniform yearly statement with 
 good accounting practice has been much simplified be- 
 cause of the standardized character of summary double- 
 entry bookkeeping forms. Such forms are usually three 
 in number and consist first of the Balance Sheet, or state- 
 ment of financial condition or credit of the utility as of a 
 given date, containing, upon the one hand, the fixed as- 
 sets of the undertaking, such as property and plant, and 
 the floating assets, such as investments and current re- 
 sources of cash, accounts receivable, materials on hand 
 and other evidences of credit; and the capital liabilities 
 such as stocks and bonds, and. the floating liabilities such 
 as notes, bills and accounts payable, and recognized de- 
 ferred liabilities for estimated losses due to deprecia- 
 tion, amortization and contingencies. The excess of 
 assets over liabilities represents, if such a statement is 
 properly drawn, undivided surplus or the interest, claim, 
 or right of the proprietors to such surplus. The second 
 and third forms are frequently combined as an income 
 account and consist of an operating statement, containing 
 the revenue and operating expenses during a certain 
 period, and a profit and loss statement designed to dis- 
 close the action taken by the proprietors in the disposal 
 of profits. This three-form statement is usually the basis 
 of all publicity accounts. It is found in the English 
 Water Works Clauses Consolidation Act of 1847, the 
 Electric Lighting Act of 1882 and 1899, and the Gas 
 Works Clauses Act of 1871. It forms, moreover, the 
 basis of the Interstate Commerce classification of 1889 
 and the classifications of the separate public utility com- 
 missions of Massachusetts, New York, and Wisconsin. 
 
268 MUNICIPAL UTILITIES 
 
 The questions of definition and proper subdivision of 
 both balance sheet and income account have necessarily 
 led to differences of opinion among accountants, man- 
 agers, public service commissions and others interested 
 in the work of preparing a uniform classification. Dif- 
 ferences as to terminology have frequently resolved 
 themselves into a mere choice of what, to all intents and 
 purposes, are synonymous terms, and will not seriously 
 interfere with the reconciliation of the requirements of 
 the various commissions. Differences as to grouping of 
 accounts have been of a more serious nature and have 
 frequently raised the question as to the purposes for 
 which such subdivision is intended. It is apparent that 
 the points at variance will not be entirely adjusted until 
 the various accounting schemes have been thoroughly 
 tested under practical operating conditions. 
 
 As regards the balance sheet accounts, the provisions 
 of various public utility commissions have been, in gen- 
 eral outline, uniform. Some departure has been made 
 from what had heretofore been general practice. For 1 
 instance, definite provision is made in the balance sheet 
 for depreciation of fixed assets. It seems to be accepted 
 practice, however, in all the classifications to keep the 
 plant value at its original cost and to set up a deprecia- 
 tion reserve liability sufficient to offset the waste of as- 
 sets due to wear and tear, supersession, etc. Recognition, 
 moreover, is only given in the standard balance sheets 
 to such items of intangibles for which actual outlays 
 have been occasioned. The expense of discount on bonds 
 is carried as a portion of the property cost in the Wis- 
 consin Commission classification and as an item of " Un- 
 amortized Debt Discount Expense " in the New York 
 Commission classification. 
 
 As regards the income account, it is generally recog- 
 
UNIFORM ACCOUNTING 269 
 
 nized that operating revenue must be stated in gross 
 and must not be reduced by overcharges, rebates, com- 
 missions, and similar deductions. Provision is gener- 
 ally made, moreover, for postponed operating costs oc- 
 casioned by deferred renewals, depreciation and contin- 
 gencies; and reserve fund accounts are created to offset 
 these estimated losses. The standard classifications gener- 
 ally are silent as to the basis of determining how large 
 such reserves shall be, these matters being usually left to 
 the estimate of the separate utility companies. 
 
 The subdivision of expenses of operation constitute 
 the main point' of difference in the various standard 
 uniform classifications of accounts for utility plants. 
 Necessarily what is a proper grouping will depend upon 
 the uses to which the classification is finally put. For 
 some purposes of analysis a separation of labor items 
 from supplies and expense items is sufficient. For other 
 purposes the nature of the account itself is of particular 
 interest. Thus maintenance expenditures are often sep- 
 arately segregated because of their intimate relation to 
 the plant accounts in the balance sheet ; administrative 
 expenditures because of their relation to the distribution 
 of profits. A distribution similar to this latter scheme, 
 containing operating expenses grouped under the gen- 
 eral heading Maintenance, Conducting Transportation 
 and General is that followed by the Interstate Commerce 
 Commission in its classification of railroad accounts. It 
 is also followed in the uniform classification for electric 
 railways adopted by the Interstate Commerce Commis- 
 sion and the several state commissions, and it forms, 
 moreover, the basis of tentative classifications of tele- 
 phone accounts recently promulgated by the New York 
 Public Service Commission, Second District. 
 
 The practice with regard to the grouping of operat- 
 
270 MUNICIPAL UTILITIES 
 
 ing expenses followed in the uniform classification of 
 accounts of gas, electric, and water companies, has been 
 essentially different, for the reason that it is designed 
 to follow the chronological steps in manufacturing and 
 delivering the public service, rather than to follow the 
 nature-of-account theory. The purpose of this grouping 
 is to furnish data relating to the cost of service. In the 
 electric utility classification, for example, the total ex- 
 pense of steam generation, including maintenance as 
 well as operating expense items, is separately grouped, 
 for frequently these utilities engage in a steam-heating 
 business. Similarly all items of cost to the station switch- 
 board are separately classified, for, as is often the case, 
 current is sold to large consumers at this point. Like- 
 wise the successive costs from switchboard to sub-station, 
 from sub-station to storage battery, the cost of distribu- 
 tion to arc lamps or to consumer's premises, the cost 
 of operating and maintaining the consumers' services 
 under the variety of contract and free lamp renewal pro- 
 visions, and finally the commercial expenses of collecting 
 bills and promoting new business are separately re- 
 ported. In the telephone classification, a central office or 
 exchange expense would be separately grouped from 
 wire plant or transmission expenses and from sub-station 
 or terminal expenses. Those expenses pertaining to toll 
 business would be localized from those pertaining to ex- 
 change service. This is the scheme followed in the Wis- 
 consin classifications for water, gas, electric, heating, and 
 telephone companies, in the New York Public Service 
 Commissions, First and Second Districts, electric and 
 gas classifications, in the classifications promulgated by 
 the National Electric Association and the classifications 
 of a variety of the syndicated operating companies. The 
 great interest displayed in this basis of classification has 
 
UNIFORM ACCOUNTING 271 
 
 been due largely to the fact that, in recent " reasonable 
 rate " cases affecting municipal utility plants, the factor 
 upon which greatest emphasis has been placed in the 
 briefs before both courts and commissions is what the 
 service has cost and whether, considering such expense 
 allowance, the gross revenue under a particular rate is 
 sufficient to yield a fair return upon the investment. 
 
 Somewhat recently the theory of classification on the 
 basis of cost of service has been carried one step fur- 
 ther. It has been proposed that expenses be so grouped 
 as to separate direct or prime costs from overhead or 
 expense-burden costs and to so group direct costs as to 
 localize (1) those expense items varying with the unit 
 output such as the kilowatt hour, the gallon, the mes- 
 sage mile, the cubic foot, the passenger mile, and the 
 car mile ; (2) those expense items varying with the unit 
 demand such as the kilowatt, service, meter, message, 
 passenger or car, and (3) those expense items varying 
 with the number of consumers. These provisions are 
 noted, for example, in both "The Report of Committee 
 on a Uniform Scheme of Accounts and Reports for 
 Water Supply Enterprises," American Water Works As- 
 sociation, 1910, and "Bureau of the Census Uniform Ac- 
 counts for Systems of Water Supplies," 191 1, page 8. 
 
 The accounts must so divide and subdivide expenses as 
 to disclose the three elements which make up the total cost 
 of service — the demand cost, the customer cost, and the con- 
 sumption cost; and in turn must separate these costs into 
 those that are fixed and those that are variable, so that from 
 the data it will be possible to determine the equity and wis- 
 dom of the existing rates for service, and also to make all 
 proper revision of incorrect rates for such service. 
 
 A similar grouping of accounts providing for a division 
 
272 MUNICIPAL UTILITIES 
 
 as between output demand and consumers is that now 
 used by the Doherty Operating Company. 
 
 Such a classification has much to recommend it from 
 a statistical standpoint, for it is evident that unit costs 
 are most satisfactory when only those items of expense 
 have been selected which vary with the unit divisor. 
 Ideal units of comparison would disclose movement as 
 distinct from terminal costs, in the traction business; 
 output as distinct from demand and consumer costs, in 
 the gas, water and electric business; readiness-to-serve 
 costs as distinct from service-rendered costs in the tele- 
 phone business. 
 
 The application of the classification of accounts as 
 prescribed by the various state commissions to the variety 
 of operating conditions in the separate utility plants, or, 
 in other words, the idea of securing flexibility as well as 
 uniformity has raised some important problems which 
 cannot be said as yet to have been fully and satisfactorily 
 dealt with. 
 
 According to several of the utility laws, notably those 
 of New York and Wisconsin, the accounting classifica- 
 tions must be adapted to municipal as well as to pri- 
 vately owned plants. The municipal plant may be con- 
 trolled by a superintendent, city engineer, board of pub- 
 lic works, water and light commission, or by a commit- 
 tee of the common council. Services relating to that 
 particular function of city government, the utility busi- 
 ness, may be furnished by the city comptroller, clerk, 
 treasurer, or attorney. Similarly the private plant may 
 be, in form, a single proprietorship, a co-partnership, or 
 a corporation ; it may be a holding or an operating utility. 
 Frequently a mutual association, originally operated 
 upon a profit-sharing or other cooperative basis, such as 
 the rural telephone company, has grown into the public 
 
UNIFORM ACCOUNTING 273 
 
 utility business largely in response to the demand made 
 by outsiders for occasional service. 
 
 The uniform classification, furthermore, must furnish 
 similar information for electric, gas, telephone, water, 
 and street railway utilities and must adjust itself to the 
 variety of methods of manufacturing or rendering serv- 
 ice. Electric current may be generated by water power, 
 steam power or by oil or gas engines. Gas may be manu- 
 factured under a variety of coal, water, oil or carbide 
 processes. Telephone service may be rendered by a 
 manual or an automatic exchange. Water may be ob- 
 tained from wells, lakes, streams, or impounding reser- 
 voirs, and may be pumped or distributed in a large num- 
 ber of ways. These processes, moreover, are continually 
 changing. The comparatively recent development of 
 long-distance transportation of public service, for exam- 
 ple, has opened up a variety of problems of adjustment 
 which the original uniform classifications could not pos- 
 sibly have contemplated. 
 
 It is essential, also, that the successful classification 
 be sufficiently broad in scope to furnish similar informa- 
 tion for the large, medium-sized, and small utility plant. 
 The tentative system of accounts for telephone com- 
 panies, recently promulgated by the New York Public 
 Service Commission, Second District, is limited by stat- 
 ute to companies having property actually used for pub- 
 lic service exceeding $10,000. The Wisconsin Public 
 Utility Law includes all telephone utilities operated for a 
 profit. Had the New York classification been in effect 
 in Wisconsin, 120 telephone companies would have re- 
 ported for the year ending June 30, 1910, as against 
 506 actually making report under the Wisconsin law. 
 Public utility plants exist in many towns of less than 
 1,000 population, and it is provision for these many small 
 
274 MUNICIPAL UTILITIES 
 
 utilities, operating upon a very limited expenditure basis, 
 that must determine what are to be controlling accounts 
 and other salient features of the accounting system. 
 
 Perhaps the problem of greatest difficulty is what 
 provision to make for the separation of common ex- 
 pense items where two or more utilities are combined 
 or conducted by a single company and managed by a 
 single organization. This point of contact may be at 
 the steam plant; the generation plant may be housed 
 within the same building; or separate utilities may be 
 controlled through a single general office. Most stand- 
 ard public utility classifications are silent as to the proper 
 basis of apportioning or prorating these joint costs. Just 
 how far these matters can be controlled by rule and how 
 far they are affected by local operating conditions in each 
 particular case can only be determined after the standard 
 classifications have been in operation for some time. 
 
 Considerable progress has been made in securing a 
 classification sufficiently elastic to meet these differences 
 of organization, process, size, and scope of operation. 
 Utilities confronted with the problem of making radical 
 changes in their accounting procedure have made a 
 searching examination of the accounting requirements 
 and have been quick to point out just where uniformity 
 would not apply to their particular plant. This has been 
 particularly true of the small utility which had hitherto 
 apparently felt no necessity for adopting a comprehen- 
 sive scheme of accounts. Generally, however, the larger 
 plants have recognized the advantages to be gained from 
 uniform publicity and have aided much by their coopera- 
 tion in making necessary adjustments in their accounting 
 practice. Many of the various unsettled problems are 
 now claiming the attention of standing committees of the 
 various national utility organizations as well as the pub- 
 
UNIFORM ACCOUNTING 275 
 
 lie utility commissions. The question of economical and 
 efficient bookkeeping procedure in following out required 
 classifications has been made the matter of a separate 
 bulletin by the Empire Gas and Electric Association, and 
 the Wisconsin State Telephone Association. 
 
 Future tendencies will undoubtedly be in the direc- 
 tion of simplification rather than elaboration of the re- 
 quired accounts. Great detail of report is not necessary 
 to disclose the possibility of improper charges, and rea- 
 sonableness of requirements must be measured largely 
 by the uses to which each item will ultimately be put. It 
 is believed that the tendency towards standardizing the 
 requirements of the various classifications will be has- 
 tened rather than hindered by the advent of the new 
 public utility commissions. 
 
CHAPTER XVI 
 
 THE PUBLIC UTILITIES COMMISSIONS OF MASSA- 
 CHUSETTS 
 
 The regulation of public service corporations by 
 rfneans of state commissions is a firmly established policy 
 in Massachusetts. Long ago it passed its period of pro- 
 bation and took its place, in popular thought, as a natural 
 and necessary duty of the state government. The rail- 
 road commission began its career more than forty years 
 ago, in 1869; the gas and electric light commission dates 
 back as far as 1885. Neither is an experiment. On the 
 contrary, both have lived long enough so that their his- 
 tory may be analyzed and their achievements and short- 
 comings discovered with some reasonable degree of 
 accuracy. The work of these and the other utility com- 
 missions in the state is described by Joseph B. Eastman, 
 Secretary of the Public Franchise League of Boston, 
 as follows i 1 
 
 Recent commissions in other states have sprung into 
 existence fully developed and armed, under comprehen- 
 sive and scientific laws drawn with great care after a 
 close study of similar laws and precedents. The Massa- 
 
 1 This paper was first published in the Proceedings of the National 
 Municipal League for 1908. It was revised and brought up-to-date 
 by Mr. Eastman for this volume. 
 276 
 
COMMISSIONS OF MASSACHUSETTS 277 
 
 chusetts system of regulation was not so devised. It is 
 rather the product of evolution, a structure built up by 
 gradual accretion around the nucleus formed in 1869. 
 In the early days the rights and duties of public-service 
 corporations were but vaguely appreciated; the state 
 was a pioneer in a new field, and it felt its way along 
 step by step, doing, in effect, laboratory work by which 
 the whole country has profited. As time went on, new 
 classes of corporations were brought under supervision; 
 new laws were passed; new powers devised. The result 
 . is a mass of legislation, by no means symmetrical in form, 
 somewhat crude and confused in many respects, but still 
 legislation which embodies a system of practical regula- 
 tion and which contains at least the germ of nearly every 
 important power now exercised by the various public- 
 service commissions in the United States. 
 
 At present three different boards of three members 
 deach have charge of the major portion of this regulation. 1 
 The board of railroad commissioners has under its con- 
 trol railroads and street railways. It has also a limited 
 jurisdiction over steamship lines and express companies, 
 a jurisdiction to which the statements below in this 
 paragraph apply only in part. The board of gas and 
 electric light commissioners supervises gas and electric 
 light companies; the highway commission, telegraph and 
 telephone companies. The powers and duties of these 
 three boards are similar in important respects, but differ 
 
 1 In addition to these three boards, the state board of health has 
 recently been given certain powers over the rates and service of 
 private water companies. There is also the Boston Transit Com- 
 mission, a board of five members, three appointed by the governor 
 and two by the mayor of Boston, which has had charge of the con- 
 struction of the subways and tunnels belonging to the City of Bos- 
 ton and whose advice is often sought by the Legislature on questions 
 relating to the development of transportation facilities in that city 
 
278 MUNICIPAL UTILITIES 
 
 rather widely in details. All three must keep informed/ 
 as to the condition and conduct of the companies under 
 their supervision, make all necessary examinations and 
 inquiries, and advise the Legislature if any new legisla- 
 tion seems expedient. They must report all violations ol* 
 law to the attorney-general, and investigate serious acci- 
 dents. In general the corporations must keep their ac- 
 counts in a form prescribed, open their books to inspec- 
 tion at any time, submit annual, and in some cases 
 quarterly, public returns giving sworn and detailed in- 
 formation in regard to their financial condition, manage- 
 ment and operation, and furnish any further information 
 that the commissions may desire. All three boards must_ 
 give formal public hearings upon any complaint as to 
 rates or service, signed by the mayor of a city, the select- 
 men of a town, or not less than twenty patrons of the 
 company concerned. After such hearings and investiga- 
 tion, the railroad and highway commissions may recom- 
 mend any changes that seem desirable, but the gas and 
 electric light commissioners may issue positive orders, , 
 enforcible by legal process. No domestic railroad, rail- 
 way, gas, electric light, telephone or telegraph corpora- 
 tion may issue stock or bonds beyond an amount which 
 the appropriate commission certifies is reasonably neces- 
 sary for the purpose required. More than that, no stock 
 can be issued below par, nor can new shares be offered to 
 stockholders except at a price approved by the com- 
 mission. 
 
 These are the more important general provisions. In 
 addition, all three boards have certain special powers^ 
 and duties. Although it has long been its policy not to 
 do so, the railroad commission may, under the statutes, 
 act upon its own initiative in cases where no formal com- 
 plaint has been made and recommend any changes in 
 
COMMISSIONS OF MASSACHUSETTS 279 
 
 rates or improvements in equipment and service which 
 seem desirable; but no such authority is given either to 
 the gas and electric light or to the highway commission. 
 In the case of street railways, the statutes also give the 
 railroad commission power to order additional accommo- 
 dations whenever such action seems necessary. This, 
 however, is another power which it has not seen fit to 
 exercise. No steam or electric railroad may be built, or 
 even extended, unless this board certifies that public cor- 
 venience and necessity so require. No street railway can 
 lay its tracks until the locations granted by the municipal 
 authorities have met with its approval. It may even 
 grant connecting locations between cities or towns and 
 the right to carry trolley freight and express against 
 the vote of the local authorities. In addition, it has ex- 
 tensive and important duties in connection with the aboli- 
 tion of grade crossings, and power to prescribe signals, 
 fenders, switches and certain other safety appliances. 
 (The board, of gas and electric light commissioners is 
 given special duties relative to testing gas and electric 
 meters and maintaining proper standards of pressure and 
 of light. Moreover, no competing company can lay its 
 pipes or wires in any city or town unless this board first 
 grants permission. Numerous other powers and duties 
 of minor importance might be mentioned. 
 
 These commissions are all conducted simply and at 
 comparatively small expense. Their offices are plain, 
 subordinates are few, and the commissioners themselves 
 easily accessible to the public. Their hearings are con- 
 ducted with few formalities and without the aid of 
 special legal advisers, the chairmen being usually mem- 
 bers of the bar. Only one commissioner receives a sal- 
 ary as high as $6,000 a year, and the total annual ex- 
 penses of the three boards combined do not, as a rule, 
 19 
 
280 MUNICIPAL UTILITIES 
 
 amount to as much as $150,000, including the salaries 
 of engineers, inspectors, accountants and other assist- 
 ants. 
 
 Certain general results from this long-established pol- 
 icy of regulation stand out clearly. There have been no 
 gross scandals in connection with the public-service cor- 
 porations of Massachusetts since the Addicks gas in- 
 vasion, back in the eighties. Such patent outrages as 
 have characterized the traction companies of New York, 
 Philadelphia, Chicago and other American cities have 
 been conspicuous by their absence. Minor instances of 
 this sort of thing have occurred, to be sure, but they have 
 usually pointed the way, under the leadership of the com- 
 missions, to new legislation making their repetition im- 
 possible. In making these statements, however, I speak 
 only of the corporations lying wholly within the State. 
 The great interstate railroads, especially the New York, 
 New Haven & Hartford, have sheltered themselves be- 
 hind the looser laws of neighboring states so that their 
 record is far less savory. 
 
 Among the intra-state corporations, certainly, there^ 
 are probably very few cases of inflated capitalization. 
 This assertion should be qualified by stating the fact that 
 the entire capital stock of many companies is held by 
 certain anomalous voluntary associations, precisely simi- 
 lar to the original Sugar and Standard Oil Trusts, which 
 issue, against the stock which they hold, trust certificates, 
 or shares, on a highly inflated basis, which are bought 
 and sold in the market like shares of stock. These un- 
 incorporated holding companies and their pseudo-securi- 
 ties are not recognized by the commissions, but there can 
 be little question that they are a menace to the investing 
 and, indirectly, to the consuming public. The chief pur- 
 pose of their creation has been to circumvent, so far as 
 
COMMISSIONS OF MASSACHUSETTS 281 
 
 possible, the anti-stock watering and certain other pro- 
 visions of the statute laws. 
 
 ,— The corporations have been well protected against 
 destructive competition, while investors have discovered 
 that publicity of accounts and the restriction of securities 
 are decided safeguards. Their securities sell, in general, 
 at notably high prices. As a rule, the corporations are 
 disposed to concede the necessity and advantage of pub- 
 lic regulation. Their one serious complaint has been 
 that the laws in regard to the issue of stock are too 
 stringent and have retarded proper growth and develop- 
 ment. The old law, compelling the issue of new stock at 
 the market value, did operate badly in one or two in- 
 stances, and it has recently been liberalized. The price 
 at which such stock may be issued is now fixed by the 
 companies themselves, subject to the approval of the 
 various commissions. Beyond that, there has been little 
 evidence to back up the complaint. The contrary is 
 true. For instance, relatively more street railways have 
 been built in Massachusetts than in any other state in 
 the Union. 
 
 Taking up the separate boards, the railroad commis- 
 sion has, looking back over the forty-two years of its 
 history, a good record. In contrast with similar com- 
 missions in many other states, it has been reasonably 
 free from political influence and has often enlisted the 
 services of high-minded men of marked ability, a fact 
 especially true of its chairmen. In the early days, 
 Charles Francis Adams established the reputation of the 
 commission for courage, enthusiasm and intelligence, and 
 marked out for it a progressive and independent path. 
 Some of its achievements are notable. The force of the 
 arguments and facts presented by this board from time 
 to time in the past did much to place upon the statute 
 
282 MUNICIPAL UTILITIES 
 
 books sound and progressive legislation. Under its 
 guidance, for example, laws were passed to prevent the 
 construction of useless roads, built only for speculative 
 or blackmailing purposes ; improvident or dishonest leases 
 and consolidations were made well-nigh impossible; 
 and the looting of street railway properties by com- 
 panies organized under the laws of other states was 
 checked. 
 
 Early in its career, for the first time in this country, 
 the Board compelled the corporations under its super- 
 vision to keep uniform accounts by prescribed methods 
 and to make returns that meant something. Cheap sub-> 
 urban fares, greater uniformity in passenger rates, 500- 
 mile tickets, and the gradual adoption of a maximum 
 fare of two cents a mile have all been advocated and to a 
 large extent secured. Accidents have been promptly iqj- 
 vestigated and, as a result, the railroad companies have 
 been forced to adopt safety switches, greatly improved 
 bridge and track construction, automatic train and engine 
 brakes, safety couplers and platforms, steam heat for pas- 
 senger cars, improved rules for employees, tests for 
 color-blindness, proper inspection of locomotive boilers, 
 and, finally, automatic block signals. Electric, cars havei 
 been fitted with fenders and vestibules and must be well 
 heated. Practically all these improvements have been 
 forced upon protesting and unwilling companies, as the 
 records well show. But the commission did more, for it 
 took the initiative in securing from Congress the present 
 law requiring automatic couplers and brakes on freight 
 trains. Nor should any record of achievements fail to 
 record its effective work in preventing all new and dan- 
 gerous grade crossings, and in securing legislation for 
 the gradual abolition, with state and municipal aid, of 
 those already existing. 
 
COMMISSIONS OF MASSACHUSETTS 283 
 
 In addition to this, the commission has always given 
 prompt attention to complaints of all sorts. Probably 
 ninety per cent, or over of all complaints are adjusted 
 ^without the necessity of any formal action, sometimes 
 over the telephone; but in several hundred cases public 
 hearings have been held and formal recommendations 
 made, ranging all the way from important changes in 
 rates to such minor matters as the construction of new 
 station buildings. The direct recommendations of the 
 Board to specific companies are usually followed. 1 In the 
 rare instances where they have not been followed, the 
 Legislature has compelled action by special act. For in- 
 stance, radical changes in rates were at one time recom- 
 mended upon the old Housatonic Railroad, now a part 
 of the New Haven system. They were not made and 
 the Legislature immediately invested the Board with 
 full power to fix rates upon that line and enforce them. 
 As a matter of practice, the recommendation of this 
 Board, made in a specific case after investigation, and a 
 hearing, is not very different from a positive order. The 
 Board early took this position : " When the Board is 
 asked to give a formal recommendation under the statute, 
 it is not enough to show that the course is unwise. To 
 call for such action it must be so unreasonable that if 
 the recommendation is not heeded the Board will be 
 ready to follow it by calling upon the General Court for 
 legislation." Railroad and street railway managers in 
 Massachusetts, up to the present time, have fortunately 
 been susceptible enough to public opinion so that they 
 
 1 The same thing cannot be said of the broad, general recom- 
 mendations. The special laws, for instance, which have from time 
 to time been enacted giving this Board power to compel the instal- 
 lation of various safety devices, have for the most part followed 
 disregard, by the companies, of general recommendations. 
 
284 MUNICIPAL UTILITIES 
 
 have rarely had the temerity to brave any such process as 
 this by disregarding a formal recommendation. 
 
 To illustrate what has been done without the use of 
 positive orders, I need give only three typical instances 
 which have occurred within recent years and which in- 
 volve radical and far-reaching changes in passenger 
 rates, methods of railroad operation, and even in the 
 character of administrative policy. The recommenda- 
 tions of the Board brought (1) the sale of 500-mile 
 ticket books at $10 a book upon all the railroads of the 
 state, (2) remodelled rules governing train movement 
 and methods of signalling upon the Boston and Maine, 
 and (3) occasioned the overturn of the management on 
 the Boston and Albany division of the New York Cen- 
 tral, together with a definite change in the administrative 
 policy of that road. 
 
 The board of gas and electric light commissioners for 
 many years was the only public commission in this coun- 
 try having supervision over gas and electric light com- 
 panies. The genesis of the law was singular, for it grew 
 out of the application of existing gas companies in Bos- 
 ton to be protected against the threatened competition of 
 the notorious Addicks. Perhaps for this reason the im- 
 pression grew up that the Board was over-conservative 
 and inclined to lean toward the corporation's side of the 
 question. In past years its policy was too often inde- 
 cisive and noncommittal, its movements were apt to be 
 ponderous and slow, and its opinions lacked force and 
 vigor. In its early history, also, it was inclined to be 
 secretive with the detailed information in its possession, 
 and it failed to make the tables and statistics in its reports 
 of proper value to investigators. 
 
 This commission, however, has done much good worif. 
 Sit has helped to keep speculators and exploiters out of 
 
COMMISSIONS OF MASSACHUSETTS 285 
 
 the Massachusetts gas and electric light companies. As 
 a rule, these companies are strong and well managed 
 along conservative lines. Whenever formal complaint 
 has been made, the Board in almost every instance has 
 ordered substantial reductions in rates after careful in- 
 vestigation. Like the railroad commission, it handles a 
 great many complaints informally, and secures amicable 
 and satisfactory adjustments. In addition, it has often 
 succeeded, and this is especially true in recent years, by 
 
 »quiet advice in persuading companies to reduce rates or 
 improve service voluntarily. It has kept unwise com- 
 petition out of the field with an iron hand, and has done 
 effective work in supervising small municipal plants, 
 helping them to keep their accounts in proper shape and 
 to adopt wise methods of doing business. It has enforced 
 
 x uniform accounting by the companies, and has built up a 
 system of meter testing which has been widely copied 
 in other parts of the country. It is a pleasure to record 
 that this commission has made a marked advance in 
 popular regard in recent years, and it may fairly be said 
 that its decisions, at the present time, are more informing 
 and exhibit more strength and independence of thought 
 than the decisions of either of the other commissions. 
 
 The highway commission has had control of telephone 
 and telegraph companies since 1906 only. Its one im- 
 portant investigation has been of telephone service and 
 
 grates in Boston and its vicinity. The results of this in- 
 vestigation are still a subject of somewhat violent con- 
 troversy. It cannot be said that the recommendations 
 of the commission have improved service or reduced 
 rates in any marked degree. It is probable that this fea- 
 ture of the Massachusetts system of regulation, at least, 
 has not reached its final resting-place. The highway 
 commission has comprehensive duties which have noth- 
 
286 MUNICIPAL UTILITIES 
 
 ing whatever to do with the regulation of public-service 
 corporations, and it has sufficient business on its hands 
 without this excursion into a radically different field of 
 operation. 
 
 In any discussion of the public utilities commissions 
 of Massachusetts, one or two striking features in the 
 system of regulating public-service corporations, apart 
 from the commissions, should have consideration. It is 
 not the custom in Massachusetts to grant permanent 
 franchises or franchises for a limited term of years. On 
 the contrary, the franchises of all public-service corpora- 
 tions, except steam railroads and the elevated railway- 
 of Boston, are indeterminate and revocable at will. 1 For 
 example, after a street railway has been in existence for 
 one year, it is provided in the statutes that the local 
 authorities may revoke any location without liability in 
 damages, if the public convenience and necessity in the 
 use of the streets so require, and if the railroad commis- 
 sion gives its approval. In other words, the grant of a 
 location is substantially a license during good behavior^ 
 How this law may operate is shown very clearly by the 
 case in which the constitutionality of these revocable 
 franchises was fully sustained by the Massachusetts Su- 
 preme Court. When the new South Station was con- 
 structed in Boston, the location of several streets, in 
 which conduits of electric light and telephone companies 
 were laid, was changed. The Boston authorities ordered 
 these conduits taken up, and the Supreme Court sus- 
 tained their right to do so, refusing to allow the com- 
 panies one cent of damages, on the ground that they held 
 
 1 It is sometimes claimed by the gas, electric light, and telephone 
 companies that their locations in the public streets are not subject 
 to revocation. The decisions of the courts, however, furnish no 
 basis whatever for this claim. 
 
COMMISSIONS OF MASSACHUSETTS 287 
 
 no property rights in the streets and that their conduits 
 were personal property, which they were free to remove. 
 
 The principle of these revocable franchises has met 
 with entire public approval. The power of revocation 
 is seldom, if ever, exercised; but the very fact that it 
 exists makes the corporations more amenable to the force 
 of public sentiment. 
 
 The corporate franchise tax in Massachusetts is really 
 a device for securing to towns and cities substantial com- 
 pensation for the franchises which they grant, graded 
 automatically according to the actual value, for the time 
 being, of the franchise to the corporation. It is assessed 
 -Aipon the total market value of a company's capital stock, 
 less the value of real estate and machinery locally taxed. 
 If, therefore, a company is doing a good business and 
 finds its franchises decidedly valuable, the market value 
 of its stock rises in sympathy and along with it the cor- 
 porate franchise tax grows larger. Over three and a 
 half million dollars is paid in to the state every year on 
 this tax, and it is either distributed directly in due pro- 
 portion to the cities and towns, or, what amounts to the 
 same thing, it is retained in the state treasury and helps 
 to decrease the state tax. Under this system the people 
 of the various communities are, in effect, given the op- 
 tion either of applying to the commissions and securing 
 /reductions in rates and prices which will do much to 
 *wipe out the franchise tax, because of their effect upon 
 [the market value of a company's stack, or of treating 
 the company more generously and reaping a compensa- 
 tion in the franchise tax. Under this system, too, the 
 burden falls upon the companies according to their 
 strength, and any that happen to be financially weak are 
 not driven into more desperate straits by the necessity 
 of paying heavy tribute for grants of little value. It is 
 
288 MUNICIPAL UTILITIES 
 
 the policy of the state to exact no other compensation 
 for franchises, except in certain special cases, and the 
 reasons are well stated in the following quotation from a 
 report of the railroad commission: 
 
 It has been more or less seriously proposed to make the 
 ordinary use of the surface of the street for railway pur- 
 poses a source of revenue or relief to the municipal treasury, 
 either by sale of the railway location, or by an excise on 
 cars, or a tax on earnings, or by requiring the railway com- 
 pany to pave or otherwise maintain the surface of the entire 
 roadway. There is no reason why the railway company 
 should not pay a tax on its corporate franchise and property, 
 such as other similar corporations pay. It is also proper that 
 it construct at its own cost the tramway specially adapted 
 to its use and keep the portions of the roadway adjacent 
 thereto in safe condition for other travel, as is now required 
 by statute. These charges are a part of the cost of trans- 
 portation which the passenger must expect to pay. Beyond 
 this, it is not easy to see why one who carries passengers for 
 hire in a car should be subjected to a tax for the use of 
 the street, any more than one who carries passengers for 
 hire in an omnibus, or who carries merchandise for hire in 
 a dray. , 
 
 The radical objection to the proposed impost is not, how- 
 ever, that it is a burden on the railway company, but that it 
 is a tax on the travelers. A tax on the carrier is a tax onr 
 the passenger. Whatever fare the railway passenger might 
 otherwise have to pay, he must pay in addition to that fare 
 his proportion of the tax, and the possibility of the reduction 
 of his fare is to that extent postponed. Nothing has hitherto 
 been more free than the use of the roadway, for all persons, 
 and for all purposes of travel or transportation. There is 
 no good reason why the person who travels in a street car 
 should pay, directly or indirectly for the privilege of travel- 
 ing on the highway, any more than the person who travels 
 in a public coach or in his private carriage. 
 
COMMISSIONS OF MASSACHUSETTS 289 
 
 The two questions, therefore, in regard to the regu- 
 lation of public-service corporations, which have been a 
 source of great trouble to city authorities in other parts 
 of the country, namely, the length of franchise grants 
 and the amount of compensation, are settled in Massa- 
 chusetts by a uniform rule embodied in the general law. 
 
 For the rest, the field of regulation is divided between 
 the commissions and the local authorities. But the latter 
 are given a free hand only in matters of purely local con- 
 cern which cannot be handled to better advantage by 
 the commissions, and only so far as they do not inflict 
 indirect injury on other parts of the state. 
 
 There is very little feeling in Massachusetts that this 
 division of labor is a violation of the principle of " home 
 rule." Nor is there any likelihood that power will be 
 taken from the commissions and placed in the hands of 
 the cities and towns. On the contrary, the commissions 
 are generally accepted as necessary and desirable, and 
 have established their right to a permanent place in the 
 state system of government. It is a question of expe- 
 diency. A city like Chicago may be able to regulate her 
 public-service corporations effectively without interfer- 
 ence from the state, but the ordinary small city cannot 
 command the expert knowledge or the general ability 
 necessary to handle questions of rates and service. It 
 is therefore right and proper that all cities should dele- 
 gate such duties to a central board which can devote its 
 entire time and attention to these questions and establish 
 a wise and uniform policy for the entire state. 
 
 But there is another and a stronger reason for regu- 
 lation by state commissions, which is this : There is 
 ^hardly a public-service corporation in Massachusetts, at 
 least, which does not spread beyond the boundaries of a 
 single city or town. The street railway system of Bos- 
 
290 MUNICIPAL UTILITIES 
 
 ton extends out into the suburbs for miles, and the elec- 
 tric light company of the same city supplies towns as far 
 away as the Rhode Island boundary. These are only 
 typical examples. The public-service corporations of the 
 present have lost their local characteristics and have be- 
 come distinctly interurban. To leave their regulation 
 to the separate cities and towns would be as unwise as 
 it would be to attempt to regulate interstate commerce 
 through the efforts of the several states. If one city^ 
 should place too harsh restrictions upon a company, 
 others would suffer in consequence. This is the reason 
 for the instances of commission supervision over the 
 action of municipal authorities in Massachusetts which 
 seem at first sight unwarranted. For example, the local 
 authorities may grant locations to street railway com- 
 panies when and where they please, and may surround 
 the grant with such conditions and restrictions as they 
 see fit to make ; but the railroad commission may review 
 the grant and withhold its approval if it seems to be at 
 all inconsistent with the public interest. This power was 
 not given to the commission on mere theoretical grounds, 
 but as the result of actual experience. Grasping towns 
 had acquired the habit of holding up new street rail- 
 ways, compelling them to widen, regrade or pave the 
 streets or make some other extraordinary expenditure 
 before locations would be granted. Wherever such 
 action was short-sighted and unwise, the other towns on 
 the line shared, in the unfortunate results. The personal 
 liberty of the individual is limited by his duty not to 
 injure others, and the same rule applies to cities and 
 towns. The public utilities commissions of Massachu- 
 setts do no violence to " home rule ;" rather, they protect 
 the equal rights of the various communities and keep 
 them from harming each other. 
 
COMMISSIONS OF MASSACHUSETTS 291 
 
 It may safely be said, then, that the principle of these 
 commissions is a permanent feature of Massachusetts 
 government. It by no means follows, however, that they 
 will not be changed in form or otherwise improved. 
 Last year Governor Foss in his inaugural message rec- 
 ommended the creation of one public-service commission, 
 with enlarged authority over all public-service corpora- 
 tions, to take the place of the present commissions. While 
 there was little direct result from this recommendation, 
 the state is undoubtedly watching with great interest the 
 operation of the new commissions in New York, Wis- 
 consin, Ohio, New Hampshire and other states. 
 
 Conditions have changed radically in Massachusetts 
 in recent years. At the time when the railroad commis- 
 sion was created, and for a long time afterward, there 
 was no dominating influence among the railroads. The 
 companies were numerous and small, owned and man- 
 aged, as a rule, by residents of the state, and therefore 
 naturally susceptible to local public sentiment. But New 
 England is now nearing the end of a period of railroad 
 reconstruction. The control of Massachusetts railroads 
 has passed out of the state and into the hands of men 
 stronger and harder to curb. The New York, New 
 Haven & Hartford, controlled by great financial interests 
 centering in New York, now dominates the railroad and 
 water transportation situation throughout all New Eng- 
 land. The recent career of that company leads many to 
 believe that the instruments for the public regulation of 
 railroads in Massachusetts should now be strengthened; 
 but, quite apart from the question of the merits or de- 
 merits of that company, they also believe that so vast a 
 private monopoly will never enjoy popular confidence nor 
 escape constant suspicion until the people of the state 
 are convinced that their commission has an ability and 
 
292 MUNICIPAL UTILITIES 
 
 powers and resources in some degree comparable with 
 those of the monopoly which it regulates. And what is 
 true of the railroad situation in Massachusetts is gradu- 
 ally becoming true of the situation with respect to the 
 other public-seryice corporations. 
 
 While the public utility commissions of Massachu- 
 setts have, on the whole, an excellent record, indications 
 are beginning to accumulate, and this is especially true of 
 the railroad commission, that they do not now occupy 
 the place in popular thought and esteem which they ought 
 to occupy under present conditions. It is a remarkable 
 fact that the railroad commission had no part in the 
 discussion and settlement of the great New Haven, Bos- 
 ton & Maine " merger " question in 1908-9. Nor was 
 its influence felt, to any noteworthy degree, in the recent 
 satisfactory settlement of the Boston transportation ques- 
 tions which embroiled the last Legislature. Nor did the 
 gas and electric light commission play any important 
 part in the settlement of the puzzling Boston gas prob- 
 lem in 1905-6. The last Legislature actually granted the 
 proposed Boston & Eastern Electric Railroad a charter 
 over the heads of a majority of the railroad commis- 
 sioners, whose divided and uncertain attitude on this 
 question failed to command respect. 
 
 It is also significant that, in recent years, perhaps the 
 most important transportation questions have been re- 
 ferred to temporary and special commissions. The rail- 
 road and street railway laws were revised in 1906 and 
 a new interurban or electric railroad law considered and 
 drawn by a recess committee of the Legislature. In 
 1907-8 the railroad " merger " question was considered 
 by a special commission on Commerce and Industry. At 
 the same time the question of improved railroad facilities 
 for Boston was under consideration by a special commis- 
 
COMMISSIONS OF MASSACHUSETTS 293 
 
 sion on Metropolitan Improvements. Last year a special 
 Joint Board reported on the important question of the 
 electrification of the railroads entering Boston. It is 
 difficult to believe that questions of this nature, so obvi- 
 ously proper subjects for consideration by a railroad 
 commission, could have been shunted off to short-lived 
 commissions without experience in such problems, if the 
 railroad commission had the personnel, the organization, 
 and the place in popular esteem which it ought to have. 
 The public utilities commissions of Massachusetts dif- 
 fer rather radically in certain important respects from 
 the newer commissions in New York and Wisconsin. 
 The Massachusetts commissions do not act upon their 
 own initiative in questions of rates and service. The 
 railroad commission has the power, but for a number of 
 years it has been its policy not to exercise it. The gas 
 and electric light and the highway commissions can act 
 only upon complaint. Nor do the Massachusetts com- 
 j^rnissions have the expert assistance which those in New 
 York and Wisconsin enjoy. The gas and electric light 
 commission has no expert assistance at all, save in its 
 meter inspection department. The highway commission 
 was provided by special act of the Legislature with such 
 assistance in the Boston telephone investigation, but has 
 no regular staff. The railroad commission has some ac- 
 counting and engineering assistance and a small force of 
 inspectors, but no such highly organized staff of em- 
 ployees as is found in the other states. Finally, the 
 Massachusetts commissions, with the exception of the gas 
 and electric light board, have no general power to issue 
 orders, but can only make recommendations. 
 /" Every public utility commission combines judicial and 
 (administrative functions. Summing it up, the present 
 policy in Massachusetts seems to be to emphasize the 
 
294 MUNICIPAL UTILITIES 
 
 judicial functions. The commissions stand as courts of 
 appeal, to whom citizens unable to secure from the cor- 
 porations the rates or service they desire may apply for 
 an impartial adjudication. The commissioners do not 
 seek trouble on their own account. When a case is pre- 
 sented to them they do endeavor to make an independent 
 investigation of the facts, but their facilities for doing 
 this are, in general, limited. Too often the commis- 
 sioners are compelled to rely upon unchecked statistics 
 furnished by the companies themselves. It may also be 
 said that the decisions of the commissions, at least those 
 of the railroad commission, are more nearly mere state- 
 ments of finding than are the decisions of the New York 
 and Wisconsin boards. They are less informing, con- 
 tain a far less complete review of the facts, and present 
 less adequately the train of thought by which the final 
 decision was reached. One reason for this has undoubt- 
 edly been the fact that the railroad commissioners have, 
 in recent years, been overwhelmed by minor details of 
 their work which could, with a better organization, have 
 been handled as well by subordinates. 
 
 There are many in Massachusetts who believe that 
 the present system of regulation goes far enough. They 
 believe that, if the corporations are required to keep their 
 accounts in a uniform manner and to make public returns, 
 and if the issuance of their securities is carefully regu- 
 lated, and if steps are taken to insure public safety in 
 operation, it is sufficient if a public tribunal is established 
 where all who have complaints to offer may secure a 
 hearing and receive a fair adjudication. They feel that 
 to give the commissioners broader powers and duties 
 ^would involve an unwarranted interference with the man- 
 agement of private corporations, which those who fur- 
 nish the capital and assume the risk have a right to re- 
 
COMMISSIONS OF MASSACHUSETTS 295 
 
 sent. They also fear the establishment of what they term 
 bureaucratic methods of government. 
 
 There are others who believe — and the writer is one 
 of these — that the principle of public regulation may well 
 -be carried a step farther in Massachusetts. They believe 
 that, when monopolies are established and protected by 
 law, the government should actively and aggressively see 
 to it that those monopolies charge fair rates, do not dis- 
 criminate, and give the best possible service; in other 
 words, that the government should, to the best of its 
 ability, take the place of competition. They believe that 
 the government should, in doing this work, have the 
 benefit of the best expert assistance available and the 
 best facilities possible for collecting and checking in- 
 formation. They believe that protection against de- 
 structive competition is sufficient compensation for any 
 interference with private management which this may 
 involve, to say nothing of the interpretation which the 
 courts have placed upon the fourteenth amendment of 
 the constitution. They believe that private citizens 
 should not be required to assume the burden of present- 
 ing a case before a public tribunal in opposition to shrewd 
 corporation attorneys, in order to secure the rates or 
 service justly due them. 
 
 These differing conceptions of the proper scope of the 
 public regulation of publiCvService corporations have al- 
 ready clashed in Massachusetts. They are likely to clash 
 still more as time goes on. What the final outcome will 
 be it is not the province of this paper to predict. 
 
 20 
 
CHAPTER XVII 
 
 THE WISCONSIN PUBLIC UTILITIES COMMISSION 
 
 Dr. Balthasar H. Meyer, formerly chairman of the 
 Wisconsin Railroad Commission and now a member of 
 the Interstate Commerce Commission, presents the fol- 
 lowing discussion of the attainments of the Wisconsin 
 ' Commission :* 
 
 The public utilities law of Wisconsin was enacted 
 July 9, 1907. It confers jurisdiction upon the commis-w 
 sion over companies producing or transmitting light, 
 heat, water, power, and over telephone companies. The 
 railroad commission law of 1905 conferred similar juris- 
 diction over steam and electric railroads and all instru-t 
 mentalities of transportation connected therewith, as well 
 as over telegraph and express companies. Both the rail- 
 road commission law and the public utilities law, together 
 with some thirty-five additional statutes, are administered * 
 by the railroad commission of Wisconsin. When the 
 duties and powers of the commission were very greatly 
 extended in 1907, through the enactment of the utilities 
 law and other statutes, the name of the commission was 
 not changed. While, therefore, the railroad commission x 
 is, in effect, a public utilities commission, performing all 
 
 • A paper read at the Pittsburg Meeting (1908), of the National 
 Municipal League. 
 296 
 
THE WISCONSIN COMMISSION 297 
 
 the duties and functions which such a commission may 
 well be imagined as performing, it is still legally the rail- 
 road commission. 
 
 The general legal and administrative principles which 
 underlie the railroad commission law also underlie the 
 public utilities law. Like the railroad commission law, 
 the public utilities law imposes upon the respective man- 
 agements of private and municipal plants the duty ofy 
 establishing reasonable rates and regulating reasonably 
 adequate service in the first instance. The initial respon- 
 sibility lies with the managements, who must select the 
 agencies, materials, and methods through which the serv- 
 ice is provided. All rates, rules, regulations and servicg 
 may be challenged at any time, and revised or modified 
 by the Commission. The theory of the law and its ad- 
 ministration is to place the respective managements on 
 the defensive, throwing the burden upon them to justify 
 . their rates and service whenever the issue is raised before 
 the Commission. 1 The Commission may act both upon 
 complaint and upon its own initiative with respect to air 
 matters relating to public utilities. 
 
 The most important provisions of the public utilities 
 law may be grouped about four leading heads, namely, 
 valuation, accounting, rates, and service. 
 
 The law imposes upon the Commission the duty of 
 
 • Said the Commission in a recent case: 
 
 "To fulfill its public duty, every public service corporation must 
 at all times keep and maintain its plant in a proper state of repair 
 and in an efficient operating condition, adopt new inventions as they 
 arise, make extensions and improvements of its plant when neces- 
 sary and required for the convenience of the public, and continue 
 its services without cessation whether profitable or unprofitable." 
 (Berend n. Wis. Tel. Co., 1909, 4 W. R. C. R., 150. 155.) In re 
 Appl. Oconto City Water Supply Co., 1910, 5 W. R. C. R., 691, 69a, 
 840. — The Editor. 
 
298 MUNICIPAL UTILITIES 
 
 valuing all the public utility plants in the State of Wis- 
 consin. Up to the present time, by far the greater num- 
 ber of plants which have been valued were valued in con- 
 nection with proceedings in which they were involved. 
 Naturally, this order of valuation will soon have to be 
 broken when the number of complaints involving rates 
 will probably decrease and the Commission can then take 
 a survey of the whole field and systematically complete 
 the valuation of all the plants as contemplated in the law. 
 Such valuations must be published within five days after 
 the same have been determined by the Commission. 
 
 The first, and perhaps most important, step in valua- 
 tion of these plants is the valuation of the physical prop- 
 erty. The law requires a valuation to be made of all the 
 property used and useful fcr the convenience of the pub- 
 lic. Perhaps in all cases the great bulk of such property 
 is the physical property, At the outset the engineers of 
 the Commission solicit the aid of the engineers of the 
 various companies and preliminary conferences are held, 
 at which all parties in interest are represented for the dis- 
 cussion of ways and means of making the valuation at 
 the least possible expense to the state and to the com- 
 panies and with the least possible interruption of the 
 routine work of the utilities. In part jointly with the 
 State Tax Commission, the railroad commission main- 
 tains a considerable engineering staff, which is subdi- 
 vided into teams, each team devoting itself to a particu- 
 lar branch of the work of valuation. In addition to these 
 there are, of course, inspectors, to whom reference will 
 be made in another connection. Where the companies 
 have made a careful inventory of their property, the 
 engineers of the Commission take this, check it up, and 
 test it in the field and in the office, item by item. This 
 has been the general rule, and it is a matter of satisfao- 
 
THE WISCONSIN COMMISSION 299 
 
 tion to be able to state that in several instances of the 
 valuation of important plants the differences between the 
 company's staff and the commission's staff were so slight 
 that little time was devoted in formal proceedings before 
 the Commission to the inventory or physical valuation. 
 In other cases, again, many apparently irreconcilable dif- 
 ferences developed and much time of the Commission 
 had to be devoted to the taking of testimony with respect 
 to the terms in dispute. 
 
 Thus far, only one valuation has been made for the 
 purpose of acquisition of a private plant by the municipal- 
 ity under the indeterminate franchise provisions of the 
 law. In connection with this work, the engineering staff 
 of the Commission has collected and compiled elaborate 
 data relating to prices and lives of all the constituent 
 parts of the physical plants of all the different classes of 
 utilities. These data constitute one of the most valuable 
 resources within the reach of the Commission upon all 
 questions of physical value. 
 
 In addition to the physical value, there naturally arise 
 the questions of the value of the franchise, good will, and 
 going value. Thus far, practically no utility manage- 
 ments have claimed franchise value to be used by the 
 Commission in the establishment of rates. 1 The element 
 
 1 The Commission's attitude toward franchise values is stated in 
 the following decision: 
 
 "It must be clear that in estimating the capital upon which a pub- 
 lic service company is entitled to a fair return, the value of a fran- 
 chise enjoyed by the company cannot be considered. The value 
 of the franchise is itself based on the capacity of the company to 
 earn profits and it becomes greater when the earnings of the com- 
 pany are increased. If, therefore, a high rate of income could be 
 justified on account of the great value of the franchise, this fact 
 would in turn enhance the value of the franchise itself and so justify 
 a still higher charge; and there would be no limit to the legal charge 
 
3 oo MUNICIPAL UTILITIES 
 
 of good will has scarcely been mentioned as an element 
 separate and apart from going value. Incidentally, it 
 may be remarked that the statutes of Wisconsin treat all 
 utilities, except telephones, as monopolies, as shown by 
 the provisions of the utilities law relating to indeterminate 
 franchises, 1 and the granting of the certificate of conven- 
 ed the company until the limit of charge which was in fact possible 
 as a matter of business had been reached. In one case there is a 
 dictum that the value of the franchise may be considered in arriving 
 at the proper basis for just compensation, but it is submitted that 
 the suggestion is unsound. A different question arises when the 
 value of the property of the company is estimated for the purpose of 
 taxation. The franchise is owned by the company, is of value and, 
 would be paid for if the whole business were sold; and it should, 
 therefore, be taxed. This is, of course, a tax on the actual 
 value of the franchise as it exists at any particular time; and 
 the imposition of it is quite consistent with the value of the 
 franchise, being subject to diminution by a diminished income 
 as a result of legislation reducing rates." (Beale and Wyman, 
 Railroad Rate Regulation, sees. 362, 363.) City of Appleton 
 v. Appleton Water Works Co., iqio, 5 W. R. C. R., 215, 282, 826. — 
 The Editor. 
 
 1 As to which the Commission has said: 
 
 " Under the statute an indeterminate permit is more valuable 
 than the ordinary special franchises, because under the permit the 
 company -has legally protected monopoly and is subject to no dif- 
 ferent supervision and regulation than it would have been had it 
 continued to operate under its original grant. Furthermore, its 
 investment is now protected not only against the consequences of 
 competition, but also against the possibility of total loss on the ex- 
 piration of the original grant. It can never be deprived of its 
 property except on the payment of the fair value thereof by the 
 municipality. While such indeterminate permit or franchise is of 
 great value to the respondent, it could not operate to enhance the 
 value of the property upon which returns must be computed." 
 City of Appleton v. Appleton Water Works Co., igio, 5 W. R. C. R., 
 215, 284-285, 829.— The Editor. 
 
THE WISCONSIN COMMISSION 301 
 
 ience and necessity. 1 The telephone business is, how- 
 ever, still subject to the inroads of competition, and so 
 far as the statutes are concerned, it is technically a com- 
 petitive business. It is, therefore, not impossible that 
 in the valuation of telephone plants, an element of good 
 will, using this term technically, as something different 
 than " going value," may have to be included, which will 
 probably have to be excluded in the case of all other 
 classes of utilities. 2 In fact, several companies have ex- 
 plicitly stated in their testimony that they made no claim 
 of franchise values and good will. Under the head of 
 
 1 Said the Commission in a case in 1910: 
 
 "The legislature doubtless intended that, through the adminis- 
 tration of the Public Convenience and Necessity Law, destructive 
 competition and rate wars, and competition in all forms injurious 
 to the public interest, should be prevented. The legislature could 
 not have desired to eliminate all competition absolutely. If this 
 had been its desire, what would have been simpler than to say it in 
 so many words? The law does not say that it shall be made the 
 instrument for eliminating all competition in any form whatsoever 
 at every point. If such a construction were to be placed upon the 
 law, it would in most if not in all cases be impossible for any rail- 
 way to be constructed in the future to enter any city in which there 
 ; s an existing railway, because it is axiomatic that in the railway 
 world, within proper limitations, every railway competes with 
 every other railway, largely independent of the exact geographi- 
 cal location of the competitors." In re Appl. Milwaukee and 
 Fox River Val'ey R. Co., ipio, 5 W. R. C. R., 466, 474, 810. — The 
 Editor. 
 
 ' The Commission holds that: 
 
 "Good will is an attribute of competitive business. It follows 
 that, where competition actually exists which is effective and con- 
 trolling in force, some allowance may have to be made for good will 
 in determinating the value of a plant for certain purposes. Valua- 
 tion for rate making is not one of these purpose - -; " Payne et at. v. 
 Wis. Tel. Co., iQog, 4 W. R. C. R., 1, 60, 929. — The Editor. 
 
302 MUNICIPAL UTILITIES 
 
 going value, 1 representations have been made to the 
 effect that all the way from 5 to 100 per cent, of the 
 physical value should be added in order to arrive at the 
 
 1 The Commission in a formal case has made the following dis- 
 tinction between going value and the value of a going concern: 
 
 "In the testimony going value was defined as that value which 
 ■s added to the physical value of a plant by virtue of the successful 
 and harmonious operation of the whole, and the coordination of the 
 various parts. This might, with propriety, be termed a definition 
 of the value of a going concern as distinguished from going value 
 or the uncompensated cost incurred in building up the business. 
 The value of a going concern is generally greater than the sum of 
 the values of separate physical parts of the plant. The seller of 
 such a plant is in a position to exact more, and the purchaser 
 would generally be willing to pay more, than for a plant which has 
 no established business. In expropriat : on proceedings, likewise, the 
 owner or owners of a plant which is a going concern would doubt- 
 less be awarded a arger amount of damages than the owner or 
 owners of a plant which had not yet been placed upon a going basis. 
 But this more ' in the value of a plant in the case of purchase and 
 sale, or expropriation, is not a matter in which the public is inter- 
 ested in proceedings of this kind. This 'more' is not property 
 used and useful for the convenience of the public within the mean- 
 ing of the statute. On the other hand, if property is devoted to the 
 public use, and reasonable care has been exercised in all the phases 
 of its management, but the owners have not received a fair return 
 durng the earlier years of the operation of the plant in which the 
 property is used for the convenience of the public, the deficit thus 
 incurred must be made up out of the later earnings, insofar as 
 this is commercially possible and expedient. In other words, every 
 effort honestly put forth, every dollar properly expended, and every 
 obligation legitimately incurred in the establishment of an efficient 
 public utility business must be taken into consideration in the mak- 
 ing of rates for such business. Collectively the elements just referred 
 to may be designated by the term going value, and in this sense 
 there can be no question regarding the propriety and justice of admit- 
 ting going value as a consideration in the determination of rates." 
 Payne el, al. v. Wis. Tel. Co. 1909, 4 W. R. C. R., 1, 60-61, 831. — The 
 Editor. 
 
THE WISCONSIN COMMISSION 303 
 
 true and lawful value to be used in the establishment of 
 just and reasonable rates. The widest range of reason- 
 ing is embraced in this class of testimony now before the 
 Commission. 
 
 If any one tendency in this testimony may be charac- 
 terized as typical, as compared with other tendencies 
 represented in the same testimony, it is the tendency to 
 make a going value stand for expense which has been 
 incurred for outlays and services in connection with the 
 upbuilding of the business of the utilities, and in return 
 for which no adequate remuneration has hitherto been 
 made. In other instances, going value has been repre- 
 sented as something very real, existing in connection 
 with every plant, entirely independent of expense, past 
 losses, or profits, and capable of fairly definite quantita- 
 tive determination. 1 
 
 1 The following excerpts from decisions of the Commission state 
 some of the more vital principles adopted in determining valuation: 
 
 In general. 
 
 " The value of the plant, from the standpoint of the rate schedule, 
 does not always admit of ready analysis. An inventory of the 
 property and its appraisement furnish a tangible basis, but alone 
 may not be reliable, since it may not always take full cognizance of 
 unusual obstacles in organization, incorporation and construction, 
 fluctuations in prices of materials, labor difficulties, contingencies, 
 etc. These items of expense, under proper accounting, are revealed 
 from the construction records which should show, by proper entries, 
 all disbursements properly chargeable to construction. Other fac- 
 tors, however, such as depreciation through wear and tear in ser- 
 vice, the failure of the management to keep its property abreast 
 of the march of invention and progress, the extent to which the 
 facilities of the plant are capable of supplying the needs of a growing 
 and shifting population, are elements • of present value. Taken 
 alone, not any of these methods of determining value is conclu- 
 sive. They merely supply evidence of what is a proper solution. 
 When, however, they are all considered, so that there shall be elim- 
 
304 
 
 MUNICIPAL UTILITIES 
 
 The law gives the Commission the power and makes 
 it its duty to prescribe uniform forms of accounts for all 
 the public utilities operating within the state. Soon after 
 the enactment of the law, the various utilities submitted 
 financial statements to the Commission, which, in a meas- 
 ure, gave some indication of the extent and character of 
 the accounts kept by them. A number of conferences were 
 then held, a great deal of detailed work was done under 
 the direction of the Commission, the titles of the leading 
 
 inated individual fluctuations and abnormal situations and the plant 
 gauged.by broad standards of reasonableness, it is possible to ascer- 
 tain the fair present value with approximate accuracy." City of 
 Ripon v. Ripon Lt. and Water Co., igio, 5 W. R. C. R. 1, 6, 7, 908. 
 
 " The company is entitled to a fair return, not always upon the 
 cost of the property, because it may have cost too much; not always 
 upon the outstanding indebtedness, because it may be in excess of 
 the real value of the property; not always upon trie total amount 
 invested, because some portion of that which is acquired by the 
 investment may be neither necessary nor presently useful for the 
 public service; but upon the fair present value of that which is used 
 for the public benefit, having due regard always to the reasonable 
 value of the service rendered." (Spring Valley Water Co. v. San 
 Francisco, 1908, 165 Fed., 667, 680.) Fullmer v. Wausau St. Ry. Co., 
 1 910, 5 W. R. C. R., 114, 124, 909. 
 
 "In determining the fair value of the tangible property, the 
 total investment in the plant at the time of appraisement, the orig- 
 inal cost of construction and subsequent additions and extensions, 
 the cost of reproduction new, and the present value of the same are 
 the only satisfactory evidences which can be adduced, bearing upon 
 the question. These factors form a fairly reliable basis for the 
 deduction as to the fair value of the physical property. However, 
 in weighing these various factors, consideration must be given to all 
 the facts and circumstances surrounding the same, and neither of 
 the factors mentioned is controlling or determinative in reaching a 
 final conclusion, although some may have greater probative effect 
 under all the circumstances than others." City of Appletonv. 
 Appleton Water Works Co., 1910, 5 W. R. C. W., 215, 219, 915. 
 (Continued on page 305.) 
 
THE WISCONSIN COMMISSION 305 
 
 accounts were sent out to the different companies, in 
 order that the respective managements might begin to 
 shape their books with reference to the same, and then, 
 in due time, the final forms were officially promulgated. 
 The theory of this system of accounts is that the books 1 
 shall be kept in such a way that, after the physical value « 
 of a plant has once been ascertained, the valuation will 
 be kept up practically in a systematic way, so that the 
 Commission, or any other authority, may see from year 
 
 Necessity of allowance for depreciation. 
 
 "Previous decisions have given recognition to the fact that some 
 allowance should be made for depreciation. ... It is admitted that, 
 generally speaking, an operating public utility plant is limited in 
 life; that even where current repairs are properly met and the 
 utility efficiently maintained, there exists a loss in value directly 
 dependent upon the length of operation; that such losses are always 
 present, whether a plant be in its initial or last stages of operation, 
 and that such losses are properly borne by the consumers and 
 properly made a charge against the revenues of the company. 
 Such an allowance is in keeping with the provisions of the Utilities 
 Law providing that depreciation be considered in determining rea- 
 sonable rates." (State Journal Printing Co. et al. v. Madison Gas and 
 El. Co., 1910, 4 W. R. C. R., 501, 599.) Cunningham et al. v. Chip- 
 pewa Falls Water Works and Ltg. Co., 1910, 5 W. R. C. R., 302, 328, 
 
 815- 
 
 "It is evident that the loss from depreciation must be met by 
 the consumers of the service and paid for by the rates, or the loss 
 will later have to be replaced by new capital." In re Appl. Jeffer- 
 son Municipal El. Lt. and W. Plant, 1910, 5 W. R. C. R, 555, 560, 
 815. 
 Rate of depreciation of water plant. 
 
 "The results obtained in determining the composite life for a 
 number of water plants in the state which are similar to the one 
 under consideration, show that such plants have an average life 
 of about 65.25 years. That water utilities possess a compara- 
 tively long life is made evident by comparison with the average lives 
 determined for nine electric, six gas and seven electric railway 
 utilities in the state, which are found to be 17.46, 33.68 and 18.02 
 
306 MUNICIPAL UTILITIES 
 
 to year exactly what the financial condition of any par- 
 ticular plant is. The system of uniform accounts ap- 
 plies both to private plants and to municipal plants. This 
 feature of the law is especially noteworthy in that it at 
 last makes it possible to establish a comparable basis for 
 public and private plants. Investigations made thus far 
 by the Commission show that not only does great variety 
 exist among the private plants, but also among the pub- 
 lic or municipal plants, and that the accounts of the 
 
 years, respectively." In re Fond du Lac Water Co., 1910, 5 W. R. 
 C. R., 482, 502, 817. 
 
 "No composite life of the water plant in the case under con- 
 sideration has been worked out, but there appear no conditions 
 which would make the average life of this plant differ very mate- 
 rially from the average of such plant lives in this state. In the 
 present case an annual allowance of perhaps 1.5 per cent, of the 
 value of the total property of the water plant would seem sufficient, 
 to provide for depreciation." In re Appl. Jefferson Municipal El. 
 Lt. and W. Plant, 1910, 5 W. R. C. R., 5^5, 560, 817. 
 
 Privately and publicly owned plants. 
 
 "In estimating the costs for municipal as well as for privately 
 owned plants, it would seem to be necessary to take into consid- 
 eration the operating expenses, depreciation, taxes and interest 
 on the investment. Operating expenses, including depreciation, 
 are always present, and must be actually met, no matter by whom 
 the plants are operated. Taxes and interest charges may, in a 
 sense, be dispensed with for municipal plants. That is, neither 
 taxes nor interest may be actually assessed against such plants. 
 On the other hand, taxes and interest charges are present in some 
 form in all industrial activiti s. Water works represent property 
 that is of value and in which money has been invested. They 
 constitute a part of he capital of the city. If such items as fixed 
 charges are not considered by municipal plants in. fixing rates for 
 private consumers, it would seem that these consumers would be 
 favored as against the tax payers. There does not, on the whole, 
 appear to be any equitable ground upon which such charges can be 
 entirely eliminated in any industry or in connection with the services 
 of any public utility.'' {In re Application of Madison City Water 
 
THE WISCONSIN COMMISSION 307 
 
 municipal plants are, in many instances, only partial ac- 
 counts, not showing all the operations and expenses of 
 such plants. While this is generally true, it can best be 
 shown from the water works investigations. In eight 
 Wisconsin cities of over five thousand population, the 
 municipal water works accounts show that there is no 
 credit given for public service, four of these showing a 
 deficit in the year, which in three cases would very likely 
 disappear and show a surplus, if the plant were credited 
 with revenues which justly belonged to it. 
 
 Works, 1909, 3 W. R. C. R., 299, 320.) In re Appl. Jefferson Munic- 
 ipal El. Lt. and W. Plant, 191 , 5 W. R. C. R., 555, 559-560, 880. 
 
 "As to he rate of interest to be allowed, there is reason for 
 making a dLtinction between privately and publicly owned utilities. 
 If the same rate of return were to be allowed, other things being 
 equal, the consumer would hardly have any advantage in taking 
 service from a municipal plant. But a difference in the rate of 
 interest will give him all advantage, outside of other considera- 
 tions. In the present case the c ty pays from 3^ to 4 per cent. 
 interest on the bonds issued to cover the water plant. A private 
 plant would demand at least 6 per cent, or more. If the city is 
 permitted a return of 4 per cent, on the investment, the saving in 
 interest over a privately owned plant on a 6 per cent, basis amounts 
 to a considerable sum." Dick et al. v. Madison Water Com., 1910, 
 5W.W.C.R., 731,745, 897- 
 Unearned increment. 
 
 1 If real estate has enhanc:d to such an extent that a return upon 
 its value would be in excess of the reasonable value of the use r or 
 the purposes to which it is devoted, the excess value should be 
 treated as surplus and not as a part of the investment upon which 
 the public is .equired to compensate the owner for the service of 
 the property." {Spring Valley Water Co. v. San Francisco, 1908, 
 165 Fed., 667.) (Capital City Gas Light Co. v. Des Moines, 1896, 
 72 Fed., 829, 844.) (Boise City I. and L. Co., v. Clarke, 1904, 
 131 Fed., 415.) (Cons. Gas Co. v. New York, 1907, 157 Fed., 849, 
 854.) (Wilcox v. Consolidated Gas Co., 1909, 212 U. S., 52.) City 
 of Appleton v. Appleton Water Works Co., 1910, 5 W. R. C. R., 215, 
 224-225, 919-920. — The Editor. 
 
308 MUNICIPAL UTILITIES 
 
 Out of the fifty-six municipal water plants in cities 
 under five thousand population, thirty-three reported a 
 deficit for 1907. Of this total number twenty-five cities 
 did not credit the plant with any earnings for public 
 service, and of these twenty-five city plants, twenty-two 
 showed a deficit. Twenty-eight municipal water plants 
 showed no general expense whatever, such service being 
 furnished by other city employees. Under the proper 
 separation of accounts and the adoption of a uniform 
 system, an entirely different situation, just to the city and 
 to the plant management, would be revealed. 1 
 
 1 The Commission's recent investigation and ruling on the Mad- 
 ison water plant offers a case in point: 
 
 "The Commission on its own motion invest'gated the organi- 
 zation and business conduct of the municipal water plant at Madi- 
 son, Wis. It was found that the accounts of the water department 
 as kept in the past, are entirely inadequate. A thorough examina- 
 tion of the financial operations of the plant for some years past 
 shows that the management has been absolutely honest. Every 
 cent can be accounted for. However, no proper accounts have 
 been kept, and charges have been incorrect y made to construction 
 and operation, and vice versa. Such accounts as have been kept do 
 not reflect nor give the opportunity to ascertain the actual condi- 
 tion of the business at the termination of any given period of time. 
 Neither the board of water commissioners nor a citizen could ascer- 
 tain from these records the actual state of affairs with reference to 
 the water plant without a vast amount of labor. It was practi- 
 cally impossible to determine the condition of the business. The 
 Commission was obliged to construct the accounts of the plant 
 largely from original vouchers, extending over the entire period of 
 its investigations. The only accounts which are being kept at 
 present are 'Construction,' 'Special Construction,' 'Operation,' 
 and 'Repair.' Neither 'Operation' nor 'Repair' are subdivided, 
 Without such subdivision it is impossible to check irregularities. 
 It is ordered that the Board of Water Commissioners of the City of 
 Madison hereafter keep full and complete records of the operation 
 of the water system under its control as required by law and in the 
 forms prescribed by this Commission. Jan. 1, 1911, is deemed a 
 
THE WISCONSIN rnA/r^T.S^TnxT « 
 
 As previously suggested, the managements of the 
 private companies and municipal plants establish rates in 
 the first instance. Such rates are subject to revision by 
 the Commission, either on complaint, or on the initiative 
 of the Commission. The Commission Has been endeavor- 
 ing to elaborate the principles upon which just and rea- 
 sonable rates should be based for all the different utilities, 
 and in a considerable number of instances schedules have 
 been prescribed in which these principles are discussed. 
 Many more schedules are still under consideration, and 
 the Commission hopes that, in the not distant future, all 
 the utilities operating within the state will make their 
 rates in accordance with uniform principles representing 
 the latest and best which scientific methods and thought 
 can contribute. 1 
 
 proper date upon which to put this part of .the present order in 
 effect." Dick et al. v. Madison Water Comm., igio, 5 W. R. C. R., 
 73i. 743, 789, 79i, 805.— The Editor. 
 
 1 Some of the more significant principles s:ated by the Commis- 
 sion in its decisions are: 
 
 " Where the number of hydrants .and character of fire protection 
 demanded by the municipality is such that it occasions 65-22 per 
 cent, of the water utility investment and 47 per cent, of the oper- 
 ating expenses, but pays rates which yield only 38 per cent, of the 
 water utility revenue, the schedule is discr minatory as against 
 private consumers and an increase in hydrant rental and a corre- 
 sponding reduction in the commercial rates must be made." City of 
 Riponv. Ripon Lt. and Water Co., 1910, 5. W. R. C. R., 1,68, 77, 819. 
 
 "If consumers on new extensions are made to pay not only the 
 same proportion of the total operating expenses, including the 
 returns on the investments in the plant, as that which is paid by 
 existing customers .in the same class, and in addition to this are also 
 charged with the interest and depreciation on the new extension, 
 their payment will obviously be greater than the payments of 
 those who are not on the new extension. When those on the new 
 extension are so few that the cost of serving them is relatively 
 
ttfUft MUNICIPAL UTILITIES 
 
 With respect to service, the Commission has put into 
 effect a series of rules regulating utility services. The 
 rules relating to gas and electric- service prescribe cer- 
 tain standards for gas pressure, quality of the gas, volt- 
 age, care of the lamps, lamp renewal, records of com- 
 plaint, disturbance in the service, etc. A full and com- 
 plete administration of this feature of the Commission's 
 work will ultimately require a considerable inspectional 
 staff. The results of these inspections show the widest 
 variations in the character of the service and many con- 
 spicuous failures to provide anything like what may be 
 characterized as adequate service. 1 In illustration of 
 
 greater than the cost of serving those who are not on the extension, 
 then it is undoubtedly fair that the former should be required to 
 meet at least a considerable part of the extra cost. But when the 
 consumers on the new extension are so numerous as to make it 
 reasonably compensatory, then any extra charges, such as those 
 described, or any charge above the regular schedule rates which 
 apply to all consumers in the same class, would appear to be unjust 
 and discriminatory.'' Beloit Water, Gas and El. Co. v. City of Beloit, 
 iqio, 5 W. R. C. R., 617, 623, 820. 
 
 "Flat rates are, under normal conditions, indefensible in that 
 they do not follow the cost analysis, and they encourage gross 
 extravagance to the great increase of the variable expense of opera- 
 tion without a corresponding income." City of Ripon v. Ripon Lt. 
 and Water Co., 1910, 5 W. R. C. R., 1, 34, 864. — The Editor. 
 
 1 The following excerpts are suggestive as to the Commission's 
 service standards: 
 
 "Complaint was made that the electric service of the Ripon 
 Light and Water Co. was inadequate. The record of inspection 
 shows that the voltage regulation is satisfactory and that conditions 
 in general, during the period of operation, are not open to serious 
 objection. Dissatisfaction is found with the fact that the plant is 
 operated only from dusk to midnight, making it necessary for cus- 
 tomers to be equipped with other means of illumination. For some 
 time there has been a tendency among even the smaller plants of 
 the state to increase the hours of operation daily, and more par- 
 
THE WISCONSIN COMMISSION 311 
 
 this, reference may be made to the above-mentioned de- 
 cision of the Commission in the matter of standards for 
 gas and electric service in the state of Wisconsin in which 
 
 ticularly to give service during the morning hours, where the use 
 of current will not warrant all-night service, and this improvement 
 should be made as soon as possible." City of Ripon v. Ripon Lt. 
 and Water Co., 1910, 5 W. R. C. R., 1, 87, 823. 
 
 "Complaint was made that the public and private lighting ser- 
 vice furnished by the Kaukauna Gas, Electric Light and Power Co. 
 in the city of Kaukauna, Wis., is inadequate; that the variations in 
 voltage for both arc and incandescent lights are in excess of 17 per 
 cent.; that the respondent frequently failed to furnish current 
 for lighting purposes, leaving the city in total darkness; that the 
 condition of the distribution system is such as to be hazardous to 
 life and property. The contract of respondent with the city for 
 the lighting of streets and public buildiugs having expired, such 
 service is now furnished on an agreement from month to month and 
 respondent refuses to do reconstruction work until the city has 
 entered into a new lighting contract. Held, that the distribution 
 system of respondent is wholly inadequate and requires reconstruc- 
 tion; that the power plant is in little better condition than the 
 distribution system, it being in part obsolete and lacking many 
 appliances necessary for rendering good service; that the service 
 rendered by the respondent has not only been inadequate, but much 
 of the time intolerable; that the public is entitled to rea on ble 
 service, and that neglect or failure to furnish the same is not excus- 
 able on the ground that the city refuses to enter into a new con- 
 tract with respondent for street lighting; that if the city chooses 
 not to increase the number of street lights, respondent need only 
 to provide for the existing demand for service and the natural 
 increase thereof; that the consumer cannot be required to endure 
 poor service any longer than is absolutely necessary to complete 
 the work of reconstruction and repair required to make the plant 
 efficient. Respondent is ordered to make such necessary additions, 
 alterations and repairs within ninety days, and to observe and com- 
 ply with the standards and rules established by the Commission 
 by its order of July 24, 1908." City of Kaukauna v. Kaukauna Gas, 
 El. Lt. and Power Co., igoi, 5 W. R. C. R., 695, 703-704, 823.— The 
 
 Editor. 
 
 21 
 
312 MUNICIPAL UTILITIES 
 
 tables are presented which show the results of the pre- 
 liminary tests. 
 
 All orders of the Commission are subject to appeal. 
 Such appeal is taken first to the Circuit Court and then 
 to the Supreme Court. The law provides that the record 
 before the Commission shall be the record before the 
 court, and, if new testimony should be introduced before 
 the court, through such introduction and determination 
 of the fact that it is new testimony, a case is thrown 
 automatically back before the Commission for revision 
 of the original determination on the basis of the new tes- 
 timony. 
 
 One of the three railroad cases, above referred to, was 
 finally determined by the Supreme Court of Wisconsin in 
 an epoch-making decision handed down in June, 1908. 
 This decision discusses the order of the Commission un- 
 der review : it analyzes and interprets the salient pro- 
 visions of the statute creating the Commission; it meets 
 in the broadest and most progressive manner the argu- 
 ments relating to constitutional limitations and the alle-' 
 gations regarding the exercise of legislative power by 
 the commission ; it brings into clear perspective the rights 
 of the companies as well as of the public ; and, in sub- 
 stance, it declares that, even though on the given facts 
 the court might decide a case differently from what the 
 Commission does, if no errors of law have been com- 
 mitted, and the question is one regarding which reasona- 
 ble and competent men might differ, the court will not 
 set aside the order of the Commission. In other words, 
 the court may feel that the Commission should have ren- 
 dered an opposite decision, yet, within the limits of the 
 law and discretion of the Commission, it will sustain that 
 decision. 
 
 So far as I know, this decision stands practically alone 
 
THE WISCONSIN COMMISSION 313 
 
 in this country in the breadth of the views expressed with 
 respect to the regulation of the public utilities and the 
 extent of the support it gives to the administrative 
 authority charged with that regulation. There were two 
 concurring and one dissenting opinion. 
 
 Generally speaking, the information collected by the 
 Commission and the service performed by it and its staff 
 have tended to make the office of the Commission a clear- 
 ing-house between the public and private plants and 
 municipalities. While the law expressly retains to the 
 municipalities pow-er to control the various kinds and 
 character of service rendered and to be rendered, the 
 power to prescribe conditions under which streets are to 
 be used, extensions made, etc., an appeal lies in all such 
 cases to the Commission whether a municipal or private 
 plant is involved. It has been the endeavor of the Com- 
 mission to cooperate with local authorities and the com- 
 panies along these lines. The law has been in effect 
 since July 9, 1907, and there now exists a steady increase 
 in the lines of communication between the local manage- 
 ments of private and municipal plants and city and vil- 
 lage authorities and the Commission. The information 
 which has been collected and compiled by the Commission 
 is placed at the disposition of all citizens of the state in 
 the most convenient form. The use of this information 
 by local authorities and citizens has, in a number of in- 
 stances, obviated the necessity of making complaints. In 
 other instances, it has led to changes in the plant equip- 
 ment and service. Various lines of cooperation between 
 the Commission and municipalities are discussed in a 
 paper before the Wisconsin Municipal League in Sep- 
 tember, 1908, to which reference may here be made. 
 
 In addition to reasonable rates and reasonably ade- 
 quate service, among the results which the operation of 
 
314 MUNICIPAL UTILITIES 
 
 the law has already shown and which the future may be 
 expected to bring into evidence still more, may be men- 
 tioned the following: 
 
 i. The Wisconsin legislation has taken the utilities, 
 as well as the railroads, out of politics. I do not believe 
 that many citizens can be found in the state of Wisconsin 
 who would seriously claim that, in either the primary 
 campaign or in the campaign preceding the present No- 
 vember elections, the utilities, as such, had entered into 
 politics. All students of municipal affairs well know 
 that in this elimination of politics from the management 
 of the utilities we have removed one of the greatest and 
 most persistent sources of corruption and bad govern- 
 ment. 
 
 2. The utilities law tends to eliminate feuds between 
 the citizens and the managements of public and private 
 plants. The law assures to all communities good service 
 at reasonable rates. This is placed within the reach of 
 all impartially, whether the Commission advances or 
 lowers the rate. The basis of its findings is published 
 in every instance. These published facts should suffice 
 to convince, and I believe do convince, the average citizen 
 of the reasonableness and justice of the decision, if it is 
 reasonable and just, and whether he likes it or not, he 
 must abide by that decision. In this respect, cases affect- 
 ing utilities are quite different from most of the cases 
 affecting railroads. In the case of utilities the contro- 
 versy frequently degenerates into a bitter and partisan 
 feud, affecting the entire population, which blinds both 
 sides to a proper comprehension of the facts and to a 
 sense of justice. Proceedings before the Commission 
 tend to clarify and educate public opinion. 
 
 3. The public utilities law raises the standard of 
 morality through the eradication of the evil of discrimina- 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 DISCRIMINATORY 
 
 RATES 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 ■ 
 
 
 
 
 Regular 
 Rates 
 
 Free 
 
 $0.31 
 
 $0.42 
 
 $0.50 
 
 $0.58 
 
 J°-75 
 
 $0.83 
 
 $0.92 
 
 $1.00 
 
 $1.08 
 
 $1.25 
 
 $1.42 
 
 $1.50 
 
 J1.62 
 
 $1.67 
 
 Jl-75 
 
 $1.83 
 
 $1.87 
 
 J1.88 
 
 $2.00 
 
 $2.08 
 
 J2.25 
 
 $2.50 
 
 $2.92 
 
 $3.00 
 
 $4-75 
 
 Total 
 Phones 
 
 Total 
 Correct 
 Charges 
 
 • 50 
 
 .66 
 
 ■ -83 
 1. 00 
 1 .04 
 
 1-25 
 1.50 
 
 1-75 
 2.00 
 2.08 
 2.25 
 2.50 
 
 2-75 
 3.00 
 
 3-50 
 3-75 
 4.00 
 4-50 
 6.00 
 
 3 
 
 4 
 3 
 2 
 
 5 
 17 
 
 49 
 2 
 
 14 
 
 18 
 2 
 
 1 
 
 15 
 
 
 > 
 
 
 12 
 
 
 
 
 
 7 
 
 361 
 36 
 
 73 
 12 
 
 1 
 
 1 
 
 1 
 
 2 
 
 2 
 
 105 
 
 497 
 
 417 
 
 326 
 
 2 
 35 
 
 7 
 
 85 
 6 
 6 
 
 9 
 
 
 
 305 
 168 
 
 1 
 66 
 
 13 
 
 7 
 
 3 
 
 
 
 3 
 
 I 
 
 I 
 I 
 
 
 
 ] 
 
 
 
 4 
 
 
 2 
 141 
 
 374 
 10 
 10 
 
 3 
 16 
 
 1 
 3 
 
 16 
 
 48 
 
 
 1 
 
 
 ' 8 ' 
 
 
 
 3 
 
 7 
 16 
 
 372 
 2 
 
 155 
 
 674 
 
 312 
 
 656 
 
 2 
 
 3 
 
 567 
 
 374 
 
 69 
 
 106 
 
 4 
 
 9 
 
 34 
 
 1 
 
 $1.50 
 
 4.62 
 
 13.28 
 
 372.OO 
 
 2.08 
 
 193-75 
 I,OII .00 
 
 546.OO 
 
 1,312.00 
 
 4.16 
 
 6-75 
 
 1 4I7-50 
 
 1 028.50 
 
 207.00 
 
 371.00 
 
 15.00 
 
 36.00 
 
 153.00 
 
 6.00 
 
 
 
 
 
 
 
 
 
 
 Total 
 phones 
 
 135 
 
 2 
 
 12 
 
 6 
 
 7 
 
 484 
 
 3 
 
 2 
 
 1,382 
 
 7 
 
 106 
 
 1 
 
 560 
 
 3 
 
 2 
 
 6 
 
 1 
 
 1 
 
 4 
 
 537 
 
 27 
 
 4 
 
 64 
 
 1 
 
 8 
 
 I 
 
 3.336 
 
 $6,701.14 
 
 Total Actual 
 Charge .... 
 
 $0.62 
 
 $5-°4 
 
 $3.00 
 
 $4.06 
 
 $363.00 
 
 $2.49 
 
 $1.84 
 
 $1,382.00 
 
 $7-56 
 
 §132-50 
 
 Si. 42 
 
 $840 . 00 
 
 $4-86 
 
 $3-34 
 
 $10.50 
 
 $1.83 
 
 $1.87 
 
 $7-52 
 
 $1,074.00 
 
 $56.16 
 
 $9.00 
 
 $160.00 
 
 $2.92 
 
 $24.00 
 
 $4-75 
 
 
 $4,104 
 
 
 
 
 
 - 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Excess of Free Monthly Service= $2,596.86 
 Annual Discrimination =$31,162.32 
 
 A. L. M. Nov. 5, 1908 
 
THE WISCONSIN COMMISSION 315 
 
 tion, and the protection of a reasonable rate. To those 
 who are quite familiar with the past evils of discrimina- 
 tion in railway rates, the extent of the discriminations 
 in the rates and service of utilities may be almost beyond 
 comprehension. The whole state of Wisconsin was lit- 
 erally streaked and plastered with discrimination in the 
 rates of utilities, and in all the rest of the country, where 
 the extent of such discriminations have not yet been de- 
 termined, as they have been in Wisconsin, it is quite 
 probable that discriminations similar in character and 
 extent likewise exist. All rates, rules, and regulations 
 in effect in the state are on file with the Commission, and 
 these are the only rates and regulations which can be law- 
 fully enforced and collected. Free and reduced rate 
 service has been absolutely prohibited. Thousands of 
 individuals had been receiving free and reduced rate 
 service, and the eradication of all such rates cannot help 
 but serve as a moral tonic and raise the level of public 
 and private morality within the state as a whole. The 
 accompanying table illustrates discriminations in the tele- 
 phone business existing shortly before the Commission's 
 order formally abrogating all such rates went into effect. 
 For thirty-two of the reporting companies, 8 out of every 
 100 subscribers received free or reduced rate service. 
 The process of equalization of rates had been going on 
 for over a year. Consequently, the actual extent of the 
 unjust discriminations was doubtless very much greater 
 at the time of the enactment of the law. In the following 
 table the numbers given under each of the rates repre- 
 sent the number of subscribers enjoying the respec- 
 tive discriminatory rates. I have every reason to believe 
 that in every other state of the Union these discrimina- 
 tions still flourish at the expense of subscribers who pay 
 full rates. 
 
316 MUNICIPAL UTILITIES 
 
 4. The utilities law is working a revolution in busi- 
 ness management. While some managements are doubt- 
 less models from a business point of view, they are not 
 the general rule. Many of the utilities companies have 
 not been operated on a business basis ; in fact, it is prob- 
 able that a good many of the managements did not have 
 the remotest idea as to the exact standing, from a busi- 
 ness point of view, of the plant they were operating. Uni- 
 form accounting and rules governing the service and the 
 regulation of rates, compel the adoption of business and 
 scientific methods. This is resulting in nothing short of 
 a revolution in management. 
 
 5. All of the effects of the law, taken collectively, are 
 bound to place investments in public utility enterprises 
 on a more stable foundation. 1 The law works both ways. 
 
 1 As to the safety of public utility investments, the Commission 
 in its decisions has said: 
 
 "It is one of the purposes of the Public Convenience and Neces- 
 sity Law to insure the public against the undertaking of unusually 
 hazardous enterprises. It was doubtless contemplated to prevent 
 the projection of lines for speculative purposes and through which 
 the innocent purchaser would be made to suffer losses." In re 
 Appl. Milwaukee and Fox River Valley R. Co., igm, 5 W. R. C. R. 
 466, 473, 810. 
 
 "The effect of the Public Utilities Law, the laws which restrict 
 the issuance of security, and other similar legislation is to eliminate 
 speculative elements from the business of operating utilities of this 
 kind and to increase the safety of investments therein. Such leg- 
 islation appears to stand for restrictions upon possible speculative 
 gains on the one hand, and greater security on the other. Its aims 
 are to maintain just and equitable relations as between investors 
 and consumers. A policy of which this can be said, in so far as it 
 affects enterprises which bear such a peculiar relation to the public 
 as is the case of public utilities, appears to us to be both wise and 
 necessary." State Journal Printing Co. et al. v. Madison Gas and 
 Electric Co., 1910, 4 W. R. C. R., 501, 632, 834. 
 
 " Investors in public utilities may find that under the 
 
THE WISCONSIN COMMISSION 317 
 
 On the one hand, it protects the consumer against un- 
 just and unreasonable rates and poor service, and on the 
 other it protects the investor in his claim to a reasonable 
 rate on the property which is devoted to public use. This 
 legislation will probably remove public utility investments 
 very greatly, if not entirely, from the field of speculation 
 and place them in a class of conservative, certain and 
 stable investments. 
 
 public utilities laws of the state their interests are as well, if 
 not better, safeguarded than they were before these laws were en- 
 acted. To be relieved from active competition, and assured of rea- 
 sonable returns upon the investment, as well as a reasonable price 
 in case the plants are taken over by the municipality, are matters 
 that deserve attention and that in the long run ought to attract 
 rather than repel investments in such utilities. This would cer- 
 tainly seem to be the case as soon as it was found that the policy 
 thus adopted by the state bide fair to become permanent and to be 
 carried out in good faith." State Journal Printing Co. et al. v. Mad- 
 ison Gas and Electric Co., 1910, 4 W. R. C. R., 501, 632, 833. — The 
 Editor. 
 
CHAPTER XVIII 
 THE PUBLIC SERVICE COMMISSIONS OF NEW YORK 
 
 (i) PUBLIC UTILITY LAW OF NEW YORK 
 
 The following is a complete revision of a paper read 
 before the National Municipal League at its Pittsburg 
 Meeting (1908), by Hon. Thomas M. Osborne, then a 
 member of the Commission for the Second District. It 
 has been revised and brought'' up-to-date by George R. 
 Grant for the Second District, and Dr. Robert H. Whit- 
 ten for the FirsTTJistnct. 
 
 The New York Public Service Commissions Law 
 was passed by the Legislature in 1907. Two years and 
 a half under the law had shown certain defects. It was, 
 therefore, revised and amended by chapter 480 of the 
 Laws of 1910, which is chapter 48 of the Consolidated 
 Laws. It was further amended by chapter 673 of the 
 Laws of 1910 relating solely to telegraph and telephone 
 corporations. The amendments to the law enacted by 
 the Legislature of 191 1 are not numerous and are em- 
 braced in chapters 124, 546, and 788 of the Laws of 191 1, 
 and deal respectively with the issuance of free passes or 
 franks by telephone and telegraph companies, rates for 
 transportation charged by railroad corporations, and the 
 holding of securities by street railroad and electrical cor- 
 porations. 
 
 318 
 
COMMISSIONS OF NEW YORK 319 
 
 The Public Service Commissions Law deals with the 
 operation of common carriers by rail, which includes 
 railroads, street surface railroads, express companies, and 
 sleeping car companies ; corporations operating tele- 
 phone and telegraph lines ; corporations supplying gas 
 and electricity for such commercial uses as light, heat 
 and power. 
 
 The law has six articles. As amended to date, the 
 salient provisions of these articles are : 
 
 Article 1. By this article the state is divided into 
 two districts and provision made for a commission in 
 each district. The first district includes what is known 
 as Greater New York, namely, the four counties of New 
 York, Kings, Queens and Richmond; the second dis- 
 trict includes all the other counties of the state. Pro- 
 vision is also made in the law for the appointment by the 
 governor of ten commissioners, five for each district, 
 subject to the approval of the Senate. They must have 
 no official relation to any corporation subject to the pro- 
 visions of the act, nor own stocks or bonds therein, 
 neither shall they ask the appointment of any person to 
 office by any of such corporations or receive from any 
 such corporation favors in the nature of passes, franks 
 or special concessions. 
 
 Each commission appoints its own counsel, secretary 
 and other assistants. Each commissioner has full power 
 to hold investigations and hearings, but orders result 
 only by the action of a majority of the members. The 
 Commission is not bound by technical rules of procedure 
 or by evidence, but is free to obtain the facts in the quick- 
 est and simplest way possible. The Commission has 
 power to compel the attendance of witnesses. 1 
 
 1 Failure to respond to a subpoena for such attendance consti- 
 tutes a misdemeanor. No person shall be excused from testifying 
 
320 MUNICIPAL UTILITIES 
 
 After an order has been made by the Commission, any 
 corporation or person interested shall have the right to 
 apply for a rehearing in respect to any matter determined 
 upon. If such rehearing is denied, application may then 
 be made to the supreme court for a writ of certiorari to 
 review the proceedings of the Commission. The Commis- 
 sion can commence action to recover penalties or for- 
 feitures, or to enforce its orders. These actions may be 
 brought in any court of competent jurisdiction of this 
 state. 
 
 Article 2. Article 2 describes the duties of common 
 carriers, which term includes " all railroad corporations, 
 street railroad corporations, express companies, car com- 
 panies, sleeping car companies, freight companies, freight 
 line companies and all persons and associations of per- 
 sons, whether incorporated or not, operating such 
 agencies for public use in the conveyance of persons or 
 property." The Commission has interpreted this section 
 as limiting its jurisdiction over carriers to such as operate 
 by rail. 
 
 Common carriers shall furnish to the public " such 
 service and facilities as shall be safe and adequate and 
 in all respects just and reasonable," and " all charges 
 made or demanded shall be just and reasonable and not 
 more than allowed by law or by order of the Commis- 
 sion." They shall provide proper switch and side track 
 
 or from producing any books or papers in any investigation or in- 
 quiry by or upon any hearing before a commission or any commis- 
 sioner, when ordered to do so by the commission, upon the ground 
 that the testimony or evidence, books or documents required may 
 tend to incriminate him or subject him to penalty or forfeiture; but 
 no person shall be punished or subjected to any penalty or forfeiture 
 on account of any matter concerning which he shall have testified. 
 No person shall, however, be exempted from prosecution or punish- 
 ment for any perjury committed by him in his testimony. 
 
COMMISSIONS OF NEW YORK 321 
 
 connections and shall keep on file and keep open " for 
 public inspection schedules showing the rates of fare and 
 charges for the transportation of passengers and prop- 
 erty." 
 
 There shall be no special rate, rebate or unjust dis- 
 crimination of any kind, nor shall there be issued any 
 free ticket, free pass or free transportation for passen- 
 gers or property, exception being made in favor of ofn-/ 
 cers and employees of the company in question and cer- 
 tain other classes of individuals, including representatives 
 of charitable institutions. 1 
 
 Article 3. This article contains further provisions 
 relating to common carriers and deals especially with the 
 powers of the Commission for carrying into effect the 
 provisions of article 2. Power is given to the Commis- 
 sion (a) to examine into the general conditions relative 
 to capitalization, franchises and management of all com- 
 mon carriers under its jurisdiction ; (b) to examine all 
 books, contracts, records, documents and papers of any 
 person or corporation subject to its supervision and to 
 compel their production if necessary; (c) to require 
 annual reports from corporations and to prescribe the 
 form of the same; (d) to investigate or make inquiry 
 as to any act done or omitted to be done in violation of 
 the law or of an order of the Commission; (e) to make 
 regulations relative to rates and service; (f) to order 
 repairs, changes, improvements and additions in track, 
 switches or any other property or device in the interest 
 
 1 There must be sufficient and suitable cars for freight in car- 
 load lots, and sufficient cars and motive power on railroads and 
 street railroads to meet all of the requirements for the transporta- 
 tion of passengers and property. The law expressly gives the com- 
 mission power to make suitable regulations for the furnishing and 
 distribution of freight cars and for demurrage charges. 
 
322 MUNICIPAL UTILITIES 
 
 of better service; (g) to order changes in time sched- 
 ules — to increase number of trains, cars or motive power ; 
 (h) to establish a uniform system of accounts and pre- 
 scribe the manner in which they shall be kept. 
 
 Without the approval of the Commission no railroad 
 corporation under its jurisdiction shall (a) commence the 
 construction of any railroad, street railroad or extension 
 of existing lines ; (b) purchase the whole or any of the 
 capital stock of any railroad corporation ; (c) sell, trans- 
 fer or lease any franchise to operate a railroad; (d) issue 
 any stock, bonds, notes or other evidence of indebtedness 
 except notes payable within twelve months; (e) merge 
 or consolidate with any other like corporation. 
 
 The law gives to the Commission ample power to en- 
 force all of its orders and regulations. Each day's vio- 
 lation of' an order constitutes a separate offence, for 
 which a separate action to recover a penalty may be 
 instituted if the Commission sees fit to so act. Every 
 individual who aids or abets any violation of an order of 
 the Commission and who fails to obey and comply with 
 any such order shall be guilty of a misdemeanor. The 
 Commission can also enforce its orders by mandamus or 
 injunction. 
 
 Article 4. This article, which contains provisions re- 
 lating to gas and electrical corporations similar to those 
 hereinbefore mentioned in connection with carriers, was 
 freely amended in 1910. In the original act of 1907 
 the provisions of the act of 1905, in relation to the super- 
 vision of gas and electric light and power corporations, 
 had been inserted without adequate revision to conform 
 them in all respects to the higher standards of control 
 established in the Public Service Commissions Law for 
 railroads and street railways. Accordingly the pro- 
 visions requiring safe and adequate service at just and 
 
COMMISSIONS OF NEW YORK 323 
 
 reasonable charges, and prohibiting discriminations and 
 preferences which were already in the law affecting rail- 
 roads, were extended to gas and electric companies. Un- 
 der a section entitled " General powers of commissions in 
 respect to gas and electricity," the Commission may inves- 
 tigate from time to time the quality of gas supplied, ex- 
 amine and investigate the methods of manufacture and 
 distribution and order such improvements as may seem 
 necessary, fix standards for the measurement of the 
 purity or illuminating power of gas, and require all such 
 corporations, including municipalities, furnishing gas and 
 electricity to file annual reports. The article also gives 
 power to inspect gas and electric meters. 
 
 No gas corporation or electric corporation shall begin 
 construction of gas or electric plants, nor shall it exercise 
 any rights or privileges under any franchise, without first 
 having obtained the permission and approval of the com- 
 mission. 
 
 With reference to the issuance of stocks, bonds and 
 other forms of indebtedness and the transfer of fran- 
 chises and property, the sections regulating gas and 
 electrical corporations are similar to those regulating 
 common carriers. For the enforcement of its orders and 
 regulations directed to such corporations the Commission 
 has powers similar to those which it exercises over com- 
 mon carriers, as previously stated. 
 
 Article 5. The most important provisions of this 
 article are those incorporated in it in 1910 by a separate 
 act placing telegraph and telephone companies operating 
 property within the State of New York in the public 
 service in a value not less than $10,000, under the juris- 
 diction of the Public Service Commission for the Second 
 District (Laws of 1910, chapter 673). Attempts had 
 been made both in 1908 and 1909 to secure the passage 
 
324 MUNICIPAL UTILITIES 
 
 of an act of this kind, but the bills had failed of passage. 
 As the telephone business of the state is largely under 
 the control of one company, and this company operates 
 both within New York City and throughout the rest of 
 the state, it was thought best that the business be sub- 
 jected to the control of a single commission. The law 
 applies the same provisions and the same general terms 
 as to capitalization, franchises, equipment, buildings, 
 plants, devices, etc., to telegraphs and telephones that had 
 already been applied to other public utilities. They are 
 required to give safe and adequate service at just and 
 reasonable rates, and discriminations and unjust prefer- 
 ences are prohibited. Rate schedules must be filed for 
 public inspection and may not be changed except after 
 thirty days' notice to the Commission. The Commission 
 may make investigations, require reports, establish a uni- 
 form system of accounts, and fix rates and standards of 
 service. 
 
 Telegraph or telephone corporations may not issue 
 stocks, bonds or other evidences of indebtedness for pe- 
 riods of more than twelve months without the consent 
 and approval of this commission. Nor can their fran- 
 chises be transferred without the Commission's consent. 
 The Commission has power to enforce its orders against 
 these corporations by forfeitures or penalties and can 
 commence summary proceedings in the courts in like 
 manner as against the other classes of corporations here- 
 tofore named. 
 
 Article 6. This article abolishes the former Board of 
 Railroad Commissioners, the Commission of Gas and 
 Electricity, the State Inspection of Gas Meters, and the 
 New York City Rapid Transit Commission. 
 
 Such are the main provisions of the law as it now 
 stands. Certain provisions of the amendments of 1910 
 
COMMISSIONS OF NEW YORK 325 
 
 are worthy of special emphasis. In certain important 
 instances the courts placed an interpretation on the act 
 that reduced and weakened the powers that it was in- 
 tended that the Commission should exercise and which 
 were essential to the successful operation of the law. For 
 example, one of the main purposes of the law was sup- 
 posed to be the prevention of stock watering. The court 
 held that the words used in the section relating to this 
 subject only required the Commissions to determine 
 whether the stocks and bonds sought to be issued came 
 within one of the four purposes stated in the section, i. e., 
 the acquisition of property, construction of facilities, im- 
 provements and maintenance of service, and the dis- 
 charge or refunding of obligations. (See People ex rel 
 Delaware and Hudson River Railroad Company vs. 
 Stevens, 134 Appellate Division 99, Affirmed in 197, N. 
 Y. 1.) It was thought that this construction of the words 
 used in the act deprived the Commissions of power 
 to prevent stock watering in that it would be easy for 
 the companies to bring within the four legal purposes 
 sums that never should be capitalized, such as, for in- 
 stance, expenses of operation and replacements. Amend- 
 ments of 1 910 were intended to correct this possibility. 
 A more recent decision, however, holds that, even under 
 the law before the 1910 amendments, the Commissions 
 had no power to approve securities issued for operating 
 expenses or replacements. (People ex rel Binghamton L. 
 H. & P. Co. vs. Stevens, decided by the New York Court 
 of Appeals, October 3, 1911.) Nevertheless, the power 
 of the commissions to effectively control the issue of 
 stocks and bonds upon the reorganisation of a company 
 is still in doubt, the Appellate Division of the Supreme 
 Court having decided against the right of the Commission 
 to exercise such control. An appeal has been taken to 
 
326 MUNICIPAL UTILITIES 
 
 the Court of Appeals, but has not yet been decided. The 
 amendments also give the Commission power to ascer- 
 tain the proper portion of expenses, capitalization, earn- 
 ings and debts in the case of corporations having an 
 interest in but no direct connection with a subsidiary 
 business not under the control of the commissions. 
 Amendments of 1910 were intended also to make more 
 clear and effective the authority of the Commission to 
 prescribe reasonable joint rates, including transfers on 
 street railroads. The interchange of transfers may be 
 required except in the case of a transfer between a rapid 
 transit line and a surface line. 
 
 (2) THE NEW YORK PUBLIC SERVICE COM- 
 MISSION FOR THE SECOND DISTRICT 
 
 On July 1, 1911, the Public Service Commission for 
 the Second District of New York completed four years 
 of its work in administering for the counties outside of 
 Greater New York the Public Service Commissions Law 
 which Governor Hughes was instrumental in placing 
 upon the statute books. Ample time has therefore 
 elapsed to enable public opinion to determine whether or 
 not the Legislature of 1907 acted wisely in its enactment 
 of the statute which placed in the hands of two commis- 
 sions regulating powers over public utilities. The Sec- 
 ond District Commission has had to deal with a multi- 
 plicity of problems. The following, written especially for 
 this volume by George R. Grant, Assistant Secretary of 
 the Public Service Commission for the Second District, 
 will serve to indicate that, both from the standpoint of 
 the individual and the corporation, the Commission has 
 more than justified its existence by affording a tribunal 
 
COMMISSIONS OF NEW YORK 327 
 
 where interests, large and small, can adjust their dif- 
 ficulties : 
 
 At the outset it can be stated emphatically that the 
 Commission in its regulation of the public service cor- 
 porations under its jurisdiction has not been influenced 
 or swayed by any considerations other than the merits of 
 the cases in which it has been called upon to administer 
 the law. It is a quasi-judicial body which has come to be 
 looked upon by the public as divorced from politics and 
 all political affiliation. Some of the commissioners are 
 members of one political party and some of another, but 
 differences of opinion as to what the Commission's policy 
 should be upon any question has never been due to any 
 difference in political views. 
 
 The " high finance " manipulation of the traction 
 properties and the consequent failure of the corporations 
 to give adequate service to the city of New York fur- 
 nished work for the First District Commission. Through- 
 out the territory embraced in the jurisdiction of the 
 Second District Commission, however, the grievance of 
 the people has not been so much against financial man- 
 agement of public service corporations as against the 
 wanton disregard of the duties which these corporations 
 owed to the people and the ignoring of protests and 
 complaints. Many of these complaints never reached the 
 heads of the corporations involved. Subordinate offi- 
 cials thought it their duty to refuse requests from patrons 
 rather than to grant concessions. Failure to recognize 
 the importance of cooperation with the public and an 
 indisposition to remove the causes of complaints have 
 been matters which the Commission has been obliged to 
 cope with during the first four years of its work. 
 
 The Commission of the Second District exercises ju- 
 
328 MUNICIPAL UTILITIES 
 
 risdiction over public service corporations throughout a 
 territory which has a population of nearly five mil- 
 lion people. Within that territory the Commission pos- 
 sesses regulating powers over 1,008 corporations. Of 
 this number there are 199 steam railroad corporations, 
 133 electric railroad corporations, 7 express corporations, 
 310 electrical corporations, 198 gas corporations, 160 
 telephone and telegraph corporations, and one sleeping 
 car company. The regulation of telegraph and telephone 
 companies became a function of the Commission for the 
 Second District only, by virtue of chapter 673 of the 
 Laws of 1910. The 160 telegraph and telephone cor- 
 porations do not include any which are operating prop- 
 erty, for the transmission of messages, of a value less 
 than $10,000. The railroad corporations have a capitali- 
 zation of about two billions of dollars, the electrical and 
 gas corporations five hundred million dollars, and the 
 telegraph and telephone corporations eight hundred mil- 
 lion dollars. 
 
 With the great powers which the Commission pos- 
 sesses the question naturally arises, has the public availed 
 itself of this tribunal? In answer, it may be said that 
 during the past four years 7,950 matters of sufficient 
 importance to warrant a separate filing have been re- 
 ceived in addition to numberless inconsequential com- 
 munications from individuals who have mistaken the 
 purposes for which the Commission was organized and 
 considered it the panacea for all evils of mankind. 
 
 In dealing with complaints the Commission has en- 
 deavored, first of all, to adjust them in an informal way, 
 and this policy has been productive of great good ; 5,397 
 matters have been amicably arranged without the neces- 
 sity of formal orders or the expenditure of one cent by 
 the complainants. Cases are made formal only when it 
 
COMMISSIONS OF NEW YORK 329 
 
 becomes impossible for the contesting parties to arrive 
 at an adjustment mutually satisfactory. The records 
 show many examples of informal action, prompt and 
 effective, in cases where formal proceedings would have 
 resulted in a delay disastrous to the individuals who 
 sought assistance. The following is a characteristic 
 telegram : 
 
 Want fruit growers' refrigerator car, ordered Monday, 
 apples in barn, weather cold. Can you get one there to- 
 morrow morning? Answer. 
 
 The Commission called the proper traffic official of 
 the railroad company on the telephone and very soon 
 received advice from the company that it would place a 
 car immediately. This information was transmitted to 
 the complainant and the case was closed withjn five 
 hours. Many instances of this nature can be recited, but 
 one is sufficient to give an idea of the manner in which 
 such conditions have been met. 
 
 When the Commission took office the complaints con- 
 cerning delays of freight were general throughout the 
 state. The Buffalo freight yards in particular were 
 known as " freight graveyards." Loaded cars were de- 
 tained at that point for days, and sometimes for weeks. 
 Soon the freight in the Buffalo yards commenced to 
 move, and for the past years the appellation of " freight 
 graveyards " has not been applicable to Buffalo. 
 
 The Commission has established a system of repara- 
 tion in connection with freight charges. The law re- 
 quires every carrier to file a schedule of the rates which 
 it imposes for the transportation of all commodities in 
 carload lots or otherwise. The rate so filed must be 
 the rate charged to all patrons alike. In the event that 
 
330 MUNICIPAL UTILITIES 
 
 a carrier imposes a charge in excess of its published rate, 
 it becomes the duty of that carrier to return to the shipper 
 the difference between the amount specified in the tariff 
 and the amount which it has exacted. Upon application 
 for permission to make a reparation the Commission 
 issues an order which prescribes the amount to be re- 
 turned by the carrier. 
 
 Rebating in all forms and discriminatory practices 
 have been made impossible through the administration 
 of the law. The Commission, working through a well 
 organized and efficient tariff bureau, keeps in weekly 
 communication with chambers of commerce and business - 
 men's associations throughout the state, as well as hun- 
 dreds of shippers, furnishing to them and to the press 
 a bulletin showing every change in transportation rates 
 during the week. 
 
 After considering the best methods of handling the 
 vast amount of detail work connected with the com- 
 plaints and petitions which commenced to pour in from 
 all sides immediately upon the taking effect of the law 
 in 1907, the Commission adopted a plan of organization 
 in accordance with which it established a division, with 
 an expert at its head, to handle the work in connection 
 with each class of corporations mentioned in the law. 
 Thus it established the Division of Tariffs, to which ref- 
 erence has already been made, the Division of Light, 
 Heat and Power, Statistics and Accounts, Engineering 
 and Inspection, and, in 1910, the Division of Telegraphs 
 and Telephones. Within the last week it has established 
 a new division known as the Division of Capitalization. 
 
 The service which the Commission has rendered and 
 is constantly performing for the benefit of consumers 
 of gas and electricity is of great importance. The in- 
 spectors of the Division of Light, Heat and Power go 
 
COMMISSIONS OF NEW YORK 331 
 
 about the state and, unannounced, drop into the offices 
 of the gas companies to test the purity and quality of the 
 product. It can fairly be said that this work has re- 
 sulted in the bettering of service in every community 
 in the state. In localities where complaints have been 
 general, experts have gone into the whole subject of 
 manufacture and distribution, and in numerous instances 
 radical changes in apparatus and methods of manufac- 
 ture have resulted. 
 
 Every gas meter that now goes into the house of a 
 consumer is first tested by a representative of the com- 
 mission. Inspections are constantly going on upon com- 
 plaints. If a meter is found to be fast, the fee which 
 the state charged for inspection is refunded to the com- 
 plainant by the company against which the complaint 
 was entered. 
 
 The Division of Light, Heat and Power is in close 
 touch with the operations of electrical corporations, and 
 the law applicable to the electrical service is administered 
 in much the same manner as has been explained in con- 
 nection with gas. 
 
 The Commission is a clearing house for the adjust- 
 ment of difficulties between the consumers of gas and 
 electricity and the corporations supplying the service. 
 These disputes cover a wide range of subjects, including 
 alleged unjust charges, dangerous conditions of plants 
 and distributing systems, and refusals on the part of 
 companies to extend mains. Whenever possible, these 
 matters are adjusted by correspondence, and are ad- 
 vanced to public hearings only after it becomes apparent 
 that results cannot be produced informally. 
 
 The heads of public service corporations have, in 
 most instances, come to realize that the law as it has 
 been administered during the past four years has resulted 
 
332 MUNICIPAL UTILITIES 
 
 in great good to their companies. Striking examples of 
 this have been refusals of the Commission to allow new 
 corporations to enter fields of existing companies in 
 localities already well served, or in localities where the 
 service, although not what it should be, could be raised 
 to the proper standard of efficiency. 
 
 A new corporation desired to exercise a franchise 
 which it had obtained from a western New York city 
 and to furnish electricity therein for light, heat and 
 power. The service which the existing company afforded 
 was not the best and the rates for such service were too 
 high. The Commission gave to the established company 
 an opportunity to improve its service and to decrease 
 its rates before entering a determination upon the peti- 
 tion of the new corporation. The result was that the 
 city in question obtained a reduction for its street light- 
 ing from $65 to $52 per lamp, the individual users of 
 power received better service, and the new corporation 
 did not enter the field, which was not sufficient to sup- 
 port two companies. This action, therefore, improved 
 the service, reduced the rates, and probably avoided two 
 receiverships. 
 
 The requirements with reference to a uniform sys- 
 tem of accounts have brought about a condition of ut- 
 most value to the public. Through the accounting system 
 of a corporation may be seen the results of operation. 
 After a complete study of all the conditions, the Com- 
 mission ordered a uniform system of accounts based on 
 fundamental principles of economics applied to corpora- 
 tion accounting. It makes provision for depreciation. 
 It provides that discount on securities shall not be capi- 
 talized, but paid from earnings; that betterments and 
 improvements shall not be included in operating expenses, 
 but must either be charged to capital or directly to in- 
 
COMMISSIONS OF NEW YORK 333 
 
 come. The order provides that entries on books shall be 
 definite and plain and permits of double entry book- 
 keeping only. The books and accounts of the corpora- 
 tions thus kept will indicate the true, state of affairs to 
 the benefit of the public which has granted the franchises 
 and the investors whose money is in the business. 
 
 The Division of Engineering and Inspection is 
 especially well equipped, The men who are carrying out 
 the Commission's policies in connection with railroad 
 operation, equipment and right of way conditions, have 
 received their training in the practical school of experi- 
 ence. Every mile of steam and electric railroad in the 
 state is thoroughly inspected each year and such repairs 
 and improvements directed as may seem feasible from 
 time to time in the interest of public convenience, com- 
 fort and safety. The supervision of locomotives and 
 safety appliances is careful and minute, and the inspec- 
 tion of locomotive boilers by high-class mechanical ex- 
 perts adds greatly to the safety of employees and the 
 public generally. Every railroad accident of consequence 
 is investigated, and when it appears that such accident 
 was caused by defective equipment, roadbed conditions, 
 or methods of operation, orders are issued promptly, in- 
 tended to prevent a repetition of the occurrence. 
 
 Soon after its organization the Commission received 
 many complaints concerning irregular and unreliable 
 schedules of passenger trains. After an exhaustive in- 
 vestigation a system of train delay reports was adopted. 
 Every train arriving at a division terminal five minutes 
 or more late must be reported, together with the cause 
 of delay. Each month the record is tabulated and pub- 
 lished. The result of this practice has been most grati- 
 fying. Under this system many divisions have shown 
 a record of every train on time, The Erie Railroad Com- 
 
334 MUNICIPAL UTILITIES 
 
 pany had published in its time tables pages of jokes made 
 at the expense of the company because of chronic late- 
 ness of trains. The first monthly record showed that 
 the Erie was in the " 70 per cent, on time " class. Since 
 then the record shows that it has frequently operated 
 during monthly periods 96 per cent, of its trains on time. 
 The percentage of passenger trains on time in this state 
 has increased from 77 per cent, to 92 per cent. 
 
 The Commission, through its Division of Engineering 
 and Inspection, made a careful examination into the 
 cause of fires in the State Forest Reserve, and as a result 
 ordered all steam railroads operating through the Adiron- 
 dacks to use oil-burning locomotives. This was the first 
 step taken by any state in the East for the protection 
 of forests from fires caused by sparks from coal-burning 
 engines. 
 
 The following are some added results of the Com- 
 mission's work in connection with carriers. Freight and 
 passenger service has been improved, trains which had 
 been discontinued have been restored, more trains have 
 been ordered to stop at certain stations, excessive or illegal 
 charges for transportation have been discontinued, grade 
 crossings have been eliminated, vestibules have been 
 placed on street cars for the benefit of employees, station 
 facilities have been improved, and new stations have 
 been built. Many of these results have been produced 
 by suggestion to the companies. In other instances 
 formal orders were necessary. The Commission "has 
 power to enforce its orders by penalty actions, but has 
 been very cautious upon the question of penalties, and 
 has never started to recover a penalty against a corpora- 
 tion except under the most extreme circumstances. 
 
 A certain railroad corporation was directed to erect 
 a new station. The time for the completion of the build- 
 
COMMISSIONS OF NEW YORK 335 
 
 ing arrived and absolutely nothing had been done. An 
 action was commenced to recover the penalty provided 
 by law. The railroad company immediately evidenced 
 a great desire to carry out the order of the Commission 
 and agreed to build the station within a reasonable time 
 and, in addition, to expend $5,000, the minimum penalty 
 provided by the statute, in improving roadbed and track 
 conditions in the immediate vicinity. This proposal was 
 accepted and thus the company expended the amount 
 of the penalty upon its own property and the public re- 
 ceived the benefit. 
 
 The people of the state are not insensible of the im- 
 proved conditions which prevail by reason of the pres- 
 ent method of state supervision of public utilities. A 
 minister in a northern New York hamlet who saw thou- 
 sands of cars of coal being hauled through to Canada 
 while his people were unable to obtain a single car un- 
 til an appeal was made to the Commission, wrote that 
 such results show " a radical improvement in the ad- 
 ministration of the State of New York." A resident of 
 a Hudson River town who had been rebuffed in a just 
 request by an express company and who subsequently se- 
 cured satisfaction through the Commission, stated that 
 he was " dazed by the prompt way the matter was han- 
 dled, and the readiness with which the company yielded 
 when brought to account." A high-class passenger train 
 on one of the large railroads failed to maintain its sched- 
 ule for a considerable period of time. This matter was 
 brought to the attention of the Commission upon com- 
 plaint and an investigation of the service afforded by 
 the train in question was made. Some time after, the 
 complainant addressed the Commission and reported 
 satisfactory conditions, stating, " The regular passengers 
 and the general public have reason to be much pleased 
 
336 MUNICIPAL UTILITIES 
 
 with the improvement that has been made in the run- 
 ning of this train, and the Commission's efforts in their 
 behalf are appreciated by all who know the reason for 
 the improvement." 
 
 The Railroad Law of this state provides that all 
 steam surface railroads hereafter built must be so con- 
 structed as to avoid all public crossings at grade wherever 
 practical so to do. The law gives the Commission power 
 to determine whether or not such crossings shall be made 
 over, under, or at grade. Whenever a new street is 
 constructed across an existing railroad, the railroad com- 
 pany must pay one half, and the municipal corporation 
 wherein the street, avenue, or highway is located, the 
 remaining one half of the expense of making the cross- 
 ing above or below grade. Whenever a change is made 
 as to an existing crossing from grade to an over or un- 
 der crossing, fifty per cent, of the expense must be borne 
 by the railroad corporation, twenty-five per cent, by the 
 municipal corporation, and twenty-five per cent, by the 
 state. All grade crossings are dangerous. Some are 
 much more dangerous than others. The amount of 
 money which the legislature appropriates each year for 
 the state's share of the expense of grade crossing elim- 
 ination is very far from being sufficient to permit of 
 extensive work in this direction. The Commission has 
 endeavored, therefore, to select each year for elimina- 
 tion the crossings at grades which have proved most 
 dangerous to human life, with due regard to an equita- 
 ble distribution throughout the state. This year the 
 legislature appropriated for use by the Second District 
 Commission in this work, $350,000. This means that 
 grade crossing elimination work to the extent of $1,400,- 
 000 can be carried on during the year. The Commis- 
 sion has selected twenty-one crossings in various parts 
 
COMMISSIONS OF NEW YORK 337 
 
 of the state where this money will be expended, and 
 where, it is hoped, it will prevent loss of life. 
 
 About 60 per cent, of the complaints handled by the 
 Commission during the past four years have been di- 
 rected against the operations or facilities of carriers by 
 rail. This includes railroad and street railroad corpora- 
 tions, express and parlor car companies. There is no 
 separate division in the organization of the Commission 
 charged solely with the handling of the correspondence 
 and other procedure involved in the transaction of this 
 business. The secretary, the chief executive officer of the 
 Commission, has direct charge of this branch of the 
 work, and, when we consider the proportion which the 
 number of complaints against carriers bears to the total 
 number of complaints handled by the Commission, and 
 consider further that the secretary supervises the sched- 
 uling of all hearings, speaks for the Commission through 
 the public press, and is in touch with all inter-division 
 transactions, the statement that he is a very busy man 
 requires no proof. 
 
 The regulation of telegraph and telephone corpora- 
 tions operating property in the public service to the 
 amount of $10,000 is carried on by the Commission in a 
 manner very similar to that which has already been de- 
 scribed in connection with other classes of public service 
 corporations. Complaints, both formal and informal, 
 are entertained in matters pertaining to rates and service. 
 Although the Division of Telegraphs and Telephones is 
 new, the Commission has received many expressions of 
 approval with reference to its work from people who 
 have felt the benefit of the administration of this branch 
 of the law. A recent complainant who obtained relief 
 through the Commission, after stating that a certain 
 connection which he had hitherto been unable to obtain 
 
338 MUNICIPAL UTILITIES 
 
 had now been made for him, concluded his letter as fol- 
 lows : "Thank goodness, there is a place where common 
 sense, fairness and justice rule." 
 
 Complaint was made to the Commission soon after 
 the establishment of the division that the rates between 
 the Borough of Manhattan and the Borough of Brook- 
 lyn, New York City, were excessive. After a very care- 
 ful consideration of all the facts and circumstances con- 
 cerning the telephone business as conducted by the New 
 York Telephone Company in the City of New York, the 
 Commission entered an order reducing the Interborough 
 charge from ten to five cents. The expressions of satis- 
 faction which were received subsequent to this decision 
 from citizens of both boroughs were many and sincere. 
 The law which gives the Commission authority to regulate 
 these companies is not adequate in all respects. It is, how- 
 ever, a beginning and it is hoped that future legislation 
 will bring it up to the standard of those sections which 
 deal with common carriers, gas, and electric companies. 
 
 Great as has been the beneficial results to the people 
 and the corporations of those provisions of the law 
 through which the Commission has acted upon operating 
 problems, it is the opinion of those who realize the de- 
 pendence of adequate service at reasonable rates upon 
 proper methods of capitalization, that the power which 
 the Commission has exercised over the issuance of stocks, 
 bonds and other evidences of indebtedness has been pro- 
 ductive of still greater good. All corporations subject to 
 the supervision of the Commission must obtain the lat- 
 ter's approval to capitalize. Opponents of the Commis- 
 sion have gone far in their contentions that the operation 
 of the law in this matter has stopped the development 
 of railroad and lighting properties. The supervision of 
 capitalization has had the one effect of enforcing sound 
 
COMMISSIONS OF NEW YORK 339 
 
 and honorable principles in corporate management. To 
 say that such a policy is a menace to the integrity of cor- 
 porate securities is as absurd as to say that the courts 
 of justice, by enforcing the observation of law and order, 
 have become a danger to civilization. If the Commis- 
 sion is to regulate corporations as to the service and 
 rates it must of necessity control their capitalization. 
 Rates, service and capitalization are so closely related 
 that it is impossible to deal with one without a consider- 
 ation of the effect upon the others. Excessive fixed 
 charges caused by watered capitalization necessarily cre- 
 ate a pressure upon the administrative officers to make 
 everything subordinate to producing the money required 
 to meet such charges. In its investigation of applications 
 which have come before it, the Commission has found 
 every possible form of manipulation. 
 
 A traction company of western. New York, with a 
 right of way five miles in length, applied to the Commis- 
 sion for authorization to issue $1,000,000 of bonds for 
 the purpose of building its road. Investigation disclosed 
 that the capital stock of the company had been issued to 
 the amount of $1,000,000, notwithstanding the fact that 
 there had been no expenditure of money for construction, 
 that there had been paid upon this stock $5,000 in cash, 
 and that the remainder of the stock had been issued to 
 the president of the company as compensation for his 
 service in procuring a franchise. It is needless to say 
 that the Commission did not grant the application for 
 bonds at once, and before such issue was authorized 
 capital stock to the amount of $945,000 was surrendered 
 and cancelled. A certain steam railroad corporation 
 made application to the Commission for authorization to 
 issue debentures in payment of an existing indebtedness 
 to an amount of about $6,000,000. An examination of 
 
340 MUNICIPAL UTILITIES 
 
 the case disclosed that, of the moneys borrowed, more 
 than $1,600,000 had been used in paying operating de- 
 ficits for which the company proposed to issue its stock. 
 A gas company made application to the Commission for 
 authorization to issue bonds to the amount of $200,000 
 for the purpose of refunding outstanding bonds to that 
 amount. An examination disclosed that a promoter had 
 purchased the entire capital stock of the company and 
 had issued bonds in the amount of $200,000 to himself 
 and used a part of the proceeds in payment of the stock 
 which he had purchased. Not one dollar of the pro- 
 ceeds of these bonds ever went into the treasury of the 
 company. Before authorizing the issue of further securi- 
 ties, the Commission required the company to make such 
 provision as would, in twenty years, wipe out the $200,- 
 000 of bonds. 
 
 The difference between two corporations, one capi- 
 talized on the basis of actual value and the other in 
 accordance with the old order of doing business, is shown 
 by a glance at the conditions of two western New York 
 electric railroad properties. The railroad of one is 
 twenty miles in length. It was constructed as a business 
 enterprise upon a cash basis. It has its own power 
 house, and handles its own power. The railroad of the 
 other company is fifty-four miles in length. It was con- 
 structed from the proceeds of stock and bonds issued in 
 a lump sum to a construction company. It has no power 
 plant and purchases its power. It is now in the hands 
 of a receiver. The first company is operating its own 
 railroad. Its capitalization per mile is $30,000. The 
 capitalization per mile of the second company is $147,- 
 278. The deficit of the second company for ten months 
 was $85,315.57, while the first company had no deficit, 
 and paid a 6 per cent, dividend. These figures speak for 
 
COMMISSIONS OF NEW YORK 341 
 
 themselves. One company is prosperous, able to render 
 first-class service to the public, to pay its fixed charges, 
 give a fair return to the stockholders, and still accumu- 
 late a surplus. The other company became absolutely 
 bankrupt and was only able to continue operations 
 through a reorganization. 
 
 A development has gone on under a wise administra- 
 tion of this portion of the law, the provisions of which 
 apply equally to the capitalization of carriers, gas and 
 electric corporations, and telegraph and telephone cor- 
 porations. During the four years of its existence up to 
 July 1, 191 1, the Commission has authorized upwards 
 of $500,000,000 of new and honest capitalization. 
 
 It is apparent that the administration of this law must 
 at all times be entrusted to men of high character. It 
 gives to the Commissioners greater regulating powers 
 over corporations than has any previous statute in the 
 history of the country. So long as the present high 
 standard is maintained in the selection of Commissioners, 
 the Public Service Commissions Law will continue to 
 provide a forum where differences of opinion between 
 the public and the corporations will find a speedy and 
 inexpensive solution, where the vested rights of corpora- 
 tions will secure protection, and where attempts to direct 
 false capitalization will receive an effective check. The 
 value of such regulation as compared to inefficient special 
 legislation needs no argument. 
 
 (3) THE WORK OF THE PUBLIC SERVICE COM- 
 MISSION FOR THE FIRST DIS- 
 TRICT, NEW YORK 
 
 Dr. Robert H. Whitten, Librarian- Statistician of the 
 New York Public Service Commission for the First Dis- 
 
342 MUNICIPAL UTILITIES 
 
 trict, has written, especially for this volume, the follow- 
 ing comprehensive discussion of the work and accom- 
 plishments of that Commission: 
 
 The jurisdiction of the Public Service Commission 
 for the First District is limited, with a few minor excep- 
 tions, to territory comprised within the City of New 
 York, thus including the four counties of New York, 
 Queens, Kings and Richmond. The population in this 
 district is about 5,000,000. It constitutes more than half 
 of the population of New York State and its population 
 is exceeded only by the population of the states of Penn- 
 sylvania and Illinois. The work of the Commissions for 
 the two districts differs widely ; first, on account of dif- 
 ferent powers vested by law, and, second, on account of 
 the difference in the character of the two districts. The 
 Commission for the First District deals with a very large 
 population within a small area. The congested character 
 of the district creates problems as to service, equipment, 
 and methods of supervision that either do not exist at all 
 or not with the same intensity throughout the rest of the 
 state. The Commission for the First District deals with 
 comparatively few corporations, most of them with large 
 capital and output, while the Commission for the Second 
 District deals with a very large number of corporations, 
 most of them having a small capitalization and output. 
 The Commission for the First District has been given the 
 powers and duties with relation to the laying out and 
 construction of rapid transit railroads which formerly 
 devolved on the Board of Rapid Transit Railroad Com- 
 missioners. This enormous task has no counterpart in 
 the work of the Commission for the Second District, or 
 in that of Public Service Commissions of other states. 
 On the other hand, the control of telephone and telegraph 
 companies is entirely under the Commission for the Sec- 
 
COMMISSIONS OF NEW YORK 343 
 
 ond District and matters in relation to transportation of 
 freight and express are also almost entirely under the 
 supervision of that Commission. The accounts and 
 finances of all the steam railroads of the state, with the 
 exception of a short line on Staten Island, are exclusively 
 under the jurisdiction of the Commission for the Second 
 District. By far the larger proportion of the time and 
 expenditures of the Commission for the First District is 
 devoted to rapid transit planning and construction. Next 
 in order comes the supervision of street and electric rail- 
 roads, and next the supervision of gas and electrical cor- 
 porations. 
 
 Organization and Expenditures. — The total expense 
 of the Public Service Commission for the First District, 
 except the salaries of the Commissioners, the Secretary, 
 and the Counsel, amounting to $91,000, is paid by the 
 City of New York. Estimates of moneys required are 
 submitted to and approved by the Board of Estimate 
 and Apportionment of New York City. A detailed state- 
 ment of the expenses of the Commission, divided into 
 departments for the year 1910, is as follows : 
 
 Executive Department $179,660 . 85 
 
 Legal Department 49,9°5 • 62 
 
 Franchise Bureau 20,931 . 70 
 
 Bureau of Statistics and Accounts 25,550 . 07 
 
 Bureau of Gas and Electricity 39,893 • 2 3 
 
 Engineering Department 768,452 .71 
 
 Transportation Department 123,616 . 39 
 
 $1,208,010.57 
 Salaries of Commissioners, Secretary and Counsel 
 
 paid by State 91,000.00 
 
 $1,299,010.57 
 23 
 
344 MUNICIPAL UTILITIES 
 
 The greater proportion of the expenditures of the 
 Commission are not, however, for the supervision of 
 public service corporations, but for work connected with 
 the planning and construction of rapid transit railroads, 
 a work formerly performed by the Board of Rapid 
 Transit Railroad Commissioners. Of the total expendi- 
 tures in 1910, $377,000 was for public service regulation, 
 and $922,000 for rapid transit work. The Commission 
 has from 500 to 700 employees, depending on the amount 
 of rapid transit work required. The rapid transit work 
 proper normally engages the services of about 60 per 
 cent, of the employees. The duties of the Commission 
 in relation to rapid transit include the laying out of rapid 
 transit routes, the preparation of plans, the securing of 
 consents of property owners or the substituted consent 
 of the court, the securing of bidders and the letting of 
 contracts, and the entire engineering supervision of con- 
 struction costing many millions of dollars. 
 
 Complaints. — A principal function of the Commission 
 is to serve as a forum for the settlement of disputes be- 
 tween the individual and the public service corporation. 
 The consumer must use the product of the monopoly 
 whether he desires to or not, and it is, therefore, par- 
 ticularly aggravating, when a difference of opinion arises, 
 to feel that there is no appeal from the arbitrary action 
 of the officials representing the monopoly. The Commis- 
 sion furnishes the opportunity for a judicial hearing of 
 all complaints. This opportunity lessens the otherwise 
 galling effect incident to dealing with a monopoly. This 
 is of great advantage to the company concerned, as it 
 betters the relations between the company and its con- 
 sumers. For the three years, 1908, 1909, and 1910, the 
 Commission received and handled informally 5,207 com- 
 plaints against transportation companies. In addition, 
 
COMMISSIONS OF NEW YORK 345 
 
 there have been handled an average of 500 informal com- 
 plaints each year against gas and electric companies, 
 other than complaints as to meters. For the year 1910 
 the Commission conducted sixty formal proceedings on 
 its own motion, eleven formal proceedings on complaint, 
 and thirty-six formal proceedings on applications of com- 
 panies, making a total of 107 for the year. In the con- 
 duct of these proceedings 427 hearings were held. 1 
 The number of formal proceedings undertaken by the 
 Commission has declined each year, as it is the Commis- 
 sion's policy, whenever possible, to settle complaints in 
 
 1 A complaint, as soon as received, is sent to the company af- 
 fected with a letter asking the company what measures it can take 
 to satisfy the complaint. In many cases the company immediately 
 concedes the point in question. In other cases the company ex- 
 plains why the request cannot be granted and its explanation is ac- 
 cepted by the complainant .or is deemed by the Commission to be a 
 satisfactory answer. In other matters, the Commission, through 
 its Transportation Department, or its Bureau of Gas and Elec- 
 tricity, has an investigation made to determine whether the com- 
 plaint is well grounded. Often the Commission's engineers or in- 
 spectors confer with the company's representatives for the purpose 
 of bringing about an adjustment of matters complained of. As a 
 result of these investigations, conferences, or correspondence, either 
 an arrangement mutually satisfactory to the company and the 
 complainant is arrived at or the Commission determines that there 
 is no just cause for the complaint. In case the above informal pro- 
 cedure proves unsuccessful, a formal proceeding is begun. A com- 
 plaint order, to which is attached a copy of the complaint, is served 
 upon the company and the company is usually given ten days to 
 answer. If the company's answer is deemed unsatisfactory, the 
 Commission orders hearings upon the complaint. At these hearings 
 the complainant, the company, and the experts of the Commission 
 give evidence. Both parties and the Commission are repre- 
 sented by counsel. On the evidence submitted and the recommen- 
 .dations of the Commissioner in charge of the hearing, the Commis- 
 sion renders its decision. 
 
346 MUNICIPAL UTILITIES 
 
 an informal manner. There were 106 formal proceed- 
 ings on complaints in 1908, thirty in 1909 and eleven in 
 1910. Formal proceedings under the decisions of the 
 New York courts, upholding the right to review the 
 proceedings of the Commission on a writ of certiorari, 
 are necessarily very involved and much time is taken 
 in getting into the record, in proper legal form, all of 
 the facts upon which the decision must be based. If a 
 matter can be settled in an informal manner, a great deal 
 of time is saved to the complainant, to the company, and 
 to the Commission. Moreover, a formal proceeding nec- 
 essarily involves the establishment of precedents, and 
 anything that tends to establish a precedent that may 
 possibly at any future time work to the disadvantage of 
 either party will necessarily be contested most vigor- 
 ously. The proceeding is therefore greatly prolonged 
 and the result is often less satisfactory to both parties 
 than it might otherwise have been. At an informal con- 
 ference each side yields or passes over unessential mat- 
 ters without fear of establishing bad precedents, and thus 
 the conclusion reached is likely to be more satisfactory 
 to both sides than in a formal proceeding. 
 
 Transportation Department. — A large share of the 
 regulatory work of the Commission is carried on through 
 the Transportation Department. E. G. Connette, trans- 
 portation engineer, is at the head of this department. 
 The work of the department relates to the service and 
 equipment of railroad and street railway companies and, 
 in lesser degree, of gas and electric light companies. 
 Files of freight tariffs, passenger rates, and time sched- 
 ules are also maintained. The department has about 
 seventy-five employees and is divided into four bureaus : 
 Transit Inspection, Grade Crossing, Equipment Inspec- 
 tion, and Accident Bureaus. 
 
COMMISSIONS OF NEW YORK 347 
 
 Transit Inspection Bureau. — The work of the Transit 
 Inspection Bureau relates chiefly to the securing of ade- 
 quate service on the railroad and street railway lines. 
 An electrical engineer is at the head of this bureau and 
 he has under him about forty employees. There are four 
 junior railway engineers and about thirty transit inspec- 
 tors, including the supervising transit inspectors. The 
 city is divided into four inspection districts with a super- 
 vising inspector in charge of a squad of transit inspectors 
 for each district. From 1 50 to 200 investigations in rela- 
 tion to service are undertaken each month. About one- 
 third of these investigations are made as a result of com- 
 plaints received. Most of the investigations are, how- 
 ever, made on the initiative of the bureau with a view, 
 to seeing whether adequate service is being rendered in 
 all parts of the city, whether orders previously issued are 
 being complied with, and whether improvements prom- 
 ised by the companies are actually being carried out. 
 
 Experience seems to show that the only method by 
 which the service on the various lines can be kept up to 
 a reasonable standard is through constant observation 
 by a large force of transit inspectors. Fluctuations in 
 the amount and character of travel are so frequent and 
 pronounced that adequate service can be enforced only 
 by such constant and continuous inspection as will take 
 note of all such fluctuations and, if necessary, bring the 
 matter of increased service to the attention of the oper- 
 ating officials. It is only by keeping thoroughly and con- 
 tinuously informed concerning service conditions that the 
 Commission can be in position to secure and maintain 
 adequate service. This means the employment of enough 
 transit inspectors to make frequent inspections and 
 counts of traffic. This is just as essential to insure the 
 public's getting what it is entitled to in the way of street 
 
348 MUNICIPAL UTILITIES 
 
 railway service as is an audit of accounts to insure the 
 correctness of a treasurer's accounts. 1 
 
 1 The number of passengers carried per car mile operated is some- 
 times used as an index of the quality of the service rendered. If the 
 ratio of passengers to car miles increases upon a particular line, it 
 is often an indication that the cars are becoming more crowded. 
 Of course this is not necessarily the case. There may be an in- 
 creased proportion of short rides or the traffic may be better dis- 
 tributed either as to location or time, and thus there may be a large 
 increase in the ratio of passengers to car miles without any real in- 
 crease in the crowding of the cars. Moreover, changes may be 
 made in methods of operation so as to cut out useless car mileage 
 and thus result in a decrease in the ratio without injury to the ser- 
 vice rendered. In order to secure the data to compare this ratio 
 from month to month and year to year, the Commission secures 
 from the companies daily statistics of passengers transported and 
 car miles operated. At the end of each month they are compiled 
 on a single sheet so as to show for each company the number of 
 passengers carried, car miles operated, and ratio of passengers 
 to car miles, with a comparison for the same month of the 
 preceding year. These statistics are furnished by most of the com- 
 panies at the request of the Commission without formal order. In 
 the case of the Interborough Rapid Transit Company, however, a 
 special order was issued (Filing Order No. 1033, February 19, 1909, 
 amended October 13, 1909). This order requires the company to 
 file within seventy-two hours after the close of each day a daily 
 statement of traffic showing, as nearly as may be the number of 
 tickets sold and the number of car miles run on the subway division 
 and on the Second, Third, Sixth, and Ninth Avenue elevated lines. 
 The company is also required to file within twenty-five days of the 
 close of each month a statement of the number of tickets sold at 
 each station on each of the above routes. The other companies, 
 with one or two unimportant exceptions, make the 'daily car mile 
 and passenger report for the entire system and not by separate lines. 
 In case, however, this information is desired for a particular time 
 and line, it may usually be obtained on application to the company. 
 By a special order, August 20, 1909, No. 1152, the companies oper- 
 ating elevated lines in the Brooklyn Rapid Transit system were re- 
 quired to keep the daily records of passengers in such a way as to 
 
COMMISSIONS OF NEW YORK 349 
 
 In attempting to enforce orders as to service on the 
 subway and elevated lines of the Interborough Rapid 
 Transit Company, the Commission was met by the claim 
 that specific violations of the order complained of were 
 the result of unavoidable accidents causing delay to 
 traffic and thus causing a violation of the order of the 
 Commission. In order that the Commission might have 
 information in relation to such delays, it issued a sup- 
 plementary order (1,312, January 13, 1911), requiring 
 the Interborough Rapid Transit Company to give notice 
 to the Commission in writing within twenty-four hours 
 of every accident or delay which renders impossible com- 
 pliance with the service orders issued by the Commission. 
 The service orders adopted in February, 1909, for the 
 various elevated lines of the Brooklyn Rapid Transit 
 system also provide that delays, making it impossible for 
 the company to operate the number of trains required 
 by the orders, shall be immediately reported to the Com- 
 mission and " within three days after every such delay, 
 a full statement in writing of all the facts in relation 
 thereto shall be submitted." Moreover, the general order 
 (1,142, August 27, 1909), in relation to reporting of acci- 
 dents, requires that any interference with or stoppage 
 of traffic resulting in a delay of fifteen minutes or over 
 shall be reported to the Commission immediately, if seri- 
 ous, and, in any case, within three days. Such a record 
 is important in considering specific complaints as to serv- 
 ice or in checking up to see whether the companies are 
 complying with adopted service orders. This record is 
 also important in determining whether the delays are 
 caused by defects in the equipment of the company or 
 
 segregate so far as possible the passengers carried on each elevated 
 line. 
 
350 MUNICIPAL UTILITIES 
 
 by vehicular traffic or other conditions subject to amel- 
 ioration. 
 
 Service Orders and Standards. — In regulating street 
 car services the Commission has done a great deal of 
 pioneer work and has adopted new standards and meth- 
 ods. The law requires the companies to furnish, and 
 the Commission to enforce, " adequate service." To carry 
 out this provision, it has been necessary for the Commis- 
 sion to define what constitutes adequate service and to 
 define it in such a way that it may be included in effective 
 and legally enforceable orders. In prior attempts at 
 regulation it had been usual to specify the minimum 
 number of cars that should be run. But the fluctuations 
 in travel are so great that a fixed minimum that is rea- 
 sonable and effective under average conditions permits 
 overcrowding at certain times and requires the running 
 of an excessive number of cars at other times. This is 
 brought out in the opinion of Commissioner Maltbie in 
 submitting an order (No. 422, April 17, 1908), in rela- 
 tion to service on the Twenty-third Street cross-town line 
 of the New York City Railway Company : 
 
 The passenger traffic upon the surface street car lines in 
 the city of New York fluctuates greatly from hour to hour, 
 day to day, season to season and year to year. The number 
 
 1 In order that service inspections may be of some permanent 
 value for comparative purposes, inspections are made of rush hour 
 traffic on each car line at approximately the same dates each year. 
 The count of traffic shows the number of cars, seats, and passengers 
 in each direction during the morning and afternoon rush hours. 
 This data is then compared with similar data obtained about the 
 same time during the preceding year and the percentage increase or 
 decrease in seats and passengers is noted. If there has been a com- 
 parative decrease in seats and the count indicates that the service is 
 inadequate, the company is asked to rectify the defect. 
 
COMMISSIONS OF NEW YORK 351 
 
 of cars which must be run to provide adequate service upon 
 a clear day is often quite different from the number needed 
 at similar hours upon a stormy day. Saturdays and Sun- 
 days are very busy days upon some lines, but during the 
 other five days in the week the use made of these lines may 
 be small. The traffic upon certain lines increases as summer 
 approaches and falls off when winter returns. Meetings, con- 
 ventions, parades, games, etc., constantly cause important 
 fluctuations. To meet these varying conditions, the traffic 
 manager must provide a varying schedule, having in mind 
 not merely the conditions that ordinarily obtain but any 
 special circumstances which call for a greater or less num- 
 ber of cars than ordinarily needed. 
 
 In attempting to fix the standard of adequate service for 
 the various lines, the commission has, with one exception, 
 specified the minimum number of cars that should be run. 
 But a fixed minimum which is reasonable and yet effective 
 under ordinary circumstances may impose an unnecessary 
 burden upon the company at certain times and permit over- 
 crowding at others. The proper standard should be so elas- 
 tic that it would be neither too harsh nor too mild, but at 
 all times so suited to the conditions as to provide as ade- 
 quate service as could reasonably be expected. The require- 
 ment that a certain number of cars must be run during cer- 
 tain hours has been found to be too rigid and not sufficiently 
 elastic for certain surface lines. 
 
 This order required the operation daily over every 
 point on the line either ( 1 ) a sufficient number of cars in 
 each direction past any point of observation to provide 
 during every fifteen-minute period of the day or night 
 a number of seats at least 10 per cent, in excess of the 
 number of passengers at that point, but not less than six 
 per hour in each direction, or (2) the maximum number 
 of cars that could be operated on the line based upon 
 the possibility of an eighteen-seconds headway or 200 
 
352 MUNICIPAL UTILITIES 
 
 cars per hour. In further explanation of this order, Com- 
 missioner Maltbie says : 
 
 The purpose of this order is to give every one a seat, and 
 a 10 per cent, excess of seats over passengers has been re- 
 quired because of the irregularity of traffic and of cars. If 
 the cars were to run with absolute regularity and if passen- 
 gers were to board these cars at regular intervals and at equi- 
 distant points, it might not be necessary to provide a greater 
 number of seats than passengers, but cars do not run regu- 
 larly and passengers do not board the cars with absolute 
 uniformity, and it has been found, as a matter of practical 
 observation, that in order to provide seats for all passen- 
 gers, it is necessary to run cars with a greater seating 
 capacity than the number of passengers. Whether a 10 per 
 cent, excess is sufficient to accomplish this result cannot be 
 determined without experiment, and it is possible that after 
 a trial has been had it will be necessary either to increase 
 or decrease the percentage of excess suggested. 
 
 The alternative proposition suggested, viz., that if a 10 
 per cent, excess of seats over passengers is not provided, a 
 certain number of cars must be run, has been placed in the 
 order because it is physically impossible, under the condi- 
 tions which obtain in New York, always to provide a seat 
 for every passenger. The traffic is so heavy at times that 
 to attempt to provide every one with 5. seat would so inter- 
 fere with the carrying capacity of the line that the time 
 consumed in passing from one point to another would be so 
 great, because of the low rate of speed due to car conges- 
 tion, that the advantage of a seat would probably be more 
 than offset by the increased time required. 
 
 The provision requiring a io per cent, excess of seats 
 over passengers has not been included in later orders 
 issued by the Commission. The orders now in force 
 usually provide for either (i) the operation during each 
 
COMMISSIONS OF NEW YORK 353 
 
 fifteen-minute or thirty-minute period of cars or trains 
 providing seats at least equal to the number of passen- 
 gers, or (2) the operation of the maximum number of 
 trains or cars that can be operated. Orders of this kind 
 are at present in force on the subway and elevated lines 
 of the Interborough Rapid Transit Company. 1 
 
 On the most important lines in Manhattan and Brook- 
 lyn, the companies cannot operate enough cars during 
 rush hours to furnish seats for all, and on many lines, 
 with the tracks used to the fullest capacity, there is ex- 
 cessive overcrowding. The various orders of the Com- 
 mission which establish the standard of a seat for every 
 passenger or the operation of the maximum number of 
 cars do not, with perhaps one or two exceptions, involve 
 the mooted question of whether a company should be re- 
 quired to provide, where the track capacity is adequate, 
 a seat for every passenger during rush hours. This 
 would require the company to furnish additional cars 
 and additional power capacity that would be used only 
 for a few hours during the day. It is sometimes asserted 
 that it is financially impracticable for a street railway 
 company to provide seats for all during rush hours. This 
 
 • Order 1,211, April 5, 1910; 1,217, April 11, 1910; 1,291, Decem- 
 ber 23, 1910. Owing to varying conditions and the use of the same 
 track by different lines, the form of the order is varied so as to re- 
 quire a maximum proportional service for each line during rush 
 hours over points of restricted capacity and a maximum operation 
 of short-line trains or cars in rush hours over points where the capac- 
 ity is not restricted. This is true of the orders adopted in 1909 
 regulating service on the various elevated lines of the Brooklyn 
 Rapid Transit system. Moreover, these orders, instead of provid- 
 ing a fixed fifteen- or thirty-minute interval during which the number 
 of seats shall equal the number of passengers, establish for each 
 line varying intervals of from twenty to forty minutes depending on 
 the varying scheduled headway between trains. 
 
354 MUNICIPAL UTILITIES 
 
 question came up in connection with an order regulating 
 service on the Broadway line of the Brooklyn Union 
 Elevated Railroad Company. (Order 1,014, February 2, 
 1909, amended February 19, 1909.) On this line it was 
 physically ' possible, even during rush hours, to run 
 enough trains to provide seats for all. Accordingly the 
 order adopted conforms to orders applicable to the other 
 elevated lines in requiring as many seats as passengers 
 during specified periods or have in force a train schedule 
 that would, as a matter of fact, provide as many seats 
 as passengers. The following is from Commissioner 
 Bassett's opinion in this case: 
 
 The company has quite successfully demonstrated that it 
 is highly unprofitable for it to furnish cars and extra power 
 capacity when this extra car capacity can earn only during 
 two trips each day. This agreement, carried to its logical 
 conclusion, would mean that the company should be per- 
 mitted to supply an inadequate service, although the track 
 capacity would permit an adequate service. The Public 
 Service Commissions Law demands adequate service first cf 
 all requirements. To fulfill the law a company may in some 
 instances need to run certain trains that are not remunera- 
 tive. But while insisting on a seat for every passenger as 
 the ideal of adequacy, the commission should be liberal in 
 allowing the company to cut back its trains so as to run the 
 fewest possible vacant seats. 
 
 However, in the Bronx, Queens, and Richmond, 
 where, in general, track conditions would permit the run- 
 ning of sufficient cars to provide seats in rush hours, the 
 few orders that have been issued do not require seats 
 for all or maximum service, but seats for all or the oper- 
 ation of a minimum schedule, and this minimum schedule 
 is not designed to furnish seats for all in the rush hours. 
 
COMMISSIONS OF NEW YORK 355 
 
 (See New York and Queens County Railway Company 
 service order 1,349, July 28, 191 1, amended August 18, 
 191 1.) This part of the problem of denning adequate 
 service has not been worked out as yet. 
 
 Service orders have been issued from time to time 
 covering almost all the transportation lines in New York 
 City. Many of the orders, however, especially those is- 
 sued in 1908 and 1909, were limited to two years and 
 have consequently expired by limitation. The companies 
 have followed the standards fixed by the old orders and 
 it has not been necessary to renew them. Moreover, the 
 companies have become acquainted with the standards 
 required by the Commission and matters are now much 
 more frequently adjusted by correspondence or by con- 
 ference between the Commission's engineers and the 
 operating officials of the company. During the years 
 1910 and 191 1 few service orders have been issued. The 
 informal adjustment of service matters is, in most cases, 
 much more effective. Usually by conference an improve- 
 ment in service can be secured in a few days that would 
 necessarily take months under the method of public hear- 
 ings and formal orders. 
 
 Equipment Inspection Bureau. — The Equipment In- 
 spection Bureau has charge of all investigations and 
 work relating to equipment. Clifton W. Wilder, elec- 
 trical engineer, is at the head of the bureau. There are 
 about twenty employees in the bureau, including five 
 electrical engineers, twelve railway engineers, and one 
 chief inspector of electric meters. This bureau, in addi- 
 tion to inspecting equipment, appraises the property of 
 railway and lighting companies whenever such appraisal 
 is needed in connection with rate or capitalization cases. 
 The law requires the companies to provide safe and ade- 
 quate equipment and facilities. During 1910 the Equip- 
 
356 MUNICIPAL UTILITIES 
 
 ment Bureau investigated approximately 200 complaints 
 in relation to the equipment and service of the railway 
 and light companies. In eighty-four of these cases just 
 grounds were found for complaint, and upon representa- 
 tions of the Commission changes or improvements were 
 made by the companies so as either to remove or reduce 
 the cause of complaint. In eighty-seven cases it was 
 found that there was just cause for complaint, but the 
 conditions were such as to make it either impossible or 
 inadvisable to take action. Twenty-nine complaints were 
 found, upon investigation, to be unjustified. The bureau 
 also, during the year 19 10, investigated the equipment 
 involved in 332 accidents for the purpose of ascertaining 
 whether the equipment was at fault and of ascertaining 
 what, if any, changes or improvements should be made 
 with a view to reducing similar accidents in the future. 
 The bureau has an elaborate electric laboratory equipped 
 with the necessary standards, instruments, and apparatus 
 for the checking of electrical meters and for other elec- 
 trical investigations which are made by the bureau from 
 time to time. 
 
 When the Commission entered office July 1, 1907, the 
 equipment of the surface lines in Manhattan was in a 
 deplorable condition. For some time only a minimum 
 amount of repairs had been made, and consequently the 
 cars, track, and entire equipment had run down to such 
 an extent as to be in many cases unfit for service. When 
 a car broke down in service, as did an average of one of 
 every five daily during the month of October, 1907, it 
 was pushed into the barn and patched to resume service. 
 Instances were frequently found in the records of cars 
 that had been run in for repairs on two and even three 
 consecutive trips. Constant interruptions to service oc- 
 curred because of breakdowns, thus demoralizing the 
 
COMMISSIONS OF NEW YORK 35; 
 
 service of the entire system. The electrical engineer of 
 the Commission and his assistants made an inspection of 
 some 1,600 out of a total of about 2,000 cars being oper- 
 ated in Manhattan. On 450 cars examined an average of 
 four defects on each car was found. Accordingly, near 
 the close of the year 1907, an order was adopted requir- 
 ing the thorough overhauling and repair of all cars oper- 
 ated on the lines of the New York City Railway Com- 
 pany. The order adopted (No. 179) required the com- 
 pany to thoroughly overhaul and repair its cars so that 
 they would be in first-class operating and substantially 
 new condition. It was provided that, after February 15, 
 1908, at least ten of such overhauled cars should be 
 turned out each day until all had been so overhauled. 1 
 
 1 The company was required to notify the Commission each day 
 of the cars thus turned out and such cars were then inspected by 
 the Commission's engineers. The receivers criticised the action of 
 the Commission but complied with the above and other similar 
 orders. They also voluntarily purchased many new cars of the 
 pay-as-you-enter type and extensively repaired or reconstructed the 
 track and other equipment. As a result of these improvements the 
 daily average of cars run in for repairs for August, 1908, was only 
 seventy-one as compared with 352 for October, 1907. The over- 
 hauling of the cars also greatly improved sanitary conditions, de- 
 creased noise of operation, and added in other ways to the comfort 
 of the passengers. Later, similar orders were issued for the over- 
 hauling of the cars of the surface lines in the Bronx and of the Coney 
 Island and Brooklyn Company operating in Brooklyn. An inspec- 
 tion showed that the equipment of the surface lines in the Brooklyn 
 Rapid Transit System was in good condition. It had been found 
 that the cars of the Coney Island and Brooklyn Railroad Company 
 were constantly breaking down when crossing Brooklyn Bridge and 
 thus delaying traffic destined to all parts of Brooklyn on the lines 
 operated by the Brooklyn Rapid Transit System, as well as on the 
 lines of the Coney Island and Brooklyn Railroad itself. After the 
 cars of the Coney Island and Brooklyn Company had been put 
 through the shops for a complete overhauling, the number of delays 
 
358 MUNICIPAL UTILITIES 
 
 Under an order of the Commission, every railroad 
 and every street railroad corporation files with the Equip- 
 ment Inspection Bureau a semi-annual detailed report 
 in relation to the number and character of car motors, 
 car bodies, and car trucks operated. (See order No. 437, 
 April 28, 1908, and order in Case No. 1,210, January 18, 
 1910.) The report includes information as to general 
 type, manufacturer, date purchased, over-all dimensions, 
 arrangement of seats, space per passenger, weight, cost, 
 brakes, heaters, etc. In addition to the semi-annual state- 
 ment specific statements are required within five days 
 of the placing in service or retirefnent from service of 
 any car motors, car bodies or car trucks. This informa- 
 tion is indispensable to the Commission in considering 
 general questions of equipment and also in acting upon 
 specific complaints relating to the condition of a par- 
 ticular car, and in investigating accidents occurring upon 
 a particular car. 
 
 Examination of Plans for Construction and Equip- 
 ment. — Prevention is usually much easier than correc- 
 tion. It is easier and more economical, both from the 
 standpoint of the supervising authority and the company 
 supervised, to stop mistakes in car equipment before the 
 cars in question have been constructed, than to wait until 
 the cars are placed in service and then to require recon- 
 struction to conform to public requirements. With this 
 object in view, the Commission issued an order (Order 
 June 16, 1908, No. 584, revised October 11, 1910, No. 
 
 upon the Brooklyn Bridge of the cars of that company was reduced 
 from 147 in September 1907, to fourteen in September 1908, and the 
 number of minutes lost through interruption of traffic was reduced 
 from 621 to twenty-seven. Since the establishment of the Commis- 
 sion, the inspection and maintenance methods of most of the com- 
 panies have been greatly improved. 
 
COMMISSIONS OF NEW YORK 359 
 
 1,278), requiring all street railroad corporations to sub- 
 mit to the transportation engineer of the Commission a 
 memorandum and general drawings showing the charac- 
 ter and type of car equipment contracted for and all 
 reconstructed car equipment about to be put into opera- 
 tion. 1 
 
 In certain cases of construction of new roads or the 
 extension of old ones, the Commission has required the 
 filing of general plans for construction and equipment. 
 Thus the order of the Commission in case No. 811, Janu- 
 ary 15, 1909, granting the approval of the Commission 
 to the exercise of the franchise to the New York, 
 Westchester and Boston Railway Company, provides 
 that, prior to the construction of any portion of the 
 railroad, the company shall file plans, maps, and speci- 
 fications, and no future construction or installation 
 upon any part of the road shall be begun until such 
 plans have received the written approval of the Commis- 
 sion. 
 
 Fenders and Wheel Guards. — Under orders issued 
 chiefly during the year 1909, the Commission has re- 
 quired the equipment of surface cars with either wheel 
 
 1 Such plans must be submitted within five days after entering 
 into contract for the purchase of new car equipment and ten days 
 before putting into operation any car or car equipment built by the 
 company or so reconstructed by it as to substantially alter its ar- 
 rangement and equipment. Upon receipt of the plans, they are 
 examined by the Equipment Inspection Bureau and, in case they 
 are defective in any essential particular, the company is notified. 
 The Commission's formal approval of the plans is not, however, 
 necessary, and recommendations in regard to changes made by the 
 Commission can, of course, be disregarded by the company. In 
 case such equipment were put into operation, however, the Com- 
 mission could, after a formal hearing, order its discontinuance. No 
 case of this kind has, as yet, come up. 
 24 
 
360 MUNICIPAL UTILITIES 
 
 guards or projecting fenders, or both. 1 In order to secure 
 information necessary to intelligent action on this matter, 
 the Commission held an extended series of tests during 
 the Fall of 1908. The tests were carried on by a com- 
 mittee, of which A. W. McLimont was chairman. In all, 
 sixty-seven different devices were thoroughly tested. 
 The report states that this investigation, " while not 
 proving that any particular fender or wheel guard had 
 reached a point of efficiency to warrant its preference 
 over all others, has, without question, demonstrated that 
 there are several available fenders and wheel guards far 
 superior in actual operative merit to most of the con- 
 trivances used at present, and less expensive to maintain 
 in life-saving condition, and that their adoption by street 
 car companies not only in New York City, but all over 
 the country, would therefore tend to lessen in a marked 
 degree the appalling number of fatalities and serious 
 accidents occurring on street railways." The report rec- 
 ommended that all cars in service in New York City be 
 equipped with automatic wheel guards, and that all cars, 
 except those operating in the Borough of Manhattan and 
 certain congested streets of Brooklyn, should be equipped 
 also with projecting fenders. 2 
 
 The orders of the Commission require that types of 
 
 » See Third Annual Report, Public Service Commission, First 
 District, 1909, Volume 2, pages 282-302. 
 
 2 The orders of the Commission have generally followed the 
 above recommendations except that certain lines operating in sub- 
 urban territory have been permitted to install a platform trip pro- 
 jecting fender, and have not been required to install wheel guards. 
 In some cases also, the orders of the Commission have required equip- 
 ment with wheel guard only for cars not operated through congested 
 districts, and where, according to the committee's recommendation, 
 fenders should also be required. 
 
COMMISSIONS OF NEW YORK 361 
 
 fenders or wheel guards used must be approved in ad- 
 vance by the Commission. In case the device submitted 
 has not been tested in the series of tests made in 1908, 
 the proposed device is subjected to test by the Equipment 
 Inspection Bureau and a formal order is issued approv- 
 ing of the specific type. The tests made in 1908 showed 
 that most of the wheel guards then in use in Manhattan 
 were not nearly so efficient as certain other types tested, 
 and the companies in submitting their plans for approval 
 in most cases voluntarily adopted types that had stood 
 high in the official test. One company, however, de- 
 sired to continue the use of a certain type of wheel guard, 
 but consent was refused, as that type of wheel guard was 
 not considered suitable for New York conditions of pave- 
 ment and track. 
 
 The Commission recognizes that even the best type 
 of fender is useless or worse than useless unless main- 
 tained in a thoroughly operative and life-saving condi- 
 tion. Accordingly, fenders in use are frequently in- 
 spected by the Equipment Bureau. In case defects are 
 found, the company is notified and later another inspec- 
 tion is made to see that such defects have been remedied. 
 
 Brakes. — Doubtless there is no more important factor 
 in the efficient and safe operation of street cars than an 
 effective braking system. An examination of the acci- 
 dents statistics collected by the Commission indicated 
 that the proportion of accidents was greater on double 
 truck cars of over 25,000 pounds, not equipped with 
 power brakes, than upon cars so equipped. Moreover, 
 the best practice seemed to indicate that practically all 
 double truck cars, and especially double truck cars of 
 over about 25,000 pounds, should be equipped with both 
 a hand-brake and a power-brake. The Commission, after 
 a formal hearing, issued an order, October 10, 191 1, Case 
 
362 MUNICIPAL UTILITIES 
 
 No. 1,369, requiring that, after June 1, 1912, all passen- 
 ger double truck surface cars in service, weighing over 
 27,000 pounds, and, after June 1, 1913, all such cars 
 weighing over 25,100 pounds, shall be equipped with 
 power-brakes and geared hand J brakes. In addition, it is 
 provided that all double truck cars weighing less than 
 25,100 pounds shall, after June 1, 1912, be equipped with 
 geared hand-brakes. 
 
 Accidents. — Orders issued by the Commission require 
 gas and electric corporations, railroads, and street rail- 
 ways to report all accidents. Gas and electric corpora- 
 tions are required to report, within five days, every acci- 
 dent resulting " in loss of life or injury to person, or any 
 interference with constant supply of gas or electricity to 
 any consumer or consumers." 1 The order in relation to 
 railroad and street railway corporations requires an im- 
 mediate report by telephone of every serious accident or 
 delay to traffic. 2 Almost all the serious accidents and 
 delays are immediately investigated either by a transit 
 inspector or by an engineer from the Equipment Inspec- 
 tion Bureau. Usually, in case of a serious collision, a 
 
 • See Third Annual Report, Public Service Commission, First 
 District, 1909, Volume II, page 242, Order in Case No. 1,165. 
 
 2 The offices of the Commission are open from 8 a. m. to 1 1 p. m. 
 to receive such reports, and accidents occurring after 11 p. M. are 
 to be reported at 8 a. m. the following day. The telephone report 
 must be followed within three days by a more detailed written re- 
 port. In addition, a monthly summary statement of accidents and 
 delays is required and also an annual statement as a part of the 
 regular annual report of the company. The Commission's Order of 
 August 27, 1909, Case No. 1,142, is not very clear as to what acci- 
 dents should be immediately reported, and the companies accord- 
 ingly claim the right to interpret the term "serious" in their own 
 way. See Third Annual Report, Public Service Commission, First 
 District, 1909, Volume II, page 235. 
 
COMMISSIONS OF NEW YORK 363 
 
 public hearing is held. As a result of the inspection or 
 hearing, defects in equipment or methods of operation 
 are called to the attention of the company, and, in a few 
 cases, a formal order is issued requiring the installation 
 of protective devices or the adoption of different methods 
 of operation. In the vast majority of cases, however, no 
 formal order is necessary. In case the accident is due 
 to the negligence of an employee of the company, that 
 fact is brought to the attention of the company, and the 
 company is asked to inform the Commission what meas- 
 ures will be taken to prevent the recurrence of the acci- 
 dent. Though the Commission has no powers in rela- 
 tion to the discipline of employees, their efficiency is 
 doubtless influenced by the fact that negligence is offi- 
 cially brought to the attention of the company's officials 
 and sometimes results in dismissal from the service. 
 
 As a result of improvements required by the Commis- 
 sion or voluntarily instituted by the companies, there has 
 been a great reduction in the number of persons killed 
 on the street surface railroads since the establishment 
 of the Commission. For the year ending June 30, 1908, 
 the number killed was 303; for 1909, 199; for 1910, 152; 
 and for 191 1, 169. 
 
 Car Heating. — An order of the Commission requires 
 that all closed electric cars in service between October 
 15th and April 15th shall be equipped with suitable ap- 
 paratus for heating by electricity. 1 Whenever the out- 
 side temperature is less than 40 degrees Fahrenheit, the 
 temperature in the car may not be less than 40 nor more 
 than 65 degrees Fahrenheit, except in the case of storm, 
 accident, or other controlling emergency for which the 
 
 1 Final Order in Case No. 1,170, November 19, 1909 as amended 
 January 18, 1910, 
 
364 MUNICIPAL UTILITIES 
 
 company is not responsible. This regulation is posted in 
 each car in a manner approved by the Commission. 
 
 Locomotive Boilers. — The Commission for the First 
 District has jurisdiction over the inspection of locomo- 
 tive boilers used on locomotives operating solely within 
 New York City. Detailed regulations have been adopted 
 by the Commission to govern the inspecting, testing and 
 washing of locomotive boilers. (Order 1301, December 
 13, 1910.) 
 
 Grade Crossings.— The Railroad Law provides that 
 the expense of eliminating grade crossings throughout 
 the state shall be borne one-half by the railroad company, 
 one-quarter by the state, and one-quarter by the local 
 government. To defray the state's share of this work 
 within New York City, the Legislature of 1909 appropri- 
 ated $250,000, and the Legislature of 191 1 the same 
 amount. This money is being used largely in Queens 
 County to eliminate many of the numerous grade cross- 
 ings on the Long Island Railroad. December 31, 1910, 
 there were a total of 495 grade crossings, the most im- 
 portant of which were in Queens and Richmond Bor- 
 oughs. During the three years, 1908-1910, sixty persons 
 were killed at these crossings. 
 
 Gas. — The law gives the Commission power to test 
 the quality of gas and electricity and to fix, from time to 
 time, standards for the measurement of the purity or 
 illuminating power of gas. The law of 1906 (chapter 
 125) fixes the candle power of gas at 22. No heat stand- 
 ard is prescribed. Tests as to candle power have been 
 continued by the City of New York under a law in force 
 prior to the creation of the Commission. No tests as to 
 quality of gas have been made by the Commission, and 
 no complaints have been received in regard thereto. 
 
 Gas Meters. — The law provides that no gas meter 
 
COMMISSIONS OF NEW YORK 365 
 
 shall be set in place until it shall have been inspected and 
 sealed by an inspector of the Commission. Twenty-two 
 gas meter testers are constantly employed by the Com- 
 mission in carrying out this provision of the law. During 
 the four years ending June 30, 191 1, 1,358,645 new 
 meters, and meters that had been removed or repaired by 
 the gas companies, were tested and sealed by the Com- 
 mission's inspectors. The Commission, on October 2, 
 1908, adopted an order (No. 758) prescribing that all 
 gas corporations remove and submit to the Commission 
 for test all gas meters which had been in use for more 
 than seven years, and also that, after July 1, 1909, no 
 meter should be continued in use, by any such corpora- 
 tion, if it had been in service untested for more than 
 seven years, and that no such gas meter should again be 
 set for use until tested and approved by the Commission. 
 
 The law also provides that the Commission shall test 
 gas meters on the request of any consumer, and that, 
 if the meter is found to be more than 2 per cent, fast, 
 the expense of the inspection shall be borne by the com- 
 pany, but that otherwise the expense shall be borne by the 
 consumer. The fees for gas meter testing adopted by 
 the Commission vary from 50 cents for a ten-light meter 
 to $2.00 for the largest size meters. Of the 19,970 " com- 
 plaint " meters tested during the four years ending June 
 30, 191 1, 8,770 were found to be more than 2 per cent, 
 fast and 2,063 more than 2 per cent. slow. 
 
 Electric Meters. — The Commission requires that all 
 electric energy meters measuring current sold by light 
 and power companies to consumers, shall be of an ap- 
 proved type, and that no type of meter shall be used un- 
 less it has received the approval of the Commission. In 
 order to determine what an approved type shall be, spe- 
 cifications have been adopted, setting forth certain re- 
 
366 MUNICIPAL UTILITIES 
 
 quirements as to the accuracy of meters under varying 
 conditions. Meters submitted to the Commission for 
 approval are subject to careful examination and ex- 
 haustive tests, as prescribed by these specifications. The 
 Commission has approved a number of general types of 
 meters. The Commission has prescribed a uniform set 
 of rules and regulations, relative to the testing of elec- 
 trical meters, and to the reporting of such tests to the 
 Commission. 
 
 The Commission tests electricity meters only on com- 
 plaint of a consumer. Such complaints are comparatively 
 few, the tendency of electricity meters being to run slow 
 rather than fast. The fee for testing an electric meter 
 varies with the capacity of the meter tested, the minimum 
 fee being $i .50. This fee is returned to the consumer in 
 case the test shows that the meter is more than 4 per 
 cent. fast. During the year ending June 30, 191 1, only 
 416 electric meters were tested on complaint. 
 
 Statistics and Accounts.- — When the Commission was 
 established, a considerable part of the surface transporta- 
 tion system of the city was in a demoralized condition 
 that naturally led, for the most part, to bankruptcy and 
 receiverships. This condition came as the result of 
 financial manipulation of the most flagrant kind. As a 
 result of the poor financial condition, equipment was al- 
 lowed to so deteriorate as to render safe and adequate 
 service impossible, and the service itself was cut down 
 in every way in order to economize on operating ex- 
 penses. One of the chief purposes in establishing the 
 Commission was to put a stop to financial mismanage- 
 ment. As an important factor in carrying out this object, 
 the Commission created a Bureau of Statistics and Ac- 
 counts. Dr. Adna F Weber, Chief Statistician, is at the 
 head of this Bureau. There are from fifteen to twenty 
 
COMMISSIONS OF NEW YORK 367 
 
 employees in the bureau, including five statisticians and 
 six accountants. One of the first problems of the Bureau 
 was to draft a uniform system of accounts for the vari- 
 ous classes of corporations under the supervision of the 
 Commission. As a result, uniform systems of accounts 
 have been adopted for gas corporations, for electrical 
 corporations and for street and electric railways. In 
 prescribing a system of accounts, the aim has been to 
 require the accounts to be kept in such form and in such 
 detail as to show clearly the information needed in regu- 
 lating rates and in approving the issue of stocks and 
 bonds. The Commission also requires street and electric 
 railways to make monthly, quarterly, and annual reports, 
 and gas and electrical corporations to make annual re- 
 ports, in accordance with forms prescribed by the Com- 
 mission. 1 
 
 The Bureau is required to prepare a great deal of data 
 in connection with rate cases and applications for the 
 issue of stocks and bonds. It is also required, in a great 
 many cases, to make an audit of the financial condition 
 
 1 When a report is received, it is checked up as carefully as pos- 
 sible by the accountants of the Bureau, and the companies are asked 
 to explain any doubtful items or to make changes in the reports to 
 conform to the regulations contained in the uniform system of ac- 
 counts. This checking of reports involves a great deal of labor, but 
 is quite necessary in order to insure a degree of reliability and uni- 
 formity. Soon after the monthly reports of street railways are re- 
 ceived from the companies, a blueprint abstract of- the reports is 
 made and furnished to the press and to individuals on application 
 A brief abstract of the quarterly returns is published for general dis- 
 tribution. The annual reports o r the companies are published in an 
 annual statistical volume prepared by the Bureau and issued as a 
 part of the annual report of the Commission. In addition to the 
 annual company reports themselves, this statist ; cal volume contains 
 a thorough analysis and discussion of the statistics contained in the 
 reports. 
 
368 MUNICIPAL UTILITIES 
 
 of corporations, and, where the Commission has author- 
 ized the issue of stocks and bonds for a specific purpose, 
 the Bureau is required to audit the expenditures and 
 see that the orders of the Commission as to the use of 
 the capital are complied with. 
 
 Issue of Stocks and Bonds. — In considering applica- 
 tions for the issue of stocks and bonds, the Commission 
 makes careful investigation and a valuation of property 
 where necessary to determine whether the proposed issue 
 is for a purpose properly chargeable to capital. It has 
 been held that new securities should not be issued to 
 cover replacement of material worn out or superseded, 
 except in extraordinary cases. In the matter of the ap- 
 plication of the Coney Island and Brooklyn Railroad 
 Company, Case No. 420, July 29, 1910, the order of the 
 Commission allows the issue of bonds to cover certain 
 expenditures of a replacement nature, but on the condi- 
 tion only that a sinking fund shall be created to retire 
 such bonds within twenty years. A recent decision of 
 the Court of Appeals in deciding an appeal from a de- 
 cision of the Commission for the Second District seems 
 to hold that the Commissions have no discretion in this 
 matter and may not in any case approve of the issue of 
 securities issued for operating expenses or replacement. 1 
 The authority of the Commission over the issue of se- 
 curities on a reorganization is still somewhat unsettled. 
 The Bondholders' Committee submitted to the Commis- 
 sion a plan for the reorganization of the Third Avenue 
 Railroad Company, now in the hands of receivers, which 
 involved the issuance of nearly $70,000,000 in securities. 
 The Commission found by its appraisal that the value of 
 
 ' People ex rel Binghamton, L. H. & P. Co. vs. Stevens, decided 
 by the New York Court of Appeals, October 3, 191 1. 
 
COMMISSIONS OF NEW YORK 369 
 
 the property to be represented by such securities was 
 about $40,000,000. The Commission accordingly refused 
 to give its approval to the proposed plan of reorganiza- 
 tion. 1 The Bondholders' Committee then submitted a 
 modified plan, which was also disapproved. 2 The com- 
 pany then appealed to the courts and secured a decision 
 which apparently holds that the Commission must ap- 
 prove of a plan of reorganization, if the necessary statu- 
 tory steps have been taken, and is without power to limit 
 the amount of securities to the value of the property. 3 
 An appeal has been taken to the Court of Appeals, but 
 has not yet been determined. It can readily be seen that 
 if, on reorganization, securities may be legally issued in 
 amounts in excess of the value of the property, the safe- 
 guard intended by the law to be thrown around the issu- 
 ance of new securities is seriously impaired. 
 
 In authorizing the issue of new capital, the Commis- 
 sion requires that the company keep separate and accu- 
 rate accounts of the proceeds of the sale of securities 
 authorized, that reports be filed with the Commission 
 each month, and that all accounts and vouchers be open 
 to audit by the Commission's accountants. It is also pro- 
 vided that, before any expense is undertaken, a proper 
 itemized bill of such proposed expenditure shall be sub- 
 mitted to the Commission and approved by it as properly 
 chargeable to capital. In some cases the Commission has 
 authorized the issue of bonds at a discount, but in such 
 
 » See Decision disapproving plan of reorganization, September 23, 
 1909, Case No. 1,126. 
 
 •See Opinion disapproving plan of reorganization, July 29, 19 10, 
 Case No. 1,181. 
 
 ' People ex rel Third Avenue Railroad Company, published in 
 New York Law Journal, June 15, 191 1. 
 
370 MUNICIPAL UTILITIES 
 
 case a condition is included requiring that all discount 
 and expenses in connection with the sale shall be amor- 
 tized out of the income of the company during the term 
 of the bonds. 
 
 Franchises. — The Railroad Law required the State 
 Board of Railroad Commissioners to certify to the public 
 convenience and necessity of every proposed railroad or 
 street railway before the same could be constructed. The 
 Public Service Commissions Law devolves this power 
 upon the Commissions and, in addition, provides that 
 railroad, gas, and electric companies may not begin the 
 exercise of any franchise without having first obtained 
 the Commission's permission and approval. It was 
 thought that this statute gave the Commission considera- 
 ble additional authority to that possessed by the Board 
 of Railroad Commissioners in granting a certificate of 
 public convenience and necessity. It was believed that 
 the Commission's power under the new provision would 
 extend even to the stipulation of terms and conditions as 
 a condition to its approval of the exercise of a franchise. 
 In the South Shore Traction Case, however, the Com- 
 mission's decision refusing to approve the exercise of 
 the company's franchise was reversed by the Court of 
 Appeals, the court apparently holding that the Com- 
 mission's powers in relation to the approval of a fran- 
 chise do not differ very much from the restricted powers" 
 of the former Railroad Commission in granting a cer- 
 tificate of convenience and necessity to a railroad. 1 As to 
 rapid transit franchises, however, the Commission has, 
 under the Rapid Transit Act, extensive powers. The 
 franchise in the first instance is granted by the Commis- 
 
 « People ex rel South Shore Traction Company vs. Willcox, 196 
 N. Y., 212. 
 
COMMISSIONS OF NEW YORK 371 
 
 sion and thus all terms and conditions contained in the 
 franchise or contract must be worked out by it. In De- 
 cember, 1908, Commissioner Maltbie made a report to 
 the Commission on the indeterminate franchise with spe- 
 cial reference to its application to subway franchises; 
 and the terms of the Rapid Transit Act were, in 1909, 
 amended so as to include the indeterminate feature for 
 rapid transit contracts. 
 
 The Commission has created a Bureau of Franchise 
 for the purpose of gathering data relating to all public 
 service corporations in New York City to which fran- 
 chise rights have been granted. The companies were 
 required to file with the Franchise Bureau certificates 
 of incorporation, certificates of merger and reorganiza- 
 tion, copies of all franchises and certificates granted by 
 prior boards trackage agreements, operating agreements, 
 leases, deeds, mortgages and all special legislation and 
 court decisions affecting the franchise rights. Nearly 
 6,000 franchise documents of this kind have been col- 
 lected. Information secured by the bureau in this and 
 other ways has been so organized as to make it readily 
 available. Dr. Delos F. Wilcox is chief of this bureau. 
 The bureau has done valuable work in making an inves- 
 tigation of all abandoned tracks in New York City and 
 of all old franchise rights not now utilized. As a result 
 of this work the State Attorney General has begun pro- 
 ceedings to require the removal of certain abandoned 
 tracks. Negotiations carried on by the Commission have 
 also resulted in agreements for the removal of certain 
 of these tracks. 
 
 Rate Regulation. — The Commission has not had a 
 great many cases involving rate regulation. Laws 
 passed in 1906 established maximum rates for most of 
 the gas and electric companies in New York City, Con- 
 
372 MUNICIPAL UTILITIES 
 
 sequently, there has not been such demand for a reduc- 
 tion in rates as there might otherwise have been. At the 
 time of the Commission's organization, the electric com- 
 panies refused to furnish breakdown service to persons 
 having their own electric plants at times when those 
 plants should be out of service or not able to supply all 
 the energy needed. After some negotiations the Com- 
 mission induced the companies to resume the supply of 
 breakdown service for an adequate charge. As a result 
 also of the Commission's negotiations for a general re- 
 duction in the price charged for electric current, the 
 New York Edison Company, July i, 191 1, put into effect 
 a new tariff involving a revision of rates with considera- 
 ble reductions to consumers using more than $25 worth 
 of current a month. 1 
 
 Court Review. — The Public Service Commissions 
 Law does not contain any provisions for a review of the 
 orders of the Commissions by the courts. It was as- 
 sumed that orders of the Commission would be reviewa- 
 ble only in the same degree as an act of the Legislature. 
 
 1 The Commission has decided cases involving the charges for 
 gas and electricity of the Queens Borough Gas and Electric Company 
 and the charge for gas of the Brooklyn Borough Gas Company and 
 of the Kings County Lighting Company. These decisions have been 
 based, among other things, on a careful appraisal by the Commis- 
 sion's engineers of the property of the companies. The opinion in 
 the Queens Borough gas case by Commissioner Maltbie contains an 
 extended discussion of a number of mportant problems involved in 
 valuations for rate purposes. A new method was used for the treat- 
 ment of increment in land values. Following the decis : on of the 
 United States Supreme Court (Consolidated Gas Company vs. Will- 
 cox, 112 U. S., 19), land was included at its present increased value 
 but the estimated annual increment in land value was added to the 
 income account of the company. Consequently, these items tended 
 to offset each other in so far as their influence on the rates to be 
 charged by the company was concerned. 
 
COMMISSIONS OF NEW YORK 373 
 
 An act of the Legislature establishing rates or regulat- 
 ing service is reviewable only on the ground that it con- 
 flicts with some constitutional provision or guarantee. 
 Under the Public Service Commissions Act the Legisla- 
 ture delegates power to fix rates and regulate service to 
 the Commissions, and it was assumed that the orders of 
 the Commissions in regard to rates and service would 
 be reviewable only to the extent that acts of the Legisla- 
 ture on these same matters were subject to review. The 
 companies at once contended, however, that the orders of 
 the Commission were reviewable by certiorari proceed- 
 ings, and their contention has been upheld by the courts. 1 
 The right to review by certiorari proceedings gives the 
 companies power to delay the enforcement of the Com- 
 mission's orders and gives the court power to review 
 and determine anew questions passed on by the Commis- 
 sion, even though such questions do not involve a taking 
 of the company's property within the meaning of the 
 constitutional guarantee. The review by certiorari also 
 renders procedure before the Commission unduly cum- 
 bersome and prolonged. Under the decision of the court 
 it is necessary for the Commission to produce evidence 
 upon the record in substantiation of facts upon which an 
 order is made. This necessity of having full evidence 
 in the record makes procedure before the Commission 
 quite similar to court procedure and seriously interferes 
 with an efficient and prompt administration of the law. 
 
 Jurisdiction. — The jurisdiction of the Commission 
 over certain matters affecting the health and the conve- 
 nience of the general public as distinct from the comfort 
 
 » See People ex rel. Central Park, North and East River Rail- 
 road Company vs. Willcox, 194 N. Y., 383, and People ex rel. Joline 
 and Robinson vs. Willcox, 134 Appellate Division, 563, reversed 198 
 N.Y.,433 
 
374 MUNICIPAL UTILITIES 
 
 and safety of passengers and employees is rendered 
 doubtful by a recent decision of the Court of Appeals. 1 
 This case involved an order of the Commission directing 
 the company to make certain changes in its equipment 
 and in its manner of loading and unloading manure cars 
 at its yard along the Harlem River. In making the order 
 the Commission proceeded upon the theory that its juris- 
 diction extended to the case of a nuisance occurring in 
 the operation of a railroad and affecting the public health 
 of a locality. It was assumed that the fact that the local 
 Board of Health had power to abate the nuisance did not 
 prevent the Commission from acting. The Appellate 
 Division held that the order of the Commission was 
 within its jurisdiction, but, on appeal, the decision of 
 the Appellate Division was reversed by a divided court, 
 four to three. 2 This decision casts some doubt over the 
 
 ■ People ex rel. N. Y., N. H. & H. R. R. Co. vs. Willcox, 200 N. Y., 
 423, decided January 24, 1911. 
 
 2 Judge Gray in delivering the opinion of the majority of the 
 Court said : 
 
 " Broad as are the powers conferred by the act, they are, by plain 
 intendment, as I read them, such as are directed, exclusively, to the 
 amplest supervision and regulation of railroad corporations, in such 
 respects as concern their construction, maintenance, equipment, 
 terminal facilities and operations in the transportation of persons 
 and property. The exercise of the powers is intended to be when 
 rendered necessary, in the judgment of the commissions, by reason 
 of unjust, unsafe or inadequate regulations, practices, equipment, 
 appliances or service, 'in respect to the transportation of persons, 
 freight or property.' The object of the legislature, as fairly to be 
 deduced from its enactment, was to regulate the management and 
 the operations of common carriers, within the State, in the interest 
 of the public; that is, of the persons who should use the facilities for 
 the transportation of themselves, or of their property; who should 
 serve them; or who should be interested in them, as holders of their 
 capital stock, or obligations. . . . The legislature, in creating the 
 
COMMISSIONS OF NEW YORK 375 
 
 Commission's jurisdiction in certain matters. For ex- 
 ample, in a great many cases, the Commission for the 
 First District has, on complaint, secured the abatement 
 of such nuisances as needless noise from surface cars 
 going around curves or from flat wheels, etc. Here the 
 principal nuisance is to those who dwell near the tracks 
 and not to the passengers or employees. 
 
 In the same case the Court of Appeals holds that 
 section 45 of the Public Service Commissions Law, Which 
 gives to the Commissions " the general supervision of all 
 common carriers " and grants them power to examine the 
 same and to keep informed as to their general condition 
 and the manner in which their lines are managed " not 
 only with respect to the adequacy, security and accommo- 
 dation afforded by their service, but also with respect to 
 their compliance with all provisions of law, orders of 
 the Commission and charter requirements," does not give 
 the Commission power to enforce provisions of law other 
 
 public service commissions, had in contemplation a general system 
 for the supervision and the regulation of common carriers within 
 the State; which should promote efficiency in management, opera- 
 tions conducive to the comfort and safety of passengers and em- 
 ployees, and an equipment and facilities adequate and proper for 
 the transportation of persons and property. Boards of health 
 existed to act locally and exclusively for the protection of the health 
 of municipalities. No intent to interfere with matters committed 
 to their jurisdiction is clear from the language of the act and none 
 should be implied. Powers differing as the objects proposed to be 
 attained differed, were vested in the two bodies. In their several 
 spheres of action, each body had its peculiar and special functions, 
 with machinery supposed to be adequate to reach the evils aimed at 
 and to enforce its mandates for their cure. To hold that they could 
 act concurrently, not only would be without justification in the 
 scheme of this statute; it would permit a. clash of authority and an 
 acute situation might arise, as Mr. Justice Scott observed in dissent- 
 ing below." 
 
 25 
 
376 MUNICIPAL UTILITIES 
 
 than those contained in the Public Service Commissions 
 Law. The court holds that the " provisions of law " 
 referred to above relate only to provisions contained in 
 the Public Service Commissions Law. 
 
 The Commission for the First District has had a very 
 difficult field in which to work out the problem of regula- 
 tion. The transit problem has been the crucial one and 
 has been rendered impossible of satisfactory solution by 
 the bankruptcy or poor financial condition of certain of 
 the companies, by the extreme congestion of traffic and 
 by the extreme difficulty of working out a fair agree- 
 ment for the construction and operation of extensions to 
 existing rapid transit facilities. Nevertheless, that the 
 service has been greatly improved, there can be no doubt. 
 Probably the greatest ultimate benefit resulting from the 
 Commission's work will be through its enforcement of 
 publicity and accounting control of the finances of the 
 companies and through its supervision of intercorporate 
 agreements. The Commission also serves as an arbiter 
 for the adjustment or determination of complaints. This 
 is but a minimum concession to the rights of the con- 
 sumer in submitting to the paternal rule of the municipal 
 monopoly. The Commission is necessary if for no other 
 reason than that unregulated monopoly, no matter how 
 beneficent its rule, is inconsistent with our ideas of jus- 
 tice. 
 
PART V 
 
 CONCLUSION 
 
CHAPTER XIX 
 IN CONCLUSION 
 
 The greatest present-day municipal need is for a con- 
 structive policy as to the methods and means by which 
 the city and the city-dweller are supplied with the serv- 
 ices and commodities essential to urban life. In the pre- 
 ceding chapters the salient elements in such a policy have 
 been elaborated. For the sake of emphasis and in order 
 to point the way more clearly to a solution of our grav- 
 est municipal problems, it will be well to state in conclu- 
 sion the elements that are vitally essential to an adequate 
 constructive policy for the regulation of municipal utili- 
 ties. 
 
 The first essential is the creation of public utility com- 
 missions with full and complete regulative powers. Any 
 attempt to diffuse regulative power and responsibility 
 under the time-worn guise of checks and balances should 
 be militantly thwarted. Only where there is full power 
 can there be unescapable responsibility and only where 
 there is unescapable responsibility is there adequate mo- 
 tive for efficiency of the kind needed in utility regulation. 
 Not only should the commission have complete powers 
 and unquestioned autonomy, but its salaries should be 
 large and its tenure reasonably long. The attempt to 
 regulate million-dollar corporations through men of wee 
 calibre is but another way of saying that the million- 
 dollar corporations may do the regulating. The highly 
 
 379 
 
380 MUNICIPAL UTILITIES 
 
 paid, well-fed corporate expert must be met with a highly 
 paid, highly equipped civic expert. The commissioners 
 themselves need not be technical experts, but they must 
 be sufficiently trained to supervise the most technical 
 of experts. By this method the community can protect 
 itself against the most cunning and greedy of its serving 
 concerns. 
 
 The second vital need is that this Commission should 
 be isolated and conspicuously responsible. Whether the 
 commissioners should be elective or appointive will de- 
 pend largely upon the social habits and standards of the 
 community in question. To the author's mind, appoint- 
 ment will, in most communities and in most instances, 
 secure better officials. If the commissioners are ap- 
 pointive, both appointment and removal should be vested 
 in the executive with no need of sanction by any other 
 authority; if elective, in most communities, they could be 
 subject to recall. It is as essential that the commissioners 
 be responsive to sustained public opinion as it is that 
 they should be competent. The experts under them 
 should have tenure during competency and efficiency. 
 Whether elective or appointive, the Commission should 
 be isolated and should be conspicuously the only adminis- 
 trative body responsible for utility regulation. This will 
 prevent the shifting of blame for questionable acts on 
 to others, or, still more pernicious, the diffusion of re- 
 sponsibility so that no one civic official cares much what 
 is done. This isolation and conspicuous responsibility 
 will tend more than any other factor to keep the commis- 
 sioners out of politics in the objectionable sense of that 
 term. It will tend to make them, not party tools, but 
 agents of government. 
 
 As the more difficult problems of utility regulation 
 are state-wide problems, they can be adequately coped 
 
IN CONCLUSION 381 
 
 with only by state commissions. The third element es- 
 sential to a constructive policy, therefore, is that there 
 must be in all states with a considerable urban popula- 
 tion a state public service commission. This does not 
 mean that state commissions should dispense with munic- 
 ipal commissions; it only means that municipal com- 
 missions cannot dispense with the state commission. But 
 a state commission in existence, there is no reason why 
 municipal commissions should not exist for each of the 
 largest cities. Indeed, the advantages of local autonomy 
 and the need for an administrative tribunal to enforce 
 local franchises and to secure the information needed for 
 legislation by city and state, alike urge the advisability 
 of subordinate municipal commissions for the largest 
 cities. The best interests of the state, of the cities which 
 do not care for the added expense of special commis- 
 sions, and of the great urban centers will all be best 
 subserved under a state commission with state-wide 
 powers with subordinate city commissions in each of the 
 largest cities. 
 
 Another essential vital to an adequate constructive 
 policy for the regulation of municipal utilities is that 
 franchises must be drawn with special thought for the 
 protection alike of the consumer, the serving company, 
 and the community. But four of the franchise essentials 
 discussed at length in Part II need be re-stated here. 
 These are: (1) that the franchise term should be as 
 short as is consistent with profitable investment; (2) that 
 the indeterminate franchise has merits over the term 
 franchise; (3) that extensions and service should receive 
 greater emphasis than financial compensation; and (4) 
 that the franchise should reserve to the city and state 
 unrestricted powers of regulation and unhampered means 
 of franchise enforcement. 
 
382 MUNICIPAL UTILITIES 
 
 And, finally, no constructive plan for utility regula- 
 tion is adequate that does not give to the municipality 
 complete freedom and power to adopt municipal owner- 
 ship and operation at will. This necessitates not only 
 that the city be given full and unhampered power to 
 acquire and operate its utilities, but that ownership and 
 operation be made an actual possibility through the grad- 
 ual creation, out of earnings, of amortization funds suf- 
 ficient to liquidate the debts of the utility, if it continues 
 under private ownership and operation, or to purchase 
 the plant, if the city decides in favor of municipal owner- 
 ship and operation. Under these conditions only is munic- 
 ipal ownership a real alternative. This alternative is 
 valuable because it is the city's most potent means of 
 franchise enforcement. The existence of the actual 
 power of public ownership and operation will, the author 
 fully believes, make public ownership and operation un- 
 necessary, provided that regulation of the virility de- 
 picted in the preceding chapters be adopted. Only by so 
 doing will or should the tendency to municipal ownership 
 be thwarted. The experience of European and American 
 cities amply supports this statement. The advantages 
 of municipal ownership and operation are only excelled 
 by the advantages accruing to the city under a compe- 
 tent and adequate policy of regulation. Adequate ad- 
 ministrative regulation and control secures all the ad- 
 vantages of municipal ownership and operation with 
 none of its disadvantages. Adequate administrative reg- 
 ulation and control, that is, affords all the advantages 
 of centralization of control and retains all the advan- 
 tages of diffusion of ownership. 
 
 Whether the courts justify utility regulation on the 
 grounds that municipal utilities are monopolies or on the 
 grounds that such concerns are subject to regulation in 
 
IN CONCLUSION 383 
 
 return for the privileges, expressed or implied, that they 
 have received from the city, the basic justification lies 
 in the fact that, in cities, the community, not the individ- 
 ual, nor the corporation, is to be given prime considera- 
 tion. A policy of regulation that embraces the funda- 
 mental principles just stated no longer condones a time- 
 worn economy whose basis was the individual ; it frankly 
 accepts the economy which is the actual foundation of 
 twentieth century legislation, and that is an economy 
 the basis of which is group activity. Only by recogniz- 
 ing group needs and interests can urban legislation and 
 administration adequately protect either the individual or 
 the community. In urban life the individual is ade- 
 quately protected only when the group is adequately 
 protected. By stressing social welfare, the welfare of 
 the individuals of the community is enhanced and the 
 avenues are opened for a social democracy wherein the 
 latent powers and possibilities of each individual have 
 opportunity for expression. Without adequate and com- 
 petent regulation of the most vital necessities of the citi- 
 zen and the city, served to-day by quasi-public corpora- 
 tions, no such equality of opportunity is even thinkable. 
 
BIBLIOGRAPHY 
 
CHAPTER XX 
 A SELECTED BIBLIOGRAPHY 
 
 American Economic Association. Relation of Modern 
 Municipalities to Quasi-Public Works. American 
 Economic Association Publications. Vol. 2, No. 6. 
 
 Bemis, Edward Webster. Municipal Monopolies. New 
 York, Crowell, 1899. 
 
 Bradford, E. S. Wisconsin Legislative Reference Bul- 
 letins on Municipal Electric Lighting and on Munic- 
 ipal Gas Lighting. 
 
 Brooks, R. C. Bibliography on Municipal Control and 
 Municipal Ownership. See " Municipal Affairs," 
 Vol. V, No. 1, March, 1901. 
 
 Cummins, J. S. State and Territorial Statutes Relating 
 to the Use of Streets and Highways by Street Rail- 
 way, Gas, Water, and Electric Light Companies. 
 Chicago, H. M. Byllesby & Co., 1905. 
 
 Darwin, Leonard. Municipal Ownership. Four Lec- 
 tures, 1907, Harvard. New York, Dutton, 1907. 
 
 Davis, J. P. Corporations — A Study of the Origin and 
 Development of Great Business Combinations and 
 of Their Relations to the Authority of the State. 2 
 vols. New York, Putnam, 1905. 
 
 Foote, A. R., and Everett, C. E. Economic Legislation 
 of all the States; the Law of Incorporated Com- 
 panies Operating under Municipal Franchises. 3 
 
 387 
 
388 MUNICIPAL UTILITIES 
 
 vols. Cincinnati, Clarke, 1892-93. (Vol. 3, Gen- 
 eral Index.) 
 
 Foote, A. R. Municipal Public Service Industries. Chi- 
 cago, Clohesey, 1902. 
 
 Holcombe, K. N. Public Ownership of Telephones on 
 the Continent of Europe, 191 1. Harvard Economic 
 Studies, Vol. 6. Boston, Houghton. 
 
 King, Clyde L. History of the Government of Denver, 
 with Special Reference to Its Relations with Public 
 Service Corporations. Denver, Fisher Book Co., 
 1911. 
 
 Massachusetts Commissions. Reports of. 
 
 Meyer, H. R. British State Telegraphs, a study of the 
 problem of a large body of civil servants in a democ- 
 racy. New York, Macmillan, 1907. 
 
 Meyer, H. R. Public Ownership and the Telephone in 
 Great Britain, Restrictions of the Industry by the 
 State and the Municipalities. New York, Macmil- 
 lan, 1907. 
 
 National Civic Federation. Municipal and Private Oper- 
 ation of Public Utilities. 3 vols. New York, 1907. 
 
 New York. Reports of the Public Service Commission 
 of. 
 
 Overland, M. U. Classified Corporation Laws of All the 
 States, Containing a Digest of the General Incor- 
 poration Laws of Every State and Territory in the 
 United States Arranged Uniformly. 3 eds. 1905- 
 07-08. New York, The Roland Press, 1908. 
 
 United States Census Reports on Street and Electric 
 Railways. 
 
 Wilcox, Delos F. Municipal Franchises. 2 vols. Roch- 
 ester, N. Y., Gervaise pr., 1910-11. 
 
 Wisconsin Railroad Commission. Reports of the. 
 
 Wyman, Bruce. Special Law Governing Public Service 
 
A SELECTED BIBLIOGRAPHY 389 
 
 Corporations and All Others Engaged in Public 
 
 Employment. 2 vols. New York, Baker, 1911. 
 A list of the papers that have been read at the several 
 conferences of the National Municipal League upon 
 Municipal Ownership, Franchise Essentials, Utility Reg- 
 ulation, and Related Subjects: 
 At Minneapolis (1894). Some Essentials of Good City 
 
 Government in the Way of Granting Franchises, 
 
 Dr. E. W. Bemis, Cleveland. 
 At Baltimore (1896). Municipal Ownership of Street 
 
 Railways, Charles Richardson, Philadelphia. 
 
 — Municipal Ownership, Frank M. Loomis, Buffalo. 
 
 — Public Control of Municipal Franchises, Hon. Hazen 
 
 S. Pingree, Detroit. 
 
 — The Relation of a Municipality to Quasi-Public Cor- 
 
 porations Enjoying Franchises, William M. Salter, 
 Chicago. 
 
 At Indianapolis (1898). Municipal Franchises, Charles 
 Richardson, Hon. Samuel M. Jones, Lucius B. Swift, 
 Edward W. Bemis. 
 
 At Milwaukee (1900). The Improper Influence in Leg- 
 islation by Public Service Companies, John F. Burke, 
 Milwaukee. 
 
 — The Influence of Public Service Corporations on City 
 
 Government, Dr. Washington Gladden, Columbus, 
 Ohio. 
 
 — Dangers of the Commercial Spirit in Politics, Hon. 
 
 Bird S. Coler, New York. 
 
 — Public Policy Concerning Rapid Transit, George E. 
 
 Hooker, Chicago. 
 
 At Rochester (1901). Street Railway Situation in Chi- 
 cago, William Ritchie. 
 
 At Boston (1902). The City Railway Situation in Chi- 
 cago, George C. Sikes, Chicago. 
 
390 MUNICIPAL UTILITIES 
 
 — The Franchise Situation in Referendum in Cleveland, 
 
 Dr. Edward W. Bemis, Cleveland. 
 At Detroit (1903). The St. Louis Disclosures, James 
 
 L. Blair, St. Louis. 
 At Chfcago (1904). The Functions of the Municipality 
 
 with Special Reference to Public Service, Prof. 
 
 James Mavor, Toronto. 
 At New York (1905). The Real Cause of Municipal 
 
 Corruption, Dr. John B. Roberts, Philadelphia. 
 
 — Business Thrift in American and European Cities, 
 
 Especially with Respect to Franchises, John Martin, 
 New York. 
 At Atlantic City (1906). Municipal Operation in Du- 
 luth, L. N. Case, Duluth. 
 
 — Municipal Operation in Detroit, Frederick F. Ingram, 
 
 Detroit. 
 
 — Logansport Electric Light Department, D. J. Loftus, 
 
 Logansport, Ind. 
 
 — Municipal Ownership in Jacksonville, Fla., J. M. 
 
 Barrs, Jacksonville. 
 
 — Municipal Electric Lighting Plant, Lincoln, Neb., 
 
 John S. Bishop, Lincoln, Neb. 
 
 — One Mayor's Experience, Hon. James M. Head, Nash- 
 
 ville, Tenn. 
 
 — Municipal Ownership and Operation ; the Value of 
 
 Foreign Experience, Prof. Leo S. Rowe, Philadel- 
 phia. 
 
 — Municipal Control of Public Service Corporations, 
 
 Hon. James G. Cutler, Rochester, N. Y. 
 
 — The National Civic Federation Investigation, Edward 
 
 A. Moffett, New York. 
 At Pittsburgh (1908). The Wisconsin Public Utilities 
 Law, Dr. B. H. Meyer. 
 
A SELECTED BIBLIOGRAPHY 391 
 
 — The New York Public Service Commission, Hon. 
 
 Thomas M. Osborne. 
 
 — The Public Utilities Commissions of Massachusetts, 
 
 Joseph B. Eastman. 
 At Cincinnati (1909). A Progressive Rapid Transit 
 Policy, Dr. Milo R. Maltbie. 
 
 — The Cleveland Street Railway Situation, W. S. Hay- 
 
 den. 
 At Buffalo (1910). The Sliding Scale Method of Regu- 
 lating Public Service Corporations, Edgar N. 
 Wrightington. 
 
 — Is a Rational Basis Possible for Telephone Rates ? 
 
 Dugald C. Jackson. 
 
 — The Minneapolis Gas Settlement, Stiles P. Jones. 
 
 — Kansas City Franchise Fight, James W. S. Peters. 
 
 — Elements of a Conservative Franchise Policy, Dr. 
 
 Delos F. Wilcox. 
 
 26 
 
INDEX 
 
INDEX 
 
 Accident fund, 154 
 Accidents, 282, 361-363. 
 Accounting, 51, 54, 65, 89, 92- 
 
 93, 98, 109, 118, 153, 180, 264- 
 
 275, 282, 297, 304-308, 322, 
 
 332, 366. 
 Adams, Charles Francis, 281. 
 Administration of finances, 186- 
 
 188. 
 Allegheny, 41. 
 Amortization, 134, 152, 156- 
 
 159, 162-163, 170-172, 178, 
 
 181, 268. 
 Arbitration, 162. (See also 
 
 Employees.) 
 Arguments for and against 
 
 municipal ownership, 29-52. 
 Atlanta, 37. 
 
 Baldwin, Roger N. : The St. 
 Louis Public Service Com- 
 mission, 231-249. 
 
 Baltimore, 86, 104. 
 
 Barrs, J. M., 39. 
 
 Bibliography, 387-391. 
 
 Bidder, franchises sold to, 86, 
 136. 
 
 Board of Public Utilities, 
 Denver, 48; Kansas City, 
 219-230; Los Angeles, 208- 
 218; St. Louis, 231-250. 
 
 Board of Public Utilities, 
 The, of Los Angeles, 208- 
 218. 
 
 Board of Rapid Transit Com- 
 missioners, 344. 
 
 Boston, 77, 98, 117, 293. 
 
 Boston Consolidated Gas Com- 
 pany, 99-102. 
 
 British cities, gas and electric 
 lighting in, 32-33; municipal 
 ownership in, 35. 
 
 Bureau of Franchises, 137, 165, 
 191, 37i- 
 
 Bureau of Statistics and Ac- 
 counts, New York, 366. 
 
 California Public Service Com- 
 mission, 218, 254-256. 
 
 Capitalization, 64, 77, 102, 122, 
 140, 156-159, 161, 174, 176, 
 188, 189, 211, 280, 321, 338- 
 341, 368-370; theories of, 
 174, 297-304. (See also Val- 
 uation.) 
 
 Car heating, 363. 
 
 Carter, James C, 77. 
 
 Case, L. M., 37. 
 
 Chicago, 37, 46, 86, 87, 103, 
 
 153, 289. 
 Cincinnati, 87. 
 
 395 
 
396 
 
 INDEX 
 
 City of Crawfordsville v. Bra- 
 den, 44. 
 
 City plans and utilities, 17. 
 
 Clark, William J., 96. 
 
 Classification of accounts, 266- 
 273. (See also Accounting.) 
 
 Cleveland, 37, 177. 
 
 Common law basis for regula- 
 tion, 4-12. 
 
 Commons, John R., 94. 
 
 Community rights, 16-18. 
 
 Compensation, 212; for fran- 
 chises, 153, 159, 287-289. 
 
 Competition, 332; as a regula- 
 tive force, 6-12, 79, 139, 
 301 ; municipal utilities and, 
 6-12. 
 
 Complaints, 283, 331, 344. 
 
 Connecticut Public Service 
 Commission, 254-255. 
 
 Construction, maintenance and 
 operation of -properties, 186, 
 
 358-359- 
 
 Constructive policy for regula- 
 tion of municipal utilities, 
 379-383. 
 
 Corruption of city government, 
 77. (See also Political Par- 
 ties.) 
 
 Courts and regulation, 9-10, 
 44-46, 138, 186, 190-192, 203, 
 262, 325, 372-373- (See Foot- 
 notes, Chapter XVII.) 
 
 Covington and Lexington 
 Town Pike Railroad Co. v. 
 Sanford, 16. 
 
 Crossings, 336, 364. 
 
 Debts, municipal ownership 
 and, 46-47, 51, 170-172; mu- 
 
 nicipal utilities and, 46-47, 
 I2i, 134, 170-172. 
 
 Decisions of Wisconsin Rail- 
 road Commission. (See Foot- 
 notes, Chapter XVII.) 
 
 Deficits, 340. 
 
 Deming, Horace E., '91. 
 
 Demis, Edward W., 94. 
 
 Denver, 47, 78, 80, 197-200,257. 
 
 Department of Public Utilities. 
 (See Public Service Corpo- 
 rations.) 
 
 Depreciation, 107, 108, 112, 180, 
 188. 
 
 Depreciation funds, 155-159. 
 
 Detroit, 37, 40. 
 
 Discrimination, 12-15, 238, 314, 
 folder facing 315, 321, 330. 
 
 Dividends under the sliding 
 scale, 102. 
 
 Dolley, J. N., 259. 
 
 Duluth, 37-39. 
 
 Eastman, Joseph B. : The 
 Public Utility Commis^ 
 sions of Massachusetts, 
 276-295. 
 
 Edgar, Charles L., 95. 
 
 Efficiency in utility regulation, 
 379. (See also Regulation.) 
 
 Electric corporations, 322-323. 
 (See also Lighting.) 
 
 Electric lighting, 330; in Kan- 
 sas City, 226, 227, 330-331, 
 364. (See also Lighting.) 
 
 Elements of a Constructive 
 Franchise Policy, 137-164. 
 
 Elevated lines, 349. (See also 
 Street Railways.) 
 
 Ellinwood v. Reedsburg, 44. 
 
INDEX 
 
 397 
 
 Eminent domain, 69. 
 Employees, 65-66, 90, 159, 162, 
 
 164, 181. 
 Enforcement of franchises. 
 
 (See Franchises.) 
 England, 98, 267. 
 Essentials of franchises. (See 
 
 Franchise Essentials.) 
 European cities, municipal 
 
 ownership in, 24. 
 Extensions, 84, 160- 161, 168, 
 
 174, 178, 179, 203, 322. (See 
 
 also Franchises.) 
 
 Failures in municipal owner- 
 ship, 41-43. (See also Mu- 
 nicipal Ownership.) 
 
 Financing a public utility, 72. 
 
 Fisher, Walter L., 95. 
 
 Franchise bureau, 137, 165, 191, 
 371- 
 
 Franchise Essentials, 75-98. 
 
 Franchises, 19, 75-98, 212, 216, 
 247, 321, 370; administration 
 of, 176; bids on, 86, 136; 
 compensation for, 81, 85-89, 
 94, I3S. 153, 177; definition 
 of, 75 ; drawing of, 91 ; en- 
 forcement of, 24-26, 185 ; es- 
 sentials of, 75-98, 381 ; ex- 
 clusive, 78, 167 ; grants of, 
 history of, 78 ff; in Massa- 
 chusetts, 287-289; in New 
 York, 144; in the United 
 Kingdom, 25 ; legislation as 
 to, 79; perpetual, 76, 139; 
 policy concerning, elements 
 of, 137-164; problems in- 
 volving, 81 ; provisions for, 
 18, 58, 92-94, 137-164, 165- 
 
 181 (see also Minneapolis 
 Gas Settlement) ; records of, 
 186, 212, 222; referendum on, 
 130, 140, 178, 197-200; report 
 of National Civic Federa- 
 tion on, 94-98; restrictions 
 on, 80; street railway, 165- 
 181 ; taxation of, 87 ; tenure 
 of, 97, 179, 286; value of, 75- 
 76, tj. (See also Indetermi- 
 nate Franchise and Referen- 
 dum on Franchises.) 
 
 Gary, Albert H., 205. 
 
 Gas, 225, 226, 276, 292, 322- 
 323, 330, 364. (See also 
 Lighting.) 
 
 Gas and Electric Light Com- 
 mission. (See Massachu- 
 setts.) 
 
 General Electric Company of 
 Minneapolis, 57. 
 
 Glasgow Tramway, 34-35. 
 
 Going value, 303. 
 
 Goodnow, Frank J., 91, 95. 
 
 Grant, George R. : New York 
 Public Service Commission 
 for the Second District, 
 326-341. 
 
 Grant, George R. : The Pub- 
 lic Utility Law of New 
 York, 318-325. 
 
 Gray, John H., 95. 
 
 Great Britain, street railways 
 in, 25. 
 
 Gross receipts, taxation of, 87. 
 
 Gruhl. Edwin H. . Uniform 
 Accounting, Its Needs and 
 Results, 264-275. 
 
 Guthrie, George W.; 91. 
 
39« 
 
 INDEX 
 
 Harzfeld, Jacob A.: The 
 Utilities Commission of 
 Kansas City, Missouri, 219- 
 230. 
 
 Head, James H., 26. 
 
 Healy, Timothy, 95. 
 
 Highway Commission, Massa- 
 chusetts, 277. 
 
 History of regulation, 4-12, 
 78-81. 
 
 Home Rule, 197, 208, 289. 
 
 Income account, 267, 268. 
 Incorporation laws, 79. 
 Indeterminate franchises, 84, 
 
 125, 148, 150-151, 169, 286, 
 
 300. 
 Ingalls, Melville E., 94. 
 Ingram, Frederick R, 40. 
 Inspection, 347, 355-358. 
 Intercorporate relations of util- 
 ities, 257. 
 Interurban service, 258. (See 
 
 also Street Railways.) 
 Investments, 156, 239, 259-261, 
 
 285-286, 316. (See Kansas 
 
 "Blue Sky" law.) 
 Is a Rational Basis Possible 
 
 for Telephone Rates? 103- 
 
 119. 
 
 Jackson, Dugald C. : Is a 
 Rational Basis Possible 
 for Telephone Rates?, 103- 
 119. 
 
 Jacksonville, Florida, munici- 
 pal ownership in, 39. 
 
 Jurisdiction of public service 
 commissions, 327, 342, 373. 
 
 (See Public Service Corpo- 
 rations.) 
 Jones, Stiles P. . The Min- 
 neapolis Gas Settlement, 
 a Typical Struggle for a 
 City's Rights, 56-71. 
 
 Kansas "Blue Sky" law, 259- 
 261. 
 
 Kansas City, utility regulation 
 in, 219-230. 
 
 Kansas Public Service Com- 
 mission, 254. 
 
 Keefe, Daniel J., 95. 
 
 La Crosse, 13. 
 
 Law, utility, and its interpreta- 
 tion, 186. 
 
 Legal duties of utility corpora- 
 tions, 10. 
 
 Licenses. (See Franchises, 
 compensation for.) 
 
 Lighting, 45, 89, 226, 227, 276, 
 330-331, 365- 
 
 Los Angeles, 41, 104, 208-218. 
 
 McAneny report, 149. 
 
 Macfarland, H. B. F., 95. 
 
 MacNulty, Frank J., 95. 
 
 Madison, 13. 
 
 Maintenance, 179. 
 
 Maltbie, Milo R. : A Rapid 
 Transit Policy for Greater 
 New York, 120-136. 
 
 Martin, John, 33. 
 
 Massachusetts Gas and Elec- 
 tric Light Commission, 81, 
 100, 253, 266, 276-277, 284- 
 285. 
 
 Massachusetts Highway Com- 
 mission, 117, 277. 
 
INDEX 
 
 399 
 
 Massachusetts Public Service 
 Commissions, 112, 276-298. 
 
 Massachusetts Railroad Com- 
 mission, 281-284. 
 
 Massachusetts, sliding - scale 
 method in, 99-102. 
 
 Mayo v. Washington, 45. 
 
 Merchants' Association of New 
 York, 103. 
 
 Meyer, B. H. : The Wiscon- 
 sin Public Utilities Com- 
 mission, 296-317. 
 
 Minneapolis, 26, 37, 56-71 ; gas 
 settlement in, 26, 56-71. 
 
 Minneapolis Gas Settle- 
 ment, The, a Typical 
 Struggle for a C it y ' s 
 Rights, 56-71. 
 
 Minneapolis, St. Paul, Sault 
 Ste. Marie Railroad v. The 
 Railroad Commission of 
 Wisconsin, 200. 
 
 Moffett, Edward A., 94. 
 
 Monopolies, municipal utilities 
 as, 6-24, 95, 167-168, 259, 300, 
 322, 332, 376. 
 
 Municipal government and 
 utilities, 18-21. 
 
 Municipal ownership, 22-55, 67, 
 93, 95-97, 157, 162, 169-175, 
 178, 306, 308, 382; acquiring 
 of, 47-49; arguments for and 
 against, 29-52; city debts 
 and, 46-47, 51, 170-172; his- 
 tory of, 37; in Denver, meth- 
 od of acquiring, 47-49; in 
 Detroit, 40; in Duluth, 37- 
 39; in Jacksonville, Florida, 
 39 ; in Los Angeles, 41 ; in 
 Nottingham, England, 35 ; 
 
 in Philadelphia, 42; in 
 Wheeling, 42. 
 
 Municipal Ownership versus 
 Adequate 'Regulation, 23- 
 55-_ 
 
 Municipal Program, 172. 
 
 Municipal Public Service com- 
 missions, 253-263; in Kan- 
 sas City, 219-230; in Los 
 Angeles, 208-218; in St. 
 Louis, 231-250; need for, 
 262 ; powers of, 231. 
 
 Municipal versus state public 
 utility commissions, 217, 253- 
 263, 289-291. (See also Pub- 
 lic Service Commissions.) 
 
 Munn v. Illinois, 8. 
 
 Nashville, 26; experience in 
 municipal ownership in, 27- 
 29. 
 
 National Civic Federation, 21, 
 91 ; on Public Ownership, 94. 
 
 National Municipal League, 29, 
 33, 37, 77, 9i, 103, 165, 172. 
 
 Need for public service com- 
 missions, 185-207, 256-263. 
 
 Need for Public Utility Com- 
 missions, The, 185-207. 
 
 Need for Regulation, 3-22. 
 
 New Hampshire Public Serv- 
 ice Commission, 254. 
 
 New Jersey Public Service 
 Commission, 254. 
 
 New Orleans, 104. 
 
 New York City, 46, 87, 98, 
 103, 120-136, 137 ff., 171; 
 elevated railroads in, 146; 
 Rapid Transit fund in, 129; 
 subways in, 121, 133, 146 
 
400 
 
 INDEX 
 
 ff., 349. (See also Rapid 
 Transit Policy for, and New 
 York Public Service Com- 
 missions.) 
 New York Commission on Gas 
 and Electricity abolished, 
 324" 
 New York Public Service 
 Commission, 49, 85, 120, 122, 
 144, 204, 217, 253-254, 263, 
 266, 270, 272-273, 293, 294, 
 318-376. 
 
 First District, 137, 165, 189, 
 igo; accidents investigated 
 by, 362-363; brakes in- 
 spected by, 361-362; car 
 heating inspected by, 363 ; 
 complaints handled by, 
 344-346 ; court review 
 of, 372-373 ; electric 
 meters inspected by, 
 365; equipment of inspec- 
 tion bureau of, 355-358; 
 examination of plant for 
 construction and equip- 
 ment by, 358-359 ; fenders 
 and wheel guards inspect- 
 ed by, 359-361 ; franchises 
 inspected by, 370-371 ; gas 
 inspected by, 364; gas 
 meters inspected by, 364; 
 grade crossings inspected 
 by, 364; jurisdiction of, 
 342-343, 373 ; locomotive 
 boilers inspected by, 364; 
 organization and expendi- 
 tures of, 343-344; rate reg- 
 ulation supervised by, 371- 
 372; service orders and 
 Standards of, 350-355; sta- 
 
 tistics and accounts in- 
 spected by, 366-368 ; stocks 
 and bonds supervised by, 
 368-370; transit inspection 
 bureau of, 347-350; trans- 
 portation, department of, 
 346. 
 Second District, 202, 326- 
 341 ; complaints handled 
 by, 337; division of engi- 
 neering and inspection of, 
 333-335; division of light, 
 heat and power of, 330- 
 331 ; grade crossings in- 
 spected by, 336; jurisdic- 
 tion of, 327; regulation of 
 telegraph and telephone 
 by, 337; results of, 340- 
 341 ; uniform accounting 
 of, 332. 
 
 New York Public Service 
 Commission for the Second 
 District, The, 326-341. 
 
 New York Public Utility Law, 
 318-325. 
 
 New York Railroad Commis- 
 sion abolished, 324. 
 
 New York Rapid Transit 
 Commission abolished, 324. 
 
 Newark, 87. 
 
 Norfolk, 37. 
 
 Ohio Public Service Commis- 
 sion, 254-255. 
 
 Operating expenses, 153-154. 
 
 Operating revenues, 261. 
 
 Operating statements, 267-269. 
 
 Oregon Public Service Com- 
 mission, 254-255. 
 
 Osborne, Thomas M., 318. 
 
INDEX 
 
 401 
 
 Parsons, Frank, 95. 
 
 Peters, James W. S. : Sugges- 
 tions for a Model Street 
 Railway Franchise, 165- 
 181. 
 
 Philadelphia, 21, 42, 47, 86, 87; 
 gas plant in, 21, 43, 92. 
 
 Political parties, 20-21, 30; 
 regulations and, 314; utili- 
 ties and, 205. 
 
 Principles as to rapid transit, 
 149-150. 
 
 Profit-sharing, 128. 
 
 Profits, 159, 340. (See also Re- 
 turns.) 
 
 Program, Municipal, 91. 
 
 Protection to utility corpora- 
 tions, 15. (See also Invest- 
 ments. ) 
 
 Providence, 87. 
 
 Public and private , callings, 
 4-12. 
 
 Public service commissions, 
 22, 24, 49, 81, 166, 217, 218, 
 231-239; cost of, 343; gov- 
 ernment of, 279; in Massa- 
 chusetts, 276-298; in New 
 York, 319 ff. ; jurisdiction 
 of, 342, 373 ; municipal, 219- 
 230, 231, 253-263 ; need for, 
 185-207, 262; powers of, 211, 
 219-230, 319 ff., 254; state v. 
 municipal, 253-263. (See also 
 Wisconsin, New York, Ver- 
 mont, New Jersey, New 
 Hampshire, Kansas, Oregon, 
 Ohio, Washington, Connec- 
 ticut and California.) 
 
 Public Service Commissions 
 of New York, The, 318-376. 
 
 Public Utility Commissions 
 
 of Massachusetts, T h e, 
 
 276-295. 
 Public Utility Law of New 
 
 York, The, 318-325. 
 Publicity, 264, 284. (See also 
 
 Accounting.) 
 
 Railroad Commission, Wis- 
 consin. (See Wisconsin Pub- 
 lic Service Commission.) 
 
 Railroad commissioners, Mas- 
 sachusetts, 277. 
 
 Rapid Transit Act, 130, 147. 
 
 Rapid Transit Board, 125. 
 
 Rapid Transit Commission, 
 120-121. 
 
 Rapid Transit in New York, 
 120-136. 
 
 Rapid Transit Law, 123 ff. 
 
 Rapid Transit Policy for 
 Greater New York, A, 120- 
 136. 
 
 Rates, 15, 28, 34, 58, 62, 64, 89- 
 91, 99, 100, 103, 153, 161, 
 177, 187, 203, 209, 210, 212- 
 213, 220, 222, 229, 238, 240, 
 282, 283, 285, 297, 308-309, 
 320, 321, 329, 371-372; ad- 
 justment of, 112; basis of, 
 in service, 115; electric, 244; 
 principles as to, 105 ff., 113; 
 reasonableness of, factors in, 
 no, 114. 
 
 Rebates. (See Discrimination.) 
 
 Referendum on franchises, 69, 
 130, 138, 140, 178, 185, 192- 
 200, 209, 211. (See also 
 Franchises.) 
 
402 
 
 INDEX 
 
 Regulation, 3, 10, 89-91, 294, 
 320; basis of, in common 
 law, 4-12; by law suit, 9-10, 
 44-46, 138, 186, 190-192; by 
 legislative bodies, 185, 192- 
 197, 209; by referendum 
 (see Referendum ; also Fran- 
 chises) ; data needed for, 
 258; history of, 4-12; in 
 Massachusetts, 280; methods 
 of, 23 ff. ; municipal owner- 
 ship and, 22-55 ! need for, 
 3-22, 185-207 ; responsibility 
 in, 380. 
 
 Regulations. (See Rules and 
 Regulations.) 
 
 Relations between the public 
 and utility corporations, 314. 
 
 Reserve funds, 158. 
 
 Returns, 112, 129, 159, 239, 34b. 
 
 Revocable franchises, 286. (See 
 also Indeterminate Fran- 
 chises.) 
 
 Richardson, Charles, 29, 91. 
 
 Richmond, 87. 
 
 Roemer, John H., 194. 
 
 Rowe, Leo S., 21, 25, 43, 92. 
 
 Rules and regulations, 13-15, 
 186, 187, 213, 315, 320. 
 
 St. Louis Public Service 
 Commission, The, 231-249. 
 
 Schedules, 118, 187, 188, 194, 
 333. (See also Rates.) 
 
 Securities, 176. (See also In- 
 vestments and Capitaliza- 
 tion.) 
 
 Services, 89, 179, 203, 212, 224, 
 258, 282, 297, 310-314, 320, 
 
 321, 338-341, 350-355; tele- 
 phone, 105. (See also Tele- 
 phone Rates.) 
 
 Shaw, Dr. Albert A., 94. 
 
 Sinking funds, 109, 135. 
 
 Sliding scale, 61, 99, 194. 
 
 Sliding-scale Method of 
 Regulation as Applied to 
 Gas Companies in Massa- 
 chusetts, 99-102. 
 
 Special legislation and fran- 
 chises, 78. 
 
 Special Telephone Commis- 
 sion of Chicago, 103. 
 
 State public service commis- 
 sions, 253-263 ; versus mu- 
 nicipal public service com- 
 missions, 253-263, 289-291. 
 (See also Public Service 
 Commissions.) 
 
 State Versus Municipal 
 Utility Commissions, 253- 
 263. 
 
 Statistics, 227, 265, 294, 366; 
 needed for telephone regula- 
 tion, no. 
 
 Stocks and bonds, 368-370. 
 
 Street Railway Companies in 
 Kansas City, 223-225. 
 
 Street railway franchise, sug- 
 gestions for, 165-181. 
 
 Street railway systems in the 
 United Kingdom, 25. 
 
 Street railways in New York 
 City, 138 ff. 
 
 Street record, 186. 
 
 Strikes, service during, 90. 
 
 Subway, New York, 121 ff., 
 133, 146, 349- 
 
 Suggestions for a Model 
 
INDEX 
 
 403 
 
 Street Railway Franchise, 
 165-181. 
 Sullivan, J. W., 95. 
 
 Taxation of franchises, 87, 88, 
 94. (See also Franchises.) 
 
 Telephone problem, study of, 
 needed, 119. 
 
 Telephone rates, 193, 210 ff., 
 219 ; a rational basis for, 103- 
 119. 
 
 Telephones, 270, 293, 301, 323- 
 324, 337-338; in Chicago, 104; 
 regulation of, in Massachu- 
 setts, 285. 
 
 Tenure of franchise, 59, 81-85, 
 93, 125, 143. (See Franchises, 
 also Indeterminate Fran- 
 chises.) 
 
 Term franchise. (See Tenure.) 
 
 Theories of capitalization. (See 
 Capitalization.) 
 
 Unearned increment, 17, 77, 
 307. 
 
 Uniform accounting, 264-275, 
 282, 322. 
 
 Uniform Accounting, Its 
 Needs and Results, 264- 
 275- 
 
 United Gas Improvement 
 Company, 63. 
 
 Utilities and city government, 
 86, 107, 131. (See also Pub- 
 lic Service Corporations.) 
 
 Utilities Commission of 
 Kansas City, Missouri, 
 The, 219-230. 
 
 Valuation of utilities, 69, 72, 
 102, 162, 169, 180, 2ii, 236, 
 
 240-241, 271, 297-304. " (See 
 also Capitalization.) 
 Vermont Public Service Com- 
 mission, 253. 
 
 Washington Public Service 
 Commission, 254. 
 
 Weston, Charles V., 163. 
 
 Wheeling, 42. 
 
 Whitten, Robert H. : The 
 Public Utility Law of 
 New York, 318-325. 
 
 Whitten, Robert H. : The 
 Work of the Public Serv- 
 ice Commission, First Dis- 
 trict, New York, 341-376. 
 
 Wilcox, Delos F. : Elements 
 of a Constructive Fran- 
 chise Policy, 137-164. 
 
 Wilcox, Delos F. : Sugges- 
 tions for a Model Street 
 Railway Franchise, 165- 
 181. 
 
 Williams, Talcott, 95. 
 
 Wisconsin Public Service 
 Commission, 13, 49, 53, 62, 
 85, 112, 116, 194, 202, 204, 
 206, 217, 256, 261, 262, 266, 
 268, 270, 272-273, 293, 294, 
 296-317; powers of, 296; re- 
 sults obtained by, 317-319. 
 
 Wisconsin Public Utilities 
 Commission, The, 296-317; 
 valuation regulated by, 297- 
 304 ; accounting regulated 
 by, 304-308; rates regulated 
 by, 308-309; service regu- 
 lated by, 310-314. 
 
 Winchester, Albert E., 95. 
 
 Woodruff, Clinton Rogers, 92. 
 
404 
 
 INDEX 
 
 Work of the Public Service 
 Commission, First Dis- 
 trict, New York, The, 341- 
 376. 
 
 Works, Lewis R. : The Board 
 
 of Public Utilities of Los 
 Angeles, 208-218. 
 Wrightington, Edward N. : 
 The Sliding-Scale Method 
 of Regulation as Applied to 
 Gas Companies, 99-102.