to perform their duties without interference from the public or any public body except the courts, and then only when it can be shown that the commissions have exceeded their constitutional authority in a manner plainly unreasonable and unjust to the concerns over which their jurisdiction extends. The success of regulation probably will be in proportion to the consistency, fairness, and integrity with which we carry out these principles.

Some people think that the courts should have no authority to review and set aside orders of regulating commissions unless they are confiscatory. It has been contended, not only that this ought to be, but that it is the law. The making of rates, the Interstate Commerce Commission said, in its annual report for 1911, is a legislative function. "That being so, the dicretionary power involved in reaching a conclusion that a particular rate is or is not reasonable for the future, or that a particular discrimination is or is not undue, is a legislative discretion which cannot be reviewed by the courts." The same reasoning would equally limit the power of the courts to review orders regarding service and other matters. The Supreme Court of the United States in a recent decision 1 has refused to accept this theory. It holds that such authority as the commission has claimed, "however beneficently exercised in one case, could be injuriously exerted in another; is inconsistent with rational justice, and comes under the Constitution's condemnation of all arbitrary exercise of power." In other words, the railway or other public utility can always appeal to the courts, not only to determine if an order of a commission is confiscatory, but to determine if it is reasonable and based on substantial evidence. The courts may not annul an order of a commission unless it is plainly unreasonable. But when it is so they must set it aside.

The main principle on which the Government of the United States rests is that it should be a government of laws and not of men; that no one should have his life, liberty, or property taken without the right to be fully apprised of the reason and to appeal to the courts to determine if the taking is just. The doctrine that regulating commissions or other administrative bodies should be given any arbitrary power over public utilities is simply the doctrine that the property rights of the owners of public utilities should not be given the same protection as the property rights of other persons. It is a doctrine. that seems inherently wrong and unjust; at least it is one that the Supreme Court has condemned as unconstitutional. On the other hand, the decisions of the courts leave an ample field for administrative regulating commissions to work in and to accomplish all of the great good which, with a suitable personnel and large powers, it is practicable for them to accomplish.

1 I. C. C. & U. S. vs. L. & N. R.R. Co.

SOME FEATURES OF STATE REGULATION OF

PUBLIC UTILITIES

BY JOHN H. ROEMER OF THE MILWAUKEE BAR, MEMBER OF THE RAILROAD COMMISSION OF WISCONSIN

(From an Address Delivered before the Wisconsin State Bar Association at Milwaukee, September 1, 1909)

This article shows the working of the Wisconsin public utilities law, during the first two years of its operation. — EDITOR's Note.

The doctrine that the public has an interest in the use of the property of a public utility employed in a public service, though resting upon the principles of the common law, was not agreeable to the managements of public service corporations when state regulation and supervision of such corporations were first proposed. Nor has there ever been a full assent to this doctrine or a frank submission to the regulatory measures adopted by the state on the part of many such corporations. The view that their undertakings, except to a limited extent in the case of common carriers, were purely private business enterprises which could be conducted upon like principles as those prevailing in other commercial pursuits, controlled the managements in the transaction of all the affairs of the corporations, whether pertaining to their private corporate functions or to those relating to their public callings. While the view thus taken has long since become obsolete, it is not at all strange that it should have been entertained when we consider the persistence of both nation and states in maintaining the economic policy of laissez-faire in the evolution of our industrial system prior to the civil war. The fundamental distinction between public callings and private callings was then generally either disregarded or not recognized. In accordance with the prevailing economic theory of the times, competition, whether active, or potential, that is, theoretically possible though practically improbable, was regarded as the efficacious means of securing to the general public adequate service at reasonable prices from individuals and corporations engaged in businesses now classified as public callings.

Even the right of the public in the use of property which was devoted to a public service by virtue of legislative authority, and which could not be so employed without such authority, was almost wholly ignored and, in fact, in certain instances, expressly denied. Thus, in 1858 the Supreme Court of New Jersey held that a gas company

1 Patterson Gas Lt. Co. vs. Brady, 27 N. J. L. 248.

chartered by the state and occupying public streets of a city with its distribution system by virtue of a local franchise was under no obligation to supply gas to any one, that it could choose its customers the same as any other manufacturer, and make such charges as it desired. The following year the Court of Common Pleas1 of Great Britain denied any right in a consumer to have gas supplied to him in the absence of a contract with the company providing for the same. Lord Chief Justice Cockburn said: "We cannot imply a contract from the accidental circumstance of this company having a monopoly of the supply of gas to the neighborhood. I see nothing whatever to bind either the one party to take or the other to furnish the supply any longer than their convenience, or their caprice, if you will, may induce them to take or to supply." In 1862 we find the Supreme Court of Connecticut 2 declaring that the "manufacture and sale of gas is a business which may be prosecuted or discontinued at the will of the party engaged in it; that the relations between the maker and the consumer originate in the contract between them, and their respective rights and obligations are controlled entirely by the stipulations of such contract, and as, (where no contract prohibits) the one may refuse to take the article at his pleasure, so may the other at his pleasure refuse to supply it"; and that there is no reason discovered "for subjecting the maker of gas to duties or liabilities beyond those to which the manufacturers and venders of other commodities are subjected by the rules of law." As late as 1866 the Supreme Court of Massachusetts 3 expressed the same view, although seventeen years previous Chief Justice Shaw, passing upon the constitutionality of an act conferring the power of eminent domain upon a water company, said: "The supply of a large number of inhabitants with pure water is a public purpose. This conclusion, however, was based upon an interpretation of the terms of the company's charter, which, as has been said, "was plainly unjustifiable unless there was an underlying public duty." The logic of these decisions found no favor with the Supreme Court of Wisconsin, for at the same time, in 1858, that the Supreme Court of New Jersey was considering whether a gas company was engaged in a public or a private calling, the same question was under consideration by our Supreme Court in the case of Shepard vs. The Milwaukee Gas Light Co., 6 Wis. 539, in which the arguments which led to the doctrine of the courts of the Atlantic states and Great Britain were refuted and a contrary opinion expressed. This case is important as it is the first to give partial recognition, at least, to the principle that when any business of general public

1 Huddesdon Gas Co. vs. Haselwood, 6 C. B. (N. S.) 239.

2 McCune vs. Norwich City Gas Co., 30 Conn. 523.

3 Commonwealth vs. Lowell Gas Light Co., 12 Allen 77.

4 Lombard us. Stearns, 7 Cush. 62.

concern is in its nature or by reason of circumstances a virtual monopoly it ceases to be stricti privati, falls within the class of public callings and is subject to the rules of the common law relating to such enterprises.

In considering the obligation of those engaged in operating public utilities to serve the public, the courts generally seem to view the same as a duty imposed by specific charter or general legislative provision rather than as resting upon a common law right in the public arising out of the nature and character of the business. The latter basis is certainly the sounder, and, in the absence of any specific legislation on the subject, would, it is safe to say, if the situation should arise in any case at the present day, receive judicial recognition in any court, for in the last analysis the fundamental distinction between a public calling and a private calling is an economic one. In the one case there is virtual monopoly; in the other, virtual competition.

It was not, however, until Munn vs. Illinois,' the first of the socalled Granger Cases, reached the Supreme Court of the United States and was there decided, that the right of the public in the use of private property devoted to a public purpose which, in its nature and because of economic conditions, clothed the owner with a practical monopoly, was fully recognized in its economic aspects and as legally grounded upon the principles of the common law. This case marks the beginning of a new epoch in economic legislation affecting public service corporations in this country. The existing regulatory means of nation and states respecting common carriers now provided by express legislative enactments were the inevitable consequences of the decision in the Munn Case. The agitation of Federal control of interstate carriers at once began in Congress and continued until the enactment of the Interstate Commerce Act. State after state took up the subject and enacted laws along the lines of the Federal act until to-day a number of states have provided state agencies for the control and supervision of transportation by railroads and other common carriers. Perhaps the most efficient and certainly the most carefully considered law on the subject is the Railroad Commission Act of Wisconsin. Since its enactment the Wisconsin law has been the prototype of practically all legislation upon the subject in other states where intelligent and effective regulation has been desired.

While the attention of the public was centered upon a resolution of the question of the regulation of transportation because of its general importance, it was apparent upon the slightest reflection by the observer of the trend of economic thought and events of the time that it would not be long until all public utilities would be subjected to state supervision; for the same causes which led the state to exercise its governmental function of regulating railroads, existed in the 194 U.S. 113.

case of all public utilities, but were generally unknown to the public. In fact, when the railroad problem was being seriously considered by the people of this state, students of economic science, who were active in urging state control of railroads by a state commission, were contemplating the final adoption of a more comprehensive scheme which would place all public utilities under a common state control. Much sooner than was at the time anticipated their expectations were realized, for in less than two years from the time the Railroad Commission Act became effective, the propaganda resulted in inducing the legislature to supplement the Railroad Act with the Public Utilities Law now in force. The scheme of state supervision of public utilities embraced in this law is the most comprehensive in all its economic aspects and the most effective of any law of the kind in existence.

Certain features of the Public Utilities Law are revolutionary in their character, and upon these hangs the fate of every public utility operating within the state. These features are worthy of consideration.

VALUATION AND ITS EFFECT ON SECURITIES

Among the most important and salutary provisions of the law is that providing for the valuation of the property of all public utilities operating within the state. The Supreme Court of the United States having in effect determined that the owner of private property devoted to a public use is entitled to exact from the public such charges for the services rendered or product furnished by him to the public as will generally produce revenue sufficient to meet operating expenses, cost of maintenance, and depreciation of the plant, and also to provide a reasonable return upon a fair value of the property so employed, it was necessary to provide for an appraisal of such property in order to have a lawful basis upon which to determine intelligently the question of rates and charges. As most public utility plants are owned and operated by public service corporations whose corporate securities as a rule bear no relation either to the actual investment in or present value of such plants, some other measure of the value of such plants was required. In fact, the capital stock of a public service corporation often represents little more, if anything, than the capitalization of an image of the vivid imagination of some not over-scrupulous promoter.

That every legitimate element of value, whether tangible or intangible, might be considered, the law provides for the valuation of the physical property and of all the property of a public utility "actually used and useful for the convenience of the public." In view of the indefinite and uncertain statements found in the opinions of most of the courts regarding the elements of value that properly