The Relation of Public Service, or Quasi-public Corporations,
to the People.
In reference to questions of value, the engineering commission must hear, consider, and reconcile arguments advanced by adverse and often hostile interests. On the one side stand the corporations, with large financial interests involved, often with an excessive amount of stock and bonds issued on the property, the existence of which issues the corporation wishes to justify, and, whether properly capitalized or not, the management being imbued with the perfectly human desire to defend corporate interests from attack of any kind; on the other side is public opinion, often unreasonable, often misinformed, and frequently prejudiced.
It appears necessary, therefore, to consider briefly the relation which these interests bear to one another, to study the causes which have led to mutual misunderstandings, and to note the proper relations which should, if possible, be established and maintained between the people and those corporations organized to perform certain of the functions of the State.
A public service or quasi-public corporation is a corporation which is operating under the terms of rights, grants, or franchises given by the public, either to this particular corporation direct or granted by statute to a class of corporations.
The property of the corporation is used to render certain services to the public, with the expectation of financial gain.
It is not material whether the grant be a franchise permitting a water-works company to use the streets and alleys of a city for its mains, and the service be the pumping of water for domestic service and fire protection, or whether the grant be the statutory rights of corporate existence and eminent domain, and the service rendered be the transportation of freight and passengers; the general principle is the same; the company has secured from the people certain rights which enable it to do business, and the people are directly benefited by the services rendered by the company. The increased comfort of living makes for the growth of the city; the increased transportation facilities build and develop the country traversed by the railroad; and this growth and development, not only operate to the advantage of the people, but also to that of the company in the way of increased business and increased revenues.
The capital required to build and develop these properties was furnished in the hope of, and with the expectation of, a proper financial reward. It has frequently happened that such properties have been built years in advance of sufficient development to support the enterprise, built, in fact, without expectation of immediate returns, and long periods of time have often elapsed before any profit has been secured.
It has also frequently happened that corporations have been aided to a very large extent by public funds, by the voting of aid bonds, by the donation of large tracts of land, by payment for certain service at such rates as would largely relieve the company from loss in operation, by the remission of taxes, or by the direct donation of funds.
The company is clearly entitled to earn a reasonable profit on the actual capital invested, in addition to the legitimate cost of operation, payment of taxes, and sinking funds to cover depreciation and obsolescence.
The public is clearly entitled to good service at the lowest rates that will permit the company to earn its reasonable profit and expenses. Increases in tonnage, population, and consequent net earnings of the corporation should entitle the public to a benefit in reduced charges for service, when the increased earning is of a permanent character.