Being Monopolies They Must be Regulated.—Now if public utilities are monopolies by nature, and can never be anything else, it is essential that the government shall exercise, in one way or another, sufficient control over them to restrain them from abusing their power. |Public utilities use public property.| This is all the more easy to do because public utilities, unlike ordinary industrial or mercantile concerns, must come to the state or city government for certain privileges which they find necessary in order to carry on their business. Every public utility finds it essential to use property which belongs to the whole people. A railroad must run its tracks across the highway; a gas company must lay its pipes beneath the pavements; an electric lighting company must put some of its poles in the streets; a street railway company, as its name implies, must make large use of the public thoroughfares. Moreover, they all desire the right to take whatever private property they may need for their terminals, power houses, tanks, and so on. This is a right which only the government can give.[[232]] So the public service companies, from the fact that they must ask privileges from the government, render themselves amenable to governmental control. It is not so with ordinary industrial monopolies such as the making of steel or sugar or tobacco. |They also use the right of eminent domain.| They do not, as a rule, ask for legal privileges of any kind; they do not need permanent rights in the public highways or demand that they be allowed to exercise the right to eminent domain; hence they are not so easily brought under public regulation.
How the Regulation is Effected.—In order to use the streets or any other public property, an individual or corporation must first obtain official permission. The merchant who puts a sign out from his building over the highway, the barber who sets his familiar red-and-white pole in the sidewalk, the contractor who blocks the public passage way when he is putting up a building—all must first get the city’s permission. |Permits and franchises.| This is given by the city officials in the form of a license or permit. But the public service company must have a general permit covering rights in a great many streets and holding good for a number of years. |Definition of a franchise.| This general permission, which does not differ from an individual permit except in its broader scope and longer duration, is called a franchise. A franchise is merely a grant of the right to use public property (the streets, particularly) either in perpetuity or for a term of years and subject to certain conditions. Before any public service company can begin operations it must first secure a franchise from the state, city, town, or township as the case may be. The company secures the rights and the government imposes the conditions.
The old-type franchise.
Franchises, Past and Present.—It was formerly the custom of states and cities to grant franchises for long terms of years without imposing strict conditions for the protection of the people. The reason for this was, in part, the strong desire of the community to get the service at once. When electric street railways first came into use, replacing the old horse-cars, they were regarded as a godsend to the suburban districts. There was a great popular clamor to have the horse-car lines electrified as quickly as possible. So the companies that were willing to provide this improved service obtained, in many cases, very liberal franchises running for long terms and without strict conditions. These were days, moreover, when city councilmen and state legislators often proved susceptible to corrupt influences. Valuable privileges in many cities were bartered away for next to nothing by dishonest or incompetent officials. How many million dollars in franchises have been practically given away by American states and cities during the past generation no one has ever been able to calculate. Certain it is, at any rate, that hundreds of private fortunes were made from these one-sided bargains.
The newer methods.
But public opinion, in due course, became aroused to the injustice of this free-and-easy method, and laws were passed forbidding the grant of franchise privileges for longer than a designated term of years, or without first giving the opponents of the grant an opportunity to be heard.[[233]] In some cases the laws forbade the granting of any franchise without the consent of the people at the polls. Provisions were also made to ensure that in return for their privileges the companies should pay a share of their annual profits into the city treasury.[[234]] Finally, it became the practice to stipulate in the franchise that the rates charged by the company, the quality of the service, and various other features affecting the interests of the citizens, should be subject to public regulation. Franchises are still granted by legislatures and municipal councils but with much greater care than formerly.
Regulation by the terms of a franchise is not enough.
Administrative Regulation.—In spite of these various restrictions, however, it soon became apparent that a sufficiently close regulation of public utilities could not be maintained by merely inserting various conditions in their franchises. Franchises are granted for ten, twenty, or even fifty years, and conditions greatly change within this period. A provision in the franchise relating to the quality of gas, or the rate of fare on street railways, or the candle-power of electric lamps may be framed carefully to cover the needs of today, but no one can foresee what will be needed five or ten years hence. Progress is continually being made in the mechanism of public utilities as in all other branches of industry. If regulation is to be effective, it must keep moving forward as new devices and methods come into use. A franchise has the defect of being a closed bargain. It stands still while the things which it tries to regulate keep marching on. No written document, furthermore, is self-enforcing, and unless some machinery is provided to make the companies live up to their agreements there are always loopholes through which they can evade the restrictions.
It must be supplemented.
In order to make the regulation of public utilities flexible and effective, therefore, it has become the practice to supplement the terms of franchises by a system of administrative regulation. Besides inserting a long list of conditions in the franchise the government now stipulates, as a rule, that the rates and the quality of service shall be fixed from time to time, in accordance with existing conditions, by a body of officials commonly known as a public service commission which is supposed to deal fairly with all parties.