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1 University of Iowa Iowa Research Online Theses and Dissertations 1921 Recent developments regarding competition as opposed to the tendency toward centralization in the public utility field, with special reference to conditions in Iowa Earle Micajah Winslow State University of Iowa This work has been identified with a Creative Commons Public Domain Mark 1.0. Material in the public domain. No restrictions on use. This thesis is available at Iowa Research Online: Recommended Citation Winslow, Earle Micajah. "Recent developments regarding competition as opposed to the tendency toward centralization in the public utility field, with special reference to conditions in Iowa." MA (Master of Arts) thesis, State University of Iowa, Follow this and additional works at:

2 RECENT DEVELOPMENTS REGARDING COMPETITION AS OPPOSED TO THE TENDENCY TOWARD CENTRALIZATION IN THE PUBLIC U TILITY FIELD, WITH SPECIAL REFERENCE TO CONDITIONS IN IOWA by E a rle M ica ja h W inslow A Thesis Subm itted to the F a c u lty o f the Graduate C ollege o f th e S ta te U n iv e rs ity o f Iowa in P a r t ia l F u lf illm e n t o f the Requirem ents f o r the Degree o f M aster o f A rts in the Department o f Economics, S o c io lo g y, and Commerce O ctober, 1921.

3 OUTLINE I Forew ord: A - Purpose o f th e s is. B. M o tive f o r th e s is. I I Chapter I : A Review o f U t i l i t y R e g u la tio n. A. Purpose o f R e g u la tio n. 1. F a lla c ie s o f R e g u la tio n. B. R e g u la tio n o f U t i l i t i e s by Commissions. 1. Data on S ta te R e g u la tio n. 2. O ther forms o f R e g u la tio n ; t h e ir inadequacy. 3. F a ilu re o f L o cal R e g u la tio n. C. A ttitu d e o f P u b lic and U t i l i t i e s tow ard Commissions. Commissions have been s e v e re ly te s te d. 2. S u p e rio rity o f S ta te Commissions. I I I. Chapter I I : P h y s ic a l Expansion o f U t i l i t i e s as re la te d to P o lic ie s o f R e g u la tio n. A. E a rly C o n d itio n s F o s te rin g M u n ic ip a l Ownership. 1. F ranchise g ra n tin g and C o m p e titio n. 2. C itie s tu rn to M u n ic ip a l Ownership. 3. Data on M u n ic ip a l Ownership o f E le c tr ic U t i l i t i e s. a. G eneral. b. f o r Iowa. c. Tendencies o f M u n ic ip a l Ownership. d. C onclusion o f D ata.

4 B. O b je c tio n s to L o cal R e g u la tio n. 1. Local R e g u la tio n concom itant w ith M u n ic ip a l Ownership. 2. Is the e xe rcise o f A r b itr a r y Power. 3. L im its Expansion. 4. Stands in way o f S ta te R e g u la tio n. C. U t i l i t y Expansion as R elated to M u n ic ip a l Ownership And L o cal R e g u la tio n. 1. Expansion is R e s tric te d. 2. C e n tra liz a tio n is Hampered. 3. Expansion and C e n tra liz a tio n are R ostered by F is c a l and P h y s ic a l Com binations. a. U t i l i t y Companies need R e g u la tio n. b. S t a t is t ic s on H o ld in g Company A c t iv it ie s. c. Advantages o f C om binations. 4. Expansion o f E le c t r ic U t i l i t i e s in Iowa. a. I llu s t r a t e s Advantages o f C om bination. b. D u p lic a tio n s being e lim in a te d. IV. Chapter I I I : S t a t e Laws R e la tin g to C o m p e titio n and Cons o lid a tio n s. A. C e r tific a t e o f P u b lic Convenience and N e ce ssity. 1. R egulates Competion and P revents D u p lic a tio n s. 22. As a p p lie d in v a rio u s s ta te s. 3. R e s u lt o f la c k o f in Iowa. B. R e g u la tio n o f C o n s o lid a tio n s, M ergers, Leases amd S ales. 1. R egulates d e la tio n s between U t i l i t y Companies. 2. P ro te c ts the P u b lic from C C om petition.

5 3. As a p p lie d in v a rio u s s ta te s. V. Chapter IV : C onclusion: The P resent S itu a tio n in Iowa, w ith some suggestions f o r a C o n s tru c tiv e U t i l i t y Program. A. The P resent S itu a tio n in Iowa. 1. Iowa has no S ta te U t i l i t i e s Commission. 2. Reasons f o r P rese nt S itu a tio n. a. Opponents o f C e n tra liz a tio n and S tate C o n tro l. b. S tatem ents form Opponents. 3. A ttem pts to c re a te a S tate Commission. a. Weakness o f V a rious B i l l s. b. A ttitu d e o f P u b lic and O f f ic ia ls. 4. U t i l i t y Laws as th e y now stand. B. Suggestions f o r a C o n s tru c tiv e U t i l i t y Program.. Good p o in ts enumerated o f U t i l i t y fcaws in v a rio u s S ta te s. 2. S pecial Suggestions f o r Iowa.

6 FOREWORD The w idespread a d o p tio n o f s ta te P u b lic S ervice Commissions sin ce 1907 has been looked upon as the f i n a l step in the com plete e lim in a tio n o f c o m p e titio n in the p u b lic u t i l i t y f i e l d. Recent developments however somewhat b e lie the assum ption th a t the Commissions w i l l be p e rm itte d to c a rry out a s tro n g c e n tra liz e d program o f u t i l i t y c o n tr o l, lo c a l r e g u la tio n, concom itant w ith m unic ip a l "home r u le ", is th e b lo c k in the path o f f u l l y equipped and f u l l y empowered s ta te com m issions. And m u n ic ip a l ow nership stands s q u a re ly in the way o f the p ro gram fo r e xte n sive expansion and h ig h c e n tr a liz a tio n which the u t i l i t y companies are w orking tow ard. C o m p e titio n, w h ile q u ite g e n e ra lly regarded as obnoxious in the p u b lic u t i l i t y f i e l d, n e v e rth e le s s shows a decided tendency to appear in new and in s id io u s form s. The p u b lic g e n e ra lly is slow to d is c e rn th e u n d e s ir a b ilit y o f c o m p e titio n whether in o ld form s or new. T here fore i t is the purpose o f t h is th e s is (1) to g iv e a b r ie f sketch o f the h is to r y and purpose of u t i l i t y re g u la tio n, b rin g in g i t up to d a te in order th a t the p re se n t s itu a tio n may be f u l l y understood; (2) to discuss the r e la t io n o f

7 2 u t i l i t y expansion to th e d iffe r e n t phases o f re g u la tio n * T his w i l l deal e s p e c ia lly w ith e le c t r io u t i l i t y expansion, some o f i t s h is to r y and problem s, as r e la te d to m u n ic ip a l ow nership and lo c a l r e g u la tio n ; (3 ) to re vie w s ta te la w s, showing the d e s ir a b ilit y o f s ta te com m issions, e s p e c ia lly s a means o f re g u la tin g c o m p e titio n ; (4) to re vie w th e present s itu a tio n in Iowa, i t s causes, and suggestions fo r a c o n s tru c tiv e u t i l i t y program. I t was o r ig in a lly in te n d e d th a t t h is th e s is should be a surve y o f c o n d itio n s fo s te r in g d u p lic a tio n s in f iv e u t i l i t i e s : c e n tra l e le c t r ic s ta tio n s, s tre e t ra ilw a y s, tele phones, gas p la n ts and w a te r systems. However, s in c e d u p lic a tio n im p lie s a g re a t many te c h n ic a l problems i t was deemed a d v is a b le to deal more g e n e ra lly w ith th e economic and p o l i t i c a l aspects o f c o m p e titio n. I t fu rth e rm o re became e v id e n t th a t in a study o f t h is h in d i t i s n o t p o s s ib le to g iv e much in d iv id u a l a tte n tio n to a l l the u t i l i t i e s mentioned above, n o r necessary to do so. S t i l l re fe re n c e is c o n s ta n tly made to a l l o f these u t i l i t i e s thro ughout the th e s is, a lth o u g h the f in a l outcome o f the rese arch p r io r to w r itin g the d is s e r ta tio n was th a t the e le c t r ic u t i l i t i e s re c e iv e d th e b u lk o f a tte n tio n. Most o f the more p e c i f i e work th e re fo re has to do w it h c e n tra l

8 3 e le c t r ic s ta tio n s. T his p a r tic u la r u t i l i t y has more v i t a l issues a t stake in re g a rd to the m a tte r o f p u b lic p o lic y than alm ost any o th e r u t i l i t y. An in te r e s t in c o n d itio n s r e la t iv e to p u b lic u t i l i t i e s in Iowa was la r g e ly re s p o n s ib le f o r t h is s tu d y. Nowhere in a l l the s ta te s ca n be found a more fla g r a n t d is re g a rd o f the v e ry economic and p o l i t i c a l p r in c ip le s w hich o th e r sta te s have a lre a d y come to re co g n ize. Iowa has no s ta te u t i l i t i e s commission and the p u b lic has p e r s is te n tly voted a g a in st i t. lo c a l re g u la tio n seems t o be f i r m l y e s ta b lis h e d and compet i t i o n is s t i l l accepted as one o f the e s s e n tia l re g u la to rs 4 ' 1 o f ra te s and s e rv ic e s. The u t i l i t y law s now on th e sta tu te bocks are com p a ra tiv e ly crude and out o f d a te. They f a i l to in c o rp o ra te any p ro v is io n s w h ich w i l l adequately p ro te c t e ith e r th e u t i l i t i e s o r the puhl ic. Iowa s t i l l r e ta in s th e m ixtu re o f le g is la t iv e, c o u rt and lo c a l r e g u la tio n, w ith the R a ilro a d Commission in v e s te d w ith a few v e ry lim ite d pow ers. l.io w a Board o f R a ilro a d Commissioners, Schmidt B ro th e rs and Company vs. C itiz e n s o f C la yto n County, Docket no. E lo 9.

9 CHAPTER I. A REVIEW OF U TILITY REGULATION The u n d e rly in g purpose of re g u la tio n in p u b lic u t i l i t i e s is to p re vent the e v i l e ffe c ts o f c o m p e titio n. E a rly regula t io n d id n o t f u l l y re co g n ize t h is, however. I t aimed at some o f the e v ils o f c o m p e titio n such as u n f a ir d is c rim in a tio n, rebate s and p o o lin g w ith o u t g e ttin g at the r e a l source. C o m p e titio n was accepted by b o th th e p u b lic and the u t i l i t i e s as the g re a t economic re g u la tin g fo rc e and le g is la tu re s saw to i t th a t e ve ry o p p o rtu n ity was given f o r i t to f un c tio n. U t i l i t i e s were at f i r s t considered as p riv a te in d u s trie s and a l l a g it a t io n toward t h e ir c o n tro l was branded as " s o c ia l is t ic ". Another p o p u la r f a lla c y, th e o p p o site c o r r e la r y o f c o m p e titio n, was th a t monopoly was to be feared above a l l e ls e. True, w ith o u t governm ental r e g u la tio n, monopoly is to be fe a re d even above c o m p e titio n. In th e absence o f c o n tro l c o m p e titio n in v a r ia b ly d riv e s th e weaker u t i l i t i e s to a p o in t where they are gla d to cease t r y in g to e x is t in d e p e n d e n tly, o r reduced a l l the competing comp a n ie s to such f in a n c ia l s t r a it s th a t the o n ly a lte r n a tiv e is to combine in order to e x is t a t a l l. An a lte r n a tiv e w hich developed

10 5 la t e r -under such c o n d itio n s was f o r th e c i t i e s them selves to take over bankrupt u t i l i t i e s. But v e ry o fte n the m istake was made o f in tro d u c in g even more c o m p e titio n in the form o f m u n ic ip a l ow nership. Thus the p u b lic has been burdened on every hand w ith the excessive d u p lic a tio n and waste due to c o m p e titio n, w hich in v a r ia b ly degenerated in to u n c o n tro lle d monopoly. I t had to be le a rn e d a t g re a t cost th a t th e o n ly sane way to handle s e rv ic e s which have been in v e s te d w ith a p u b lic d u ty to p e rform, is through re g u la te d monopoly---- a le sson, however, which has not y e t been th o ro u g h ly le a rn e d as evidenced by re ce n t developments w hich are the b a sis o f t h is th e s is. Speaking b ro a d ly, th e s ta te re g u la tio n o f p u b lic u t i l i t i e s by com m issions began as e a r ly as 1839 when Rhode Is la n d created a Commission to act as a s o rt o f in te rm e d ia ry betvfeen 1 the ra ilro a d s and the s ta te. In the next tw e n ty years most of the Hew E ngland s ta te s had adopted s im ila r comm issio n s, and yet by 1870 th e re were o n ly s ix o f the 37 s ta te s which had com m issions. The r a ilr o a d s were sim p ly c o n tro lle d d ir e c t ly by th e le g is la tu r e s in th e absence o f a com m ission. By 1886, however, th e r e had been such u rg e n t 1. Johnson & Van M e tre, " P r in c ip le s o f R a ilro a d T ra n s p o rta tio n ", Chapter 28.

11 6 a g ita tio n on the p a rt o f the p u b lic to r e s t r i c t the e v ils o f re b a tin g, p o o lin g and d is c rim in a tio n th a t 23 o f th e 38 s ta te s had com missions. These commissions were n o t a l l "s tro n g commissions such as most o f th e s ta te s have to d a y. The e a s te rn s ta te s w ere in c lin e d to r e t a in t h e ir o r ig in a l r a ilr o a d law s, xvhile the w e st, where most o f th e tu r m o il between th e p u b lic and the r a ilr o a d companies had taken p la c e, e s ta b lis h e d commissions w ith a d m in is tra tiv e and mandatory powers. A t the p re sent tim e th e re is o n ly one s ta te, Deleware, w ith o u t some s o rt o f a r a ilr o a d o r p u b lic s e rv ic e commission. S tate re g u la tio n by commissions o f u t i l i t i e s o th e r th a n the r a ilr o a d s is o f com p a ra tively re c e n t d a te. Not u n t i l 1907 were v i r i l e commissions created w hich would have power 1 over a l l p u b lic s e rv ic e u t i l i t i e s. In t h is year New York and W isconsin e s ta b lis h e d such commissions and the law s in these s ta te s have been w id e ly copied by o th e r s ta te s. The in c lu s io n o f a l l u t i l i t i e s under c e n tra liz e d c o it r o l has- been m ere ly an e xte n sio n o f the a u th o r ity o f r a ilr o a d commissions. I t must not be understood, however, th a t a l l 1. M assachusetts had a P u b lic S ervice Commission w ith v e ry lim ite d powers as e a r ly as 1885, w hich was the f i r s t attem pt a t c e n tra liz e d c o n tr o l. K in g, O.L. "The R e g u la tio n o f M u n ic ip a l U t i l i t i e s " Ch. 14.

12 7 s ta te s w hich have r a ilr o a d commissions, have th u s extended t h e ir ju r is d ic t io n to a l l u t i l i t i e s. Nor by no means do a l l the commissions have as complete auth o r i t y in every re s p e c t as do a few o f the s tro n g e r commissions such as those in New York o r W isconsin. Two d is t in c t p o lic ie s have been fo llo w e d by th e s ta te s in the c re a tio n o f these com m issions. One method is f o r the le g is la tu r e to r e ta in c e r ta in p o w e rs,d e le g a tin g o n ly lim it e d and s p e c ific d u tie s to the commission; the o th e r is to g ra n t com plete a u th o r ity to the com m ission. The la t t e r k in d o f adm in i s t r a t iv e body is the id e a l one f o r a s ta te commission. I t s powers are mandatory and r e g u la tiv e. A d v is o ry powers p ro p e rly belong to a sub-com m ission, and i f i t be gra nte d th a t m u n ic ip a l commissions are necessary at a l l, t h e ir powers sho u ld be o f t h is n a tu re, thus supplem enting ra th e r th a n opposing th e s ta te commission. There are 37 o f the 48 s ta te s w h ich now have some s o rt o f c e n tra liz e d re g u la tio n ove r th e u t i l i t i e s. Only 27 s ta te s g iv e t h e ir commissions power over c o m p e titio n and monopoly, to p e rm it o r deny i t, and o n ly 13 o f these s ta te s extend t h is power so as to in c lu d e m u n ic ip a lly as w e ll as p r iv a t e ly owned u t i l i t i e s. The accompany in g ta b le 1 w i l l 1. Based upon an exam ination o f va rio u s s ta te p u b lic s e rv ic e laws and an a r t ic le by George L. M yers, "C o m p e titio n in the P u b lic U t i l i t y In d u s try ", Journal o f E1 e c t r ic it y, O ct. 1, 1920, p There may be e rro rs in t h is data, since the o r ig in a l laws were n o t a v a ila b le in every case; d o u b tfu l cases are l e f t b la n k.

13 S ta te Name o f Commission S ta te Regulat io n R e g u la tio n o f C o m petition th ru C e r tific a t e o f Convenience and N e c e s s ity. P riv a te U t i l i t i e s Alabama P u b lic S ervice yes no no M u n ic i pal Uts References A riz o n a C o rp o ra tio n yes yes no P.U.R. A '1 5, p Arkansas C o rp o ra tio n yes no no C a lifo r n ia R a ilro a d yes yes no P.U.R. D '1 9, p.921. Colorado P u b lic U t i l i t i e s yes yes yes P.U.R. D '2 0, p.214. C onnecticut. P u b lic U t i l i t i e s yes yes *Holmes, Fred L., Ch.15. Delaware (no Commission) no no no F lo rid a R a ilro a d no no no G eorgia R a ilro a d yes Idaho P u b lic U t i l i t i e s yes yes no P.U.R. B '2 0. I l l i n o i s P u b lic U t i l i t i e s yes yes no P.U.R. C '1 8, p In d ia n a P u b lic S ervice yes yes yes P.U.R. E '1 8, p. 172.

14 Iowa R a ilro a d P a rtia l no no P.U.R. C ' 16, p. 49. Kansas C ourt o f In d.rel a t i on yes yes yes R a ilro a d Law, Sec. 33. Kentucky R a ilro a d no no no L o u is ia n a R a ilro a d no no no Mai ne P u b lic U t i l i t i e s yes yes yes P.U.R. A '1 5, p.808. M aryland P u b lic S ervice yes yes yes P.U.R. C '2 0, p.972. M assachusetts P u b lic U t i l i t i e s yes yes yes P.U.R. C '1 9, p M ichigan P u b lic U t i l i t i e s yes yes P.U.R. C '2 0, p M in ne sota RR. & Warehouse no no no P.U.R. E '1 5, p M is s is s ip p i R a ilro a d no no no M is s o u ri P u b lic S ervice yes yes no P.U.R. A '1 9, p.343. Montana P u b lic S ervice yes Nebraska R a ilro a d pa r t i a l no no P.U.R. D ' 19. Nevada P u b lic S ervice yes yes no P.U.R. F '1 9, p New Hampshire P u b lic S ervice yes yes no P.U.R. D ' 15, p New Jersey P u b lic U t i l i t i e s yes yes no P.U.R. D '1 8, p.824. New Mexico C o rp o ra tio n no no no New York P u b lic S ervice yes yes yes P.U.R. E '1 9, p.425. Nor th C a ro lin a C o rp o ra tio n yes no no Corp. Law, Sec. 19.

15 N o rth Dakota R a ilro a d yes no no Ohio P u b lic U t i l i t i e s yes yes P.U.R. D '1 6, p Oklahoma C o rp o ra tio n yes Oregon P u b lic S ervice yes yes no P.U.R. D '1 8, p.851. Pennsylvania P u b lic S ervice yes yes yes P.U.R. E '18, p.489. Rhode Is la n d P u b lic U t i l i t i e s yes South C a ro lin a R a ilro a d yes South Dakota R a ilro a d no no no Tennessee P u b lic U t i l i t i e s yes yes no P.U.R. A '1 6, p.834. Texas R a ilro a d no no no Utah P u b lic U t i l i t i e s yes yes yes P.U.R. B '1 9, p.101. Vermont P u b lic S ervice yes yes yes P.U.R. E '1 6, p V ir g in ia C o rp o ra tio n yes W ashington P u b lic S ervice yes yes yes West V ir g in ia P u b lic S e rv ic e yes yes *Holmes, Fred L. Ch. 15. W isconsin R a ilro a d yes yes yes P.U.R. B '1 9, p.347. Wyoming P u b lic S ervice yes yes yes *R e g u la tio n of R a ilro a d s and U t i l i t i e s in W isconsin.

16 8 show th e approxima te s ta tu s of each s ta te on th e m a tte r o f c o m p e titio n, where and where n o t p e rm itte d o r c o n tr o lle d, w ith re fe re n c e to cases w h ich have come up to t e s t th e v a l id it y o f th e la w. I t should also be noted th a t wherever the name o f the commission has been changed so as to in d ic a te the in c lu s io n o f a l l p u b lic s e rv ic e u t i l i t i e s th a t th e laws a re more com prehensive than in the s ta te s w ith o n ly r a ilr o a d com m issions. Two n o ta b le e xce ptio ns to t h is are C a lifo r n ia and W isconsin, w hich have m erely extended the powers o f t h e ir r a ilr o a d comm issions w ith o u t changing the t i t l e s. More d e f in ite fa c ts as to the e x te n t and d e s ir a b ilit y o f laws w h ich c o n tro l c o m p e titio n and mon o p o ly w i l l be g iv e n in Chapter I I I. W hile the r a ilr o a d s were su b je cte d to g ra d u a lly increased le g is la t iv e and commission r e g u la tio n a lm ost from th e b e g in n in g o f t h e ir developm ent, o th e r p u b lic s e rv ic e s as th e y appeared were s t r i c t l y speaking n o t re g u la te d a t a l l. A ll d i f f i c u l t i e s a r is in g out o f th e r e la tio n s of th e u t i l i t i e s w ith the p u b lic were s e ttle d by the c o u rts. This meant th a t o n ly in d iv id u a l d i f f i c u l t i e s were disposed o f a s th e y arose; no powers were vested in the c o u rts to fo rm a c o n s tru c tiv e program lo o k in g ahead

17 9 to th e p re v e n tio n of fu tu r e o ffe n s e s. Such procedure was expensive; i t re q u ire d to o much tim e, inasmuch as the c o u rts r a r e ly had fa c ts and te c h n ic a l knowledge a t t h e ir d is p o s a l in d e a lin g w ith such com p licated problem s as what c o n s titu te s the p ro p e r b a sis f o r f a i r ra te s or adequate s e rv ic e. The o th e r form o f re g u la tio n to w hich u t i l i t i e s were subje cte d up to th e e sta b lishm e n t o f com m ission re g u la tio n, and w h ich i s s t i l l p ra c tic e d i n s ta te s w hich have n e ith e r s ta te or lo c a l commissions, is le g is la t iv e c o n tr o l. T his means th a t re g u la tio n o f the u t i l i t i e s is e x e rc is e d d ir e c t ly by th e le g is la t iv e body i t s e l f, no power w hatever being delegated to e ith e r a s ta te com m issioner t o th e m u n ic ip a litie s them selves. The a b s o lu te inadequacy o f such pure le g is la t iv e c o n tro l is a t once o b vio u s. Such to d ie s meet o n ly f o r a s h o rt tim e, in most case s o n ly every tw o years. They la c k both the in fo rm a tio n necessary to s e t t le u t i l i t y problems and the means of a c q u irin g i t. One power they do possess, however, and t h at is the r ig h t to delegate a u th o r ity to s p e c ia l comm is s ion s, e ith e r s ta te or lo c a l, to re g u la te u t i l i t i e s and a d ju d ic a te t h e ir

18 10 d i f f i c u l t i e s. But the le g is la tu r e have been slow in to y ie ld in g the p re ro g a tiv e o f making laws to govern e ve ry p riv a te or p u b lic r e la t io n in the s t a t e, and in fa c t have n o t y ie ld e d u n t i l fo rc e d to do so. The d e f in it e break away from s ta te le g is la t iv e c o n tro l in fa v o r of m u n ic ip a l le g is la t iv e c o n tro l began w ith th e p o p u la r movement f o r m u n ic ip a l " home r u le " w hich began in M is s o u ri in 1875 as an outgrow th of the fe e lin g th a t s ta te le g is la tu r e s were n o t in p o s itio n to know and handle th e v a rio u s problem s o f the c it ie s. The u ltim a te surre nder o f many le g is la t iv e powers to th e c it i e s thus gave lo c a l c o n tro l over a l l u t i l i t i e s o p e ra tin g w ith in the c i t i e s. Wh ile t h is change was a decided improvement in many re sp e cts over s ta te le g is la t iv e c o n tro l the fa c t remains th a t i t was s t i l l le g is la t iv e in c h a ra c te r. And in f i n a l re c o g n itio n o f th e weakness o f such re g u la tio n the c it ie s in tim e began t o empower t h e ir c o u n c ils to delegate the c o n tr o l o f u t i l i t i e s to a specia l comm issio n. The m u n ic ip a l commissions in Los Angeles, Kansas C ity and S t. L o u is are examples o f th e b e tte r o f these a d m in is tra tiv e b o d ie s. In view o f th e a c tio n w hich many s ta te s have re c a itl y taken in o rd e r to re - c e n tr a liz e th e c o n tr o l o f u t i l i t i e s i t would seem th a t had a s im ila r p la n o f c re a tin g com

19 11 m issions been fo llo w e d b y th e le g is la tu r e s in th e beginnin g as has been p ra c tic e d by many c it y c o u n c ils, the problem o f s ta te c o n tr o l would lo n g ago have been s e ttle d. Now th a t th e m u n ic ip a litie s have become accustomed to c o n tr o llin g e v e ry phase o f t h e ir u t i l i t i e s the problems o f r e s t r ic t in g t h is power has met w ith ve ry g re a t o p p o s itio n. W hile lo c a l re g u la tio n was an improvement o ve r le g is la t iv e c o n tr o l, y e t i t was by no means an u n m itigated success. The whole movement fa r s ta te re g u la tio n o f u t i l i t i e s has th u s grown out o f th e f a ilu r e of lo c a l c o n tro l to handle a s itu a tio n where modern u t i l i t y d e v e l opment has made i t p o s s ib le f o r g a s, e le c t r ic, telephone and s tr e e t c a r u t i l i t i e s to expand and become in te r m u n ic ip a l o r enter-commun i t y in t h e ir s e rv ic e. T h is n a tu ra l expansion began much e a r lie r than d id e f f o r t s to c o n tro l i t th ro u g h a c e n tr a liz e d commission, and hence the re c e n t le g is la t io n is a ta rd y r e c o g n itio n of the fa c t th a t independent or d e c e n tra liz e d re g u la tio n is ju s t as bad f o r a l l u t i l i t i e s as i t w ould be fa r the r a ilr o a d s. In f a c t, th e h is to ry o f the r a ilr o a d s shows th a t lo c a l a id was so common and re s u lte d in so many

20 12 v ic io u s e v ils o f c o m p e titi on between com m unities in the e a rly stages cf development th a t the fe d e ra l governm ent had to p u t a sto p t o i t. C e n tra liz e d c o n tro l i s a ls o a ta rd y, though f i n a l re c o g n itio n o f the p r in c ip le th a t u t i l i t i e s are n a tu ra l m onopolies and should re c e iv e p ro te c tio n from c o m p e titio n, though always s u b je c t to re g u la tio n in o rd e r to p r o te c t the r ig h t s o f th e p u b lic. The f a c t should not be lo s t s ig h t of t h a t the o u t s ta n d in g e v il w h ich commission re g u la tio n proposed to e lim in a te was c o m p e titio n. In the f i r s t p la c e i t e lim in a te d an e xce ssive amount o f lo c a l r e g u la tio n ; in the second p la ce i t made p o s s ib le th e c o n tro l o f p ro posed extensions o r proposed p la n ts and o f f is c a l comb in a tio n s. Other prom inent reasons w hy a s ta te comm issio n is s u p e rio r to o th e r form s of re g u la tio n are as 1 fo llo w s : i t can secure in fo rm a tio n and com pile data on every u t i l i t y in th e s ta te, thus a p p ly in g s c ie n t if ic re g u la t io n ; o n ly one s e t o f o f f i c i a l s and m achinery o f a d m in i s tr a tio n are necessary; the u t i l i t i e s are in te r - r e la t e d and o fte n c o n tro lle d b y fo r e ig n c o rp o ra tio n s, and o n ly a s ta te commission can handle a com p licated S itu a tio n such as t h is ; i t can re q u ire and secure u n ifo r m ity in ra te s and s e rv ic e s 1. Z in g, O.L. Op. C it. p. 256.

21 13 f o r a l l c it ie s or com m u nities; i t can p re vent lo c a l regula t io n in one p la c e from im posing ra te s or s e rv ic e s on another p la c e ; i t ca n p r o te c t th e s e c u r ity h o ld e rs fro m fra u d o r "b lu e sky" s e c u r itie s. There a re many o th e r very s p e c ific th in g s w h ich such a commission could do, f o r in sta n ce in a s ta te l i k e Iowa where no commission has e v e r e x is te d. These p o in ts w i l l re c e iv e f u r t h e r a tte n tio n in th e la s t c h a p te r. I t is n o t meant to in tim a te in th e le a s t th a t m u n ic ip a l commissions fo r the la rg e r c it ie s are to be done away w ith. B ut i t is necessary t h a t the powers o f these commissions be s t r i c t l y enumerated, and th a t they s h a ll be lim ite d t o an a d v is o ry c a p a c ity o n ly, thus secu rin g c o o p e ra tio n in s te a d o f r i v a l r y w ith th e c e n tra l com m ission. Thus we see th a t a f t e r th e f a ilu r e or inadequacy of c o u rt, le g is la t iv e and lo c a l c o n tro l - - w hich u s u a lly meant d iv id e d a u th o r ity between a l l th re e - - th a t s ta te commissions ve ste d w it h f u l l and m andatory powers were id e a lly f i t t e d to hand le th e s it u a t io n. They were due, however, to undergo a g re a t amount of c r it ic is m and o p p o s itio n, f i r s t fro m th e u t i l i t i e s and la t e r from the p u b lic i t s e l f.

22 14 The u t i l i t i e s had been fo llo w in g the p ra c tic e to a g re a t e x te n t o f charg in g what th e t r a f f i c woul d h e a r, w ith th e r e s u lt th a t th e re was much ir r e g u la r i t y in ra te s i n d iffe r e n t com m unities. F or t h i s p o lic y the u t i l i t i e s should n o t b e blamed to o much, however, f o r in an in d u s try where c o m p e titio n is m a in ly depended upon to re g u la te ra te s a n y th in g is f a i r w h ich the mar k e t w i l l stand. T herefore s in c e th e f i r s t a c t o f most o f the commissions was to a d vise o r e n fo rce a re d u c tio n in rates and b rin g about u n ifo r m ity, th e p u b lic was more th a n ready to acknowledge th e u n q u a lifie d success o f the new form o f u t i l i t y r e g u la tio n. N a tu r a lly enough the u t i l i t i e s underwent an o p p o site re a c tio n. They f e l t th a t th e new le g is la t io n was w h o lly a g a in st them. The a c c u s a tio n was made th a t the comm issions were cre a te d and a p p o in te d w ith th e sole purpose of p ro te c tin g the p u b lic a g a in st u t i l i t y encroachm ents, w ith no re g a rd f o r th e p ro te c tio n o f p ro p e rty r ig h t s w h ich the u t i l i t i e s f e l t were guaranteed them.1 1. C ordeal, E rn e s t, "What the S tr e e t- Ca ry System Means to th e I n d u s t r ia l F u tu re ".

23 15 I t sho u ld be noted however th a t many o f the u t i l i t i e s p re fe rre d the commission p la n to any p re vio u s fo rm o f re g u la tio n because i t gave prom ise o f p ro te c tio n a g a in s t u n lim ite d c o m p e titio n.1 T h is meant th a t th e o ld comp e t it iv e "v a lu e o f s e rv ic e " p r in c ip le of r a te making was to go. And when the e s ta b lis h e d u t i l i t i e s saw th a t p ro te c tio n from c o m p e titio n meant p r o te c tio n o f p ro p e rty r ig h ts th e r e g u la tio n o f ra te s was accepted w ith le s s com plaint. On th e whole th e commissions proved to be w h o lly im p a r tia l, a cce ptin g the p r in c ip le th a t the r ig h t to re g u la te also im p lie s the d u ty to p r o te c t. And w h ile t h e ir f i r s t acts seemed to be in the nature o f re g u la tio n downwards, subsequent events proved t h e ir im p a r t ia lit y, f o r w ith th e g e n e ra l r is e in p ric e s due to w ar c o n d itio n s, le g itim a te ra te in creases were r e a d ily p e rm itte d. This was th e f i n a l step in w in n in g th e a p p ro va l o f th e u t i l i t i es. But w hether a g a in s t p u b lic d is a p p ro v a l or a g a in s t the d e s ire s o f th e u t i l i t i e s, th e commissions have proved 1. Hagenah, W. J., "The U t i l i t i e s tu r n to R e g u la tin g Comm is s io n s ", E le c t r ic a l W orld, Jan. 5, See a ls o, B rackenbury,b.a., "C o m p e titio n in Sm all C ity P u b lic U t i l i t y O p e ra tio n ", E le c t r ic a l W orld, J u ly 3, 1915.

24 16 themselves e la s tic enough to respond to abnormal c o n d itio n s. And th e ir emphasis on p re s e rv in g the e f f ic ie n c y and comprehensiveness o f s e rv ic e has made the r a te problem le s s and le ss troublesom e. The p o p u la r approval w hich was a t f i r s t accorded th e commissions by th e p u b lic s u ffe re d somewhat o f a re la p s e when ra te in cre a ses were p e rm itte d a f t e r Some are in c lin e d to pla ce th e blame f o r t h is r a th e r g e n e ra l d is s a tis fa c tio n more on th e p u b lic o f f i c i a l s th a n on the p u b lic i t s e l f. Wi l lia m J. Hagenah, an e le c t r ic u t i l i t y e xp e rt and o f f i c i a l, says th a t the p u b lic was f a i r in i t s a ttitu d e toward ra te in c re a s e s, tak in g in to c o n s id e ra tio n the g e n e ra l r is e in p ric e s, and d id n o t r e g is te r th e extreme d is a p p ro v a l w hich was a t f i r s t exp e cte d.1 M u n ic ip a l o f f i c i a l s, on th e other hand, and stro n g proponents o f m u n ic ip a l "home r u le " used th e ra te i ncrease p o lic y o f th e commissions as a weapon a g a in s t c e n tr a liz e d c o n tr o l.2 An in s ta n c e of t h is is w i t nessed by the f ig h t w hich has been waged in I l l i n o i s f o r th e past two y e a rs. Both the mayor o f Chicago and the governor 1. Op. Ci t. 2. Denman, B. J. V ic e -P re s id e n t of th e U n ite d Lig h t & R ailw ays Comp a ny, Debates b e fo re the I l l i n o i s C o n s titu tio n a l Conv e n tio n, A p r il 1, 1920.

25 17 o f th e s ta te as w e ll a s oth er o f f i c i a l s have p o p u la riz e d themselves and rid d e n to power la r g e ly on t h e ir prom ises to reduce u t i l i t y ra te s. They have advocated the re p e a l o f th e laws c re a tin g c e n tra l c o n tr o l through a s ta te commission and have a g ita te d f o r m u n ic ip a l ow nership and lo c a l regula t io n f o r th e whole s ta te.1 The u t i l i t i e s have opposed both o f these p r o p o s itio n s, the re d u c tio n o f ra te s because the u t i l i t i e s were n o t earn in g adequate re tu rn s on the c a p ita l in v e s te d in good f a it h, and lo c a l re g u la tio n and m u n ic ip a l ow nership because the la t t e r p a r t ic u la r ly is out of harmony w ith u t i l i t y expansion.2 As w i l l be shown in Chapter I I the u t i l i t i e s are in the r ig h t b o th from an economic and r e g u la tiv e s ta n d p o in t. From t h is and s im ila r in sta n ce s o f a g ita tio n fo r lo c a l re g u la tio n and m u n ic ip a l ownership in Iowa and o th e r sta te s no doubt can e x is t th a t Commission re g u la tio n is undergoing a s tru g g le f o r it s e x is te n c e, even in th e fa ce o f i t s accomplishments f o r th e m utual good o f both p u b lic and u t i l i t i e s. f a ilu r e, 3 I t is branded as a p o l i t i c a l fad and an unm istakable a lth o u g h even the seve re st c r i t i c s o f th e comm issions agree th a t la c k o f c e r ta in powers has caused t h is 1. Y a rra s, V ic to r S., "The Chicago S itu a tio n ", N a tio n a l M unic ip a l Review, A p r il, Denman, B.J. Op. C it. 3. Cardeal, E a rn e st, "P le n a ry Power f o r P u b lic S e rvice Comm issions B a dly Needed", T ra n s p o rta tio n Wo rl d.

26 18 f a ilu r e. Suoh an a t t it u d e is o f course c o n s tr u c tiv e. I t is o n ly the d e s ire to a b o lis h commissions ^ to g e th e r w hich endangers a re v e rs io n to the o ld c o n d itio n s o f w a s te fu l c o m p e titio n and d u p lic a tio n in s te a d o f u t i l i t y c e n t r a liz a tio n and expansion as a pro te c te d monopoly, toward w hich modern economic and re g u la tiv e c o n d itio n s la ve re c e n tly. tended. I t is w e ll to s ta te here th a t the p h y s ic a l expansion o f a l l u t i l i t i e s pre sents te c h n ic a l problem s w hich are a f t e r a l l the c o n tr o llin g fa c to r as t o the economic p o lic ie s o f th e u t i l i t y companies. O bviously no company w i l l d e lib e ra te l y in d u lg e in unnecessary d u p lic a tio n s o r wastes o f any k in d unless d riv e n to i t by c o m p e titio n o r by th e law. Hence in th e absence o f s p e c ia l p ro o f no blame w i l l be la id to the la ck o f e n g in e e rin g knowledge or business judgment f o r any o f the te n d e n c ie s, past o r p re s e n t, w hich fo s te r compet i t i o n. The blame must in v a r ia b ly be la id to p u b lic p re ju d ic e or ignorance o f economic p rin c ip le s.

27 19 CHAPTER I I PHYSICAL EXPANSION OF THE UTILITIES AS RELATED TO POLI CI ES OF REGULATION E a rly C o n d itio n s Fo s te rin g M u n ic ip a l Ownership Up u n t i l the b e g in n in g o f c e n tra liz e d s ta te c o n tro l the u t i l i t i e s were s u b je c t to th e v a rio u s governm ental a u th o r itie s m entioned in th e p re cedin g c h a p te r, th e main fu n c tio n o f w hich seems to have been the enforcem ent ra th e r than th e lim it a t io n o f c o m p e titio n. In th e absence o f d ir e c t s ta te c o n tro l th e c it ie s, th ro u g h r ig h t s delegated by th e le g is la tu r e s, had the power to g r an t fra n c h is e s and co n t r o l t h e ir u t i l i t i e s. Fr a nchises were granted on the th e o ry th a t c o m p e titio n w ould re g u la te r a te s.1 Monopoly was regarded as obnoxious i n the extrem e, and no d i f f e r e n tia tio n was made in the p o p u la r mind between " b ig business" in te r e s ts and n a tu ra l p u b lic m onopolies.2 T h e re fo re, since the p o p u la r a ttitu d e demanded c o m p e titio n i t was in d u lg e d in to the l i m i t. I f a monopoly managed to g e t c o n tro l o f th e s it u a t io n in a c i t y i t im m e d ia te ly in v ite d r iv a lr y ; but always w ith one u n f a ilin g r e s u lt - - more monopoly, th ro u g h a c o n s o lid a tio n o r agreement between th e com peting companies. 1. W ilco x, Delos F., "M u n ic ip a l Fr a n c h is e s ", Vo l. I. 2. M yers, Geo. L., "C o m p e titio n i n th e P u b lic U t i l i t y In d u s tr y ", Journal o f El e c t r i c i t y, October 1, 1920.

28 20 Many o f our Am erican c it ie s fu r n is h s t r ik in g examples of such condit io n s. Denver may b e ta k e n as t y p ic a l. In 1881 the c it y c o u n c il re s o lv e d " th a t p e rm issio n be g ra n te d to any company d e s irin g to s u p p ly the c it y w ith e le c t r ic l i g h t. And year a f t e r year d if f e r e n t companies w ere g iven id e n tic a l fra n c h is e r ig h t s and p r iv ile g e s. For example, the E dison E le c t r ic Company was fra n c h is e d i n 1883 and fo u r years la t e r th e Denver L ig h t, Heat and Power Company. These two companies e v e n tu a lly c o n s o lidated,1 as a lso d id the gas in te r e s ts. Then th e c it y sought to r e lie v e th e s it u a t io n by g ra n tin g a fra n c h is e to s t i l l another company w h ich had agreed to c u t ra te s in h a lf. I t was so on d is c o v e re d th a t the o ld e r concern could a ls o cut ra te s i f fo rc e d to do so by c o mp e titio n - - w h ic h i t did u n t i l the r i v a l p la n t was d riv e n in to c o n s o lid a tio n. Monopoly once more e x is te d and ra te s we re h ig h. Such in sta nce s2 as these were d u p lic a te d i n New York C ity where s ix d iffe r e n t companies w ere granted the same r ig h ts in one year; o r in Chicago where 47 e le c t r ic fra n c h is e s were g ra n te d. The p u b lic had y e t to le a rn t h a t governm ental c o n tro l and n o t c o m p e titio n is the o n ly s o lu tio n of such p r o b lems. 1. M ills, J. W arner, "The Economic S tru g g le in C o lo rado", The Arena, Nov. 1905, p W ilco x, Delos E., Op. C it. Kin g, C.L., "The R e g u la tio n o f M u n ic ip a l U t i l i t i e s ", p. 78.

29 21 However, the c it ie s were y e t unconvinced th a t c o m p e titio n in some fo rm or a n o th e r was n o t to b e d e s ire d, and in d e s p a ir th e y turn ed to m u n ic ip a l ow nership, as in d ic a te d in th e pre cedin g c h a p te r. p ro vid e fo r m u n ic ip a l ow nership by Many o f the s ta te s g ra n tin g th e c it y the r ig h t to e ith e r c o n s tru c t a new p la n t or purchase the e x is tin g one. As in Iowa in case the p riv a te u t i l i t y re fu ses t o s e ll, or an agreement cannot be reached a fte r the e le c to rs have d e cid ed on n u m ic ip a liz a tio n, th e c i t y may in s tig a te condemnation proceedings to a c q u ire i t. 1 Thus a m u n icip a l monopoly is c re a te d. P la in out and out compet i t i o n has been t r ie d b y many c it ie s, however, in o rd e r to b rin g the p riv a te companies to tim e, th e o n ly method fe a s ib le in the absence o f p ro p e r re g u la tio n.2 L ike many in n o v a tio n s m u n ic ip a l ownership was e x tre m e ly p o p u la r to b e g in w ith, e a r ly in th e 1900s, and was h a ile d as the s o lu tio n of a l l u t i l i t y problem s. Volumes have been w r itte n in support of b o th sid e s o f th e q u e s tio n. The opponents o f m u n ic ip a l ownership say t h a t the u t i l i t i e s would o n ly be throw n in to p e tty p o lit i c s, and fro m la c k o f the business in c e n tiv e which p riv a te ow nership g ives would be g ro s s ly mismanaged. 1. See Sec. 3969, Compiled Code o f Iowa., Kin g, C. L., Op. C it. Chap. I I.

30 22 The purpose h e re in pursued is n o t to re v iv e the p o l i t i c a l and bu s in e s s - e ffic ie n c y arguments fo r and a g a in s t m u n ic ip a l ownership as much as to s tre s s the fa c t t h a t as a p o lic y i t stands in the way o f th e expansion and c e n tr a liz a tio n o f c e r ta in u t i l i t i e s. T his is e s p e c ia lly tru e of th e e le c t r ic and gas companies and the s tr e e t ra ilw a y s s in c e th e y have become so in t e r community in c h a ra c te r. M u n ic ip a l ownership o f u t i l i t i e s w hich can e a s ily be c o n fin e d to a c it y, such as a w a te r system o r sewerage d is p o s a l, p re sent a somewhat d i f f e r ent fa ce to the above arguments a g a in st m u n ic ip a l ow nership. They a re o b v io u s ly n o t in the same c la s s, and y e t the proponents o f m u n ic ip a liz a tio n o fte n f a i l to d if f e r e n t ia t e. For example, a c o m p ila tio n o f "One Hundred Reasons fo r M u n ic ip a l Ownership" shows t h a t 37 examp le s o f s u c c e s s fu l mun ic ip a liz a t io n r e f e r to w a te rw o rk s, 10 to gas o r sewerage and o n ly 21 to c e n tr a l e le c t r ic p la n ts and s tr e e t ra ilw a y s.1 The fo llo w in g d a ta on m u n ic ip a liz a tio n o f e le c t r ic u t i l i t i e s w i l l show to what e x te n t the p o lic y has been fo llo w e d in t h is p a r t ic u la r in d u s try and w i l l g iv e some id e a, from th e s iz e o f the m u n ic ip a litie s and th e sectio n s 1. Burns & M cdonnell, C o n s u ltin g En g in e e rs, Kansas C ity.

31 23 o f the c o u n try in w h ich i t is most p re v a le n t, o f w hat to expect in the fu tu r e. Of the 4714 s ta tio n s in 1907, 1252 o r 26.6% were owned by c it ie s. By 1912 the r a t io had in cre a sed to 30%; and in 1917 o u t o f a t o t a l o f 6,542 s ta tio n s, 2,318 o r 35.5% were m u n ic ip a lly owned.1 Since 1917 o th e r data m ust be re fe rre d to on t h is phase o f m u n ic ip a l ow nership. F ig u re s f o r e stim a te th a t 35.5% of al l lig h t in g systems are m u n ic ip a lly owned, w h ich corresponds e x a c tly w ith th e census fig u r e s f or The same source re p o rts f o r 1919 t h a t 32.8% were m u n ic ip a lly owned; w h ile d a ta com piled by th e P u b lic U t i l i t y League3 in 1919 re p o rts th a t % o f th e t o t a l c e n tra l s ta tio n s are so owned. I t should be n o te d t h a t th e la t t e r o f these sources is s tro n g ly b ia se d in fa v o r o f m u n ic ip a l ow nership. I f these fig u r e s from the two sources are c on s is te n t i t would in d ic a te th a t m u n ic ip a l ownership is d e cre a sin g somewhat. F u rth e r d a ta from the same census re p o rt re fe rre d to above show th e r e la t iv e im portance of p r iv a te and 1. U. S. Census, "C e n tra l Ele c t r i c L ig h t & Power S ta tio n s : 1917", Chap. I I, Table No McGraw, "C e n tra l S ta tio n D ire c to ry and Data Book f o r 1919". 3. American M u n ic ip a litie s, January, 1919.

32 24 m u n ic ip a l p la n ts, w hich would s e em to in d ic a te fu rth e r th a t s m a ll c i t y owned p la n ts w i l l l i k e l y b e absorbed b y p r i v ate in te r e s ts w h ich operate on a much la r g e r and more econom ical s c a le.1 The fig u re s f o r 1917 d is c l ose however th a t a lth ough the p riv a te com m ercial s ta tio n s com prise o n ly 64.6% o f th e t o t a l, they s e rv e 82.7% o f a l l the m u n ic ip a litie s fu rn is h e d w it h e le c t r ic it y and 80.5% o f th e aggregate p o p u la tio n u s in g e le c t r ic c u r r e n t. In p a rt e x p la n a tio n o f t h is i t should be noted th a t v a ry r a r e ly do m u n ic ip a l p la n ts serve more than one community w h ile c e n tra l p r iv a te p la n ts d is tr ib u te much more w id e ly, s e rv in g on an average th re e com m unities, w ith the average going as h ig h as nine in C a lifo r n ia, f iv e in P ennsylvania, and te n in New Jersey and Rhode Is la n d.2 I t should a lso be noted t h a t fig u r e s 3 on m u n ic ip a l ownership show th a t o n ly in 3% o f th e c it ie s o f over 5,000 p o p u la tio n are p la n ts mu n ic ip a lll y owned; w h ile 25% of the instances of such ownership was in towns fro m 1,000 to 5,000 p o p u la tio n. 1. U.S. Census, " Cen t r a l E le c t r ic L ig h t and Power Stat i on, " 1917, Ch. I I, ta b le No F o w le r, C. L., E le c t r ic a l W orld, March 23, Fo w le r, C.L. " L o g ic o f C o n s o lid a tio n s ", Ele c t r i c a l Wo rl d, M ar. 23, 1918

33 25 There are s t a t is t ic s on m u n ic ip a l ow nership fo r Iowa1 w hich show te n d e n cie s s im ila r to those giv e n above f o r the whole c o u n try. Out o f 214 s ta tio n s o p e ra tin g in 1919, 159 were g e n e ra tin g and 55 purchasin g s ta tio n s. Of the 159 g e n e ra tin g s ta tio n s, 92 were represented as muni c i p a l l y owned lig h t in g systems, or 57.8% o f the t o t a l. This is c o n s id e ra b ly above th e average o ve r th e e n tir e f i e l d as g iven above. The re p o rts o f m u n ic ip a l accounts f o r Iowa show somewhat d if f e r e n t fig u r e s on m u n ic ip a l ow nership, as evidences by the f o l l o w ing d a ta :2 Number o f s tre e t lig h t in g p la n ts m u n ic ip a lly owned: o u t o f 97 c it ie s 2 1.6% out o f 101 c it i e s 26.7% out of 105 c it ie s 21.9% The d is c re p a n c y between the two s e ts of d a ta is undoubtedly due to th e fa c t th a t the m u n ic ip a l accounts ju s t quoted r e fe r on ly to in c o rp o ra te d c i t i e s in the s ta te and n o t to towns, there being no d a ta on m u n ic ip a l ownership in the la t t e r, where t h ere is, as a m a tte r o f f a c t, more m u n ic ip a l own e rs h ip o f u t i l i t i e s th a n in the la r g e r c it ie s. 1. McGraw, Op.Ci t. 2. Report on M u n ic ip a l F inances, Stat e o f Iowa,

34 26 M u n ic ip a l ow nership is s tro n g e r i n the M idw estern s ta te s, as a tte s te d by s t a t is t ic s from f iv e o th e r o f these s ta te s. The m u n ic ip a l p la n ts in Kansas1 are % o f the t o t a l in th a t s ta te ; w h ile in Ohio the p ro p o rtio n is 43.2%, w ith M innesota, Nebraska and Oklahoma each showing more than 50% o f i t s p la n ts to be under m u n ic ip a l owners h ip. I t w i l l be noted in th e ta b le on page 7 th a t a l l o f these s ta te s have lo c a l r e g u la tio n o f u t i l i t i e s. should a ls o be noted th a t one o f the main causes I t the movement fo r m u n ic ip a l ownership has been th a t the u t i l i t i e s have been d riv e n in to poor s e rv ic e due to r e s t r ic t iv e fra n c h is e p o lic ie s and c o m p e titiv e p ra c t ic e s, b o th fa v o re d by the m u n ic ip al i t i e s in e a rly u t i l i t y developm ent. But where c e n tra lis e d c o n tr o l has e x is te d the lo n g e s t th e a g ita tio n f o r c it ie s to ta k e ove r the u t i l i t i e s has been le s s marked. K ing a s s e rts th at sin ce commission re g u la tio n has been extended to u t i l i t i e s in W isconsin and New York th e movement shows a decided aba tem ent.2 There seems to be no doubt th a t on the whole there are two opposing te n d e n cie s as to m u n ic ip a l ow nership. 1. McGraw, O p.c it. 2. K in g, O p.c it. 49.

35 27 T his was w e ll s ta te d b y Delos F. Wilc o x th re e years ago who w r ite s as fo llo w s :1 "W hile i t is assumed th a t p u b lic sentim ent is c r y s t a lliz in g in fa v o r o f m u n ic ip a l ownership and operat io n a nd th a t we are d r i f t i n g toward the r e a liz a t io n o f th a t system as an u ltim a te p o lic y, c e rta in im p o rta n t fa c ts, upon c a re fu l e xam in a tio n, b e lie the assum ption. At t h is moment, two p o w e rfu l b u t c o n f lic t in g tendencies in the p u b lic u t i l i t y f i e l d have gained headway in the U n ite d S ta te s. One is the tendency on the p a rt o f g re a t m u n ic ip a litie s to reco gnize p u b lic u t i l i t i e s as m u n ic ip a l fu n c tio n s, and by means o f new or re s e ttle m e n t fra n c h is e s c o n ta in in g purchase clauses and a m o rtiz a tio n p ro v is io n s, to pre pare f o r th e u ltim a te m u n ic ip a liz a tio n o f th e u t i l i t i e s, pa r t i c u l a r l y s tr e e t r a ilw a y s, now p r iv a t e ly owned and opera ted. T his tendency has dominated t o a g re a te r or le s s e x te n t the s tr e e t ra ilw a y s e ttle m e n ts adopted d u rin g th e past te n years in Ch i c ago, P h ila d e lp h ia, C leveland, New York, Kansas C ity, Des M oines, D a lla s and C in c in n a ti, a nd is now d o m in a tin g th e negot ia t io n s pending in T oledo, M in n e a p o lis, Oakland and S t. Lo u is. San F ra n cisco and S e a ttle have even gone to the 1."Recent Developments in the P u b lic U t i l i t y F ie ld a ffe c tin g F ra n ch ise p o lic ie s and M u n ic ip a l O w nership", N a tio n a l M u n ic ip a l Review, V o l. V II, No. 2, March, 1918.

36 28 e x te n t o f e s ta b lis h in g com peting m u n ic ip a l car lin e s, and D e tr o it has once vote d 4 to 1, in fa v o r o f m u n ic ip a l ow nership, and is now going along under a d a y -to -d a y agreement, re fu s in g to g ra n t a new s tre e t r a ilw a y fra n c h is e on any te rm s. The o th e r tendency re fe rre d to is the one t y p if ie d b y the I l l i n o i s d e c is io n in th e O 'C onnell case. I t i s based upon the th e o ry t h a t the s ta te as such has no in te r e s t in the change from p riv a te to p u b lic ownership, and o p e ra tio n b u t, ta k in g u t i l i t i e s as i t f in d s them, should assume c o n tro l of ra te s and s e rv ic e to the e x c lu s io n o f the lo c a l a u th o r itie s. That the le g is la tu r e, in the absence o f s p e c ific c o n s titu tio n a l g u a ra n tie s o f m u n ic ip a l home r u le in re s p e c t to th is p a r tic u la r m a tte r, ha s u n r e s tr ic te d a u th o r ity to e x e rc is e the p o lic e power, o r to d e le g a te i t s e xe rcise to a s ta te commission, w ith o u t re g a rd to the p u b lic u t i l i t y p o lic ie s w hich may have been fo rm u la te d b y lo c a l a u th o r itie s and sanctioned by lo c a l c o n tra c ts, has now been e s ta b lis h e d b y c o u rt d e c is io n s in many o f th e s ta te s, in c lu d in g W isconsin, W ashington, New Y ork, O klahoma and I l l i n o i s. A lre a d y the development o f th is le g a l th e o ry and i t s a c tu a l a p p lic a tio n by s ta te p u b lic s e rv ic e commissions have begun to c o u n te ra c t the o th e r tendency to which we have j u s t re fe rre d and to

37 29 p a ra lyze the e f f o r t s o f c i t i e s to g ra p p le w ith t h e i r lo c a l u t i l i t y problem s and to fo rm u la te and adopt e ffe c tiv e m u n ic ip a l p o lic ie s lo o k i ng t oward th e u ltim a te p r a c tic a l re c o g n itio n o f p u b lic u t i l i t i e s as p u b lic fu n c tio n s. The s ig n ific a n c e o f t h is c o n f lic t can h a rd ly be overe stim a te d, f o r i t i s c l ear th a t w ith a l l the t r a d it io n a l assumptions o f s ta te s o v e re ig n ty in i t s fa v o r, th e movement f o r e x c lu s iv e s ta te c o n tro l is l i k e ly to prove too p o w e rfu l fo r the ci t i e s a c tin g in d iv id u a lly, w ith the r e s u lt t h a t the p u b lic u t i l i t y p o lic y of t h is c o u n try w i l l be c r y s t a lliz e d b y s ta te a c tio n in fa v o r o f th e permanence o f p riv a te ow nership and o p e ra tio n w it h out regard to th e d e s ire s o f th e c it ie s f o r whose b e n e fits the u t i l i t i e s have been e s ta b lis h e d."

38 30 O b je ctio n s To L o c a l R e g u la tio n. The n a tu r a l concom itant o f th e movement f o r m u n ic ip a l ownership was an in creased a g ita tio n f o r lo c a l r e g u la tio n. As shown in C hapter I, i t began w ith th e movement f o r m u n ic ip a l "home r u le ". No a tte m p t w i l l be made to prove th a t m u n ic ip a l ow nership has been a d ir e c t resu l t o f lo c a l r e g u la tio n, a lth o u g h as a g e n e ra l p ro p o s itio n i t has o fte n been argued and no doubt proven th a t th e re i s a connectio n. A t any ra te lo c a l re g u la tio n is c o n tra ry to th e p r in c ip le th a t any one is capable o f passing unbiased judgment upon h is own a f f a ir s. I t assumes th a t a c i t y c o u n c il, and not an im p a r tia l s ta te commission, should decide what ra te s a community should pay a p riv a te b u sin e ss f o r i t s p u b lic s e rv ic e s. Wh a t th is has many tim e s le d to may be shown by an i l l u s t r a t i o n o f lo c a l c o n tr o l in th e hands o f a c i t y c o u n c il. This c o u n c il has th e power to re g u la te the r a te s, say o f a l i g h t p la n t, and by r e s t r ic t in g the ra te s to a p o in t a t w hich th e r a te o f r e tu r n w i l l cause the p la n t to d e p re c ia te and g iv e p o o re r and p o o re r s e rv ic e, th e c o u n c il or p u b lic could th e n move fo r m u n ic ip a l ownership o r m u n ic ip a l c o m p e titio n on the p le a of inadequate s e rv ic e, or because i t has f e l t th a t the advances in ra te s

39 31 asked f o r by the u t i l i t y were u n re a son a b le. This wou ld be th e e xe rcise o f a r b it r a r y judgm ent, w ith the u t i l i t y a t th e mercy o f unscrupulous o f f i c i a l s o r a b ia se d p u b lic. C e n tra liz e d c o n tro l would remove t h i s p o l i t i c a l e v i l. On the o th e r hand, i f lo c a l re g u la tio n is not to be the mere exercise o f a r b it r a r y o p in io n, each m u n ic ip a lity would be fo rc e d to m a in ta in a t g re a t expense, f o r th e purpose o f a c c u ra te ly d e te rm in in g the v a lu a tio n on w hich the ra te s were t o be based, a body o f e x p e rt a cco u n ta n ts,1 la w ye rs, in v e s tig a to rs and e n g in e e rs. T h is is an expense2 w hich m u n ic ip a litie s have f e l t was so g re a t as to p r o h ib it them from appearing b e fo re s ta te o f f i c i a l s o r c o u rts in cases in v o lv in g ra te s and v a lu a tio n. C e n tra liz e d c o n tro l w i l l o b via te the n e c e s s ity of t h is body o f experts b e in g d u p lic a te d in each m u n ic ip a lity. Another economic drawback to lo c a l r e gula t io n i s seen in the a t t it u d e expressed b y the Mayor o f an Iowa c i t y 3 who said, "P e rs o n a lly I do n o t b e lie v e t h a t c e n tra l power s ta tio n s f o r tra n s m is s io n o f power to towns and c it ie s is the p ro p e r procedure. I b e lie v e th a t p u b lic ownership 1. See debates b e fore I l l i n o i s C o n s titu tio n a l Conventi on, A p r il 1, , Statem ent o f M r. A ls h u le r. A ls o N.L. Ams t e r. 2. Op. C it. 3. F o rt Dodge, r e p ly to q u e s tio n n a i r e.

40 32 stops w ith in the co rp o ra te lim it s of a c i t y o r town, and in no case should a m u n ic ip a lity take on any o u tsid e s e rv ic e th a t would be a d e trim e n t to i t s own p e o p le ". I f lo c a l in s u la tio n means t h is, then the g re a t waste w h ic h is e n ta ile d b y d u p lic a te d p la n ts in each c it y, where a la rg e c e n tra l p la n t would serve i t and many o th e r communities is a t once obvious. Or i f la rg e c e n tra l p la n ts have once been e s ta b lis h e d under c e n tra liz e d c o n tr o l and th e n lo c a l re g u la tio n i s e s ta b lis h e d to ta ke i t s p la c e, anoth e r problem p re sents i t s e l f. F or example, in the s p rin g o f 1920 there was held in the s ta te o f I l l i n o i s a C o n s titu tio n a l C onvention, bent upon re v is in g th e c o n s titu tio n. One o f th e b u rn in g issues up b e fo re th is body o f th e p e o p le 's re p re s e n ta tiv e s was the question o f " h ome r u le " f o r c it ie s and tow ns. And one o f the m a tte rs in connection w ith th is m u n ic ip a l program was the p ro p o s itio n to extend the r i g h t o f lo c a l re g u la tio n o f u t i l i t y r a te s and s e rv ic e to th e c it ie s, and to a b o lis h the u t i l i t i e s commission. N a tu r a lly th is was combatted by the u t i l i t i e s ; and w h ile t h is th e s is does n o t a tte m p t to uphold u t i l i t y c o rp o ra tio n s in a l l t h e ir d e a lin g s w ith the p u b lic, i t is m a in ta in e d th a t th e u t i l i t i e s were r ig h t fro m the most la u d a b le economic

41 33 sta n d p o in ts in f ig h t in g th e in c o rp o ra tio n o f t h is p ro v is io n in th e "home r u le " program. The fo llo w in g h ypoth e sis was made in the argument fo r 1 the u t i l i t i e s ' defense: A gas company serve s communities in seven c o u n tie s in I l l i n o i s, and gas is pumped over 80 m ile s fro m a c e n tra l p la n t. T h is enables many com m unities to have s e rv ic e th a t would be deprived th e re o f i f lo c a l p la n ts w ere to be depended upon because the co s t o f a sm a ll p la n t is p r o h ib it iv e. Then suppose under these c o n d itio n s, one town on the system should pass an ord in ance r e q u irin g 550 B.T.U.'s as i t s standard o f s e rv ic e, w h ile a n o th e r town should r e q u ire 650 B.T.U.'s. This would d riv e companies out o f b u sin e ss o r p re vent t h e ir e n tra n ce in to sm a lle r com m unities. Wh ile i t may be tru e t h a t t h is p a r t ic u la r tro u b le would n o t prove in surm o unta ble, yet i t does serve to i l l u s tr a te th e p r in c ip le th a t the re g u la tio n o f such comp an ie s i n vo lve s more th a t p u re ly lo c a l con s i dera tio n. Exp e c ia lly is t h is th e case i f i t be tru e as s ta te d by th e defense in t h is case, th a t a g re a t number i f not a m a jo r ity o f the p la n ts in I l l i n o i s serve areas o u ts id e the lim it s o f m u n ic ip a litie s. 1. Mr. A1 shuler, A tto rn e y, p. 49, re co-id o f A p r il 1, 1920, Debates before the C o n s titu tio n a l C onvention o f I l l i n o i s.

42 34 Ea r ly c o n d itio n s in the developm ent o f c e n tra l power s ta tio n s are of course re s p o n s ib le fo r many excess p la n ts which a re s t i l l being to le r a te d. P rio r to a b o u t 1900,1 a t w h ic h tim e c e n tra l s ta tio n s w ith a la rg e r a nge o f r a d ia tio n began to appear, th e s ta tio n s w ere a l l lo c a l a f f a ir s. Not o n ly was i t necessary to e s ta b lis h a g re a t number o f s ta tio n s in the la r g e r c i t i e s, 2 but every sm all town o r c i t y w hich d e sire d e le c t r ic s e rv ic e had to have a separa te p la n t. Now c o n d itio n s have changed. la rg e c e n tra l s ta tio n s w ith g re a t r a d ia tin g c a p a c ity have made those sm all p la n ts o b s o le te. The economies o f la rg e s cale p ro d u c tio n are b e in g a p p lie d to a fin e p o in t, r e s u ltin g in g re a t saving to the pub li c. The problem o f e lim in a tin g th e exce ssive sm all p la n ts i s o f course much sim p le r i f th e y are p r iv a t e ly owned, e s p e c ia lly i f the co n tig u o u s p la n ts are owned by one s y s tem. 1. I n s u ll, Samuel, Op.Ci t. p London has as many as 63 e le c t r ic supply systems. I n s u ll, Samuel, Op. C it. p. 171

43 35 U t i l i t y Expansion as R e la te d t o M u n ic ip a l Ownership And lo c a l R e g u la tio n. The main o b je c tio n to b o th m u n ic ip a l ow nership and lo c a l r e g u la tio n i s th a t th e y b o th s ta n d in the way o f the u t i l i t y expansion and c e n tr a liz a tio n which has been so n o tic e a b le e s p e c ia lly in th e e le c t r ic a l u t i l i t i e s. O bvio u sly i f in an area s u p p lie d w ith e le c t r ic energy by one la rg e system a few o f th e towns o r communities have m u n ic ip a lly owned p la n ts, th e system is handicapped in i t s c e n tr a liz a tio n program. Unnecessary p la n t d u p lic a tio n is the r e s u lt o f t h is s o rt o f c o m p e titio n. However, th e re has been a v e ry s tro n g tendency f o r th e s e m u n icip a l p la nts to s e ll out to h ig h ly organized system s, ju s t as p r iv a t e ly owned independent p la n ts have lik e w is e been absorbed. I t has been argued th a t the fo rm o f r e g u la tio n makes no d iffe re n c e in the program o f u t i l i t y e xp a n sio n,- th a t b ig p r iv at e u t i l i t y companies go in and buy up independent o r m u n ic ip a l p la n ts ju s t as e a s ily under lo c a l as under s ta te r e g u la tio n.1 No doubt t h is has proved tru e under the k in d of s ta te r e g u la tio n w hich has u s u a lly p re v a ile d. 1. P ro f. J.B. H i l l, Dept o f E le c t r ic a l E n g in e e rin g, U n iv e rs ity I owa, h o ld s th is view.

44 36 I t is b e lie v e d however th a t s tro n g c e n tra liz e d c o n tro l could do much in e ffe c tin g th e d ir e c t io n o f th is expansion. I t w i l l he shown below th a t many economies can be e ffe c te d and th a t b e tte r s e rv ic e is p o s s ib le where e le c t r ic u t i l i t i e s, f o r example, fo llo w a system a tized p o lic y o f expansion around c e n tr a l p o in ts. The rem ainder o f t h is c h a p te r th e re fo re w i l l deal m a in ly w ith the aims and a c t iv it ie s of e le c t r ic c o rp o ra tio n s w it h s p e c ia l re fe re n c e to c o n d itio n s in Iowa. The aims and success of h o ld in g companies or o th e r form s o f f in a n c ia l o p e ra tio n in e ffe c tin g f is c a l combinatio n s w i l l show th a t t h e ir tendency has o fte n been ju s t the o p p o site from t h a t demanded b y the s p i r i t o f the l a ws. The purpose o f f is c a l c omb in a tio n s is to secure monopoly, e lim in a te c o m p e titio n, and secure cheaper a d m in is tra tio n o f the b u sin e ss. I t is a s te p w h ich p re c lu d e s the p h y s ic a l com b in atio n of p la n ts o r th e e lim in a tio n of unnecessary ones. When contiguous p la n ts are u n ite d p h y s ic a l re o rg a n iz a tio n tak es pl ace and the advantages o f s in g le equipm ent and management are re a liz e d.1 When non-co n tig u o u s2 systems are u n ite d i t re p rese nts not a 1. Downey, E.H., "Urban U t i l i t i e s in Iow a", p F o w le r, C.L., E le c t r ic a l Wo r ld, Mar. 23, 1918, " Logic o f P u b lic U t i l i t y C o n s o lid a tio n s ".

45 37 p h y s ic a l bu t a f i s c a l com b in atio n. The advantages here are o f course m a in ly f in a n c ia l in c h a ra c te r. A la rg e and w e ll known h o ld in g company such as th e S tone and Webster S yn dica te, o r the U n ite d L ig h t and R ailw ay Company, fin d s i t e a s ie r because o f p re s tig e and b a rg a in in g power to s e ll s e c u r itie s on the easte rn m arket, whereas an unknown lo c a l c o rp o ra tio n w ith o u t t h is connectio n would n o t be able to reach th is m arket. Such methods as these enables new and undeveloped s e c tio n s of the c o u n try t o draw upon the ric h e r fo r a id. The e ffe c t o f th is is to reduce d u p lic a tio n in o f f i c i a l s and in c re a se th e general e ffic ie n c y, and to p re v e n t fu r th e r p la n t d u p lic a tio n. The r e g u la tio n o f these mergers i s v e ry e s s e n tia l however, in o rd e r to p ro te c t th e p u b lic fro m u n c o n tro lle d monopoly. Hence th e clause in most commission governed s ta te s which re q u ire s a l l proposed C o n s o lid a tio n s, mergers, sales or leases to be s a n ctio n e d f i r s t b y the a u th o r itie s. T h is law is m erely p ro te c tiv e a g a in st abuses and is not p r o h ib itiv e o f com b in a tio n s. One of i t s main p ro v is io n s is to p re v e n t s to ck w a te rin g b y fo rb id d in g merging companies to is s u e s e c u r itie s in excess of the r e a l p h y s ic a l value o f th e companies i n the tra n s a c tio n. Chapter I I I w i l l b r in g out more f u l l y the o p e ra tio n o f t h is law in the s ta te s w h ich re q u ire i t.

46 38 The fo llo w in g s t a t is t ic s w i l l give sane idea of th e im p o rta n t p a rt played b y h o ld in g eanpanies in th e c o n tro l o f p u b lic u t i l i t i e s. In 1915 i t was estim a ted1 th a t 78.5% o f th e gas, e le c t r ic and t r a c t io n c a p ita l in th is c o u n try was c o n tr o lle d b y h o ld in g companies, w h ile in the fig u r e stood a t 80%. These fig u re s were taken from two d if f e r e n t a u t h o r it ie s and hence to o much w eight should n o t be g iv e n to the 1.5 % d iffe re n c e as in d ic a tiv e o f th e a c tu a l ra te o f increase i n the th re e year p e rio d. The s ig n ific a n t th in g is th a t the p ro p o rtio n is so h ig h and th a t i t reached t h is p o in t in a c o m p a ra tiv e ly s h o rt tim e. I t i s a ls o s ig n if ic a n t th a t the p ro p o rtio n of p la n ts not a f f i l i a t e d w ith syndica te decreases as th e community grows- o n ly 10% o f the independent p la n ts being in c i t i e s o f over 5,000 p o p u la tio n,3 w h ile i n towns o f 1,000 to 5,000 p o p u la tio n 55% of th e p la n ts a re in dependently owned. S yndicate c o n tr o l, b e sid e s b e in g s tro n g e s t in the la rg e r c it ie s is lik e w is e s tro n g e r in th e e a s te rn s ta te s ---- due no doubt to the preponderance of la rg e c i t i e s. The s e c tio n s o f th e c o u n try n e x t in o rd e r o f im portance in 1. G ardner, W.H. The A n n a lis t, June, F o w le r, C.L. Op.Ci t. 3. Ib id.

47 39 t h is re s p e c t are New England, the W estern S ta te s, the M iddle S ta te s and the South. The fig u r e s given above in c lu d e d gas p la n ts, o n ly 66%1 of which are con t r o lle d by s y n d ic a te s. E xclu d in g gas, the p ro p o rtio n of e le c t r ic l i g h t and powe r companies o p e ra tin g as s u b s id ia rie s o f h o ld in g companies is 83%. Inasmuch as th is s o rt o f f i s c a l com bination means the e lim in ia tio n o f c o m p e titio n between contiguous p la n ts i t also fo s te rs c e n tr a liz a tio n and makes the continued d u p lic a tio n of sm a ll p la n ts a lto g e th e r im p ro b a b le.2 The whole syndica te movement is o n ly a re c o g n itio n o f the f a c t th a t p u b lic u t i l i t i e s are nat u r a l l y m o n o p o lis tic in c h a ra c te r, end is th e re fo re in e v ita b le in s p ite o f laws a g a in s t i t o r th e la c k or l a ws meant to encourage such c o n d itio n s. By b rin g in g the d is c u s s io n to bear d ir e ct l y on the e le c t r ic a l u t i l i t i e s in Iowa, w ith a d d itio n a l examples from I l l i n o i s, a b e tte r idea may be had o f th e r e la tio n s e x is tin g between the u t i l i t i e s and p u b lic re g a rd in g th e l a t t e r 's p o lic ie s o f m u n ic ip a l ow nership and lo c a l regula t io n. S t r i c t l y no b r ie f i s made s a n c tio n in g a l l the methods o r f in a n c ia l maneuvers of u t i l i t y companies in 1. Gas p la n ts a re o f te n operated in connection w ith e le c t r ic p la n ts, hence the 66% may p o s s ib ly re fe r to th o se operated s e p a ra te ly, though t h is i s only a s u p p o s itio n. 2.

48 40 t h e ir d e a lin g s w ith the publ i c. On the o th e r hand th e p u b lic is n e ith e r h e ld blam eless f o r s ome o f th e th in g s the u t i l i t i e s have been fo rc e d to do. I t i s m erely in te n d e d to s how what is the b e s t p o lic y f o r a l l p a r tie s concerned. I f a map were c o n s tru c te d showing every c e n tra l e le c t r ic g e n e ra tin g s ta tio n in Iowa and a l l the tra n s m is s io n lin e s ra d ia tin g from these s ta tio n s i t would p re s e n t a comp le te netw ork to u c h in g p r a c t ic a lly e ve ry v illa g e and m u n ic ip a lity in the s ta te. Most o f these p la n ts o rig in a te d as independent1 lo c a l c o rp o ra tio n s and as a r e s u lt of th e la c k o f any system atized c o o rd in a tio n betwwen these lo c a l companies smal l p la n ts f o r s e r v ing sm a ll com m unities were b u ilt in ste a d o f la rg e p la n ts f o r servin g la rg e are as. The prom oters o f these is o la te d p la n ts soon d is covered th a t i t was im p o ssib le to market enough s e c u r itie s lo c a lly to b u ild adequate p la n ts and m a in ta in them and so th e h o ld in g company as a means of fin a n c in g a l l such u n d e rta kin g s came in to use. T his com bination of fin a n c ia l in te r e s ts on a la rg e s c a le has made i f p o s s ib le to e lim in a te many sm all p la n ts, as w e ll as p re sent f u r t h e r m u ltip lic a t io n, and t o have few er b u t la rg e r g e n e ra tin g u n its w ith a l l th e a tte n d a n t economies w h ich t h is 1. No t c o n tro lle d by a h o ld in g company.

49 Name o f Company 1 Date & Place of. In c o rp o ra tio n 1 N ature o f C orporate Management IOwa Ry. 7 L ig h t 1912 Iowa Merger o f Independent Companies Iowa R iv e r L.&PP.CO Iowa M erger; s to c k ow nership Iowa L.H.& P. Co. Iowa Stock owned by Federal Power & L ig h t Co. o f Maine Iowa Gas & E le c tr ic Co 1905 Iowa Local C o rp o ra tio n ; merger 1916 Iowa Southern U ts. Co Maine M erger, 1916, o f seve ral p la n ts Iowa F a lls E le c tr ic Co 1915 Iowa Merger Iowa P u b lic S ervice Co 1911 Iowa Merger Iowa E le c tr ic Co Iowa Merger o f seve ra l p la n ts C o n tin e n ta l Gas & E le t r i c C o rp o ra tio n t r i c 1912 D el. H o ld ing Company; several s u b s id ia ry Co. in Iowa. U n ite d L.& Rys. Co Maine F inancing & O peratin g; c o n tro ls 7 Iowa Corpor a t io n s American Gas Co D e l. H o ld ing & O perating C e n tra l M iss. V a lle y E le c tr ic P ro p e rtie s 1913 I l l. Managed by Stone & Webster S yndicate Southern Iowa E le c. Co 1916 D el. C o n tro lle d by Union Power & L ig h t Co. o f Nebraska Des Moines & C e n tra l Iowa E le c tr ic Co Maine C o n tro lle d by I l l i n o i s T ra c tio n Company 1.Compiled from Moody's Manual, U t i l i t i e s S e c u ritie s, T h is l i s t does n o t in c lu d e a l l the u t i l i t y companies in the S ta te, o n ly some o f the la r ger c o rp o ra tio n s & h o ld in g cos.

50 41 produces.1 T his s o rt o f c o n c e n tra tio n also r e s u lts in fewer d is t r ib u t in g s ta tio n s, and inasmuch as f iv e to s ix tim es as much is spent on d is tr ib u tin g systems as on g e n e ra tin g p la n ts, some idea is conceived o f the saving due to m onopoly.2 There a re a g re a t many e le c t r ic c o rp o ra tio n s o p e ra tin g in Iowa, some o f the la rg e r o f w hich are lis t e d in the accompanying ta b le.3 The im p o rta n t p o in t in th is connection is th a t p r a c t ic a lly a l l of these companies re p re s e n t mergers o f s e v e ra l independent p la n ts in to one system f o r the purpose o f im p rovin g o p e ra tio n and f a c i l i t a t i n g fin a n c ia l c o n tr o l.4 These merged companies, form in g a new c o rp o ra tio n, in tu r n are u s u a lly a f f i l i a t e d w ith la rg e h o ld in g companies o r fin a n c in g and o p e ra tin g companies. The U n ited L ig h t and R ailw ays Company f o r in sta n ce is a fin a n c in g and o p e ra tin g company in c o rp o ra te d in Maine and owns a l l or a la rg e p ro p o rtio n o f the c a p ita l s to c k, except d ir e c t o r s ' shares, in the fo llo w in g Iowa Companies: Cedar Rapids and M a rio n C ity R a ilw a y, Cedar Rapids Gas Company, Fo r t Dodge Gas and E le c tr ic 1. I n s u ll, Samuel, Speech b e fo re th e P e o ria I l l i n o i s Chamber o f Commerce, March 11, B y lle s b y, H.M., p. 210 o f I n s u ll (Op. Ci t. ) 3. Compiled from M oody's M anual, "P u b lic U t i l i t y S e c tio n ", The Iowa Ra i l way and Lig h t Co. is a good example of t h is.

51 42 Company, Mason C it y and C lear Lake R.R., Ottumwa Gas Company, Peoples Gas and E le c t r ic Company, and the T r i- C ity R ailw ay and L ig h t Company. The la s t named company in tu r n owns a l l the s to c k, except d ir e c t o r s shares, in the C lin to n, Davenport and M uscatine R ailw ay Company, Iowa C ity L ig h t and Power Company, M uscatine L ig h tin g Company, T r i- C it y R ailw ay Company o f Iowa. Peoples L ig h t Company o f D avenport.1 Other h o ld in g companies o p e ra tin g in Iowa a re the Stone and We b ste r S yn d ica te, The American Gas Company and th e U nion Power and Lig h t Company.2 The example g iv e n above illu s t r a t e s m erely the co rp o ra te r e la tio n s o f these companies. The accompanying map w i l l i l l u s t r a t e another fe a tu re o f these c o n s o lid a tio n s and m ergers, namely, the p h y s ic a l advantages d e rive d th e re fro m. I t w i l l be noted th a t th e companies o p e ra tin g in the c e n tr a l and southern p a rt of th e s ta te tend to extend east and west w h ile those in the n o rth h a lf o f the s ta te ru n more v e r t ic a lly. Most o f th e se companies re p re s e n t mergers where the s m a lle r concerns have been absorbed. For example, the Iowa R a ilw a y and L ig h t Company3has absorbed p ro p e rtie s a t M a rsh a llto w n, Boone, M a rio n, P e rry 1. Moody's Manual, O p.c it. p Moody s M anual, O p.c it. 3. Iowa E le c tr ic Company and th e Iowa F a lls E le c t r ic Co.

52

53 43 and Tama and has fra n c h is e s in 57 c it ie s and tow ns, besides supplyin g e l e c t r i c i t y to 33 a d d itio n a l towns b y s e llin g i t w holesale to two o th e r companies1w hich operate i n the communities where th e se towns are lo c a te d. These th re e companies re p re s e n t in th is way one system, w h ich has ta k en the p la ce o f s e v e ra l sm all independent systems. The t e r r i t o r y served by the Iowa E le c t r ic Company in d ic a te s a r a th e r la rg e m u lt ip lic a t io n of power p la n ts. These p la n ts were perhaps fo r the most p a rt at le a s t o r ig in a lly m ill s ite s th a t have been ta ke n over and conv e rte d in to e le c t r ic g e n e ra tin g s ta tio n s. And as f a r as g e n e ra tin g power on a r iv e r th e s iz e o f th e Maquoketa is concerned, the flo w o f w ater i s in s u f f ic ie n t to fu rn is h any co n sid e ra b le amount of power at any one p o in t and a s e rie s of dams i t the o n ly way o f g e ttin g a d d itio n a l power from t h is source.2 I t w i l l be n o tic e d on the map th a t th e re a re a t le a s t lig h t h y d r o - e le c tr ic p la n ts in the s m a ll area o f approxim a te ly two count ie s. These p la n ts o b v io u s ly cannot be depended upon the year round, and f o r t h is reason, in o rd e r to in s u re continuous s e rv ic e, a re supplemented by 1. From a l e t t e r from G.O. Morse, C ity Manager o f Maquoketa. 2. From a le t t e r from G.O. Morse, C ity Manager of Maquoketa.

54 44 power from the c e n tra l s ta tio n o f th e Iowa Railway and L ig h t Company a t Cedar R apids. Ther e a re two reasons why these power p la n ts are m a in ta in e d. F ir s t, s tro n g community in te r e s ts demand them i n order to in s u re co n tin u o u s s e rv ic e in case o f a c c id e n t to th e h ig h - lin e s connecting w ith Cedar Rapids. In the second place th e y are an asset to th e whole system o f which th e Iowa R ailw ay and lig h t Company is the head. D u rin g o ff-p e a k hours when th e energy is n o t being a l l used by the lo c a l com m unities th e surplus energy may be absorbed and d is tr ib u te d by the la rg e system.1 The examples ju s t g iv e n i l l u s t r a t e how e ve ry a v a ilable source of energy m a y be u t iliz e d th ro u g h the system a tic ty in g to g e th e r of p la n ts and s ta tio n s th ro u g h f i s c a l and p h y s ic a l com b in a tio n s. The fo llo w in g d is c u s s io n s hows how unnecessary p la n ts may be e lim in a te d, a lso by t h is s o rt o f c e n tr a liz a tio n. This means th a t fe wer and la r g e r u n its a re more e f f ic ie n t than a g re a te r number o f sm a ll p la n ts, wh ic h used to be necessary f o r each community. A good example o f where p la n ts are being e lim in a te d thro ugh system a tic c e n tr a liz a tio n is illu s t r a t e d in th e fo llo w in g s tatem ent concerning the p ro p e rtie s of th e Iowa L ig h t, 1. From c o n s u lta tio n, J.B. H i l l and A rth u r H. F ord, P ro fe s s o rs o f E le c t r ic a l E n g in e e rin g, U n iv e rs ity of Iow a.

55 45 Heat and Powe r Company, a lso in d ic a te d on the map: "Company s u p p lie s e l e c t r i c i t y w ith o u t c o m p e titio n to 41 communities in the S tate o f Iow a. These com m unities are so s itu a te d as to p e rm it of t h e ir being d iv id e d in to two groups, one of w hich is now b e in g s u p p lie d by a sin gle c e n tra l s ta tio n. The other group w i l l re q u ire two sources o f supply, which when th e t e r r i t o r y i s connected w i l l e lim in a te the n e c e s s ity of o p e ra tin g fo u r o f th e seven s ta tio n s now in u s e ".1 There are f iv e s u b s id ia ry c o rp o ra tio n s 2 o p e ra tin g under th e C o n tin e n ta l Gas and E le c t r ic C o rporatio n P ro p e rtie s i n South W estern Iowa w hich have i n use e ig h t g e n e ra tin g s ta tio n s as shown on th e map. No doubt f u r th e r c e n tr a liz a tio n w i l l see s ome o f th e s e p la n ts e lim in a te d. The e le c t r ic u t i l i t i e s o f I l l i n o i s have done much in the way o f c o n c e n tra tio n o f s e rv ic e. The p la n is system a t ic a lly fo llo w e d o f p la c in g the gen e r a t ing p la n ts in the centers where the most energy i s consumed, or near c o a l mines o r w a te r power where e n e rg y can be produced most 1. Moody's Manual, O p.c it. p M oody's M anual, O p.c it

56 46 cheaply.1 In t h is way 33 o u t o f 63 s ta tio n s have been e lim in a te d in one system w ith p la n s of re d u cin g the number to seven or e ig h t.2 The P u b lic S e rvice Company o f N o rth e rn I l l i n o i s serves 187 communities in the p a st o f the s ta te in d ic a te d ; the N o rth e rn I l l i n o i s Company serves 60 communities in another p a rt o f th e s ta te ; and the C entral I l l i n o i s P u b lic S e rvice Company serves 181 com m unities.3 In the aggregate there a re 662 communities served by 13 companies, w h ich g iv e s an average o f 50 com m unities f o r each company. In one p a rt o f t h is s ta te 64 d if f e r e n t com m unities were served fro m one c e n tr a l gas p la n t.4 The purpose of these statem ents made by u t i l i t y o f f ic ia ls and a tto rn e y s b e fo re the I l l i n o i s C o n s titu tio n a l C onvention was to show the e v ils o f "home r u le " over a l l u t i l i t y problem s, which was being a g ita te d, where each c it y would have c o n f lic t in g o p in io n s as to r a te s, s e rv ic e, 1. I n s u ll, Samuel, O p.c it. p The C e n tra l I l l i n o i s P u b lic S e rvice Company, I b id Debates b e fore th e C o n s titu tio n a l C onvention o f I l l i n o i s, A p r il 1, 1920, te s tim o n y o f M r. B.J. Denman, P re s. o f I l l i n o i s S ta te E le c t r ic Ass n. 4. I b id, te s tim o n y of M r. A ls c h u le r, an a tto rn e y.

57 47 e tc. The u t i l i t i e s m aintained th a t lo c a l re g u la tio n would have made such wide d is t r ib u t io n v e ry d i f f i c u l t, i f not im p o s s ib le, and th a t i t s a d o p tio n would s e rio u s ly aggravate th e s itu a tio n. As fu rth e r evidence o f the d e s ir a b ilit y o f la rg e scale d is t r ib u t io n, the I l l i n o i s S tate P u b lic U t i l i t i e s Commission s a id in a gas case: " The advantages o f c o n s o lid a tio n in c e r ta in lin e s of b u s in e s s, w ith consequent la rg e p ro d u c tio n, are to o w e ll known to re q u ire d is cussio n, and th e re can be no doubt t h a t communities are in p o s itio n to re c e iv e a s u p e rio r s e rv ic e a t c o n s id e ra b ly le s s cost th a n i f each were served by i t s own separa te p l a n t. 1 Iowa, w ith the lo c a l r e g u la tio n and pa s t and p re sent tendencies to d u p lic a tio n s due to th e le g a l s a n c tio n in g o f c o m p e titio n, does n o t compare so fa v o ra b ly w ith I l l i n o i s in these re sp e cts as could be d e s ire d. True, the p o lic y o f la rg e scale d is t r ib u t io n is b e in g in c re a s in g ly fo llo w e d in Iowa. The q u o ta tio n g iv e n above to show how th e Iowa Lig h t, Heat and Power Company is e lim in a tin g unnecessary c e n tra l s ta tio n s also shows th a t 41 communities a re served in th e s ta te. The Iowa R ailw ay and L ig h t Compa ny serves through h ig h -te n s io n lin e s some 90 towns and c it ie s in 1. P.U.R. D 1918, p. 260

58 48 c e n tra l and e a ste rn Iowa.1 L ik e w is e the Iowa Southern U t i l i t i e s Company, the Des Moines and C e n tra l Iowa E le c tr ic Company, th e M is s is s ip p i Va lle y E le c tr ic Company, and the C o n tin e n ta l Gas & E le c t r ic C o rp o ra tio n a l l serve communities c o v e ring a f a i r l y w ide a re a. I t is b e lie v e d, however, th a t b e tte r u t i l i t y laws would g r e a tly f a c i l i t a t e t h is tendency and p re vent much w a s te fu l d u p lic a tio n. I t has been ke p t in mind t h a t w it h the n e c e s s a rily lim ite d fu n d o f in f o rma tio n w h ich a n y th in g s h o rt o f d e ta ile d f ir s t - h a n d study co u ld g iv e there is no b a sis f o r passing judgment upon m a tte rs o f a h ig h ly te c h n ic a l n a tu re. And yet there a re c e r ta in fundam ental phases of the e n g in e e rin g s id e o f the problem which a re r e a d ily grasped and w hich should be touched upon h e re. There is one fe a tu re o f a te c h n ic a l n a tu re, which should be s p e c ia lly noted in the p r ogram o f c e n tr a liz a tio n. Towns w hich are on the end of a tra n s m is s io n lin e are s u b je c t to p o o re r s e rv ic e th a n those n e a re r the source o f power and in case o f a c c id e n t to th e lin e w h ich may shut o f f the power they are te m p o ra rily a t le a s t w ith o u t s e rv ic e. The o n ly way such d i f f i c u l t i e s can be e lim in a te d is by having as few ends as p o s s ib le, I t w i l l be note d on 1. Moody s Manual, Op. Ci t.

59 49 the map th a t th e re are a g re a t number o f towns thus lo c a te d due la r g e ly to th e way th e systems spread o u t in s tr a ig h t lin e s ove r ra th e r narrow t e r r i t o r y in s te a d o f d e s c rib in g a c ir c u la r fo rm a tio n around th e source of power. There is always a tendency to connect these ends and form a c ir c u it, however, as between D in sd a le and T raer in Tama County, o r between Boone and Nevada, and any number o f s im ila r in s ta n c e s. Making these connections o f course depends la r g e ly upon the p o in ts w h ich are connected b e in g c o n tro lle d by th e same system, and i t is th e re fo re to the in te r e s ts o f b o th th e u t i l i t i e s and th e p u b lic th a t ow nership o f p ro p e rtie s be w e ll c e n tr a liz e d. In lo o k in g a t th e map one i s s tru c k b y such in sta n ce s o f s c a tte re d o w n e rs h ip iin p ro p e rtie s as re p re se n te d by the Iowa L ig h t, Heat and Power Company's t e r r it o r y around G r in n e ll, separated b y about fo u r c o u n tie s from i t s re la te d p ro p e rtie s and in clo se c o n ta c t w ith th e Iowa R ailw ay and L ig h t Company s system. I t w ould appear th a t g re a t advantages could be gained i f t h is is o la te d d i s t r i c t were combined both f in a n c ia lly and p h y s ic a lly w ith the system w hich h a lf surrounds i t and th a t the extreme west end o f th e Iowa R a ilw ay and L ig h t Company's p ro p e rty were s im ila r ly combined w ith th e a d ja c e n t Iowa L ig h t, Heat and

60 50 Power Company. The m a tte r o f c re a tin g these com b in a tio n s is o f course s o le ly a m a tte r o f business between the two companies, made d i f f i c u l t through such problems as a r r iv in g a t an agreement over v a lu a tio n, d e s ir a b ilit y, e tc. There are many such examples o f t h is k in d o f i l l o g i c a l a rra n g e ment in the s ta te, and inasmuch as th e y e x is t c o m p e titio n and d u p lic a tio n e x is t in s te a d o f c e n tr a liz a tio n. I t may not always re p re s e n t d e lib e ra te c o m p e titio n, and y e t be a case o f two o r more p la n ts o p e ra tin g in a d ja cent com m unities where o n ly one i s r e a lly necessary. In sta n ces o f d e lib e ra te c o m p e titio n between p la n ts in the same community are le s s numerous than in the p a s t, yet th e y do e x is t. The town of Maquoketa, Iowa, a lth ough served by a p riv a te company has re c e n ta ly a u th o riz e d the b u ild in g o f a m u n ic ip a l p la n t,a n a c tio n w hich was prompted by th e success o f a lo n g e s ta b lis h e d m u n ic ip a l w a te r system. I t a ls o appears th a t the p r iv a te company had never been a success owing to th e la c k o f experience and mismanagement and had f i n a l l y become " tr a d in g s to c k ", u ltim a te ly f a l l i n g in to the hands o f the Iowa E le c t r ic Company in a w a y as to not meet the appro val of the c itiz e n s o f Maquoketa. Hence the a u th o riz a tio n o f a m u n ic ip a l p la n t, in te nded to e v e n tu a lly serve th e e n tire c it y. 1 T h is serves to i l l u s - 1. L e tte r o f G.O. Morse, C ity Manager fo r Maquoketa, Iow a.

61 51 tr a te what has so o fte n happened to sm all lo c a l p r i v ate u t i l i t i e s o f t h is k in d and leads to the b e lie f t h a t proper c e n tr a liz a tio n o f th is community w ith oth er communities could have been succe ssfu l and s a tis fa c to r y from e ve ry p o in t o f s e rv ic e. A side fro m t he general scheme o f re g u la tio n w hich a p p lie s to a l l u t i l i t i e s some fu r th e r suggestio n s w i l l be made fo r the c o n tr o l o f c e n tra l e le c t r ic p la n t d e v e l opment. C e n tra liz e d c o n tro l is th e o n ly means of p ro m oting a syste m a tic la rg e s c a le c o n c e n tra tio n of th is in d u s try. And y e t i f t h is developm ent is l e f t e n t ir e ly to the c o rp o ra tio n and h o ld in g c o mp a n ie s a c e rta in amount o f c o m p e titio n w i l l e x is t, each company n a tu r a lly s e e k ing to operate o n ly in those s e c tio n s w hich promise the most re v e n u e w ith t he le a s t e x p e n d itu re. This k in d o f comp e t it io n w i l l e v e n tu a lly le a d to c o n d itio n s s im ila r t o those re g a rd in g the " s tro n g " and "weak" roads in the ra ilw a y in d u s try w h ich redent le g is la t io n has sought to c o rre c t.1 T h e re fo re some p la n g iv in g th e u t i l i t y commission power to re g u la te and d ir e c t, o r even to e n fo rce, c o n s o lid a tio n s o f th e e le c t r ic system should be worked o u t. This would mean th a t such i l l o g i c a l d iv is io n o f t e r r it o r y as noted above would not e x is t b u t th a t each company would 1. The Cummins B i l l as i t o r i g i n a l ly was developed in t he Senate i n 1920.

62 52 be lim it e d to operate in a g iven t e r r i t o r y and g iv e n a b solu te p r o te c tio n from any o th e r c o m p e titio n. Inasmuch as each company has a lre a d y covered an a re a and is capable o f g iv in g the best p o s s ib le se rvice th e re would be but l i t t l e a r b it r a r y re-arrangem ent necessary. The d iv is io n which m ight be c re a te d in Iowa fo r in sta n ce would be determ ined la r g e ly by th e n a tu ra l te n d e n cie s o f p la n ts to be b u ilt in la rg e c e n te rs o f p o p u la tio n or near sources o f cheap power, and n o t because o f any p u re ly a r t i f i c i a l boundaries. But i f the u t i l i t i e s go ahead in a hodge- podge s o rt o f development the tim e w i l l come when the m atter w i l l p re sent a much more d i f f i c u l t problem than at p re s e n t. A g re a t deal o f a tte n tio n was fo rm e rly given to S tate lin e s, ju s t as in the b e g in n in g lim ite d to m u n ic ip a l boundarie s.1 the e le c t r ic in d u s try was But in the p re se n t stage o f developm ent, w ith fu rth e r c e n tr a liz a tio n accompanied by w ider d is t r ib u t io n, s ta te boundaries are ig n o re d. There are an in c re a s in g number o f in s ta n c e s o f th is as evidenced f o r example by th e g re a t hydro-developm ent a t Keokuk. T here fore as t h is in d u s tr y becomes more and more 1. I n s u ll, Samuel, Speech b e fo re the Peor ia, I l l i n o i s, Chamber o f Commerce, March 11, 1921.

63 53 in te r s ta te in c h a ra c te r i t w il l have to be d e a lt w ith b y su ch commissions such as th e In te r s ta te Commerce Comm is s io n. Men most in te re s te d in th i s development see in the near fu tu r e g re a t "tru n k : lin e s " o f e le c tr ic tra n s m is s io n ru n n in g a cro ss th e c o n tin ent much the same as our ra ilw a y system. And in o rd er to p ro p e rly re g u la te t h is g re a t and ra p id g ro w th the necessary le g a l m achinery should be c re a te d w ith o u t d e la y.

64 54 CHAPTER I I I. STAfcE LAWS RELATING TO OOIIEETI'TTON AND CONSOLIDATIONS. The p h y s ic a l development o f c e n tra l e le c t r ic s ta tio n s, w ith a g e n e ra l v ie w o f the p u b lic a t t it u d e, has been r e viewed in the pre cedin g ch a p te r in order to in d ic a te some o f the economic and p o l i t i c a l cla u se s o f c o m p e titio n in u t i l i t i e s. Progress and in v e n tio n, however, has brought about alm ost re v o lu tio n a ry changes in u t i l i t y developm ent; and b e tte r economic and p o l i t i c a l p r in c ip le s have been recognized as e s s e n tia l in d e a lin g w ith new c o n d itio n s. Yet these newer p r in c ip le s have n o t been a s w id e ly accepted as c o n d itio n s w a rra n t, w ith th e r e s u lt th a t th e u t i l i t i e s in many s ta te s are y e t la b o rin g u n der d i f f i c u ltie s and r e s t r ic t iv e laws w h ich were im p sed upon tiiem f i f t y years ago and w hich even then were la r g e ly m isa p p lie d. T h e re fore i t is 1he purpose of t h is chapte r to examine v a rio u s s ta te u t i l i t y laws which r e la t e d i r e c t ly to the m a tte r o f c o m p e titio n and c o n s o lid a tio n. Some o f the s ta te s, those which have more re c e n t u t i l i t y laws and p u b lic s e rv ic e commissions have q u ite c le a r ly d e fin e d p ro v is io n s w hich g iv e c e n tra liz e d c o n tro l over such m a tte rs as monopoly and c o m p e titio n, ra te s and s e rv ic e s, and th e

65 55 in te rc o rp o ra te r e la tio n s between th e u t i l i t i e s. Other s ta te s have o n ly p a r t ia l s ta te c o n tro l th ro u g h t h e ir u t i l i t y com m issions, th e re being perhaps n o t more th a n tw e lve s ta te s which extend com plete re g u la tio n o f c o m p e titio n to m u n ic ip a lly owned as w e ll as to p r iv a t e ly owned u t i l i t i e s. 1 No s ta te f a i l s to make some s o rt o f an a tte m p t a t u t i l i t y re g u la tio n, even though i t be only to p ro v id e th a t the m u n ic ip a litie s s h a ll have f u l l j u r i s d ic tio n over t h e ir u t i l i t i e s. 2 Under the more la x cont r o l are found a l l th e e v ils w h ich fo s te r the w a s te of unnecessary d u p lic a tio n s. C e r tific a te s o f P u b lic Convenience and N e cessity The usu a l method o f c o n tr o llin g c o m p e titio n is b y means o f a law w hich re q u ire s th a t b e fore any u t i l i t y can operate i t must p re sent to th e proper a u th o r itie s, u s u a lly the s ta te p u b lic s e rv ic e commission, statem ents w hich in d ic a te th a t p u b lic convenience and n e c e s s ity re q u ire s c e rta in s e rv ic e s, exte n sio n s or com binations. T his demand may a ris e from v a rio u s causes: the la c k o f any u t i l i t y w hatever, i n a b i l i t y o f the e x is tin g u t i l i t y to fu r n is h adequate s e rv ic e, or m erely because e ith e r th e community 1. M yers, Geo. L., "C o m p e titio n in the P u b lic U t i l i t y In d u s try ", Journal o f E le c t r ic it y, O ct. 1, 1920, p Iowa is in t h is c la s s ; see ta b le, p

66 56 b e lie v e s c o m p e titio n w i l l re g u la te ra te s o r another company fe e ls t h a t i t can e n te r th e f ie l d and succeed in c o m p e titio n w ith th e e s ta b lis h e d r iv a l. The s p e c ific purpose of the law 1is to p re v e n t d u p lic a tio n s and as such i t re co g n ize s th e abandonment o f fre e c o m p e titio n. In e f f e c t i t g ra n ts a fra n c h is e r ig h t to th e e s ta b lis h e d concern b u t g ives no p e rp e tu a l r ig h t s. T here fore in d e c id in g upon th e a p p lic a tio n o f a u t i l i t y to operate, th e commission g ra n ts i t a c e r t if ic a t e s o le ly on th e b a s is o f n e c e s s ity. I f th e e x is tin g company is g iv in g adequate s e rv ic e at reasonable ra te s, or can be made to do so, i t w i l l be p ro te c te d. n o t always mean p u b lic n e c e s s ity. P u b lic demand does A c o n d itio n may e x is t where p re ju d ic e s again s t a u t i l i t y, a g ita te d by lo c a l p o lit ic ia n s who d e s ire to f i r s t d is c r e d it the u t i l i t y and then secure m u n ic ip a l ow nership, i s th e c o n t r o llin g fa c to r. Hence in order to in sure a f a i r deal to the u t i l i t i e s i t is e s s e n tia l th a t these d e c is io n s be made by an im p a r tia l body such as a s ta te com m ission. The p rim a ry reason fo r the e sta b lishm e n t o f c e n tra liz e d re g u la tio n o f u t i l i t i e s through s ta te commissions is to c o n tro l c o m p e titio n. I t has o th e r purposes w hich w i l l 1. Holmes, Fred L. "R e g u la tio n o f R a ilro a d s and U t i l i t i e s in W isconsin", Ch. 15.

67 57 re c e iv e a tte n tio n la t e r but th e n e c e s s ity of lim it in g c o m p e titio n was one o f the most u rg e n t causes o f commission c o n tr o l. The ta b le on page shows th a t th e re are 37 s ta te s which have some k in d o f c e n tra liz e d re g u la tio n o f u t i l i t i e s. re g u la te c o m p e titio n. Of th e se o n ly 23 d e f in it e ly The law r e q u ir in g a c e r t if ic a t e o f convenience and n e c e s s ity is p r a c t ic a lly the same in a l l the s ta te s where c o m p e titio n is re g u la te d. The I l l i n o i s law, w hich may be taken as t y p ic a l, reads as fo llo w s :1 "No p u b lic u t i l i t y s h a ll b e g in the c o n s tru c tio n o f any new p la n t, equipm ent, p ro p e rty o r f a c i l i t y which is n o t in s u b s titu tio n o f any e x is tin g p la n t, equipm ent, p ro p e rty or f a c i l i t i e s o r in e x te n s io n th e re o f or in a d d itio n th e re to, u n le ss and u n t i l i t s h a ll have obta in e d from the commission a c e r t if ic a t e th a t p u b lic convenience and n e c e s s ity re q u ire such c o n s tru c tio n ". T his law t y p if ie s the g e n e ra l s p i r i t o f th e more re c e n t u t i l i t y r e g u la tio n. I t is d e f in it e and is meant to handle an e x is tin g s it u a t io n. T h is i s a decided advantage over the o ld method o f depending upon the c o u rts to decide upon cases w h ic h come up because o f the la c k o f c le a r ly d e fin e d l a ws in the s ta tu te books. Commission re g u la tio n means th a t th e c o u rts no lo n g e r have d ir e c t

68 58 j u r is d ic t io n over u t i l i t y d i f f i c u l t i e s. In f a c t, appeals to the c o u rts are v e ry r a r e ly made because o f th e tendency to acce pt the com m ission's d e c is io n as f i n a l. Out o f 2, 511 orders o f th e W isconsin Commission o n ly f i f t y appeals were re c e iv e d b y the c o u rts, and tw e n ty o f these were at once abandoned.1 Ex a c tly how e ffe c tiv e such le g is la t io n has been is shown by an exam ination of some o f th e cases w h ich have been up b e fo re v a rio u s com m issions. In v a r ia b ly the u t i l i t i e s which are g iv in g good s e rv ic e a re p ro te c te d. Those g iv in g poor s e rv ic e, or those unable to meet the needs o f th e community w h ich th e y serve, have th e c o n s ta n t th re a t o f c o m p e titio n h e ld out a g a in st them. I t w ould be unwise to a b s o lu te ly fo r b id a l l c o m p e titio n. T h is would o n ly make p o s s ib le the e s ta b lis h m e n t of u n c o n tro lle d monopoly. The law in W isconsin p ro v id e s th re e methods w hich a m u n ic ip a lity may pursue in d e a lin g w ith i t s p u b lic u t i l i t y c o rp o ra tio n s : ( 1 ) e le c tio n to purchase; (2) a p p lic a tio n f o r a c e r t if ic a t e o f convenience and n e c e s s ity ; and ( 3) a p p lic a tio n f o r an order p re s e n tin g reasonable r a t e s. 2 The 1. Holmes, Fred L. Op. C it. p P u b lic U t i l i t y R e ports, A 1915, p (The a b b re v ia tio n P.U.R. w i l l be h e re in a fte r u se d.)

69 59 la s t two come w h o lly under the ju r is d ic t io n o f the comm is s io n fo r s e t t lin g. As re g a rd s telephone s e rv ic e i t has been the p o lic y in W isconsin sin ce 1913 to r e s tr i c t lo c a l tele phone s e r v ic e to one company as lo n g as th a t s e rv ic e rem ains reasonably adequate.1 The C o m is s io n a ls o found t h a t jit n e y s e rv ic e s e rio u s ly in te r fe r e d w ith t he revenues o f a s tr e e t ra ilw a y and d ire c te d a r e - r o u tin g o f jit n e y s e r v ic e so as not to compete.2 In th e ease o f an e le c t r ic company's r e fu s a l to s u p p ly a d is t r ib u t in g company u n t i l c o m p e titio n th re a te n e d, the commission re fu sed p r o te c tio n.3 The p u b lic u t i l i t y law s o f C a lifo r n ia p ro v id e t h a t in v e s to rs s h a ll be pro te c te d a g a in s t comp e t it io n w h ile fu rn is h in g adequate s e rv ic e.4 And on t h is p ro p o s itio n the Commis s io n has re fu sed to g ra n t c e r t if ic a t e s o f p u b lic convenience and n e c e s s ity f o r a d d itio n a l auto-busses between Los Angeles and San D iego,5 and the c o n s o lid a tio n o f two competing telephone systems was h e ld to be in the p u b lic in te r e s t as a means of e lim in a tin g w aste, in e f f ic ie n c y, and the undue co s t o f m a in ta in in g separate systems.6 1. P.U.R. E 1918, p P.U.R. E 1918, p P.U.R. B 1919, p P.U.R. D 1919, p P.U.R. C 1919, p P.U.R. E,1918, p. 608.

70 60 The C olorado, Idaho, A riz o n a, and Nevada laws are much the same as tho se i n C a lif o r n ia. The Colorado Commission has re fu sed to a llo w a u t i l i t y to re ce ive p ro te c tio n even though i t may now he g iv in g good s e rv ic e, i f p re v io u s ly had d isre g a rd e d th e p u b lic demands f o r b e tte r s e rv ic e.1 Idaho fo llo w s th e C a lifo r n ia r u le, in th a t th e Commiss io n w i l l g ra n t a c e r t if ic a t e to compete i f i t can be shown th a t th e e x is tin g Company is n o t p e rfo rm in g i t s duty to the p u b lic.2 Even good s e rv ic e, however, does not e n t it le a u t i l i t y to p ro te c tio n i f the r a te s a re found unreasonable o r i f th e company is n o t occupying a l l the t e r r i t o r y w hich i t s c h a rte r a llo w s, as was decided in an Idaho case.3 The Commission r u le d in an A riz o n a case th a t a p u b lic s e rv ic e c o rp o ra tio n is e n t it le d to p r o te c tio n a g a in s t th e occupancy o f an e x c lu s iv e f i e l d when a d is p o s itio n i s shown t o h o ld i t s e l f in readiness to make reasonable exte nsio ns to serve new d i s t r i c t s. 4 P r io r it y o f occupancy in a f i e l d, a l l other th in g s being equal, wou ld no doubt be g iv e n p re fe re n c e in a l l s ta te s 1. P.U.R., D 1920, p P.U.R., A 1915, p I b id, Idaho L ig h t & Power Co. 4. P.U.R. A 1915, p. 996.

71 61 1 as was de cid ed i n a Nevada case. New Y o rk, M aryland and In d ia n a cases show th a t the u t i l i t i e s which are g iv in g good s e rv ic e are p ro te c te d. The New York Commission has ru le d th a t e s ta b lis h e d u t i l i t i e s are even e n t it le d to p ro te c tio n fro m the c o m p e titio n o f a p r iv a te owner of a p la n t who d e s ire s to f u r n is h lis rh t to h is own 2 te n a n ts. The In d ia n a Commission has s ta te d th a t the g ra n tin g of p ro te c tio n by re fu s in g fra n c h is e s o r p e rm its to operate where a u t i l i t y is a lre a d y in s t a lle d does n o t g iv e th e f i r s t company a b so lu te monopoly i f p u b lic convenience and n e c e s s ity 3 demands c o m p e titio n. The P ennsylvania Goran is s io n has made allow ances fo r abnorm al c o n d itio n s and p ric e s, as f o r in sta n ce d u rin g the war a p u b lic u t i l i t y w hich had o b ta in e d a c e r t if ic a t e o f convenience and n e c e s s ity, re s is te d th e e n tra n ce of a c o m p e tito r alth ough no e ffo r;ts had been made to com ply w ith i t s o b lig a tio n s due to 4 h ig h p ric e s. 1. P.U.R. B 1920, p P.U.R. A 1919, p. 113 (N.Y.); , p. 972 (lid.) 3. P.U.R. E 1918, p P.U.R. B 1920, p. 797

72 62 The I l l i n o i s Commission has re p e a te d ly re fu s e d to p e rm it jit n e y c o m p e titio n w ith s tre e t ra ilw a y s when th e service was a lre a d y adequate.1 E le c t r ic Companies have been ordered to stand the expense o f co n n e ctin g i t s own lin e s w ith those o f another company because i t s own c a p a c ity was in s u f f ic ie n t to meet th e demand.1 These cases are t y p ic a l o f th e d e c is io n s which are g e n e ra lly rendered by th e commis s io n s i n commission re g u la te d s ta te s. No attem pt has been made to g iv e insta nce s o f such d e cisio n s from a l l the s ta te s w hich co n t r o l c o m p e titio n, n o r to p re sent an e xh a u stive stu d y o f any p a r t ic u la r s ta te, but o n ly to emphasize the d e s ir a b ilit y o f s u ch r e g u la tio n as c o n tra ste d w ith th e la c k o f c e n tra liz e d c o n tro l in the m a jo rity of th e s ta te s. In th e s ta te s w hich do n o t re g u la te c o m p e titio n between u t i l i t i e s, even though th e re i s to some e x te n t c e n tra liz e d c o n tr o l, and in the s ta te s where c e n tra liz e d c o n tr o l is a b s o lu te ly la c k in g, th e c o n d itio n s as to c o mp e t it io n are p r a c t ic a lly the same. Ohio, f o r exam ple, has commission cont r o l, b u t not to the e x te n t o f r e g u la tin g c o m p e titio n, as s ta te d 1. P.U.R. A 1919, p P.U.R. A 1915, p. 74

73 63 by the commission in 1915, th a t " in th e absence o f s ta tu ta r y a u th o r ity i t could n o t prevent an e le c t r ic l i g h t and power company fro m com peting, m erely on the ground th a t the f i e l d was a lre a d y occupied by a company fu rn is h in g adequate s e rv ic e, and th a t th e re fo re no p u b lic n e c e s s ity e x is te d fo r a n oth er u t i l i t y to f u r n is h a lik e s e r v ic e ".1 The absence of c e n tr a liz e d c o n tro l in Iowa and the presence o f fre e and u n re s tric te d c o m p e titio n has p e r m itte d an enormous amount o f waste and l i t i g a t i o n w ith o u t any heed to p u b lic convenience o r n e c e s s ity. S ioux C ity, C lin to n, Dubuque, Iowa C i t y, We b ste r C ity, C e n te rv ille, C la rin d a, and many o th e r towns have a l l been subje cte d to telephone c o m p e titio n. Des Moines and Sioux C ity have to le ra te d com peting e le c t r ic s e rv ic e, and B u rlin g to n has had to support two gas companies.2 Both Sioux C ity and Des Moines have had experience w ith a u to busses o p e ra tin g in c o m p e titio n w ith th e ir s tre e t ra ilw a y s. T h is p e rm is s io n was d e nied the auto busses i n S ioux C ity,3 however, but i t has caused no end o f d i f f i c u l t y in Des M oines. The s ta te laws do n o t fo r b id o r r e s t r i c t i t and th e m u n ic ip a l o f f ic ia ls and th e c o u rts have so f a r 1. Downey, E.H., "Urban U t i l i t i e s in Iow a", p P.U.R. A 1915, p A r t ic le in Des Moines R e g is te r.

74 64 upheld i t. C o n d itio n s f i n a l l y culm in ated in a t o t a l cecession of s tr e e t car s e rv ic e on August 3, 1921, in accordance w ith o rd ers issued b y F ederal Judge Wade, and a t th e p re sent w r it in g th e re i s no in d ic a tio n s o f an immediate s e ttle m e n t of the d i f f i c u l t y. Here is a case where a few form o f s e rv ic e has been p e rm itte d to compete to the e x te n t o f co m p le te ly e lim i n a tin g th e o ld e r fo rm. But w hatever may b e s a id f o r the s u p e r io r ity o f new methods o f tr a n s p o rta tio n, i t s t i l l remains t h a t p u b lic p o lic y is a t f a u l t in re fu s in g t o p ro te c t p ro p e rty w h ich has been guaranteed as w e ll as re g u la te d. I f s tre e t ca rs are to go th e y should be g ra d u a lly superseded by o th er means o f tra n s p o rta tio n, and u n t i l the tra n s fo rm a tio n is com plete a u to busses should supplem ent, n o t e lim in a te, our e x is tin g common c a r r ie r s.1 A more d e ta ile d case2w i l l show v e ry d e f in it e ly what th e Iowa law p e rm its in the u t i l i t y f i e l d, as w e ll as what th e Board o f R a ilro a d Commissioners, before whom th e case appeared sin ce i t in v o lv e d tra n s m is s io n lin e s o u tsid e o f c i t y lim it s, th in k o f such a u t i l i t y p o lic y. 1. Des Moines Reg is t e r, J u ly 15, Schmidt B ros. & Co. vs C itiz e n s o f C layton County, Docket No. E-169, Feb. 25, 1916

75 65 The Commission s ta te d in in tro d u c in g th e case in q u e s tio n t h a t "a fra n c h is e f o r an e le c t r ic tra n s m is s io n lin e o u ts id e of c it ie s, in c lu d in g the r ig h t o f em inent domain, may be granted under the Iowa law s, a lth o u g h the lin e may be unnecessary and c o m p e titiv e, i t n o t being the p o lic y to p re fe r a re g u la te d monopoly to c o mp e t it io n." F u rth e r d e ta ils o f the case show th a t " Schmidt B ros. and Company made a p p lic a tio n f o r a fra n c h is e f o r a tra n s m is s io n lin e fro m E lk ader to G a rn e rv ille and from thence to G uttenberg, a t o t a l d is ta n c e of about 22 m ile s ". The Home E le c t r ic Company, o f G uttenberg o b je cte d to the g ra n tin g o f such a fra n c h is e fo r s e v e ra l reasons:1 1. That the a p p lic a tio n is n o t bona f id e. 2. There is no p e r s is te n t demand f o r the b u ild in g o f such a lin e, except on the p a rt o f th e a p p lic a n t. 3. The b u ild in g o f th e lin e to G uttenberg i s unnecessa ry. The Home E le c t r ic Company is s u p p ly in g, and a b le to supply, th e c itiz e n s o f G uttenberg w ith e l e c t r i c i t y a t the same ra te th e a p p lic a n t is ch a rg in g a t E lk a d e r. 4. The b u ild in g o f a new lin e to G uttenberg means ru in o u s c o m p e titio n, and is a g a in s t p u b lic p o lic y ; th a t i t would be a bad pre cedent to a llo w c a p it a l w hich is in v e s te d in a p u b lic u t i l i t y to be subje cte d to c o m p e titio n w h ich 1. Since monopoly i s n o t re g u la te d in Iowa.

76 66 m ight mean th e e v e n tu a l f in a n c ia l wreck o f one or the o th e r o f th e concerns, and leave G uttenberg a t the mercy 1 o f a monopoly. The commission re fu s e d to c o n s id e r th e f i r s t two, on th e ground th a t th e a p p lic a tio n conformed t o the r e quirem ents o f th e s ta tu te, The la s t two were considered to g e th e r under the p ro p o s itio n th a t "where adequate s e r v ic e a t a reasonable r a te i s b e in g rendered by a p u b lic % u t i l i t y, the in tr o d u c tio n o f a c o m p e tito r is unnecessary, may r e s u lt in ru in o u s c o m p e titio n ; th a t a d u p lic a tio n o f p la n ts i s not in th e p u b lic in t e r e s t and may d e te r the in vestm ent o f c a p ita l in p u b lic u t i l i t i e s, and is c o n tra ry to p u b lic p o lic y. " The p ro te s ta n t had argued th a t a lth o u g h Iowa has no P u b lic S e rvice Oonsnission d e a lin g w ith e le c t t ic companies upon as broad lin e s as in the r e g u la r ly governed comm ission s ta te s, th a t n e v e rth e le s s die R a ilro a d Commission should not g ra n t a p p lic a tio n s f o r the r ig h t to occupy th e highways o f th e s ta te by tra n s m is s io n lin e s u n t il th e town a ffe c te d should determ ine th a t th e re should be c o m p e titio n in t h is u t i l i t y. 1. Since monopoly is n o t re g u la te d in Iowa.

77 67 The Commission g ra n te d th a t w h ile in New Y o rk, W isconsin and o th e r commission governed sta te s the esta b lis h e d u t i l i t i e s were p ro te c te d fro m c o m p e titio n u n t i l p u b lic c onvenience and n e c e s s ity v o te d o th e rw is e, th a t such was not the p o lic y in Iow a. "The g e n e ra l p o lic y o f th is s ta te has been to fo s te r c o m p e titio n and to p re vent e x c lu s iv e r ig h t s and m onopoly", and "th e c o n te n tio n o f th e p ro te s ta n t, i f g ra n te d, would r e s u lt in an e x c lu s iv e r i ght to th e Home E le c t r ic Company, and w o uld, under our p re sent la w, p re s e n t, so f a r as t h is Commission is concerned, an u n re g u la te d m onopoly. This s ta te has not y e t adopted th e p o lic y t h a t a re g u la te d monopoly i s b e tte r than fre e c o m p e titio n between a s many persons and c o r p o ra tio n s as may be in c lin e d to get in and t r y t h e ir lu c k ". R e g u la tio n o f C o n s o lid a tio n s, M ergers, Leases and S ales. S tates w hich go to th e e x te n t o f r e g u la tin g comp e t it io n u s u a lly a ls o make p ro v is io n s whereby th e r e la tio n s between th e u t i l i t y comp a n ie s them selves m a y be c o n tr o lle d, f o r th is to o is s u b je c t to p u b lic convenience and n e c e s s ity. The re g u la tio n o f co m p e titio n is f o r the purpose o f p ro te c tin g both th e e s ta b lis h e d u t i l i t y and the p u b lic from the wastes o f d u p lic a tio n s. The c o n tro l o ve r c o n s o lid a tio n s,

78 68 m ergers, leases and s a le s, as c a r r ie d on between u t i l i t i e s, i t meant to p ro te c t the p u b lic from u n r e s tr ic te d monopoly. I t s s p e c ific aim is to c o n tr o l f is c a l com b in atio ns, to pre vent the u t i l i t i e s from o p e ra tin g to th e d e trim e n t o f the p u b lic, as fo r in s ta n c e c o u ld be done were n o t s e c u rity issu e s re g u la te d. When a f is c a l re o rg a n iz a tio n takes p la ce the laws u s u a lly re q u ire th a t th e new s e c u ritie s s h a ll n o t exceed in amount the value o f th e combined concerns as d e term in ed upon by th e com m ission.1 I t i s in no w ise in te n d e d t o l i m i t c o n s o lid a tio n s where economies are to be e ffe c te d through the e lim in a tio n o f d u p lic a tio n s, b u t o n ly to p re vent the s p e c u la tio n, w hich is so easy w ith o u t such re g u la tio n.2 A few examp le s o f where c o n s o lid a tio n s, m erg ers, leases or sales are g ra n te d w i l l i l l u s t r a t e th e value o f th is law in i t s b e a rin g upon the e lim in a tio n o f d u p lic a tio n s and th e re d u c tio n s o f ra te s. In an Ohio case "th e s a le o f th e p ro p e rty o f one e le c t r ic l i g h t company to another was approved, i t appearing th a t adequate s e rv ic e f o r a reasonable ra te would be f urn is h e d and th a t th e s e rv ic e would be i mproved w ith o u t an in cre a se in r a te s ".3 T his re c o g n iz e s the d e s ir a b ilit y o f monopoly so lo n g as i t is re g u la te d. 1. Holmes, Fred L. "R e g u la tio n o f R a ilro a d s and U t i l i t i e s in W isconsin ", p I b id. 3. P.U.R. A. 1915, p. 510.

79 69 I t is th e p o lic y o f th e C a lifo r n ia Commission to a u th o riz e c o n s o lid a tio n where d u p lic a tio n s e x is t and a c o n s o lid a tio n w i l l reduce r a te s and improve s e rv ic e. The M assachusetts Commission p e rm itte d t wo e le c t r ic companies to c o n s o lid a te, as i t appeared t h a t th e c o n s o lid a tio n would make p o s s ib le more econom ical fin a n c in g and s im p lify r e la tio n s w ith the p u b lic.1 The Commission s ta te d the case f o r c o n s o lid a tio n in anoth e r d e c is io n when i t s a id, "P u b lic w e lfa re was th e f i r s t c o n s id e ra tio n ; i f i t i s b e tte r to o rd e r c o n s o lid a tio n, f o r b e tte r s e rv ic e, i t should be done re g a rd le s s o f the em barrassing s itu a tio n i t may p u t a company in ---- i f i t is unable to f u l f i l i t s o b lig a tio n s a lo n e ".2 F iv e Idaho e le c t r ic companies merged and were n o t held in v io la t io n o f th e Idaho A n ti-t ru s t la w, because the Commission has power to re g u la te ra te s and th is merger would b rin g about economies and g iv e b e tte r s e rv ic e.3 I t was s ta te d in a d e c is io n g iv e n by the Delaware Commission th a t " in ta k in g over u t i l i t y p ro p e rtie s, e ith e r by purchase or le a se, th e v a lu e s th e re o f, and the terms upon w hich th e tr a n s fe r is made, should n o t be such as to r e s u lt in an unreasonable in c re a s e in ra te s ".4 1. P.U.R. B 1915, p P.U.R. A 1919, p P.U.R. F 1915, p P.U.R. A 1919, p. 860.

80 70 A company w hich is ch a rg in g v e ry h ig h ra te s may be gra nte d a u th o r ity to purchase a n o th e r company w hich is charging lo w e r, b u t reasonable ra te s. B ut the a u t h o r it y to purchase does n o t p e rm it a r ig h t to ra is e these ra te s to a le v e l o f i t s own.1 A nother case h a vin g to do w ith ra te s says th a t "a c o n s o lid a tio n o f e le c t r ic companies is f o r th e p u b lic good, even i f the people in one place have t o pay h ig h e r r a te s ; because ra te s m ight be h ig h e r w ith o u t con s o lid a tio n ".2 Other c o n d itio n s or q u a lif ic a tio n s w hich are v a rio u s ly made a re as fo llo w s : the bene f i t s a r is in g fro m c o n s o lid a tio n are not t o be c a p ita liz e d ;3 th e purchase p ric e approved b y th e Commission is n o t to be construed as a " f a i r v a lu e f o r ra te s o r c a p ita liz a tio n, o r fo r the issuance o f s e c u r itie s.4 The A rizo n a Commission has p e rm itte d telephone systems to c o n s o lid a te w ith o u t i t s consent, where no w ith d ra w a l o f s e rv ic e was contem plated and o n ly th e e lim in a tio n of c o m p e titio n and d u p lic a tio n re s u lte d. U s u a lly, however, c o n s o lid a tio n s must be enacted s t r i c t l y in accordance w ith law and o n ly a f t e r the com m ission has passed upon th e ca se. 1. A C a lifo r n ia d e c is io n, P.U.R. B 1919, p New Hampshire Case, P.U.R. C 1918, p P.U.R. F 1918, p. 232, Nebraska. 4. P.U.R. C 1918, p. 803, C o n n e cticu t; C 1918, p. 389, New Hampshire.

81 71 The New Jersey Comm is s io n fo rb a d e a c o n s o lid a tio n w hich was n o t proposed in accordance w ith th e law,1 and, in another in s ta n c e, re fu s e d, in the absence o f s ta tu to r y power, to a u th o riz e th e c o n s o lid a tio n o f c o rp o ra tio n s organized o u ts id e th e s ta te.2 Sometimes th e p u b lic demands c o n s o lid a tio n. A Maine case shows th a t the lo c a l companies and the p u b lic in s e v e ra l s m a ll pla ce s asked a b ig e le c t r ic u t i l i t y to buy up a l l these s m a ll companies so as to g iv e b e tte r s e rv ic e.3 This was p e rm itte d b y th e Commission. More in s ta n c e s o f t h is k in d would in d ic a te g re a te r in te r e s t on th e p a rt o f the p u b lic and would h e lp the u t i l i t i e s in e ffe c tin g the economies which such com binations n a t u r a lly b r in g. South Dakota fu rn is h e s an example o f where p h y s ic a l connection between two com peting telephone s ystems was ordered on the p r in c ip le th a t i t was in the p u b lic in te r e s t to do so, a lth ough th e comm is s io n had no a u th o r ity u n der the e x is tin g s ta tu te to re q u ire these companie s to c o n s o l id a te t h e ir p ro p e rtie s under one ow nership.4 The comm issio n expressed the o p in io n, however, th a t i t was reasonable and d e s ira b le from every v ie w p o in t fo r the p ro p e rtie s to be c o n s o lid a te d. 1. P.U.R. A 1915, p P.U.R. F 1915, p P.U.R. C 1918, p C ity o f G roton vs. G roton-f erney M utual Telephone Co., P.U.R. E 1919.

82 72 An alm ost id e n t ic a l s itu a tio n e x is te d in Nebraska in The commission i n commenting upon a case s a id, " I t is obvious th a t d u p lic a tio n o f telephone u t i l i t i e s in a lim ite d f i e l d, such as we here f in d, is not d e s ira b le from any s ta n d -p o in t". The commission expressed i t s re g re t in n o t being a b le to order a p h y s ic a l c o n s o lid a tio n o f the com peting p ro p e rtie s, though as in the South Dakota case c ite d above, p h y s ic a l connectio n was o rd e re d. In d ia n a, a ls o, as la te as 1918, had no power to order a m erger, d e s p ite th e wisdom o f th e id e a ; Ohio had no ju r is d ic t io n to approve an agreement to c o n s o lid a te ; and in West V ir g in ia i t has been necessary th a t the m u n ic ip a lity must f i r s t g ive i t s consent b e fo re c o n s o lid a tio n can take p la c e, and th e c o n t r o llin g company must f i r s t g e t co n tr o l o f the fra n c h is e s and p ro p e rtie s o f th e o th e r companies.2 Thus we see from these examples th a t t h is p a r t ic u la r law can be v e ry e ffe c tiv e in b rin g in g about b e tte r service and low er ra te s because i t removes the u t i l i t i e s fro m the cla s s of s p e c u la tiv e in d u s tr ie s and encourages monopoly ra th e r than u n c o n tro lle d c o m p e titio n and d u p lic a tio n s in 1. B lackledge v s. Farm ers' Independent Telephone Company, P.U.R. D See P.U.R. A 1919, p. 860.

83 73 equipment and s e rv ie e s. O b vio u sly no lo c a l re g u la to r y body could handle a s itu a tio n o f th is h in d. Only a s ta te commission can secure the b e n e fits re c ite d above*

84 CHAPTER IV. CONCLUSION: THE PRESENT SITUATION IN IOWA, WITH SOME SUGGESTIONS FOR A CONSTRUCTIVE U TILITY PROGRAM. In th e in tro d u c to ry statem ents the charge was made th a t Iowa has always p e r s is te n tly v io la te d th e v e ry p r in c ip le s re g a rd in g r e g u la tio n which o th e r s ta te s have accepted as the o n ly means o f secu rin g a c o n s tru c tiv e u t i l i t y program. The f i r s t chapte r review ed the p r in c ip le s o f re g u la tio n w hich have p re v a ile d a t d if f e r e n t tim e s. The second chapter gave in d e t a il the f a lla c ie s of m u n ic ip a l ow nership and lo c a l re g u la tio n, e s p e c ia lly as re la te d to the development o f e le c t r ic u t i l i t i e s. The t h i r d chapte r tre a te d th e m a tte r o f c o m p e titio n and c o n s o lid a tio n, m a in ly in o th e r s ta te s besides Iowa, showing what th e se s ta te s have accepted in t h e ir u t i l i t y program, th u s fo rm in g a background f o r a d is c u s s io n o f th e p re sent s itu a tio n in Iowa. The P resent S itu a tio n in I owa The most s t r ik in g fe a tu re in t h is s ta te is i t s la c k o f a p u b lic s e rv ic e commission. The Board o f R ailw ay Commissioners has a few very lim it e d r ig h ts o f ju r is d ic t io n, but no c o n tro l over ra te s, v a lu a tio n o f p ro p e rty, s e rv ic e, e tc. A ll u t i l i t i e s, w hether owned b y th e m u n ic ip a litie s

85 75 or by p riv a te c o rp o ra tio n s a re a lik e s u b je c t to m unic ip a l re g u la tio n. T his r e g u la tio n in i t s e l f has been as f a i r and e f f ic ie n t as coul d be expected anywhere, except in a fe w n o ta b le cases, and th e u t i l i t y managers themselves have t e s t if ie d to good tre a tm e n t and ready response to le g itim a te ra te in c re a s e s. An o f f i c i a l counsel o f the U n ite d Lig h t and R ailw ays Company s aid in re sp e ct to t h is s ta te : " I t i s a rem arkable and g r a t if y in g fa c t t h a t in the g re a te r p o r tio n o f our Iowa c it ie s and towns th e c i t y o f f i c i a l s have re sponded to the needs o f the companies w it h a prom ptness and fa ir n e s s u n e xce lle d by any p u b lic u t i l i t y com m ission."1 W hile t h is i s v e ry commendable i t only emphasizes the f a c t t h a t f a i r tre a tm e n t is accorded th e u t i l i t i e s in most in sta n ce s, and does not take in to c o n s id e ra tio n th a t a s ta te commission could be ju s t as f a i r, o r as is g e n e ra lly th e case, even more unbiased in i t s d e a lin g s w ith th e u t i l i t i e s. The im p o rta n t p o in t is th a t a s ta te commission would be more e f f ic ie n t and capable in every way than w ould a c it y c o u n c il, however f a i r minded were i t s members. And fu rth e rm o re such u t i l i t y w a rfa re 1. Cham berlain, Wm., "R e g u la tin g R ates in Iow a", E le c tr ic R ailw ay J o u rn a l, J u ly 5, 1919.

86 76 as has e x is te d in Des Moines would n o t he to le ra te d in a s ta te which had pro per c o n tro l over c o m p e titio n. Even the e x c e p tio n a l cases o f d i f f i c u l t i e s due to lo c a l r e g u la tio n would th e n be e lim in a te d. No doubt the main reason why Iowa has rem ained dependent on lo c a l r e g u la tio n and a g a in s t a s ta te commission is to b e found in the w e ll organized le a d e r ship o f the League of Iowa M u n ic ip a litie s. This league was organized October 14, 1898, and is o f f i c i a l l y p ro vid ed f o r in th e s ta te la w s,1 and in 1919 com prised a membership o f 422 c it ie s and towns in the S ta te. The le a g u e 's o f f i c i a l organ, American M u n ic ip a litie s,2 has a sta n d in g r e s o lu tio n a g a in s t comm is s io n government or a d m in is tra tio n in g e n e ra l, and e x p l i c i t l y a g a in s t a p u b lic u t i l i t y commission f o r Iowa. The r e s o lu tio n in p a rt reads:3 "Be i t re s o lv e d, That th e League o f Iowa M u n ic ip a litie s e x e rt a l l le g itim a te e f f o r t s to p re v e n t th e c re a tio n o f any p u b lic u t i l i t y commission in the s ta te o f Iowa, and th a t t h is O rg a n iz a tio n hereby expresses i t s u n a lte ra b le o p p o s itio n to th e esta blishm e nt o f any commission a u th o riz e d to c o n tr o l o r re g u la te any lo c a l u t i l i t y ". 1. Code Supplement, 1913, Sec a -b -c. See a ls o :Reports o f Iowa M unicip a l Acco u n ts, P ublished a t M a rsh a llto w n, Iowa 3. Issue f o r J u ly,1921.

87 77 There is no s u rp ris e then when i t i s found th a t p u b lic o f f i c i a l s, e d ito rs and th e p u b lic g e n e ra lly are a g a in s t s ta te re g u la tio n o f u t i l i t i e s f o r Iowa. Q u e s tio n a ire s asking w hether s ta te or lo c a l r e g u la tio n was p re fe rre d were sent to the fo llo w in g s ix te e n Iowa c it ie s : Hampton Fo r t Dodge Sioux C ity W aterloo M a rsh alltow n Mason C ity Storm Lake Shenandoah Emmettsburg Cherokee Ottumwa Oskaloosa Red Oak O elwein C e n te rv ille D avenport The mayor answered f o r fo u rte e n o f th e c i t i e s w h ile the e d it o r 1o f a lo c a l paper answered f o r Davenport and a Congressman f o r C e n te r v ille.2 Only one r e p ly, t h a t fro m O elwein, in d ic a te d a p re fe re n ce f o r a s ta te u t i l i t i e s com m ission. Some o f the reasons given a re no doubt t y p ic a l o f the general a t t it u d e. One answer3was in c lin e d to the b e lie f th a t c o n tro l should be clo se a t home ra th e r th a n removed 1. Cram, R.W. "The Davenport D em ocrat". 2. P o rte r, Claude R. 3. Ib id.

88 78 f o r the reason th a t c o n tro l is unresponsive to the wishes o f the people when too f a r removed and i t i s to o d i f f i c u l t to reach them, and th a t i t is im p o s s ib le f o r a commission lo c a te d a t a d is ta n c e to have the thorough knowledge o f c o n d itio n s th a t one c lo s e r a t hand possesses. He opposed p u b lic ow nership, however, because o f h is b e lie f th a t th e p u b lic was in s u f f ic ie n t ly in te re s te d in i t. 1 Another statem ent was to th e e f fe c t th a t lo c a l commissions would be in b e tte r touch w ith th e home s itu a t io n, but should be safe-guarded by appointm ent t o them o f h ig h -g ra d e c it iz e n s ; a n o th e r th a t c it ie s should be g iv e n power to re g u la te ra te s, and to own and operate 2 t h e ir own p u b lic u t i l i t i e s. I t $s n o t meant to m inim ize in any re s p e c t th e b e tte rm ents in c iv ic o rg a n iz a tio n and improvement fo r. w hich the League of Iowa M u n ic ip a litie s stands o r has accom plished. Bat i t is s tro n g ly urged th a t such a p ro gram as in d ic a te d in i t s in s is te n c e on lo c a l r e g u la tio n is not in the best in te re s ts o f th e c itiz e n s cf th e s ta te, e ith e r e co n o m ica lly o r p o l i t i c a l l y, in any lo n g - ru n scheme o f developm ent. 1. Gram, R.W., Op. G it. 2. Mayor S hort o f S ioux C ity.

89 79 B i l l s fo r the purpose o f c re a tin g a p u b lic s e rv ic e commission f o r Iowa have a l l f a ile d. S im ila r h i l l s were presented to both th e T h ir ty - T h ir d 1 and T h irty -F o u rth 2 General Assem blies, th e f i r s t in 1909, the la t t e r in Both p ro vid e d fo r s ta te c o n tr o l, through a p u b lic s e rv ic e commission o f f iv e members, o f a l l u t i l i t i e s both m unic ip a l and p r iv a te. This commission was t o have power to f i x ra te s and ord er im provem ents; to re g u la te bond is s u e s ; and to re q u ire a c e r t if ic a t e o f convenience and n e c e s s ity f o r a l l proposed u t i l i t y c o n s tru c tio n, thus re g u la tin g c o m p e titio n. There were many im p o rta n t om issions, however, which have been enumerated b y Downey3 as fo llo w s : (1) e x p lic it d e f in it io n o f u n la w fu l d is c r im in a tio n, (2) v a lu a tio n o f u t i l i t y p ro p e rtie s by th e com m ission, (3) a u d it o f u t i l i t y accounts, (4) d e f in it io n by th e commission o f standards o f p ro d u c t and s e rv ic e, (5 ) in s p e c tio n o f s e rv ic e and equipment by th e com m ission s s t a f f, (6) c o n tro l o f m ergers, (7 ) a p pro val o f fra n c h is e s by the commission, (8) an in d e te rm in a te p e rm it c a lu s e, (9) re s t r ic t io n s upon ju d ic ia l review o f th e com m ission s d e c is io n s. 1. Sammis b i l l. 2. Sammis b i l l. 3. Downey, E.H., Op.Ci t.

90 80 I f these b i l l s w ere weak because of om issions, the S p rin g e r1h i l l which appeared b e fo re the la s t General Assembly, 1921, was so much weaker as to a lm o s t f a i l com parison, No s ta te comm is s io n was even proposed, as were none o f the e s s e n tia ls m entioned above as having been h e re to fo re o m itte d,2 n o r was th e re a convenience and n e c e s s ity cla u se. The second o f the form er b i l l s, th a t o f 1911, granted more powers to m u n ic ip a litie s than d id th e f i r s t, w h ile the S p rin g e r b i l l was as complete a s u rre n d e r to lo c a l re g u la tio n as could be im agined. I t s ma in p ro v is io n was th a t in te nded to e s ta b lis h a c o u rt o f appeal, known as a C ourt o f P u b lic S e rv ic e, to w h ich u t i l i t y problems m ight be subm itted f o r s e t t le ment. A lth ough the b i l l passed b o th House and Senate, members o f the House re g re tte d t h e i r a c tio n a fte r it s passage and attem pted to persuade th e Senate to r e tu r n the b i l l, but in s te a d i t was passed. By th e tim e i t reached th e govern o r s hands so much p re s s u re had been brought to d e fe a t the b i l l th a t he re tu rn e d i t w ith o u t h is s ig n a tu re. 1. House b i l l no. 623, by S p rin g e r. 2. E xce rp t ( 8 ).

91 81 One o f h is reasons f o r v e to e in g the bi l l was e x a c tly why most s tu d e n ts o f th e problem w ould have fa vo re d i t, - namely, because i t p ro vid e d th a t a l l fra n c h is e s should be in d e te rm in a te. S aid the Governor upon re tu rn in g the b i l l, 1 "S e c tio n 9 o f the b i l l v io la te s fundam ental p r in c ip le s o f our law and is a com plete re v e rs a l o f the p o lic y o f the s ta te i n d e a lin g w ith p u b lic u t i l i t i e s. I t d e p rives the people and c i t y c o u n c ils o f a l l power to p ro te c t th e in te r e s t o f th e community because i t g r ants an in d e te rm in a te fra n c h is e, w hich is in e ffe c t a p e rp e tu a l r ig h t to enjoy the b e n e fits and p riv ile g e s o f th e fra n c h is e g ra n t". No doubt the Governor was m isinform ed as to the g e n e ra lly accepted meaning o f "in d e te rm in a te f r a nc h is e ". I t does n o t give any p e rp e tu a l r ig h t s, and " d if f e r s from the p e rp e tu a l fra n c h is e in th a t i t may be revoked a t any t i me th a t th e re g u la tin g body decides th a t the c o rp o ra tio n is n o t p ro p e rly se rv in g th e p u b lic 's in t e r e s t ". 2 The tendency o f th e in d e te rm in a te fra n c h is e is to g iv e g re a te r s t a b i l i t y to the u t i l i t i e s and e lim in a te compet i t i o n, b u t t h is is c o n tra ry to th e laws o f Iowa.3 T his i s 1. Journal o f th e House, p K ing, C. L., Op.Ci t. p. 84; Holmes, Op.Ci t. p Holmes, Fred L. Op.Ci t. p. 49.

92 82 e x a c tly what is now most commonly accepted as the c o rre c t p r in c ip le o f fra n c h is e g ra n tin g, p ro v id in g always th a t the r ig h t to c o n tro l th e fra n c h is e he l e f t to an able and unbiased c e n tra l s ta te commission, and n o t to lo c a l a u th o r itie s.1 Hence had th e Governor had in mind th e purpose o f g iv in g th e Ci t y C o uncils and Boards o f S upervisors more power in s te a d o f ta k in g away imagined p r iv ile g e s from the u t i l i t i e s he c o u ld have done no b e tte r th a n to s a n c tio n the in d e te rm in a te fra n c h is e. He a ls o found h im s e lf out o f accord w ith the e sta b lish m e n t o f th e C ourt of Appeals, again w ith o u t g iv in g the reasons f o r h is p o s itio n w hich u t i l i t y e xp erts would have g iven. The Court was to c o n s is t of th re e d i s t r i c t judges a p p o in te d by th e c h ie f ju s tic e o f the supreme c o u rt, and t h is, th e veto message a s s e rte d, was in d ir e c t c o n tra v e n tio n o f S e ctio n 5 o f A r t ic le 5 o f th e S ta te C o n s titu tio n, w hich s ta te s t h a t judges s h a ll be in e lig ib le to any o th e r o f f ic e than th e one to w hich e le c te d. U t i l i t y e xp e rts w ould no doubt have agreed t h a t th e Court was a lre a d y overburdened and would not have the tim e nor th e e xp e rt tr a in in g in u t i l i t y problems to give the 1. Kin g, C.L., O p.c it. 2. K ing, C.L., O p.c it. p. 190.

93 83 cases thorough re vie w. "C ourt r u le ", or s e ttle m e n t o f u t i l i t y problems by law s u it has proved w h o lly inadequate in th e p a s t. I t does n o t " re g u la te, b u t m erely passes upon cases a lre a d y out o f date. I t i s to o slow, too expensive, and i s n o t e x p e rt.2 F urtherm ore th e b i l l ' s p ro v is io n to leave c o n tro l in the hands of c i t y c o u n c ils o r boards o f s u p e rv is o rs is e q u a lly weak.3 Besides being s u b je c t to th e same weaknesses which c o u rt r u le d is p la y s, i t would not fo s te r th e e xe rcise o f unbiased judgm ent. T herefore the Iowa u t i l i t y laws as th e y s t i l l stand are v e ry meagre. The o n ly approach to c e n tr a liz a tio n of any k in d i s found in th e p ro v is io n s 4 w hich re q u ire a l l c it ie s o r towns owning any p u b lic u t i l i t i e s to make an annual re p o rt as to the f in a n c ia l c o n d itio n o f the u t i l i t y, w hich d a ta is each year c o lle c te d and p u b lis h e d by th e a u d ito r o f th e s ta te.5 The m u n ic ip a litie s have f u l l 1. Kin g, C.L., O p.c it. p I b id. 3. Downey, E.H., p Compiled Code o f Iow a, 1919, S e c tio n Downey, E.H. O p.c it. says th e se re p o rts are v e r y in com plete and u n r e lia b le.

94 84 power in d e a lin g w ith th e u t i l i t i e s, a lth o u g h th e la w p ro vid e s a g a in s t monopoly by denying th e r ig h t to a m u n ic ip a lity o f g ra n tin g fra n c h is e s f o r more th a n 25 years o r to g ra n t an e x c lu s iv e fra n c h is e.1 T his i n sures c o m p e titio n but does not reg u la te i t. C itie s governed by Commissions o r by th e c o u n c il and manager p la n s p e c if ic a lly p ro vid e th a t no fra n c h is e s can be granted w ith o u t the consent o f a m a jo r ity o f th e e le c to r s.2 A l l c it ie s are g ra n te d th e r ig h t to m u n ic ip a l ownersh ip e ith e r by purchase or c o n s tru c tio n. I f a c it y vo te s f o r m u n ic ip a l ow nership and the u t i l i t y re fu ses to s e ll or terms of tr a n s fe r cannot be reached, th e c it y may b rin g condemnation p ro ceedings, th ro u g h a Court o f Condemnation, to a c q u ire i t. 3 The ra te s o f a l l u t i l i t i e s are lo c a lly re g u la te d, alth o u g h the law makes no p ro v is io n as to the re g u la tio n o f s e rv ic e.4 The lo c a l re g u la tin g body has the "power 1. Compiled Code o f Iow a, 1919, S e c tio n " " " " " S e ctions 4230, ",T " " " S e ctions 3968, " " ",f " S e ctio n 3973.

95 85 to re q u ire e ve ry in d iv id u a l or p r iv a te c o rp o ra tio n. o p e ra tin g such works or p la n t, s u b je c t to reasonable r ule s and re g u la tio n s, to fu rn is h any person a p p ly in g th e re fo r, a long the lin e o f i t s p ip e s, m ain, w ire s or o th er c o n d u its, w ith g a s, h e a t, w a te r, l i g h t o r pow er. 1 The o n ly power ever d ir e c t ly e x e rc is e d over ra te s by the Iowa le g is la t u r e has been fo r ra ilro a d s and s tr e e t ra ilw a y s. I t is s t i l l c o n tro v e rs ia l as to w hether ra te s s tip u la te d in fra n c h is e s a re c o n tra c tu a l o r le g is la t iv e in c h a ra c te r. I f th e l a t t e r, the c i t y has power to change them w ith o u t c o u rt pro cedure, Judge Wade o f the F e d e ra l Co u rt takes the stand th a t ra te s are c o n tra c tu a l, w h ile Judge A pplegate and th e Iowa Supreme Court hold th a t th e y are le g is la t iv e, as do also the u t i l i t i e s. 2 A c o n s tru c tiv e u t i l i t y program f o r Iowa should f i r s t o f a l l demand a p u b lic s e rv ic e com m ission, to be a p p o in te d fo r in d e fin ite term s, and w ith f u l l power o ve r a l l u t i l i t i e s, in c lu d in g the power o v e r r a ilr o a d s now vested in the R a ilro a d Commission. The Commission should be 1. Ib id. 2. Cham berlain, Wm., " Rate R e g u la tio n in Iow a", E le c t r ic R ailw ay J o u rn a l, J u ly 5, 1919.

96 86 empowered w ith c o n tro l over v a lu a tio n, rate-m ak in g, a u d itin g o f u t i l i t y a cco u n ts, s ta nd a rd s o f p ro d u ct and s e rv ic e, and in s p e c tio n o f u t i l i t y p ro p e rtie s. Compet i t i o n should be re g u la te d th ro u g h a "convenience and n e c e s s ity " c la u s e. Power to pass on fra n c h is e g ra n tin g should b e veste d in th e Commission. The lim ite d f r an c h is e should b e re p la ce d b y th e in d e f in it e g ra n t, w ith pro per p ro v is io n s a g a in s t makin g i t p e rp e tu a l. As f a r as p o s s ib le a l l d e c is io n s o f the Commission should be f i n a l, w ith as l i t t l e tendency as p o s s ib le tow ard "c o u rt r u le ". The a u t h o r it y of the Commission should a p p ly e q u a lly to a l l u t i l i t i e s, w hether m u n ic ip a lly or p r iv a t e ly owned, thus e lim in a tin g the e v ils o f lo c a l re g u la tio n. The Commission should have co n t r o l over c o n s o lid a tio n s, m ergers, leases and s a le s, w it h power to re g u la te s e c u r it y issu e s. T h is c o n tro l w ould mean, as in most s ta te s whi ch have such c o n tr o l, th a t the consent of th e commis s io n must b e had b e fo re f is c a l or p h y s ic a l c o n s o lid a tio n s could b e made. I t wo u ld seem a d v is a b le, a ls o, to give the Commission a d v is o ry power over such c o n s o lid a tio n s even before th e y a re proposed b y th e u t i l i t y companies. In t h is way a syste m a tic u t i l i t y program could b e w o rk ed

97 87 o u t, e s p e c ia lly in e le c t r ic u t i l i t i e s such as in d ic a te d on the map on page 42. By fo llo w in g such a program, even e n fo rc in g c o n s o lid a tio n s i f the u t i l i t i e s f a ile d to combine where p u b lic in te r e s t demanded i t, the e le c t r ic u t i l i t i e s of Iowa c o u ld be reduced in number, each company o p e ra tin g w ith a l l the economies of la rg e sale p ro d u c tio n in a d e f in it e p o r tio n o f the s ta te. Laws should also be enacted lo o k in g to the s o lu tio n o f the problem of m u n ic ip a l ow nership. W hile th e re is much to be said a g a in st the m u n ic ip a liz a tio n o f u t i l i t i e s, e s p e c ia lly such as cannot be e a s ily o r e c o n o m ic a lly confin e d to m u n ic ip a l bo u n d a rie s, y e t the p u b lic o fte n in s is t s on u n d e rta k in g i t. Hence p ro p e r p ro v is io n should be made to p ro te c t the u t i l i t i e s pending m u n ic ip a liz a tio n, so as to give s e c u rity to publ ic u t i l i t y investm ents and m a in ta in a f a i r r e tu r n.1 I f i t is found to be necessary to compromise between s ta te and lo c a l re g u la tio n the spheres o f a u th o r ity should be c a r e f u lly d e fin e d, so as t o e ffe c t 1. Wilc o x, Delos F. "Recent Developments in th e P u b lic U t i l i t y F ie ld a ffe c tin g Fra n chise P o lic ie s and M u n ic ip a l Ownership. The Na tio n a l M u n ic ip a l Review, V o l. V I I, No. 2, March, 1918.

98 88 co o p e ra tio n ra th e r th a n h o s t i l i t y between th e tw o.1 The p r in c ip le o f s e rv ic e a t cost has been in c r e as in g ly emphasised wherever re g u la tio n has been recognized and adopted. This is n a tu r a lly the p r in c ip le which is fo llo w e d under m u n ic ip a l ow nership. And inasmuch as i t guarantees a f a i r r e tu r n on c a p it a l i t is the only sane ra te p o lic y f o r p r iv a te as w e ll as m u n ic ip a l u t i l i t i e s, and when a p p lie d to p r iv a te u t i l i t i e s e lim in a te s one o f the most prom inent arguments f o r m u n ic ip a l ow nership. A s ta te Commission should f o llo w a d e f in it e p o lic y in r e g u la t ing ra te s on t h is b a s is. Another m a tte r o f immediate concern to th e p u b lic and w hich should come more f u l l y under s ta te c o n tro l is th a t o f conserving and u sin g our w ater power resources. T h is problem is n o t so o u ts ta n d in g ly e v id e n t in Iowa as in C a lifo r n ia, f o r exam ple, where a great d e a l o f a tte n tio n has been g iv e n i t. D u rin g the p a st two years a p la n has been a g ita te d i n C a lifo r n ia c al le d th e M a rs h a ll P la n,2 w hich in c lu d e s in i t s program that th e s ta te w ater and power reso urce s be u n ifie d under s ta te c o n tr o l, lo o k in g to a complete u t i l i z a t i o n o f a l l r e s e r v o ir s ite s. 1. I n s u ll, Samuel, "C e n tra l S ta tio n E le c t r ic S e rv ic e ". 2. Journal o f E le c t r ic it y, Nov. 15, 1920.

99 89 A s im ila r recommend at io n, embracing a g re a t many k in d re d sug gestions, was made fo r th e s ta te o f Iowa in 1910 in th e Report o f th e Iowa S ta te Drainage and Waterways and C onservation Commission. An exa m in atio n o f t h is re p o rt re v e a ls a g re a t amount o f enthusiasm concerning the p o s s ib ilit ie s o f d e velopin g w a te r power in th is s ta te. I t was found th a t there were 101 wat e r power p la n ts in o p e ra tio n, 28 o f w hich were p ro d u cin g a l l or p a rt e le c t r ic power, w h ile th e r e s t were used f o r m illin g. R egret was expressed th a t d u rin g th e two years p r io r to the re p o rt th a t the power o f these combined p la n ts had decreased from 17,304 H.P. to 11,877 H.P. la r g e ly because dams were destroye d by flo o d s and were not r e b u ilt. The r e p o rt showed however th a t a t le a s t an a d d itio n a l maximum horse power o f 247,500 could e a s ily be developed. Many surveys were made wh ic h showed a g re a t number o f good power s ite s. The Commission recommended th a t inasmuch as the coal supply was lim ite d th a t the s ta te shoul d own and develop these w ater re so u rce s in o rd e r to in s u re adequate and cheap power in the fu tu re. S ta te r e g u la tio n o f these

100 90 u t i l i t i e s was deemed a b s o lu te ly e s s e n tia l, as w e ll as a system atized co n s o lid a tio n o f the p la n ts, in o rd e r to in sure the proper developm ent. I t is c e rta in th at these u n d e rta k in g s should b e cont r o lle d by th e s ta te in case they are developed; b u t the p r o b a b ility of t h e ir developm ent, im m e dia tely a t le a s t, is doubted by a g re a t many. P ro fe s s o r J.B. H i l l o f th e College of E n g in e e rin g o f the S tate U n iv e rs ity o f Iowa is o f th e o p in io n th a t th e e la b o ra te suggestions of th e Commission are not w arranted from an economic s ta n d p o in t.1 Most o f the p ro je c ts would re q u ire la rg e and expensive re s e rv o irs and a g re a t d e a l o f expensive dam c o n s tru c tio n and m aintenance, and owing to w e ather c o n d itio n s steam p la n ts would have to also be m a in ta in e d. The d e s ire to secure cheap power no doubt p la ys a most im p o rta n t p a rt in the minds of most people i n w is h in g to develop w a te r power. In respect to such p owe r Samuel I n s u ll says:2 "G low ing p ic tu re s are drawn o f th e amount o f power th a t can be produced from waterways w ith in th is s ta te ( I l l i n o i s ), and because w a te r ru n s down h i l l i t is asserted t h a t th e p owe r can a l l be s o ld f o r n o th in g or a t a v e ry low p ric e. Of course, t h a t is s im p ly a dream... The o n ly way th a t you can g e t cheap p ro d u c tio n and d is - 1. From an in te rv ie w. 2. "C e n tra l S ta tio n E le c t r ic S e rv ic e ", p. 339.

101 91 t r ib u t io n o f energy is by conc e n tr a tio n, by monopoly. The e s s e n tia l p o in t is, however, th a t th e b e tte r o f these resources w i l l be developed s ome tim e, e ith e r b y the s ta te o r by p r iv a te in te r e s ts, and in any event should be s t r i c t l y re g u la te d by th e s ta te. But b e fo re t h is can be done the u t i l i t y program o f the s ta te w i l l have to be g r e a tly a lte re d so as to empower a p u b lic s e rv ic e commission w ith a l l th e powers suggested above.

102 B ib lio g ra p h y American Telephone & T elegraph Co., Commission Laws, 3rd Ed. Anderson, Wm. The Work o f Pub. S e rv ic e Commissions. Baker, M. N. The M u n ic ip a l Year Book, 1902 B a rke r, H a rry, P u b lic U t i l i t y R ates. Board o f P u b lic U t i l i t i e s, C ity of Los A ngeles, Tenth Annual R e port. Brackenburg,B.A. C om petition in Sm all C ity P u b lic U t i l i t y O p e ra tio n. E le c t r ic a l W orld, J u ly 3, Burns & M cdonnell, C o n su ltin g E ngineers, Kansas C ity, Mo. One Hundred Reasons f or M u n ic ip a l O w nership. B y lle s b y, H.M. P.210 o f Samuel I n s u l l s Book, Op. C it. C ordeal, E a rn est. P le n a ry Power fo r P u b lic S e rvice Commissions B adly Needed. C ordeal, Ea rn e s t. What the S tre e t Car System Means to the In d u s t r ia l F u tu re. Cham berlain, Wm. R e g u la tio n of Rates in Iowa. E le c t r ic R ailw ay J o u rn a l, J u ly 5,1919. Cole of Iow a, Supplement 1913, Commission and Court D e c is io n s. American C ity, V o l. 22. C o n centratio n o f C o n tro l o f P u b lic U t i l i t i e s, F e b ru a ry 5, E le c t r ic a l W orld, Downey,E.H. Urban U t i l i t i e s in Iowa. V o l. I o f Shambaugh's Iowa A p p lie d H is to ry S e rie s. D ebaters Handbook S e rie s, M u n ic ip a l Ownership. Denman, B.J. Debates B e fo re th e I l l i n o i s C o n s titu tio n a l C onvention, A p r il 1, 1920.

103 Des Moines R e g is te r, J u ly 15, Development in El e c t r i c S tre e t L ig h tin g. American C ity, F ebruary Douglas, P.H. The S e a ttle M u n ic ip a l S tre e t R a ilw a y System. The Journal of P o lit ic a l Economy. June E le c tr ic T ransm ission Line Law, Nebraska. F o s s e tt, C.M. S e rvice a t Cost v s. M u n ic ip a l Ownership. N a tio n a l M u n ic ip a l Review. F ebru ary F o w le r, C.L. Logic of C o n s o lid a tio n s. E le c t r ic a l W orld. March 23, Grunsky, C.M. V a lu a tio n, D e p re c ia tio n, and th e Rate-Base H a tto n,m r. Testim ony on "Home R u le " B efore C o n s titu tio n a l C onvention o f I l l i n o i s. A p r il 1, Hayes, H.V. P u b lic U t i l i t i e s, T h e ir F a ir Present Value and R e tu rn. Hagenah, W.J. U t i l i t i e s Turn to R e g u la tin g Commis s io n s. E le c t r ic a l W orld, January 5, Holmes, Fred L. R e g u la tio n o f R a ilro a d s and U t i l i t i e s in W isconsin. House B i l l No. 623, S ta te o f Iowa, Iv in s & Mason, The C o n tro l o f P u b lic U t i l i t i e s. Journal of P roceedings. The 23rd Annual Convention o f the N a tio n a l A s s o c ia tio n of R ailw ay Com m issioners. Ke n d a ll, Governor o f Iowa. Veto Message o f S p rin g e r U t i l i t i e s B i l l, Journ a l of the House, P

104 K ing, C. L. The R e g u la tio n o f M u n ic ip a l U t i l i t i e s. Laws o f New Y ork. Chapter 148 Laws R e la tin g to the N o rth C a ro lin a C o rp o ra tio n Commission. Laws R e la tin g to R a ilro a d s. M ich ig a n. Laws R e la tin g to the R a ilro a d and Warehouse Commission. M in nesota. Lough, W.H. Business F in a n ce. Long, G.J. M u n ic ip a l Ownership of C e n tra l S ta tio n s. American M u n ic ip a litie s. January McGraw. C e n tra l S ta tio n D ire c to ry and Data Book f o r 1919 Morse, G.O. Maquoketa, Iow a. L e tte r on M u n icip a l Owners h ip, e tc. M a rsh a ll P la n fo r C a lifo r n ia, Map, Journal o f E le c t r ic it y Novemb e r 10, M arston, G len. F acts on M u n ic ip a l Ownership in 268 Towns and C itie s. M ills, J. W arner. The Economic S tru g g le in C olorado. The A rena, Novembe r Moody s M anual, P u b lic U t i l i t i e s M u n ic ip a l Home R ule. m eric an C ity, A p r il Myers, Geo. L. In d u s try. C om petition in the P u b lic U t i l i t y Journal o f E le c t r i c it y. O c t.1,1920. The N a tio n a l C iv il F e d e ra tio n. P u b lic U t i l i t i e s, Commission R e g u la tio n o f N a tio n a l Committee on P u b lic U t i l i t i e s, E le c tr ic R a ilway J o u rn a l. March 30, Pond, O.L. M u n ic ip a l C o n tro l o f P u b lic U t i l i t i e s.

105 P o rte r, Claude R., Ce n t e r v ill e, Iowa. R e g u la tio n, e tc. Le tte r on Pros and Cons o f M u n ic ip a l Ownership. Am erican C ity. V. 14, p P u b lic S e rvice Commission Law, M is s o u ri The P u b lic S ervice Company Law, P ennsylvania. P u b lic U t i l i t i e s B i l l, I l l i n o i s, Senate No. 56, P u b lic U t i l i t i e s B i l l, Iowa, House F i l e No. 623, by S p rin g e r, P u b lic U t i l i t i e s Commission, Docket No. 1944, Kansas. P u b lic U t i l i t y Laws of In d ia n a. P u b lic U t i l i t y R e ports, A p r il 1915 to Present Time. 36 Volumes. R eport o f th e Commissioner o f C o rp o ra tio n s on Water Power Development in the U n ite d S ta te s. R eport of the Iowa S tate D rainage, Waterways and C onse rvatio n Commission, R eport of th e R a ilro a d and P u b lic U t i l i t i e s Commission, Tennessee. R eport on M u n ic ip a l F inances, State o f Iowa, f o r th e years 1910 to Report to the N a tio n a l C iv ic Fe d e ra tio n Commission on P u b lic Ownership and O p e ra tio n. M u n ic ip a l and P riv a te O p e ra tio n of P u b lic U t i l i t i e s. V o l. I. P a rt I I. Senate B i l l No. 5 6., S tate o f I l l i n o i s, S h ort, W.M., S ioux C ity, Iow a. L e tte r on R e g u la tio n, E tc.

106 I n s u ll, Samuel. C e n tra l S ta tio n E le c tr ic S e rv ic e. I n s u ll, M a rtin J. Improved S e rvice in 500 Com munities. e le c t r ic a l w o rld, May 28, Thelen, Max. R eport on Leading R a ilro a d and P u b lic S e rvice Commissions. U.S. Census. C e n tra l E le c t r ic L ig h t and Power S ta tio n s U.S. Census. E le c tr ic a l In d u s trie s U.S. Census. C e n tra l E le c t r ic L ig h t and Power S ta tio n s W ilco x, Delos F. L o cal T ra n s p o rta tio n Problem s. F e d eral E le c tr ic R ailw ays Commission R eport. W ilco x, Delos F. M u n ic ip a l F ra n ch ise s. Vo l. I & I I W ilco x, Delos F. Problems o f R e constru cti on w ith Respect To Urban T ra n s p o rta tio n. N a tio n a l M u n ic ip a l Review. Vo l. VI I I, January W ilco x, Delos F. Proposed G uaranties o f C o n tin u ity o f S ervice in P u b lic U t i l i t i e s i n New Y o rk. U bbles M agazine, Vo l. I I. August W ilcox, Delos F. S h a ll the In te r s ta te Commerce Commission and th e State P u b lic U t i l i t y Commissions F ix Wages on the R a ilro a d s and on lo c a l P u b lic U t i l i t i e s. Annals o f th e American Academy o f P o lit ic a l and S o c ia l Science. January W ilcox, Delos. F. The F u tu re o f P u b lic U t i l i t y Investm ents. Annals o f American Academy o f P o l i t i c a l and S o c ia l Science, November Willia m s, A rth u r. W oodroff, C.R. F acts Concerning M u n ic ip a l Ownership. A New M u n ic ip a l Program. Y a rra s, Vic t o r S. The Chicago S itu a tio n. N a tio n a l M u n icip a l Review, A p r il 1921.