Articles on Wisconsin legal history
Taming the jungle of public utilities
Written by Joseph A. Ranney, Attorney at Law
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Wisconsin became a state at the beginning of a period which brought many technological wonders to American cities. Streetcars, electric lighting, telephones and water and gas systems proliferated in Wisconsin between 1875 and 1890. These inventions opened up new business opportunities: Wisconsin cities welcomed new utility companies with open arms, even where competition between several companies was inefficient.
The golden age of private utilities came to an end when a severe depression began in 1893. Most utilities raised rates and cut back service in order to survive. They did a poor job of explaining their situation to the public, and as a result they became very unpopular.
The most unpopular utility of all was The Milwaukee Electric Railway & Light Co., known as MERL. MERL was run by Henry Clay Payne, a leading Wisconsin capitalist who was a powerful member of the inner circle of the state Republican party. In 1894 Payne raised streetcar fares; when the Milwaukee City Council tried to retaliate by raising taxes on MERL, Payne got a court to overturn the council's action.
In 1895 Payne pushed a law through the Legislature reducing MERL's taxes. In 1896 there was a bitter strike when Payne refused to give his workers higher wages. Payne's efforts to break the strike were so unpopular that most Milwaukeeans soon boycotted MERL, but Payne held out. In 1900 he finally engineered a compromise with Mayor David Rose which gave MERL a 30-year extension of its franchise in return for some modest concessions. Despite howls of protest throughout the city, the council ratified the compromise.
Robert LaFollette seized on public hostility to MERL and other utilities and made utility regulation an important part of his campaign for the governorship. But after he was elected he gave other reforms priority. Public feeling did not die down, however. Eventually, Payne and other utility executives concluded their best strategy was to support state regulation. If they didn't do so, they might ultimately suffer a worse fate at the hands of the cities they served.
In 1905 the Legislature reformed the utility tax laws. Utilities would no longer be charged a license fee and exempted from tax, but would be taxed on the value of their property. In 1906 Progressive legislators asked Professor John Commons of the University of Wisconsin to prepare a broader utility regulation law.
The utility law, which was passed in 1907, was sweeping and boldly innovative. It limited utilities to rates which were "reasonable" and gave the state railroad commission broad power to make sure that only reasonable rates were charged.
Because of constitutional concerns the Legislature decided not to force the new law on utilities, who they feared might argue that the rate rules took property rights away from them without due process of law. But the law provided a powerful incentive for utilities to come under the new system. If they did so, they would be given certificates of "convenience and necessity," which in most cases meant they would have a monopoly in their local areas. In essence, the utilities were asked to trade the chance of large profits for security—and almost all of them did.
The law was a landmark in another way. The powers it gave the railroad commission were far more extensive than those any Wisconsin agency—perhaps any American government agency—had had before. There was some concern the Wisconsin Supreme Court would strike down the law because of this. But in 1911 the court not only upheld the law but commended it. Justice Roujet Marshall, who normally scrutinized reform laws more skeptically than anyone else on the court, led the chorus of praise. Said Marshall:
The magnitude of the task was great. Few, if any, greater have been dealt with in our legislative history. That such a complicated situation has been met by written law in such a way as to avoid successful attack ... and secure optional submission by many owners of old franchises to a displacement of their privileges, is quite a marvel.
Note: The views expressed in this article are the author's alone. Distributed as a public service by the Wisconsin Supreme Court in honor of the state's sesquicentennial.