RAILROAD AND PUBLIC SERVICE COMMISSIONS V id Q i BY l t g A8M SOI IV ' O *o jixT MAX THELEN Attorney for Railroad Commission, State of California f California Regional facility SACRAMENTO: f - - SUPERINTENDENT OF STATE PRINTING 1012 REPORT LEADING RAILROAD AND PUBLIC SERVICE COMMISSIONS MAX THELEN Attorney for Railroad Commission, State of California SACRAMENTO: FRIEND WM. RICHABDSON - - SUPERINTENDENT OF STATE PRINTING 1012 SUBJECT INDEX. OREGON. PAGE 1. INTRODUCTION 2 2. ORGANIZATION AND OFFICE SYSTEM 2 3. PHYSICAL VALUATION 3 4. PUBLIC UTILITIES 4 5. RATE MAKING 5 6. EXPRESS RATES 5 7. LITIGATION 6 8. GRADE CROSSINGS 6 9. COMPLAINTS TO INTERSTATE COMMERCE COMMISSION 7 10. CAR FOR TRACK SCALE TESTS 7 11. LONG AND SHORT HAUL CLAUSE . 7 12. CO-OPERATION 8 WASHINGTON. 1. INTRODUCTION 9 2. ORGANIZATION AND OFFICE SYSTEM 9 3. PHYSICAL VALUATION 10 4. ENGINEERING DEPARTMENT 11 5. COURT PROCEEDINGS 12 6. SERVICE AND FACILITIES 13 7. PUBLIC UTILITIES 14 8. RATE FIXING 14 9. RESULTS OBTAINED BY THE COMMISSION 15 NEBRASKA. 1. INTRODUCTION 16 2. ORGANIZATION AND OFFICE SYSTEM 16 3. STOCK AND BOND LAW 17 4. TELEPHONE COMPANIES 18 5. ELECTRIC STREET RAILWAYS 18 6. RATE LITIGATION 18 7. MONTHLY REPORTS FROM RAILROADS 19 8. ANNUAL REPORTS 20 9. FORM OF ACCOUNTS 20 10. PHYSICAL VALUATION 20 11. ATTITUDE TOWARD PHYSICAL VALUATION 22 12. NEW PROCEDURE ON APPEAL 22 13. CHANGES IN SCHEDULES 23 MINNESOTA. 1. INTRODUCTION 24 2. ORGANIZATION AND OFFICE SYSTEM 24 3. EXPRESS INVESTIGATION 25 4. MINNESOTA RATE CASE 26 5. FEDERAL COURTS 27 6. CHANGES IN RATES 28 7. GRADE CROSSINGS 28 8. PHYSICAL VALUATION 28 9. FORM OF ACCOUNTS 29 10. SERVICE AND FACILITIES 29 11. INTERSTATE COMMERCE 30 12. ACCIDENT REPORTS 30 13. LITIGATION . 30 IV SUBJECT INDEX. WISCONSIN. PAGE. 1. INTRODUCTION 31 2. ORGANIZATION AND OFFICE SYSTEM 31 3. PROCEDURE ON APPEAL 33 4. RATE FIXING 33 5. STOCK AUD BOND LAW 34 6. INDETERMINATE PERMITS 33 7. USE OF FACILITIES BY OTHER UTILITIES 36 8. PHYSICAL VALUATION 36 9. DEPRECIATION ACCOUNT 37 10. PUBLIC CONVENIENCE AND NECESSITY LAW 37 11. RATE CHANGES 38 12. MUNICIPAL COUNCILS 38 13. GAS, ELECTRIC AND TELEPHONE INSPECTION 38 14. RATE DEPARTMENT 39 15. DEPARTMENT OF STATISTICS AND ACCOUNTS 40 16. EXPRESS INVESTIGATION 41 17. WRITING OF OPINIONS 41 18. COST BASIS 42 19. RELATION BETWEEN STATE UNIVERSITY AND COMMISSION 42 NEW YORK. Second District. 1. INTRODUCTION 43 2. ORGANIZATION AND OFFICE SYSTEM 43 3. DIVISION OF HEAT. LIGHT AND POWER 45 4. DIVISION OF STATISTICS 46 5. DIVISION OF TARIFFS 46 6. DIVISION OF TRAFFIC 47 7. DIVISION OF ENGINEERING AND INSPECTION 47 8. DIVISION OF TELEGRAPHS AND TELEPHONES 47 9. STOCKS AND BONDS 48 10. CERTIFICATE OF PUBLIC CONVENIENCE AND NECESSITY 49 11. PHYSICAL VALUATION 50 12. RATE FIXING 51 13. RELATION WITH NEWSPAPERS 51 14. RELATION BETWEEN COMMISSION AND CORPORATIONS 51 15. ELIMINATION OF GRADE CROSSINGS 52 16. DISCOUNTS AND EXPENSES 52 17. AMORTIZATION FUND 53 MASSACHUSETTS. A. Railroad Commission. 1. INTRODUCTION 54 2. ORGANIZATION AND OFFICE SYSTEM 54 3. RATE FIXING 55 4. FACILITIES, EQUIPMENT, SAFETY DEVICES 5(5 5. POWERS OF BOARD AS TO CHARTERS, FINANCES, AND CONSTRUCTION 56 6. GRADE CROSSINGS 59 7. COURT PROCEDURE 59 8. ANNUAV REPORT .-,! 9. LIBRARY) 60 10. INSPECTORS 66 SUBJECT INDEX. V B. Gas and Electric Commissioners. PAGE. 1. INTBODUCTION 61 2. ORGANIZATION AND OFFICE SYSTEM 61 3. RATE FIXING 62 4. STOCKS, BONDS, CONSOLIDATION 62 5. NEW GAS OB ELECTRIC PLANTS 63 6. ACCOUNTS 63 7. LITIGATION 64 NEW YORK. First District. 1. INTBODUCTION 65 2. OBGANIZATION AND OFFICE SYSTEM 65 3. LEGAL DEPABTMENT 67 4. STOCKS AND BONDS 69 5. CERTIFICATE OF PUBLIC CONVENIENCE AND NECESSITY 71 6. APPBOVAL OF FBANCHISES 71 7. FRANCHISE BUBEAU 71 8. PHYSICAL VALUATION 73 9. NEWSPAPERS 73 10. LIBBABY 73 11. ACCIDENTS 73 MARYLAND. 1. INTBODUCTION 74 2. OBGANIZATION AND OFFICE SYSTEM 74 3. STOCK AND BOND ISSUES 74 Interstate Commerce Commission. 1. NOTE 75 GEORGIA. 1. INTBODUCTION 76 2. OBGANIZATION AND OFFICE SYSTEM 76 3. LEGAL DEPABTMENT 77 4. RATES 77 5. STOCK AND BOND ISSUES 78 6. EXPBESS BATES 78 7. PUBLIC UTILITIES 79 8. TELEPHONE AND TELEGBAPH COMPANIES 79 9. COUBT BEVIEW AND APPEAL 79 10. RAILBOAD MAPS 79 11. PASSENGEB TRAIN DELAYS 79 12. GENERAL OBDERS, BULES AND REGULATIONS 79 TEXAS. 1. INTRODUCTION 81 2. ORGANIZATION AND OFFICE SYSTEM 81 3. RAILROAD RATES 81 4. EMERGENCY BATES 82 5. EXPRESS RATES 83 6. DEPARTMENT OF STATISTICS AND ACCOUNTS 83 7. VALUATION OF RAILROAD PROPERTIES 84 8. STOCK AND BOND LAW 86 9. CONTROL OVER COBPORATIONS 86 10. DEPOT COMPLAINTS 86 11. NEWSPAPERS _ 87 VI SUBJECT INDEX. OKLAHOMA. PAGE. 1. INTRODUCTION 88 2. ORGANIZATION AND OFFICE SYSTEM 88 3. COURT PROCEDURE 89 4. LITIGATION 90 5. COMMISSION'S BUSINESS 93 6. AUDITING DEPARTMENT 94 7. ENGINEERING DEPARTMENT 95 8. TELEPHONE DEPARTMENT 95 9. RATE DEPARTMENT 96 10. CORPORATION CLERK DEPARTMENT 96 11. MUNICIPAL UTILITIES 96 12. GAS AND ELECTRIC COMPANIES 96 13. USE OF INITIATIVE BY CORPORATIONS 96 RECOMMENDATIONS . 97 REPORT ON LEADING RAILROAD AND PUBLIC SERVICE COMMISSIONS By MAX THELEN. To the Honorable the Railroad Commission of the State of California. GENTLEMEN: On June 26, 1911, your Commission adopted a resolu- tion directing me to visit the leading railroad and public service com- missions of the country and the Interstate Commerce Commission, for the purpose of investigating "the powers and workings of said com- missions, the steps which they may be taking to secure the physical valuations of the properties of the public utilities over which they have control, and proceedings in the matter of establishing express and other rates and office organization, and the litigation in which they may be involved, so that this Commission may be better able to advance and safeguard its similar work within the State of California," and to pre- sent to your Commission a report in writing of the results of my inves- tigation. Acting under these instructions, I left San Francisco on July 3, 1911, and visited the railroad or public service commissions of Oregon, Washington, Nebraska, Minnesota, Wisconsin, New York, Massachusetts, Maryland, Georgia, Texas and Oklahoma, and the Inter- state Commerce Commission, returning to my duties here on August 22, 1911. I talked with nearly all the commissioners and department heads for the purpose of ascertaining the work being done by each commission and its respective departments. I also bore in mind the necessity of passing a statute in this State after the adoption of the constitutional amendments affecting your Commission, and made inquiries" from all the commissions concerning the working of their particular statutes and the amendments, if any, which have recently been adopted, or which the respective commissioners might have to suggest. I present herewith my report, by states, in the order in which I visited them. REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. OREGON. i. INTRODUCTION. The Railroad Commission of Oregon was created by Act of Feb- ruary 18, 1907. The Commission exercises control over all railroad, union depot, terminal, car, oil, tank line, sleeping-car, freight, freight line and express companies, except street and other railroad companies lying entirely within the limits of a city. The act is modeled largely on the "Wisconsin statute, and follows it as to procedure on appeal from the orders of the Commission and control of rates, service, facil- ities and equipment. Oregon has no stock and bond law and no public convenience and necessity or indeterminate permit law. A proposed public utilities law, passed by the legislature of 1911, and signed by the Governor, was held up by a referendum and will not be voted upon until Novem- ber, 1912. II. ORGANIZATION AND OFFICE SYSTEM. 1. The Commission. The commissioners are Clyde B. Aitchison, Chairman, a lawyer; Thomas K. Campbell, a lumberman; Senator Frank J. Miller, a foundryman and labor leader. The term of office is four years and the salary $4,000.00 per year. Two of the commissioners are elected from the two congressional districts of the state and the third at large. The statute provides that no commissioner shall pursue any other business or vocation. Mr. Aitchison tells me that this provision is observed. The statute also provides that each commissioner "shall devote his entire time to the duties of his office." Oswald West, the present Governor of Oregon, made his record as a member of the Railroad Com- mission and was elected while such commissioner. Mr. Aitchison was formerly clerk of the Tax Commission, then secretary of the old Board of Railroad Commissioners, then appointed by Governor Chamberlain in 1907, and then elected by the people, and has been chairman of the board since January, 1911. 2. Employees. The Commission employs a secretary at a salary of $2,000.00 per year; a rate expert at a salary of $2,000.00 per year; an engineer at a salary of $2,000.00 per year; an assistant engineer at a salary of $1,500.00 per year, and a stenographer at a salary of $1,200.00 per REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. 3 year. The Commission also at times calls in a consulting engineer, particularly for inspection purposes. The consulting engineer is paid only for such time as he devotes to the work. Mr. Aitchison showed me a quarterly bill for such engineer amounting to $170.00. 3. Office System. The secretary uses a decimal filing system. This system will be discussed more in detail in connection with the Public .Service Com- mission of the Second District of New York. Rates in effect are filed in cases with pockets, both numbered. Rates which have been super- seded are pasted into scrapbooks about four inches thick with leather backs and then stored. Both the effective and the superseded rates are indexed by a card system. In the case of commodities, this is a triple index, being arranged as to (1) issuing railroad with its filing number, (2) Commission's filing number, (3) commodity. The library is well kept up and contains an almost complete set of state railroad commission reports. It also contains a large number of stockholders' reports of the different railroad companies. The Com- mission has secured practically a complete set of these reports, in so far as the railroads of Oregon are concerned. i III. PHYSICAL VALUATION. The Commission is now engaged in ascertaining the value of the rail- road properties within the State. No findings have been made as to any particular railroad, but the work is being carried on as to all of them. A formal notice was prepared and addressed to each railroad, reciting that pursuant to the provisions of the statute, the Commission would, on a day certain, proceed to investigate to ascertain the matters specified in the statute ; that the investigation would be continued from time to time and from place to place as might be found desirable ; and that the railroads would be entitled to appear and be heard and to have process to compel the attendance of witnesses. The railroads thereupon appeared and all of them, with the exception of the Southern Pacific Company, have furnished data concerning both the original cost of construction and the present cost of reproduction. A form of return, practically identical with that prescribed by the Interstate Commerce Commission in its classification of expenditures for road and equipment, was prepared by the Commission and sent to each of the railroads. The information requested has been furnished on these forms by all of the railroads, except the Harriman lines, which used slightly different forms. Upon receipt of the information required, a hearing is had. A large portion of the testimony is generally devoted to the question as to the relative sum necessary to be paid by the rail- REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. road companies for right of way in excess of its real value. The Oregon Commission seems to follow in this respect the Minnesota Commission, which established a multiple of three as to country land, and about one and twenty-five hundredths as to city terminal property. The results of these investigations will be published in the annual report, but not in as much detail as the Washington findings, and will be used, but only in conjunction with other elements, in fixing rates. I examined in detail the work now being done by Engineer W. H. Earl of the Commission along these lines. Mr. Earl has examined the original records, such as profiles, vouchers, and contracts to be found in the railroad offices, and in this way has secured complete data con- cerning the original cost of construction of most of these lines. For some of the lines, he has worked out in detail the cost of reproduction, according to unit prices. He has worked out carefully a series of unit prices for the different kinds of material used in railroad construction. His results were secured by ascertaining the price actually paid in a large number of cases, and striking an average. Chairman Aitchison of the Commission considers the work which the Commission has done in this matter to be of very considerable merit. Mr. Earl has found the quantities as submitted by Mr. Pope of the Harriman lines to be generally about correct, but points out the necessity of scrutinizing with the greatest of care the last items on the list of expenditures, such as freight for men and materials, legal expenses, equipment, interest and commissions. These last items alone raised the valuation sub- mitted for one of the Harriman lines from about $29,000,000 to about $40,000,000. IV. PUBLIC UTILITIES. As already stated, the act of the legislature of 1911, making the Railroad Commission the Public Utilities Commission of Oregon and raising the salaries of the commissioners from $4,000.00 to $5,000.00 a year, has been held up by a referendum. The opposition came from citizens of Portland who had prepared an amendment to their city charter providing for a City Public Service Commission. After the referendum had been invoked, the Portland measure was defeated at a city election. The result is that one measure for control has been defeated and the other is held up. Chairman Aitchison condemns strongly the provisions of Senate Constitutional Amendment No. 47 to be voted on in this state on October 10, 1911, providing that incorporated cities and towns may retain the powers which they now have with respect to public utilities. He is strongly of the opinion that all the powers with reference to public utilities ought to rest in the state board. REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. 5 V. RATE MAKING. Chairman Aitchison is of the opinion that the cost of reproduction basis for rate fixing purposes is fraught with very serious dangers. He feels that rates fixed on that basis are likely to become inordinately high, particularly if in ascertaining the cost of reproduction, the right of way and terminal grounds of the railway companies are valued as of the present time. He thinks that it is not fair to the public to estab- lish a rate on the value of real property immensely enhanced by the growth of population of adjacent territory. He states that rates based on 7 per cent of the cost of reproducing the Pennsylvania railroad system to-day would be absolutely prohibitive. He is of the opinion that a state commission, in fixing rates, must consider all the other matters suggested in the case of Symtli vs. Ames, 169 U. S. 464, such as the original cost, market value of stocks and bonds, density of traffic, density of population, etc. I find that all the western commissions are very much exercised over the cost of reproduction as the basis for fixing rates, particularly when the cost of reproduction includes the unearned increment. This fear has been very much accentuated by the decision of Judge Sanborn in the Minnesota rate case, in which case the value of the railroads as found by the Master was, according to one of the Wisconsin commissioners, at least 50 per cent in excess of the value as shown by the evidence. VI. EXPRESS RATES. I went through the Commission's file in case number 121, being an investigation instituted February 15, 1910, into the rates of Wells- Fargo & Company on property taking merchandise and general special rates or multiples thereof. The Commission made its order July 12, 1910, reducing somewhat the rates in effect. On rehearing, the Com- mission modified its final order by reducing somewhat the reductions contemplated. The express company thereupon complied with the order. I find that Oregon and Montana are probably the only states in which Wells-Fargo & Company has complied with orders of state com- missions reducing express rates. In Iowa, Illinois, Indiana, Missouri and Oklahoma, the express companies have secured injunctions against the respective commissions. In the last two states, the Commissions have been tied up in this way for over two years. I read the transcript of the testimony in the Oregon case and looked through the exhibits, and have made notes thereon. REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. VII. LITIGATION. On July 3, 1911, the day before I reached Portland, Judge Bean, sitting in the Federal Circuit Court, sustained the demurrer of the defendant railway commissioners in the case of Southern Pacific Com- pany vs. Campbell, in which case the complainant had secured an injunc- tion, restraining the enforcement of an order of the Commission reducing class rates in the Willamette Valley. Judge Bean in his opinion points out the necessity of showing the specific facts which are relied upon to make out a case of confiscation of property. On the question of interference with interstate commerce, he reaffirms the decision in the case of Oregon Railway and Navigation Company vs. Campbell, 173 Fed. 957; 177 Fed. 318; 180 Fed. 253. In this latter case, Judge Wolverton reached a decision on the question of interference with interstate commerce directly at variance with the decision of Judge Sanborn in the Minnesota Rate Case. The Oregon case and the Min- nesota case together with the Arkansas case will be heard before the Supreme Court of the United States at the October term. In the Portland Railway, Light and Power Company case an appeal has been taken to the United States Supreme Court from an order of the Commission reducing suburban fares out of Portland. In this a state judge granted an injunction which is still in effect. The rail- way company is supposed to issue to each passenger a receipt for excess fare paid, the receipt to entitle the holder to a refund in case the order of the commission is ultimately sustained. Mr. Aitchison is of the opinion that in cases in which the Commission's order as to rates is enjoined by the corporations, the mere giving of a bond furnishes but little relief. VIII. GRADE CROSSINGS. The Oregon Commission has power under section 28 of the statute to compel the installation of safety devices at crossings of railroad and highways but no power to compel a separation of grades. The commis- sion in its report for 1910 points to the great expense which is being incurred by most of the eastern states in order to abolish grade cross- ings and recommends a statute like that of Washington prohibiting the future construction of grade crossings except in cases where upon investigation by the railroad commission it has been found practicable to establish such a grade crossing. The legislature of 1911 failed to pass such a law for the reason that the people of the West do not seem as yet to realize the very great importance of the question of the aboli- tion of grading crossings. Mr. Aitchison. however, is of the opinion that the next legislature w r ill pass the desired statute. REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. 7 IX. COMPLAINTS TO INTERSTATE COMMERCE COMMISSION. Section 47 of the Railroad Commission Act makes it the duty of the Commission to investigate interstate freight rates affecting Oregon and to request of the railroads such changes as the Commission may con- sider necessary and thereafter, if the changes are not made, to apply by petition to the Interstate Commerce Commission for relief. The statute also provides that the railroads must file with the Commission all freight tariffs relating to interstate traffic. Mr. Aitchison con- siders this matter of complaint before the Interstate Commerce Com- mission on the part of the state commission to be of considerable importance. His Commission is now taking up with the Interstate Com- merce Commission the matter of Interstate wool rates, affecting ship- ments from eastern Oregon. The Commission does not take up with the Interstate Commerce Commission matters of a merely individual or local interest, as is done by the Oklahoma Commission, but confines its work along these lines to rates affecting a considerable traffic within the state. X. CAR FOR TRACK SCALE TESTS. The matter of the correctness of track scales seems to be of consider- able importance in both Oregon and Washington. The legislatures of both states in 1911 provided for the joint purchase by the two railway commissions of a car for the purpose of testing track scales, and for the transportation of such car free by the railroads. XI. LONG AND SHORT HAUL CLAUSE. While there is no long and short haul clause in the Constitution of Oregon or in the Railroad Commission Act, the Supreme Court of Oregon has held that the provisions of the statute against undue dis- crimination are equivalent to such a clause. The legislature of 1911 accordingly granted the Commission power to authorize departures from this prohibition. When application is made for permission to deviate from the long and short haul clause, the Commission notifies the municipalities and commercial bodies along the line of the railroad in the territory affected. In only one case has the Commission granted the desired permission. REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. XII. CO-OPERATION. Chairman Aitchison suggests that it would be well to form a Pacific Coast Railway Commissioners' Association, to consist of the commis- sioners of Oregon, Washington, California, and Nevada, and to hold frequent conferences concerning matters which are of interest to all the Commissions. This suggestion is particularly valuable, in view of the fact that in "Washington and Nevada the legislatures of 1911 conferred upon the state railroad commissions the power to regulate public utilities, while in Oregon such statute has been passed and will go into effect at least by November of next year. California, in enter- ing upon her problem of regulating public utilities, can doubtlessly secure very material assistance from these other states. All these four states are likewise interested in the valuation of the Harriman lines, and should, if possible, take concerted action in this matter. REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. WASHINGTON. I. INTRODUCTION. The Public Service Commission of Washington was created by statute of 1911 to take the place of the former railroad commission, which was established in 1905. The Railroad Commission's powers were enlarged so that the present Public Service Commission has jurisdiction over railroad, street railroad, steamboat, express, car, sleeping car, freight, freight line, gas, electric, telephone, telegraph, water, wharfinger, and warehouse companies, except municipally owned plants. The statute is carefully worked out, containing first a general introduction, then pro- visions concerning the duties of each separate class of utility subject to the control of the Commission, then provisions prescribing the powers of the Public Service Commission as to all these companies, then provi- sions concerning procedure before the Commission and the courts, and finally provisions concerning construction and repeal and a saving clause. II. ORGANIZATION AND OFFICE SYSTEM. 1. The Commission. The commissioners are H. A. Fairchild, chairman, a lawyer of un- usual ability; J. C. Lawrence; and Jesse Jones, a labor leader. The term of office is six years, with intervals of two years between expira- tions, and the salary of the commissioners is $5,000.00 per year. The commissioners are appointed by the governor. The statute contains a provision to the effect that no commissioner shall engage in any occupation or business inconsistent with his duties as commissioner. The commissioners all reside in Olympia, the state capital, and the Commission is in session practically all the time. To my mind, one of the principal reasons for the undoubted efficiency of this Commission is the fact that the members, in addition to being well qualified, are on the job all the time. The business of the Commission is conducted promptly and efficiently. While I was in Olympia, several matters came up concerning new rates which the railroads desired to put into effect. The chairman of the Commission promptly telephoned to the railroad authorities in Seattle, found out exactly what was wanted, and settled the matter then and there. 2. Employees. The employees of the Commission are F. M. Larned, secretary, at a salary of $3,000.00 per year ; 0. 0. Calderhead, rate expert, at a salary 10 REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. of $3,000.00; Harry L. Gray, engineer, at a salary of $3,000.00; an inspector of safety appliances, at a salary of $3,000.00; a telephone expert, at a salary of $3,000.00; an accountant, at a salary of $1,800.00; and about sixteen other employees, of whom about six are stenographers and ten employees of the engineer. 3. Office System. The office is divided into different departments, the secretary being at the head of the administrative department, the engineer at the hc.nl of the engineering department, and the rate expert at the head of the rate department. III. PHYSICAL VALUATION. By far the most important work which has been performed by the Washington Commission has been the valuation of the railroads of the state. Section 92 of the Act of 1911, being an amendment of a similar provision in the earlier statute, provides that it shall be the duty of the Commission to ascertain the numerous items specified in the statute relating to the value of the railroads of the state and to hold a hearing thereafter to ascertain these matters, upon notice to the company, and then to make its findings, with the right of review on the part of the corporations. I read the entire first volume of the transcript of the testimony on the investigation into the value of the Great Northern and other railroads. The proceedings were conducted like court proceed- ings. Chairman Fairchild presided and ruled on the admissibility of evidence. The Commission, through the Assistant Attorney General, put Engineer Gillett and the other employees of the engineering depart- ment on the stand and through them introduced their tabulations con- cerning the cost of construction of the railroads, land values, and so on. Rate Expert Calderhead was then put on to testify as to rates, move- ment of traffic, cost of operation and similar matters. After the rail- roads had presented their case, the findings were prepared. As these findings are by far the most complete of their kind in the country, I wish to refer here to the nature of the findings in the Northern Pacific case. The Commission there made findings on the following facts: 1. Financial history of the railroad in Washington, with dates of construction of the main and all branch lines, and the financial history of the subsidiary corporations. 2. Original cost of main and all branch lines. 3. Cost of improvements and betterments. 4. Amount allowable for discount, general expenses and interest during construction. 5. Amount of depreciation of the various structures (Gillett 's tables) . 6. Original cost and cost of reproduction of all equipment. KEPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. 11 7. Cost of reproduction of all rights of way and terminal grounds. 8. Property owned by railroad, but not used for operation. 9. Character of country traversed. 10. Density of population and traffic. 11. Sources from which capital was derived; total bonded indebted- ness; market value of stock and bonds over a period of several years. 12. Total tonnage of freight carried in Washington for three years, with percentage of each commodity, divided as to state and interstate, with the average haul of each and the average haul within the state of the interstate haul. 13. Total number of passengers carried in Washington for three years, with passenger miles ; average distance, state and interstate ; and revenue. 14. Express, mail, and other transportation revenues. 15. Operating divisions. 16. Number of employees and their wages. 17. Total present cash market value ($110,208,450). 18. Cost of operation, divided into freight and passenger. 19. Average cost per ton for moving freight ; cost per ton for moving each of the more important commodities. 20. Freight operating expenses, divided into state and interstate. 21. Passenger operating expenses, divided into state and interstate. 22. Method of apportioning revenues; total for state and interstate for three years. 23. Taxes for three years. 24. Gross earnings and expenses (probable) for year ending June 30, 1909. 25. Rates on most important state commodities. 26. Total value of property devoted to state business ($45,226,464.50). These findings show the most thorough and painstaking work on the part both of the engineering and rate departments of the commission. Mr. Calderhead, the rate expert, is not merely thoroughly acquainted with rate matters, but seems also to be an able statistician and account- ant. Most state commissions of the first rank have separate rate and statistical departments. IV. ENGINEERING DEPARTMENT. I spent several hours in consultation with Engineer Henry L. Gray, investigating the manner in which the work of his department is con- ducted. In order to ascertain the original cost of construction of the railroad properties in the state of Washington, the employees of the Commission went to the original records of the railway companies and 2 RC 12 REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. took off from them the quantities and prices. The engineering depart- ment never takes the railroads' figures. The department checks over the data furnished by the railway companies by going to the final estimates and other data, both in the office of the chief engineer and of the auditor. Men are also sent out into the field, in order to check up quantities and amounts. The estimates furnished by the railway com- panies are generally fairly correct as to quantities; but Mr. Gray has found it very necessary to scrutinize such items as can not be checked over from the books of the company, such as engineering expenses, legal expenses, discount, interest and freight. Mr. Gray prepares his reports concerning the different companies in very readable and attractive form. These reports generally contain information concerning the organization and financial history of the railroad, its physical features, its general balance sheet, original cost of construction with all details, the cost of reproduction with all details, and the amount of deprecia- tion. The work is done in a scholarly and thorough manner, with con- siderable attention to special features of the various companies. Mr. Gray has prepared complete reports as to the physical valuation and other data of the telephone companies of Spokane and Seattle. The Commission will soon issue orders in the matter of telephone rates. As already stated, the work of valuing the railroad properties has been completed. The engineering department goes to the records of the railroad companies from time to time in order to keep this valua- tion up to date. Within a few years a new estimate as to the cost of reproduction will have to be made, for the reason that the price of labor and materials is constantly increasing. Mr. Gray employs some eight to ten men, who are at present largely engaged in ascertaining the value of some of the utilities, particularly telephone and electric light companies. V. COURT PROCEDURE. Chairman Fairchild tells me that in his judgment the two most im- portant provisions of the Washington statute are those dealing with review of the commission's orders and review of their findings as to valuations. Section 86 of the statute provides for a review of the orders and the findings of the commission, the application to be made to the superior court of the county in which the proceeding was ini- tiated. The pendency of any review shall not of itself stay or suspend the operation of the order of the Commission, but the Superior Court may, in its discretion, restrain or suspend the operation of the ord-T. No order restraining or suspending an order of the commission shall be made except upon notice to the commission and after hearing, and if a supersedeas is granted, the order granting the same must con- REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. 13 tain a specific finding based upon evidence submitted to the court making the order and identified by reference thereto, to the effect that great or irreparable damage would otherwise result to the petitioner and specifying the nature of the damage. In case the order of the Commission is suspended, the company must give a bond for the pay- ment of such sums as may ultimately be found to have been paid by the public in excess of the rates specified in the order of the Commission. An appeal thereafter lies to the Supreme Court. The Washington statute does not contain the provisions to be found in the Oklahoma Constitution, to the effect that the appealing company must keep books showing the name of every person who pays a rate in excess of that specified in the commission's order, his address, and the amount of the excess. Chairman Fairchild considers the Washington plan superior to that of Wisconsin, where the procedure is one to set aside the order of the Commission. If new evidence is introduced in court in Wisconsin, it is certified by the court to the Commission, and the Commission must then pass again on the whole matter before the court renders its final decision. Chairman Fairchild was particularly enthusiastic over the provisions of section 92 of the statute, providing for a court review of the findings of the commission as to physical valuation, with a provision that the findings of the Commission as filed or corrected by the courts shall be conclusive evidence in any other proceedings of the facts stated in the findings as of the date therein specified. In the grain case, in which the Washington Commission made a cut of $750,000.00 annually in grain rates, the Commission introduced a certified copy of its prior findings as to the valuation of the railroads affected, and thus covered that part of its case in a minute or two. The evidence being conclu- sive on that point, the railroad companies could not make out a case of confiscation of property, and consequently did not appeal from the decision of the commission. Mr. Fairchild points out that the Minne- sota Commission expended over $50,000.00 in securing the valuation of its railroad properties (about the same amount as Washington), and that when its rate orders were attacked, the Commission had to go into the entire matter again before the Master, with the result that the rail- ways were enabled to introduce a mass of additional evidence which swamped the Master and resulted in an excessively high valuation, besides necessitating a very large amount of time in its presentation. VI. SERVICE AND FACILITIES. The Washington statute gives to the Commission adequate powers over matters such as service, equipment and facilities over which the 14 REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. California Commission does not at present have jurisdiction. The Washington Commission has inspected each of the two hundred rail- way stations in the state and has made a large number of orders requir- ing additions or betterments in station buildings and improvements in facilities. Appeals were taken in some twenty-five of these cases. The Supreme Court of Washington has generally sustained the Commis- sion's orders. The Commission employs an inspector of safety appli- ances and also an inspector of scales for weighing hay and grain. Mr. Gray, the engineer in charge of physical valuation, is also doing considerable work in the matter of inspecting facilities and equipment. VII. PUBLIC UTILITIES. When I visited the Commission in July of this year, the Commission was just entering upon its duties with regard to the regulation and control of public utilities. The statute conferring these powers upon the Commission was approved in March of this year. The Commission had not at that time marked out its work in this connection, but was beginning to receive complaints concerning telephone rates and water rates. The Commission was also, having some little difficulty with reference to steamship companies, particularly as to whether or not it would be necessary for them to file tariffs with the Commission. VIII. RATE FIXING. The Washington Commission, although it has done preeminently able work in the matter of ascertaining the physical valuation of railroad properties, has, nevertheless, been careful, in fixing rates, to consider all the elements specified in the case of Symth vs. Ames, including original cost, present cost of reproduction, density of traffic, density of popula- tion, and the market value of stocks and bonds. Chairman Fairchild points out that neither the original cost of construction nor the present cost of reproduction are necessarily the proper basis for rate fixing pur- poses. He referred to two railroads, one of them in a densely populated valley and the other in a sparsely settled timber country. It might well be that the original cost of construction, and even the present cost of reproduction, are the same, or nearly the same, in these two ca nevertheless, it would be absurd to say that these two railroad prop- erties have the same value, either for rate fixing or for any other pur- pose. Chairman Fairchild considers the Puget Sound Electric Railway case to represent the most advanced work of the Commission. It is the first case in which the Commission shows in its findings percentage depre- ciation and the cost of reproduction less depreciation so as to ascertain present value. The Commission in this case followed Engineer Gillett's REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. 15 method of ascertaining average life of different kinds of equipment, salvage value, and percentage depreciation to be charged off each year. The order of the Commission in this case was sustained by the Superior Court on November 14, 1910, but th'e case has been appealed to the State Supreme Court. IX. RESULTS ATTAINED BY THE COMMISSION. In addition to the Commission's work in connection with the valua- tion of its railroads, it has, among other things, accomplished the follow- ing work: 1. It has established joint rates on commodities from eastern Oregon to Portland, lower than the sum of the locals, thus effecting a reduction in rates amounting to about $100,000 annually. 2. It has reduced express rates on fruit and vegetables about 20 per cent, but has made no general investigation into express rates. Com- missioner Jones told me that the Commission felt that it would be very necessary to make such investigation shortly. 3. It has prescribed a general distance tariff, thereby making a reduc- tion of about $75,000.00 in rates annually. 4. It has established a joint rate on wheat from Oregon Railway and Navigation Company points in eastern Oregon to Puget Sound points, but the Commission's order in this case has been enjoined in the federal courts. 5. It has ordered the installation of connecting tracks wherever one railroad intersects or terminates at or near another. The railway com- panies have appealed this case from the State Supreme Court to the United States Supreme Court. 6. It has inspected every railroad station in the state, as already pointed out, and has made some 200 orders requiring additional station facilities. 7. It has made a reduction of 12 per cent on grain rates of the North- ern Pacific, thereby effecting a reduction in rates of $750,000 annually. 8. It has reduced passenger rates on the Puget Sound Electric Rail- way. This case has been appealed. 9. It has denied the right to install grade crossings in some 100 cases. 10. It has requested that the legislature give to it the power to abolish existing grade crossings. 11. It has engaged a telephone expert and has made a careful inves- tigation into the value of the telephone properties within the state, and is now seeking to ascertain whether it can order in a measured rate as against the present flat rate. 16 REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. NEBRASKA. I. INTRODUCTION. The State Kailway Commission of Nebraska was created by amend- ment to the Constitution adopted on November 6, 1906. The legislature of 1907 thereafter adopted a comprehensive railway commission act. The Commission succeeded a board of transportation which did little or nothing. The statute of 1907 was amended in 1911 with reference to the method of review of the decision of the commission. Appeals must now be taken directly to the state supreme court and the evidence pre- sented before the Commission can alone be considered. The Nebraska Commission has power to fix the rates and to regulate the service of railroads, express, car, sleeping car, freight, freight line, telephone and telegraph companies. The Commission has jurisdiction over all railways, including steam, interurban, and street. The legis- lature of 1911 placed irrigation companies under the control of the Commission. The matter of bringing all public utilities, such as gas, light, heat, power and water companies, under the control of the Commission has been discussed during the last two sessions of the legislature but no action has been taken. Under the stock and bond law, however, the Commission regulates the issues of stocks and bonds of all public service corporations, including gas, light, heat, power, and water companies. II. ORGANIZATION AND OFFICE SYSTEM. 1. The Commission. The commissioners are Dr. H. J. Winnett, a retired physician, chair- man ; Henry T. Clarke, Jr., an attorney ; and W. J. Furse, also an attor- ney. The commissioners are selected for six year terms with intervals of two years. They receive a salary of $3,000.00 per annum and devote their entire time to the duties of their office. A regular meeting is held every week and special meetings at other times during the week. Chairman Winnett disapproves strongly of the election of commissioners. 2. Employees. The employees of the Commission are Clark Perkins, secretary, at a salary of $2,400.00 ; U. G. Powell, rate expert at a salary of $2,400.00 ; L. E. Wettling, an accountant ; E. C. Kurd, engineer in charge of phys- ical valuation; a reporter; about four employees of the rate expert; REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. 17 three stenographers in the secretary's office; and some eleven persons employed by the engineer in making physical valuations. 3. Office System. Secretary Clark Perkins showed me his office in detail. His largest correspondence is in connection with informal complaints. These are filed in card board folders which have endorsed thereon the necessary data to show the nature and disposition of the case, and may be reached through a triple card index. One index refers to the complainant's name; another to the name of the city; and the third to the defendant's name. The same index covers formal complaints as well. Formal cases are filed in flexible card board envelopes and the exhibits are filed in boxes in the vault. Applications for approval of changes in rates, stock and bond issues and other matters are all filed together in envel- opes similar to those used for informal complaints and are indexed separately. The next largest class of correspondence is with the tele- phone companies, of which there are over six hundred in Nebraska. Mr. Perkins has a separate file for each of these companies. All other cor- respondence is treated as miscellaneous and is filed alphabetically, ex- cept correspondence with other commissions, which is separately filed. Mr. Perkins has in his desk two books, one for informal complaints and the other for applications. As each complaint and application comes in, a number is assigned to it in these books. After the board meetings, the secretary himself dictates the entire minutes. He then pastes them into a book from which they are later copied into the regular minute book, after having been corrected and approved. The original minute memorandum book is preserved. III. STOCK AND BOND LAW. House Bill No. 578, Laws of 1909, gives the Commission authority to pass on all proposed stock, bond and note issues of all public service corporations incorporated or hereafter incorporated under or by virtue of the laws of Nebraska, said bonds, stocks and notes to be issued only for the "acquisition of property, the construction, completion, exten- sion or improvement of facilities, the improvement or maintenance of service or the discharge or refunding of obligations." "While the language of the statute is limited to Nebraska corporations, all public service corporations doing business in the state submit their proposed stock and bond issues for the Commission's approval, so as to remove clouds on the issue and to give additional stability thereto. The Missouri Pacific Railway Company, for instance, recently secured the Commission's approval of a twenty million dollar bond issue. Applications for approval are made on blanks furnished by the Com- mission, showing in detail assets, liabilities and purposes of issue. The 18 REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. largest number of these applications have come in from telephone companies. The Commission usually approves the applications as a matter of form and enters an order approving the issue, specifying the purposes for which the proceeds may be used and directing that the corporation render to it on blanks furnished by the Commission an ac- count of all moneys received from the sale of the stocks and bonds and of the purposes for which the money was actually expended. I consider the control of stocks and bonds and other securities to be one of the absolutely essential duties of a railroad or public service commission, and shall discuss the matter in greater detail in connection with the work of the Wisconsin, New York, and Texas Commissions. IV. TELEPHONE COMPANIES. The Commission has prescribed a set of forms to be filled out by tel- ephone companies, showing exchange rates, toll rates and added service to connecting exchanges, and has also prescribed a system of accounting, reference to which will be found in the published reports. A large number of so-called farmers' telephone companies exist in the state. V. ELECTRIC STREET RAILWAYS. The Commission has control over these railways and has had more trouble with them than with any other kind of corporation. The cities of Omaha and Lincoln are the only cities in Nebraska having such companies. The case of City of Havelock vs. The Lincoln Traction Company, 1910 Nebraska Railway Commission Reports, page 98. toc^ up a very considerable amount of the Commission's time. VI. RATE LITIGATION. The legislature of 1907, at the time of enacting the present Railroad Commission law, also passed statutes (1) reducing express rates 25 per cent; (2) establishing a maximum 2 cent passenger fare; and (3) estab- lishing commodity freight rates. Each of these statutes was attacked in the courts. The Railway Commission secured from the State Supreme Court a decision upholding the cut in express rates. The United States Express Company has recently appealed the case to the United States Supreme Court. The passenger and commodity freight rate cases were removed by the railroad companies from the state to the federal courts, which courts issued restraining orders under which the railways have continued to charge their former rates. These cases are good illustrations of the length of time appeals from orders of railway commissions may remain REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. 19 in the courts. They were brought in 1907 and have not yet been tried. Rate Expert Powell has spent a very considerable amount of labor in preparing the state 's exhibits in these cases. They are prepared on the cost accounting theory. Mr. Powell has made segregation of passenger train and freight train operating expenses as to each of the accounts prescribed by the Interstate Commerce Commission. He and the entire Nebraska Commission are of the opinion that the recent decision rendered by Judge Sanborn in the Minnesota rate case is unfair to the state in the matter of the segregation of state from interstate operating expenses. Mr. Powell seems to be a rate expert of very unusual ability. Because of the passenger and commodity freight rate cases, the Commission has been unable to issue any further orders reducing pas- senger or freight rates. The rate department made a very thorough investigation into class rates and issued a tentative order continuing first class rates as established, but establishing the spread on a fixed basis. In order to secure the necessary data for the order, rate expert Powell employed a force of thirty girls, who copied data from each intrastate waybill issued by the Rock Island and the Union Pacific during the months of July and October, 1908, and January and April, 1909. Mr. Powell showed me the bound volumes, of which there must have been about thirty, containing this information, by stations. The record as to each waybill shows both the compensation which the railroad companies received and that which they would have received had the order gone into effect. This work cost the Commission some $5,000.00. The Com- mission did not finally put the order into effect, for the reason that it feared that such action would prejudice the cases already pending in the federal courts. The experience of the Nebraska Commission and of other commis- sions, such as Oklahoma, shows that if the railway companies can once get a number of important rate cases into the courts, the hands of the Commissions are very largely tied, not merely as to the subject-matter 2 these cases but also as to all other rate matters. There is always the :'ear that reductions in other rates, while these are pending in the courts, will create in the minds of the federal judges an impression that the Commission is a radical commission which is making excessive reduc- tions in rates. VII. MONTHLY REPORTS FROM RAILROADS. The Commission receives from each railroad of the state for each month a report on printed forms prescribed by the Commission, show- ing for each station the following information as to interstate business, both that which is shipped from and received at each station cars of wheat; cars of corn; cars of grain products; cars of live stock; other car loads; pounds L. C. L. ; pounds C. L. ; revenue L. C. L. ; revenue 20 REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. C. L. ; passenger ticket sales. The same information is also given as to intrastate business, and the amount thereof is then appropriated to the state of Nebraska on a mileage basis. This information is important as showing the amount of business done at each station, particularly if a question arises as to the adequacy of station buildings and facilities at any particular point. VIII. ANNUAL REPORTS. Section 9 of the Nebraska Act prescribes a large number of facts which must be shown in the annual report. In order to secure the necessary facts from the railroads, the Nebraska Commission uses the Interstate Commerce Commission form as a basis. In addition to the information required therein, Mr. Powell has forced the railroads to furnish the total number of passengers and revenue and the total volume of freight and revenue moving; (a) entirely within the state; (&) originating within and moving out; (c) originating without and moving into; (d) moving entirely through without originating or ter- minating within. A large number of commissions, following the example of Nebraska, use the Interstate Commerce Commission form of railroad reports as a basis, and then add certain requirements. IX. FORM OF ACCOUNTS. The Nebraska Commission has prescribed no form of accounts, except for telephone companies. Mr. Powell said that the Commission had not done so for the reason that if any controversy arises, the Commission will have to go into the company's books anyway. In this respect Nebraska differs very materially from some of the best commissions in the country, such as those of "Wisconsin and New York, which have pre- scribed systems of accounts for practically all the railroads and public utilities and which lay great stress on this feature of their work, and have established extensive and efficient statistical and accounting depart- ments. X. PHYSICAL VALUATION. A statute approved April 5, 1909, provides that it shall be the duty of the state railway commission to ascertain the physical valuation of each railroad, railway, telegraph, express, telephone, and stock yard company within the state, and that it shall make findings as to the total value of each railroad, etc., the number of miles of railroad and the average value of line or track. The statute also prescribes some nine designated elements, the sum of which shall constitute the physical valuation. These elements are not in all respects identical with those KEPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. 21 which are prescribed by the Interstate Commerce Commission. The statute shows the danger of having the legislature go into the details of a question which is still largely in a formative stage. It would have been far wiser, in my judgment, to have provided simply that the Com- mission should ascertain the value of the properties of the companies specified. The Commission could then go ahead and secure light from every possible source and be guided by the court decisions which are appearing from time to time on this question. Acting under this statute, a force of some twelve men, under Engineer E. C. Hurd, has been at work since 1909. The Commission prepared forms on which data was to be written by the railway companies and secured from them complete profiles, station plats, drawings, and designs. This data has now been furnished by all of the railroads except the Union Pacific and the Burlington. The Commission's engineers check over the quantities from the profiles which are furnished, but do no actual checking of quantities in the field. They also ride over the line to check up certain physical features, such as stations and other buildings, crossings, telegraph poles, fences, rails, general character of the land, and character and importance of towns. The valuation of the lands was found to be the most difficult task. The greatest point of controversy between the railroad commissions and the railroads in all the states is the question as to how the right of way and terminal grounds of the railroad companies shall be valued. The Nebraska Commission first sent out post cards to the leading bankers, public men and farmers of the different counties, asking their opinion as to the value of land of different designated kinds in their counties. Abstract companies were then paid 10 cents a piece for reports as to sales of land within a year or two in the vicinity of the right of way. A general inspection was then made of the right of way to ascertain whether it was better or poorer than the general run of land in the neighborhood. Inspection was also made to determine how much more a railroad would have to pay above the value of surrounding land by reason of the cutting up of farms and damages to property not taken. Minnesota found an average multiple of three and applied that mul- tiple. Nebraska applied different multiples as conditions varied, rang- ing from one and twenty-five hundredths in cities to over three in the country, but averaging two and six-tenths in the country. This question as to whether any multiple should be used, and if so what multiple, is one of the most important questions in connection with securing a phys- ical valuation. Probably the best work which has been done by the Nebraska engi- neering department has been its work on the depreciation of equipment. To ascertain the depreciation of freight cars, the engineer went to the railroad car accounting records and looked over some fifteen thousand 22 REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. cars of various kinds to find out when they were discarded or rebuilt or wrecked or put into work train service, and then drew a curve show- ing the results of his tabulation, and thus ascertained the average length of life of each type of car. Similar work was performed with reference to passenger train cars, engines, work equipment, rails and ties. The engineer found the items returned by the railroads in accounts 1 to 33 of the Interstate Commerce Commission to be about right, but found it necessary to make very material reductions in the accounts covering general expenses, legal expenses, transportation of materials, equipment, interest and commissions. After receiving the report of its engineer, the Commission notifies the owners of the property and sets a time not less than thirty days nor more than sixty days, for appearance by the owner, at which time he may show cause why the valuation as found by the Commission should be altered. The statute contains no provision as to the effect of the Commission's findings nor as to the purpose for which the valuations are to be used. The findings of the Commission with reference to the valuation of the first of the railway companies simply recite, in accordance with the provisions of the statute, that on July 1, 1910, the value of the road was a certain sum, its mileage so and so much and its value per mile so and so much. XI. ATTITUDE TOWARD PHYSICAL VALUATION. The Nebraska Commission regards the cost of reproduction of rail- roads, as a basis for fixing rates, somewhat in a light of a hot potato, especially since Judge Sanborn in the Minnesota case held that the railroads are entitled to a 7 per cent return on the extremely high cost of reproduction found in that case, ignoring the other elements sug- gested in Smyth vs. Ames. The commissioners, when I asked them what they were going to do with the valuation when they ascertained it, said that they did not know. Because of Judge Sanborn 's decision and of the uncertainty as to what test the United States Supreme Court may ultimately establish as the proper basis of fixing rates, the Nebraska Commission seems to assume a half-hearted attitude towards the entire question of physical valuation. XII. NEW PROCEDURE ON APPEAL. The legislature of 1911 amended section 7 of the Railway Commission Act by providing that proceedings to reverse, vacate or modify orders of the state Commission shall be brought directly in the Supreme Court of the state ; that the evidence taken before the Commission shall REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. 23 alone be considered; that the time of appeal shall be limited to three months and that no order shall be held up without the filing of a supersedeas bond to be first approved by the Commission. These pro- visions are in line with those contained in the most recent statutes, except that they are not as complete or as far-reaching as those now obtaining in Washington, Wisconsin and Oklahoma. Commissioner Clarke told me that in his opinion there is no doubt, as the constitution of Nebraska now stands, that these provisions are valid. The first test of these provisions will probably be made in con- nection with an order of the Commission directing the erection of a brick station building at Wayne. A request by the railroad for a certi- fied copy of the proceedings before the Commission in this matter came in while I was visiting the Commission. XIIL CHANGES IN SCHEDULES. The statute provides that the carriers shall file with the Commission all their schedules of rates in effect on January 1, 1907 (this being before the date of the statute), and that thereafter no rate shall be changed, either raised or lowered, without the Commission's consent. Dr. Winnett thinks that this is a salutary provision and that it tends to produce stability of rates. The Commission approves reductions almost as a matter of course, but almost always holds a hearing in cases of a contemplated increase. 24 REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. MINNESOTA. I. INTRODUCTION. The Railroad and Warehouse Commission of Minnesota was created by act of 1899. The Commission has jurisdiction over all railroads except street railways (in so far as relates to the carriage of persons and property wholly within the limits of a municipality) and also over all express companies and public warehouses, including commission houses and grain elevators. The Commission does not have control over public utilities. A proposition to extend the jurisdiction of the Commission over such utilities was presented to the last legislature but was defeated by the rural telephone companies, who objected to the clause giving to the Commission power to order in physical connections between tele- phone companies. Commissioner Elmquist was of the opinion that a public utilities statute containing the telephone physical connections clause would be passed by the next session of the legislature. Minnesota does not have a stock and bond law nor a public con- venience and necessity law. The work of the Commission is limited to the fixing of rates and the regulation of service of railroads' and express companies and public warehouses, as above indicated. II. ORGANIZATION AND OFFICE SYSTEM. 1. The Commission. The commissioners are Judge Ira B. Mills, chairman, Charles F. Staples, and Charles E. Elmquist. Judge Mills is a lawyer and has been a member of the Commission for more than ten years. Mr. Staples is a farmer, a man of considerable dignity and apparently much ability. and has also served more than ten years. Mr. Elmquist is a younger man, a lawyer, energetic and apparently well posted, and has been a member of the Commission about four years. The commissioners are elected for a term of six years, and receive a salary of $4.500.00 per annum. They devote their entire time to the duties of the office, and are in the office every week day, except when one of them is out on an inspection tour. Commissioner Elmquist was strongly opposed to a board of five members for the reason that three can do much better executive work. 2. Employees. The employees of the Commission are A. C. Clausen, secretary, who attends largely to the warehouse business of the commission and pre- REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. 25 pares a part of the annual report; Thomas Yapp, assistant secretary, who attends to the details of the railroad and express work of the Commission and is an active and capable man; D. J. Jurgensen, engi- neer in charge of physical valuation ; one rate clerk (but no rate expert) ; two clerks and three stenographers. The act of April 13, 1911, appro- priates the sum of $30,000.00 for the annual expenses of the Commission. This does not include the amount of money expended in the Minnesota rate case. 3. Office System. But little attention is paid by the Commission to the matter of office system. No minutes are kept. Orders are prepared informally and sent out by letter. Most of the business of the Commission is done informally in the office. Schedules of rates are filed by railroads and are indexed in a book. Mr. Yapp prefers a book to a card system by reason of its greater permanency. III. EXPRESS INVESTIGATION. I went quite thoroughly into the investigation which the Minnesota Commission has been conducting into the express rates of Wells-Fargo & Company. The Commission was told by Wells-Fargo & Company that they could not secure the information which they desired except by sending a force of men to the New York office of the express company. The Commission, accordingly, sent a number of men to New York, where they spent something over a year in going over all the waybills covering a period of two months. Mr. Yapp showed me the books about nine feet of them into which the transcript of the records of the Express Company in New York was made. These books contain spaces for the names of the places of origin and destination of each package affecting Minnesota business, and also columns for the different rates; thus, a, b, c, d, e, 10, 15, etc., up to and including 100, and separate books for the special rates on poultry, milk, laundry, beer, and a few other com- modities. There are also separate books for interstate, intrastate, intra- interstate, and inter-intrastate shipments. The books also show the revenue derived, the number of .transactions and number of packages and, in the case of the interstate business, the amount of the revenue chargeable to Minnesota. This amount is ascertained on the "rate- prorate" basis; i. e., the rate from the outside point to the Minnesota gateway through which it passes is to the rate from the Minnesota gate- way to the Minnesota point, as the earnings received by the express company are to the amount of earnings assigned to Minnesota. The receipts from money orders, custom house brokerage, and similar items were taken off for the whole system, and a proportion of them was then allocated to Minnesota. 26 REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. The Minnesota employees went through some nine million waybills in Xcw York City to ascertain those affecting Minnesota business, and found some 125,000 for the month of August, 1909, and 225,000 for the month of December, 1909. Wells-Fargo & Company likewise had a force of men rx;i mining the same waybills. Mr. Yapp told me that this work had cost the Minnesota Commission some $30,000.00. It is the most thorough work which has been done in this country in the matter of express investigations. The testimony concerning the express end of the business had all been presented when I was in St. Paul, and I read over the entire transcript. The express company presented no evidence. I have 110 doubt whatso- ever that the express company is simply waiting to tie the hands of the Commission in the courts. The Minnesota Commission is also examining the railroad end of the express business, and will take testimony as to this matter before finally deciding the case. I examined carefully all the exhibits introduced by the state, for the purpose of using this information in our own express investigation. The results secured by the Minnesota Commission showed that the express company was making a profit of some 18 or 19 per cent on that part of its property which could fairly be chargeable to its state busi- ness, and some 74 per cent on that part of its Minnesota property which is chargeable to the interstate business. IV. MINNESOTA RATE CASE. The legislature of 1907 passed a 2 cent maximum passenger fare law and a maximum commodity freight law. The passenger rates went into effect, and the freight rates were about to go into effect when stock- holders of the railroads affected secured an injunction from the federal courts. The matter was thereafter referred to Commissioner Otis as referee. After taking some twenty volumes of testimony and going into the entire matter of valuation of the Minnesota railroads de novo, regardless of the finding of the Minnesota Commission therein, Com- missioner Otis rendered a report which was affirmed by Judge Sanborn in the now famous Minnesota rate decision. Judge Sanborn disregarded every basis of rate fixing except that of the cost of reproduction of the property and found a cost in this case, which, according to the gen- eral consensus of opinion, is at least 50 per cent in excess of the cost as shown by the evidence in the case. He also found an interference by the proposed state rates with interstate commerce. The Minnesota Commission, as well as the other Northern and Middle Western Commissions which I visited, are very much exercised over the Minnesota rate case. I had a talk with Judge O'Brien, who is handling the case for the state before the United States Supreme Court. He told REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. 27 me that the motions to hear the Oregon, Missouri, and Arkansas cases contemporaneously with the Minnesota case at the October term had been granted. Judge O'Brien pointed out the enormous variance between the original cost and the present assigned value of the railroad properties involved in the case. He regards the four hundred foot strip of right of way acquired from the government as a franchise on which the railroad is not entitled to a return. He also denies the right of the railroads to multiply the present market value of the land by a multiple to represent the increased cost of securing the same. Judge O'Brien thought that he saw T a preconcerted plot on the part of the railroads to urge on a number of the state commissions to adopt the cost of repro- duction as the basis of rate fixing. The Minnesota commissioners pointed out to me that as to more than half of the railroads of the state, the value of the stock and bonds is greater than the Commission's estimate as to the value of the prop- erties, but is less than the cost of reproduction as returned by the rail- way companies. To meet the decision in the Minnesota rate case, the legislature of 1909 passed a statute providing that whenever a common carrier resists the enforcement of an order of the Commission prescrib- ing rates, it shall be the duty of such carrier to keep an account of every charge made by it for any service to which such rates apply, showing in each case the name and address of the consignor and con- signee, the date of the transaction, the stations between which the busi- ness was carried, and the amount actually charged, and that which would have been charged under the rates prescribed by the Commis- sion. A report containing these matters must be made to the Commis- sion every month. Within sixty days after the final determination of the proceedings, the carrier must pay to the Railroad and Warehouse Commission, for the benefit of the parties entitled thereto, all sums col- lected by it in excess of the rates finally prescribed by the court, with interest, and the Commission thereupon pays out these moneys to the parties entitled' thereto. All amounts not claimed are paid by the Com- mission into the state treasury for the benefit of the general revenue fund. Under this statute, the railroads involved in the Minnesota rate case are now keeping books and making returns to the Commission. In concluding this subject, I would say that the Minnesota Commis- sion is even more exercised over the decision with reference to the rate fixing basis than over that part of the decision which refers to interfer- ence with interstate commerce. V. FEDERAL COURTS. One of the greatest difficulties facing certain of the state commissions in districts in which the federal judges seem to be unfriendly, is the 3 RC 28 REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. facility with which the corporations can secure from such judsres restraining orders and temporary injunctions tying the hands of the Commission for several years, until the cases are determined. However carefully a statute may prescribe the procedure in cases on appeal from the orders of the Commission, the federal courts are not bound by such provisions pnd proceed according to their own rules. Chairman Mills, while chairman of the committee on legislation of the National Asso- ciation of Railway Commissioners, accordingly presented, and the association adopted, a resolution to be adopted by the different state legislatures, calling upon their representatives in congress to pass a statute providing that litigation affecting state railway and public service commissions should be carried through the state courts first before being taken into the federal courts. The Minnesota legislature passed such a resolution, but no other state has done so. VI. CHANGES IN RATES. Changes in rates become effective on ten days' notice, but only if approved by the Commission. Mr. Yapp thinks it a wise provision to have the Commission approve every change in rates. He considers this method a very desirable one for the reason that the Commission in this way secures a whip handle. Reductions in rates are allowed as a matter of course, but if they affect common points Mr. Yapp generally telephones to the other com- panies affected and asks them if they wish to put in the same rate. This is done in a spirit of fairness to prevent one railroad from securing an advantage over others by means of "midnight tariffs." VII. GRADE CROSSINGS. The statutes of Minnesota do not give authority to the state Com- mission to prescribe a separation of grade crossings. Mr. Yapp told me that these matters were taken care of by the city authorities and that no authority to order a separation of grades exists as to those portions of the state which are outside of city limits. He thinks it well to handle the problem while it is in its infancy, as proposed in California. VIII. PHYSICAL VALUATION. I had a long talk with Engineer Jurgensen with reference to the work of the Commission in ascertaining the value of the railroads of Minnesota. This work took about three years. The Commission employed some two to fifty men, with an average of about sixteen to eighteen. During the first year, but little was accomplished. It was REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. 29 found impossible to ascertain the original cost of construction. The railroad companies furnished to the commission information concerning the present value of their systems. The chief work of the engineering department of the Commission consisted in checking over these returns. To ascertain the value of the rights of way of the railroads, abstracts of sales in the vicinity were taken from the records. A total of about 1,500,000 sales were examined by the Commission in reaching its con- clusions. Considerable difficulty was encountered on the question as to how to estimate the cost of reproduction. The railroads contend that this means the cost of acquiring the lands as of to-day and that they are entitled to multiply the present real value of adjacent lands by some multiple such as the figure three in order to ascertain the present cost of reproduction. The Commission denies the right to use such a multiple. The Commission accordingly prepared valuations on both theories. None of the railroads made returns as to the present value of their properties. Their returns were simply as to the cost of reproduction. It is impossible for the Commission, by reason of the age of the railroads, to ascertain the original cost, otherwise it certainly would have done so. The statutes of 1909, chapter 147, provide that the Commission shall at all times keep up the physical valuations of the railroads of the state. Under this statute the engineer sends out each year forms for additions and betterments and deductions. IX. FORM OF ACCOUNTS. Chapter 327 of the Laws of 1911 makes it the duty of every railroad to keep its accounts in such form as to show the total revenue and the total operating expenses connected both with local and through traffic, the number of tons of freight carried one mile both on local and through trains and the total car, engine and other mileage of both interstate and intrastate freight. The Commission is now engaged in working out the form of these accounts. There is no doubt in my mind that this statute is the direct result of the decision in the Min- nesota rate case and that its purpose is to force the railroad companies to keep their accounts at all times in such condition as to enable the state Commission to secure readily the information necessary in case any of its orders fixing rates are attacked. X. SERVICE AND FACILITIES. Considerably over three fourths of the present work of the Com- mission deals .with matters affecting service and facilities. About 95 per cent of these matters are settled informally by drawing them to the attention of the railway company affected. This experience of 30 REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. the Minnesota Commission emphasizes the necessity of giving the State Railroad Commission control over these matters in addition to the control of rates. XL INTERSTATE COMMERCE. The Commission takes up with the railroads a large number of mat- ters affecting interstate commerce and settles most of them informally. In this way, the Commission performs a great service for the citizens of Minnesota. If the matter is one of public importance, the state Com- mission files the petition with the Interstate Commerce Commission, appears as party complainant and conducts the litigation at the expense of the state. XII. ACCIDENT REPORTS. Whenever an accident occurs in connection with railroad operation, the railroad company at once telephones or telegraphs to the Commis- sion ; then follows a preliminary accident report and later a final report. These reports are kept in a large file arranged consecutively by numbers. An index kept in a large book shows the name of the town or city, the name of the person, the date of telegraphic or telephonic report, the date of the second and third reports and the number of the case. These reports are entered by railroads and are arranged alpha- betically. XIII. LITIGATION. The legislature of Minnesota in its sessions for 1905, 1907, 1909 and 1911, passed a large number of special acts affecting the Com- mission. Nearly all of these acts deal with matters of detail as to which, in my judgment, it would have been wiser to have given general powers to the Commission. For instance, special acts were passed to provide that railroads must use the same names for stations as the names of the cities within which the stations are located ; that the time of the arrival of passenger trains must be bulletined ; that the commis- sion shall have jurisdiction over track scales ; that the commission shall have authority to keep up physical valuations from year to year; that railway companies shall clean ditches and culverts along roadbeds, etc. The difficulty which Minnesota has had with these matters would seem to show the wisdom of giving to the Commission general powers by statute over all matters affecting the rates and service of the public service corporations affected. The Commission can then work out the details in such manner as experience may show to be wise. REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. 31 WISCONSIN. I. INTRODUCTION. The Railroad Commission of Wisconsin was created by statute of 1905, and is largely the work of the then Governor, Eobert M. La Fol- lette. Before that time, the state had a railroad commissioner, whose chief function was to publish the reports transmitted by the carriers. In 1907, the legislature also passed a public utilities law conferring upon the state railroad commission authority over public utilities. Both these statutes were amended in 1909 and 1911. Under the railroad commission statute, the Commission has jurisdiction over commercial, street and interurban railways, express companies, telegraph companies and common carriers. Under the public utilities law, it acquired addi- tional jurisdiction over telephone, heat, light, water and power com- panies, including those owned or operated by municipalities. Wisconsin has a stock and bond law enacted in 1907 and materially amended in 1911 ; a public convenience and necessity law enacted in 1907 ; and an indeterminate permit law providing indeterminate fran- chises and for purchase by municipalities, enacted in 1907 and materi- ally amended in 1911. II. ORGANIZATION AND OFFICE SYSTEM. 1. The Commission. The commissioners are John H. Roemer, chairman, Halford Erick- son and David Harlowe. The statute provides that one of the com- missioners shall have a general knowledge of railroad law and that each of the others shall have a general understanding of matters relating to railroad transportation. Mr. Roemer within the last year took the place of Professor B. H. Meyer, who was recently appointed to the Interstate Commerce Commission. Mr. Roemer is an attorney and performs all the legal work of the Commission. Mr. Erickson was formerly a railroad auditor and is an economist and statistician of very exceptional ability. He seems to secure the data for most of the rate decisions of the Commission, and has worked out carefully a plan for the segregation of operating expenses between freight and passenger traffic. He is also practically the head of the department of statistics and accounts, one of the most important departments of the Com- mission. Mr. Harlowe was recently appointed on the resignation of Professor Meyer. He was traffic manager of one of the large Milwaukee commercial firms. 32 REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. The commissioners are appointed by the Governor for periods of six years and receive a salary of $5,000.00. All of them devote their entire time to the work of the Commission. Mr. Roemer tells me that he often works into the night and I am confident Mr. Erickson does the same. In my opinion the splendid work of the Wisconsin Commission is largely due to the ability of the commissioners and to their close personal attention to the work. A spirit of scholarly accuracy and thoroughness pervades the entire work of the Commission. The Com- mission takes no short cuts and makes very few guesses. Every problem is worked out with great care and no decisions are rendered until the Commission has all the facts at its disposal. In my judgment, the thorough and scholarly spirit of the work is largely the result of the intimate relation which exists between the Commission and the professors and alumni of the State University. 2. Employees. The Commission divides its work into three department (1) adminis- trative; (2) engineering; (3) statistical and accounting. The administrative department, besides the commissioners, consists of J. M. Winterbotham, the secretary, who receives a salary of $2,500.00 per year; a clerk for each commissioner, to work up law points and digest testimony; and about a half dozen stenographers and reporters. The engineering department is headed by Professor Pence, professor of railway engineering in the University of Wisconsin. The w^ork of this department is subdivided into the work of physical valuation, and service and field inspection. To perform the work of physical valuation, Professor Pence has men who are especially qualified to value real estate, railroad properties, gas and electrical plants, water works, telephone plants, etc. Professor Burgess of the Department of Mechanics, of the State University, is advisor in the work of service and field inspection. This work also is subdivided, Mr. Cadby having charge of gas, electric and telephone inspection, Professor Mack of the water plants, etc. The statistical and accounting department is headed by Mr. Edwin Gruhl, who has immediate charge of the statistics and accounts of the public utilities, while Mr. Schneider has charge of similar work in connection with railway and express work. Mr. Hogan and one assis- tant have charge of railway and express tariffs. Some five or six men in the department are occupied all the time with matters in con- troversy before the Commission and special problem work. 3. Office System. The secretary receives and distributes all mail. All letters when answered are returned to him and he sends out the answers in the name of the Commission by himself as secretary. All formal and informal complaints are separately numbered and filed both as to railroad cases REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. 33 and public utility cases. A separate file is also kept for all applica- tions, such as for leave to issue stock and bonds and to build extensions. An alphabetical file is also kept. III. PROCEDURE ON APPEAL. The Wisconsin Railway and Public Utilities acts both provide for an action in the Circuit Court of Dane County to set aside the orders of the Commission. If any new evidence is presented, the court must certify the case back to the Commission,, which then reviews its order in the light of the new evidence, and thereafter returns its findings to the court. An appeal directly to the Supreme Court was not provided for, because of a constitutional difficulty involving a question whether an appeal would lie directly to the Supreme Court from an administrative board. The legislature of 1911 passed an amendment to the Railway and Public Utilities acts providing for notice to stockholders and bond- holders, by publication, in case of the acquisition of a public utility by a municipality, so that they might have their day before the Commis- sion. Mr. Roemer is of the opinion, under the Prentiss case, 211 U. S. 210, that if the state statute provides the procedure for an appeal, with power on the part of the court to revise the rate, that procedure must be followed before the case can go into the federal courts. Mr. Roemer prefers the Wisconsin procedure to the right of review provided by the Washington statute, for the reason that he doubts the applicability of a writ of review to a case in which the Commission is authorized to con- sider evidence extraneous to the record. This objection has not pre- vailed in other states, such as New York, Nebraska, and Oklahoma, in which the remedy is review, and in which no point has ever been raised to the effect that this is not the proper remedy. The New York Com- mission, however, is careful to put into the record all the evidence, so far as possible, which was in any way considered by it. Mr. Roemer states that the practical effect of the Wisconsin procedure is to force the corporations to apply for a rehearing before the Commission this rehearing being granted as a matter of course. IV. RATE FIXING. The rate fixing basis of the Wisconsin Commission, as explained to me by Chairman Roemer and Commissioner Erickson, is the cost of reproduction of the properties affected, subtracting depreciation and adding an amount for going concern value. In determining the present value, the Commission disregards density of traffic, density of popula- tion, and market value of stocks and bonds. In response to a sugges- tion that the Oregon, Nebraska, and Minnesota commissions were very 34 EEPOET ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. much concerned over the physical valuation basis for rate fixing and to the possibility of an unreasonable increase in rates resulting from in- crease in land values, Chairman Roenier said that he could not see the justice of permitting an increase in land values to owners adjacent to a railroad and denying the railroad a return on its own increased value. He admitted, however, that a real problem arises from the great increase in the value of terminal property and also that a limit will have to be placed on rates based on increasing land value. Very few of the Com- missions seem to have thought as far as this, and none of them to have reached a solution. Chairman Roemer believes that a railroad or utility is entitled to a rate of six per cent on its market value, this being usually sufficient for five per cent interest on its bonds and seven per cent on its capital stock. The rate multiple hitherto used by the Wisconsin Commission has been two and a half. Commissioner Erickson has serious doubts as to whether any amount ought to be allowed over the value of the adjoin- ing property. He seems to differ from Chairman Roemer as to whether a railroad should be entitled to a return on rights of way granted by federal or state governments, Mr. Roemer being of the opinion that a return should not be allowed, while Mr. Erickson favors a return to make up for the first lean years of operation. The Commission never allows a return on franchise values except to the extent that a railroad or utility actually paid for the franchise. Formal case No. 32, known as the Buell case, shows clearly the rate- making theory of the Commission, and is probably the most important case which the Commission has decided. The bases there laid down were followed by the Federal Post Office authorities when they asked for information from the railway companies as to revenue and cost of oper- ation of all kinds of passenger train business, including particularly the mail business. V. STOCK AND BOND LAW. Chapter 576 of the Laws of 1907 provides for the approval of the Commission before any public service corporation can issue stock, stock certificates, bonds, notes, or other evidences of indebtedness, payable not less than one year from date. This statute gave the Commission no discretion as to approval and no power to impose conditions, nor did it specify the purpose for which the money was to be used. I understand that these matters were all remedied and the powers of the Commission materially enlarged by an act of the legislature of 1911, adopted just before I reached Madison. Foreign corporations owning railroads and utilities in Wisconsin consider themselves bound by the law. The general law of Wisconsin REPORT ON RAILROAD AND PUBLIC . SERVICE COMMISSIONS. 35 has for some time provided for a fee to be paid on an increase of capital stock, but has never contained a provision for a fee on an issue of bonds. Another act of the legislature of 1911 accordingly provides that upon an approval of a bond issue by the Railway Commission, the corporation affected must pay a fee of $1.00 on $1,000.00; if this statute had been in effect in 1910, the fees derived from it would have paid the entire expenses of the Commission. The imposition of such a fee is fair, for the reason that the approval of the governmental author- ities to a bond issue generally results in a raise of a point or two in the sale price of the bonds. It will be well to bear this point in mind, in framing the new California statute. VI. INDETERMINATE PERMITS. Chapter 578 of the Laws of 1907 provides for indetermediate permits for street railways, and sections 74 and 86 of the Public Utilities Act of 1907 provide a similar permit for heat, light, water, and power companies in municipalities. An indeterminate permit is a permit running without limit as to time and having attached thereto the fol- lowing two conditions: 1. If any public service corporation within a municipality has com- plied with the requirements of the statute as to the surrender of exist- ing permits or franchises and has thereupon secured by operation of the statute an indeterminate permit, no license, permit or franchise shall be granted to any similar concern within the same municipality unless the Commission finds that public convenience and necessity require such second public utility. 2. The corporation, by acquiring such indeterminate permit, consents to the purchase of its plant by the municipality in which it operates, at a price to be fixed by the Railroad Commission, with the right of appeal to the courts on the question of the price. Chairman Roemer considers these provisions concerning indeter- minate permits as the very foundation stone of the regulation of street railroads and other public utilities in "Wisconsin. The period within which the corporations might bring themselves within the terms of the statute was extended to January 1, 1911, but only 25 per cent of the public service corporations availed themselves of the privilege. The leg- islature of 1911 finally took the bull by the horns and provided that all permits, franchises and licenses theretofore granted by any public authority were by that act amended so as to be indeterminate permits, with the characteristics hereinbefore mentioned. Chairman Roemer is strongly in favor of this kind of permit and states that the only reason why other states have not followed the lead of Wisconsin in this matter 36 REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. is that they do not understand this kind of permit. He points out the following advantages accruing to the corporations : 1. They receive what is in effect a perpetual franchise. 2. They are relieved of the necessity of providing an amortization fund. 3. They are assured a fair price in case their plant is purchased by the municipality within which they operate. Such permit, on the other hand, is of great benefit to the state because it brings the public service corporations directly under the control of the Commission, avoids cut-throat competition and gives municipalities the power at any time to purchase the public utilities within their limits, at a fair price. Chairman Roemer was of the opinion, however, that it would not be wise to pass such a statute in California until the situation resulting from divided control of public utilities between state and local authori- ties has been clarified. VII. USE OF FACILITIES BY OTHER UTILITIES. Section 794w-4 of the Public Utilities Law provides that all public utilities having conduits, subways, poles or other equipment on or under any street or highway shall for a reasonable compensation permit the use of the same by any other public utility whenever public convenience requires such use. Chairman Roemer considers this to be an important provision and upon his suggestion the legislature of 1911 added to the section provisions for physical connections between telephone systems in such cases and under such conditions as might be prescribed by the Commission. Wisconsin and Oklahoma have shown clearly the public benefit derived from physical connections between telephone systems. VIII. PHYSICAL VALUATION. 1. Railroads. The valuation of the railroad properties of Wisconsin was begun in 1903 and completed several years ago. In 1909 a new valuation of the land of all the railroads was made by the Commission and it was found that the value had gone up considerably. The railroads now render each year statements of additions and deductions similar to those ren- dered in Minnesota. The Commission usually accepts the statements of the larger railroads, which have men regularly employed in the work, but finds it necessary to check up the work of the smaller railroads. 2. Utilities. There are about one thousand utilities in Wisconsin. Of these the Commission has valued some fifty, being those involved in complaints pending before the Commission. No valuation of utilities had been made REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. 37 except in case of complaint as to rates. The Commission never decides a case involving the rates of a public utility without having first ascer- tained the value of its property. The work of valuation of utilities is divided among the branches of the engineering department. A hearing is always held by the Commission after the engineering force has com- pleted its report, and the Commission then makes its findings. The statute contains no provision similar to that of Washington for a court review of findings as to value. As no valuations of utilities have been made except in cases pending before the Commission, the Washington provisions would have served no purpose in Wisconsin in so far as the valuations have hitherto been made. IX. DEPRECIATION ACCOUNT. Section 1797m-15 of the Public Utilities Act provides that each utility must on the order of the Commission carry an adequate depreciation account out of operating revenues, in an amount prescribed by the Com- mission, for the purpose of keeping the property in efficient condition. The money in this fund may be expended for new construction, exten- sions or additions and for no other purpose. The Commission has not prescribed a general percentage but does prescribe a percentage in such rate cases as it decides. The Commission directs its statistical depart- ment to ascertain the average life of the plant and of the different component elements thereof and then establishes a percentage of depre- ciation so that if the money is put out at interest for the given number of years the value of the plant will have been replaced. The money so set aside may be used for other purposes, such as new construction, but when the money derived from the sale of new construction bonds is realized, the amount taken from the depreciation account is returned with interest. Commissioner Erickson considers this matter as one of considerable importance. The ordinary corporation is more interested in declaring large dividends than in setting aside funds for the replace- ment of its property. X. PUBLIC CONVENIENCE AND NECESSITY LAW. Chapter 454 of the Laws of 1907 provides that no railroad corporation shall begin the construction of any proposed line of railroad or make any extension to an existing line without having first secured from the Commission a certificate that public convenience and necessity require such construction. Before the railroad is operated, it must be inspected and approved by the Commission. This matter has been worked out in greater detail in the New York statute. It is one of very considerable importance, because it gives to the Commission the power to prevent cut-throat competition and wasteful duplication of plants on which the public must pay interest in the form of rates. 38 REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. XI. RATE CHANGES. Up to 1911, the Wisconsin statute provided that no changes should be made in the rates of a railroad or public utility except upon notice to the Commission. The time in case of a utility was ten days and in case of a railroad thirty days. Unless objection was made, the rate went into effect without further action on the part of the Commission. In other words, the approval of the Commission was not a condition precedent to the effectiveness of the rate. The result was that there was very little work for the railroad rate department and this work was all done by one rate man and one assistant. The legislature of 1911, however, amended the existing statute so as to provide that no changes might go into effect without the precedent approval of the Commission. The commissioners are somewhat doubtful as to the wisdom of this change. They think that the railroads may possibly use this provision as a pretext for refusing to establish the rates desired by shippers.. The "Wisconsin Commission seems to have done very little work in fixing railroad rates. XII. MUNICIPAL COUNCILS. I have already stated that utilities owned by municipalities come within the jurisdiction of the Commission to the same extent as other utilities. Under section 1797 w-87, of the Public Utilities Law, municipal coun- cils have power in the first instance to determine the quality and character of each kind of product or service and the terms of occupation of streets, but not the power to fix the rates. Even as to the rights exercised by the councils, the Commission has the right to review their action and to set aside their ordinances. The Commission recently declared null and void a city ordinance directing the completion by a public utility within sixty days of work which could not reasonably be performed in less than nine months. It should be noted that the only powers of regulation or control exercised by municipal councils are those which are particularly men- tioned in 1797m-87 and that as to these powers, the Commission has the right of review. XIII. GAS, ELECTRIC AND TELEPHONE INSPECTION. This work is carried on by a branch of the engineering department under the immediate charge of Mr. Cadby. For the purposes of elec- trical inspection, the state is divided into four districts with one man in charge of each district. One man supervises all the gas plants in the state. Another is engaged in telephone inspection. Two men are in REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. 39 the office, in addition to Mr. Cadby, making a total of nine men engaged in this work. The work is done as follows : 1. Gas and Electric Service. Sections 1797 w-22 to 25 of the Public Utilities Law provide that the Commission shall prescribe the standard commercial units of product or service, standards for the measurement of quality, pressure and voltage, and rules and regulations, and shall examine and test appliances used for measuring the product and service of public utilities. Under these sections, the Commission, after numerous conferences with the inter- ested corporations, prescribed its order, U-21 in re standards for gas and electric service in the State of Wisconsin, 2 W. R. C. E. 632-662. These rules, established on July 24, 1908, have remained unchanged. Acting under these sections of the statute and this order, the Commis- sion keeps inspectors constantly in the field making inspections of plants and meters and service, examining complaints and advising proprietors of plants how to remedy defects in service. The inspectors, while trav- eling, also fill out reports as to the service on the railroads over which they are traveling. These reports are turned in monthly with their expense accounts and are then sent to the railroads affected. The inspectors are all University of "Wisconsin graduates and are paid between $90.00 and $125.00 per month. 2. Telephone Service. The department is carrying on a detailed investigation into telephone service within the state. Men are sent to the different cities of the state with instructions to make one hundred and twelve telephone calls, of which twelve are at pay stations. These men note the time which expires before central answers, the time thereafter before the party at the other end answers, and the frequency of "busy" and "don't answer" replies. The results of these trials are then platted and sent to the telephone companies affected. Very marked improvements in the service are said to have resulted from these tests. XIV. RATE DEPARTMENT. Mr. Hogan has charge of the filing of schedules of rates of charges in so far as railway, express and telephone companies are concerned. The Commission has not yet worked out a form for the filing of the schedules of public utilities, and few, if any, such schedules are on file. Up to the present, the chief work of Mr. Hogan and his assistant has been to prepare information for the Commission in rate cases. The Commission's usual practice is to take the testimony of both sides and then to send it over to the rate expert, who reads it and makes a report 40 REPORT ON RAILROAD AND PUBLIC SERVICE COM Ml loXS. thereon. The Commission usually follows the report, so that some of the railway companies have adopted the practice of introducing very little evidence at all, for the reason that they know that the Commission will investigate the subject anyway. Mr. Hogan has had some difficulty in securing schedules of rates of charges affecting Wisconsin business issued by foreign companies not doing business in Wisconsin and con- curred in by the Wisconsin lines. The statute requires only the filing of tariffs issued by railroads which are subject to the act. The Wis- consin carriers have to ask for an extra copy of such tariffs for the use of the Commission. Other states, such as Oklahoma, secure complete files of all tariffs affecting the state, including those issued by foreign companies. They force the local companies to secure the tariffs from the foreign companies. Mr. Hogan files separately the tariffs affecting state business and those showing nothing but interstate rates. The tariffs are indexed according to their nature, i. e., commodity, switching, distance, lumber, logs, etc. A card index system is used. XV. DEPARTMENT OF STATISTICS AND ACCOUNTS. Section 1797 w-8 of the Public Utilities Law provides that every public utility shall keep and render to the Commission, in the manner pre- scribed by the Commission, uniform accounts of all business transacted. Section 1797m-9 provides that the Commission shall prescribe the form of all books, accounts, papers, etc. Section 1797m-13 provides for an annual balance sheet to show the information desired by the Commis- sion. Similar provisions are contained in the railroad act. The Commission, acting under these sections, has worked out a set of account forms and instructions for every public utility, and in some cases has worked out different forms of reports for the same kind of utility, depending upon the size and the extent thereof. These forms have been worked out with great thoroughness and care. A complete set was sent to the California Commission upon my request, and should be carefully consulted as soon as the Commission undertakes this same work. The Wisconsin forms provide for an arrangement of operating expense accounts in order of time, so as to show the cost as to each step in the process. The department is also engaged in a thorough class- ification of all expenses of utilities and other facts connected therewith by percentages, so as to arrive at unit information. Mr. Gruhl showed me several such tables worked out in great detail for some twelve <.M< companies. His department has also worked out tables of depreciation for each item of utility plants and also a composite curve showing depre- ciation for each utility. The Commission orders this percentage of operating revenues to be set aside for depreciation as prescribed by the REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. 41 Public Utilities Act. This department has also done very thorough work in the matter of investigating passenger rates of the Milwaukee street car line system. This case will soon be decided and will be one of the most important utility decisions of the Commission. This department also carries on a large amount of general work of investigation with reference to the conduct of the business 'of the public utilities. Mr. Schneider is in charge of the railroad and express statistics and accounting. The Wisconsin Commission has adopted the form of accounts prescribed by the Interstate Commerce Commission, but itself prints the forms which are sent out to the railway companies. The same is true of express companies. XVI. EXPRESS INVESTIGATION. Commissioner Erickson told me that the Commission has been inves- tigating express rates for some eighteen months. It has secured from the express companies general data showing amount of business both incoming and outgoing from each station, with the terminal expendi- tures chargeable thereto. Several hearings have already been held. The Commission is also going into the question of the reasonableness of the rates of the railway companies in connection with this business. Mr. Erickson was of the opinion that Auditor Peabody 's estimates in the Kindel case before the Interstate Commerce Commission are defective, because in his original segregation of freight from passenger expenses he loaded the passenger expenses too heavily. The Wisconsin Commis- sion has made a very thorough examination into this question of segre- gation of passenger from freight operating expenses. (See the Buell case, No. 32.) XVII. WRITING OF OPINIONS. Commissioner Erickson believes strongly in referring in detail to the facts in the opinions of the Commission. He believes that the habit of doing so will induce the commissioners to make more thorough investi- gations and also that the railroads and utilities will be less likely to appeal. This has been the experience of Wisconsin. The case of City of Beloit against the Beloit Gas, Light and Electric Railway Company, decided while I was in Madison, covers over thirty printed pages. Mr. Erickson also showed me an opinion which he had written in the matter of the City of Janesville water case, containing in detail by tables figures showing operation, revenue, classes of consumers, etc., all prepared by the statistical and accounting department. Mr. Erick- son realizes that some prominent commissioners prefer to write merely 42 REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. the decision without going into the reasons, but believes strongly that the Wisconsin system is the better one. XVIII. COST BASIS. Commissioner Erickson is probably the leading exponent in the United States of the theory that rates should be based on the cost of the service, including interest on the value of the plant, lie has pre- pared detailed tables showing how the cost of the service of each unit is secured. . XIX. ' RELATION BETWEEN STATE UNIVERSITY AND COMMISSION. One of the most significant features of the work of the Railroad Com- mission is the close relation existing between the Commission and the State University. Professor Gilmore, of the law department, rendered assistance in the drafting of the original Railroad Commission Act. Professor Commons, of the Department of Economics, drew the public utilities act of 1907. This work was done without compensation and on the invitation of the legislative committees. As I have already stated. Professors Pence, Burgess, Mack, and others devote part of their time to their work in the University and part to the work of the Railroad Commission. A large number of the employees of the Com- mission are graduates of the State University. Considerable work of an experimental nature has been done by the students of the University. A number of the students of the University become interested in the work of the Commission by reason of the lectures that are given in the University by men such as the professors whom I have mentioned, and they are then upon graduation selected as employees of the Commission. This relation is one which has grown up naturally and has not resulted from any forwardness on the part of the University. This relation is of very great assistance both to the University and to the Commission. It helps the University, because quite a number of her instructors are enabled to do practical work and to bring to their classes the point of view of a practical man. The University is also very materially aided because the people of the state see that it is help- ing them to solve some of their most important practical problems, and for that reason give her generous support. The arrangement is also of very material assistance to the Commission. It gives to the Com- mission unprejudiced men of scholarliness and thoroughness and high ideals of public service. I am convinced that the Wisconsin Commission could not have attained its present high stage of efficiency if it had not been for its close association with the State University. REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. 43 NEW YORK. SECOND DISTRICT. I. INTRODUCTION. The Public Service Commissions both of the First and Second Dis- tricts were created by statute of 1907. They took the place of the Board of Railroad Commissioners, the Commission of Gas and Elec- tricity, the Inspectors of Gas Meters and the Board of Rapid Transit Commissioners. The First District includes the counties of New York, Kings, Queens and Richmond; the Second Districts, all other counties of the state. The Commission of the First District has jurisdiction over railroads and street railroads lying exclusively within the district ; street railroads lying partly within the district in so far as affects transportation of persons or property within the district; the portions of other railroads lying within the district, as to physical features; common carriers other than railroads, as to operations within the district; and gas and electric companies within the district. In addition to these powers, the Commission of the First District is the successor of the Board of Rapid Transit Commissioners in the matter of rapid transit within the City of New York and the management and control of the subways. The headquarters of this commission are in New York City. The Commission of the Second District has all jurisdiction not specif- ically conferred upon that of the First District and in addition thereto the legislature of 1910 conferred upon it jurisdiction over all the telephone and telegraph companies of the state, whether situated within the First or within the Second District. The headquarters of this commission are at Albany. The Public Utilities Act contains provisions for control over the issue of stocks and bonds and also of extensions and new construction (cer- tificates of public convenience and necessity). The present Public Service Commission Act was very strongly advo- cated by Governor Hughes and was one of his pet measures. II. ORGANIZATION AND OFFICE SYSTEM. 1. The Commission. The commissioners are Frank W. Stevens, the chairman, an able lawyer, who handles a large part of the applications for approval of stock and bond issues; Martin S. Decker, formerly assistant secretary 4 RC 44 REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. of the Interstate Commerce Commission, who handles a portion of the applications and is particularly concerned with traffic matters; James E. Sague, who was for many years a railroad operating man and who is particularly interested in the engineering and physical inspection work of the Commission ; John B. Olmstead, a lawyer, who concerns himself with grade crossings and other matters, and Winfield A. Huppuch, recently appointed by Governor Dix. The Commission holds hearings nearly every day and is practically in continuous session. The chair- man seems to be a particularly hard working man. The commissioners are appointed by the governor for the term of five years, at a salary of $15,000.00 per year. The New York salaries are considerably higher than those paid in any other state. 2. Employees. The work of the Commission is divided into the following divisions : a. Administrative. b. Light, heat and power. c. Statistics. d. Tariffs. c. Engineering and inspection. /. Telegraphs and telephones. g. Traffic inspection. The secretary receives a salary of $6,000.00 per year. The present employees in the administrative department are as follows : John S. Kennedy, secretary; one assistant secretary; one secretary for each commissioner; and twenty-three clerks and seventeen stenog- raphers. The Commission has a counsel, Ledyard P. Hale, who receives a salary of $10,000.00 per year. The division of light, heat and power has a chief of division, Henry C. Hazzard, who receives a salary of $4,000.00 ; one engineer at a salary of $5,000.00; six persons employed in the electrical department; and thirteen in the gas department. The division of statistics consists of a chief statistician, who receives a salary of $5,000.00 per year, and fifteen employees. The division of tariffs consists of a chief of division, at a salary of $4,000.00, and seven employees. The division of engineer- ing and inspection consists of a chief of division, at a salary of $4,000.00 per year, an inspector and assistant inspectors of electric railways, an engineer and inspectors of grade crossings, a supervisor of equipment and two assistant supervisors, a boiler inspector, a mechanical engineer, four steam railway inspectors and several clerks and stenographers. The division of telegraphs and telephones has a chief, at a salary of $4,000.00, and an engineer and seven employees in the Albany office and an engineer and three employees in the New York City office. The division of traffic inspection consists of one inspector, whose station is REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. 45 at Buffalo. Altogether, the commissioners and the employees of the commission number one hundred and thirty. The budget for the year 1911-12, is $388,000, with an additional $350,000 as the state's share of the cost of elimination of grade crossings. o. Office System. All communications both to and from the Commission are handled by the secretary. Each morning he goes through the mail and assigns the correspondence to the respective divisions. The files in the general office are arranged in three main groups (1) formal matters; (2) in- formal matters; (3) general correspondence. Both formal and infor- mal matters are numbered. The filing clerk keeps in her desk a book for informal matters and assigns to each matter, as it comes in, a num- ber. A decimal filing system has been carefully worked out for the general correspondence files. The office has one large general index. Formal matters are indexed by name of complainant (on a white card), name of the respondent (salmon), name of the locality (blue), and the names of all persons who are connected in any way with the case, including everybody who writes in about it and all lawyers who appear, except the regularly retained corporation lawyers. In this way an index is given to every possible clue. Informal matters are indexed in the same way on the same colored cards. However, these matters have two letters "cc" i. e. } "correspondence complaints," in the upper right hand corner. All applications also appear in this same index on green cards. General correspondence matters are indexed by names of the persons. Separate indexes are also kept for the subject matter of all complaints both formal and informal. I consider the filing system of this office to be the best which I observed in any of the commissions, and secured for the information of the California Commission, a copy of the decimal system key. III. DIVISION OF HEAT, LIGHT AND POWER. This division has charge of the inspection of all gas and electric plants within the district and the testing of gas meters. Its chief is Henry C. Hazzard. The Commission has prescribed standards of purity and of illuminating power of gas, and has four men in the field con- stantly inspecting gas plants to see whether these standards are being complied with. Examinations are also made of the safety of construc- tion and operation of high tension power lines. About 80 per cent of the gas furnished is used for heating. Consequently, in Mr. Hazzard 's judgment, a calorific test is better than a lighting (candle power) test. Several conferences have been held between the Commission and the gas companies for the purpose of having the companies adopt a calorific test. The matter is now in process of adjustment. Every gas meter 46 REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. is inspected before being installed; this work necessitates the employ- ment by the Commission of seven gas meter inspectors. Electric meters can not be so inspected before installation, for the reason that because of their delicacy they vary materially between the time of inspection and the time of installation. After the installation of the gas meters, they are not inspected by the Commission except upon complaint of a user of gas. The corporation, however, is directed to keep meter test- ing apparatus, which is inspected from time to time by the Commis- sion's inspectors. In Wisconsin, the Commission does not in the first instance test every gas meter, but forces the company to do so within thirty days after installation, and once every two years thereafter. The New York Commission also forces the electric companies to pur- chase machines for testing electric meters and to make tests at regular intervals. IV. DIVISION OF STATISTICS. This division is in charge of Mr. Wishart, who was formerly with the Interstate Commerce Commission. The chief work of the depart- ment is to prescribe forms of accounts and reports, to analyze the reports, and to furnish statistical data when required by the Commis- sion in cases of stock and bond issues and other cases. With reference to steam railroads, the department uses the Interstate Commerce Com- mission's forms as models, but prints its own blank forms, with paper covers for convenience in filing. As to express companies, forms pre- pared by the Interstate Commerce Commission are used. As to gas and electric companies and street railroads, the department has prepared its own forms for three classes of companies in each case, being those which are large, medium and small. The department is now preparing forms for telephone and telegraph companies. Copies of all these forms have been sent to the California Commission at my request. The department has two traveling auditors to examine the books of public utility corporations, to make reports on special cases, and to assist the smaller companies in keeping their books. V. DIVISION OF TARIFFS. This division is in charge of Mr. Griggs, who has devised the most thorough tariff filing index system which I observed on my tour. The Commission has issued its Circular No. 55, being regulations prescrib- ing the form and governing the construction and filing of freight tariffs and classifications and passenger fare schedules of railroad companies. It has also prepared a form of schedule for heat, light and power com- panies, but this form has not as yet been adopted. Mr. Griggs is now REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. 47 working on a form of schedule for telephone and telegraph companies. None of the public utilities have as yet filed any tariffs. This division issues a weekly tariff bulletin showing all changes in transportation rates and fares for the preceding week. The largest part of the work of this division consists in keeping up the very thorough card index system which Mr. Griggs has devised. He has one index to tariffs by railroads, showing passenger, class freight and other tariffs, except commodity tariffs, and a separate index for all the commodity tariffs. The commodity index runs alpha- betically from a to z, each commodity being separately indexed. When- ever a tariff schedule comes into the office and is ready for filing, every commodity shown therein is passed on to the index cards. For instance, under the head of ' ' apples ' ' will be found a reference to every schedule which shows a rate on apples. In this way, it is possible to tell at a moment's notice every rate on apples in effect on any railroad within the State of New York for the last four years. In some cases, one single schedule necessitates several thousand notations on the index cards. VI. DIVISION OF TRAFFIC. This division consists of one inspector with headquarters in Buffalo, where the steam railroad traffic is more congested than in any other city in the state. It is the duty of this inspector to study how to relieve this congestion and to expedite traffic. VII. DIVISION OF ENGINEERING AND INSPECTION. The steam railroad inspectors go over all of the steam railroads of the state each year and inspect the same as to their physical features, such as the adequacy of stations and yard facilities and the condition of the track. One supervisor and two assistants do similar work with refer- ence to railroad equipment. The inspector of electric railroads has charge of the physical features of the electric railroads of the second district and examines into all complaints affecting them. The division also has in its employment a locomotive boiler inspector and an engineer and an inspector of grade crossings. The railroads furnish to the Commission, at short intervals, reports as to each passenger train delay. The engineering and inspection division thereupon analyzes the returns and suggests improvements. VIII. DIVISION OF TELEGRAPHS AND TELEPHONES. The statute of 1910 provides that the Commission of the Second Dis- trict shall have jurisdiction over all telegraph companies and over all 48 REPORT OF RAILROAD AND PUBLIC SERVICE COMMISSIONS. telephone companies having a property value of $10,000.00 or over. Out of eleven hundred telephone companies in the state, only one hun- dred and thirty-five report that they have the required amount of prop- erty. The Commission is having considerable trouble with telephone companies by reason of discriminations in charges arising from existing contracts. The Commission has called for a statement from the tele- phone companies as to every discrimination of this kind, and may take action to order the cancellation of such contracts. No investigation has been made into the value of the plants of these companies and no rates have been fixed for any of them. IX. STOCKS AND BONDS. No issue of stocks, bonds or other securities payable in more than twelve months, of any of the companies subject to the Public Utilities Act is valid without a certificate of authority from the Commission. A very large part of the Commission's work consists in hearings on these applications. Under the rules of procedure prescribed by the Commis- sion, a petition is filed setting forth the amount and details of the proposed issue; the purposes for which the proceeds are to be used; a general description of property, facilities or service to be acquired or obligations to be refunded; the -financial condition of the applicant; the cost of construction of the proposed improvements; and the contract for the sale of the stocks or bonds, or an affidavit as to the amount prob- ably to be realized. The Commission, generally acting through Chair- man Stevens or Commissioner Decker, makes a thorough examination into the application. If there is any question about the matter, the accountants and sometimes the engineer of the Commission are sent out to examine the plant and to report. The Texas law as to stock and bond issues of railroads provides that no registration of bonds shall be authorized without a precedent valuation of the plant. The New York Commission generally does not seem to require a valuation as a condi- tion precedent to the issuance of the certificate. The order of the Commission generally prescribes the purpose for which the money is to be used, directs the applicant to report under oath the sales of obligations issued and the terms and conditions and amounts realized and to make a verified report at least once every six months showing in detail the use and application by the applicant of the moneys so realized. No form for applications nor for reports has been prepared. The Commission lays very particular stress on this part of its work. One very important question which has arisen is as to whether or not the Commission has the power, under the statute, to impose conditions on the grant of its permission. Recently the Commission made an order REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. 49 permitting an electric railway company, which was very much over- capitalized, to issue $500,000.00 worth of bonds to make improvements, on condition that the company strike off $100,000.00 of its capital stock. The Commission's order in this matter is now in the courts. It is important to have the statute provide that the Commission shall have the power to impose conditions, otherwise it is powerless to force the writing off of any watered stock or to force compliance with any other requirement which, in the judgment of the Commission, may be necessary to protect the company and the public. X. CERTIFICATE OF PUBLIC CONVENIENCE AND NECESSITY. The railroad law and the public service commission law both provide that the corporations therein specified shall not begin the construction of a new plant or an extension of an existing one or exercise any new franchise or right without having first secured from the Commission a certificate that public convenience and necessity require the construc- tion or the extension or the exercise of the franchise or right. The applicant must file a petition showing all the material facts connected with the enterprise, including the manner in which it is proposed to finance the construction or extension. The Commission then gives notice to each municipality affected and to every other public service corporation of the same kind likely to be concerned and to every person who has corresponded in the matter, and directs the applicant to publish notice in a paper designated by the Commission. The chief question, at the hearing, is generally as to w y hether or not the public convenience or necessity requires the construction of a new plant or the extension of an existing one. The hearings are often contested between the existing company and the new one which is seeking to enter the field. Where the application is submitted by a proposed competitor of an existing utility and the utility already in the field is giving satis- factory service, the Commission generally denies the application. If the existing company is giving poor service, the Commission often holds the application of the new company as a club over the head of the existing company in order to force better service. The commissioners told me that they considered this provision an extremely important one. Cut-throat competition between such companies usually results in deterioration of the equipment and the service, and when the inevitable consolidation takes place, the public must pay interest on both invest- ments. The Commission recently refused permission to a proposed new railroad, the Buffalo, Rochester and Eastern to build from Buffalo easterly towards Boston, a proposition involving a contemplated outlay of more than one hundred million dollars. The reason for the refusal 50 REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. was that the traffic in the territory affected was already being ade- quately handled by the existing railroads and that there was no reason for the investment of so much additional capital on which the public would have to pay interest. A rehearing was granted in the case, but a decision affirming the former decision was being prepared when I was with the Commission, although a large number of legislators had signed a petition to the Commission "to decide the case promptly and in favor of the applicant" and though there was considerable public agitation in favor of the project. XI. PHYSICAL VALUATION. This Commission has done practically no work in ascertaining the value of the properties of the corporations subject to its jurisdiction. The only work which has been done has consisted in the valuation of a few of the smaller utilities in complaints before the Commission con- cerning their rates. In the New York telephone case, recently decided, concerning ten cent tolls between New York City and adjoining cities, the Commission reduced the toll to five cents. The Commission struck out an item of thirty million dollars for special franchise values, and then took the telephone company 's own figures as to value. One valua- tion was made during the last four years in the matter of a gas rate. One of the commissioners told me that there was little occasion for investi- gating railroad rates for the reason that they were stable and that the railroads were entitled, if anything, to a higher rate than those in effect. Chairman Stevens, speaking for himself, is not impressed by the physical valuation theory of some of the western states. He thinks such valuations unsatisfactory for three reasons : 1. Because the principles upon which they are based have not as yet been clearly defined by the courts. 2. Because the ascertainment of the valuation is largely guess work. 3. Because he does not know what to do with the valuation after he gets it. As bearing on the second point, he referred to a Buffalo gas or electric case, in which he had been taking testimony for some two weeks and in which the experts varied two hundred per cent in their valua- tions. He is of the opinion that this entire question of physical valua- tion is largely guess work, particularly with reference to depreciation. In his judgment, the original cost of the plant (not the cost of repro- duction) is a material element, but he points out that in New York State it is absolutely impossible to ascertain the original cost of con- struction of the railroad properties. He stated also that the application of the cost of reproduction theory would very materially raise the rail- road rates in the State of New York. REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. 51 XII. RATE FIXING. As I have already indicated, the New York Commission has done practically no work in the way of rate fixing. In 1907 the legislature passed a two cent maximum fare passenger law, but Governor Hughes vetoed the bill on the ground that there had been no investigation suffi- cient to justify the reduction. The Public Service Commission did not at that time have the power to investigate rates on its own initiative. No investigation has ever been made. Mr. Stevens' view of the matter is that the service should first be perfected, and that when this has been done, the Commission can take up the question as to whether or not the company is still receiving excessive compensation. The Commission has never made any investigation of express rates. XIII RELATION WITH NEWSPAPERS. The Commission is very particular to see to it that adequate publicity is given to its proceedings. Each day the assistant secretary prepares a statement of the matters which have come before the Commission during the day, including decisions and new applications for the approval of stock or bond issues and for permission to construct new plants or extensions of existing plants. These statements are secured each day by the newspaper representatives and are published in a large number of the papers in the state. While I was traveling in other states, both in the east and south, I read, from time to time, in the local papers, items which had been telegraphed over the wires of the Asso- ciated Press from the Commission of the Second District of New York, showing the effectiveness of the newspaper work of the Commission. XIV. RELATION BETWEEN COMMISSION AND CORPORATIONS. This Commission, like that of Wisconsin, seems to be on friendly terms with the corporations subject to its jurisdiction. I was told that there are at present only three or four cases in the courts arising out of orders of the Commission, these being cases raising questions con- cerning the jurisdiction of the Commission in certain matters, such as the power to impose conditions upon the issue of stocks and bonds. This condition of affairs, existing as it does with reference to the work of two of the most thorough and capable of the Commissions of the country, w r ould seem to justify the conclusion that where the work of Commissions is done with considerable care and thoroughness, the probability of appeal from their orders is slight. The result has been 52 REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. that the entire legal work of the Commission is handled by its counsel, personally, without any assistants. It is interesting in this connection to note that the legal department of the Commission of the First District in New York consists of a Counsel and some four of five assistants, who are kept constantly busy with the Commission's litigation. It is only fair, however, to say that a large portion of the litigation of the Com- mission of the First District is probably due to a mean spirit on the part of some of the corporations, and to the fact that former watering of stock and excessive issues of bonds have placed the corporations now in such a position that they can not meet the interest on their bonds and declare dividends, and consequently are not in a mood to comply with any order requiring an additional outlay of money. XV. ELIMINATION OF GRADE CROSSINGS. The Railroad Commission Law of 1907 contains elaborate provisions concerning the power of the Commission with reference to supervision of crossings, and particularly the abolition of grade crossings. In the years 1907 to 1910 the State of New York paid as its share in the elim- ination of grade crossings, the sum of $1,270,831.49. The final deter- mination by the Commission of a large number of grade crossing cases has been held up because of the failure of the legislature of 1909 to make any appropriation for the further elimination of such crossings. The legislature of 1911, however, appropriated $350,000 for this work. In the three years from 1907 to 1910, inclusive, 226 persons were killed and 400 injured at highway crossings in New York State outside the limits of New York City. The Commission has recommended that a statute be passed requiring the railway companies to remove, at their own expense, each year one grade crossing for every three hundred miles of railroad. The problem is becoming more serious every day. XVI. DISCOUNTS AND EXPENSES. The Commission has taken the position that discounts and expenses incurred in connection with the original sale of securities are not to be regarded as capital on which interest must be paid indefinitely, but rather that they are amounts which must be apportioned annually over the period of life of the security. In other words, these sums should be paid out of income and not regarded as capital account. This mat- ter is of importance, in view of the fact that the Washington Commis- sion, in making its valuations, permitted the railroads to capitalize these items. REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. 53 XVII. AMORTIZATION FUND. The Commission insists that the companies shall set aside each year out of their income an amortization fund. While it would naturally be expected that the corporations would be glad to do so, the fact is that many of their managers, desiring to declare as large a dividend as possible, have been extremely dilatory about setting aside this fund. The Commission has prescribed no percentage of depreciation to be set aside, but has left the responsibility for the present with the corpora- tions themselves. 54 REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. MASSACHUSETTS. A. RAILROAD COMMISSION. I. INTRODUCTION. The Board of Railroad Commissioners of Massachusetts was appar- ently created by act of 1864, although its active work seems to date from the act of 1869. The Board has limited jurisdiction over all steam, electric, and street railroads, express companies and "steamship com- panies serving as common carriers throughout the year between two or more ports" of the commonwealth. Jurisdiction over gas and electric light companies is exercised by the Gas and Electric Light Commis- sioners. Jurisdiction over telephone and telegraph companies is exer- cised by the Board of Highway Commissioners. The General Court (legislature) of Massachusetts meets annually and each year passes quite a number of amendments to the railroad commis- sion act, and resolves (resolutions) calling upon the Board to investigate special problems and to report thereon. II. ORGANIZATION AND OFFICE SYSTEM. 1. The Commission. The commissioners are Walter P. Hall, Chairman ; Geo. W. Bishop and Clinton White. Mr. Hall is a lawyer. All the chairmen from Chas. Francis Adams down have been lawyers. Mr. Bishop was for- merly road master of the Fitchburg railroad and is the practical rail- road man of the Commission. Mr. White has served for ten years, is a banker and financier and handles the stock and bond applications. The commissioners give practically all their time to the duties of their office. They spend considerable time in traveling both in the United States and abroad for the purpose of familiarizing themselves with traffic con- ditions and with the most approved methods of railroad operation. The railroad commissioners are appointed by the governor and serve for three years. By amendment of 1906, the salary of the chairman was raised to $6,000.00 and that of the other two commissioners to $5,000.00 2. Employees. The employees of the Board consist of a secretary, an assistant sec- retary, an auditor, an assistant auditor, a consulting engineer, ten inspectors and four stenographers. The secretary, Chas. E. Mann, is REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. 55 appointed by the governor, at a salary of $3,000.00 per year and has served since 1893. The only other secretary whom the Commission has had served from 1869 to 1893. The function of the accountant and his assistant is to edit, check over, analyze and digest the reports submitted each year by the railroad companies. The consulting bridge engineer, Professor George F. Swain of the Harvard Scientific School, receives a salary of $3,000.00. The inspectors are paid $2,000.00 The total expense for salaries for the year 1910 was $42,600.00. The sums of money appropriated annually by the General Court for salaries and expenses of the board, its clerks and employees, are apportioned by the tax commissioner among the corporations subject to the juris- diction of board, in proportion to gross earnings, and are collected in the same manner as taxes upon such corporations, so that the entire expense of maintaining the board is ultimately paid by the corporations which are subject to its jurisdiction. 3. Office System. The office system is not elaborate, for the reason that the Board does not handle a very large amount of business. All formal matters are numbered and a brief history thereof written in an index book. I glanced through this book and noted that practically all matters noted therein are petitions by the railway companies for approval of locations, approval of stock and bond issues, approval of right to exercise fran- chises, etc. On a number of these pages I noticed only a single case of a complaint by the third party asking a hearing. Matters which are referred to the Board by the General Court for investigation are also noted as formal matters. An index is kept of all correspondence matters. A book containing an entry of every letter received and sent out in each such matter is also kept. The secretary keeps a card index of all applications by railroads. He keeps letterpress books for his correspondence and also one for "Orders of Notice," these being notices to corporations that matters have been set for certain dates. The blank forms of these orders are printed in copying ink so that the entire notice appears in the letterpress book. The minutes are kept in a loose leaf book with typewritten inserts. On the theory that the Board is in session all the time, no mention is made of adjournments to any particular time. The minute books show proceedings on an average of about every other day. III. RATE FIXING. Up to 1911, the Board had, with reference to rates, recommendatory powers only. For that reason, the Board was referred to by a committee of the National Association of Railroad Commissioners as a weak board. It is evident that this charge rankles. The commissioners explained 56 REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. that although they did not have the power to fix a rate, they accom- plished practically the same purpose through their powers of recom- mendation, for the reason that if their recommendations were not complied with, the General Court would pass a statute in the matter, lowering the rate. I have been informed within the last few days, however, that the General Court before adjourning this spring finally gave to the Commission the power to fix rates. In response to a resolve of the General Court, the Board has made a thorough investigation into the commutation rates within fifteen miles of Boston and has secured the adoption by the railroads of twelve day tickets and has also induced them to smooth out all inequalities in rates in concentric spheres of territory radiating out from Boston. Under a resolve of 1911, the Board must now investigate commutation rates further out than fifteen miles. Commissioner White told me that there is a considerable agitation for the reduction of commutation fares further out, particularly on electric roads, and that the promise of a reduction in such fares is frequently the principal plank in the platform of a candidate for the General Court. IV. FACILITIES, EQUIPMENT, SAFETY DEVICES. AVith reference to repairs, additions to rolling stock, additions to or alterations in stations or waiting rooms, and manner of operation, the powers of the Board are recommendatory only. Certain statutes, however, have given to the Board the power to compel the installation of interlocking plants, signal plants at crossings and safety devices. In general, the Board has mandatory power as to matters affecting the safety of passengers and merely recommendatory power in the general field of service, safety and equipment. V. POWERS OF BOARD AS TO CHARTERS, FINANCES AND CONSTRUCTION. The most important powers of the Board are those which are exer- cised in the granting of certificates as preliminary to the incorporation of railroad companies and their construction and financial operations. 1. Incorporation. After the incorporators of a proposed railroad company have signed articles of intended association and have advertised the same, they must secure from the Board a certificate that public convenience and neces- sity require the construction of a railroad as proposed in the articles of agreement. The Board has power to refuse the issue of such a cer- tificate. The Board in its order sets a date for the hearing of the matter and usually directs publication in at least one newspaper in each city or town affected, and also directs a copy of the publication to be REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. 57 served on the mayor of each such city or town. Railroads which might be affected are also notified. The general policy of the Board is to grant such certificates wherever they affect new territory but to refuse them where the territory is already adequately served. In case the existing service is inadequate, and the existing company is slow to improve it, Commissioners Hall and "White differ as to the policy to be pursued. Chairman Hall would grant the application on the ground that competition is a good thing. Commissioner "White would hold the matter in abeyance, using it as a club over the head of the existing corporation to compel improved service, and ultimately granting it only if the existing corporation does not come up to scratch. Chairman Hall fears that this policy will ultimately result in the refusal of any new corporation to apply, and consequently a tendency on the part of the existing corporation not to keep up its service. The Board last year refused several applications for new railroads, among them the applicaton of the Boston, Lowell and Lawrence Elec- tric Eailroad Company, in which case Chairman Hall dissented. The Board last year granted certificates to four railroads, refused them to two (Hall dissenting) and postponed one matter (Hall dissenting). If the Board issues the certificate of public convenience and necessity, the proposed corporation must then agree as to its route with the board of aldermen of all the cities and towns through which the railroad is to run, must pay into its treasury ten per cent of the par value of the stock subscribed, and must then secure from the Board a certificate of compliance with the provisions preliminary to incorporation. Then, and only then, can the incorporators secure from the secretary of the commonwealth their certificate of incorporation. As far as I was able to ascertain, Massachusetts is the .only state which makes the issuance of a certificate of public convenience a condi- tion precedent to the issuance of articles of incorporation. In Wisconsin and New York, the proposed company can incorporate and secure its articles, subject to the possibility that the Railroad Commission may thereafter refuse permission to build the railroad for which they are incorporated. The Massachusetts plan is more logical in that it goes to the root of the matter and prevents the initial incorporation of such company, unless the Board of Railroad Commissioners decides that public convenience and necessity require the construction of a railroad along the route specified in the articles of incorporation. 2. Construction. After the certificate of incorporation has issued and the railroad has been constructed, it can not be operated until the Board has issued its certificate that all laws regarding its construction have been com- plied with and that it appears to be in a safe condition for operation. If the railroad thereafter wishes to extend its line or to add a new piece 58 REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. of track, it must secure from tHe Board an approval as to location. With reference to locations, the Board has power to refuse the certificate only on the ground of menace to public safety. The right of the railroad to build along a certain route has already been settled by the issuance of the certificate of public convenience and necessity. The question arising under an application for the approval of a location is simply the determination of a specific location in that general route. If the railroad thereafter wishes to lease the franchise of another railroad corporation, or to consolidate with such corporation, or to enter into a contract with it under which the corporation shall perform all the transportation upon the road of the other, it must first secure a certificate of authorization from the Board of Railroad Commissioners. 3. Finances. If a railroad wishes to issue stocks, bonds, notes or other evidences of indebtedness, payable more than twelve months from the date of issue, it must first secure a certificate from the Board of Railroad Commission- ers. No form of petition has been prescribed by the Board. The Board generally directs notice to be published in one or more newspapers. Cases of contest in matters of this kind are extremely rare. There is generally an appearance made by the attorney and the treasurer or auditor of the applicant. The Board does not seem to make the careful examination into the value of the applicant's property which is made in New York and Texas, but* seems to rely largely upon the knowledge of finance possessed by Commissioner White. The statute does not specify the purpose for which such issues can be made and in this respect differs from the statutes of New York and Wisconsin. Commissioner White told me that the present Board has never authorized an issue for any purpose other than the purchase of property except under one statute which authorized the issue for working capital. Mr. White thinks it wiser to have the statute give the board general powers in this respect instead of tying the hands of the commissioners by detailed statutory provisions. I had some little conversation with Commissioners Hall and White with reference to the policy of the commissions in New York in forcing an applicant at times to write off a designated amount of capital stock as a condition precedent to the approval of a new issue of stocks or bonds so as gradually to squeeze out the water. Chairman Hall is strongly of the opinion that the Commission should not go into these matters, but should start with a clean slate and should consider only whether the amount of the issue applied for is too large for the purpose specified and whether the purpose specified is legitimate. He referred to the converse case in which the corporate plant is worth more than its stocks and bonds and asked why it would not be permissible in such a case, if the theory referred to is correct, to permit a new issue of REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. 59 stocks or bonds without putting in any new money into the plant. He does not see how the New York Commissions can consistently refuse to grant such permission in the latter case. I found no crystallization of opinion among the commissions on this point. These provisions with reference to incorporation, construction, and finances give to the Board immense powers, and the larger portion of its work is performed under them. The stock and bond law has been in effect since 1875, and the public convenience and necessity law since 1882. Wisconsin, New York and other states which have recently adopted similar provisons, all apparently took them from Massachusetts. VI. GRADE CROSSINGS. The matter of alteration or abolition of grade crossings is an extremely important one in Massachusetts. In 1910, the Commission approved plans for the abolition of crossings at grade in eight towns and also approved two agreements for alterations in grade crossings. In cases of abolition, the railway companies pay 65 per cent of the expense, and the state and the city or town 35 per cent. $34,000,000 has already been expended in Massachusetts by the railroad and public authorities in the abolition of grade crossings. In 1910, the commonwealth voted an addi- tional $500,000 for this purpose. Both Chairman Hall and Commis- sioner White urged strongly that California take steps in this matter at once, before the expense becomes enormous, as is the case in all the east- ern states. VII. COURT PROCEDURE. The board has had almost no cases in court. This is partly due to the fact that a large portion of the work of the Board has been recommend- atory and that none of it has involved the fixing of a rate. The remedy adopted, whenever any was used, has been certiorari. The board has been reversed only four times in its history. Two of these cases date back to the days of Charles Francis Adams. VIII. PREPARING ANNUAL REPORT. Secretary Mann showed me his method of preparing his annual report. During the year, the usual main heads in a report are cut out and all orders and other matters pertaining thereto are pasted under these heads in chronological order, ready for printing. The index heads are also cut out and pasted on cards, and new cards are prepared by one of the clerks at odd times as new headings become necessary. All orders, in so far as possible, are held off after December 15th, and the Chair- man 's report must be in by that day. Proof has been read in the mean 5 RC 60 REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. time, from time to time, by the secretary, with the result that the signed report is on the desk of the legislators by the first Wednesday in January. The statistical reports are printed in a separate volume. By planning the work ahead during the year, it is comparatively easy to have the report prepared in time. IX. LIBRARY. Secretary Mann has spent considerable time in securing a library, particularly in so far as the railroads of Massachusetts are concerned. He has collected a large number of pamphlets dealing with the early history of these railroads, and practically all the books that have been published affecting in any way the railroads of the commonwealth. He showed me some extremely interesting pamphlets going back to the very first railroad construction in Massachusetts, and others dealing with the early history and construction of the Hoosac Tunnel. He has also secured from the railroads and from booksellers and private libraries almost complete sets of the stockholders' reports of the railroad com- panies a matter of considerable importance to an effective railroad commission. He has also prepared a historical card index of all the railroads of Massachusetts, showing in detail every step in their his- tory, beginning with the incorporation and continuing through every organization, reorganization and consolidation, and every statute and order of the Board referring in any way to these matters and to the issuing of stocks and bonds. I shall go into this latter matter a little more fully in connection with the work of the Public Service Commis- sion of the First District of New York. These two commissions seem to be the only ones which have realized fully the immense value of having in the office of the state board detailed and accurate information con- cerning the entire history of the railroad companies of the state. X. INSPECTORS. Up to 1911, the legislature provided for seven inspectors. The state was divided into six districts, with one inspector in charge of each dis- trict. The duty of each inspector is to look into the service, equipment, and facilities of the steam and street railroads within his district and to investigate complaints affecting these matters. The seventh inspector is a locomotive inspector and spends his time riding on locomotives. Commissioner White is particularly proud of these inspectors. All of them are practical railroad men. Each Monday they report to Com- missioner Bishop at a general conference. There is sufficient diversity in their qualifications so that one or the other is qualified to handle practically any matter which may come up. however technical it TIIMV 1)0. involving a question of service, facilities, or equipment. The legis- lature of 1911 increased the number of the inspectors from seven to ten. REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. 61 B. GAS AND ELECTRIC COMMISSIONERS. I. INTRODUCTION. Since 1885, jurisdiction over all the gas and electric light companies of the state has been exercised by the Board of Gas and Electric Light Commissioners. The board has the following general powers : 1. To supervise all companies manufacturing and selling gas or elec- tricity for light or heat. 2. To authorize a gas light company to engage in the business of fur- nishing electricity for heat and power. 3. To sit as court of appeal on decisions of boards of aldermen or selectmen on the petition of a second company to lay gas pipes in the streets. 4. To exercise similar power as to electric light companies. 5. To prescribe forms of accounts. 6. To compel the rendition of annual returns. 7. To compel a company to supply gas or electricity upon the petition of a consumer. 8. To fix the quality and price of gas or electricity upon petition of the mayor of a town or the board of selectmen or twenty consumers. 9. To fix the price of gas or electricity upon petition of the company. 10. To test electric meters on petition of a consumer. 11. To investigate accidents. 12. To test and seal all gas meters before installation. 13. To test all gas for candle power and for sulphur, ammonia, and other impurities. 14. To enforce provisions of a recent statute as to smoke in Boston, Brookline, Cambridge, and other cities. 15. To regulate all issues of stocks and bonds and all consolidations of gas and electrical companies. II. ORGANIZATION AND OFFICE SYSTEM. The Commission consists of Forrest E. Barker, chairman, Morris Schaff, and Alonzo R. Weed. Chairman Barker is a lawyer and has served on the Board since the seventies. Mr. Weed is an engineer, a graduate of West Point and has just been reappointed for the ninth or tenth time. The commissioners are appointed by the governor at a salary of $5,000.00 for the chairman and $4,500.00 for the other two commissioners. The commissioners devote their entire time to the 62 REPORT ON RAILROAD AND PUBLIC SERVICE COM M l>si< i\ duties of the office and seem to perform a very large amount of work. Their report is among the most thorough and comprehensive of any of the reports published by state commissions. 2. Employees. The employees consist of a clerk appointed by the governor, one chief and two assistant gas inspectors, four inspectors or testers of meters, one electrical inspector and three stenographers. All the salaries and expenses are paid by the gas and electric companies in proportion to their gross receipts. 3. Office System. Stenographic reports are taken of all hearings and the original notes are firmly bound in black leather volumes which are then filed away in the vault. This is an excellent idea, apparently original with this board and worthy of emulation. The annual reports of the corporations are neatly bound when returned, those of private gas companies in one color, those of private electric companies in another and those of muni- cipally owned plants in still another color. III. RATE FIXING. Chairman Barker pointed out that the Board does not have power on its own initiative to fix rates. He said that his Board had discour- aged legislation to that end, for the reason that the public would then be inclined to lose their initiative in the matter of filing complaints and for the reason that the Board would then be subject to severe criticism for failure to institute investigations in certain cases. He pointed out, however, that when a reduction in rates is petitioned for by the Mayor or the Board of Selectmen or twenty consumers, the Board has the power to fix the rate. On other occasions the Board at times compels the reduction of a rate as a condition to the approval of a stock or bond issue. IV. STOCKS, BONDS, CONSOLIDATION. There is hardly ever any opposition in cases of this kind. The Board hears the evidence presented and then itself goes carefully into the value of the plant and the financial condition of the company before issuing its certificate. In the year 1910, twenty-nine applications for approval of issue of stocks and bonds were decided. The amount of security asked for was $3,803.400, and the amount approved $2,969,600. The Board at times imposes conditions to its permission; for instance, that a certain amount of the capital stock should be written off, or a dividend reduced or an assessment made to bring up the capital account. The policy of this Board, as well as the experience of the New York REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. 63 Commissions of both districts, shows the necessity of giving to the Commission the power to impose conditions on the approval of stock and bond issues. The Massachusetts Board has the power, on granting applications for issues of bonds, and it is its duty, to determine the price for which the bonds shall be sold. This is an unpleasant duty and nobody is ever satisfied with the decision of the Board on this question. V. NEW GAS OR ELECTRIC PLANTS. Sections 25 and 26 of the statute provide that no gas or electric company shall use the streets of a city or town without the consent of the mayor or aldermen or selectmen granted after notice by publication and a formal hearing. Section 27 provides that any person aggrieved by the decision may within thirty days appeal to the board of gas and electric light commissioners, whose decision shall be final. Chairman Baker told me that appeals were taken in practically all cases and that in only one or two cases had the Board permitted the second utility to come into the field. "While his Board has not put itself on record as formulating any definite policy in this matter, these results speak for themselves. I referred to objections which I had heard concerning this policy as applied to railroads, whereupon Chairman Barker answered that there is no remedy so sure or so speedy to secure adequate service by the existing company as the power of the Board to grant or withhold a certificate to a second company. In answer to the suggestion that such a course of procedure might soon dissuade new companies from making further applications, Mr. Barker said that it is always easy to stir up an agitation for a citizens' or other new gas or electric company if the service of the existing com- pany becomes too poor. VI. ACCOUNTS. The board has prepared a carefully worked out form of accounts and reports, which aims at simplicity, so that the matters presented shall help the public ascertain the simple question as to whether the company is or is not making too large a profit. This commission has done the pioneer work of the country in the matter of the prescription of forms of accounts for gas or electric companies. When the 'California Commis- sion secures jurisdiction over gas and electric companies, it will do well to examine carefully the forms prescribed by the Massachusetts board, copies of which were sent to the California Commission at my request. 64 REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. VII. LITIGATION. In all its history, this Board has had only a single case in court. C. BOARD OF HIGHWAY COMMISSIONERS. This Board, among other powers, has jurisdiction over all telegraph and telephone companies within the state. I was unable to visit the Board. REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. 65 NEW YORK. FIRST DISTRICT. I. INTRODUCTION. The extent of this Commission's jurisdiction has already been dis- cussed while considering the Commission of the second district. As there stated, its office is in New York City. The largest portion of the work of the Commission of the first district arises from its control over subways and rapid transit, as the successor of the Board of Rapid Transit Commissioners of New York City. Out of 489 employees of the Commission in June 1911, 272 were directly and solely concerned with this branch of the work. Two thirds of the running expenses of the Commission, irrespective of the cost of the construction of subways, are directly chargeable to this branch of the work. The Commission has but little to do with steam surface railways. Such of these rail- roads as have their terminus in New York City keep up adequate service and facilities without any action on the part of the Commission. The extent of these railroads within the city of New York is so small that no questions affecting the rates within the city of New York have arisen. Apart from its subway work, the attention of the Commission is directed largely to street railways and to gas and electric plants within the city of New York. II. ORGANIZATION AND OFFICE SYSTEM. 1. The Commission. The commissioners are William R. "Willcox, chairman, Milo R. Malt- bie, John E. Eustis, Win. McCarroll and J. Sergeant Cram. Chairman Willcox was practising law at the time of his appointment by Governor Hughes. Mr. Maltbie is a Ph.D. of Columbia University, a thorough student of political economy and a hard worker. He does most of the public writing for the Commission and also works out and writes a large portion of the opinions of the Commission. He and Commissioner Bassett, whose term recently expired, did most of the work in connection with stock and bond issues. Mr. Eustis is a lawyer. Mr. McCarroll was formally a leather merchant. Mr. Cram was recently appointed by Governor Dix in place of Commissioner Bassett, who was regarded as an extremely efficient commissioner. As is the case in the second district, the commissioners of the first district are appointed by the governor and devote their entire time to the work. Their salary is likewise $15,000 a year. 66 REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. 2. The Office. The office is divided into the following bureaus : (a) Executive. (6) Chief Engineer. (c) Transportation engineer. (d) Gas and electricity. (e) Franchises. (/) Statistics and accounts. (a) Executive. The Secretary, Travis H. Whitney, is a member of the class of 1900 at Harvard and of 1903 at the Harvard Law School. He has the work of the office exceptionally well in hand, and directs, with considerable ability, the administrative work of the Commission. The executive office apart from the secretary, consists of the counsel and his office, and of sixty-four employees, of whom thirty-two are clerks, and sixteen stenographers. Among the other employees, are two assistant secre- taries, one librarian, one purchasing agent and one photographer. (b) Chief Engineer. The attention of the chief engineer and his department is confined entirely to subway construction work. The chief engineer has an office force and an engineer of subway construction, under whom are six divisions and a sewer division and a division of design. There are two hundred and seventy-one men directly under the Chief Engineer. (c) Transportation Engineer. The transportation engineer, in addition to his office force, has divi- sions of transit inspection, equipment inspection and accidents and complaints. The division of transit inspection employs forty-three per- sons, including thirty-two inspectors and six or eight assistant engineers. The division of equipment inspection consists of ten railway engineers, five electrical engineers and one inspector. The division of accidents and complaints consists of one assistant electrical engineer and five inspectors. (d) Gas and Electricity. The gas and electricity bureau consists of thirty-three employees, among whom are one secretary, six inspectors and twenty-three gas meter testers. (e) Franchise bureau. The franchise bureau consists of the chief of bureau and ten employees. (/) Division of statistics and accounts. Tliis division consists of the chief statistician and seventeen employees, including five statisticians and six accountants and six stenographers and clerks. REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. 67 The budget is about $1,000,000 a year. The state of New York pays the salaries of the commissioners, the counsel and the secretary and the city of New York pays the other expenses. The city bears its share of the expenses by means of short term notes which are placed in the next year's city budget as a part of the city's indebtedness. For printing alone, apart from the subway and rapid transit work, the Commission last year spent over $35,000.00. 3. Office System. The secretary is the administrative head of the Commission. I ob- served the number of men coming into his office during the two days I was there and can bear witness to the very large number of persons whom he sees during the day. These are partly members of the office force coming to him for their instructions and rendering reports to him, partly representatives of the press and partly third parties. The secre- tary handles all the mail. A stenographer opens the mail early in the morning and writes on a tag, in duplicate, the general nature of the letter, with a reference to the person who wrote it. An assistant secre- tary then stamps on the tag a reference to the person or department to whom the letter is to go. When the secretary arrives in the office, he glances over the letters and tags, and the letters are then distributed. One of the duplicate tags goes with the letter and the other is kept in the secretary 's office and filed, so that he can determine at once to whom the letter was assigned. When the letter is returned with its answer, the second tag is taken off and filed with the first. The secretary person- ally signs all letters which go out, except those of the legal and engineer- ing departments. The secretary also prepares carefully the work to be taken up by the Commission at its meetings. III. LEGAL DEPARTMENT. The legal department is headed by James S. Coleman, counsel for the Commission, who receives a salary of $10,000.00 per year. His office force consists of five assistant counsel, two junior assistant counsel, a secretary to counsel, four stenographers and four clerks. One assistant counsel draws all the orders in stock and bond cases and similar matters, besides taking care of legislation affecting the commission. Another counsel and two assistants handle the Commission's rapid transit and subway work. Another assistant counsel has charge of matters arising out of the railroad law, such as grade crossings, service and the like. This Commission seems to have more legal work than any other rail- road or public service commission in the United States. This condition arises partly from the large number of contracts and agreements which must be prepared in connection with the Commission's subway work, and partly from the fact that this Commission seems to have more litiga- 68 REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. tion than any similar commission. The large amount of this litigation seems to be due to three causes : 1. Unfavorable judges. 2. Antagonistic corporations. 3. Action on the part of the Commission in exercising powers which the courts later hold are not conferred by the act. 1. Writ of review. The original intention of Governor Hughes and the framers of the statute was that there should be no appeal or review of an order of the Commission, the complainant being left to his remedy by injunction. The state courts, however, held that the remedy of review prescribed by the code of civil procedure would lie. The commissioners are strongly opposed to the right of review and are apparently preparing to amend the statute so as to take a\vay this right, as soon as they can secure a favorable legislature. One of the assistant counsel showed me the transcript in the Third Avenue case. The printed volumes of the tran- script are at least two feet high. The corporations, in presenting their cases, put in every conceivable kind of testimony, and the Commission itself includes the voluminous reports and records which it may have considered in arriving at the decision. Mr. Coleman strongly favors the right of review and points out that trial by injunction would take much longer and would be far more cumbersome than review. He might also have pointed out that in the absence of the right of review in the state courts there is nothing to prevent a corporation from going at once to the federal courts for an injunction, freed from any condition which the legislature may pre- scribe for such cases in the state courts. 2. Litigation. The New York state judges have on every possible occasion whittled down the powers of the Commission. The lower federal judges seem also to be unfavorably inclined. The famous Consolidated Gas case, which was finally decided in favor of the Commission in the United States Supreme Court, was decided adversely to the Commission in every inferior court. The following are some of the leading cases affecting the powers of the Commission : a. Willcox vs. Consolidated Gas Company, 212 U. 8. 40. In this case, the Supreme Court of the United States finally sustained a statute fixing the price of gas at 80 cents. b. Long Acre Electric Light and Power Company Case. In this case, the Commission, on general grounds of public policy, refused authority for the issue of stocks and bonds of the newly formed Long Acre Electric Light and Power Company. The Commission REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. 69 regarded the matter as simply an effort on the part of the applicant to secure the desired permission so that it might then be in a position to force a sale to the Consolidated Gas Company. The courts reversed the order of the Commission, denying the desired authority, and the Com- mission thereupon on July 28, 1911, while I was visiting them, finally granted the desired certificate. c. South Shore Traction Company Case. This was an application to build an electric railway from Queens County over the Queensborough Bridge into Manhattan. The Commis- sion found that public convenience and necessity would be subserved by the construction of the contemplated railway, but held that the franchise granted by the city of New York did not sufficiently protect the city because it did not provide sufficiently for the use of the bridge by possible later companies. The court overruled the Commission, on the ground that the Commission's power as to franchises was merely a perfunctory power of approval, without the right to impose conditions or qualifications. d. The Third Avenue Railroad Case. This was a case of reorganization. The. Commission refused to author- ize the issue of some $73,000,000 of stocks and bonds, on the ground that the real value of the plant was not over $58,000,000. The court held that under a proper construction of the language of the statute as to reorganization, the companies had the full power to issue up to the combined stocks and bonds of the component companies and that the Commission had no power to impose any condition which would lower this total, even for the purpose of squeezing out water. These people applied twice to the Commission and were twice refused. The decision of the appellate division overruling the Commission was handed down on June 21, 1911. The Commission intends to appeal the case. IV. STOCKS AND BONDS. Apparently the most important work of the Commission, apart from its subway and rapid transit work, is that in connection with applica- tions for approval of stock and bond issues. The rules of procedure in these matters are similar to those of the second district already referred to. The Commission makes a very thorough investigation in each case, and, as a part of its inquiry, at times makes a physical valua- tion of the plant. There is considerable question, as a matter of law, whether the Commission has been granted the power to impose con- ditions on the granting of the desired permission. The Commission acts on the theory that it has this right, and often imposes quite a number of conditions. A typical order was issued on July 28, 1911, in the mat- 70 REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. ter of the application of the Long Acre Electric Light and Power Company for authority to issue $10,000,000 of preferred stock and $50,000,000 of bonds to be secured by mortgage on its property. The Commission 's order authorized an issue of $2,000,000 of capital stock and of $50,000,000 of bonds, of which bonds, however, only $4,000,000 may at present be issued. After specifying the purpose for which the money may be used, the order sets out the following conditions: 1. No bond shall issue until the existing mortgage has been satisfied. 2. $2.000,000 of bonds may issue only when $1,000,000 of new stock has been fully paid in. The same condition governs the second $2.000,000 of bonds. The bonds may not be sold at less than 90 per cent of par, and the proceeds must be applied as specifically directed. 3. If the company proposes to sell the bonds for less than 90 per cent of par, it must publish notice of the sale and permit a public bidding under the control of the Public Service Commission. 4. Discounts, commissions and expenses shall not exceed $400,000 and shall be amortized out of the income of the company before July 1, 1961. 5. The Company must keep full accounts of receipts and applications of proceeds of sales and make each month a verified report of the same to the Commission. 6. No proceeds shall be spent until an itemized bill therefor has been submitted to the Commission. 7. Stocks and bonds, under this authority, must issue prior to July 1. 1913. 8. A duplicate original of the mortgage must be filed with the secre- tary of the Commission. Commissioner Maltbie states that in his judgment the present law concerning applications for approval of stock and bond issues is satis- factory, except that the statute should clearly confer upon the Commis- sion the power to prescribe conditions on the issue of stocks and bonds, should make the power of the Commission apply to reorganizations, and should provide, in addition to its present provisions, that notes of ;i corporation running for less than a year can not in turn be replaced by other notes. The street railway conditions in New York City show very clearly the necessity of public control over the issue of stocks and bonds. Although New York City is the richest passenger traffic territory in the country, every street railway company in that city is in the hands of a receiver. The reason is that every time any of the extremely numerous organiza- tions and reorganizations in street railway properties were effected, the amount of capital stock was increased and the issue of bonds was augmented. The result is that today these companies are vainly trying to pay interest on a tremendous amount of watered capital and exces- REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. 71 sive bond issues. It further follows that the companies have no money for the betterment of the service or for the purchase of necessary additional equipment or facilities. The investing public has suffered because of excessive capitalization, and the traveling public because of inability to improve service, facilities and equipment. If at the time these organizations and reorganizations started, an efficient state commission had had control of stock and bond issues, the present condi- tion of affairs would never have resulted. V. CERTIFICATES OF PUBLIC CONVENIENCE AND NECESSITY. Section 53 of the Public Service Commission law, referring to rail- roads, street railroads and common carriers, and similar sections applicable to gas and electric companies and telegraph and telephone companies, provide that no company shall begin the construction of its plant without first securing from the Public Service Commission a certificate of public convenience and necessity. Dr. Wilcox told me that the public service field had already been so thoroughly covered in New York City that very few applications have been made or will be made for certificates of public convenience and necessity. No such application has been made with reference to gas and electric com- panies. Apparently no case has arisen as to railway companies except the South Shore Traction Company case, supra, in which case, Commis- sioner Bassett specifically found that public convenience and necessity existed but refused a certificate because of disapproval of certain provisions of the franchise granted by the city. VI. APPROVAL OF FRANCHISES. The sections referred to in section V hereof further provide that the corporations therein specified shall not exercise any franchise or right not theretofore lawfully exercised without having first secured the permission and approval of the proper Commission. The statute con- tains similar provisions with reference to the transfer of franchises or stock. In the South Shore Traction Company case, the court held that the Commission does not have the right to refuse approval to the exercise of a franchise, except in so far as the public safety is affected. If this is the law, the statutory power in this respect is at present largely ineffective. VII. FRANCHISE BUREAU. The Commission of the first district is the only commission in the country which has a special franchise bureau. The head of the bureau is Dr. Delos F. Wilcox, a Ph.D. of Columbia, author of "Municipal 72 REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. Franchises" and a number of pamphlets and magazine articles, and an unusually well posted man. Dr. "Wilcox has made a thorough study of all the organizations and reorganizations, mergers and consolidations, affecting the public service corporations of this district and of all the franchises which have been granted to them. He furnished the material from which Commissioner Maltbie published a two hundred and thirty page book on "Franchises of Electrical Corporations in Greater New York," accompanied by an illuminative chart. 1. Reports and documents from companies. This bureau secured from each company subject to the jurisdiction of the Commission a certified copy of each document affecting its organi- zation, reorganizations, consolidations, mergers, etc., and of every deed, franchise, lease or agreement and all miscellaneous documents affecting its corporate existence. The bureau has secured a very large number of these documents and has filed them by companies, each document in a separate file with a number. A card index is arranged by original companies. As to each such company, the index has subheads for cer- tificate of incorporation, franchises, leases, operating agreements, etc. Maps secured from the companies in connection with their franchises are also indexed but separately filed. '2. Franchise books. Dr. AVileox's office has prepared blue prints showing the history of every franchise that has been granted within the limits of the city of New York. Each map shows some franchise or franchises, trackage actually used and trackage owned and trackage operated under lease, with appropriate references. Along the edges of the print, Dr. "Wilcox has written historical data showing the history of each franchise. These maps follow each other in chronological order and are pasted into four large scrap books, one book for each borough. 3. History charts. Dr. Wilcox has also prepared charts showing diagrammatically the history of each company performing a certain kind of service, with the original organization and all successive organizations, reorganizations, mergers, consolidations, receiverships, etc., including the stock owned in other corporations. These charts show as to each kind of public service, a large number of original companies gradually merging into one or two which now control the situation. Copies both of franchises and history charts in so far as they affect electrical corporations will be found in the book of "Franchises of Electrical Corporations in Greater New York, ' ' above referred to. 4. Value of franchise compilations. The franchise compilations so prepared are of great assistance to the Commission in the matter of the approval of stock and bond issues and REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. 73 may also be used as the basis for actions to forfeit a considerable number of unused franchises. This data also shows that in some cases the public service corporations are using the streets of the city of New York without any franchise at all. There is no statutory provision in New York for an indeterminate franchise, similar to that of Wisconsin, except in the Rapid Transit Act, affecting the subways and the rapid transit system of New York City. VIII. PHYSICAL VALUATION. The Commission has made no physical valuations except in connection with a few matters of approval of stock and bond issues. IX. NEWSPAPERS. The relationship between the Commission and the press is very close. An Associated Press correspondent has his office with the Commission. The first assistant secretary spends almost his entire time in preparing for the press statements of what the Commission is doing, including abstracts of opinions. While I was in the office, a constant stream of newspaper men kept coming in for news. Secretary Whitney lays great stress on this part of the Commission's work. He suggests for California a card index of all the newspapers of the state with their affiliations, dates of publication, owners, etc., and a system of sending out statements to all newspapers which are willing to run Commission news. X. LIBRARY. The Commission has employed Dr. Whitten, another Columbia Ph.D., who receives a salary of some $3,600.00, and spends his entire time in collecting a library of reference books and reports and newspaper clip- pings and magazine articles, referring to the subject-matter of the Com- mission 's work. The Commission's library is by far the most complete of any railroad or public service commission visited by me. XI. ACCIDENTS. Immediate notice of every accident is given to the Commissfcm by telephone or telegraph. One of the Commission's inspectors is on the ground within a few moments and takes the names of the witnesses and gathers information concerning the cause of the accident. The Commission has a photographer who takes photographs of the surround- ings whenever applicable. In serious cases, the Commission also holds instituted an investiga- tion into the rates, rules and regulations of this company and prepared a list of questions asking for information. The Commission has not hitherto taken any steps to ascertain the cost of the railroad end of the express service. REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. 79 VII. PUBLIC UTILITIES. These have been under the jurisdiction of the Commission since 1907. Only two cases involving the rates of such companies have come before the Commission. No system of accounts have been prescribed. The form of annual return provides for information concerning simply ten or twelve facts as to the financial operations of the companies. VIII. TELEPHONE AND TELEGRAPH COMPANIES. The remarks under section VII are applicable to these companies as weU. IX. COURT REVIEW AND APPEAL. No review is provided for by the statute. Judge Hillyer tells me that whenever the action of the Commission is attacked, the procedure is one de novo for an injunction. The Commission is rather proud of the fact that, with the exception of the federal proceeding above referred to, no adverse decisions have been rendered by the courts. The powers of the Commission have been uniformly upheld, ever since the case of Smith vs. Georgia Railroad, 70 Georgia, 694, in which case a decision in favor of the Commission was affirmed by the United States Supreme Court. X. RAILROAD MAPS. This Commission, in common with almost all of the other railroad commissions, publishes at stated intervals a railroad map showing all the railroads of the state. The Georgia map shows on its back the census returns. XI. PASSENGER TRAIN DELAYS. This Commission, in common with the Texas and Oklahoma Com- missions, receives from each railroad every week a statement of all passenger train delays and the reasons therefor. These reports are then filed. The Commission does not have an inspector who can go out and personally investigate the delays. XII. GENERAL ORDERS, RULES AND REGULATIONS. The Commission has prepared freight rules; passenger rules; rules governing railroad, express and telegraph depots, stations, agencies and offices; storage (demurrage) rules; telegraph rules; passenger and 80 REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. freight classifications ; rules, tariffs and classifications governing express companies ; and some nineteen general orders which rules, regulations and orders are constantly referred to by the commissioners in their con- versation. The commissioners spoke to me of the care exercised in framing these rules and orders. Many subjects covered by them, such as the establishment of tariffs, inhibitions upon the use of passes, the filing of accident reports, etc., are, in other states, provided for by specific statutory enactments, but have been covered in Georgia under the broad general powers granted to the Commission. REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. 81 TEXAS. I. INTRODUCTION. The Railroad Commission of Texas was established in 1891, and has jurisdiction over steam railroad and express companies, but none over public utilities. An elaborate stock and bond law was approved on April 8, 1893. II. ORGANIZATION AND OFFICE SYSTEM. 1. The Commission. The commissioners are Allison Mayfield, chairman, Win. D. "Williams and Joseph R. "Wortham. The commissioners were originally appointed by the. governor for three year terms, but the Constitution was amended in 1894 so as to provide that the commissioners should henceforth be elected for six years. The commissioners receive a salary of $4,000.00 each. Governor Colquitt was formerly a railroad commissioner and seems to have been elected governor on the record which he made in that capacity. 2. Employees. The secretary of the Commission is E. R. McLean. The Commission also employs an engineer, an auditor, a rate expert and some four or five clerks and stenographers. The secretary receives a salary of $2,000.00 and the engineer $3,000.00. The Commission has no inspectors. The engineer seems to do all the inspection for valuations in connection .with the stock and bond issues and any other inspection which may be necessary. The engineer of the Commission was formerly R. A. Thomp- son, who is regarded as one of the best railroad commission engineers of the country. III. RAILROAD RATES. The Commission fixes the moving rate. When the statute was passed, the railroads had in effect distance tariffs in Texas. The Commission has used these tariffs as a basis and has established a distance table for class rates, some forty-seven commodity rate tariffs, and a class rate classification. The annual reports give the rate effective on each rail- road. By reason probably of the fact that the rates were but little lowered at the outset, the railroads did not take the matter into the courts. The Commission from time to time makes alterations in the rates and classifications both on its own initiative and on petition from 82 REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. the carrier. If a carrier wishes a rate to be altered and writes a letter to the Commission stating its desire, the Commission, if favorable, grants the request by issuing a circular which is mailed to the applicant, to every railroad in the state and to other interested parties. The appli- cant does not file a tariff showing the proposed change, but the Com- mission issues its circular in its own form. There has been almost no freight litigation in the state. With ref- erence to passenger rates, the Commission ordered a 2 cent rate in on the Galveston, Houston and Henderson Railroad as a test case. The railroad promptly secured an injunction and ultimately won out on the ground of confiscation of property. The Texas passenger rate is now 3 cents per mile. IV. EMERGENCY RATES. The act of April 5, 1897, as amended on June 5, 1899, gives the Commission power "when deemed by it necessary to prevent interstate rate wars and injury to the business or interest of the people or railroads of the state, or in case of any other emergency to be judged by the Commission, to temporarily alter, amend or suspend any existing freight rates, tariffs, schedules, orders and circulars of any railroad or part of the railroad within the state." I was informed that the provision concerning the prevention of interstate rate wars has little or no meaning. The real purpose of the provision was to give power to the Texas Commission to lower an intra- state rate from a producing to a consuming center in cases in which an interstate rate from a producing center outside of the state had been lowered, so as to lessen the differential theretofore enjoyed by the Texas producers. In cases of this kind, the Texas Commission regulates the state rates so as to keep Texas markets for Texas producers. The fear that their intrastate rates within Texas will be lowered has prevented carriers from lowering their .interstate rates. In a number of cases the railroads have written to the Commission asking whether it would have any objection to a reduction of an interstate rate from Louisiana into Texas, and the Commission had uniformly replied that it would have such objection in any case in which Louisiana products would thereby come into competition with those produced in Texas. As a result of the Commission's uniform reply, the railroads in these cases have refrained from reducing the interstate rates. The rate expert told me that as far as he knew, this paragraph had never been attacked on the ground that the emergency rates were estab- lished without any notice whatsoever to the carrier and consequently without due process of law. "We agreed that it would be wiser to give some short notice, such as three days. REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. 83 V. EXPRESS RATES. Early in its history, the Commission established a distance express tariff applying on merchandise for every pound up to 100; a similar tariff for general specials; similar tariffs for certain commodities such as green and fresh fruits, melons and vegetables, beer and other liquors, mineral and spring water; also an express classification with rates and rulings. The Commission seems very largely to have established the rates and regulations in effect at the time, so that no complaint was made by the express companies. Later, when Commissioner (now Governor) Col- quitt was elected, he started an investigation for a reduction of express rates. The Commission made an order reducing express rates (an early report states that the average reduction was about 20 per cent, although it is very questionable whether the reduction was in fact so large), whereupon the express companies at once enjoined the Commission, as is their usual practice in these cases. Mr. Colquitt took a mass of testimony in San Francisco and elsewhere. After some six or eight months, the matter was compromised by a new order making an average cut of some 8 per cent, and the rates established by that order are in effect to-day. VI. DEPARTMENT OF STATISTICS AND ACCOUNTS. Mr. W. F. Fitzgerald, who was for over twenty years auditor of the Southern Pacific Company, has charge of the work of this department. The railroad companies make annual returns on the forms prescribed by the Texas Commission. These forms are modeled on those prepared by the Interstate Commerce Commission for steam railroads. In addi- tion to the information called for by the interstate forms, the Texas forms provide for a segregation of operating revenue, both freight and passenger, into local, interline-interstate and interline-intrastate. The state returns call for a segregation of operating expenses into one hundred and sixteen accounts, based on those prescribed by the Inter- state Commerce Commission. In addition to this information, the form calls for the following information : 1. As to passenger traffic, it calls for the number of passengers carried, earning revenue, and the number of passengers carried one mile as to local, interline-state and interline-interstate traffic. 2. As to freight traffic, similar information is requested as to the number of tons carried earning revenue, and the number of tons carried one mile. 3. As to train mileage, information is called for as to revenue freight, revenue passenger, revenue mixed, revenue special service, total revenue, 84 REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. train mileage and non-revenue totals as to freight, passenger and work trains. "When the returns are filed with the Commission, they are carefully checked over by Mr. Fitzgerald and requests for corrections and amplifi- cations are frequently made by him. Before he took office, the reports were simply filed without being checked over. The returns are analyzed by Mr. Fitzgerald and appear in twenty-six carefully worked out statis- tical tables in the annual report of the Commission. The work of the Texas Commission in analyzing and tabulating the reports of the rail- way companies ranks with the work of the Massachusetts Commission as among the best in the country and can be referred to with profit by the California Commission when it starts on this same work. . The Commission receives also from each railroad a monthly report of operating revenues, operating expenses, passenger traffic, freight traffic and train mileage. Mr. Fitzgerald considers these reports valu- able for the reason that they allow the Commission to see month by month just how the railroads are spending their money and thus enables the Commission to stop unauthorized expenditures. Texas and Okla- homa seem to be the only Commissions which require these monthly statements. Several years ago, the Commission promulgated its bookkeeping rules Al and A2. Number A2, prescribing the keeping of accounts so as to segregate operating expenses as to passenger and freight for each of the one hundred and sixteen accounts prescribed by the Interstate Com- merce Commission, and also as to local, interline-intrastate and interline- interstate, w r as enjoined in the district court of Travis County, in the suit of Texas and Pacific Railway Company vs. Railroad Commission of Texas. The district court in that case rendered judgment against the Commission; the case was recently decided on appeal in the court of Civil Appeals in favor of the Commission. In this order, the Com- mission prescribed the bases of segregation, and the railroads severely attacked the same. These bases should be compared with those used by the Wisconsin Commission in the Buell ease, those prescribed by the Oregon Commission and those used by Statistician James Peabody of the Santa Fe. The Texas Commission uses for express companies the form of return prescribed by the Interstate Commerce Commission. VII. VALUATION OF RAILROAD PROPERTIES. The Railroad Commission Act provides that the Commission "shall ascertain as early as practicable the amount of money expended in the construction and equipment per mile of each railway in Texas, the REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. 85 amount of money expended to procure the rights of way and the amount of money it would require to reconstruct the railroad bed, track, depots and transportation, and to replace all the physical properties belonging to the railroads." Section 3 of the stock and bond law provides that "it shall be the duty of the railroad commission to ascertain, and, in writing, report to the Secretary of State the value of each railroad in this state, including all its franchises, appurtenances and property." It will be noted that the directions contained in these two statutes differ with respect to franchise values. The duty imposed by the Rail- road Commission Act is to ascertain the value of the physical properties of the railroads, whereas the duty imposed by the Stock and Bond Act is to ascertain the value of each railroad, including all its franchises and appurtenances. It might well be that the value of a franchise might be considered in determining the amount of stocks and bonds which a railroad company may properly issue, while it would be im- proper to consider the value of that franchise for rate fixing purposes. I assume that some such idea is responsible for the difference in the language of these two statutes. The Texas Commission, in such valuations as it has made, has appa- rently acted under the terms of the stock and bond law and under that law has valued some 12,988.09 out of 13,819.44 miles of main trackage in the state. For the purpose of ascertaining the value of the railroads under the stock and bond law, blanks calling for values of (a) railroad bed, tracks, etc., (&) rolling stock, (c) miscellaneous are handed to the rail- roads affected. Upon receipt of these returns, the engineer checks over the figures. Under the head of "c" appear street franchises, legal and engineering expenses and interest during construction, but not com- missions and discounts. All general franchises are valued at 6 per cent of the value of the railroads and are then added to the totals derived by the addition of a, b, and c, for the purpose of covering such items as discount on bonds and contingencies which could not be considered in the scheme of valuation provided by law. No valuation under the stock and bond law has ever been contested in Texas. There was some talk when I was in Austin to the effect that the International and Great Northern Railroad would appeal from a recent valuation of the Commission, but nothing definite has been done in the matter. This railroad wished to issue bonds in excess, of the amount which could be issued on the basis of the valuation made by the Com- mission. 86 REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. VIII. STOCK AND BOND LAW. Texas has the most complete stock and bond law of which I know. It prescribes practically every detail, leaving little or nothing to the discre- tion of the Commission. It declares that no bonds or other indebtedness shall issue, secured by lien or mortgage on railroad properties in Texas, above the reasonable value of the property, except that in case of emergency the issue may run up to 50 per cent in excess of such value. The Commission has confined emergencies to fire, flood or other acts of God. The statute provides for a valuation of railroad properties as described in paragraph. VII hereof, with the right on the part of the company to a hearing before the Commission ; for the filing by the Commission of its certificate of value with the secretary of state; for the authorization of the issue by the Commission ; and for the registra- tion of its bonds by the railway company with the secretary of state, with adequate penalties. As every railroad corporation doing business in Texas except the Texas Pacific (under a federal charter) and the Atchison, Topeka and Santa Fe, a leasing line, operates under a Texas charter, the question whether the stock and bond law applies to a foreign corporation has not arisen in Texas. IX. CONTROL OVER CORPORATIONS. By providing that each railway shall keep in Texas an office for transfer of stock, that the directors must hold at least one meeting annually in Texas, that no railway company shall consolidate with any other railway company organized under the laws of any other state or the United States, and similar provisions in her constitution and statutes, Texas has driven all the railway companies, except the two hereinbefore mentioned, to take out separate charters in Texas. This result has simplified the control in Texas over stock and bond issues. X. DEPOT COMPLAINTS. I was informed that the Commission handles a large number of complaints calling for the erection of additional depots or the improve- ments of existing ones. The Commission has no inspectors to send out on the line ; the engineer performs all this work. The complainant presents his case, with a photograph where applicable, and the defend- ant its case, whereupon the Commission decides. In the important Dallas Union Depot case, the attorney general ruled that, as the statute now reads, the Commission can not prescribe the exact site of a union depot, though it has authority to order the erection of such REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. 87 depot. The Commission, in its 1910 report, referring to union depots, recommends that the statute be amended so as to give to the Commission authority to fix the site for the location of such depots and also author- ity to enforce compliance with the orders of the Commission in the premises. XL NEWSPAPERS. Ten copies of each circular changing rates and ten copies of any statement which may be prepared by the Commission for publication are placed on a newspaper file in the office. The reporters come in each day and take off the copies for their respective papers. The Texas Commis- sion, in common with most of the wide awake Commissions of the country, lays great stress on the matter of publicity. 88 REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. OKLAHOMA. I. INTRODUCTION. The Corporation Commission of Oklahoma was created by section 15 of article 9 of the Constitution (1907) and most of its powers and duties are defined by the Constitution itself. The Commission has juris- diction over railroad, express, telegraph, telephone, oil pipe, car com- panies and, at least to a certain extent, over heat, light, power and water companies. Some of these latter utilities have denied the right of the Commission to regulate their rates. The Commission also claims the right under another section of the Constitution to regulate and fix the price of any article as to which a monopoly exists, and under this section has in certain cases fixed the rates of ice and lumber. The Commission has twice asked the legislature to pass a statute giving to it control over the issues of stocks and bonds. The statute as proposed specified that the sum of stock and bonds should not exceed the valitfc of the property except in emergency cases when the total might run up to 50 per cent in excess of the value. The Commission likewise has no control over the exercise of franchise rights or the commencement of construction of a plant. The municipalities them- selves determine these matters and uniformly grant the new companies the desired permission to enter the field. II. ORGANIZATION AND OFFICE SYSTEM. 1. The Commission. The commissioners are J. E. Love, chairman, A. P. Watson, and George A. Henshaw. Mr. Love is a cattle raiser. Mr. "Watson is about 64 years of age, a farmer and formerly a colonel in the Confederate Army. Mr. Henshaw was formerly Assistant Attorney General and was a member of the Oklahoma Constitutional Convention. The Com- mission is one of the most active in the country. The commissioners devote all their time to the duties of their office. They are elected at large for terms of six years and receive an annual salary of $4,000 each. 2. Employees. The office is divided into the following departments: 1. Executive. 2. Auditing. 3. Engineering. 4. Kate. 5. Telephone. 6. General corporation records. KEPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. 89 The law and executive clerk, E. C. Patton, receives a salary of $2,000.00; the rate expert, Mr. Bee, $3,600.00; the auditor, Mr. Stout, $2,500.00 ; the telephone expert, Geo. P. Player, $2,500.00 ; the engineer $3,000.00; and the corporation record clerk $2,200.00. In addition to these men, the Commission employs an assistant engineer and two or three tariff men; several assistants to the auditor; two or three assist- ants each to the rate expert, the telephone expert and the corporation record clerk; and several official stenographers and some four or five office stenographers. For the two years from July 1, 1909, to June 30, 1911, the legislature appropriated for salaries, printing and court expenses $60,200.00; for contingent expenses $120,000.00; and for rate litigation in the fed- eral courts $50,000.00 being a total of $230,200.00 for two years, or $115,100.00 for one year. For details of the contingent account, see the 1909-1910 report, at page 11. III. COURT PROCEDURE. Section 20 of Article IX of the constitution provides that from the orders of the Commission therein specified, an appeal may be taken directly to the State Supreme Court. The constitution does not specify the time within which the appeal may be taken, but Commissioner Henshaw told me that the courts had ruled that it may be taken at any time within a year. The constitution provides that such appeal may be taken in designated cases only, as from orders prescribing rates, charges and classifications, and that the legislature may also provide by general laws for appeals from orders of the Commission in other cases. Mr. Patton pointed out the importance of the limitation just noted. When the Commission made its important accounting order (No. 50), the corporations asked the Commission to approve a supersedeas bond, which the Commission refused to do, on the ground that this was not a case in which an appeal would lie (June 29, 1909). On June 30, 1909, the supreme court denied the request of the petitioners for a supersedeas on the ground that this was not an appealable case. Mr. Patton pointed out other cases, such as cases of request for information to be used in pending litigation, in which the Commission's hands should not in his judgment be tied. Section 21 provides that the supreme court may grant a writ of super- sedeas, but that it can not do so until a suspending bond shall first have been approved by the Commission in an amount sufficient to insure the payment of all charges in excess of those finally established by the court on appeal. The Constitution provides that the Commission must thereupon forthwith direct the appealing company to keep such accounts as in the judgment of the Commission may suffice to show the amounts 90 REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. being charged or received by the company in excess of the charge allowed by the Commission, together with the names and addresses of the persons to whom such overcharges will be refundable in case the charges made by the company are not sustained on appeal. On the final decision, the Commission may direct the manner of the payment of refunds. Such appeals shall have precedence in the supreme court over all other cases except habeas corpus and state cases already on the docket of the court. Mr. Patton was of the opinion that the requirements to keep books showing excess collections is a powerful detriment against appeals from the orders of the Commission. It is an expensive task to keep such records. "Wells-Fargo & Company are keeping them under their appeal from the Commission's order of June 11, 1909. Section 22 provides that the supreme court may not consider any new or additional evidence, "but the court may, when it deems it neces- sary, in the interest of justice, remand to the Commission any case pending on appeal and require the same to be further investigated by the Commission, and reported upon to the court, before the appeal is finally decided." Commissioner Henshaw thinks that this is a good provision, for the reason that the court is thus enabled to give to the Commission another opportunity in any case in which otherwise it would have to decide against the Commission. The Wells-Fargo & Company case is now back before the Commission to ascertain just what losses in revenue, if any, would be suffered under the Commis- sion's order, if it went into effect. Whenever the supreme court reverses an order of the Commission affecting rates, charges, classifications, etc., it must substitute another rate, charge or classification, so that its function in this respect is legis- lative and not judicial. This provision was taken from the Virginia constitution, referred to in the case of Prentiss vs. Atlantic Coast Line, 211 U. S. 210, in w r hich case it was held that the federal courts should not, as a matter of comity, assume jurisdiction to enjoin an order of a state railroad commission fixing rates, until the corporation has com- pletely exhausted its remedy by appeal to the final rate fixing body in the state, which in Virginia and Oklahoma is the supreme court. Not- withstanding an appeal, the Commission has the right to make other orders in the same matter based upon different circumstances and con- ditions. This provision is obviously to prevent the tying up of the entire rate situation during the pendency of court proceedings. IV. LITIGATION. The Oklahoma Commission has had more cases on appeal than any other railroad commission in the country. It has had almost as many appeals as all the other commissions, which I investigated, put together. REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. 91 Of the first one hundred cases coming before the Commission on complaints of third parties and formally heard before the Commission, appeals were taken in thirty-seven cases. The record in these cases is as follows: 1. Affirmed (or appeals dismissed) 15 2. Reversed , 5 3. Partly affirmed and partly reversed 2 4. Remanded for further testimony 2 5. Pending 13 Of the cases reversed, the Commission had in one case ordered a rail- road to construct at its own expense a side track so as to equalize a disadvantage of location. In two cases, it had ordered a railroad to install telegraph service for commercial purposes. In one case, it had held that a railroad would have to install all desired street crossings at its own expense, and in the fifth case, involving the installation of tele- graph service for bulletining passenger trains, there was no evidence as to amount of passenger service at the station. As bearing upon the reason for so many appeals, it is well to note that the Commission granted the petitioner's prayer in its original form or a modified form in eighty-six out of those one hundred cases and denied it in only fourteen. In cases on the Commission's own initiative, in which proposed orders are issued and published and final orders are then either issued or not issued after hearing, the railroads appealed in nearly every case. Fif- teen of these appeals were from orders establishing rates on different commodities. The railroads also appealed from orders directing reports as to earnings, state and interstate ; requiring accident reports ; requir- ing physical connections at junction points ; establishing demurrage and storage rules ; requiring the promulgation of all rules and regulations ; and requiring all public service corporations to maintain an office in the state. The most important cases now in litigation involve the rates of : 1. Railroads. 2. Telegraph companies. 3. Express companies. N 1. Railroads. The matters in litigation comprise the 2 cent maximum passenger fare law (part of the Constitution) and the different commodity rates prescribed by the Commission. The corporations went to the federal courts and secured injunctions, so that these rates have never gone into effect. The case went to the United States Supreme Court on the con- tention of the state that under the Prentiss case, 211 U. S. 210, it was the duty of the corporations to first exhaust their remedy by appeal to 7 RC 92 REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. the state supreme court. Judge Hook, in the circuit court, differenti- ated this case from the Prentiss case on the ground that the Commission had refused to grant a supersedeas bond. The United States Supreme Court refused to decide this point, but sent the case back to Judge Hook, who decided three or four months ago against the state. Com- missioner Henshaw, in referring to the decision, said that it would be impossible to secure a fair decision from the federal courts as long as they insisted on holding that the cost of state service was from two or eight times as much as the cost of interstate service. Mr. Henshaw said that he hardly thought the Commission would fur- ther contest the passenger fare case. Section 37 of article IX of the constitution, while establishing a 2 cent maximum passenger fare, gives the Commission power "to exempt any railroad from the operation of this section upon satisfactory proof that it cannot earn a just com- pensation for the services rendered by it to the public, if not permitted to charge more than 2 cents per mile for the transportation of pas- sengers within the state." The Commission has exempted from the provisions of the 2 cent law all railroads applying for exemption. 2. Telegraph rates. On December 2, 1908, the commission issued its order No. 149 pre- scribing telegraph rates, rules and regulations. Commissioner Watson told 7ne that there would have been no appeal had it not been for rule 4 providing that the receiving clerk must mark on the message the time of filing, and rule 6 providing that the operator on the other end of the line must mark on the message the time when received by him. On December 19, 1908, the case was certified to the Supreme Court. On December 28, 1909, the mandate of the Supreme Court was received, requiring the taking of further evidence to show what the company would have lost had the order gone into effect. If I am not mistaken, a heavy indemnity bond has been filed by the company and it is also keeping an account of excess payments. 3. Express Rates. On June 11, 1909, the Commission issued its opinion and order No. 203, prescribing new rates, rules and regulations for express companies. This is a long and carefully worked out order prescribing distance tables for merchandise, general special, milk and cream, and other special com- modities and also classifications, rules, etc., and making a total reduction in rates of about 20 per cent. All four express companies, Wells-Fargo & Company, United States, American and Pacific, appealed to the State Supreme Court, giving bonds in amounts of $200,000, $33,000, $35,000 and $4,500 respectively. The Supreme Court remanded the case with instructions to ascertain the amount of loss which would have been sustained, had the order gone into effect. The express com- REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. 93 panies have taken a large amount of testimony on that point but the state has not as yet had an opportunity to rebut the same. I was informed that the express companies are trying to compromise the case and that they have made several propositions which, while seeming fair, have as a matter of fact made but very small reductions, for the reason that the proposed reductions are in rates under which but few commodities move. The express companies seem to be chafing under the expense necessary to keep account of every shipment made, with the name and address of the consignor and the amount paid in excess of the Commission's order. V. COMMISSION'S BUSINESS. Until recently the matters on which the Commission took action were divided into (1) complaints; (2) proposed orders, on Commission's own initiative; and (3) citations for disobedience of Commission's orders. At present all matters are placed on one general docket file. The character of the Commission 's activities appears from the following compilation : 1. Complaints. Of the first one hundred complaints on which the Commission took action, other than to dismiss at the request of plaintiff or for lack of prosecution, the nature of the cases was as follows : Steam Railroads. Passenger trains stop on signal 8 Depots erection or increase in size 18 Shipping facilities 5 Sidetracks, spurs, switches 9 Railroad crossing with another railroad 1 Railroad crossing with highway 2 Passengers treatment of, after wreck 1 Physical connections, railroads 2 Stations 2 Bulletining of trains 1 Stock pens, water in 2 Agent at depot 1 Depot to be moved 1 Additional passenger service 5 Name of station, change in 1 Waiting rooms '. 1 Stockyard scales 1 Agent, discourteous treatment by 1 Union stations 1 Drainage opening 1 Interurban Railroads. Rates, reduction of 1 Street Railroads. Extension of service _ 1 94 REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. Telephone Companies. Installation in railroad depot 9 Rates, reduction of 1 Rates, discrimination in 1 Physical connection 6 Installation in private residence 1 Telegraph Companies. Installation or restoration of service 7 Gas Companies. Gas to be furnished 1 Express Companies. Establishment office and agent 2 Ice Companies. Rates, reduction in 1 Service, short weight, refusal to sell, etc 4 A perusal of the foregoing table will show a very great amount of time devoted by the Commission to the consideration of the questions of service, facilities and equipment. 2. Proposed Orders. These have dealt with matters of fixing rates; accounting rules; the filing of plans and specifications of all depots; accident reports; phys- ical connection of railroads at junction points; the filing of inventories of all telephone and telegraph properties; fixing the amount of excess fare to be charged to passengers without tickets; demurrage and storage rules; handling and moving of freight; filing documents with the Commission; requiring all public service corporations to maintain offices in the state ; the filing of tariffs by express companies, etc. About seventy-five proposed orders were made, of which quite a number were never issued. 3. Citations. These citations are for violations of the Commission's orders on infor- mation of third parties. The Commission has power to enforce com- pliance with its orders by the imposition of fines. The usual fine for contempt of the Commission's orders is somewhere between $100.00 and $500.00. Up to 1911, there were one hundred and twenty-three of these cases. The fines are imposed on the theory that the railroad is in con- tempt for failure to use due diligence in obeying the orders of the Commission. In most other states, the desired results would be secured without the necessity of contempt proceedings. VI. AUDITING DEPARTMENT. (a) Annual reports. This department has prepared forms of annual reports for all rail- roads, street railroads, gas, electric, telephone and telegraph companies. REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. 95 The railroad reports contain the information required by the Interstate Commerce Commission and also the additional information required by the Texas Commission. The gas, electric, telephone and telegraph reports have been worked out in considerable detail and will be valuable as models. (&) Monthly reports. Following the lead of the Texas Commission, the Oklahoma Com- mission requires each month from each railway company a full state- ment of earnings, operating expenses and tonnage moved, going into considerable detail as to segregation between state and interstate traffic. The Commission also requires a monthly statement of the total tonnage and revenue of all commodities moved during the month. (c) Organization reports. The Commission also required of each railroad subject to its juris- diction a special report containing a copy of its charter; its mortgages and other agreements affecting its property; minutes of stockholders' meetings, etc. These returns have been bound and are valuable for reference purposes. The Oklahoma Street Railway report is particu- larly complete. VII. ENGINEERING DEPARTMENT. This department is working on the valuation of the properties of the railroads and of the public utilities of the state. As to none of these companies is the material in final form. Questions concerning unearned increment, right of way multiple, interest, discounts and commissions have not as yet been determined by the Commission. The department has prepared a complete railroad map of Oklahoma and is now preparing detailed maps of each county. The Commission paid about $500.00 for 5,000 of these maps, an unusually low figure. VIII. TELEPHONE DEPARTMENT. This department is in charge of Mr. Geo. P. Player. The telephone companies make an annual report and also monthly reports, the latter showing the number of toll and residence telephones and the earnings and expenses for each station. Mr. Player is now working on material for an investigation by the Commission of telephone rates in the state. The telephone companies have returned to the Commission, on blanks furnished by it, a statement as to the physical values of their plants, by stations. There are over six hundred telephone companies in the state, most of them being so-called farmers ' telephone companies. Section 5 of article IX of the constitution provides that all telephone and telegraph lines 96 REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. operated for hire must make physical connections with each other's lines under such rules and regulations as the Commission may prescribe. This is a matter of very considerable importance. The Commission forces in these connections whenever the point is raised, with the result that it is possible to talk from the Commission's office with over 50 per cent of the farmers of the state. IX. RATE DEPARTMENT. This department is headed by Mr. C. B. Bee, a very competent man. The department has in its files not only all the tariffs affecting Oklahoma intrastate business, but also all the interstate tariffs in any way affecting the state, both those issued by carriers doing business in Oklahoma and those issued by other carriers concurring in the rates into or through Oklahoma. These latter tariffs are furnished to the Commission by the local railroads. The Oklahoma Commission believes that its tariffs are as complete as those of any state commission in the country. The Commission handles all interstate commerce complaints for Oklahoma citizens, even filing complaints for them and appearing before the Interstate Commerce Commission without any expense to the com- plainant. X. CORPORATION CLERK DEPARTMENT. This department receives reports from all corporations in the state and collects the license taxes. XI. MUNICIPAL UTILITIES. The Commission has no control over public service plants owned or operated by municipalities. In this respect it differs from the Commis- sions of Wisconsin, Massachusetts and New York. XII. GAS AND ELECTRIC COMPANIES. The Commission's control over these companies has been somewhat halting, for the reason that there is a question as to whether the consti- tution as now worded confers upon the Commission full power of control over this class of corporations. XIII. USE OF INITIATIVE BY CORPORATIONS. The "interests" of the state have three times tried by the initiative to repeal a section of the constitution forbidding the consolidation of local and foreign corporations and substituting a section very materially REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. 97 reducing the Commission's power. The Commission conducted a cam- paign each time against the proposition and is of the opinion that it has now finally won out. RECOMMENDATIONS. From the observations which I made on my tour of investigation, I respectfully make the following suggestions and recommendations con- cerning the regulation and control of public service corporations in this state : 1. Service, Equipment and Facilities. The appointment by the Railroad Commission of a sufficient number of expert inspectors to inspect the physical condition of all tracks, stations, plants and other facilities and equipment of all the public service corporations of the state ; also to render reports constantly as to the quality and sufficiency of the service rendered to the public. 2. Stock and Bond Law. The determination by the Railroad Commission of the amount of stocks, bonds, notes and other evidences of indebtedness, that public service corporations may issue and the conditions of the issue. 3. Department of Statistics and Accounts. The establishment by the Railroad Commission of a department of statistics and accounts for the purpose of working out a uniform system of accounts for the different public service corporations of the state, of analyzing and digesting their annual reports, and furnishing to the Commission financial and other statistical data whenever needed. 4. Public Utilities. Adequate control by the Railroad Commission, under the constitution as recently amended, of rates, service, equipment, stocks and bonds, and accounts of gas, electric, water, power, telephone, telegraph and street railway companies, and other public utilities, including the power to compel physical connections between telephone companies. 5. Property Valuation. The extension of the power of the Railroad Commission in the matter of ascertaining the value of the property engaged in the public service from railroads to all other public service corporations subject to its jurisdiction. 6. Public Safety. The adoption of adequate means to secure public safety, particularly with reference to grade crossings between railroads and highways, or two or more railroads. 98 REPORT ON RAILROAD AND PUBLIC SERVICE COMMISSIONS. 7. Interstate Commerce Complaints. The protection of the people of California in the matter of interstate commerce rates, where any considerable portion of the shippers of the state are affected. The Railroad Commission should appear in such cases before the Interstate Commerce Commission. 8. Court Proceedings. The modification of existing statutes so as more adequately to protect the Railroad Commission from the great delays incident to court pro- ceedings in many other jurisdictions and for the protection of the public in the interim. 9. Accidents. The establishment of a system for immediate notice to the Railroad Commission of accidents and for examination into the same by the Commission's inspectors and recommendations by them as to means of prevention. 10. Co-operation. Between the state Railroad Commission and the Interstate Commerce Commission and constant correspondence with other state commissions. Also the formation of a Pacific Coast Railroad Commissioners' Associa- tion, to consist of the commissions of Oregon, Washington, Nevada and California, for the purpose of frequent consultation and concerted action on problems of mutual interest. Respectfully submitted. MAX THELEN, Attorney for Railroad Commission of State of California. Dated, San Francisco, Cal., October, 1911. A 000083818 5 University of California SOUTHERN REGIONAL LIBRARY FACILITY Return this material to the library from which it was borrowed. ffl. JAN 1 7 DEC 2 2 1988 REC'O tWW- 91998 SRL QUARTER LO, SEP 11 "* - UBLIC