The Utility as a Public Service Firm
As the regulatory framework evolved toward the End Result Doctrine, so too did the utility‘s role as a public service business. Since the inception of regulation, the symbiotic relationship between serving the public interest and private property rights represented one of the most unique aspects of modern capitalism. While it may not have been accepted by all parties at the time, the creation of this special purpose entity that was ―clothed in the public interest,‖ known as a public utility or public service company, did not exactly fit into the traditional definitions of a private firm in the laissez-faire world of turn-of-the-century America. The franchise arrangement and the obligation to serve have no analog in an unregulated market and with few exceptions the certificate of public convenience and necessity has no role in a market where free entry and exit are the norm. This new entity was created to serve a special public interest—to serve the public in proxy for the state serving the public. Justice Frankfurter expressed the idea as follows:
No task more profoundly tests the capacity of our government … than its share in securing for society those essential services which are furnished by public utilities. Our whole social structure presupposes … dependen[ce] upon private economic enterprise. To think of contemporary America without the intricate and pervasive systems which furnish light, heat, power, transportation, and communication is to conjure up another world. The needs thus met are today as truly public services as the traditional governmental functions of police and justice. That both law and opinion differentiate from all other economic enterprise the economic undertakings which furnish these newer services is not the slightest paradox. The legal conception of ―public utility‖ is merely the law‘s acknowledgement of ―irreducible and stubborn facts.‖ (Frankfurter [21]:81; emphasis added)
The ―stubborn fact‖ that there are some private entities that are critical to the functioning of modern economic organization defines the condition for regulation. Justice Bradley recites the Court‘s precedent:
The inquiry there [Munn v. Illinois] was to the extent of the police power in cases where the public interest is affected; and [the Court] held that, when an employment or business becomes a matter of such public interest and importance as to create a common charge or burden upon citizens; in other words, when it becomes a practical monopoly, to which the citizen is compelled to resort, and by means of which a tribute can be exacted from the community, it is subject to regulation by the legislative power. (dissenting opinion in Sinking Fund Cases [96])
Indeed, there is a recurring theme in the legal history of regulation placing the utility in the role of representative of the state. For instance, in Smyth v. Ames the Court explicitly stated as much:
A railroad is a public highway and none the less so because constructed and maintained through the agency of a corporation deriving its existence and powers from the state. Such corporation was created for the public purposes. It performs a function of the state. Its authority to exercise the right of eminent domain and to charge tolls was given primarily for the benefit of the public. (Smyth v. Ames [113])