In regard to rate setting, the Granger cases were argued before the Supreme Court in 1876 and 1877. Railroad companies were in the habit of charging preferential freight rates and storage rates to their larger customers. The Supreme Court declared that railroads were businesses "affected with a public interest" and as such, "must submit to be controlled by the public for the common good".
U.S. Supreme CourtMunn v. Illinois, 94 U.S. 113 (1876)Munn v. Illinois
94 U.S. 113
ERROR TO THE SUPREME COURT OF THE STATE OF ILLINOIS
1. Under the powers inherent in every sovereignty, a government may regulate the conduct of its citizens toward each other, and, when necessary for the public good, the manner in which each shall use his own property.
2. It has, in the exercise of these powers, been customary in England from time immemorial, and in this country from its first colonization, to regulate ferries, common carriers, hackmen, bakers, millers, wharfingers, innkeepers, &c., and, in so doing, to fix a maximum of charge to be made for services rendered, accommodations furnished, and articles sold.
3. Down to the time of the adoption of the fourteenth amendment of the Constitution of the United States, it was not supposed that statutes regulating the use, or even the price of the use, of private property necessarily deprived an owner of his property without due process of law. Under some circumstances, they may, but not under all. The amendment does not change the law in this particular; it simply prevents the States from doing that which will operate as such deprivation.
4. When the owner of property devotes it to a use in which the public has an interest, he in effect grants to the public an interest in such use, and must, to the extent of that interest, submit to be controlled by the public, for the common good, as long as he maintains the use. He may withdraw his grant by discontinuing the use.
5. Rights of property, and to a reasonable compensation for its use, created by the common law cannot be taken away without due process; but the law itself, as a rule of conduct, may, unless constitutional limitations forbid, be changed at the will of the legislature. The great office of statutes is to remedy defects in the common law as they are developed, and to adapt it to the changes of time and circumstances.
The Interstate Commerce Act of 1887 was made law with the support of both major political parties and of pressure groups in all regions of the country. The main provisions of the law, all of which applied only to railroads, were these:
The ICC was empowered to investigate railroad operations, to call witnesses, and to hand down decisions on all aspects of rates and other matters covered by the act. Thus it became the first federal independent regulatory commission, a hybrid agency with elements of judicial, legislative, and executive powers.
- Mandating of "just and reasonable" rate changes. (This was the traditional language of the Anglo-American common law).
- Prohibition of discrimination in the form of either special rates or rebates for individual shippers.
- Prohibition of discrimination or unjustified "preference" in rates for any particular localities or shippers or products.
- Forbidding of long-haul / short-haul discrimination. Unless an exception was allowed by the Interstate Commerce Commission, no company might charge more for a shorter than for a longer distance on the same route (and in the same direction).
- Prohibition of pooling of traffic or markets.
- Establishment of a five-member Interstate Commerce Commission.
"The public utility idea is one that has worked before," I said. My grandmother lives in the middle of nowhere. Do you think the power company wanted to run powerlines out to her house? Do you know how much it cost for them to put electricity in rural America?
It was the government, with the Rural Electrification Act who made them do it. And she pays the same for electricity as everybody else, even though it cost way more to get power to her house than it does to get it to their urban and suburban customers."