The History of Public Utility Rate Regulation in the United States Supreme Court: Of Reasonable and Nondiscriminatory Rates RICHARD A. EPSTEIN Introduction The topic of rate regulation is today commonly associated with the activities ofthe Supreme Court during the 100-year period from the end ofthe Civil War to about 1965. Within that period, most of the heavy lifting was done after the passage of the Interstate Commerce Act of 18871 and before the end of the Second World War. By any account, it is a “historical” topic today, because, although the issues remain live in public debate, the entire area, with one or two exceptions, has slipped into relative oblivion in the modem Supreme Court—defined for these peculiar purposes as the period that ends with the appointment of the longest-serving Supreme Court Justice, now Antonin Scalia, appointed in 1986. The topic is thus ideal for a lecture before the Supreme Court Historical Society because the last major constitutional decision on the topic dates from 1989 with the opinion by then-ChiefJustice Rehnquist in Duquesne Light Co. v. Barasch? which purported to bring a close to the underlying issues by allowing the states and the federal government a choice of one of two internally consistent methodologies to protect the capital that companies have invested in their operation. This said, the issues of rate regulation have continued on before lower courts in ways that reflect profound differences in the approaches that emerged during the earlier period. In this article, I shall trace the develop ment of rate regulation from three comple mentary perspectives: historical, economic, and constitutional. The basic conclusion from this investigation reveals this profound para dox: at atime when the United States Supreme Court did not have available to it the huge 346 JOURNAL OF SUPREME COURT HISTORY advances in the general economic theory of regulation, it nonetheless was able to fashion a set of principles that, more often than not, properly balanced competing interests in the perennial quest to avoid both monopoly profits on the one hand and confiscation on the other. Unfortunately, with the rise of rational basis review in modem constitutional law, the effects ofthose early decisions3 have to some extent been eroded in the lower courts since the heyday ofeconomic rate regulation.4 To flesh out this theme, I shall proceed as follows. In section I, I set out the economic explanation for ratemaking with respect to common carriers and other public utilities. In section II, I discuss the English origins of modem rate regulation law that explicitly formed the basis of the key American decisions on this topic. In section III, I trace the incorporation ofthe English doctrine into American law, and its constitutional elabora tion on both the procedural and substantive frontiers. Section IV then completes the story by discussing the possible applications ofthe earlier principles in some modem American contexts. I. The Simple Economics of Ratemaking The intellectual history ofthe law ofrate regulation begins with the writings of Sir Matthew Hale in the late seventeenth century; he wrote that, for businesses that were so “affected with the publick interest,” it was right for their rates to be subject to some external oversight from either the courts or the legislature. This position was set out in no uncertain terms in Hale’s famous treatise, De Portibus Maris, written in 1670, as follows: A man for his own private advantage may in a port town set up a wharfor crane, and take what rates he or his customers can agree for cranage, wharfage, [etc.;] for he doth no more than is lawful for any man to do, viz, make the most of his own. . . but such wharfs cannot receive customable goods against the provi sion of the statute of 1 Eliz. cap. II. Ifthe king or a subject have apublick wharf, unto which all persons that come and unlade or lade their goods for the purpose, because they are wharfs only licensed by the queen, according to the statute of 1 El. Cap II, or because there is no other wharf in that port, as it may fall out where a port is newly erected; in that case there cannot be taken...