A 1906 act that increased the power of the Interstate Commerce Commission over interstate common carriers such as railroads and ferries.
Under the leadership of Chief Commissioner Thomas M. Cooley, the Interstate Commerce Commission (ICC), which was established in 1887, attempted to halt harmful effects of competition such as rebates. Rebates were offered to large suppliers that were charged the same price for long-haul as smaller shippers received for short-haul; the large suppliers then received a rebate, which actually lowered their costs and allowed them to cut their prices and drive the smaller competitors out of the market. But during the late 1890s, the Supreme Court greatly circumscribed this type of regulation and, by 1900, the ICC was virtually powerless to end the abuses it was established to control.
In 1903, Congress began to strengthen the ICC with the Elkins Antirebating Act. This act prohibited rebates, or volume discounts, that benefited large shippers such as John D. Rockefeller, who would pay the same rate as a smaller shipper but would later receive a rebate from the railroad company. In 1904, the Supreme Court voided the railroads’ solution to ruinous competition when it ordered the dismemberment of the Northern Securities Company (which monopolized the railroads in the Northwest and thereby controlled pricing). Thus, by 1905, shippers, railroads, politicians, and especially President Theodore Roosevelt began working toward a different approach to railroad regulation. With the active support of Roosevelt, whose ideas about the role of the federal government were consistent with expanding both regulatory and corporate power, Congress passed the Hepburn Act in 1906.
The Hepburn Act changed many regulations. Its “commodity clause” prohibited railways from transporting commodities in which they had an interest. This act attempted to eliminate unfair competition by railroads that hauled their own products, especially coal and iron ore. The act lengthened the time for notice of rate changes from 10 to 30 days. It established stiff monetary and prison penalties for rebating. It expanded membership in the ICC from five to seven members and lengthened the term of service to seven years. It required the railroads to standardize accounting practices and gave the ICC the right to inspect railroads’ topics, an essential power it needed to uncover rebating abuses, which often remained hidden through nonstandard accounting practices.
Most importantly, the act granted the ICC power to establish maximum rates that were “just, fair, and reasonable” (terms not defined in the act), and it granted the commission enforcement power. Thus railroads had to obey the ICC under penalty of fines or imprisonment, or bring suit. The act expanded the scope of the ICC to cover express (package-shipping) companies, sleeping car companies and other private car lines, and interstate pipelines. Finally, the ICC received the authority to control its own administration and to appoint agents and investigators. The ICC staff quickly ballooned.
The Hepburn Act signaled a change in U.S. regulatory policy toward one that recognized the monopolistic tendency of railroad transportation; the act regulated that monopoly, rather than attempting to control the harmful effects of a lack of competition, which had been Chief Commissioner Cooley’s focus. Congress codified this view of the role of regulation in subsequent legislation. The Hepburn Act transferred regulatory power from the courts to the independent oversight commission. It transformed the ICC from a quasi-judicial body into an investigative agency and made it the dominant regulatory body of the U.S. government and the model for future regulatory agencies.
