In the 1916 case of Owensboro, Kentucky v. Owensboro Water Works Company of Owensboro, Kentucky, the city of Owensboro sued its local water company over a dispute regarding rates for public fire protection and hydrant rental services. The Supreme Court ruled in favor of the water company stating that it was not unconstitutional to charge municipalities for such services as they were considered proprietary rather than governmental functions. This ruling established an important precedent about how utilities could bill cities for their services and clarified that these charges did not constitute unlawful taxation without representation.

In the dissenting opinion for Owensboro, Kentucky v. Owensboro Water Works Company of Owensboro, Kentucky (1916), Justice Holmes argued that the city's contract with the water company did not prevent it from regulating rates. He believed that a public service corporation could not enter into an unalterable agreement regarding its charges because this would infringe upon governmental powers to regulate such matters in the interest of public welfare. The majority held that a clause in their 20-year franchise contract prevented rate regulation by local authorities; however, Holmes contended that such interpretation was erroneous and contrary to principles of law and policy. He maintained that no private entity should be allowed to fix its own prices without oversight or control by government bodies as it undermines regulatory authority over utilities serving public needs.