Allied Chemical Corp. v. Georgia Power Co.

• Decision Date: 06 April 1976
• Docket Number: No. 30664,30664
• Citation: 224 S.E.2d 396,236 Ga. 548
• Parties: ALLIED CHEMICAL CORPORATION et al. v. GEORGIA POWER COMPANY et al.
• Court: Georgia Supreme Court

Page 396

224 S.E.2d 396

236 Ga. 548

ALLIED CHEMICAL CORPORATION et al. v. GEORGIA POWER COMPANY et al.

No. 30664.

Supreme Court of Georgia.

April 6, 1976.

Sutherland, Asbill & Brennan, Michael T. Nations, Alfred C. Aman, Jr., Edward J. Grenier, Jr., Atlanta, for appellants.

Larry W. Thomason, Decatur, David Schlissel, Troutman, Sanders, Lockerman & Ashmore, Tench C. Coxe, Arthur K. Bolton, Atty. Gen., Robert J. Castellani, Deputy Asst. Atty. Gen., Heyman & Sizemore, Charles E. Campbell, Atlanta, for appellees.

HALL, Justice.

This appeal is brought by certain industrial consumers of electrical power from an August 6, 1975 order of the Fulton Superior Court denying injunctive and other relief against utilization by Georgia Power Company, an electrical utility, of a certain rate structure. We affirm the superior court and rule that the challenged rates are not void as a denial of equal protection to the industrial consumers.

The rate structure was established by a December 13, 1973 order of the Public Service Commission in Docket No. 2465-U. The complaint alleged that the new rates effected a radical change in the relationship among different rates charged to different classes of consumers, and discriminated unjustifiably against the industrial class of consumers in violation of the equal protection guarantees of the Federal and State Constitutions. The complaint also attacked the rate level established in a related order of the Commission, and this Court, on interlocutory appeal related to that question, ruled that appellants did not have standing to raise a due process claim on grounds that the rates charged them were too high. Georgia Power Co. v. Allied Chemical Corp., 233 Ga. 558, 212 S.E.2d 628 (1975). That decision recognized the applicability of equal protection guarantees, however, id. p. 559, 212 S.E.2d 628, and that is the basis for the present appeal.

The findings of fact of the superior court are set forth in the Appendix to this opinion detailing the history and content of the challenged order and related orders. The claim before us, however, may be briefly placed in context and stated.

In its final order in Docket No. 2465-U, the Public Service Commission imposed a general rate increase on retail purchasers of electricity of $17.8 million, plus imposing a surcharge of a flat 1.345 mills per kilowatt hour on all electricity purchased, in such a way that the pre-existing rate structure was altered by raising the bills of residential users of power by about 6%, but industrial users by about 16%. The utility's retail customers may be divided into various classes: residential; commercial; industrial; and street and outdoor lighting. Appellants contend that before the challenged rate change, the actual differences in conditions of service to the classes required correction of rates to yield returns closer to the average rate of return of the retail system if they were to become more equitable; but the Commission in the new rates Those are the facts by which appellants urge they have been damaged. Their legal argument has three parts. First, they contend that under a 1973 decision of this Court there must be a well-defined method by which the Commission reaches its decision of what is a just and reasonable rate and this method must be capable of objective ascertainment; that the only well-defined method of which there is evidence in the record is a cost-based method (a cost of service study allocates the cost of producing electricity among the various groups which use it); that although rates do not have to be set strictly upon a cost basis, nonetheless they should approach that as a limit, so that where some disparity exists among rates charged different classes of consumers considering conditions of service and costs therefor, any rate change must as a matter of law ameliorate the discrepancy instead of widening the gap, or else be condemned as a violation of equal protection. A somewhat oversimplified version of their argument is that a flat surcharge of so many mills per kilowatt hour is per se unconstitutional because it fails to give the industrial class users a price advantage commensurate with the lower cost per kilowatt hour of serving them rather than others. Appellants claim that the Commission avowedly did not follow a cost based method, and that testimony showed they considered certain non-cost factors which are not capable of objective ascertainment, and therefore as a matter of law the rates were not set by a valid method. Appellants suggest that the two basic issues before us are whether the difference in charges between industrial users and others is violative of equal protection because it is not reasonably related to a difference in service, and whether the Commission must follow a cost of services study in setting rates rather than being significantly guided by non-cost factors. We answer both questions no.

merely aggravated the pre-existing inequality. Specifically, before the increases, Georgia Power's rate of return for the total retail system was 7.03%; but the residential class returned only 5.68% while the industrial class returned 7.31%. After the increase, the total retail system returned 8.76%, the residential class 6.89%, and the industrial class 10.25%. The residential class thus fell further below the average, and the industrial class was raised further above it. Appellants argue that justice would have been served by the reverse; and this exacerbation of the discrimination is urged to be without rational basis.

Appellants do not contest the right of the Commission to set rates so long as those rates are just and reasonable, nor do they deny that the Commission has the power to make reasonable classifications of its customers, and to fix a different rate for each class of customers, nor that the presumption is that the rates are valid and the burden is on appellants to prove them invalid in that they are unjust, unreasonable, or discriminatory. These principles have been extensively discussed in prior decisions, and are not challenged here. E.g., Georgia Power Co. v. Allied Chemical Corp., 233 Ga. 558, 212 S.E.2d 628, supra (1975); Carmichael v. Atlanta Gas-Light Co., 185 Ga. 34, 37, 193 S.E. 896 (1937).

Basically appellants' case is bottomed on one sentence from Georgia Power Co. v. Georgia Public Service Commission, 231 Ga. 339, 201 S.E.2d 423 (1973): 'We think that effective judicial review requires the Commission to provide clear findings by a well-defined method or standard in reaching its conclusion as to what is a just and reasonable utility rate.' 231 Ga. p. 342, 201 S.E.2d p. 426. The flaw in appellants' argument is their overlooking the fact that the quoted sentence had application to the process of determining, not rates among various customer classes, but a fair rate of return to the utility itself vis-a-vis all its customers. The method involved in computing a fair rate of return is problematic, as the opinion indicated. 231 Ga. p. 341, 201 S.E.2d 423. However, business judgments and accounting expertise can handle the problem with a fair degree of objectivity. It is far more difficult to set differing rates among different classes of customers with anything like objectivity-this is a matter of policy and to some extent of balancing social needs and The process of setting rates is not required to follow any particular course, so long as the end result does not violate the 'just and reasonable' requirement, as the United States Supreme Court has recognized in a federal rate-making case: 'Under the statutory standard of 'just and reasonable' it is the result reached not the method employed which is controlling. (Cits.) It is not theory but the impact of the rate order which counts. If the total effect of the rate order cannot be said to be unjust and unreasonable, judicial inquiry under the Act is at an end. The fact that the method employed to reach that result may contain infirmities is not then important. Moreover, the Commission's order does not become suspect by reason of the fact that it is challenged. It is the product of expert judgment which carries a presumption of validity. And he who would upset the rate order under the Act carries the heavy burden of making a convincing showing that it is invalid because it is unjust and unreasonable in its consequences.' Federal Power Comm. v. Hope Natural Gas Co., 320 U.S. 591, 602, 64 S.Ct. 281, 287, 88 L.Ed. 333 (1943).

evaluating customer resources. Therefore, it does not follow that the requirement of a 'well-defined method or standard' for setting rates with reference to a fair rate of return to the utility will be applied to the process of rate setting among different classes. There was no such requirement existing before the Georgia Power Co. v. Georgia Public Service Commission decision, and there is none after it.

Therefore, appellants' contention that a cost-based rate system is the ideal toward which rate making must always tend, is an oversimplification. It follows that their related contention, that the 'modified cost of service method' (including some non-cost factors) does not exist as a well-defined method and the trial court erred in concluding that this 'method' had been lawfully applied in setting the rates, becomes irrelevant, as does appellants' offering of three alternative rate-setting formulae which, they assert, are more objectively ascertainable than the one used.

Moving away from theory and considering the evidence actually presented to the Commission, appellants contend that it did not justify the new rates, because the only evidence presented concerned cost-based pricing. Of course, review of the Commission's order is by trial de novo, and the superior court was entitled to consider all the evidence before it bearing on the issue of how the rates were set. Georgia Public Service Comm. v. General Telephone Co. of Southeast, 227 Ga. 727, 182 S.E.2d 793 (1971)...