Carr v. Southern Co.

• Decision Date: 01 March 1990
• Docket Number: Civ. A. No. CV189-118.
• Parties: Frederick Rodgers CARR, Carr Sales Company, and O.E.M. Products, Inc., Timothy Dunn Stokely, Clark Stokely, III, and all others Similarly Situated, Plaintiffs, v. The SOUTHERN COMPANY, Southern Company Services, Inc., Georgia Power Company, and Arthur Andersen & Co., Defendants.
• Court: U.S. District Court — Southern District of Georgia

731 F. Supp. 1067

Frederick Rodgers CARR, Carr Sales Company, and O.E.M. Products, Inc., Timothy Dunn Stokely, Clark Stokely, III, and all others Similarly Situated, Plaintiffs, v. The SOUTHERN COMPANY, Southern Company Services, Inc., Georgia Power Company, and Arthur Andersen & Co., Defendants.

Civ. A. No. CV189-118.

United States District Court, S.D. Georgia, Augusta Division.

March 1, 1990.

Joe C. Freeman, Jr., Richard H. Gill, A. Timothy Jones, J. Fairley McDonald, III, Jack N. Sibley, Robert D. Segall and Andrew M. Scherffius, Atlanta, Ga., Theresa M. Gallion, John A. Boudet and Jerry Ray Linscott, Orlando, Fla., Larry D. Moffett, Thomas A. Bell and Jackson H. Ables, III, Jackson, Miss., S. Lynne Stephens, Andrew P. Campbell and Eddie Leitman, Birmingham, Ala., and William Byrd Warlick and Jack B. Long, Nixon, Yow, Waller & Capers, Augusta, Ga., for plaintiffs.

Wyck A. Knox, Jr., Augusta, Ga., Daniel S. Reinhardt, Hugh M. Davenport, James E. Joiner, Winifred D. Simpson, Michael C. Russ and M. Robert Thornton, Atlanta, Ga., and Robert L. Allgood, Allgood & Daniel, Augusta, Ga., for defendants.

ORDER

BOWEN, District Judge.

Plaintiffs are residents of Georgia and seek to represent a class of ratepayers for electrical power within the state. They bring this suit against the electric utility defendants as well as Arthur Andersen & Co., the certified public accountant for the utility defendants. Plaintiffs allege that defendants, through their accounting methods, inflated maintenance costs submitted to the Public Service Commission (PSC) by expensing maintenance and emergency spare parts in the year purchased when in fact the spare parts were not used, if at all, until subsequent years. Plaintiffs maintain that generally accepted accounting principles endorsed by the PSC require defendants to expense the maintenance spare parts in the year that they are used, instead of the year in which they are acquired, and that the emergency spare parts are to be capitalized over the life of the defendants' power plants.

Plaintiffs allege that defendants committed fraud by employing these accounting methods to obtain rate increases from the PSC. The alleged fraudulent scheme has been in existence since at least 1975 and has resulted in over 60 million dollars of improper rate increases. Plaintiffs have submitted documentation which shows that as of December 31, 1985, Georgia Power Company had on hand in inventory $117,903,014.00 worth of spare parts which have already been expensed with PSC approval. According to plaintiffs, defendants' scheme was discovered only after an accountant for Georgia Power agreed to go "undercover" for the IRS in connection with an unrelated tax investigation.

Plaintiffs' initial complaint contained only four counts which all alleged violations of the Federal Civil Racketeering Statute (RICO). Subsequently, plaintiffs amended their complaint which now consists of 13 counts: the four RICO counts plus nine new counts for the alleged violations of the Sherman Antitrust Act, the Public Utility Holding Company Act, 42 U.S.C. §§ 1983 and 1985, the Federal Power Act, and pendent state law causes of action. Defendants have moved the Court to dismiss each and every claim in plaintiffs' amended complaint. As grounds for their motion defendants offer three predominant and interrelated arguments: (1) the plaintiffs have not presented a justiciable case or controversy because they seek "judicial ratemaking", relief which the federal courts lack the power to grant, (2) the Court should abstain from addressing the plaintiffs' claims to avoid needless conflict with state policies and disruption of the State of Georgia's regulation of public utilities, and (3) the plaintiffs' failure to exhaust administrative remedies causes essential elements of their claims to be lacking. Before addressing plaintiffs' claims within the context of defendants' motions to dismiss, it is important to first highlight Georgia law with respect to the PSC's regulation of public utilities.

In Georgia, electric utilities are required to file their rate schedules with the PSC pursuant to O.C.G.A. § 46-2-25(a). The PSC has "exclusive power to determine what are just and reasonable rates." O.C. G.A. § 46-2-23(a). Electric utility companies are required to charge no more than the current filed rate. O.C.G.A. § 46-2-25(a).

The Georgia Supreme Court has stated that "what is a `just and reasonable rate' is basically a matter of policy. It involves an intelligent estimate of present and probable future values and is at best an approximation." Georgia Power Co. v. Allied Chemical Corp., 233 Ga. 558, 559, 212 S.E.2d 628 (1975). "When the commission establishes a rate, such act is legislative in character, and binds all parties concerned in the same manner as if the rate had been fixed by an act of the General Assembly." Georgia Public Service Commission v. Atlanta Gas Light Co., 205 Ga. 863, 883, 55 S.E.2d 618 (1949). The commission's authority to regulate rates is prospective only, and the commission does not have the power to determine that rates charged pursuant to a filed schedule were unreasonable and award reparations. Georgia Public Service Commission v. Atlanta Gas Light Co., 205 Ga. at 888, 55 S.E.2d 618.

Judicial review of the Commission's decisions may be obtained by petitioning the Superior Court of Fulton County. O.C. G.A. § 50-13-19(b). However, the courts lack jurisdiction to consider any exceptions to a decision of the commission that were not first raised before the commission. O.C.G.A. § 50-13-19(c). In reviewing rates fixed by the commission, the court cannot establish any particular rate as being "just and reasonable", since this function is exclusively delegated to the commission. Southern Bell T. & T. Co. v. Georgia Public Service Commission, 203 Ga. 832, 870, 49 S.E.2d 38 (1948). Georgia does not permit collateral attacks on the reasonableness of rates filed with the commission. Norman v. United Cities Gas Co., 231 Ga. 788, 204 S.E.2d 127 (1974). Neither side contests these issues of Georgia public utility law. Having reviewed the parties extensive "briefs" and having heard their excellent oral arguments during the hearing of February 13, 1990, I now address defendants' motions to dismiss.

Defendants' arguments in support of their motions to dismiss, as heretofore enumerated, are not limited to any particular federal claim, but, rather, are made with respect to all of plaintiffs' federal claims. Plaintiffs rely upon the federal RICO statute as the basis for the Court's jurisdiction to hear their claims. Indeed, a federal civil RICO case appears to be the most apt vehicular means to attain federal jurisdiction. Consequently, the discussion may focus most significantly upon the federal civil RICO claims with the understanding that much of what is said is also applicable to the other federal claims.

In response to the defendants' contention that plaintiffs are attempting to involve the Court in judicial ratemaking of a public utility, plaintiffs argue that the amount of monetary damages that they are seeking can be measured to a mathematical certainty. Plaintiffs maintain that they are not challenging the PSC's determination of what constitutes just and reasonable electric rates. Rather, plaintiffs argue that they are seeking a specific and provable amount of damages resulting from the alleged fraudulent accounting practices of defendants. Defendants rebut this argument by stating that, in essence, plaintiffs are seeking the difference between the rate approved by the PSC and the rate which would have been approved if the PSC was not defrauded by the defendants. Defendants contend that it is inconsistent for plaintiffs to claim that they are seeking relief in the amount of the inflated rates, approved by the PSC, caused by defendants fraudulent accounting practices and at the same time deny that they are challenging the reasonableness of the rates set by the PSC. Plaintiffs never argue that they were charged a rate that differed from the one approved by the PSC. Nor, do they argue that the PSC itself was involved in any wrongdoing.

Defendants contend that Congress, by enacting civil RICO, did not authorize federal courts to engage in state utility rate-making. In support of their argument, defendants offer County of Suffolk v. Long Island Lighting Co., 710 F.Supp. 1387 (E.D.N.Y.1989) (LILCO), which appears to be one of only two federal cases — the other case is M.R. Taffet v. The Southern Company, 89V-712-N, M.D.Ala., January 5, 1990 — dealing with RICO claims involving a state's utility ratemaking authority. In LILCO, the county brought suit against a utility company under civil RICO, alleging that defendants had lied to the New York public service commission in order to obtain higher rates needed to build nuclear power plants. The jury returned a verdict in plaintiff's favor which after being trebled totaled $22.9 million. Expressing grave misgivings about having allowed the case to proceed to the jury, Judge Weinstein granted defendant's motion for judgment notwithstanding the verdict. After finding that the evidence was not insufficient to support the jury's finding that all elements of plaintiff's RICO had been established, Judge Weinstein enumerated four primary reasons for his holding: primary jurisdiction, abstention, "our federalism", and the doctrine of clear statement. Also significant is Judge Weinstein's observation that

what the trial proved almost beyond peradventure was that RICO cannot, and should not, be applied in a case such as this to permit a federal jury in a civil case to second guess the ratemaking authority of the state. In effect, the jury was asked to retroactively reset the electric rates previously fixed by the PSC with its staff of hundreds of technicians working in such arcane fields as utility ratemaking, marketing of utility securities, taxation, economics, generating

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