Opinion
58397.
ARGUED SEPTEMBER 5, 1979.
DECIDED NOVEMBER 16, 1979.
Review of rate schedule. Fulton Superior Court. Before Judge Shaw, Senior Judge.
James P. Monacell, Albert G. Norman, Jr., Allen Post, for appellant.
Arthur K. Bolton, Attorney General, R. Douglas Lackey, Assistant Attorney General, Sidney L. Moore, Jr., Carl E. Sanders, John Molm, Fred K. Harvey, Jr., C. Christopher Hagy, for appellees.
1. The order of the Public Service Commission setting a rate schedule for an additional allocation of natural gas to two corporate entities using the gas in the chemical manufacture of fertilizers and related compounds was not improper even if not based on a well defined standard for procuring a fair rate of return, as this is a yardstick to be used as between the utility and its customers as a group rather than in the determination of rates between opposing customer classes.
2. The affidavit with attached exhibits included in this record did not refer to those "facts officially noticed" as to which prior notice is required to be furnished to litigants, but was a listing of prior rate schedules and a quantification of arithmetical elements necessary to arrive at a mathematical result, plus restatements of the existing rate schedule.
3. The superior court properly found that the rates set by the commission for additional service were not arbitrary, capricious, confiscatory, or unsupported by evidence.
ARGUED SEPTEMBER 5, 1979 — DECIDED NOVEMBER 16, 1979 — CERT. APPLIED FOR.
This case represents an appeal by the Atlanta Gas Light Company from a rate order set by the Georgia Public Service Commission in a case growing out of a complaint filed by Columbia Nitrogen Corporation, here designated CNC, and Nipro, Inc. The latter company, owner of CNC, is a wholly owned subsidiary of the Dutch State Mines. Both are engaged in the manufacture in Georgia of ammonia and other nitrogen-based chemicals which are used largely in fertilizer, due to the methane content extracted from natural gas, for which reason they utilize large quantities of the latter for their chemical rather than their heat producing properties. The companies were operating under special contract but fell into a dispute with the appellant when their extended operations stepped up their requirements for natural gas, the main feedstock of the end products manufactured.
Atlanta Gas Light Company designates its services as firm or interruptible, the former being a quantity of gas which it contracts to make available to the purchaser at all times (with some few exceptions not pertinent here) and for which it must necessarily make a premium charge because of the use periodically of propane and liquified natural gas during periods of peak demands, a practice known as peakshaving. Further, due to the increasing shortage of energy-producing fuels nationally, Atlanta Gas, a distribution company, felt the effects of curtailment plans imposed by the Federal Energy Regulatory Commission upon Southern Natural Gas Company, its principal pipeline supplier. The end-use requirements of various classes of customers determined allocation of this gas under stated priorities. There are nine such categories: the highest priority is assigned to residential and small commercial customers, and the second highest, into which fall CNC and Nipro, include industrial, feedstock and process use. The appellant makes much of the fact that these varying priority requirements were frozen as of February, 1973, and included the old requirements of these appellees but not their new requirements, having the effect of lowering the base upon which the new rates have been figured. Atlanta Gas further insisted that to supply firm service to the now Augusta-based consumers for their chemical uses an additional supply would have to be available from the reserve (peakshaving) resources of the Atlanta system, for which reason the new supplies would have to be higher than any other price currently used on its system.
The commission early recognized that price should be identified as a function of availability during periods of gas shortage. Hearings were commenced in September, 1978. All contracts between these parties are a composite of three types of figures: based on the number of units purchased, there is a commodity charge of so much per therm; there is also a "firm use charge" up to the amount specified which guarantees that service will not be interrupted during periods of peak demand but may be supplied by additional bottled or liquified gas, and there is also a Purchased Gas Adjustment (PGA) charge not included in these figures but under which the rates vary in a fixed ratio to the cost to the appellant of its purchased gas. It should be noted that the variable designated as PGA changes automatically in response to purchase price of gas products purchased by the Atlanta Gas Light Company, which formula was unchanged and is not at issue here, and that reference to base rates means rates without the inclusion of the PGA factor. Various proposals for rate schedules were submitted, along with lengthy statistical and opinion testimony, by both sides. Reduced to the lowest common denominator the composite price proposed by the defendant CNC was $.1805 per therm; that proposed by the Atlanta Gas Light Company was $.2373 per therm, and that adopted by the commission was a total of $.2025 per therm, including a firm use charge of $.60 per therm/month or $.0197 per therm, and commodity charges per therm net of $.048 for firm gas delivered under the contract and $.044 per therm net for deliveries in excess of the firm gas contract amounts. There is in addition a "firm use charge" for noninterruptable service of approximately $.02 per therm and the $.1348 per therm PGA.
Atlanta Gas then filed its petition for reconsideration. Its main contentions were as follows: that the appellant is earning a return of less than the 9.57% allowed by the commission; that this order will result in CNC and Nipro having a favored status over other industrial customers because the rate schedule contains substantially lower charges for both existing and new allocations and it requires a firm service to these corporations lower than the price many industrial customers pay for interruptible service; that the findings and conclusions in the order were based on a staff memorandum which was not available to the parties and which took into account facts not in the record in violation of law; that the cost base is set by reference to the "weighted average of major interruptible rate schedules," a concept "foreign to the accepted theory of ratemaking," and that the action is arbitrary, capricious and confiscatory. This petition was denied. The rate case was affirmed by the Superior Court of Fulton County, and the appeal is from that judgment.
1. There was in the record considerable evidence introduced in an effort to show that the use of natural gas as a chemical used in the manufacture of fertilizer and other products serving the food industry was in its own way as important to the health of consumers generally as its use in the conventional line of supplying heating and energy requirements. There was also considerable evidence indicating that while the rates at issue here would in the first instance apply only to CNC and Nipro, there were other industrial consumers extant and still others on the horizon who might be eligible for whatever rate schedule was set, and that such rate schedule should therefore be so tailored as to be available to others in substantially the same category. This, however, still pinpoints the rates at issue narrowly within only a part of one of the nine categories to which the rates are applied. As is pointed out in Ga. Power Co. v. Ga. Public Serv. Comm., 231 Ga. 339, 344 ( 201 S.E.2d 423) (1973) the appellate courts are not in the ratemaking business. That case involved a petition for a general rate increase, as to which the standards of constitutional substantive due process demand that the utility be allowed to earn an amount to compensate its investors, maintain its credit, and attract necessary capital as well as to maintain the requisite level of services. Id., p. 341. The appellant here urges that although the testimony in the case indicated that it would be entitled to a return on its investment of 9.57%, it has for the last two years stayed materially under this figure, from which it argues that even if the rate set for these particular users comports with reimbursement for services to other customers (which Atlanta Gas says it does not) it would fail to bring in 9.57% revenue on the percentage of the company investment which (apparently based on the ratio of the number of therms used by CNC and Nipro to the total therms used by all customers during the same period) would "carry its own weight" of allocated costs and return on the investment. We agree that this might be a consideration if the issue before the commission had been a general rate increase. But it appears that Atlanta Gas Light has proposed rate figures which would boost the rate base presently used (which is the same rate base used in the last general rate increase for all consumers) above that of the other consumers in order to ensure that the return from these two customers would give the desired percentage of profit regardless of the general rate structure as it presently exists. We agree with the appellees that if the utility feels that its rate of return generally is insufficient its remedy is to ask for a general rate increase, but, as is generally held, an attempt to bolster rates piecemeal results in havoc. "If by pleading excessive rate of return parties could... have a complete review of rate structure on every occasion that a matter relating to rate arises, the reasonable regulation of rates would be impossible." State v. Carolinas Committee for Industrial Power Rates, 257 N.C. 560 ( 126 S.E.2d 325) (1962). The same rule applies to the plea that the rate of return is generally insufficient. We do not find the arguments relating to the overall rate of return on the utility's investment relevant to setting the rate of a single class of customers. It should also be noted that the contract here in dispute arises following a Federal Power Commission case in 1976 involving the amount of additional gas requirements sought by CNC and Nipro the settlement of which provided for increased gas feedstock supplies, followed by lengthy negotiations between the corporations and the utility and a failure of the parties to agree on the formula for supplying the increased demands, but in a close perusal of the record we find nothing by way of either agreement or court order specifying that the new allocation should be bottomed on a rate base different from that generally applicable in the rate structure approved at that time.
2. There was filed with the Public Service Commission's order in this case and forwarded with the record to the superior court the affidavit of James Crudup, director of utilities engineering of the commission, and three exhibits attached thereto, representing the current rate schedules N-9 (industrial interruptible service) and N-15 (preferred interruptible service) (being two other categories of the nine referred to above) and certain arithmetical calculations designed to show the effect in dollars of proposed rate adjustments, all for the year 1976, showing revenues of CNC and Nipro as of the test year (Docket 2943-U), of the last docketed general rate proceeding. These latter included CNC and Nipro rates effective October 18, 1974, and September 30, 1977, respectively (matters necessarily known to the appellant and to these two corporations) plus the statement of new requirements agreed upon between the parties, plus the multiplication of the number of therms of supplemental supplies by the price per therm. This, by the process of addition of new and supplemental requirements at the stated therm price, yielded the total new revenue in dollars. No new facts were thereby added to the record.
Code § 3A-114 (a) (8) (G) of the Administrative Procedure Act provides that in all contested cases the record shall include all staff memoranda or data submitted to the hearing officer or members of the agency in connection with their consideration of the case. Code § 3A-116 (d) provides: "Official notice may be taken of judicially recognizable facts. In addition, official notice may be taken of technical or scientific facts within the agency's specialized knowledge. Parties shall be notified either before or during the hearing, by reference in preliminary reports or otherwise, of the material noticed, including any staff memoranda or data, and they shall be afforded an opportunity to contest the material so noticed. The agency's experience, technical competence, and specialized knowledge may be utilized in the evaluation of the evidence."
It is strongly urged that failure to introduce this staff memorandum in evidence or to give notice to the public utility and an opportunity to be heard on its contents is in defiance of these requirements of the Act and constitutes reversible error. We agree with the appellant that it would be in all cases advisable to give notice of any staff memoranda which are intended to be sent up with the record in the case. We do not agree that failure to do so in this case will necessitate a reversal. The N-9 and N-15 schedules were schedules under which Atlanta Gas Light operated and with which it was necessarily as familiar as with any other part of the rate proceedings. The arithmetical balance sheet was no more than a reduction to figures of formulae gone into in detail during the hearings. The appellant does not contend that there are any errors of fact contained therein, or any factual material unknown to it, but does contend that it could have introduced other evidence by cross examination and rebuttal had it known of these memoranda in time. In view of the thrust of the arguments of Atlanta Gas Light for a higher rate, we find nothing in its position which could reasonably be said to have been omitted by reason of not having seen this particular staff memorandum at an earlier time. The memorandum itself is in broad overview a calculation to be used, following known facts, in arriving at a particular arithmetic conclusion.
The construction of statutory language resembling Code § 3A-116 (d) has been considered by other states and failure to adhere strictly to its demands has been held not to raise a conclusive presumption of harmful error. Referring to the use of official notice by the Interstate Commerce Commission, it was held in United States v. Pierce Auto Freight Lines, 327 U.S. 515, 530 ( 66 SC 687, 90 LE 821) (1946), that such notice has been limited to assure that parties will not be deprived of a fair hearing. "But in doing so it was not undertaken to make a fetish of sticking squarely within the four corners of the specific record in administrative proceedings or of pinning down such agencies, with reference to fact determinations, even more rigidly than the courts in strictly judicial proceedings. On the contrary, in the one case as in the other, the mere fact that the determining body has looked beyond the record proper does not invalidate its action unless substantial prejudice is shown to result." Again, in construing the Administrative Procedure Act as it affected a proceeding before the National Labor Relations Board it was held in NLRB v. Johnson, 310 F.2d 550, 552 (6th Cir. 1962): "An administrative agency must confine itself to the record before it and afford opportunity for showings contrary to material facts of which official notice has been taken... However, to constitute fatal error it must appear that an administrative agency's journey outside the record worked substantial prejudice." See also Legislative Utility Consumers Council v. Public Service Comm. 402 A.2d 626 (1979).
3. It is further contended that the rate order is arbitrary, capricious, confiscatory, built on a concept foreign to the accepted theory of ratemaking, and totally without supporting evidence. We are aware of, and respect the principals enunciated in, the many cases cited by the appellant to the effect that this court must closely scrutinize the evidence "for without an appropriate understanding of the case the court cannot properly perform its appellate function," rather than hiding behind an "any evidence" decision. Ethyl Corp. v. E. P. A., 541 F.2d 1, 36 (DC Cir. 1976). Nevertheless, where there is competent expert testimony on both sides relating to highly technical results of future actions, appellate courts can and should respect the expertise of the tribunal involved, the burden remaining upon the losing party to demonstrate harmful error. We have held that in determining the rate of the extra requirements of the consumers involved here it was proper to use the figures, so far as applicable, applied overall as established in the last general rate case. So applied, evidence which supports a decision that the result reached is fair and reasonable, that is, that it bears its proportionate part of the cost of the service plus an amount sufficient to reasonably compensate its investors and maintain its credit, is in accord with substantive due process, but this rule means that "the total revenue requirement of a regulated utility is the sum total of its proper operating expenses, depreciation expense, taxes, and a reasonable return on the net valuation of its property," but does not require that each individual rate must be fixed by a recomputation from month to month or from day to day of the entire structure as a ratio of which the individual rates are fixed. Cf. Ga. Power Co. v. Ga. Public Serv. Comm., 231 Ga. 339, 341, supra. It was specifically urged in Allied Chemical Corp. v. Ga. Power Co., 236 Ga. 548, 550 ( 224 S.E.2d 396) (1976) (where the central issue was whether a general rate structure unlawfully discriminated between residential and industrial classes of users because the new rates did not correct, but rather exacerbated, differences in yield returns not related to the cost ratios of supplying the differing kinds of service) that "the difference in charges between industrial users and others is violative of equal protection [because] the Commission must follow a cost of services study in setting rates rather than being significantly guided by non-cost factors." The court emphatically rejected this argument, stating that the process of setting rates need not be required to follow any particular course so long as the end result does not violate the just-and-reasonable requirement, and the real question at issue is whether the various classes of rates are set upon a rational basis as shown by the evidence. It appears to the court that the differing mathematical results reached by the witnesses for the utility and the consumers in this case are both supported by substantial evidence, show differing approaches to the problem, represent the end limits of each side of the controversy as to which the commission adopted a middle approach. The latter therefore cannot be said to lack justification. It is our opinion that the guidelines used by the commission did in fact show "a well-defined method or standard" for the rates set, although, under Allied Chemical, supra, p. 551, even this is not essential where the rate of one customer vis-a-vis others is being considered. This was, in fact, the purpose of the commission in referring to its staff memorandum showing the N-9 and N-15 schedules applicable to other large industrial users of the commodity. The main complaint of the appellant appears to be that it did not agree with the methods of allocation used by the commission, although one of its witnesses indicated that some twenty different methods were in use.
Ratemaking generally is a legislative function which the legislature has delegated to the Public Service Commission. Sou. Bell Tel. Tel. Co. v. Ga. Public Serv. Comm., 203 Ga. 832, 833 ( 49 S.E.2d 38) (1948). We could not if we wished substitute our discretion for that of the commission "unless it be clearly shown that the order is unreasonable, arbitrary, or capricious." Atlanta Motor Lines v. Ga. Public Serv. Comm., 211 Ga. 698, 699 ( 88 S.E.2d 387) (1955); Code § 3A-120 (h).
Judgment of the Superior Court of Fulton County affirming the order of the Georgia Public Service Commission is affirmed. Shulman and Carley, JJ., concur.