The gas supply of Atlanta is furnished by the Georgia Railway & Power Company. Authority to fix public utility rates is vested by law in the Railroad Commission. On September 20, 1921, the commission called upon the Georgia Company to show cause why the then maximum rate, $1.65 per 1,000 cubic feet, should not be reduced, and hearings were duly had. The company insisted that under the proposed rate the net income would be less than 3 per cent. on what it claimed to be the fair value of the property. The commission concluded that the net income under the proposed rate would be about 8 per cent. on the value found by it. This difference in their views as to the percentage of probable return arose mainly from their difference as to the value of the property. The company claimed that it was at least $9,500,000. The commission found that it was $5,250,000. On December 30, 1921, it ordered that the price of gas be reduced to $1.55.
The Georgia Company and the Atlanta Gaslight Company, its lessor, then brought, in the federal court for the Northern district of Georgia, this suit to enjoin enforcement of the order, claiming that the rate prescribed is confiscatory. The case was heard upon applica ion for an interlocutory injunction by three judges under section 266 of the Judicial Code (Comp. St. § 1243). The court did not approve in all respects the views expressed by the commission; but it found that, 'even were there considerable error in fixing values by the commission, the rate would not appear to be clearly confiscatory,' and that enforcement of the order ought not be enjoined until the reduced rate had been tried. It therefore refused the interlocutory injunction, and the case is here on appeal under section 238 of the Judicial Code (Comp. St. § 1215).
First. The objections mainly urged relate to the rate base, and one of them is of fundamental importance. The companies assert that the rule to be applied in valuing the physical property of a utility is reproduction cost at the time of the inquiry less depreciation. The 1921 construction costs were about 70 per cent. higher than those of 1914 and earlier dates, when most of the plant was installed. So much of it as was in existence January 1, 1914, was valued at an amount which was substantially its actual cost or its reproduction cost as of that date. The companies claim that it should have been valued at its replacement cost in November, 1921, the time of the rate inquiry, and that the great increase in construction costs was ignored in determining the rate base.
The case is unlike Missouri ex rel. Southwestern Bell Telephone Co. v. Public Service Commission (No. 158) 262 U.S. 276, 43 Sup. Ct. 544, 67 L. Ed. --, decided May 21, 1923. Here the commission gave careful consideration to the cost of reproduction; but it refused to adopt reproduction cost as the measure of value. It declared that the exercise of a reasonable judgment as to the present 'fair value' required some consideration of reproduction costs as well as of original costs, but that 'present fair value' is not synonymous with 'present replacement cost,' particularly under abnormal conditions. That part of the rule which declares the utility entitled to the benefit of increases in the value of property was, however, specifically applied in the allowance of $125,000 made by the commission to represent the appreciation in the value of the land owned. The lower court recognized that it must exercise an independent judgment in passing upon the evidence, and it gave careful consideration to replacement cost. But it likewise held that there was no rule which required that in valuing the physical property there must be 'slavish adherence to cost of reproduction less depreciation.' It discussed the fact that since 1914 large sums had been expended annually on the plant; that part of this additional construction had been done at prices higher than those which prevailed at the time of the rate hearing; and it concluded that 'averaging results and remembering that values are * * * matters of opinion * * * no constitutional wrong clearly appears.'
The refusal of the commission and of the lower court to hold that, for rate-making purposes, the physical properties of a utility must be valued at the replacement cost less depreciation was clearly correct. As was said in Minnesota Rate Cases, 230 U.S. 352, 434, 33 Sup. Ct. 729, 754 (57 L. Ed. 1511, 48 L. R. A. [N. S.] 1151, Ann. Cas. 1916A, 18):
'The ascertainment of that value is not controlled by artificial rules. It is not a matter of formulas, but there must be a reasonable judgment having its basis in a proper consideration of all relevant facts.'