Texaco, Inc. v. Federal Energy Administration, DC-35-DC-37.
| Decision Date | 09 February 1976 |
| Docket Number | No. DC-35-DC-37.,DC-35-DC-37. |
| Parties | TEXACO, INC., et al., Plaintiffs-Appellants, v. FEDERAL ENERGY ADMINISTRATION et al., Defendants-Appellees, United States of America et al., Intervenors-Appellees, The Shell Company (Puerto Rico) Ltd., Amicus Curiae. |
| Court | U.S. Temporary Emergency Court of Appeals Court of Appeals |
William O. LaMotte, III, of Morris, Nichols, Arsht & Tunnell, with whom Richard D. Allen, Wilmington, Del., and Jo V. Morgan, Jr., of Whiteford, Hart, Carmody & Wilson, Washington, D. C., were on the brief, for appellants Texaco, Inc. and Texaco Puerto Rico, Inc.
Andrew J. Kilcarr, of Donovan, Leisure, Newton & Irvine, Washington, D. C., with whom Allan R. Freedman, of Donovan, Leisure, Newton & Irvine, New York City, was on the brief, for appellants Mobil Oil Corp. and Mobil Oil Caribe, Inc.
William H. Allen, of Covington & Burling, Washington, D. C., with whom John A. Hodges, Washington, D. C., was on the brief, for appellants Exxon Corp. and Esso Standard Oil S.A., Ltd.
Paul T. Michael, Atty., Dept. of Justice, Washington, D. C., with whom Rex E. Lee, Asst. Atty. Gen., and Stanley D. Rose, Atty., Dept. of Justice, Washington, D. C., were on the brief, for appellees and for the United States as intervenor-appellee.
Benton L. Becker, of Cramer, Haber & Becker, Washington, D. C., with whom Larry M. Lavinsky, of Proskauer, Rose, Goetz & Mendelsohn, New York City, and Foley, Lardner, Hollabaugh & Jacobs, Washington, D. C., of counsel, were on the brief, for intervenor-appellee Commonwealth Oil Refining Co., Inc.
Lynn R. Coleman, of Vinson, Elkins, Searls, Connally & Smith, Washington, D. C., with whom Mary Jane Reynolds, Washington, D. C., was on the brief, for intervenor-appellee Commonwealth of Puerto Rico.
Paul J. Mode, Jr., C. Loring Jetton, Jr. and Robert G. Wilson, of Wilmer, Cutler & Pickering, Washington, D. C., on the brief for amicus curiae The Shell Co. (Puerto Rico) Ltd.
Before CARTER, CHRISTENSEN and JOHNSON, Judges.
Certiorari Denied June 14, 1976. See 96 S.Ct. 2662.
These three cases were considered together in the district court and there decided by separate judgments.1 Now consolidated for the purposes of this appeal, all involve basically the same question: whether a mandatory regulation2 governing the pricing of petroleum products in Puerto Rico, particularly the exemption of The Shell Company (Puerto Rico) Ltd. hereinafter Shell, P.R. from the "refiner" rule and the ordering of related cost-equalization relief against appellants, is invalid, or was for a period ineffective, by reason of procedural or substantive defects.
The district court by summary judgment upheld the regulation and granted implementing money judgments in favor of intervenor-appellee Commonwealth Oil Refining Company, Inc. CORCO, on its counterclaims and those of the United States on its behalf.3 We affirm the decision of the district court.
The plaintiffs-appellants are three major oil companies doing business throughout the United States, together with their respective subsidiaries which market petroleum products in Puerto Rico. Puerto Rico, being specifically included within the definition of "the United States" in the Emergency Petroleum Allocation Act of 1973, was within the compass of the Congressional mandate that the President should promulgate a regulation providing for the mandatory allocation of crude oil, residual fuel oil and its refined petroleum products in amounts and at prices specified in (or determined in a manner prescribed by) such regulation. 15 U.S.C. § 753(a) (Supp. 1975). Such regulation, "to the maximum extent practicable" was to provide for enumerated objectives, including the "preservation of an economically sound and competitive petroleum industry" to "preserve the competitive viability of . . . branded independent marketers"; the equitable distribution of refined petroleum products "at equitable prices among all regions and areas of the United States and sectors of the petroleum industry"; and the "minimization of economic distortion, inflexibility, and unnecessary interference with market mechanisms." 15 U.S.C. § 753(b)(1). There was to be provision among other things for "a dollar-for-dollar pass-through of net increases in the cost of . . . refined petroleum products to all marketers or distributors at the retail level." 15 U.S.C. § 753(b)(2).
The agency's regulation set up two general pricing rules, dealing with "refiners" and "resellers" respectively. These rules control the maximum price which a firm may charge for its products and provide for a dollar-for-dollar pass-through of increased product costs. See 10 C.F.R. Part 212. "Refiners" are required to pool their costs of acquiring crude oil and other costs of production and spread them over the production of all their United States refineries in determining their allowable ceiling price for any particular petroleum product. 10 C.F.R. Subpart E. "Resellers" are allowed to pass-through directly to their customers any increases in such costs. Id. Subpart F.
Prior to the promulgation of the amendment hereinafter discussed, the term "reseller" for purposes of Subpart F included in Puerto Rico, as elsewhere, any entity of a refiner which purchased less than 5% of its petroleum products from its parent refiner and which "historically and consistently exercised the exclusive price authority with respect to sales by the entity." 10 C.F.R. § 212.91 (1974).
The following background facts as abstracted from the district court's comprehensive findings will serve to put the administrative action hereinafter discussed in context.
In Puerto Rico there are two main refiners of crude oil — Caribbean Gulf Refining Corporation and the Commonwealth Oil Refining Company (CORCO). Both being within the definition of refiner, Caribbean Gulf had to average its increased product costs in connection with the increased product costs incurred by its parent, Gulf Oil Corporation of the United States; CORCO, however, having no larger distribution system than Puerto Rico, was permitted to pass its increased product costs directly to Puerto Rican wholesalers. This resulted in Gulf, which refined about 25% of Puerto Rico's petroleum products, being required to sell its refined products at a price considerably below that of CORCO, the seller of about 75% of Puerto Rico's refined petroleum products.
Various marketers of petroleum products, including appellants, are located in Puerto Rico as wholly owned subsidiaries of mainland United States refiners. Because these subsidiaries bought practically all of their petroleum products from CORCO, and had historically and consistently exercised exclusive price authority, these marketers, prior to March 20, 1974, were permitted as "resellers" to pass on any increased prices from CORCO directly through to their Puerto Rican customers. These price increases would have been larger than those being incurred in the mainland United States because CORCO depended almost entirely on Venezuelan crude oil4 for its supplies and the price of that oil had increased from about $3 to over $14 per barrel, while the price of mainland crude oil had been held to about $5.50 per barrel.
Another seller of petroleum products in Puerto Rico is Shell P.R., which also was a major purchaser from CORCO and subject to the reseller rule.5 Shell P.R. had no mainland parent corporation. It was 99.9% owned by The Shell Petroleum Company Limited, an English company.6
During the period following January 15, 1974, when the general FEA regulations became effective, FEA received many inquiries about the extent and scope of their applications. It was informed that retail gasoline prices could rise as much as 17 cents per gallon as compared with mainland prices because Puerto Rico was totally dependent upon foreign crude oil. Domestic crude oil of course was subject to FEA's price controls but the price of foreign crude which has precipitously risen could not be controlled. Because of the cost of foreign oil, CORCO on February 1, 1974, increased the price of gasoline sold to its customers, including the appellant subsidiaries and Shell P.R. by approximately 17 cents per gallon. A two-tier pricing structure developed on the island. The higher price was charged by CORCO which accounted for 80% of all petroleum products consumed in Puerto Rico while the lower price was charged by Gulf, whose refinery generally furnished approximately 20% of all petroleum products.7 The two-tier system caused widespread disruption.8
On March 20, 1974, FEA announced an amendment to its mandatory petroleum regulations with respect to Puerto Rico. Puerto Rican entities which were owned directly or indirectly by mainland United States refiners were to be subject to the refiner rule, not the reseller rule.9 The FEA determined that there was good cause to make this amendment effective immediately. At about the same time it published notice that it would hold hearings in San Juan, Puerto Rico, on April 8 and 9, 1974, for the purpose of determining whether the refiner rule, the reseller rule, or some other pricing regulations should be applied permanently to Puerto Rico. Concurrently FEA issued a separate order to Shell P.R. requiring it to adhere to its February 22, 1974, prices pending the outcome of the rule making proceeding. The effect of these actions was to assure that any price increases incurred by CORCO and passed on by CORCO to Mobil Caribe, Esso, Texaco P.R. and Shell P.R., and others in similar positions would not be passed on in full to Puerto Rican consumers. Rather, Mobil Caribe, Esso and Texaco P.R. could pass on only such price increases as were allowed under the refiner rule.
On May 16, 1974,10 FEA issued its final mandatory petroleum price regulation applicable to Puerto Rico, reading in part:
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