Standard Oil Co. v. Department of Energy
| Decision Date | 13 December 1978 |
| Docket Number | No. 6-13.,6-13. |
| Citation | 596 F.2d 1029 |
| Parties | STANDARD OIL COMPANY, Plaintiff-Appellee, v. DEPARTMENT OF ENERGY, Defendant-Appellant. |
| Court | U.S. Temporary Emergency Court of Appeals Court of Appeals |
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Scott H. Lang and Colin D. Mathews, David A. Engels, Dept. of Energy, Barbara Allen Babcock, Asst. Atty. Gen., Dennis G. Linder, C. Max Vassanelli, Dept. of Justice, Washington, D. C., were on the brief for defendant-appellant.
David A. Nelson, Charles F. Clarke, Squire, Sanders & Dempsey, George J. Dunn, Vice President and Gen. Counsel, Standard Oil Co., Cleveland, Ohio, William H. Allen, James Bailer, Robert D. Daniel, Covington & Burling, Washington, D. C., William T. Smith, Calfee, Halter & Griswold, Cleveland, Ohio, Robert O. Lewers, Edward J. Ciechon, Jr., C. Steven LeBaron, Philadelphia, Pa., Andrew J. Kilcarr, Donovan, Leisure, Newton & Irvine, Washington, D. C., Thomas R. Trowbridge III, James C. McMillin, Donovan, Leisure, Newton & Irvine, New York City, Arthur F. Zalud, Thompson, Hine & Flory, Cleveland, Ohio, Charles S. Lindberg, Mobil Oil Corp., New York City, William Simon, William E. Wickens and Lesley A. Moradian, Howrey & Simon, Washington, D. C., Wayne C. Dabb, Jr., Baker, Hostetler & Patterson, Cleveland, Ohio, William A. Wood, Houston, Tex., Richard C. Morse, William John Rathje, Los Angeles, Cal., Joseph A. Ball, Ball, Hunt, Hart, Brown & Baerwitz, Long Beach, Cal., Sterling Newell, Jr., James A. Dull, Spieth, Bell, McCurdy & Newell Co., L.P.A., Cleveland, Ohio, William R. Slye, Texaco, Inc., White Plains, N. Y., Smith Warder, Cleveland, Ohio, John E. Bailey, Catherine C. McCulley, Gulf Oil Corp., Houston, Tex., Louis Paisley, Weston, Hurd, Fallon, Paisley & Howley, Cleveland, Ohio, Martin J. Keating, Walter Lethem, Amoco Oil Co., Chicago, Ill., Donald B. Craven, A. Theodore Giattina, Craig Miller, Miller & Chevalier, Washington, D. C., Michael R. Gallagher, Alan M. Petrov, Gallagher, Sharp, Fulton, Norman & Mollison, Cleveland, Ohio and John Chiles, Barbara Finney, Exxon Corp., Houston, Tex., were on the brief for plaintiffs-appellees.
William E. Wickens, Howrey & Simon, Paul J. Mode, Jr., Wilmer, Cutler & Pickering, Washington, D.C., with whom William Simon and Lesley A. Moradian, Washington, D.C., Joseph A. Ball, Joseph D. Mullender, Jr., Ball, Hunt, Hart, Brown & Baerwitz, Long Beach, Cal., Richard C. Morse, William John Rathje, Atlantic Richfield Co., Los Angeles, Cal., William A. Wood, Jr., Shell Oil Co., Houston, Tex., Louis Paisley, Weston, Hurd, Fallon, Paisley & Howley, Cleveland, Ohio, Martin J. Keating, Walter R. Lethem, Chicago, Ill., Michael S. Helfer, Stewart A. Block and Paul S. Koffsky, John P. Mathis, Thomas J. Eastment, Baker & Botts, Keith A. Jones, Warren Belmar, Washington, D.C., Laurence C. Mosher, Jr., O. David Stephens, Houston, Tex., Fulbright & Jaworski, Michael J. Henke, F. Shaun Burns, Vinson & Elkins, Kenneth L. Bachman, Jr., Eugene M. Goott, Cleary, Gottlieb, Steen & Hamilton, Washington, D.C., were on the brief of appellees.
Before CHRISTENSEN, JAMESON and GRANT, Judges.
This is a consolidated appeal by the Department of Energy (DOE) from summary judgments in favor of 15 oil refiners, granted by the District Court for the Northern District of Ohio, Eastern Division, and the District Court for the District of Delaware. Nine suits were filed and consolidated for trial in Ohio and six in Delaware. All involved the interpretation of petroleum price control regulations issued by the Federal Energy Administration (FEA) governing the recovery by oil refiners of two categories of costs for the period January 1, 1975 through January 31, 1976. The FEA interpretation of cost pass through regulations required refiners to allocate monthly sales revenues first to the recoupment of all increased "product costs" (primarily the costs of crude oil and purchased petroleum products) and then to the recoupment of "nonproduct" costs (primarily operating and marketing costs).1
The suits, challenging the FEA's interpretation of the pass through regulations and seeking declaratory and injunctive relief, were filed against the FEA 2 after it declined to grant the plaintiff refiners a class exception from the impact of its ruling and required the refiners instead to seek individual exception relief. Both courts denied the FEA's motions to dismiss on ripeness and exhaustion grounds and held in essence that the following legal questions were appropriate for immediate consideration: (1) whether the FEA's interpretation of the meaning of the regulations governing refiner pass through of increased costs was (a) correct and (b) required; and (2) if so, whether the regulations were invalid because of failure to comply with the procedural and substantive statutes pursuant to which the regulations were promulgated.3
All parties in both cases filed cross-motions for summary judgment. The primary issue before each court was the validity of FEA's ruling that refiners were required to recover product cost increases first.4 During the relevant period (i. e., January 1, 1975 through January 31, 1976) refiners used three methods of allocating cost recoveries: (1) non-product cost increases recovered first (NPCI First); (2) product cost increases recovered first (NPCI Last); and (3) the "proportional method", product and non-product increases recovered on a prorated basis. The principal distinction between the Ohio and Delaware cases is that all of the Delaware plaintiffs recovered their product and non-product cost increases under the proportional method, while a majority of the Ohio plaintiffs used the non-product cost increases first method.5
In granting summary judgment in Standard Oil Company v. Federal Energy Administration (Standard Oil II), 453 F.Supp. 203, 245-46 (1978), the Ohio court held that (1) the "FEA never issued a valid all product costs first passthrough rule applicable to the time frame January 1, 1975 to January 31, 1976"; (2) the "FEA never issued an all product costs first sequence rule . . . in compliance with the required rulemaking procedures and therefore any such rule is void"; (3) the "FEA did not issue the explicit rule banning the banking of non-product costs in compliance with the required rulemaking procedures"; but (4) the all product costs first rule was within the FEA's statutory authority. The court also found constitutional questions raised by appellees were substantial and certified those issues to this court.
In Phillips Petroleum Co. v. Department of Energy (Phillips Pet. II), 449 F.Supp. 760, 801-02 (1978), the Delaware court held that (1) the regulations affecting prices in effect before December 1, 1974 "did not contain a tacit prohibition against NPCI banking" of non-product cost increases and "did not implicitly require the use of NPCI Last method of cost recovery"; (2) "even if the regulations reasonably could have been interpreted to require that NPCI be recovered last, they also could have been interpreted to require that product and nonproduct cost increases be recovered proportionally"; (3) "the FEA did not decide to require use of the NPCI Last method until the very end of the relevant period", did not announce its decision until February 1, 1976, and this belated interpretation "did not qualify for retroactive application"; and (4) the FEA did not comply with the notice and comment provisions of the Administrative Procedure Act and the Federal Energy Administration Act in its purported adoption of either the prohibition of NPCI banking or the NPCI Last requirement.
Preliminary to a consideration of the contentions of the respective parties on this appeal, we shall set forth in summary form the statutory and regulatory background6 and, in particular, the procedures in FEA's promulgation of the sequence of recovery rule upon which it relies in these cases.
The petroleum pricing regulations in effect for the relevant period were derived from rules promulgated by the Cost of Living Council (CLC) under the authority of the Economic Stabilization Act of 1970, as amended, 12 U.S.C. § 1904 note §§ 201-220 and Phase IV of the Economic Stabilization Program. In July of 1973, the CLC published proposed general rules for "Phase IV" price controls to become effective at the end of a 60 day freeze imposed by executive order on June 13, 1973. Special rules—to be included as Subpart L of the regulations—were proposed for the petroleum industry. Under the proposed special rules, maximum lawful prices for refined petroleum products would consist of (1) the May 15, 1973 price to a class of customers, (2) increased costs of domestic crude oil and imports, subject to a profit margin limitation, and (3) other allowable costs, subject to pre-notification and a profit margin limitation.7
On August 19, 1973 the CLC added Subpart L—Petroleum and Petroleum Products—to the Phase IV regulations, which established special rules governing the pricing of petroleum products. The key to this pricing structure was the "base price", which was defined as the May 15, 1973 selling price plus adjustments for the increased costs of imports and domestic crude petroleum above the May 15 price.8 This definition, which differed substantially from that in the proposed regulations, allowed refiners to pass through their product cost increases on a dollar for dollar basis without being subject to pre-notification requirements or a profit margin rule. As to non-product costs, refiners could make price increases above base price to reflect these costs, but they remained subject to pre-notification and profit margin limitations.
As initially promulgated, the petroleum pricing regulations did not provide that either product cost increases or non-product cost increases unrecouped in one month could be...
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