Amoco Production Co. v. United States Dept., Civ. A. No. 78-463

• Decision Date: 20 April 1979
• Docket Number: 78-519,78-532 and 79-47.,78-530,78-464,78-471,Civ. A. No. 78-463,78-515,78-466
• Citation: 469 F. Supp. 236
• Parties: AMOCO PRODUCTION COMPANY and Amoco Oil Company, Plaintiffs, v. UNITED STATES DEPARTMENT OF ENERGY et al., Defendants. NORTHERN NATURAL GAS COMPANY et al., Plaintiffs, v. James SCHLESINGER et al., Defendants. EXXON CORPORATION and Sun Oil Company (Delaware), Plaintiffs, v. DEPARTMENT OF ENERGY et al., Defendants. MOBIL OIL CORPORATION and Mobil Oil Exploration & Producing Southeast, Inc., Plaintiffs, v. DEPARTMENT OF ENERGY et al., Defendants. GULF OIL COMPANY, Plaintiff, v. UNITED STATES DEPARTMENT OF ENERGY et al., Defendants. SHELL OIL COMPANY, a Delaware Corporation, Plaintiff, v. UNITED STATES DEPARTMENT OF ENERGY et al., Defendants. AMINOIL USA, INC. (a Delaware Corporation), Plaintiff, v. The UNITED STATES DEPARTMENT OF ENERGY et al., Defendants. ATLANTIC RICHFIELD COMPANY, Plaintiff, v. UNITED STATES DEPARTMENT OF ENERGY et al., Defendants. CONTINENTAL OIL COMPANY, Plaintiff, v. DEPARTMENT OF ENERGY et al., Defendants.
• Court: U.S. District Court — District of Delaware

469 F. Supp. 236

AMOCO PRODUCTION COMPANY and Amoco Oil Company, Plaintiffs, v. UNITED STATES DEPARTMENT OF ENERGY et al., Defendants.

NORTHERN NATURAL GAS COMPANY et al., Plaintiffs, v. James SCHLESINGER et al., Defendants.

EXXON CORPORATION and Sun Oil Company (Delaware), Plaintiffs, v. DEPARTMENT OF ENERGY et al., Defendants.

MOBIL OIL CORPORATION and Mobil Oil Exploration & Producing Southeast, Inc., Plaintiffs, v. DEPARTMENT OF ENERGY et al., Defendants.

GULF OIL COMPANY, Plaintiff, v. UNITED STATES DEPARTMENT OF ENERGY et al., Defendants.

SHELL OIL COMPANY, a Delaware Corporation, Plaintiff, v. UNITED STATES DEPARTMENT OF ENERGY et al., Defendants.

AMINOIL USA, INC. (a Delaware Corporation), Plaintiff, v. The UNITED STATES DEPARTMENT OF ENERGY et al., Defendants.

ATLANTIC RICHFIELD COMPANY, Plaintiff, v. UNITED STATES DEPARTMENT OF ENERGY et al., Defendants.

CONTINENTAL OIL COMPANY, Plaintiff, v. DEPARTMENT OF ENERGY et al., Defendants.

Civ. A. Nos. 78-463, 78-464, 78-466, 78-471, 78-515, 78-519, 78-530, 78-532 and 79-47.

United States District Court, D. Delaware.

April 20, 1979.

William O. LaMotte, III, and Richard D. Allen of Morris, Nichols, Arsht & Tunnell, Wilmington, Del., Roger L. Taylor, Chicago, Ill., and Robert F. Van Voorhees of Kirkland & Ellis, Washington, D. C.; Matthew J. Gallo, Amoco Oil Co., Chicago, Ill., for Amoco in Civ. A. No. 78-463; Daniel Joseph and Harry Silver of Akin, Gump, Hauer & Feld, Washington, D. C.; Fredi L. Pearlmutter, New York City, Mobil Oil Corp., for Mobil in Civ. A. No. 78-471.

Stephen E. Herrmann of Richards, Layton & Finger, Wilmington, Del., Richard G. Morgan and Donald S. Arbour of O'Connor & Hannan, Washington, D. C., for Northern Natural in Civ. A. No. 78-464; Kenneth L. Bachman, Jr., and Eugene M. Goott of Cleary, Gottlieb, Steen & Hamilton, Washington, D. C.; John R. Cope and Thomas F. Holt, Jr. of Bracewell & Patterson, Washington, D. C., for Aminoil in Civ. A. No. 78-530.

Thomas Herlihy, III of Herlihy & Herlihy, Wilmington, Del., William M. Parse, Jr., of Fulbright & Jaworski, Houston, Tex., Barbara Finney, Exxon Corp., Houston, Tex., for Exxon/Sun in Civ. A. No. 78-466; David L. Roll, of Steptoe & Johnson, Washington, D. C., for Atlantic Richfield in Civ. A. No. 78-532.

Charles F. Richards, Jr. of Richards, Layton & Finger, Wilmington, Del., William E. Wickens and Frederick S. Frei of Howrey & Simon, Washington, D. C., for Shell Oil in Civ. A. No. 78-519; Charles E. Cheek, Gulf Oil Corp., Tulsa, Okl., for Gulf Oil in Civ. A. No. 78-515.

John P. Sinclair and Charles S. Crompton, Jr. of Potter, Anderson & Corroon, Wilmington, Del., Donald B. Craven and Robert K. Huffman of Miller & Chevalier, Washington, D. C., for Continental Oil in Civ. A. No. 79-47.

James W. Garvin, Jr., U.S. Atty., John X. Denney, Jr., Asst. U. S. Atty., Wilmington, Del., Don W. Crockett, James R. Myers and Michael P. Phillips, U. S. Dept. of Energy; Dina R. Lassow, U. S. Dept. of Justice, Washington, D. C., for defendants.

OPINION

STAPLETON, District Judge:

These pre-enforcement review actions challenge portions of Subpart K of the United States Department of Energy's ("DOE") Mandatory Petroleum Pricing Regulations, 10 C.F.R. § 212.161 et seq., and DOE's interpretation of that subpart.¹ Subpart K regulates the pricing of natural gas liquids ("NGLs") and natural gas liquid products ("NGLPs"). Nine such actions have been filed in this Court.² The plaintiffs bringing these nine actions fall into two distinct groups. The Northern and Aminoil cases involve gas plant operators (or "processors") which do not refine crude oil. See 10 C.F.R. § 212.161(b)(1). The aspects of Subpart K challenged in those two cases are discussed in Northern Natural Gas Co. v. DOE, 464 F.Supp. 1145 (D.Del., 1979). The remaining seven cases involve crude oil refiners which are also gas plant operators. See 10 C.F.R. § 212.161(b)(2). Those seven cases raise the single issue of whether the adjusted and imputed first sale prices of 10 C.F.R. § 212.164 may be utilized by the plaintiffs in their inter-affiliate transfers.³ DOE has moved to dismiss or to transfer to the United States District Court for the District of Columbia the Amoco, Exxon/Sun, Mobil, Gulf, Shell and ARCO actions, and to transfer to the United States District Court for the District of Columbia the Northern, Aminoil and CONOCO cases. Those motions are currently before the Court.

I. THE SUBPART K LITIGATION.

In order to understand the nature of DOE's motions, it is necessary to review the history of Subpart K and the litigation which it has inspired. The original Subpart K regulations were promulgated on December 19, 1974 and became effective on January 1, 1975. See 39 Fed.Reg. 44407 (December 24, 1974). The first section of Subpart K, now 10 C.F.R. § 212.161, established its scope and relationship to other subparts. It provided, in part:

(a) Scope. This subpart applies to all sales of natural gas liquids and natural gas liquid products, including transfers between affiliated entities, by all firms, including gas plant operators, producers of natural gas, natural gas royalty owners and refiners except sales by resellers or retailers, which are subject to Subpart F of this part.

(b) Relationship to other Subparts —

(1) Gas plant operators. Refiners that only refine liquid hydrocarbons from oil and gas field gases and do not refine crude oil shall determine their maximum lawful selling prices pursuant to this Subpart K and are not also subject to Subpart E.

(2) Crude oil refiners which are also gas plant operators — (i) General. Refiners that refine liquid hydrocarbons from oil and gas field gases, and also refine crude oil, shall determine their May 15, 1973 selling prices and increased costs for natural gas liquids and for natural gas liquid products produced in gas plants pursuant to this subpart, but shall determine their maximum lawful selling prices pursuant to Subpart E.

With respect to the formula used to determine the "May 15, 1973 selling prices" for NGLs and NGLPs, those regulations also specified a "first sale" base price which was the higher of (1) the weighted average of prices the gas plant operator received from different "classes of purchaser" on May 15, 1973; (2) an "adjusted first sale price" of 8.5 cents per gallon for propane, 9.0 cents for butane, and 10.0 cents for natural gasoline; and, where applicable, (3) a higher "imputed price" for NGLs from plants which were not constructed before, or which were significantly expanded after, Subpart K's effective date of January 1, 1975. See 10 C.F.R. § 212.164. "First sale" was defined in what is now 10 C.F.R. § 212.162 as follows:

"First sale" means, with respect to natural gas liquids or natural gas liquid products, the first transfer for value to a class of purchaser for which a fixed price per unit of volume is determined.

The parties agree that as far as sales of NGLs and NGLPs from both refiners and processors to unaffiliated purchasers are concerned, the adjusted first sale prices of Section 212.164 are available in determining the May 15, 1973 selling prices. From the effective date of Subpart K, plaintiffs have read Section 212.161 to provide exactly the same treatment for sales to affiliated purchasers. The DOE maintains that inter-affiliate transfers have never constituted "first sales." As noted above, the single issue raised in the seven cases brought by the refiners is whether inter-affiliate transfers are first sales under Subpart K. The first sale issue is also raised in the two cases brought by processors, along with several other issues.

Shortly after Subpart K became effective, in July of 1975, Exxon Corporation ("Exxon") filed an action against the Federal Energy Administration ("FEA"), the predecessor of DOE, in the United States District Court for the Northern District of Texas ("the Texas action").⁴ That action raised at least five issues concerning the application of Subpart K. However, none of the issues raised in this Court, including the first sale issue, have been raised in the Texas action. Exxon claims that the first sale issue was not raised in that case because it did not become an issue until three years after the filing of that action.

In order to understand how the first sale litigation did come about, it is helpful to review the attempts of the plaintiffs to get a ruling on the first sale issue from 1975 to the present. On January 23, 1975, an attorney for Atlantic Richfield Co. ("ARCO") wrote to an official at the FEA, confirming the ground covered at a meeting between FEA and ARCO officials on January 8, 1975 concerning the new Subpart K. That letter stated in part:

With respect to base price determination, it was confirmed that the NGL regulations are consistent with the crude oil regulations relating to identification of costs incurred by refiners and other producers of natural gas liquids for purposes of calculating costs which are recoverable under the provisions of Subpart E of Part 212 in the regulations. That is to say, Section 212.141(a) now 212.161(a) establishes the first sale to include transfers between affiliated entities.

ARCO and the other plaintiffs have consistently used the first sale price in transfers between affiliated entities from that time.

Since 1976, three of the plaintiffs have requested interpretations on the first sale issue. In early 1976, an FEA auditor asserted that Northern Natural Gas Co. ("Northern") and its three subsidiaries were a single firm for Subpart K purposes, and that there was no first sale until there was a sale to an unaffiliated third party. On February 10, 1976, Northern and its subsidiaries requested an interpretation of that question from FEA's Office of General Counsel.

On April 5, 1976, Continental Oil Co. ("CONOCO") requested an interpretation from FEA's Office of General Counsel regarding the May 15, 1973 selling prices of commingled NGLs and NGLPs under Subpart K. That...