Consumers Union of United States, Inc. v. Sawhill

• Decision Date: 19 March 1975
• Docket Number: No. DC-26.,DC-26.
• Citation: 512 F.2d 1112
• Parties: CONSUMERS UNION OF UNITED STATES, INC., Plaintiff-Appellant, v. John C. SAWHILL, Administrator of Federal Energy Administration, Defendant-Appellee.
• Court: U.S. Temporary Emergency Court of Appeals Court of Appeals

512 F.2d 1112

CONSUMERS UNION OF UNITED STATES, INC., Plaintiff-Appellant, v. John C. SAWHILL, Administrator of Federal Energy Administration, Defendant-Appellee.

No. DC-26.

Temporary Emergency Court of Appeals.

February 18, 1975.

Rehearing Granted March 19, 1975.

COPYRIGHT MATERIAL OMITTED

Peter H. Schuck, Washington, D. C., for appellant.

Carla A. Hills, Asst. Atty. Gen., New York City, Stanley D. Rose and C. Max Vassanelli, Attys., Dept. of Justice, Washington, D. C., for appellee.

Before TAMM, Chief Judge, and ANDERSON and JOHNSON, Judges.

Rehearing En Banc Granted March 19, 1975.

ROBERT P. ANDERSON, Judge.

Consumers Union of the United States, Inc. (Consumers Union) alleges in this action that regulations, 10 C.F.R. §§ 212.71-74, effective January 15, 1974, issued by the Federal Energy Office, now the Federal Energy Administration (FEA), violate § 4 of the Emergency Petroleum Allocation Act of 1973, 15 U.S.C. §§ 751-756 (the Act). Specifically, Consumers Union claims that § 4 of the Act imposes a mandatory duty to establish controls which will ensure "equitable" prices for all domestic crude oil; that FEA, by permitting new and released crude oil to be sold at the free market price violates such statutory duty and has in effect created a massive unauthorized exemption from the Act.

The United States District Court for the District of Columbia denied Consumers Union's motion for declaratory and injunctive relief and granted FEA's cross-motion for summary judgment. It held that the Act does not necessitate price ceilings, and that FEA's decision to let the prices "float" on certain categories of crude oil satisfies the statutory prescription that it specify or prescribe a manner for determining price. The court further ruled that this decision does not result in an invalid exemption from regulation, because all oil remains "subject to" allocation and price controls. Consumers Union has appealed from the decision and order of the district court.

The parties concede that the Act imposes a mandatory duty to "specify" or "determine," i. e. to "regulate" prices for all crude oil. The Act provides that the President of the United States ". . . shall promulgate a regulation providing for the mandatory allocation of crude oil, residual fuel oil, and each refined petroleum product, in amounts . . . and at prices specified in (or determined in a manner prescribed by) such regulation." Section 4(a), in which this requirement is found, also specifies that the implementing regulation ". . . shall apply to all crude oil . . . produced in or imported into the United States,"¹ with one exception—"stripper well production," essentially the output of low-yield properties.² It is further provided that, ". . . to the maximum extent practicable," the regulation secure ". . . the preservation of an economically sound and competitive petroleum industry . . . equitable distribution . . . at equitable prices and . . minimization of . . . unnecessary interference with market mechanisms." § 4(b)(1)(A-I).³

To exempt any category of crude oil from the allocation and pricing system, the President must make specific factual findings which, together with the proposed exemption, shall then be submitted to Congress. The exemption takes effect within a specified period thereafter, provided that neither House meanwhile takes any action expressing its disapproval. Any exemption thereby created may remain valid for a period not in excess of 90 days. § 4(g)(2).⁴

The regulations in question establish a "two-tier pricing system," which impose ceilings on certain categories of crude oil while other categories may sell at the market price. Specifically, "old" oil, i. e. oil from properties producing at, or less than, their 1972 levels, cannot be sold at a figure which exceeds the highest posted price for the same grade of crude oil in that particular field on May 15, 1973, plus $1.35. The national average ceiling price for all old crude, which constitutes 60% of domestic production, is approximately $5.35 per barrel.

"New" crude oil, which is the amount of domestic crude oil produced and sold from a property above the amount produced and sold from that property during an equivalent period in 1972, "the base year," may be sold, under the regulations, without regard to the ceiling price, i. e. at the market price. 10 C.F.R. § 212.74(a). If a particular property did not produce at all during the base year, then all of its current yield is new oil and, accordingly, may be sold at the market price. The prevailing national average price for new oil is approximately $10 per barrel.

"Released" oil constitutes that portion of the output of a particular property producing in excess of its 1972 level which is not "new" oil; that is to say, if the 1972 production level for a particular property is presently exceeded for an equivalent period, the current yield up to the base period production level is labeled "released crude" oil and the balance or excess over that level is "new crude" oil. The maximum allowable price for released oil is the lesser of the current market price or the price derived from a formula made up of the base period production level, the May 15, 1973 posted price, the current market price, and the amount by which present production exceeds base period yield, as delineated in the regulation. 10 C.F.R. § 212.74(b).⁵

As above stated, the parties differ only in their views of the extent and type of governmental activity which will satisfy the prescription for regulating the prices for all crude oil. The questions presented on appeal for resolution are: (1) does retention of the authority to regulate prices in the future fulfill the statutory mandate or does it create an exemption, which is invalid to the extent that the detailed procedure set out in § 4(g)(2) of the Act has not been followed; (2) if the Act requires more than the mere retention of the authority to regulate prices, does the "regulation," provided for new and released crude oil, satisfy such additional requirement; and (3) assuming that 10 C.F.R. §§ 212.74(a) and (b) provide a valid form of regulation, does reliance upon the market for the establishment of the price of new and released crude oil satisfy the "equitable" price standard contained in the Act.

The Government argues, and the district court so held, that new and released crude oil have not been exempted from price controls. This court, it is implied, therefore need not decide whether the policy, permitting prices to float to the market level, provides sufficient control to constitute the "regulation" of prices, because FEA has retained the authority to impose more direct controls in the future.

This argument would be valid if the Act merely authorized the regulation of prices when or if the FEA, in its discretion, saw fit to do so, because in such a case, the failure presently to exercise that authority would not preclude the future imposition of controls. If, however, the Act requires that prices be regulated, any failure so to act, no matter how temporary, exempts present prices from the controls to which they should otherwise be subject.

The Act, by the use of such terms as "shall" and "direct," imposes a mandatory, non-discretionary duty to specify, or prescribe a method for fixing prices. See, e. g. Escoe v. Zerbst, 295 U.S. 490, 493, 55 S.Ct. 818, 79 L.Ed. 1566 (1935); Richbourg Motor Co. v. United States, 281 U.S. 528, 534, 50 S.Ct. 385, 74 L.Ed. 1016 (1930); National Treasury Employees Union v. Nixon, 492 F.2d 587, 601 (D.C.Cir.1974). Section 2(b), for example, provides that "the purpose of the Act is to grant to the President . . . and direct him to exercise specific temporary authority to deal with shortages of crude oil . . . This authority . . . shall be exercised for the purpose of minimizing the adverse impacts of such shortages." (Emphasis added.) Section 4(a), moreover, specifies that "the President shall promulgate a regulation providing for the mandatory allocation of crude oil . . . at prices specified in (or determined in a manner prescribed by) such regulation. . . ." And, § 4(a) further provides that ". . . such regulation shall apply to all crude oil. . ." (Emphasis added.)

Congress, moreover, by including the specific and comprehensive requirements of § 4(g)(2) has exhibited a clear policy of restricting and closely controlling the grant of exemptions.

This court, in the face of such legislative intent and the clear and unambiguous meaning of the Act, must reject any interpretation of the Act, such as that proffered by appellee, which would permit the Executive, acting through the FEA, to evade a non-discretionary duty and to enlarge the authority to create exemptions simply by describing as "subject to controls" that which may simply be determined by the forces of an uncontrolled market.

FEA stresses the fact that the regulations at issue do not in precise terms "exempt" the new and released oil from price controls. This literal approach, adopted by the district court, was rejected by the Supreme Court in Federal Power Commission v. Texaco, Inc., 417 U.S. 380, 94 S.Ct. 2315, 41 L.Ed.2d 141 (1974). The question is not whether all oil remains "subject to" price controls, but whether the controls mandated by the Act have in fact been imposed. Insofar as FEA has not regulated prices in compliance with the Act, it has created a de facto exemption which is invalid to the extent that the detailed procedures set out in § 4(g)(2) have not been followed.⁶

While the Act directs that the prices for all categories of crude oil be regulated, it does not specify a particular method for doing so. Consequently FEA has discretion in devising a regulatory scheme, but it cannot adopt measures which contravene a statutory mandate. See, e. g. Permian Basin Rate Cases, 390 U.S. 747, 776-777, 88 S.Ct. 1344, 20 L.Ed.2d 312 (1968); Wisconsin v. Federal Power Commission, 373 U.S. 294, 309, 83...