Diamond Shamrock Corp. v. Edwards, Civ. A. No. 81-101.

• Citation: 510 F. Supp. 1376
• Decision Date: 07 April 1981
• Docket Number: Civ. A. No. 81-101.
• Parties: DIAMOND SHAMROCK CORPORATION, Kerr-McGee Corporation, Texaco Inc., and Exxon Corporation, Plaintiffs, v. James B. EDWARDS, Secretary of Energy, Defendant.
• Court: U.S. District Court — District of Delaware

510 F. Supp. 1376

DIAMOND SHAMROCK CORPORATION, Kerr-McGee Corporation, Texaco Inc., and Exxon Corporation, Plaintiffs, v. James B. EDWARDS, Secretary of Energy, Defendant.

Civ. A. No. 81-101.

United States District Court, D. Delaware.

April 7, 1981.

Robert K. Payson of Potter Anderson & Corroon, Wilmington, Del.; Keith A. Jones, Warren Belmar, O. David Stephens and Campbell Killefer of Fulbright & Jaworski, Washington, D. C., John V. Cottle and Jerry D. King, Amarillo, Tex., Richard R. Wilfong and Richard F. Campbell, III, Oklahoma City, Okl., Stephen H. Bard and Elizabeth P. Smith, White Plains, N. Y. and James McAnelly and Edward de la Garza, Houston, Tex., of counsel, for plaintiffs.

James W. Garvin, Jr., U. S. Atty., Peggy Ableman, Asst. U. S. Atty., Wilmington, Del. and Nancy C. Crisman, Thomas H. Kemp, Peter Aron and Robert C. Power, Gen. Counsel, Dept. of Energy, Washington, D. C., for defendant.

Richard Herrmann of Bayard, Brill & Handelman, Wilmington, Del. and Kenneth L. Bachman, Jr. and Eugene M. Goott of Cleary, Gottlieb, Steen & Hamilton, Washington, D. C., of counsel, for amicus curiae Tosco Corp.

OPINION

LATCHUM, Chief Judge.

Diamond Shamrock Corporation ("Diamond Shamrock"), Kerr-McGee Corporation ("Kerr-McGee"), Texaco, Inc. ("Texaco"), and Exxon Corporation ("Exxon") seek a preliminary injunction ordering the Secretary of the Department of Energy ("DOE") to cease enforcement of the entitlements program set forth at 10 C.F.R. §§ 211.66 and 211.67 and the tertiary incentive program set forth in 10 C.F.R. § 212.78 in any manner that would adversely affect them.¹ Plaintiffs' principal contention is that Executive Order 12287, 46 Fed.Reg. 9909 (Jan. 28, 1981), which, with certain exceptions, exempted all crude oil and refined petroleum products from price and allocation controls adopted pursuant to the Emergency Petroleum Allocation Act of 1973, as amended, also terminated DOE's authority to enforce the challenged regulations and to require transfer payments under them with respect to oil which was sold prior to the issuance of the Order on January 28, 1981. On this and several procedural grounds, plaintiffs therefore seek to prevent DOE from issuing "entitlements" based upon crude oil purchases which took place in December, 1980, and January, 1981, and to block any "recertifications" under the tertiary incentive program of crude oil sold before January 28, 1981. Plaintiffs contend that without relief pendente lite they will suffer irreparable harm because they will be required to make "wide distribution of substantial amounts, possibly exceeding $100 million, with no assurance of subsequent recovery."

Before considering plaintiffs' contentions in greater detail, it is necessary to review briefly the factual and byzantine regulatory background giving rise to the present controversy. The Court will first examine "the entitlements program" and the "tertiary incentive program"—the two programs whose "continuation" plaintiffs challenge here.

I. FACTUAL AND REGULATORY BACKGROUND

A. The Entitlements Program

Pursuant to the Emergency Petroleum Allocation Act of 1973 ("EPAA"), 15 U.S.C. § 751 et seq., DOE has administered a comprehensive system of regulatory price and allocation controls over domestic producers, refiners, and resellers of crude oil and refined petroleum products. These controls placed ceilings upon the prices that producers could charge for domestic crude oil. See 10 C.F.R. Part 212, Subpart D.² The controls also limited the amount by which refiners could increase their prices above those in effect on May 15, 1973, to the amount by which certain costs, including the cost of purchasing crude oil for use in the refining process, had increased since that date. See 10 C.F.R. Part 212, Subpart E. Additional restraints were imposed on the prices that could be charged by resellers and distributors of crude oil and refined petroleum products. See 10 C.F.R. Part 212, Subparts F and L.

Although the regulatory price and allocation controls covered most domestic crude oil, they did not impose ceilings on the prices at which foreign crude oil could be sold upon importation into the United States. 10 C.F.R. § 212.53(b). When the price of foreign crude oil rose rapidly during the latter part of 1973 and 1974, a large difference in price developed between foreign crude oil and exempt domestic crude oil, on the one hand, and price-controlled domestic crude oil, on the other. This difference in price became reflected in the costs, and consequently in the maximum lawful prices, of different refiners. Refiners that had relatively better access to the less expensive price-controlled crude oil had a cost advantage over their competitors. Because such refiners' costs had not increased by as much as those of other refiners, those refiners had become subject to maximum lawful prices that were significantly lower than the prices that were permitted to be charged by other refiners. This meant that there were substantial disparities in the maximum lawful prices that could be charged by different refiners and their distributors to the ultimate consumers of refined petroleum products.

Initially these disparities had little competitive effect because the Arab Oil Embargo had so reduced supply that even the highest priced petroleum products could be sold. However, with the increase in supply occasioned by the lifting of the embargo the market place became much more sensitive to price considerations and those refiners relying primarily on imported, new or stripper well oil (all of which were sold at free market prices) were placed at a competitive disadvantage relative to refiners having disproportionately high access to price controlled oil. Small and independent refiners were put at a particular disadvantage because of their disproportionately high reliance on imported oil. The Federal Energy Administration ("FEA"), DOE's immediate predecessor, proposed and adopted the entitlements program in order to deal with these problems. See generally 39 Fed.Reg. 31650 (Aug. 30, 1974); 39 Fed.Reg. 39740 (Nov. 11, 1974); 39 Fed.Reg. 42246 (Dec. 6, 1974).

The primary goal of the entitlements program was "to achieve equitable distribution of the low priced old oil among all sectors of the petroleum industry" so as to assure that the sector of the industry lacking proportionate access to price controlled oil, in particular the small and independent refiners, would not be put at a competitive disadvantage because of the government imposed price controls. 39 Fed.Reg. 31650 (Aug. 30, 1974).

In large measure, the goal of the proposal is to improve the access of small and independent refiners to old domestic oil. In addition, however, the proposed program is also designed effectively to provide all refiners with proportionate amounts of old oil, based on their relative refinery capacities. The proposed program is accordingly aimed not only at bringing the small and independent refining sector as a class into a more competitive position with respect to the majors, but it is also specifically designed to assure that all segments of the petroleum industry will benefit equally from lower-priced domestic oil. Thus, the FEA anticipates that in some cases, major oil companies (with a low level of old oil supplies) will benefit by the program, while some small refiners (with a high level of old oil supplies) may be required to buy entitlements under the program. This goal is consistent with the Congressional objectives of achieving equitable distribution of crude oil at equitable prices among all sectors of the petroleum industry and preserving an economically sound and competitive petroleum industry.

Id.³

These objectives were to be achieved by requiring monthly cash transfer payments from those refiners with relatively better access to price-controlled crude oil to those with little or no access to such crude oil, see 10 C.F.R. § 211.67(b) and (c), by reflecting such payments as immediate adjustments to current crude oil costs, see 10 C.F.R. § 211.67(m), and by including them, as adjusted, in the computation of maximum lawful prices in the immediately succeeding month, see 10 C.F.R. § 212.83(c)(2). See generally Husky Oil Co. v. DOE, 582 F.2d 644 (Em.App.1978); Cities Service Co. v. FEA, 529 F.2d 1016 (Em.App.1975), cert. denied, 426 U.S. 947, 96 S.Ct. 3166, 49 L.Ed.2d 1184 (1976); Pasco, Inc. v. FEA, 525 F.2d 1391 (Em.App.1975).

The entitlements program set forth at 10 C.F.R. §§ 211.66 and 211.67 operated generally in the following manner. An "entitlement" constituted the right to refine one barrel of price-controlled crude oil. Each month, each refiner⁴ was allocated a number of entitlements equal to the number of barrels of crude oil it refined for that month, multiplied by the percentage of price-controlled crude oil in the national crude oil supply. In order to have the right to refine all their price-controlled crude oil, refiners with above-average access to price-controlled crude oil were required to purchase entitlements from refiners that, by virtue of having below-average access to such crude oil, had an excess of entitlements. Thus, pursuant to the entitlements program, there was a substantial transfer of funds each month from those refiners that were required to buy entitlements to those that were authorized to sell entitlements. In that manner, the entitlements program in the long run equalized all domestic refiners' access to price-controlled crude oil and thereby eliminated the competitive advantages that had been created by the fact that foreign and some domestic crude oil was exempt from the regulatory price controls.

Although, in the long run entitlements payments equalized proportionately each refiner's access to the price-controlled oil, this was not so on a monthly basis. Because of inevitable administrative delays, entitlements were not issued until two months after the crude oil purchases on...