Energy Reserves Group, Inc. v. Department of Energy

• Decision Date: 31 October 1978
• Docket Number: No. 10-15 to 10-17.,10-15 to 10-17.
• Court: U.S. Temporary Emergency Court of Appeals Court of Appeals
• Parties: ENERGY RESERVES GROUP, INC., and Suburban Propane Gas Corporation, Appellees, Marathon Oil Company and Sklar & Phillips Oil Company, Intervenors-Appellees, v. DEPARTMENT OF ENERGY and James R. Schlesinger, Secretary, Department of Energy, Appellants. SIERRA PETROLEUM CO., INC., Appellee, Maurice L. Brown Company, Intervenor-Appellee, v. DEPARTMENT OF ENERGY and James R. Schlesinger, Secretary, Department of Energy, Appellants. BRADEN-ZENITH, INC., Appellee, v. DEPARTMENT OF ENERGY and James R. Schlesinger, Secretary, Department of Energy, Appellants.

589 F.2d 1082

ENERGY RESERVES GROUP, INC., and Suburban Propane Gas Corporation, Appellees, Marathon Oil Company and Sklar & Phillips Oil Company, Intervenors-Appellees, v. DEPARTMENT OF ENERGY and James R. Schlesinger, Secretary, Department of Energy, Appellants.

SIERRA PETROLEUM CO., INC., Appellee, Maurice L. Brown Company, Intervenor-Appellee, v. DEPARTMENT OF ENERGY and James R. Schlesinger, Secretary, Department of Energy, Appellants.

BRADEN-ZENITH, INC., Appellee, v. DEPARTMENT OF ENERGY and James R. Schlesinger, Secretary, Department of Energy, Appellants.

Nos. 10-15 to 10-17.

Temporary Emergency Court of Appeals.

Argued May 8, 1978.

Decided October 31, 1978.

COPYRIGHT MATERIAL OMITTED

Robert G. Heiss, Nancy C. Crisman, Haywood Torrence, Jr., and Mark J. Kreitman, Dept. of Energy, Washington, D. C., with whom Barbara Allen Babcock, Asst. Atty. Gen., and Dennis G. Linder, David Epstein, and Bruce G. Forrest, Dept. of Justice, Washington, D. C., were on brief, for appellants.

Joseph W. Kennedy, Morris, Laing, Evans, Brock & Kennedy, Wichita, Kan., with whom Robert I. Guenthner, Wichita, Kan., was on brief, for appellees.

Daniel Joseph, Akin, Gump, Hauer & Feld, Washington, D. C., with whom Warren E. Connelly, Washington, D. C., and Thomas Brown, Brown & Fox, Kansas City, Mo., and John R. Cope and Arthur M. Meyer, Jr., Bracewell & Patterson, Washington, D. C., were on brief, for appellees.

Warren Belmar, Keith A. Jones and Amanda Birrell, Fulbright & Jaworski, Washington, D. C., were on brief, for amici curiae, Kansas Independent Oil & Gas Association and National Stripper Well Association.

Before CHRISTENSEN, BECKER and ZIRPOLI, Judges.

BECKER, Judge:

Introduction

In these cases the appellees question the validity of Ruling 1974-29 of the Federal Energy Administration (FEA), designated as an "interpretative" rule by FEA. If Ruling 1974-29 was interpretative, the ruling was exempt from the rule making requirements of § 553(b) and (c) Title 5 U.S.C., a part of the Administrative Procedure Act (APA). Section 553(b) of the APA permits all administrative agencies to issue interpretative rules without prior notice and opportunity for submission of written views, data and argument. The district court held that Ruling 1974-29 was not interpretative, but was legislative,¹ and therefore invalid under § 553(b) and (c) of the APA, requiring notice and opportunity to comment prior to its adoption.

Appellants, Department of Energy (DOE) and the Secretary of Energy,² contend that Ruling 1974-29 was properly designated as interpretative of a regulation, 10 C.F.R. § 210.32(b), and of the underlying statutory provisions exempting crude petroleum produced by "stripper wells" from allocation and price regulation.

Statement of the Issue

Appellants, DOE and the Secretary of Energy, properly state that the issue³ in these consolidated appeals is as follows:

Whether the District Court erred in holding that Federal Energy Administration ("FEA") Ruling 1974-29 (39 F.R. 44414, December 24, 1974), which interpreted the stripper well exemption as excluding injection wells from the "well count" for purposes of applying the exemption, is null and void and without effect because it was published without utilizing the notice and comment provisions of the Administrative Procedure Act ("APA"), 5 U.S.C. § 553(b). (Footnote omitted.)

Section 553(b) of the APA

The applicable portion of § 553(b) of the APA is as follows:

(b) General notice of proposed rule making shall be published in the Federal Register, unless persons subject thereto are named and either personally served or otherwise have actual notice thereof in accordance with law. The notice shall include —

(1) a statement of the time, place, and nature of public rule making proceedings;

(2) reference to the legal authority under which the rule is proposed; and

(3) either the terms or substance of the proposed rule or a description of the subjects and issues involved.

Except when notice or hearing is required by statute, this subsection does not apply —

(A) to interpretative rules, general statements of policy, or rules of agency organization, procedure, or practice. Emphasis added.

Appellees contend generally that Ruling 1974-29 was by its nature and effect a "legislative" rule subject to the notice and comment requirements of § 553(b) and (c), and that therefore the designation of the ruling by FEA as interpretative is legally ineffective. Appellees also contend that the administrative action of issuing the ruling was subject to the stricter requirements of § 7(i) of the Federal Energy Administration Act (FEAA), which was § 766(i) Title 15 U.S.C. (repealed P.L. 95-91).

General Importance of Decision

The determination of the issue presented by these opposing contentions, in favor of appellees would have potentially drastic adverse effects on the past, present and future administration of the emergency energy price and allocation programs, by casting serious doubt on the validity of all the rulings designated as interpretative rules by the successive agencies administering the emergency energy programs. But transcending the doubt cast on the validity of rulings of the successive agencies administering the emergency energy programs, is the potentially disastrous effect such a precedent would have on all rulings designated as interpretative, under § 553(b) of the APA by the numerous federal administrative agencies. The effects of a questionable construction of § 553(b) of the APA in these appeals cannot be isolated and applied only to the rulings of FEA and DOE because § 553(b) of the APA applies generally to all federal administrative agencies.

The possibility of these effects can be ascertained by an examination of the reasons presented by appellees to support their contention on the primary issue that, despite the designation of Ruling 1974-29 as interpretative by FEA, the Court should conclude that the ruling was legislative, and not exempt from the requirements of § 553(b) and(c) of the APA. These reasons are as follows:

1. P.L. 93-153, the now repealed § 406(a) of the Trans-Alaska Pipeline Authorization Act (TAPAA) and § 4(e)(2)(A) of the Emergency Petroleum Allocation Act of 1973 (EPAA) provided a statutory exemption from price and allocation regulation of the first sale of crude oil produced in the United States from any lease "whose average daily production of crude oil for the preceding calendar year does not exceed ten barrels per well." (This is not controverted.)

2. In § 406(c) of TAPAA and s 4(a) of EPAA Congress delegated authority to the Cost of Living Counsel (COLC) to promulgate regulations implementing the exemption of such wells. COLC was succeeded by FEA in the performance of this function. (This is not controverted.)

3. COLC (and later FEA) promulgated regulations defining the formula in computing average daily production that did not define the term "well", used in the statute, to exclude injection wells except possibly by implication. (It is necessarily conceded by appellees that the two regulations defining average daily production expressly provided that only wells "which produce crude petroleum" could be counted in the calculation of average daily production. 6 C.F.R. § 150.54(s); 10 C.F.R. § 210.32(b).)

4. In 1974, to expressly exclude injection wells from the calculation of average daily production, FEA issued Ruling 1974-29, designated by FEA as an interpretative ruling, without complying with either the notice or comment procedures of the APA.

5. The designation of Ruling 1974-29 as interpretative by FEA was not persuasive or legally binding on the courts.

6. Whether Ruling 1974-29 was legislative, rather than interpretative, should be determined by applying a test of whether the ruling had a "substantial impact" on the regulated parties. Among other authorities on which appellees rely as supporting this proposition are National Helium Corporation v. FEA (Em.App.1977) 569 F.2d 1137, and Shell Oil Company v. FEA (Em.App.1978) 574 F.2d 512.

7. The contention of appellants that Ruling 1974-29 was interpretative is rebutted by the fact that the original definitions of the elements of the stripper well exemption were in the regulations 6 C.F.R. § 150.54(s) and 10 C.F.R. § 210.32(b), which were legislative in nature.

8. Ruling 1974-29 had a "substantial impact" on the regulated parties because it was the first effective notice to appellees that injection wells were excluded in computing average daily production, particularly since the Department of Interior had counted injection wells for purposes of qualifying for a reduced royalty. 30 C.F.R. § 221.49(b). "Substantial impact" in the contention of appellees, ranges from subjective disappointment in the interpretation contrary to the hopes, desires and beliefs of appellees, to interpretation of the statute, regulation or both having a future effect in a manner that is not reasonably anticipated by the affected parties, including the public, from the statutes in question.

9. Section 7(i) of the FEAA required the FEA to "resolve doubts about application of procedural safeguards in favor of their full application."

10. Ruling 1974-29 is void because of the failure of FEA to comply with the notice and comment procedures of § 553(b) of APA and § 7(i) of FEAA.

It is concluded that this intricate sophisticated reasoning of appellees is contrary to the decisions of the Supreme Court of the United States and the weight of applicable authorities in 1974 and thereafter, Vermont Yankee Nuclear Power Corp. v. National Resources Defense Council, Inc., 435 U.S. 519, 98 S.Ct. 1197, 55 L.Ed.2d 460 (1978), and General Electric Co. v. Gilbert, 429 U.S. 125, 97 S.Ct. 401, 50 L.Ed.2d 343 (1976); and that, for the reasons hereinafter stated, the result of acceptance of the contentions of the appellees would create a doctrine in administrative law that would seriously and adversely affect the accepted, and...