Gulf Oil Corporation v. Federal Energy Admin.

• Decision Date: 26 February 1975
• Docket Number: Civ. A. No. 75-157.
• Citation: 391 F. Supp. 856
• Parties: GULF OIL CORPORATION, Plaintiff, v. FEDERAL ENERGY ADMINISTRATION and Frank G. Zarb, Administrator of the Federal Energy Administration.
• Court: U.S. District Court — Eastern District of Pennsylvania

391 F. Supp. 856

GULF OIL CORPORATION, Plaintiff, v. FEDERAL ENERGY ADMINISTRATION and Frank G. Zarb, Administrator of the Federal Energy Administration.

Civ. A. No. 75-157.

United States District Court, W. D. Pennsylvania.

February 26, 1975.

COPYRIGHT MATERIAL OMITTED

C. Arthur Wilson, Jr., Eckert, Seamans, Cherin & Mellott, Pittsburgh, Pa., Jesse P. Luton, Jr., and Catherine McCulley, Houston, Tex., for plaintiff.

Joel Strauss, Asst. U. S. Atty., Pittsburgh, Pa., Penny Blair, Dept. of Justice, Washington, D. C., for defendants.

OPINION AND ORDER

SNYDER, District Judge.

The Gulf Oil Corporation filed its Complaint seeking a declaratory judgment and injunctive relief as to certain actions of the Defendants taken under the Emergency Petroleum Allocation Act of 1973 (EPAA), Public Law No. 93-159, 15 U.S.C. § 751 et seq. Under a cost equalization program of the Federal Energy Administration (FEA) there were promulgated regulations requiring the purchase or sale of "Entitlements" which are the right to include one barrel of "old" domestic crude petroleum in a refiner's crude oil receipts or, in essence, the right to refine one barrel of "old" oil in that refiner's refineries. Pursuant to an Entitlement Notice, in January, 1975, Gulf was required to buy 775,693 Entitlements based on a national old oil supply ratio for November 1974 costing Gulf $3,878,465. These payments were made by Gulf under protest and in the face of the threatened imposition of daily penalties against Gulf by the FEA as set forth in the FEA's remedial Order dated January 29, 1975. Further, based on the December 1974 adjusted national old oil supply ratio, Gulf will be required to buy in February, 2,905,408 Entitlements for which it will be required to pay $14,527,040 to various refiners and nonrefiner eligible firms with Entitlements for sale. It is alleged that the actions of the FEA are not authorized under the EPAA, are an arbitrary and capricious exercise of administrative authority, unreasonable and irrational, and an abuse of discretion, by which there are imposed unconstitutional burdens upon Gulf. For the reasons hereinafter set forth, the preliminary injunction must be denied.

The record in this case will show that this Court commenced the Hearing on the motion of Gulf for a preliminary injunction on February 5, 1975. On that date, the hearing was recessed pending a decision by the Temporary Emergency Court of Appeals (TECA) on the request for a stay by Exxon Corporation in its suit against the FEA attacking the validity of the Entitlement program. At that time it was stipulated between the attorneys for the Plaintiff and the Defendants in this case that if the TECA granted Exxon a stay or any form of injunctive relief, a preliminary injunction would be entered for Gulf by this Court, but if Exxon were denied a stay or any form of injunctive relief the hearing on Gulf's motion for preliminary injunction in this case would resume, at which time Gulf would be given the opportunity to present any additional evidence it may have in support of its motion. In the meantime, TECA has denied Exxon's request for a stay and at the same time dissolved a stay order issued by Chief Judge Tamm in a similar suit by Marathon Oil Company against the FEA.¹

On February 24, 1975, the hearing in this case was resumed and the record completed by the filing with this court of a supplemental affidavit of J. L. Schweizer and the affidavit of E. F. Eisemann, Jr., both in support of Plaintiff's motion for preliminary injunction, and a supplemental memorandum of points of authorities in support of plaintiff's motion. Extensive oral argument was had and after consideration of the entire record, the court makes the following:

FINDINGS OF FACT

1. Plaintiff, Gulf Oil Corporation (Gulf) is a corporation incorporated under the laws of the Commonwealth of Pennsylvania, with its principal office and place of business in the Gulf Building, 439 Seventh Avenue, Pittsburgh, Allegheny County, Pennsylvania.

2. Gulf is engaged in the business of producing and refining crude oil in the United States and elsewhere, and in marketing in the United States crude oil and petroleum products, including motor gasoline, diesel fuel, fuel oil, and heating oil.

3. Gulf obtains a substantial amount of its crude oil from its own producing properties located in the United States in the development of which there is involved large investments of money. Gulf also refines in its United States refineries, oil from producing properties located outside the United States.

4. Gulf has substantial operations for the marketing of motor gasoline, diesel fuel, heating oil, fuel oil and other petroleum products in the United States.

5. Defendant, Federal Energy Administration (FEA) is an agency and an instrument of the United States under the Federal Energy Administration Act of 1974, 15 U.S.C. § 761 et seq.; and was established by Executive Order No. 11,790 (June 27, 1974). The FEA is charged with the responsibility for the administration of the Emergency Petroleum Allocation Act of 1973 (EPAA), signed into law by the President on November 27, 1973.

6. Defendant Frank G. Zarb, is the Administrator of FEA under the authority delegated by the Executive Order hereinabove set forth.

7. Under EPAA there is to be a promulgation of regulations by the President or his delegate for the specification of prices and the mandatory allocation of, crude oil, residual fuel oil, and refined petroleum products in or imported into the United States. (§ 4(a)).² These regulations were to implement "to the maximum extent practicable", the objectives set forth in § 4(b)(1) of EPAA.³

8. In particular the regulations were to provide for the protection of public health, safety and welfare; maintenance of all public services, maintenance of agricultural operations; preservation of an economically sound and competitive petroleum industry, including in particular, competitive viability of independent refiners, small refiners, non-branded independent marketers, and branded independent marketers; the allocation of crude oil for refiners in the United States to enable such refiners to operate at full capacity; equitable distribution of crude oil, residual fuel oil, and refined petroleum products at equitable prices among all regions and areas of the United States and sectors of the petroleum industry, including the minimization of economic distortion, inflexibility, and unnecessary interference with market mechanisms (competition).

9. The President then established the Federal Energy Office which adopted certain fuel allocation rules which were revised by the FEO on January 14, 1974, when it issued the Petroleum Allocation and Price Regulations (39 F.R. 1924 et seq.).

10. Under FEA price regulations pertaining to the pricing of crude oil, a two-tier pricing system was adopted by which the prices of "old" domestic crude petroleum were frozen at the highest posted price in effect on May 15, 1973, plus $1.35, amounting to approximately $5.25 per barrel.

11. The freeze on the prices of "old" domestic crude petroleum applied to the volume of crude petroleum produced and sold from a property during the corresponding month of 1972 (except "Stripper").⁴ Crude oil produced in excess of 1972 production levels from the same property ("new" oil) is exempt from price controls, and each barrel of new oil produced releases from price controls a barrel of old oil ("released" oil).

12. In addition, so-called "released" crude, could be sold at a price in excess of the old oil price; this was permitted to be sold at the free market price or at the formula price, 10 C.F.R. § 212.74(b) whichever is lower.

13. Under the FEA published comprehensive petroleum allocation and pricing regulations issued January 14, 1974, allocation was accomplished by requiring all supplier/purchaser relationships for the sale and exchange of crude oil as they existed on December 1, 1973 generally to remain in effect (10 C.F.R. § 211.63), by requiring large integrated refiners such as Gulf to allocate a portion of their crude to small and independent refiners (10 C.F.R. § 211.65).

14. On August 30, 1974, the FEA published a notice of proposed rule making and public hearing with a special cost equalization program by the use of "Entitlement".

15. FEA then amended its regulations on December 4, 1974, by promulgating the Cost Entitlement Program (C.E.P.), 39 F.R. 42246, under which refiners and non-refiner eligible firms were required to submit information whereby FEA could calculate the national "old" oil and crude oil receipts ratio and individual old oil to crude oil receipts ratio. A refiner was then issued a number of Entitlements equal to the national old oil ratio. To the extent that his old oil ratio exceeded the national old oil ratio, he was required to buy additional Entitlements from other refiners and eligible firms in order that his total Entitlements equal his total number of barrels of old oil. An Entitlement was the right to include one barrel of old domestic petroleum in a refiner's crude oil receipts in a particular month, or in essence, the right to refine one barrel of old oil in the refiner's refineries. Failure to purchase such Entitlements within the time period established by FEA could subject the refiners to civil and criminal penalties.

16. On December 10, 1974, FEA issued regulations which established the price of an old oil Entitlement at $5.00 per barrel for Entitlements to be purchased for the month of January.⁵

17. FEA also issued on January 13, 1975, the old oil Entitlement notice which established the adjusted national old oil supply ratio for November 1974 at .4105 and listed the amount of Entitlements which each refiner would be required to sell or purchase for the month of November (40 F.R. 2560, et seq.). The Entitlement notice further provided that the purchase must be completed by January 31, 1975 and refiners...