Koch Refining Co. v. United States Dept. of Energy

• Decision Date: 18 August 1980
• Docket Number: CIVIL 4-80-315.,No. CIVIL 4-80-292,CIVIL 4-80-292
• Citation: 497 F. Supp. 879
• Parties: KOCH REFINING COMPANY, a Delaware Corporation, Plaintiff, and Ashland Oil, Inc., a Kentucky Corporation, Plaintiff-Intervenor, v. UNITED STATES DEPARTMENT OF ENERGY, Charles W. Duncan, Jr., Secretary, United States Department of Energy, Robert G. Bidwell, Jr., Chief of Crude Oil Allocations, Economic Regulatory Administration, United States Department of Energy, and Melvin Goldstein, Esq., Director, United States Department of Energy, Office of Hearings and Appeals, Defendants, and Mobil Oil Corporation, Defendant-Intervenor. STATE OF MINNESOTA, by its Attorney General Warren Spannaus and its Energy Agency, Plaintiff, v. UNITED STATES DEPARTMENT OF ENERGY, Charles W. Duncan, Jr., Secretary, United States Department of Energy, Robert G. Bidwell, Jr., Chief of Crude Oil Allocations, Economic Regulatory Administration, United States Department of Energy, and Melvin Goldstein, Esq., Director, United States Department of Energy, Office of Hearings and Appeals, Defendants, and Mobil Oil Corporation, Defendant-Intervenor.
• Court: U.S. District Court — District of Minnesota

497 F. Supp. 879

KOCH REFINING COMPANY, a Delaware Corporation, Plaintiff, and Ashland Oil, Inc., a Kentucky Corporation, Plaintiff-Intervenor, v. UNITED STATES DEPARTMENT OF ENERGY, Charles W. Duncan, Jr., Secretary, United States Department of Energy, Robert G. Bidwell, Jr., Chief of Crude Oil Allocations, Economic Regulatory Administration, United States Department of Energy, and Melvin Goldstein, Esq., Director, United States Department of Energy, Office of Hearings and Appeals, Defendants, and Mobil Oil Corporation, Defendant-Intervenor.

STATE OF MINNESOTA, by its Attorney General Warren Spannaus and its Energy Agency, Plaintiff, v. UNITED STATES DEPARTMENT OF ENERGY, Charles W. Duncan, Jr., Secretary, United States Department of Energy, Robert G. Bidwell, Jr., Chief of Crude Oil Allocations, Economic Regulatory Administration, United States Department of Energy, and Melvin Goldstein, Esq., Director, United States Department of Energy, Office of Hearings and Appeals, Defendants, and Mobil Oil Corporation, Defendant-Intervenor.

Nos. CIVIL 4-80-292, CIVIL 4-80-315.

United States District Court, D. Minnesota, Fourth Division.

August 18, 1980.

COPYRIGHT MATERIAL OMITTED

Joe A. Walters, William E. Flynn, and Douglas J. Franzen, O'Connor & Hannan, Minneapolis, Minn., for plaintiff Koch Refining Company.

Gordon G. Busdicker, James B. Loken, and John F. Beukema, Faegre & Benson, Minneapolis, Minn., for plaintiff-intervenor Ashland Oil, Inc.

James Hamilton, Ginsburg, Feldman, Weil & Bress, Washington, D. C., for plaintiff Koch Refining Company and plaintiff-intervenor Ashland Oil, Inc.

Warren R. Spannaus, Atty. Gen., State of Minnesota, and Dwight S. Wagenius and William P. Donohue, Special Asst. Attys. Gen., St. Paul, Minn., for plaintiff State of Minnesota.

Thomas K. Berg, U. S. Atty., and Stephen G. Palmer, Asst. U. S. Atty., Minneapolis, Minn., and Sandra K. Webb and Samuel Soopper, U. S. Dept. of Energy, Washington, D. C., for defendants U. S. Department of Energy, Charles W. Duncan, Jr., Robert G. Bidwell, Jr., and Melvin Goldstein.

Thomas C. Kayser and Gary J. Haugen, Robins, Davis & Lyons, Minneapolis, Minn., Michael J. Madigan, Edward L. Rubinoff, and David A. Holzworth, Akin, Gump, Hauer & Feld, Washington, D. C. (William C. Streets, Mobil Oil Corporation, New York City, of counsel), for defendant-intervenor Mobil Oil Corp.

MEMORANDUM INCORPORATING FINDINGS OF FACT, CONCLUSIONS OF LAW, AND ORDER FOR A PRELIMINARY INJUNCTION

MacLAUGHLIN, District Judge.

This matter is before the Court on the motions of plaintiff Koch Refining Company (hereinafter "Koch"), Ashland Oil, Inc. (hereinafter "Ashland"), and the State of Minnesota for a preliminary injunction barring the reclassification of Koch and Ashland oil refineries under the Canadian Allocation Program (hereinafter "CAP"). This memorandum constitutes the Court's findings of fact and conclusions of law as required by Federal Rule of Civil Procedure 52(a).

The Court has jurisdiction over the subject matter pursuant to the Emergency Petroleum Allocation Act of 1973, 15 U.S.C. § 754(a)(1), which incorporates the judicial review provisions of Section 211 of the Economic Stabilization Act of 1970 (found as a note to 12 U.S.C. § 1904), 28 U.S.C. §§ 1331, 2201, and 2202. This Court's order of June 13, 1980, found that venue is proper in this district under 28 U.S.C. § 1391(e)(2).

The Parties

Plaintiff Koch is a Delaware corporation whose headquarters is located in Wichita, Kansas. Koch's primary business activity is the operation of its wholly-owned crude oil refinery located in Pine Bend, Minnesota. Koch has been qualified to do business in the State of Minnesota since 1951.

The Koch refinery has a capacity of approximately 127,000 barrels per day (hereinafter "B/D") and employs approximately 490 employees at Pine Bend. In 1979 it processed approximately 126,000 B/D. The refinery was designed and constructed in 1954-55 for the express purpose of refining crude oil imported from Canada. The Canadian crude received by the Koch refinery originates in the Fosterton area of Saskatchewan province. It is characterized by its heavy weight (a density of 22 degrees, as measured on the American Petroleum Institute scale)¹ and its high sulfur content (up to 3 percent).² The heavy Canadian crude reaches the Pine Bend refinery via the Interprovincial Pipeline, which becomes the Lakehead Pipeline at the U.S.-Canada border, and the Minnesota Pipeline which connects with the Lakehead at Clearbrook in northwestern Minnesota, and extends to the Twin Cities of Minneapolis and St. Paul.

The capacity of the Koch refinery was originally 20,000 B/D. Since 1955, major expansions have been undertaken on the assumption that heavy Canadian crude would be available for refining. To that end, the refinery contains towers, vacuum units, and cokers designed to handle heavy crude, and its distillate units are smaller than those of other refineries. Other types of crude are refined when heavy crude is unavailable, but significant penalties in terms of economic efficiency are sustained. In past years the Koch refinery has used Canadian oil for up to 80 percent of its crude oil runs and today still remains dependent on imports of Canadian crude.

Koch Refining Company is a subsidiary of Koch Industries, which is the parent to over one hundred affiliated entities. However, the Pine Bend refinery is the only refinery owned by any of the Koch family of companies. It is classified both as a "small refiner" and as an "independent refiner" under the Emergency Petroleum Allocation Act of 1973 (hereinafter the "EPAA"), 15 U.S.C. § 752(3) and (4), a categorization that is important to this case.

Ashland, a Kentucky corporation having its principal place of business at Ashland, Kentucky, operates a refinery located at St. Paul Park, Minnesota. It operates seven refineries across the nation, three of which have processed Canadian crude since 1976. Ashland is qualified to do business in the State of Minnesota and has owned and operated its Minnesota refinery since 1970.

The St. Paul Park refinery's capacity is 67,000 B/D. Although it has been equipped to handle 15,000 B/D of heavy crude oil, its design is such that it processes primarily light sweet crude. Ashland receives its Canadian oil via the Interprovincial, Lakehead, and Minnesota Pipelines. The Ashland refinery is classified as "independent" under the EPAA, but is not "small" in light of the fact that it is owned by a company that operates several refineries.

Together, the Koch and Ashland refineries supply over 50 percent of all the refined petroleum products consumed within Minnesota.³ Also, the two refineries sell a portion of their refined products to areas outside Minnesota.

The State of Minnesota is a plaintiff in these consolidated actions and is represented by Warren Spannaus, its Attorney General, and by the Minnesota Energy Agency (hereinafter "MEA"), a statutory agency responsible for enforcing the state's laws relating to energy, including the preparation of allocation plans in the event of an energy shortage, Minn.Stat. ch. 116H (1978 and Supp.1979). The MEA's top priority is to insure that the state has adequate and secure access to petroleum products.⁴ The state is the largest single consumer in Minnesota of # 1 and # 2 fuel oils for heating. If it is unable to purchase enough distillate to meet its needs, it must curtail official business and close public buildings. Any statewide shortage of petroleum products also affects its regulatory program. For example, during the winter of 1977, the MEA and the state's Executive Council were forced to declare an energy emergency in light of the low stocks of oil products in the state. During that time, the MEA opened and supervised an emergency operations center. The state is also affected by energy shortages due to reductions in state tax revenues which decline as industrial output decreases and unemployment increases.

The United States Department of Energy (hereinafter "DOE") is an agency and instrumentality of the United States established under the Department of Energy Organization Act of 1974, 42 U.S.C. § 7101 et seq. It is given primary responsibility for administration of the EPAA. The DOE is a defendant in this case by virtue of a decision of its Office of Hearings and Appeals (hereinafter "OHA") to change the CAP classifications of Koch and Ashland. Additional federal defendants, all of whom are officers or employees of the United States, and who are sued in their official capacities, are Charles W. Duncan, Jr., Secretary of DOE, Robert G. Bidwell, Jr., Chief of Crude Oil Allocations of the Economic Regulatory Administration (hereinafter "ERA"), and Melvin Goldstein, Esq., Director of the OHA.

Defendant-intervenor Mobil Oil Corporation is a large, multi-national integrated corporation that operates three refineries that have processed Canadian crude oil. They are located at Detroit, Michigan, Ferndale, Washington, and Joliet, Illinois. Were Koch and Ashland to be reclassified, Mobil's Joliet refinery would be a prime beneficiary of increased quantities of Canadian crude. The Joliet facility receives Canadian oil via the Interprovincial and Lakehead Pipelines.

Statutory and Regulatory Background

The EPAA, passed in 1973, directed the President of the United States to promulgate regulations

providing for the mandatory allocation of crude oil, residual fuel oil, and each refined petroleum product, in amounts specified in ... and at prices specified in ... such regulations.

15 U.S.C. § 753(a). Pursuant to this mandate, the Federal Energy Administration, the predecessor to the Department of Energy, adopted the Canadian Crude Oil Allocation Program (CAP), 10 C.F.R. § 214, on January 10, 1976. The CAP was and is a program designed to mitigate the negative impacts of the decision of the government of Canada to eliminate all exports of crude oil to the United...