Mobil Oil Corp. v. Department of Energy, 79-CV-11.

• Court: United States District Courts. 2nd Circuit. United States District Court of Northern District of New York
• Writing for the Court: Barbara Finney, Houston, Tex., for plaintiff Exxon Corp
• Citation: 547 F. Supp. 1246
• Parties: MOBIL OIL CORPORATION, Exxon Corporation, Gulf Oil Corporation, and Marathon Oil Company, Plaintiffs, v. The DEPARTMENT OF ENERGY, and James B. Edwards, Secretary of Energy, Defendants.
• Docket Number: No. 79-CV-11.,79-CV-11.
• Decision Date: 21 September 1982

547 F. Supp. 1246

MOBIL OIL CORPORATION, Exxon Corporation, Gulf Oil Corporation, and Marathon Oil Company, Plaintiffs, v. The DEPARTMENT OF ENERGY, and James B. Edwards, Secretary of Energy, Defendants.

No. 79-CV-11.

United States District Court, N. D. New York.

September 21, 1982.

COPYRIGHT MATERIAL OMITTED

Donovan, Leisure, Newton & Irvine, Washington, D. C., Charles S. Lindberg, Francis A. Rowen, Jr., New York City, Bond, Schoeneck & King, Syracuse, N. Y., for plaintiff Mobil Oil Corp.; Andrew J. Kilcarr, Washington, D. C., Thomas R. Trowbridge, III, New York City, John M. Freyer, Syracuse, N. Y., of counsel.

Miller & Chevalier, Washington, D. C., MacKenzie, Smith, Lewis, Michell & Hughes, Syracuse, N. Y., for plaintiffs Exxon Corp. and Gulf Oil Corp.; Donald B. Craven, Jay L. Carlson, James P. Tuite, Nancy G. Miller, Washington, D. C., Jay W. Wason, Syracuse, N. Y., of counsel.

Barbara Finney, Houston, Tex., for plaintiff Exxon Corp.

Robert F. Ochs, J. Ronald Sandberg, Houston, Tex., for plaintiff Gulf Oil Corp.

Akin, Gump, Hauer & Feld, Washington, D. C., John A. Evans, Findlay, Ohio, Costello, Cooney & Fearon, Syracuse, N. Y., for plaintiff Marathon Oil Co.; Daniel Joseph, Warren E. Connelly, Washington, D. C., Donald L. Nicholas, Syracuse, N. Y., of counsel.

Regulatory Litigation Div., Dept. of Energy, Washington, D. C., Gustave J. DiBianco, Acting U. S. Atty., N. D. N. Y., Syracuse, N. Y., for defendants; David A. Engels, Dennis Moore, Floyd Robinson, Jo Ann Scott, Washington, D. C., Joseph A. Pavone, Asst. U. S. Atty., Syracuse, N. Y., of counsel.

Batzell, Nunn & Bode, Washington, D. C., Sanford, Papworth & Trespasz, Syracuse, N. Y., amicus curiae for Independent Terminal Operators Ass'n; William H. Bode, Alford Lawrence Toombs, Washington, D. C., Samuel C. Sanford, Syracuse, N. Y., of counsel.

MEMORANDUM-DECISION AND ORDER

MUNSON, Chief Judge.

The plaintiff oil refiners have instituted this action to obtain declaratory relief in connection with certain provisions of the Mandatory Petroleum Price Regulations, 10 C.F.R. Part 212, that pertained to motor gasoline. Specifically, the plaintiffs have challenged the procedural and substantive validity of a "three cent" retail price equalization rule which contained a "deemed recovery" component. Alternatively, they have contested the validity of an "equal application" rule, which also contained a deemed recovery component. Jurisdiction is invoked under Section 5(a)(1) of the Emergency Petroleum Allocation Act of 1973 EPAA, 15 U.S.C. § 754(a)(1), Section 211 of the Economic Stabilization Act of 1970 ESA, 12 U.S.C. § 1904 note, Section 523(b) of the Energy Policy and Conservation Act, 42 U.S.C. § 6393(b); Section 502(b) of the Department of Energy Organization Act, 42 U.S.C. § 7192(b), the Administrative Procedure Act, 5 U.S.C. § 702, and under 28 U.S.C. §§ 1331, 1337, 1361, 2201, and 2202.

Presently before the Court are the plaintiffs' motion for summary judgment, and the defendants' cross-motion for summary judgment.

I.

In 1971, President Nixon announced his Economic Stabilization Program, which, as embodied in the ESA, was intended to halt the rising tide of inflation, which, at that time, was plaguing the country. A supervisory body of this Program, the Cost of Living Council CLC, was delegated the authority to issue regulations necessary to the accomplishment of this objective.

Beginning in 1973, the CLC, in an effort to stem the spiraling prices of petroleum products, promulgated a number of rules that imposed mandatory price controls upon refiners. See 38 Fed.Reg. 15765 (June 15, 1973); 38 Fed.Reg. 19464 (July 20, 1973); 38 Fed.Reg. 21593 (August 9, 1973); 38 Fed. Reg. 22536 (August 22, 1973); 38 Fed.Reg. 23794 (September 4, 1973); 38 Fed.Reg. 25686 (September 14, 1973); 38 Fed.Reg. 28845 (October 17, 1973); 38 Fed.Reg. 30267 (November 2, 1973); 38 Fed.Reg. 31686 (November 16, 1973); 38 Fed.Reg. 33577 (December 6, 1973). Although these controls placed ceilings upon the maximum prices that refiners could charge for motor gasoline, they did not purport to forbid refiners from setting prices that were less than the regulatory limitations. See Fed.Reg. at 15765; 38 Fed.Reg. at 19464.

Congress also sought to limit petroleum prices. In November, 1973, it enacted the EPAA, which directed the President to issue regulations governing the pricing and allocation of crude oil and petroleum products. See 15 U.S.C. § 753(a). In Section 4(b)(1) of the original, and amended, EPAA, Congress directed the President to promulgate regulations that would provide for:

(A) protection of public health (including the production of pharmaceuticals), safety and welfare (including maintenance of residential heating, such as individual homes, apartments and similar occupied dwelling units), and the national defense;

(B) maintenance of all public services (including facilities and services provided by municipally, cooperatively, or investor owned utilities or by any State or local government or authority, and including transportation facilities and services which serve the public at large);

(C) maintenance of agricultural operations, including farming, ranching, dairy, and fishing activities, and services directly related thereto;

(D) preservation of an economically sound and competitive petroleum industry; including the priority needs to restore and foster competition in the producing, refining, distribution, marketing, and petrochemical sectors of such industry, and to preserve the competitive viability of independent refiners, small refiners, nonbranded independent marketers, and branded independent marketers;

(E) the allocation of suitable types, grades, and quality of crude oil to refineries in the United States to permit such refineries to operate at full capacity;

(F) 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 independent refiners, small refiners, nonbranded independent marketers, branded independent marketers, and among all users;

(G) allocation of residual fuel oil and refined petroleum products in such amounts and in such manner as may be necessary for the maintenance of, exploration for, and production or extraction of—

(i) fuels, and

(ii) minerals essential to the requirements of the United States,

and for required transportation related thereto;

(H) economic efficiency; and

(I) minimization of economic distortion, inflexibility, and unnecessary interference with market mechanisms.

15 U.S.C. § 753(b)(1)(A)-(L). In setting forth Section 4(b)(1)(F), 15 U.S.C. § 753(b)(1)(F), Congress was particularly concerned with the problem of price discrimination: "The reference to equitable prices in the bill is specifically intended to emphasize that one of the objectives of the mandatory allocation program is to prevent price gouging or price discrimination which might otherwise occur on the basis of current shortages." H.R.Rep.No.93-628, 93rd Cong., 1st Sess., reprinted in 1973 U.S. Code Cong. & Admin.News 2582, at 2702.

Section 4(b)(2) of the EPAA, as originally adopted, specified that the President's regulations should "provide for a dollar-for-dollar passthrough of net increases in the cost of ... refined petroleum products to all marketers or distributors at the retail level." 15 U.S.C. § 753(b)(2)(A). The purpose of this provision is set forth in the legislative history:

It is contemplated that prices for allocated fuels will be set at levels or pursuant to methods which will permit adequate compensation to assure that private property is not implicitly confiscated by the government. Most importantly, the president must, in exercising his authority, strike an equitable balance between the sometimes conflicting needs of providing adequate inducement for the production of an adequate supply of product and of holding down spiraling consumer costs.

H.R.Rep.No.93-628, 93rd Cong., 1st Sess., reprinted in 1973 U.S.Code Cong. and Admin.News, at 2703. In 1975, this provision was amended to read: "refined petroleum products at all levels of distribution from the producer through the retail level."

Following the passage of the EPAA, in December, 1973, the President created a predecessor agency of the Department of Energy DOE, and delegated to this agency his authority under the EPAA. See 38 Fed.Reg. 33575 (December 6, 1973). The CLC subsequently delegated its authority under the ESA to this same agency. See 39 Fed.Reg. 24 (January 2, 1974).

In January, 1974, the new agency adopted the CLC's price rules, and published them as the Mandatory Petroleum Price Regulations. See 39 Fed.Reg. 1949 (January 15, 1974). These Regulations laid down guidelines affecting the maximum prices that a refiner could charge for the sale of "covered products", which included crude oil and "special products" such as motor gasoline. See 10 C.F.R. § 212.31, 39 Fed. Reg. at 1950, 1951.

One critical feature of the Regulations was a "price rule." Set forth in 10 C.F.R. § 212.82(a), this rule provided that "a refiner may not charge to any class of purchaser a price in excess of the base price" of motor gasoline except under certain specified circumstances. 39 Fed.Reg. at 1952. In this regard, "class of purchaser" was defined as "purchasers ... to whom a person has charged a comparable price for comparable property or services pursuant to customary price differentials between these purchasers ... and other purchasers...." 10 C.F.R. § 212.31, 39 Fed.Reg. at 1950.

As used in the price rule, and in other provisions, "base price" represented the sum of (1) a refiner's weighted average price at which motor gasoline was lawfully priced in transactions with a particular class of purchaser on May 15, 1973; and (2) a refiner's increased "product" costs, or increases in the costs of crude oil and purchased products since May, 1973, 10...