Mobil Oil Corp. v. Department of Energy

Decision Date03 June 1981
Docket NumberNo. 81-CV-340.,81-CV-340.
Citation520 F. Supp. 420
PartiesMOBIL OIL CORPORATION, Plaintiff, v. DEPARTMENT OF ENERGY and James B. Edwards, Secretary, Defendants.
CourtU.S. District Court — Northern District of New York


Bond, Schoeneck & King, Syracuse, N. Y., Akin, Gump, Strauss, Hauer & Feld, Washington, D. C., William C. Streets, Gail F. Schultz, Fairfax, Va., for plaintiff.

George H. Lowe, U. S. Atty., Paula Ryan, Asst. U. S. Atty., Syracuse, N. Y., Thomas H. Kemp, Samuel Sooper, Washington, D. C., for defendants.


MUNSON, Chief Judge.


Presently before the Court are two motions ?€”the first has been made by the plaintiff Mobil Oil Corporation (Mobil) to enjoin the issuance by the defendants Department of Energy and Secretary James B. Edwards (hereinafter collectively referred to as DOE) of the "January entitlements notice." See 10 C.F.R. ? 211.67(i) (1980). The second motion has been made by the defendants to dismiss plaintiff's complaint. Briefly, the entitlements notice is an essential component of the DOE's entitlements program, which is designed to equalize the access of domestic refiners to price-controlled domestic crude oil. See Pasco, Inc. v. Fed. Energy Admin., 525 F.2d 1391, 1395 (Em.App. 1975). This is accomplished by requiring cash transfers (entitlements) to be made from those domestic refiners with a proportionately greater access to price-controlled crude, to those refiners less fortunately situated. A corresponding "entitlements notice" is then published every month reflecting each refiners' entitlements obligation under the program.

To function properly, the entitlements program depends in no small measure on the accurate report of a refiner's "receipts" of price-controlled crude oil. The instant suit grows out of plaintiff Mobil's claim that there are in fact widespread abuses in reporting such "receipts" by refiners. Mobil contends that as a result of this misreporting, it has had to bear a disproportionate share of entitlements obligations. Accordingly, Mobil moved for temporary and preliminary injunctive relief to prevent the DOE from issuing its "January entitlements notice," which allegedly would have immediately required Mobil to shoulder an inequitable share of entitlements obligations. This Court granted Mobil's request for a temporary restraining order on April 21, 1981, and enjoined the DOE "from issuing any further entitlements notices and from requiring Mobil to comply with such notices." The temporary restraining order was to remain in effect for twenty days. See Memorandum-Decision and Order; dated April 21, 1981, at p. 6.

In the meantime, the DOE moved to dismiss plaintiff's complaint. The DOE maintains that pursuant to the doctrine of primary jurisdiction, this Court should defer consideration of the instant case, until the DOE has had an opportunity to complete its own investigation of the merits of Mobil's claims. The Court is informed by the DOE that it is currently investigating the problem of misreporting, but has not as yet completed this investigation. For similar reasons the DOE additionally argues that plaintiff has failed to exhaust administrative remedies, and that the instant dispute is not ripe for judicial resolution. Furthermore, the DOE asserts that even assuming arguendo that plaintiff has satisfied these legal doctrines, it has neither stated a claim nor demonstrated that it will suffer irreparable injury, should the DOE issue the "January entitlements notice."

A hearing on plaintiff's preliminary injunction motion was held on May 12, 1981 and live testimony was taken on the issues of misreporting in the DOE's entitlements program, and the likelihood that plaintiff will suffer irreparable harm if the "January entitlements notice" is released. That same day the Court also heard the parties' arguments with regard to the DOE's motion to dismiss plaintiff's complaint. To fully understand the merits of both pending motions, a more detailed examination of the entitlements program is in order.


Constrained by the Arab oil embargo and dwindling domestic production, the supplies of crude oil in the United States decreased dramatically in 1973. The combined effect of these factors caused severe increases in the price of oil and related products. See 39 Fed.Reg. 31650 (August 30, 1974). To soften the economic hardships associated with reduced supplies and higher prices, the Cost of Living Council created a price control system for crude oil as a part of Phase IV, see former 6 C.F.R. Part 150, Subpart L, 38 Fed.Reg. 22536 (August 22, 1973), of the Stabilization Program. See the Economic Stabilization Act of 1970, as amended, 12 U.S.C. ? 1904 note. The system was designed to control the prices of petroleum from the wellhead to finished products, and to create a price incentive to encourage the production of additional quantities of domestic crude.

Under the regulations a "base production control level" (BPCL) was established for each domestic crude oil producing property, equal to the volume of production from that property during each month of 1972. Production levels for the property up to the amount of the BPCL in the corresponding months of any subsequent year had to be sold at a price no higher than a regulatory ceiling price. This crude oil was referred to commonly as "old oil." If the property produced crude oil in excess of the BCPL, the additional quantities or "new oil" could be sold at the higher world market price. See 10 C.F.R. ? 212.72 (1980). Also exempt from price controls, and consequently saleable at world market prices, were all imported oil and crude oil produced from marginal or "stripper" wells. See 10 C.F.R. ?? 212.15-16 (1980). At the same time, refinery prices for selected petroleum products were also controlled by regulations. By their terms, refiners were required to establish base prices for each controlled product at their May 15, 1973 price levels, but were permitted a certain degree of price allowance for the increased costs of imported or domestic crude oil from which these controlled products were refined. See 10 C.F.R. ?? 212.81-85 (1980).

While the end of the Arab oil embargo in 1974 led to replenished supplies of imported crude oil, the overall price of foreign crude increased significantly. This price increase widened the disparity between the controlled price for "old oil" and the market price of "new oil," and was reflected in the costs and therefore the relative prices charged by refiners. See 39 Fed.Reg. 31650 (August 30, 1974). However, refiners with greater access to the less expensive price-controlled crude oil?€”typically the larger integrated refiner?€”had a cost advantage over those of their competitors who could only secure supplies of uncontrolled crude oil?€”usually the small or independent refiners. Thus, at a time when increased supplies of crude oil made the market place much more sensitive to price considerations, the economic viability of these small and independent refiners was being threatened. Moreover, consumers in various parts of the country who depended primarily on stocks of uncontrolled crude oil ("new oil," imported and "stripper" crude oil) contended with much higher prices than other regions with ready access to crude oil that was price-controlled.

In an effort to eliminate the inequities in the refining and marketing sectors of the petroleum industry without sacrificing the beneficial elements of the two-tier price system, the Federal Energy Administration (FEA), the immediate predecessor of the DOE, proposed and adopted the entitlements program. See generally 10 C.F.R. ?? 211.66-67 (1980); Transcript of May 12, 1981 hearing at p. 31 (hereinafter Tr. at p. ___). As reflected in its legislative history, the primary purpose of the entitlements program was the equitable distribution of price-controlled crude oil throughout the petroleum industry:

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.

39 Fed.Reg. 31650 (August 30, 1974).

Toward these ends, the FEA rejected the option of actual physical reallocation of crude oil among refiners, in favor of monthly cash payments to refiners with relatively less access to price-controlled crude oil than the national average, from refiners with proportionately greater access. See Tr. at p. 32; and 10 C.F.R. ? 211.67(b) (1980). These entitlements obligations are costed into the price of crude oil, see 10 C.F.R. ? 211.67(m) (1980), and then adjusted into the maximum lawful price for the following month. See 10 C.F.R. ? 212.83(c)(2) (1980). See generally, Pasco, Inc. v. FEA, 525 F.2d 1391, 1395 (Em.App.1975); Cities Service Co. v. FEA, 529 F.2d 1016, 1021 (Em.App. 1975). A description of the mechanics of the entitlements program follows.

Under the provisions of the entitlements program, each refiner must report on a monthly basis, inter alia, its crude oil runs to...

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