Prosper Energy Corp. v. Department of Energy, Civ. A. No. CA-3-78-0244-W.

• Court: U.S. District Court — Northern District of Texas
• Writing for the Court: WOODWARD
• Citation: Prosper Energy Corp. v. Department of Energy, 549 F.Supp. 300 (N.D. Tex. 1982)
• Decision Date: 12 October 1982
• Docket Number: Civ. A. No. CA-3-78-0244-W.
• Parties: PROSPER ENERGY CORPORATION, Plaintiff, v. DEPARTMENT OF ENERGY and Charles Duncan, Secretary of Energy, Defendants. Ray L. HUNT, Independent Executor of the Estate of H.L. Hunt, Plaintiff, v. DEPARTMENT OF ENERGY, Charles Duncan, Secretary of Energy, Defendants. EXXON CORPORATION, Plaintiff, v. DEPARTMENT OF ENERGY, Charles Duncan, Secretary of Energy, Defendants.

549 F. Supp. 300

PROSPER ENERGY CORPORATION, Plaintiff, v. DEPARTMENT OF ENERGY and Charles Duncan, Secretary of Energy, Defendants.

Ray L. HUNT, Independent Executor of the Estate of H.L. Hunt, Plaintiff, v. DEPARTMENT OF ENERGY, Charles Duncan, Secretary of Energy, Defendants.

EXXON CORPORATION, Plaintiff, v. DEPARTMENT OF ENERGY, Charles Duncan, Secretary of Energy, Defendants.

Civ. A. No. CA-3-78-0244-W.

United States District Court, N.D. Texas, Dallas Division.

October 12, 1982.

Barbara Allen Babcock, Mellie H. Nelson, Asst. Attys. Gen., Civ. Div., Washington, D.C., Charles D. Cabaniss, Asst. U.S. Atty., Dallas, Tex., Frank W. Krogh, Bayle Weiner, U.S. Dept. of Energy, Washington, D.C., for defendants.

Stuart Fryer, Atty. Gen. of Texas, Energy Div., Austin, Tex., for intervenor.

David J. Beck, Fulbright & Jaworski, Houston, Tex., A.B. Conant, Jr., Shank, Irwin, Conant, Williamson & Grevelle, Dallas, Tex., John B. McAdams, Fort Worth, Tex., G. Edward Ellison, Vinson & Elkins, D.L. Collins, Continental Oil Co., Houston, Tex., Michael Lowenberg, Akin, Gump, Hauer & Feld, Dallas, Tex., for plaintiffs.

MEMORANDUM OPINION

WOODWARD, Chief Judge.

Plaintiffs in these cases,¹ now consolidated under case number CA-3-78-0244-W, seek a declaratory judgment declaring invalid the Department of Energy's (DOE's) stripper well regulation to the extent that it excludes injection and shut-in wells from the well count in determining eligibility for stripper well classification. By Order dated June 29, 1979 the Judicial Panel on Multi-district Litigation (JPMDL) transferred these consolidated cases to the United States District Court for the District of Kansas for consolidation with similar actions for the purpose of conducting pretrial proceedings. By Order of July 8, 1980 the JPMDL remanded that portion of these cases which concerned the validity of the stripper well regulations, as interpreted to exclude shut-in wells from the well count, to this Court. At the conclusion of pretrial proceedings, the remaining issue in the cases regarding the validity of the regulation, as it excluded injection wells, was also remanded to this Court. This Court announced on January 21, 1981 that it would hold these cases in abeyance pending the outcome of the litigation in the District Court for the District of Kansas. The District Court issued its opinion on July 14, 1981. In re Department of Energy Stripper Well Exemption, 520 F.Supp. 1232 (D.Kan. 1981). The Temporary Emergency Court of Appeals has heard the case, reversed the holding of the District Court, denied motions for rehearing and rehearing en banc, and issued its Mandate. (September 17, 1982). In re the Department of Energy Stripper Well Exemption Litigation (Energy Reserves II), 690 F.2d 1375, (Em.App. 1982), motion for rehearing and rehearing en banc denied September 15, 1982, and motion for stay of the Mandate denied September 17, 1982.

These lawsuits involve challenges to the Department of Energy's stripper well regulation, as interpreted by Ruling 1974-29. That Ruling has been upheld by the courts against both procedural challenge² and substantive challenge.³ Plaintiffs now seek to attack the regulation itself. (Plaintiffs' Response to Defendants' Motion for Summary Judgment, p. 5).

The statutory and regulatory history of the Department of Energy's stripper well regulations is a long and convoluted one.⁴ Section 4(e)(2) of the Emergency Petroleum Allocation Act of 1973 (EPAA), Pub.L. No. 93-159, 87 Stat. 627, 15 U.S.C. §§ 751 et seq., created an exemption from price regulations for first sales of domestic crude oil produced on stripper well properties (i.e., leases whose average daily production of crude oil for the preceding calendar year does not exceed ten barrels per well).⁵ Pursuant to section 4(e)(2)(C) of the EPAA, the President delegated his authority to promulgate and publish regulations implementing the EPAA to the Administrator of the Federal Energy Office. Executive Order 11748, 38 Fed.Reg. 33575 (December 6, 1973). In December of 1973 the Federal Energy Office (FEO) initiated informal rule making procedures under section 553(b) of the Administrative Procedure Act (5 U.S.C. § 553(b)). 38 Fed.Reg. 34414 (December 13, 1973). Shortly thereafter, final regulations were issued, 39 Fed.Reg. 755 (January 2, 1974), and codified at 10 C.F.R. § 210.32. 39 Fed.Reg. 35510 (October 1, 1974).

As noted by the Court of Appeals in In re the Department of Energy Stripper Well Exemption Litigation (Energy Reserves II), 690 F.2d 1375 (Em.App.1982), controversy soon arose over whether the term "well," as used in the regulations, included injection wells, shut-in wells, spent wells, etc.⁶ To resolve this problem, the Federal Energy Administration (FEA) issued Ruling 1974-29, which expressly excludes such wells from the calculation of average daily production in determining the applicability of the stripper well exemption from the price control program.⁷

Ruling 1974-29 was attacked initially on the ground that it was promulgated without satisfying the rule making requirements of the Administrative Procedure Act (APA). In Energy Reserves Group, Inc. v. Federal Energy Administration, 447 F.Supp. 1135 (D.Kan.1978), the district court invalidated the Ruling on this ground. On appeal, the Court of Appeals reversed, holding that the Ruling was interpretative and exempted from the procedural requirements of the APA. Energy Reserves Group, Inc. v. Department of Energy (Energy Reserves, I), 589 F.2d 1082 (Em.App. 1978). In the course of ruling on this procedural challenge, the Court of Appeals suggested that Ruling 1974-29 was also substantially valid. 589 F.2d at 1098. In a later opinion, in which the Court of Appeals clarified its holding in Energy Reserves I, the court pointed out again its view that Ruling 1974-29 was "a reasonable interpretation of the term `average daily production' as used in § 406 of TAPAA, § 4(e)(2)(A) of the EPAA, and in 10 C.F.R. § 210.32(b) ...." Duncan v. Theis, 613 F.2d 305, 308 n. 4. (Em.App.1979). In a case dealing with the Department of Energy's Marginal Property Rule, a regulation analogous to the stripper well exemption regulation, the Court of Appeals stated "the prior decisions construing the interpretative stripper well Ruling 1974-29 to be consistent with a similar underlying statute are decisive." Wiggins Bros., Inc. v. Department of Energy, 667 F.2d 77, 89 (Em.App. 1981) (citations to Energy Reserves I and Duncan v. Theis omitted). Finally, in Energy Reserves II the Court of Appeals concluded as follows:

In summary, we find:

1) The legislative history of the stripper well exemption amply supports the DOE's position that injection wells were not intended by Congress to be included in the well count;

2) Ruling 1974-29 is not beyond the authority of the DOE granted by the controlling statutory provisions;

3) Our prior decision in Energy Reserves I, Duncan v. Theis and Wiggins have correctly decided that Ruling 1974-29 is a reasonable interpretation of the applicable statutes and regulations; and

4) The stripper well regulations, as interpreted by Ruling 1974-29, are neither arbitrary nor capricious.

For all these reasons, the decision of the district court is reversed, and these consolidated cases are remanded to the district court with instructions to enter judgment for the defendants-appellants. Energy Reserves II, 690 F.2d at 1392.

Plaintiffs in this suit seek a judgment declaring invalid the stripper well regulation "to the extent that the regulation excludes injection and shut-in wells from the well count in determining eligibility for stripper well classification." (Plaintiffs' Response pp. 1-2). Defendants contend that this court is foreclosed from making such a declaration by the conclusions of the Court of Appeals in Energy Reserves II and have moved for summary judgment. Plaintiffs have responded by arguing that the following issues are not foreclosed by the opinion of the Court of Appeals in Energy Reserves II: (1) whether DOE had statutory authority to exclude injection and shut-in wells from the well count under the stripper well regulation; and (2) whether DOE's interpretation of the stripper well regulation to exclude injection and shut-in wells was arbitrary and capricious. (Plaintiffs' Response pp. 10-18). In view of the frequency of remands of litigation in this area, this court wishes to state its belief that the following discussion disposes of any and all issues, save that of remedy, presently before this court in these cases.

STATUTORY AUTHORITY ISSUE

The Department of Energy (DOE) clearly had the statutory authority to issue its stripper well exemption regulation. Section 4(e)(2)(C) of the EPAA gives a properly designated agency the authority to promulgate regulations implementing the statutory stripper well exemption. Plaintiffs have not alleged that there was anything improper in the chain of delegation from the President to the FEA with regard to this regulation.

Where the empowering provision of a statute gives an agency general authority to issue regulations implementing that statute, a regulation promulgated thereunder will be sustained "so long as it is `reasonably related to the purposes of the enabling legislation.'" Mourning v. Family Publications Services, Inc., 411 U.S. 356, 369, 93 S.Ct. 1652, 1660, 36 L.Ed.2d 318 (1973). As pointed out by the Court of Appeals in Energy Reserves II, when the Congress enacted the stripper well exemption it intended that the regulations implementing the exemption "provide appropriate limitations and provisions in the definition of `lease' to insure that an administratively workable system is established which does not permit abuse." Energy Reserves II, 690 F.2d at 1387 (emphasis added). "The legislative history of the stripper well exemption amply supports the DOE's position that injection wells were not intended by Congress to be included in the well count." Id. at...