Standard Oil Co. v. Federal Energy Administration

• Decision Date: 21 July 1977
• Docket Number: No. C76-1279,C76-1344,C76-1288,C77-92,C77-187 and C77-406.,C77-168,C77-11,C77-82,C76-1279
• Citation: 440 F. Supp. 328
• Parties: STANDARD OIL COMPANY, Plaintiff, v. FEDERAL ENERGY ADMINISTRATION, and John F. O'Leary, Administrator, Federal Energy Administration, Defendants. SUN OIL COMPANY OF PENNSYLVANIA, Plaintiff, v. FEDERAL ENERGY ADMINISTRATION and John F. O'Leary, Administrator, Defendants. MOBIL OIL CO., Plaintiff, v. FEDERAL ENERGY ADMINISTRATION and John F. O'Leary, Administrator, Defendants. TEXACO, INC., Plaintiff, v. John F. O'LEARY, Administrator and Federal Energy Administration, Defendants. GULF OIL CO., Plaintiff, v. John F. O'LEARY, Administrator and Federal Energy Administration, Defendants. SHELL OIL CO., Plaintiff, v. FEDERAL ENERGY ADMINISTRATION et al., Defendants. AMOCO OIL CO., Plaintiff, v. John F. O'LEARY, Administrator, Federal Energy Administration, Defendants. ATLANTIC RICHFIELD CO., Plaintiff, v. FEDERAL ENERGY ADMINISTRATION and John F. O'Leary, Administrator, Federal Energy Administration, Defendants. EXXON CORPORATION, Plaintiff, v. John F. O'LEARY, Administrator of the Federal Energy Administration and Federal Energy Administration, Defendants.
• Court: U.S. District Court — Northern District of Ohio

440 F. Supp. 328

STANDARD OIL COMPANY, Plaintiff, v. FEDERAL ENERGY ADMINISTRATION, and John F. O'Leary, Administrator, Federal Energy Administration, Defendants.

SUN OIL COMPANY OF PENNSYLVANIA, Plaintiff, v. FEDERAL ENERGY ADMINISTRATION and John F. O'Leary, Administrator, Defendants.

MOBIL OIL CO., Plaintiff, v. FEDERAL ENERGY ADMINISTRATION and John F. O'Leary, Administrator, Defendants.

TEXACO, INC., Plaintiff, v. John F. O'LEARY, Administrator and Federal Energy Administration, Defendants.

GULF OIL CO., Plaintiff, v. John F. O'LEARY, Administrator and Federal Energy Administration, Defendants.

SHELL OIL CO., Plaintiff, v. FEDERAL ENERGY ADMINISTRATION et al., Defendants.

AMOCO OIL CO., Plaintiff, v. John F. O'LEARY, Administrator, Federal Energy Administration, Defendants.

ATLANTIC RICHFIELD CO., Plaintiff, v. FEDERAL ENERGY ADMINISTRATION and John F. O'Leary, Administrator, Federal Energy Administration, Defendants.

EXXON CORPORATION, Plaintiff, v. John F. O'LEARY, Administrator of the Federal Energy Administration and Federal Energy Administration, Defendants.

Nos. C76-1279, C76-1288, C76-1344, C77-11, C77-82, C77-92, C77-168, C77-187 and C77-406.

United States District Court, N. D. Ohio, E. D.

July 21, 1977.

Barbara Allen Babcock, Stanley D. Rose, C. Max Vassanelli, U. S. Dept. of Justice, Washington, D. C., D. D. Weisberger, Asst. U. S. Atty., Cleveland, Ohio, for defendants Federal Energy Administration; John F. O'Leary, Administrator, Federal Energy Administration.

David A. Nelson, Squire, Sanders & Dempsey, Cleveland, Ohio, for plaintiff Standard Oil Co.

William H. Allen, James Baller, Robert D. Daniel, Covington & Burling, Washington, D. C.; William T. Smith, Calfee, Halter & Griswold, Cleveland, Ohio; Edward J. Ciechon, Jr., C. S. LeBaron, Sun Oil Co., Philadelphia, Pa., for plaintiff Sun Oil Co. of Pa.

Andrew J. Kilcarr, Washington, D. C., Thomas R. Trowbridge, III, New York City, Arthur F. Zalud, Cleveland, Ohio, Charles S. Lindberg, Mobil Oil Co., New York City, for plaintiff Mobil Oil Co.

Smith Warder, Cleveland, Ohio, William R. Slye, New York City, for plaintiff Texaco.

John M. Cronquist, Cleveland, Ohio, Catherine McCulley, Gulf Oil Corp., Houston, Tex., for plaintiff Gulf Oil Corp.

Louis Paisley, Cleveland, Ohio, for plaintiff Amoco Oil Co.

Sterling Newell, Jr., James A. Dull, Spieth, Bell, McCurdy & Newell Co., L. P. A., Cleveland, Ohio, Richard C. Morse, Los Angeles, Cal., for plaintiff Atlantic Richfield.

Donald B. Craven, A. Theodore Giattina, Miller & Chevalier, Washington, D. C., Michael R. Gallagher, Allan M. Petrov, Gallagher, Sharp, Fulton, Norman & Mollison, Cleveland, Ohio, for plaintiff Exxon Corp.

William Simon, William E. Wickens, Richard A. Kleine, Lesley A. Moradian, Howrey & Simon, Washington, D. C., Wayne C. Dabb, Jr., Baker, Hostetler & Patterson, Cleveland, Ohio, William A. Wood, Shell Oil Co., Houston, Tex., for plaintiff Shell Oil Co.

Alan Novins, Lobel, Novins & Lamot, Washington, D. C., for Consumers Union, amicus curiae.

MEMORANDUM OF OPINION DENYING THE DEFENDANTS' MOTION TO DISMISS

MANOS, District Judge.

Between December 6, 1976 and April 20, 1977, nine petroleum refining corporations¹ filed complaints in this court seeking a preenforcement² declaratory judgment invalidating the Federal Energy Administration's (FEA) current interpretation of the petroleum price control regulations that governed the petroleum market during the 13 months between January 1, 1975 and January 31, 1976. On April 22, 1977 the defendants, The Federal Energy Administration and its Administrator,³ filed a motion to consolidate the nine separate cases and to dismiss the complaint of each refiner corporation.⁴ On April 25, 1977 the court conducted a conference in chambers, at which all parties were represented by counsel. On April 27, 1977 the court, upon agreement of the parties, ordered: (1) a stay without prejudice, of all proceedings in the nine cases pending this court's decision on the defendants' motion to dismiss; (2) a stay of "all proceedings before the Federal Energy Administration's Office of Exceptions and Appeals concerning the manner in which refiners recovered their non-product costs. . . ."; (3) a briefing schedule for the parties to present arguments to the court in the form of legal memoranda on the FEA's motion to dismiss.⁵ On May 26, 1977 the court received the last legal memorandum from the parties. On June 3, 1977 the Consumers Union of the United States moved the court to file an Amicus Curiae brief on the motion to dismiss, which motion the court now grants. After considering the arguments of the parties and the Amicus Curiae, the court overrules the FEA's motion to dismiss,⁶ for the reasons stated in today's Memorandum of Opinion.

I. STATUTORY AND REGULATORY BACKGROUND

In 1970 the Congress enacted the Economic Stabilization Act, vesting the President of the United States with power to administratively regulate prices throughout the economy. See, 12 U.S.C.A. § 1904 note §§ 201-220 (Supp.1977).⁷ On August 19, 1973, the Cost of Living Council, acting under delegated authority originating from the Economic Stabilization Act, promulgated regulations imposing complex mandatory price controls on crude oil and petroleum products.⁸ On November 27, 1973, the Emergency Petroleum Allocation Act of 1973 (EPAA) became law. See, Pub.L. 93-159, 87 Stat. 629. The EPAA incorporated most of the provisions of the 1970 Economic Stabilization Act.⁹ Section 4(a) of the EPAA provided for the mandatory allocation and pricing of petroleum products and Section 4(b)(1) of the EPAA set forth nine objectives which were to be achieved,¹⁰ "to the maximum extent practicable," by the President in whatever allocation and pricing program was devised.

With regard to determining prices, Section 4(b)(2)(A) of the EPAA provided that regulations promulgated by the President:

". . . shall provide for a dollar-for-dollar passthrough of net increases in the cost of crude oil, residual fuel oil, and refined petroleum products to all marketers and distributors at the retail level." See, Pub.L. 93-159, § 4(b)(2)(A); 1973 U.S.Code, Congressional and Administrative News, p. 695.

On December 4, 1973 the President issued Executive Order No. 11748, establishing the Federal Energy Office (FEO) and delegating to the newly created FEO all the authority vested in him by the EPAA, Pub.L. 93-159, 87 Stat. 629, the Economic Stabilization Act as it related to petroleum pricing, 12 U.S.C. §§ 1904 note §§ 201 et seq., and the Defense Production Act of 1950 (DPA), as amended, 50 U.S.C.App. §§ 2061 et seq., as that act related to the President's energy responsibilities. The President also ordered the chairman of the CLC to transfer his pricing authority under the Economic Stabilization Act to the FEO Administrator insofar as that authority related to energy.¹¹

On December 13, 1973, the FEO, pursuant to its newly acquired authority, published proposed regulations, which incorporated by reference the earlier CLC's Phase IV petroleum price regulations.¹² These regulations were formally promulgated by the FEO on December 27, 1973,¹³ and the incorporated CLC Phase IV petroleum price regulations, were recodified and renumbered on January 14, 1974.¹⁴ Thus the FEO's January, 1974 petroleum price regulations substantially conformed to the petroleum price regulations issued by the CLC in August, 1973.

The reigning petroleum price regulations in August, 1973 (CLC regulations) and January, 1974 (FEO regulations) imposed controls at three levels of the petroleum industry —producers, refiners, and resellers/retailers. The price regulations applicable to refiners such as all plaintiffs in this case, as of January, 1974, may be briefly described in the following fashion.

BASIC PRICE RULE. In general, refiners could not exceed their weighted average May 15, 1973 selling prices in transactions with given classes of purchasers, plus an adjustment designed to permit a dollar-for-dollar passthrough of increased "product" (i. e., raw material) costs incurred between the month of measurement and the month of May, 1973. This price was known as the "base price" for a product.¹⁵ Any increased product costs used in computing base prices had to be applied equally within each class of purchaser, as defined by reference to prices in effect on May 15, 1973.¹⁶

A refiner was prohibited from increasing its base prices, through the passthrough of increased product costs, more than once per month.¹⁷

INCREASED PRODUCT COSTS. Increased product costs were defined as the difference between the total cost of crude oil and refined products incurred during the month of measurement, and the total costs of crude oil and refined products incurred during the month of May, 1973.¹⁸

APPORTIONMENT OF INCREASED PRODUCT COSTS. Increased product costs could be passed through in refined product prices in the month of measurement. For most refined products (e. g., butane, naphtha, kerosene), a refiner could apportion its total increased product costs among its many product lines in whatever proportion it chose, so long as it did not discriminate among or within the various classes of purchaser of each particular refined product. For certain refined products, however, such as gasoline and No. 2 heating oil, the Phase IV and initial FEO regulations provided special limitations on a refiner's discretion in passing through increased product costs.¹⁹

BANKED PRODUCT COSTS. Any amounts of increased product costs which a refiner was unable to recover in a price increase in the month following the month of measurement, because of competitive market conditions or other factors, could be accumulated or "banked" for recovery in a later month.²⁰

NON-PRODUCT COSTS. In addition to the above passthrough of increased product costs as part of base prices, refiners that experienced "non-product" costs (such as increased labor, taxes and other operating and marketing...