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ATLANTIC RICHFIELD CO. v. UNITED STATES DOE

October 31, 1980

ATLANTIC RICHFIELD COMPANY, Marathon Oil Company, Mobil Oil Company, and Texaco, Inc., Plaintiffs,
v.
UNITED STATES DEPARTMENT OF ENERGY, Defendant, and Archer-Daniels-Midland Company, Arizona Chemical Company, the City of Harrisburg, Pennsylvania, Hempstead Resources Recovery Corporation, Midwest Solvents Company, Inc. and Refuse Energy Systems Company, Intervening Defendants, and County Sanitary Districts of Los Angeles County; County Sanitation Districts of Orange County Metropolitan Sanitary District of Greater Chicago; City of Ames, Iowa; Department of Sanitation of the City of New York; Municipality of Metropolitan Seattle; and Milwaukee Metropolitan Sewerage District, Intervening Defendants



The opinion of the court was delivered by: WEINER

MEMORANDUM OPINION AND ORDER

 Plaintiff oil companies are refiners of crude oil and marketers of refined petroleum products; defendant-intervenors are municipal and private producers and users of petroleum substitutes.

 Plaintiffs challenge DOE's statutory authority to adopt the regulations under the Emergency Petroleum Allocation Act, 15 U.S.C. §§ 751-760. Plaintiffs also attack DOE's alleged failure to comply with certain procedural rulemaking requirements of the Administrative Procedure Act, 5 U.S.C. § 553, the Federal Energy Administration Act, 15 U.S.C. §§ 761-786, and the Department of Energy Organization Act, 42 U.S.C. §§ 7101-7352.

 Presently before the court are cross-motions for summary judgment. The parties have stipulated that there are no genuine issues of material fact to be resolved and that the matter is ripe for summary judgment. Oral argument on the motions was held on August 29, 1980. For the reasons set forth below, the plaintiffs' motion for summary judgment is denied, and the defendant's and defendant-intervenor's cross-motions for summary judgment are granted.

 I

 The Emergency Petroleum Allocation Act (EPAA) confers upon the DOE authority to allocate and control the price of crude oil and petroleum products. The purpose of the EPAA is to "minimize the adverse impacts on the American people and domestic economy of shortages of crude oil, residual fuel oil, and refined petroleum products or dislocations in their national distribution system." 15 U.S.C. § 751(b).

 DOE's price regulation of crude oil grew out of the controls originally imposed by the Cost of Living Council (CLC) in 1973, 38 Fed.Reg. 22536 (Aug. 22, 1973), pursuant to the Economic Stabilization Act of 1970, as amended, 12 U.S.C. § 1904. *fn1" The controls established a "two-tier" price system for domestic crude oil. Under the system, imported crude oil and "new" domestic crude oil, defined as oil from properties which were not producing in 1972 and increased production amounts from pre-1973 properties, were permitted to sell at free market world prices. "Old" domestic crude oil, defined as oil produced from pre-1973 producing properties in quantities no greater than 1972 monthly production volumes, was subject to mandatory price controls tied to May, 1973 price levels. The two-tier system was designed to limit domestic prices while providing a financial incentive for increased production.

 Following passage of the EPAA and creation of the Federal Energy Office (FEO) the regulations were re-promulgated. 39 Fed.Reg. 1924 (Jan. 15, 1974). Subsequent modifications imposed controls on "new" domestic oil in addition to "old" domestic oil. 41 Fed.Reg. 1564 (Jan. 8, 1976), 41 Fed.Reg. 4931 (Feb. 3, 1976).

 Dramatic increases in the price of imported crude oil in 1973 and 1974 widened the disparity between the controlled price for "old" oil and the market price for "new" oil. Acting pursuant to its authority under the EPAA, the DOE promulgated regulations providing for the mandatory allocation of crude oil. Without such regulation refiners with large volumes of, or greater access to, lower-cost "old" oil would gain a competitive advantage over refiners more dependent on higher-cost "new" oil. The major beneficiaries of this "old" oil-"new" oil price disparity were the major integrated oil companies, such as plaintiffs.

 The savings on cheap "old" oil are thus shared among all participants in the program in a way which approximates what would have occurred if the "old" oil had been physically shared. As a result, petroleum products derived from expensive imported oil can be priced as if produced, in part, from price controlled domestic oil. As the average price of oil is depressed, alternative fuels become less competitive.

 Thus, besides ensuring that the economic benefits of low cost "old" oil are not restricted to those with historical access to such oil, the Entitlements Program also has the effect of creating an economic incentive for the importation of expensive foreign crude oil, and an economic disincentive for the production of petroleum substitutes. *fn2"

 In order to alleviate this market distortion created by the Entitlements Program, DOE has adopted a series of Petroleum Substitute Amendments. The amendments are designed to allocate a portion of the economic advantage of access to price controlled domestic crude oil, in the form of entitlements, to users and producers of certain petroleum substitutes.

 The first relevant amendment was proposed by DOE in July, 1977, 42 Fed.Reg. 38599 (July 29, 1977), and provided that any shale oil *fn3" used by the refiners would be automatically eligible for entitlements on the same basis as was imported oil. In the same notice, DOE requested comments so that it could gather and evaluate information on the possible inclusion in the program, on a case by case basis, of other domestic synthetic liquid fuels. The proposed rule was made final in May, 1978, 43 Fed.Reg. 21429 (May 18, 1978), to be effective July 1, 1978. The May, 1978 notice again solicited comments on possible eligibility for inclusion of synthetic liquid fuels in the Entitlements Program.

 DOE thereafter issued a proposed regulation, 43 Fed.Reg. 38844 (Aug. 3, 1978) which later became final as 44 Fed.Reg. 6895 (Feb. 5, 1979). This regulation sets forth the guidelines outlining procedures by which it might make case by case determinations as to the entitlements eligibility of individual petroleum liquid substitutes. The guidelines were intended to preserve DOE's flexibility to decide each particular case upon its own relevant facts and circumstances.

 Further amendment was proposed by DOE in May, 1979. 44 Fed.Reg. 32225 (June 5, 1979). DOE sought to extend the automatic allocation of entitlements to include gaseous and solid fuels, in addition to shale oil. The purpose of the proposed regulation was to offset the regulatory bias in favor of petroleum and against non-petroleum fuel which would otherwise continue until DOE's authority to regulate crude oil prices expires on September 30, 1981.

 That part of the amendment providing for automatic entitlements to producers of ethyl alcohol derived from biomass for use in gasohol was made final in November, 1979. 44 Fed.Reg. 63515 (Nov. 5, 1979). Also in November, 1979, DOE adopted additional portions of the amendments proposed in May, 1979, providing for automatic inclusion in the Entitlements Program of solid municipal waste and solid derivatives thereof used as fuel, shale oil used for non-refining purposes, and methane gas derived from municipal sewage or landfills. 44 Fed.Reg. 66183 (Nov. 19, 1979). Case by case eligibility was extended to include solid fuels derived from non-municipal solid waste and gaseous fuels derived from any solid waste sources. The effective date of the November amendment was made retroactive to June 1, 1979.

 II

 A.

 The challenged regulatory amendments are a part of the Entitlements Program promulgated pursuant to section 4(a) of the EPAA, which confers upon the DOE authority to allocate and control the price of crude oil and petroleum products. Section 4(a) provides in pertinent part:

 
(T)he President shall promulgate a regulation providing for the mandatory allocation of crude oil, residual fuel oil, and each refined petroleum product, in amounts specified in (or determined in a manner prescribed by) and at prices specified in (or determined in a manner prescribed by) such regulation.
 
Such regulation shall apply to all crude oil, residual fuel oil, and refined petroleum products produced in or imported into the United States.

 15 U.S.C. § 753(a).

 Section 5(a)(1) of the EPAA provides that the standard of review set forth in Section 211 of the Economic Stabilization Act of 1970 *fn4" governs the judicial review of regulations issued under the EPAA. Section 211(d)(1) provides that:

 
no regulation ... shall be enjoined or set aside in whole or in part, unless a final judgment determines (1) that the issuance of such regulation was in excess of the agency's authority; (2) was arbitrary or capricious; or (3) was otherwise unlawful under the criteria set forth in section 706(2) of title 5, United States Code. *fn5"

 Plaintiffs' argument is based upon the first of the grounds listed for setting aside a regulation, namely, that the Petroleum Substitute Amendments were promulgated in excess of DOE's authority.

 In a case involving regulation of natural gas liquids, The Temporary Emergency Court of Appeals *fn6" (TECA) set forth the test to be met by challengers to the regulatory authority of the Federal Energy Administration (FEA), predecessor agency to the DOE:

 
"We must consider the FEA's assertion of authority to regulate natural gas liquid under the EPAA in the light of the Act's broadly worded, comprehensive objections, for it is well settled that "the width of administrative authority must be measured in part by the purposes for which it is conferred ...' Permian Basin Area Rate Cases, 390 U.S. 747, 776 (88 S. Ct. 1344, 1364, 20 L. Ed. 2d 312) (1968).... The Supreme Court has made it clear that "in the absence of compelling evidence that such was Congress' intention, (it is) unwilling to prohibit administrative action imperative for the achievement of an agency's ultimate purposes.' Id. at 780 (88 S. Ct. at 1366).... Agency action taken in pursuit of a legitimate statutory ...

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