Petition — Department of Energy v. Mobil Oil Corp.

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In the Supreme Cont of the United States

OCTOBER TERM, 1979

DEPARTMENT OF ENERGY AND

CHARLES W. DUNCAN, JR.,

SECRETARY OF ENERGY, PETITIONERS

MoBIL OIL CORPORATION

PETITION FOR A WRIT OF CERTIORARI TO THE

TEMPORARY EMERGENCY COURT OF APPEALS

OF THE UNITED STATES

WADE H. MCCREE, JR.

Solicitor General

ALICE DANIEL

Assistant Attorney General

WILLIAM ALSUP

Assistant to the Solicitor General

Department of Justice

Washington, D.C. 20580

THOMAS P. HUMPHREY

SANDRA K. WEBB

GEORGE KIELMAN

Attorneys

Department of Energy

Washington, D.C. 20461

INDEX

Page

Opinions below 1

Jurisdiction __ i Cig EERE rae 2

a 2

en 3

Statement ee 3

Reasons for granting the petition. == 14

GRE AEE er 29

CSS Sh STIS eee la

Appendix B Sh SEES ee 15a

Appendix C cs CE 18a

Se ia icleiricasennerinnennnnanenensnone 39a

I 40a

EDS ee 4la

Se che “naan 44a

CITATIONS

Cases:

American Trucking Association v. Frisco

Transportation Co., 358 U.S. 183 15, 16

Batterton v. Francis, 432 U.S. 416 26

British Caledonian Airways, Ltd. v. CAB,

fe | Bee 20-21

California v. Simon, 504 F.2d 430, cert.

Ge, 467 oa eee a AT

Camp v. Pitts, 411 U.S. 138 __._.___._.... 19

Citizens to Preserve Overton Park, Inc. v.

vee, Gee Va eee 19, 22

1973, 15 U.S.C. 751 ef seq. -................. 2, 3, 4

RP IIE skeen 7

II Il

Cases—Continued Page Statutes and regulations—Continued Page

FCC v. National Citizens Comm. for te ee 5.7. 42a

Broadcasting, 436 U.S. 775 22 15 U.S.C. 758(b) 10, 12, 28, 42a

FPC v. Transcontinental Gas Pipe Line 16 USC. Het) 5 42a

Corp., 423 U.S. 826 19 15 U.S.C. 753(b) (1) (F) 25, 43a

Marshall v. W & W Steel Co., 604 F.2d 15 U.S.C. (1970 ed., Supp. IV) 753

Mitchell v. Bdwoard 3. Wagner Cos 27 (B) (2) (A) nnn 12

F.2d 303, aff’g Durkin v. Edward S. 15 U.S.C. 753(b) (2) (D) -------------- 23, 26, 27

Wagner Co., 115 F. Supp. 118 20, 21 Energy Policy and Conservation Act, Pub.

National Helium Corp. v. FEA, 569 F.2d L. No. 94-1638, 89 Stat. 871 .................... 23

od ine aaa RERUN 18 15 ee a al ee

Vermont Yankee Nuclear Power Corp. v. ee oie 28

NRDC, 435 U.S. 519 __.... aR dans dea 24 ib USC Te i

Statutes and regulations: oS Uax Coe. t) TiG1 (8) ..2................ 6

Bae 6 C.F.R. (1974):

Administrative Procedure Act, 5 U.S.C.

551 et seq.: Section 150.351, et seg. ..................---- 3

5 U.S.C. 558 ...._.... 3, 11, 18, 19-20, 21a, 41a Sine rare _

5 U.S.C. 553(b) _._. 2, 7, 18, 21, 28, 29, 41a Sinuthain 150.356 aT caer cs 46

SUSc tik) 20, 41a ee ,

SU eee) 19, 41a 10 C.F.R. 205.50 et seg. (1975) ................ 19

5 U.S.C. 568(d) —.._____ eeaneeneT TP 8, 41a 20 CF dy Been CROVO) noice cen 17, 20

Se i ee 22 BO CP le RAID CROUO) vcceecirsnenc nn 10, 11, 18,

‘ 17, 20, 27

Clean Air Act, 42 U.S.C. (Supp. I) 7607 : ; eines

AE IS CRESS to Re a 28 mci iD |

Clean Water Act, 33 U.S.C. 13869(b) 28 Cost of Living Council Order No. 47, 39

Economic Stabilization Act of 1970, 12 i Re ec: | ne rn ree 6

U.S.C. 1904 note: Exec. Order No. 11748, 38 Fed. Reg. 33575

OR sc eh eee oe ar ae 6

pent: eeeeaameme eee means see : Exec. Order No. 11790, 39 Fed. Reg. 23185

I I a so 22 (1974) 6

Emergency Petroleum Allocation Act of Exec. Order No. 12009, 42 Fed. Reg. 46267

Eg 5 EERE MPs AW ee aa 6

Miscellaneous—Continued Page

38 Fed. Reg. 22536 (1973) __-----.----...-- 3

38 Fed. Reg. 34414 (1978) ................---.---- 6, 22

38 Fed. Reg. 34434 (1973) __-.-......... 6

39 Fed. Reg. 744 (1974) —_ §$___. o 6

39 Fed. Reg. 744-745 (1974) ...........----..--- 6, 22

39 Fed. Ree. 1984 (1974) Ci GS

39 Fed. Reg. 1952-1956 (1974) —...._. 6

39 Fed. Reg. 12353-12354 (1974) 7

39 Fed. Reg. 12354 (1974) ..................-...--- 8

39 Fed. Reg. 15139 (1974) ___..__.....-. 9, 10, 25

39 Fed. Reg. 32718 (1974) __.._..-.____.... 10

39 Fed. Reg. 32722-32723 (1974) 10

39 Fed. Reg. 32725-32727 (1974) ............-- 26

39 Fed. Reg. 39259 (1974) .......................- 10

39 Fed. Reg. 42368 (1974) _..-- = 10

40 Fed. Reg. 3467 (1975), amended, 40

Fed. Reg. 10445 (1975) 11

41 Fed. Reg. 1680 (1976), amended, 41

Fed, Res: 6112: (2076) 11

41 Fed: Bee. Ti Gre) 11

41 Fed. Reg. 138896 (1976) li

41 Fed. Reg. 17512 (1976) _..._____________. 11

41 Fed. Reg. 24516 (1976) =. 11

41 Fed. Reg. 24188 (1976) 11

41 Fed. Reg. 30096 (1976) _..__--__-__-____.. 11

41 Fed. Reg. 31863 oT amended, 42

Fed. Reg. 5023 (1977) — st EE 11

41 Fed. Reg. 34784 (1976) 11

41 Fed. Reg. 40452 (1976) 11

43 Fed. Reg. 27974 (1978) _...__._.-___... 11

44 Fed. Reg. 7070 (1979) _....--.----.... 11

H.R. Conf. Rep. No. 93-628, 93d Cong.,

Ik TN. SPOS ecco 5, 24

S. Conf. Rep. No. 94-516, 94th Cong., 1st

Beak. 4AOTOE 335i ei 23

Iu the Supreme Court of the United States

OCTOBER TERM, 1979

No.

DEPARTMENT OF ENERGY AND

CHARLES W. DUNCAN, JR.,

SECRETARY OF ENERGY, PETITIONERS

MOBIL OIL CORPORATION

PETITION FOR A WRIT OF CERTIORARI TO THE

TEMPORARY EMERGENCY COURT OF APPEALS

OF THE UNITED STATES

The Solicitor General, on behalf of Charles W.

Duncan, Jr., Secretary of Energy, and the Depart-

ment of Energy, petitions for a writ of certiorari to

review the judgment of the Temporary Emergency

Court of Appeals of the United States in this case.

OPINIONS BELOW

The opinion of the court of appeals (App. C, infra,

18a-38a) is reported at 610 F.2d 796. The findings

of fact and conclusions of law and the judgment of

the district court (Apps. A and B, infra, 1a-14a,

15a-17a) are not reported.

(1)

JURISDICTION

The judgment of the court of appeals was entered

on November 19, 1979 (App. D, infra, 39a) and a

petition for rehearing was denied on February 4,

1980 (App. E, infra, 49a). The jurisdiction of this

Court is invoked under 28 U.S.C. 1254(1) and Sec-

tion 211(g) of the Economic Stabilization Act of

1970, 12 U.S.C. 1904 note.

QUESTIONS PRESENTED

In 1974 the predecessors of the Department of

Energy issued petroleum-refiner price-control regu-

lations that limited the amount of price increases

refiners may charge their customers of gasoline and

virtually all other petroleum products. Several times

thereafter, the agency repromulgated the same regu-

lations after notice and opportunity for comment.

These regulations are at the core of the statutory

scheme to control fuel prices under the Emergency

Petroleum Allocation Act of 1973, 15 U.S.C. 751

et seg. (EPAA), and the crude-oil cost-allocation

formula at issue in this case has been at the core

of those regulations since they were first promul-

gated.

The questions presented by this case are whether

the court of appeals erred in (i) striking down the

erude-oil cost-allocation formula contained in the

price-control regulations for failure to give notice

and opportunity for comment under 5 U.S.C. 553(b)

and failure to consider adequately the statutory ob-

jectives of the EPAA, and (ii) holding that the

formula was not validly re-established by the subse-

quent repromulgations.

STATUTES INVOLVED

Pertinent portions of the Administrative Procedure

Act, 5 U.S.C. 553, and the Emergency Petroleum Al-

location Act of 1973, 15 U.S.C. 751 et seg., are set

forth in Appendix F, infra, 41a-48a.

STATEMENT

1. Section 203 of the Economic Stabilization Act

of 1970, 12 U.S.C. 1904 note, authorized the Presi-

dent to issue orders and regulations to stabilize the

price of any product, including petroleum products.

On August 19, 1973, pursuant to this authority, the

President, acting through the Cost of Living Council,

promulgated the predecessor of the petroleum price-

control rules declared invalid by the Temporary

Emergency Court of Appeals (TECA) in this case.

38 Fed. Reg. 22536 (1973); 6 C.F.R. 150.351, et seq.

(1974).

These pricing rules regulated any “covered prod-

uct,” a term defined to include ‘a product described

in the 1972 edition, Standard Industrial Classification

Manual, Industry Code 1311 (except natural gas),

1321, or 2911.” 6 C.F.R. 150.3852 (1974). The rules

generally limited the maximum selling price of a “cov-

ered product” to the petroleum refiner’s weighted

average selling price of that end product on May 15,

1973, plus any increased crude oil costs (product

costs) and certain overhead and marketing costs (non-

product costs) attributable to that product. 6 C.F.R.

150.355 (1974).

The price regulations also prohibited any refiner

from passing through more than 100% of any cost in-

creases incurred in purchases of crude oil after May

15, 1978, but, with one major exception, allowed the

refiner to increase the prices of any of its end prod-

ucts as the refiner deemed appropriate in order to

recapture the cost increases in crude oil. The single

exception was the so-called “special products” rule.

Under this rule, no “special product” (which then

included gasoline, No. 2-D diesel fuel, and No. 2 heat-

ing oil) could bear more than its volumetric propor-

tion of increases in crude oil costs. 6 C.F.R. 150.352,

150.856 (1974). Thus, if gasoline constituted one-

half of the volume of all end products derived from

crude oil sold by a refiner over a certain period, no

more than one-half of the increased costs of the crude

oil were allowed to be passed on to the refiner’s gaso-

line customers. The rest could be recaptured in the

sale of the other end products. 6 C.F.R. 150.356

(1974). To achieve this result, the regulations con-

tained a formula for determining the volumetric pro-

portion of increased product costs. This formula,

known as the “V factor,” was expressed as a frac-

tion, the numerater of which was the total volume of

a particular product sold in a specified time period

and the denominator of which was the total volume

of all “covered products” sold in the same period.

6 C.F.R. 150.356 (1974) (App. C, infra, 21a-22a).

2. The Emergency Petroleum Allocation Act of

1973 (EPAA), 15 U.S.C. 751 et seqg., was enacted on

November 27, 1973. The Act directed the President

“Tnjot later than fifteen days after November 27,

1973” to issue “a regulation providing for the manda-

tory allocation of * * * each refined petroleum product

* * * and at prices specified in (or determined in a

manner prescribed by) such regulation.” The regula-

tion was to be effective not later than 15 days after

its promulgation. 15 U.S.C. 753(a). “[T]o the

maximum extent practicable,” the regulation was re-

quired to “provide for” nine objectives, including the

“protection of public health,” “maintenance of all

public services,” “maintenance of agricultural opera-

tions,” “preservation of an economically sound and

competitive petroleum industry,” operation of re-

fineries at “full capacity,” “equitable distribution” of

crude oil and refined petroleum products at “equit-

able prices” among users and regions, allocation for

mineral extraction and exploration, ‘economic effi-

ciency,” and “minimization of economic distortion.”

15 U.S.C. 753(b) (1). Significantly, the legislative

history demonstrates that Congress, while recogniz-

ing that these objectives would in some instances con-

flict, intended the then-existing “price controis es-

tablished * * * under authority of the Economic

Stabilization Act” to “continue in effect unless and

until required to be modified by the price regulation

required to carry out the purposes of [the Emergency

Petroleum Allocation Act].” H.R. Conf. Rep. No.

93-628, 93d Cong., Ist Sess. 26 (1973).

Pursuant to this directive, the President, acting

through the Administrator of the Federal Energy

Office, published a proposed regulation on December

13, 1973 (88 Fed. Reg. 34414) and reissued the pro-

posal with revisions on December 27, 1973 (39 Fed.

Reg. 744 (1974)). These regulations, among other

things, adopted Congress’ suggestion and incorporated

by reference the pricing rules issued under the Eco-

nomic Stabilization Act. 38 Fed. Reg. 34434 (1973) ;

39 Fed. Reg. 1924 (1974); see 6 C.F.R. 150.356

(1974). The preambles to the proposed regulations

stated that they “provided for” the nine statutory ob-

jectives “to the extent practicable and necessary to

carry out the purposes of the Emergency Petroleum

Allocation Act.” 38 Fed. Reg. 34414 (1973) ; 39 Fed.

Reg. 744-745 (1974). The final regulation, issued on

January 14, 1974, after all interested persons had been

given notice and an opportunity to comment, carried

forward the pricing provisions described above. 39

Fed. Reg. 1924, 1952-1956 (Part 212).

1Upon enactment of the Emergency Petroleum Allocation

Act and the issuance of Exec. Order No. 11748, 38 Fed. Reg.

33575 (1973), the Cost of Living Council delegated its author-

ity over the petroleum industry to the new Federal Energy

Office. Cost of Living Council Order No. 47, 39 Fed. Reg. 24

(1974). In 1974 Congress established the Federal Energy

Administration. 15 U.S.C. 762. By Exec. Order No. 11790,

39 Fed. Reg. 23185 (1974), the Federal Energy Office was

abolished and all authority vested in the President under

the Emergency Petroleum Allocation Act was delegated to

the Federal Energy Administration. On October 1, 1977, the

Department of Energy succeeded to the interests of the Fed-

eral Energy Administration. 42 U.S.C. (Supp. I) 7151(a) ;

Exec. Order No. 12009, 42 Fed. Reg. 46267 (1977). The suc-

cessive agencies responsible for the enforcement of the petro-

leum price regulations are hereinafter referred to as the

“agency.”

3. As had been true under the earlier regulations,

the petroleum products affected by the new regula-

tion were determined by reference to the term “cov-

ered products.” As mentioned above (see page 3,

supra), that term was defined in the old regulations

to embrace virtually every petroleum product. The

EPAA, however, authorized regulation only of “crude

oil, residual fuel oil, and * * * refined petroleum

product[s]” (15 U.S.C. 753(a)).* Because all au-

thority to regulate the broader class of petroleum

products was to expire with the Economic Stabiliza-

tion Act on April 30, 1974, the agency amended the

January 14 regulation on April 3, 1974, to limit the

definition of ‘“‘covered products” to “crude oil, residual

fuel oil and refined petroleum products” and to ex-

empt from the price-control regulations petroleum

coke, petroleum wax, asphalt, road oil and refinery

gas, which div not fall within the definition of covered

products under the EPAA. 39 Fed. Reg. 12353-

12364.

This amendment was promulgated without notice

and opportunity for public comment. 5 U.S.C. 553(b)

authorizes rule-making without opportunity for public

notice and comment “when the agency for good cause

finds (and incorporates the finding and a brief state-

ment of reasons therefor in the rules issued) that

notice and public procedure thereon are impracticable,

unnecessary, or contrary to the public interest.” See

2“Refined petroleum product” means “gasoline, kerosene,

distillates (including Number 2 fuel oil), LPG, refined lubri-

cating oils, or diesel fuel.” 15 U.S.C. 752(5).

also 5 U.S.C. 553(d). The April 3 amendment was

accompanied by a statement explaining the need to

conform the definition of “covered products” to the

actual scope of the EPAA and concluding that it

was impracticable to give notice and opportunity for

comment because “the purpose of the[] amendment{ ]

is to provide immediate guidance and information

with respect to the mandatory petroleum price regu-

lations and to permit the amendment[] to be imple-

mented during the month of April * * *.” 39 Fed.

Reg. 12354 (1974).

Shortly thereafter, the agency realized that the

April 3 amendment was incomplete because a corol-

lary amendment to the cost-aliocation formula, which

is keyed to the term “covered product” but which is

contained in a different part of the regulations, had

not been made. As noted above (see page 4, supra),

the “special products” rule allowed each special

product to bear no more than its volumetric pro-

portion of increased crude oil costs. This proportion

was determined by dividing the particular special

product’s volume by the total volume for all “covered

products” over a given time period. Under the old

regulations, the phrase “covered products” compre-

hended all of the end products of a refinery. This was

the scheme that the agency intended to continue under

the EPAA regulations. Unfortunately, however, when

the term “covered products” was narrowed on April

3 to conform it to the scope of the EPAA, the agency

did not realize that this change-would automatically

reduce the denominator of the V factor and would

thereby permit the reduced number of covered prod-

ucts to bear all of the increased crude oil costs. This

in turn would allow a refiner to recoup all of its crude

oil increases in the prices of covered products and,

in essentially a double recovery, to recoup the same

(or even more) costs in the prices of exempt products.

Hence, special products would have borne more than

a volumetric share of a crude oil cost increase.*

In order to correct this unintended result and to

conform the regulations to the agency’s original in-

tent—i.e., to carry forward the existing cost-allocation

formula, including the “special products” rule—the

January 14 regulation was again amended on April

30, 1974. This amendment simply provided that all

crude oil end products, whether “‘covered” or not under

the EPAA, would be counted in the denominator of the

V factor, so that each special product would bear only

' its proportionate share of crude oil cost increases and

all covered products as a group would bear no more

than their proportionate share of increased costs. 39

Fed. Reg. 15139 (1974). |

The April 30 amendment also was promulgated

without prior notice and opportunity for comment.

The preamble to the amendment explained that the

3’ For example, if products not covered by the EPAA con-

stituted 10% of the total sales volume of a refiner in a given

period, the denominator of the V factor would be 10% less

than under the regulation as originally adopted, but the

numerator for special products would remain the same. The

resulting fraction would be greater, thereby increasing the

crude oil costs that could be passed through in the price of

special products. App. G, infra, 44a-46a, illustrates the appli-

cation of the January 14 cost-allocation formula, the April 30

cost-allocation formula, and the unintended formula created

by the April 3 amendment as construed by TECA.

change was necessary to “insure that all of the in-

creased cost of crude oil processed by a refiner is not

allocated to covered products” and that “the purpose

of these amendments is to provide immediate guidance

and informztion with respect to the mandatory petro-

leum price rules and regulations which apply to [re-

finers’] permissible prices in the month of May.”

The agency found that it would be “impracticable” to

follow the “normal rulemaking procedure” and that

“good cause exist[ed] for making these amendments

effective in less than 30 days.” 39 Fed. Reg. 15139

(1974). Neither the preamble to the April 3 nor the

preamble to the April 30 amendment expressly re-

ferred to any of the nine statutory objectives set forth

in 15 U.S.C. 753(b).

4, The agency published the “first proposed com-

prehensive revision” of the new regulations on Septem-

ber 10, 1974. 39 Fed. Reg. 32718. One major proposal

was the possible elimination of the “special products”

rule, which, as noted earlier, limited price increases for

special products to their volumetric share of increases

in crude oil costs. Jd. at 32722-32723. Although the

final regulation published December 5, 1974, retained

the “special products” rule (39 Fed. Reg. 42368), nu-

merous changes were made in 10 C.F.R. 212.83 (1975),

the heart of the refiner pricing regulation.* In making

these changes, and in repromulgating 10 C.F.R.

212.83 (1975), the agency indisputably provided the

4 Some of the changes reflected in the regulation published

December 5, 1974, had been adopted, pursuant to the same

September 10 notice, on November 1, 1974. 39 Fed. Reg. 39259

(1974).

notice-and-comment opportunity specified in 5 U.S.C.

553.° Thereafter, the agency amended and repromul-

gated the cost-allocation formula of Section 212.83

several times—in each case with notice to interested

parties and an opportunity for them to comment.’

5. On July 26, 1976, respondent Mobil Oil Corpora-

tion commenced this action in the United States Dis-

trict Court for the Eastern District of Texas to set

aside the amended regulation issued on April 30, 1974.

On January 31, 1979, the district court invalidated the

amendment because (i) the agency lacked statutory

“in fact, respondent filed comments in response to the

notice, suggesting an amendment to the product cost-allocation

formula.

® See e.g., notice of proposed rulemaking, 40 Fed. Reg. 3467

(1975), amended Feb. 28, 1975, 40 Fed. Reg. 10445; notice of

proposed rulemaking, 41 Fed. Reg. 1680 (1976), amended

Feb. 1, 1976, 41 Fed. Reg. 5i11; notice of proposed rulemak-

ing, 41 Fed. Reg. 31863 (1976), amended Jan. 19, 1977, 42

Fed. Reg. 5023.

Moreover, since February 1, 1976, the agency has decon-

trolled and thereby exempted nearly all petroleum products

pursuant to the Energy Policy and Conservation Act, 15

U.S.C. 760a. In each case, the agency proposed or assumed

that the volume of such exempted products would continue to

be included in the denominator of the V factor. As amended

on April 30, 1974, the denominator included the volume of all

“covered products” and products “other than covered prod-

ucts,” 7.e., decontrolled products. See 41 Fed. Reg. 7122

(1976), 41 Fet. Reg. 18896 (1976) (residual fuel oil); 41

Fed. Reg. 17512 (1976), 41 Fed. Reg. 24516 (1976) © riddle

distillates) ; 41 Fed. Reg. 24188 (1976), 41 Fed. Reg. 30096

(1976) (naphthas gas oils and other products) ; 41 Fed. Reg.

34784 (1976), 41 Fed. Reg. 40452 (1976) (naphtha jet fuel) ;

43 Fed. Reg. 27974 (1978), 44 Fed. Reg. 7070 (1979) (avia-

tion gasoline and aviation jet fuel).

“eood cause” for not publishing a general notice of

the proposed amendment and giving interested persons

an opportunity to comment,’ (ii) the agency violated

15 U.S.C. 753(b) by failing to weigh each of the nine

statutory objectives in promulgating the amendment,

and (iii) the amendment did not satisfy the statutory

requirement of “dollar-for-dollar passthrough” *® of

all increased product costs because, due to market con-

ditions for some exempt products, Mobil had been un-

able to pass through all of its costs.°

On appeal, the Temporary Emergency Court of Ap-

peals affirmed the first two holdings of the district

court without reaching the “dollar-for-dollar pass-

7 The agency argued that the imminent expiration of its

authority to regulate certain petroleum products justified the

issuance of the April 3 amendment without notice and com-

ment and that the agency’s oversight in appreciating that

amendment’s unintended effect on the cost-allocation formula

justified the issuance of the corrective amendment on April

80 without notice and comment. The district court rejected

these arguments, stating that “the agency [is not] free to

delay formulation of such an amendment until the last mo-

ment and then invoke the ‘good cause’ exceptions” (App. A,

infra, at 12a).

8On April 30, 1974, 15 U.S.C. (1970 ed., Supp. IV) 753

(b) (2) (A) required that the regulation “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 or distributors at the retail level.”

® In addition, the court held that even if the regulation were

valid, the agency erred in denying Mobil’s applications for

exception relief in light of the “serious hardship” and “gross

inequity” imposed on Mobil by the regulation (App. A, infra,

18a-14a). The court of appeals reserved this issued in light of

its holding that the regulation is invalid (App. C, infra, 35a).

through” question. The court of appeals held that

the April 30 amendment was a substantive change in

the regulations and thus subject to the notice-and-

comment requirement of 5 U.S.C. 553. The court re-

jected the agency’s argument that statutory “good

cause” to dispense with notice and comment existed in

light of (i) the discovery of the inadvertent error in-

troduced into the cost-allocation formula by the April

3 redefinition of “covered products” and (ii) the need

to give immediate guidance to the refining industry,

which had to apply the formula in the month of May

1974. Although the court recognized that the expira-

tion of the Economic Stabilization Act required a re-

definition of “covered products,” it concluded that the

expiration date had not been so unexpected that the

agency, had it acted promptly, could not have com-

plied with Section 553 (App. C, infra, 32a). The

court also held (id. at 37a n.11) that repromulgation

of 10 C.F.R. 212.83 proposed in September 1974 and

issued in December 1974 after ample notice and op-

portunity for comment did not cure the earlier defect

or reestablish the amended cost-allocation formula.

The repromulgation, said the court, had not concerned

product-cost pass throughs at all.”

10 Neither the court of appeals nor the district court found

that the agency had actually learned of the problem acci-

dentally introduced into the cost-allocation formula in time

to publish notice and to effectuate the amendment by April 30,

1974. Nor did either court find that the agency had acted

unreasonably, in light of its other pressing responsibilities

during that period, in not learning of the problem in time

to publish advance notice that would have permitted effectu-

ation of the amendment by April 30.

Finally, concerning the nine statutory objectives,

the court of appeals remarked that “at no time prior

to’ promulgating the April 30, 1974 amendment did

the DOE even consider the relevant factors or objec-

tives set out in [15 U.S.C.] § 753(b)(1)” (App. C,

infra, 28a). Therefore, the court held that “the agency

neglected to fulfill its statutory command” and its

action “was beyond its statutory authority” (ibid.).

REASONS FOR GRANTING THE PETITION

1. The decision of the court of appeals is incor-

rect. Unless overturned by this Court, the court of

appeals error may well cost American consumers of

petroleum products and enrich respondent and other

oil companies by at least $17 billion.”

A. Contrary to TECA’s conclusion, the agency was

not required to give notice and opportunity for com-

ment before issuing the April 30 amendment to the

cost-alloeation formula. When an agency issues a rule

after notice and comment and then discovers that the

rule inadvertently expresses a policy that the agency

had not intended to adopt, the agency may issue a

conforming amendment without commencing new rule-

making procedures or inviting new comment, so long

as the amendment reasonably falls within the subject

on which comment was originally invited and the

amendment is promulgated before any person places

reasonable reliance on the original rule. Such an

11 See pages 26-28, infra.

amendment is in essence nothing more than a continu-

ation of the first rule-making proceeding. Because the

public has already had an opportunity to comment on

the subject of the amendment, a new round of com-

ment is unnecessary. The Administrative Procedure

Act does not mandate pointless gestures.”

This Court has reached a similar conclusion in con-

sidering the analogous problem of inadvertent omis-

sions from certificates of public convenience and neces-

sity in Interstate Commerce Commission proceedings.

In American Trucking Ass’ns v. Frisco Transporta-

tion Co., 358 U.S. 183 (1958), the ICC reopened a

proceeding, despite a statutory provision that made

issuance of a certificate of public convenience and

necessity “the final step in the administrative process,”

in order to insert a substantive provision that had

been unintentionally omitted from the original cer-

tificate. Over the objection that the ICC lacked power

to correct its error at that stage without commenc-

ing new proceedings, the Court remarked that the

2 We do not contend that such amendments may be made

after a relatively long delay or after reliance is reasonably

placed on the rule as originally promulgated. At some point,

the agency must be deemed to have intended to adopt its

actual statement of policy, and those who have relied thereon

ought to have an opportunity to comment on any revisions.

We do submit, however, that within reasonable limits an

agency necessarily must have the power to correct its mis-

statements expeditiously without having to comply with pro-

cedural requirements not designed to apply in such circum-

stances. In the present case there is no claim that anyone

relied on the erroneous and unintended formula created by

operation of the April 3 amendment during the period from

April 3 to April 30, 1974.

Commission acted reasonably in finding that the omis-

sion was inadvertent and held that the finality pro-

vision did not bar a corrective amendment to conform

the final order to the Commission’s intended decision.

Id. at 143, 145-146. Indeed, TECA itself has found

that after issuing the January 14, 1974, petroleum

regulations—the very regulations in question here—

the agency was entitled five weeks later to reverse

even a deliberate policy decision expressed in the reg-

ulations, without notice and comment, because the

basic rule-making proceeding had not yet ended. Cali-

fornia v. Simon, 504 F.2d 430, 433-489 (TECA), cert.

denied, 419 U.S. 1021 (1974). A fortiori, where, as

here, a modification became necessary because the or-

iginal regulation stated a rule the agency did not in-

tend to adopt, the amendment should be deemed a con-

tinuation of the original rule-making proceeding.

In the present case, the public had already been

given ample opportunity to comment on the agency’s

proposal to carry forward the “special products” and

other pricing rules into the new EPAA regulations

without change (except, obviously, for changes neces-

sitated by differences in the coverage of the EPAA).

As originally issued on January 14, however, the regu-

lation did not accomplish this goal because the agency,

under the compulsion of a short statutorily-imposed

time deadline, failed to consider the difference in scope

between the old definition of ‘“‘covered products” and

the coverage of the EPAA—a difference that would

become crucial upon the impending expiration of the

Economic Stabilization Act on April 30, 1974. The

agency promptly took this difference into account in

the April 3 and 30 corrective amendments. The amend-

ments clearly fell within the subject to which public

comment had already been invited in December 1973

(see page 6, supra). Moreover, neither Mobil nor

any other refiner of petroleum products has ever

claimed reliance on the unintended cost-allocation

formula created by the operation of 10 C.F.R. 212.31

and 212.83 during the short period of time from

April 3 to April 30, 1974. In these circumstances,

the amendments were an integral part of the original

rule-making proceeding, and a second, duplicative no-

tice and opportunity for comment was not required.”

18 Although the agency did not expressly argue below that

the April 3 and April 30 amendments were a continuation

of the rule-making proceeding commenced on December 13,

1973, the agency did advance arguments directly supporting

that analysis. The agency argued that there was no need to

give a new notice and comment (Br. 28, 31), that Congress

by enacting the EPAA had already approved the old cost-

allocation formula (Br. 9), that the statutory objectives had

already been taken into account in promulgating the January

14 regulation (Petition for Rehearing 7), that the purpose of

the April 30 amendment was to carry forward the volumetric

apportionment formula promulgated in January (Br. 27, 30),

and that the April 30 amendment simply restated or inter-

preted the agency’s intent in the January 14 regulation (Br.

31-34). The agency also argued (Br. 29), citing California v.

Simon, supra, that it was “entitled to reasonable leeway in

the gale of Congressional deadlines while it assumed charge of

the regulatory structure.” As noted in the text, Simon spe-

cifically held that the January 14 regulation contemplated

follow-up clarifying amendments and that a _ subsequent

amendment was part of the same rule-making proceeding so

that the agency did not have to provide new notice and oppor-

In any event, 5 U.S.C. 553(b) does not require no-

tice and comment when the “agency for good cause

finds * * * that notice and public procedure thereon

are impracticable, unnecessary, or contrary to the

public interest.”’ Here, a number of factors sup-

ported the agency’s finding that notice and comment

were “impracticable, unnecessary, or contrary to the

public interest”: (i) the public had been invited in

December 1973 to comment on the “special products”

rule, the cost-allocation formula, and their application

under the EPAA, (ii) the January 14, 1974, regula-

tion did not take into account the slightly narrower

scope of the EPAA and its indirect effect on the for-

mula, (iii) such considerations were well within the

subject of the earlier opportunity for public comment,

(iv) the April 3 and April 30 amendments did no

more than carry forward the old formula with such

adjustments as were necessary to conform to the nar-

rower scope of the EPAA, (v) the April 30 amend-

tunity for comment. (“Br.” refers to the agency’s brief in the

court of appeals. ) °

Alternatively, the April 3 amendment (i) reduced the scope

of the regulations and (ii) altered the cost-allocation formula,

albeit inadvertently. If the public was entitled to notice and

opportunity for comment on the April 30 amendment to the

formula, then presumably the public was also entitled to notice

and opportunity for comment on the April 3 amendment to

the formula. If both amendments are invalid, then the Janu-

ary 14 formula, which required all end products to be in-

cluded in the denominator of the V factor, was not superseded

at all. Conversely, if the April 3 amendment is valid, then

the April 30 amendment must also be valid. Cf. National

Helium Corp. Vv. FEA, 569 F.2d 1187 (TECA 1977) (April 3

amendment validly issued without notice and comment).

See Br. 26-30.

ment was made promptly and before any claim of re-

liance on the unintended formula, (vi) immediate and

authoritative resolution of the problem was necessary

to give guidance to refiners and to avoid implementing

a policy that the agency believed—and neither court

below disputed—was contrary to the public interest,

(vii) the preamble to the basic regulations amended

on April 3 and April 30 invited the public to sug-

gest improvements to the regulations, including “un-

anticipated problems” (39 Fed. Reg. 1924 (1974)),

and the agency could properly assume that any objec-

tion to the April 30 amendment would be brought to its

attention, and (viii) the regulations provided an excep-

tion for refiners who could demonstrate any inequit-

able hardship resulting from the formula (10 C.F.R.

205.50 et seg. (1975).

Rather than reweighing these factors de novo, the

courts below should have limited their scope of review

to whether a reasonable basis existed for the agency’s

“good cause”. determination. If the administrative

record was inadequate to make this finding, the proper

remedy was a remand to the agency for clarifica-

tion of the basis for its “good cause” determination,

not to invalidate the regulation. See Citizens to Pre-

serve Overton Park, Inc. v. Volpe, 401 U.S. 402,

420 (1971); Camp v. Pitts, 411 U.S. 138, 142-143

(1973) ; FPC v. Transcontinental Gas Pipe Line Corp.,

423 U.S. 326, 333 (1976). This standard of judicial

review of administrative action is particularly appro-

priate in dealing with “good cause” determinations,

because Congress directed in 5 U.S.C. 553(b) (B) that

the agency, not the court, make the determination of

“good cause” and because the agency, not the court,

is in the best position to judge the need for dispensing

with notice and comment in the context of a particu-

lar regulatory program. As this case well illustrates,

any other rule would allow the imposition of dis-

proportionately severe penalties on an agency (and

the public) because a court—long afterwards, and

with the luxuries of hindsight and time for extended

consideration—simply disagrees with the agency’s

“good cause” determination.

The decision below is incorrect for yet another rea-

son. The notice-and-comment requirement of 5 U.S.C.

553 does not apply to interpretive regulations such

as the April 30 amendment. See 5 U.S.C. 553(b) (A).

The April 30 amendment was interpretive because it

construed the term ‘“‘covered products” in the denom-

inator of the formula set forth in 10 C.F.R. 212.83

(1975) and confirmed that it retained its original

meaning (for purposes of cost allocation), 1.e., all

petroleum products, in spite of the April 3 change in

the meaning of “covered products” in 10 C.F.R. 212.31

(1975) (for purposes of stating the scope of products

regulated under the EPAA rules). In a precisely anal-

ogous case under a different statute, the Second Circuit

held that such corrective amendments are interpretive

regulations and may be issued without notice and

comment. Mitchell v. Edward S. Wagner Co., 217

F.2d 308, 304 (2d Cir. 1954), aff’g Durkin v. Ed-

ward S. Wagner Co., 115 F. Supp. 118 (E.D.N.Y.

1953).’* See also British Caledonian Airways, Ltd. v.

14 Jn Mitchell, the court of appeals in an earlier appeal had

overturned a finding that the employer had violated the Fair

CAB, 584 F. 2d 982, 990 (D.C. Cir. 1978) ; Marshall

v. W & W Steel Co., 604 F.2d 1322 (10th Cir. 1979).

Labor Standards Act, 29 U.S.C. 201 et seq., because, although

the Act was sufficiently broad to cover the employees ai issue,

the agency’s regulations appeared not to cover them. While

the case was pending on remand, the agency amended its reg-

ulations without notice and comment to specify that the defi-

nitional provisions of the regulations did cover the employees.

The employer contended that the new regulation was invalid

for lack of advance notic2 and comment. The district court

disagreed, holding that notice and comment were not required

because the rule was interpretive and because “good cause”

existed within the meaning of 5 U.S.C. 553. 115 F. Supp. 118.

The regulation was interpretive, said the court, because the

agency had always construed and enforced its regulations in

conformity with the amendment. Jd. at 121. Moreover, “good

cause” existed because of an “immediate” need to safeguard

wage standards, to eliminate uneven application of the regu-

lations to employees and to provide for adequate enforce-

ment of restrictions imposed under the Act. Jd. at 121-122.

The Second Circuit affirmed on both grounds. 217 F.2d 303.

Although Mitchell involved a different regulatory statute

than is involved here, the Second Circuit reached a result

precisely opposite from that reached in the present case con-

cerning the meaning of 5 U.S.C. 553.

15 TECA viewed the agency’s interpretive rule argument

as inconsistent with the agency’s “good cause” determination

(App. C, infra, 33a) and with the fact that the agency

provided for notice and comment for subsequent amendments

to the refiner cost-allocation formula (id. at 35a n.9). There

is no inconsistency, however. In cases where there is some

uncertainty whether a rule is legislative or interpretive, an

agency may properly make a “good cause” determination in

order to avoid future challenges even though it believes the

rule to be interpretive. Nor is there any inconsistency in

providing notice and comment prior to making a substantive

change in a regulation that has previously been construed

through an interpretive rule. Moreover, 5 U.S.C. 553(b)

does not require an agency, at the time of promulgating a

rule, to publish a finding that the rule is interpretive.

B. The court of appeals also erred in holding that

the April 30 amendment was invalid for lack of “con-

sideration” of the nine statutory objectives. First,

the nine statutory objectives were considered by the

agency in issuing the original rule on January 14,

1974. 38 Fed. Reg. 34414 (1973) ; 39 Fed. Reg. 744-

745 (1974). For the reasons stated above (see pages

16-17, supra), the April 3 and 30 conforming amend-

ments were an integral part of the same rule-making

proceedings as the January 14 rule. Inasmuch as the

statutory objectives were considered in deciding to

carry forward the earlier pricing scheme, modified |

only as necessary to conform to the coverage of the

EPAA, it was unnecessary to reconsider the nine ob-

jectives in detail merely to amend the regulation to

correspond to that earlier decision.

In any event, even if the January 14, April 3, and

April 30 rules are viewed as separate proceedings,

the courts below should have limited their review to

whether the agency unreasonably failed to take into

account any “relevant factors” or “eommitted a clear

error of judgment.” Citizens to Preserve Overton

Park, Inc. v. Volpe, supra, 401 U.S. at 416; FCC v. Na-

tional Citizens Comm. for Broadcasting, 436 U.S. 775,

802-808 (1978). No clear error of judgment is pres-

ent in this case, because the regulation is plainly a ra-

16 Under Section 211 of the Economic Stabilization Act of

1970, 12 U.S.C. 1904 note, the standard of judicial review

of EPAA regulations is the same as APA review under

5 U.S.C. 706.

tional accommodation of the statutory goals.” Nei-

ther the district court nor the court of appeals dis-

agreed with this conclusion.

The court of appeals erroneously assumed that the

agency must give detailed consideration to each of the

nine statutory concepts in every action it takes under

the EPAA. Section 753(b), however, only requires

that EPAA regulations as a whole “provide for” the

nine objectives. It does not require the agency in

issuing rules to make findings concerning any of the

statutory goals. Nor does the statute require the

agency to consider every possible way by which the

nine expansive concepts are remotely implicated by

every action it takes. Instead, these nine concepts are

17 Because Congress approved the adoption by the agency

of the Cost of Living Council pricing regulations, Congress

itself determined that those rules were a satisfactory accom-

modation of the conflicting statutory objectives (except to the

extent modification might be required to conform the rules

to the slightly narrower scope of the EPAA). Moreover,

Congress ratified the agency’s application of the statutory

objectives in the April 30 amendment by enacting the Energy

Policy and Conservation Act (Pub. L. No. 94-163, 89 Stat.

871) on December 22, 1975. There Congress not only extended

the agency’s price control authority, thereby implicitly ratify-

ing the regulations then in place, but also enacted Section

4(b) (2) (D) of the EPAA (15 U.S.C. 753(b) (2) (D), which

required that the cost-allocation regulations “shall not permit

more than a direct proportionate distribution (by volume)” to

certain products “of any increased costs of crude oil.” The

Conference Report described the then-current refiner cost-

allocation formula and noted that the new section “elevates

the regulatory scheme to statutory status.” S. Conf. Rep.

No. 94-516, 94th Cong., Ist Sess. 198 (1975). Thus, Congress

was aware of and approved the precise regulation at issue

here.

essentially hortatory. See H.R. Conf. Rep. No. 93-

628, 93d Cong., Ist Sess. 2688 (1973). For purposes

of judicial review of EPAA regulations, their only

role is to assist by the diffuse light they shed in

illuminating the “relevant factors.” Thus, a review-

ing court may inquire only whether the administra-

tive record shows that any statutory consideration

reasonably implicated by the proposed action was

arbitrarily given no consideration.” Here, the courts

below erred in failing to identify a single relevant

consideration that the agency arbitrarily failed to take

into account. Moreover, if the administrative record

left any doubt on that score, the proper disposition

would have been a remand to the agency for clarifica-

tion of the issues it considered relevant.”

18 Even where a statute explicitly requires an agency to

“eonsider” certain issues before acting, the agency is only

required to consider such of those issues as are reasonably

implicated by its intended action or substantial issues brought

to its attention. Vermont Yankee Nuclear Power Corp. V.

NRDC, 485 U.S. 519, 551 (1978) (NEPA does not require

consideration of alternatives not reasonably implicated by

proposed course of action unless they are brought to the

agency’s attention). If there is no reasonable prospect that

an issue would influence the ultimate decision, it is not un-

reasonable not to pursue it. Mobil contends that it would

have brought certain issues to the agency’s attention had

advance notice been published and that those comments might

have affected the agency’s decision. Although an agency is

not free to disregard substantial comments made during a

notice-and-comment period, that argument does not arise in

this case if our submission that notice and comment were

unnecessary is correct.

19 The courts below remarked (App. A, infra, 4a-5a; App.

C, infra, 28a) that the agency conceded in discovery that it

had not given any consideration to the statutory goals. The

C. Finally, even assuming that the April 30 amend-

ment were invalidly issued, the court of appeals erred

in holding that the agency’s subsequent repromulga-

tion of the pricing regulations in December 1974 did

not validly revive the cost-allocation formula (App.

C, infra, 37a n.11). The court’s conclusion was based

on 2 plain factual error—TECA believed, incorrectly,

that the amendment proposed on September 6, 1974,

and issued on December 5, 1974, concerned only a

cost-allocation formula for non-product cost increases

(ibid.).” In fact, the public was invited to comment

agency stated in answer to interrogatories that in promul-

gating the April 30 amendment it had not “considered” or

“investigated” the impact of the amendment on the “supply

of refined petroleum products in the United States” (which

itself is not an explicit statutory factor) (R. 96, 97). These

and other ambiguous interrogatory answers (R. 36, 40, 56)

were construed by TECA and the district court as admissions

that no consideration whatever was given to the statutory

objectives.

The interrogatory answers do bear the construction that

the agency gave no detailed consideration or “investigation”

to the matters mentioned in the interrogatories. At no time,

however, did the agency state that it promulgated the April

3 or April 30 amendments without regard to whether any

statutory objectives were reasonably implicated by its action.

In fact, the agency explained in the April 30 preamble (39

Fed. Reg. 15139) that the purpose of the amendment was to

“insure that all of the increased cost of crude oil processed by

a refiner is not allocated to covered products,” i.e., that the

pricing rules would continue to maintain “equitable prices’”’

(which is one of the statutory factors). See 15 U.S.C. 753

(b) (1) (F). We are lodging with the Clerk of the Court a

copy of two volumes of the joint Appendix in the court of

appeals which contain the interrogatory answers.

2 This factual error was pointed out to TECA in the

agency’s Petition for Rehearing and Suggestion for Rehear-

ing En Banc (at pages 2, 10).

(and Mobil did so) on whether the product cost-

allocation formula should be changed. 39 Fed. Reg.

32725-32727 (1974). Thereafter, the entire product

cost-allocation formula was repromulgated and was

comprehensively revised, although that part of the

denominator including the volume of sales of exempt

products was not changed (see page 10, supra). This

rule, as well as the numerous other repromulgations of

the cost-allocation formula (see note 6, supra), un-

questionably would have been valid upon final publi-

cation if the April 30 amendment had never been

made. Batterton v. Francis, 432 U.S. 416, 425 (1977).

Hence, the court of appeals’ conclusion that any de-

fect in the April 30 amendment remained fatal

through at least February 1, 1976, is wholly insup-

portable.

2. The court of appeals’ decision imposes a severe

burden on federal regulation of the prices of petro-

leum products and exacts a severe penalty from Ameri-

can consumers of those products. The immediate re-

sult of the decision is to increase substantially the

maximum lawful selling price of all regulated prod-

ucts from April 30, 1974, through at least February

1, 1976.7 Refiners have already begun to recalculate

21 In our view the decision below does not directly question

the validity of the agency’s regulations issued after February

1, 1976, which prohibit, as did the April 30 amendment, any

inclusion in the prices of covered products of costs attribut-

able to exempt products (See App. C, infra, 37a n.11).

Petroleum refiners, however, have construed the decision as

holding that increased costs attributable to exempt products

may be assigned to covered products from April 30, 1974,

to date (so long as certain products receive no more than a

their maximum lawful selling prices of regulated

products for that period to include crude oil costs

previously not attributed to regulated products.”

This recalculation, if allowed to occur, will have

two significant impacts on the ongoing enforcement

of federal pricing regulations. First, under 10 C.F.R.

212.83(e), refiners may carry over or “bank” any

portion of their lawful selling prices not recovered in

a given period and may use such “banked” credits to

increase prices in any later period. The agency esti-

mates that refiners will claim a minimum of $17 to

$18 billion in additional credits for the period April

30, 1974, through February 1, 1976, based solely on

the decision below. Refiners may attempt to recover

these vast sums in imminent price increases (over

and above otherwise lawful price increases) in the

only remaining covered product eligible to absorb

accrued costs—motor gasoline.* Because decontrol of

volumetric apportionment in accordance with 15 U.S.C.

753(b) (2) (D)). Moreover, some refiners have already filed

claims for credits with the agency without offsetting these

recalculated credits by the amounts of increased costs already

recovered in the sales of exempt products. If the court of

appeals’ decision is not overturned and the refiners’ interpre-

tation of that decision ultimately prevails, the total increase

in oil prices may exceed $50 billion.

22 The recalculation is based on the differences in the cost-

allocation formulas illustrated in Appendix G, infra, 44a-46a.

23 As indicated above (see page 11, note 6, supra), since the

adoption of the April 30, 1974, amendment, all petroleum

products except gasoline and propane have been deregulated.

Because propane is one of the products specified by Congress

to receive no more than a proportionate share, by volume, of

increased crude oil costs (15 U.S.C. 753(b) (2) (D) ), gasoline

gasoline itself is currently scheduled for September

30, 1981 (see 15 U.S.C. 760g), refiners will have a

substantial incentive to recover the billions of dollars

in accrued costs in the prices of gasoline before that

time—thus frustrating federal controls on gasoline

prices and weakening the nation’s attempts to com-

bat inflation. Second, the agency has brought hun-

dreds of pending actions to recover refiner over-

charges in excess of maximum lawful prices computed

under the cost-allocation formula held invalid by

TECA. The effect of the decision below is to raise

retroactively the maximum lawful price and thereby

reduce, if not eliminate, the amount of the over-

charges.

Apart from these immediate adverse consequences

to the Department of Energy’s enforcement program

and to the public, the court of appeals’ decision effec-

tively discourages an agency from invoking the “good

cause” exception to notice and comment authorized in

5 U.S.C. 553(b). The striking of a regulation that

is rational and consistent with its underlying statute

is especially troublesome for those agencies that, like

DOE, do not have the benefit of a statutory review-

preclusion clause requiring challenges to regulations

to be made promptly after promulgation. Compare

83 U.S.C. 1369(b) (Clean Water Act); 42 U.S.C.

(Supp. I) 7607(b) (1), (2) (Clean Air Act). In the

instant case, for example, the only challenge to the

petroleum cost-allocation regulation came more than

alone (which is no longer a “special product”) would bear an

additional amount of accrued costs.

three years after its promulgation, and it took more

than two years before the district court ruled the

regulation invalid. By then the challenged regulation

had been repromulgated a number of times (see note

6, supra) and, in reliance on its validity, the agency

had decontrolled all but a few petroleum products

(ibid.). The specter of having to begin the regulatory

process anew after so long a period of time will deter

agencies from taking prompt action under Section

553(b) in circumstances where the public interest

overrides the need for notice and comment.

CONCLUSION

The petition for a writ of certiorari should be

granted.

Respectfully submitted.

WADE H. MCCREE, JR.

Solicitor General

ALICE DANIEL

Assistant Attorney General

WILLIAM ALSUP

Assistant to the Solicitor General

THOMAS P. HUMPHREY

SANDRA K. WEBB

GEORGE KIELMAN

Attorneys

Department of Energy

MARCH 1980

APPENDIX A

IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF TEXAS

Civil Action No. B-76-273-CA

[Filed January 31, 1979]

MOBIL OIL CORPORATION, PLAINTIFF

Vv.

THE DEPARTMENT OF ENERGY and

Dr. JAMES R. SCHLESINGER,

Secretary of Energy, DEFENDANTS

FINDINGS OF FACT

Having considered the pleadings herein, the argu-

ment of counsel, plaintiff’s and defendants’ cross

motions for summary judgment, the memoranda in

support thereof and exhibits attached thereto and

having determined that there are no genuine issues

of material fact, the Court now finds as follows:

1. Plaintiff Mobil Oil Corporation (‘Mobil’), a

New York corporation, with its principal place of

business in New York, New York, is engaged in the

production and sale, including exploration for, ex-

traction, refining and marketing of petroleum and

petroleum products in the United States and certain

foreign countries. Defendants’ Answer To Plaintiff’s

Amended Complaint For Declaratory Relief, {{ 3, 8.

2. Defendant Department of Energy (“DOE”) is

an executive department of the United States, or-

ganized and existing under the provisions of the De-

partment of Energy Organization Act, Pub. L. 95-91,

August 4, 1977, 91 Stat. 565, 42 U.S.C.A. §§ 7101,

et seq., and Executive Order No. 12009 (42 F.R.

46267, September 15, 1977). The DOE is the suc-

cessor to, inter alia, the Federal Energy Administra-

tion (“FEA”), a former agency of the United States,

organized under the provisions of the Federai Energy

Administration Act of 1974 (“FEAA”), Pub. L. 93-

275, 88 Stat. 96, 15 U.S.C.A. §§ 761, et seq., and

Executive Order No. 11790 (June 25, 1974). The

FEA was the successor to the Federal Energy Office

(“FEO”), which was established by Executive Order

No. 11748 on December 4, 1973 (38 Fed. Reg. 33575).

Defendant James R. Schlesinger is Secretary of the

Department of Energy and in that capacity has been

delegated, inter alia, the powers and duties conferred

upon the President by the Emergency Petroleum Allo-

cation Act of 1973 (“EPAA”), Pub. L. 93-159, 87

Stat. 628, 15 U.S.C.A. §§ 751, et seq., as well as the

powers and duties conferred upon the FEA or its

Administrator by the FEAA.

8 At four of its refineries in the United States,

located at Beaumont, Texas, Paulsboro, New Jersey,

Torrance, California and Joliet, Illinois, Mobil has

installed certain highly specialized plant facilities

known as “coker units” to maximize production of

gasoline and distillates at those refineries. The coker

units further refine the residue from the primary

refining process in order to achieve the maximum

yield of gasoline and distillates from the crude oil

used for refining. These units increase the yield of

gasoline and distillates by as much as 20 percent.

Coker units represent approximately 13.5 percent of

Mobil’s total crude refining capacity. Defendants’

Answer To Plaintiff’s Amended Complaint For De-

claratory Relief, {J 9.

4. The solid residue remaining after secondary re-

fining by the unit is the by-product, petroleum coke.

As a result of its installation of coker units, Mobil

is the largest domestic producer of the by-product

petroleum coke. Mobil’s production of coke was near-

ly two million tons (ten million barrels) in both cal-

endar 1974 and 1975. Id., J 10.

5. Petroleum coke produced at the refinery level

may be classified as metallurgical grade coke or fuel

grade coke. Metallurgical grade coke is low in sul-

phur and metals, while fuel grade coke, the more

common variety, contains larger quantities of sul-

phur and/or metals. Id., J 11.

6. Metallurgical grade petroleum coke is used in

the aluminum industry in processing operations. Fuel

grade petroleum coke, representing the majority of

Mobil’s coke production, historically has been mixed

with coal and burned by electric utilities as fuel. Id.,

q 12.

7. On January 15, 1974, the FEO, a predecessor

of the Department of Energy, promulgated a regula-

tion which permitted refiners to allocate increased

costs of acquiring crude oil in whatever manner they

chose among any products they produced subject to

special limitations for gasoline and No. 2 oil. 10

C.F.R. § 212.83, 89 Fed. Reg. 1952 (Jan. 15, 1974).

8. On April 8, 1974, the FEO specifically exempted

from the FEO price control regulations certain petro-

leum by-products, including petroleum coke, which

had previously been subject to price regulation under

the authority of the Economic Stabilization Act

(“ESA”). 39 Fed. Reg. 12353 (April 5, 1974).

9. On April 30, 1974, the FEO amended § 212.83

crude oil costs equal to the ratio of exempt products

sales to total product sales be allocated to exempt

products. 39 Fed. Reg. 15139 (May 1, 1974).

10. In amending § 212.83(c) (2), the FEO did not

publish a general notice of proposed rulemaking in

the Federal Register and did not give interested par-

ties an opportunity to participate in the rulemaking

process. Defendants’ Answer To Plaintiff’s Amended

Complaint For Declaratory Relief, {| 23.

11. In amending § 212.83(c) (2), the FEO did not

consider the volume of petroleum coke produced in

and imported into the United States or the supply of

and demand for energy sources which were alterna-

tives to petroleum coke. Defendant FEA’s Answers

To Plaintiff’s First Interrogatories, Answer to Inter-

rogatory No. 1.

12. In amending § 212.83(c) (2), the FEO did not

consider the impact of the amendment on the price

of, supply of or demand for petroleum coke. Id., An-

swer To Interrogatory No. 3.

13. In amending § 212:83(c) (2), the FEO did not

consider how the amendment would affect the recov-

ery of increased crude oil costs in sales of petroleum

coke of other by-products. Defendant FEA’s Supple-

mental Answers To Plaintiff’s First Interrogatories,

Answer To Interrogatory No. 4(a).

14. In amending § 212.83(c)(2), the FEO did

not consider generally accepted accounting standards

for the treatment of industrial by-product costs before

it adopted the volumetric method for the treatment of

such costs. Defendant FEA’s Answers To Plain-

tiff’s Second Set of Interrogatories, Answer To In-

terrogatory No. 2(a).

15. In amending § 212.83(c)(2), the FEO did

not consider or investigate the impact of the amend-

ment on the supply of refined petroleum products in

the United States, the ability of refiners to increase

the supply of refined petroleum products by the use

of “coker units.” Jd. Answer To Interrogatory No.

3(b).

16. The market for fuel grade petroleum coke

has been diminishing in recent years because its

sulphur and metal content may not satisfy environ-

mental standards and it can easily be replaced by coal.

Affidavit of Richard J. Flanary, 9, 10.

17. The availability of coal as an alternative en-

ergy source in the markets where petroleum coke is

used means that the market price is controlled by the

expense of the alternative source, rather than by the

expense of petroleum based sources of energy, and

has limited Mobil’s ability to increase the prices it

charges for coke. /d., {| 9.

18. Because of the market conditions and the

amendment of § 212.83(c) (2), Mobil has been unable

to recover all of the increased crude oil costs which it

has been required to allocate to petroleum coke (that

percentage of its increased crude oil costs which the

volume of its petroleum coke sales bears to the vol-

ume of its total sales of petroleum products). In

1974, to have completely recovered its cost of crude

oil allocated to sales of coke, Mobil would have had

to sell coke at three times the price at which it was

sold. Jd., { 9.

19. In 1974 and 1975, Mobil was unable to recover

$39.6 million and $35.8 million respectively, of its

increased crude oil costs allocable to coke under the

FEO price regulation formula. Defendants’ Answer,

7 17.

20. On June 5, 1974, Mobil filed a Request for Ex-

ception from the operation of § 212.83(c)(2), as

amended, requesting that it be permitted to allocate

all increased crude oil costs to the prices of covered

products instead of apportioning those costs between

covered and exempt products such as petroleum coke.

21. Mobil’s request sought relief on the basis that

the amendmeni, as applied to it, caused “serious

hardship” and “gross inequity,” the two criteria used

by the agency to evaluate requests for such relief.

10 C.F.R. § 205.55 (b) (2) (1977). In addition, Mobil

contended that the volumetric apportionment amend-

ment adversely affected national energy objectives

and was otherwise inconsistent with the EPAA.

22. The agency denied Mobil’s Request for Ex-

ception on December 2, 1974. Mobil Oil Corporation,

1 FEA (Transfer Binder) { 20,725. The stated

grounds for the denial were that (1) the sub-

stantial amounts of crude oil cost increases which

Mobil estimated it would be forced to absorb as a re-

sult of the amendment did not constitute serious } rd-

ship because Mobil did not allege that its oper stiuns

would be substantialy impaired, (2) the percentage of

Mobil’s refining capacity represented by coker units,

though substantially greater than the industry aver-

age, did not constitute grounds for finding that the

amendment’s impact on Mobil would be grossly in-

equitable, and (3) the “significant” policy issues

raised by Mobil concerning the rule’s impact on na-

tional energy objectives could not be considered in

an exception proceeding as grounds for relief. Jd. at

20,901-02.

23. Mobil filed an appeal from the denial of its ap-

plication for an exception on January 21, 1975. FEA

denied that appeal on June 6, 1975. Mobil Oil Corp-

oration, 2 FEA (Transfer Binder) § 80,603.

24. On August 4, 1975, FEA granted to Getty

Oil Company (“Getty”) an exception from the op-

eration of the price regulation, 10 C.F.R. § 212.83

(c)(2), by permitting Getty to regard all exempt

petroleum products which it sold for ultimate con-

sumption in the United States as “general refinery

products,” as defined in 10 C.F.R. § 212.31. Getty

Oil Company, 2 FEA (Transfer Binder) § 83,231

(hereinafter “Getty’’).

25. In Getty, the FEA found that that firm’s un-

recovered costs of crude oil allocable to exempt prod-

ucts under the price regulation were $2,705,000. The

FEA determined that these losses, although not con-

sidered by the FEA to work a serious hardship, were

such that Getty could succeed in recovering all its

increased costs of crude oil only by discontinuing

secondary refining and thereby eliminating the pro-

duction of coke. However, that would also reduce

Getty’s production of covered products and the FEA

found that such a disincentive to production of cov-

ered products was contrary to national energy policy

and the objectives of the Emergency Petroleum Alloca-

tion Act and resulted in a gross inequity warranting

exception relief. Id.

26. Thereafter, on December 11, 1975, Mobil filed

a further Request for Exception from the operation

of 10 C.F.R. § 212.83(c) (2) as it affected exempt

products such as coke. Mobil requested precisely the

same relief as that granted to Getty, namely that ex-

empt products, such as coke, be considered “general

refinery products” for purposes of the price regula-

tion. In that submission, Mobil asserted that its

losses were seventeen times greater than those of

Getty with an impact of its worldwide consolidated

net income nearly five times that on Getty’s, and

Mobil submitted data to support those assertions.

Based on that data, Mobil claimed that the amend-

ment operated to cause Mobil a greater disincentive

to secondary refining and production of coke than that

which the FEA had found to result in gross inequity

in Getty.

27. On January 23, 1976, the FEA denied Mobil’s

request for exception. Mobil Oil Corporation, 3 FEA

(Transfer Binder) { 83,083. The FEA concluded

that Mobil did not have the same disincentive to pro-

duce coke as did Getty because Mobil could neither

forego the significant revenues from the production

and sales of coke, nor could it fully recover the in-

creased costs of crude oil presently allocated to coke

under the price regulations because of Mobil’s sizeable

bank of unrecovered costs allocated to covered prod-

ucts. Id.

28. On March 1, 1976, Mobil filed an Appeal from

the denial of its request for exception relief, Case

Number FEA-07666. In that appeal Mobil submit-

ted data indicating that, contrary to the FEA’s con-

clusions, Mobil could indeed recover the extra costs

currently allocated to exempt products by allocating

those costs to general refinery products—the category

of products specified in the exception request. Banks

of unrecovered costs attributed to general refinery

products are treated separately under the price regu-

lation, 10 C.F.R. § 212.83(c) (2) (ii), and, at the

end of 1975, Mobil would have had a net overrecovery

of $30 million of costs attributable to general re-

finery products had it not transferred, as permitted

by FEA regulations, $45 million of non-general re-

finery product costs to that category.

29. In a decision and order dated June 1, 1976,

the FEA denied Mobil’s appeal on grounds virtually

identical to those expressed in the decision denying ex-

ception relief. Mobil Oil Corporation, 3 FEA (Trans-

fer Binder) {[ 80,643.

10a

CONCLUSIONS OF LAW

1. This Court has jurisdiction over the subject

matter of the Amended Complaint and the parties in

this action pursuant to 15 U.S.C. § 754(a) (1), 28

U.S.C. §§ 1831 and 2201, and 5 U.S.C. § 701 et seq.

2. There are no contested issues of material fact

and the claims raised in plaintiff’s Amended Com-

plaint are therefore appropriate for disposition on

summary judgment pursuant to Rule 56 of the Fed-

eral Rules of Civil Procedure.

8 The amendment of the refiner price rules to

require that product costs be apportioned volumetric-

ally between regulated and exempt products was not

mandated by the expiration of the Economic Stabili-

zation Act. Instead, it was a policy decision made

pursuant to the agency’s rulemaking powers under

the Emergency Petroleum Allocation Act (“EPAA”).

4. In promulgating petroleum pricing and alloca-

tion regulations under authority of the EPAA, the

FEO was required to consider the impact of the

regulations on the nine statutory objectives of the

EPAA that Congress directed the agency to achieve

“to the maximum extent practicable.” 15 U.S.C.

§ 753(b) (1).

5. The agency failed to weigh the objectives of

the EPAA in formulating the challenged amendment.

Since balancing of the statutory objectives is a pre-

requisite to valid exercise of the agency’s rulemaking

powers, its failure to do so in this instance renders

the amendment void as beyond the statutory authority

of the agency.

ee ace MS ote

lla

6. The statutory objectives of the EPAA consti-

tute the minimum relevant factors which the agency

must consider in exercising its rulemaking authority

under that Act. Because it did not weigh those rele-

vant factors in formulating the volumetric appor-

tionment amendment, the agency’s action was arbi-

trary and capricious as a matter of law and the

amendment is therefore invalid.

7. The EPAA also mandates that the agency’s

regulations provide a reasonable mechanism for the

dollar-for-dollar passthrough of increased costs of

crude oil. EPAA § 4(b)(2) (current version at 15

U.S.C. § 753(b) (2)). The volumetric apportionment

amendment is inconsistent with this statutory direc-

tive, causing Mobil to absorb 30 to 40 million dollars

per year in increased costs. That level of cost ab-

sorption cannot be considered 2 reasonable mechanism

for the dollar-for-dollar passthrough of costs. The

amendment is therefore beyond the statutory au-

thority of the agency and is void.

8. The agency’s rulemaking activities are gov-

erned by §4 of the Administrative Procedure Act

(“APA”), 5 U.S.C. § 558, which requires, inter alia,

that the terms or substance of a proposed rule be

published in the Federal Register, that the public be

provided an opportunity to submit comments on the

proposal, and that the agency consider relevant com-

ments in preparing the final rules. The agency com-

plied with none of these requirements. The volumetric

apportionment amendment was promulgated as a final

rule without prior notice or an opportunity to

comment.

12a

9. Compliance with the notice and opportunity for

comment requirements of §4 of the APA can be

waived where the agency finds “good cause” to aban-

don one or both of them or the rule is merely inter-

pretative. 5 U.S.C. § 553(b). Neither exception, how-

ever, is applicable here.

10. The agency’s contention that “good cause”

existed to dispense with rulemaking requirements in

promulgating the amendment on April 30, 1974 is

without merit. Although the expiration of that Act

extinguished the agency’s authority to regulate cer-

tain by-products of the refining process such as petro-

leum coke, it did not require the agency to amend its

cost allocation formula. The Act’s expiration there-

fore could not serve as a basis for a finding of “good

cause” to dispense with the requirements of § 4 of the

APA. Moreover, even if some modification of the

cost allocation formula were required as a result of

the Act’s expiration, the agency would not be free

to delay formulation of such an amendment until the

last moment and then invoke the “good cause” ex-

ception. The agency was aware well in advance that

the Act would expire and had ample opportunity to

provide notice of and solicit comment on the proposed

amendment.

11. Theagency’s post hoc contention that the

amendment was merely interpretative and therefore

not subject to the notice and comment requirements

is incorrect. When the agency announced the chal-

lenged amendment, it invoked only the “good cause”

exception as a reason for non-compliance with normal

FL a A a I EN le hal ERD TE ne Se i aT

LIAM eth a oe

a OP A ee nd tele Rb SL a A

An ere

13a

rulemaking procedures. Even if the agency could

properly raise the interpretative rule exception, it is

inapplicable here. The amendment did not interpret

the agency’s statutory authority or its regulations.

Furthermore, since the amendment had a substan-

tial impact on the regulated industry, it could not

be considered interpretative in any event.

12. Since the volumetric apportionment amend-

ment was promulgated in violation of the procedures

set forth in 5 U.S.C. § 558, it is void.

13. Because the amendment was never validly

promulgated, the agency exceeded its statutory au-

thority by refusing to grant Mobil’s two requests for

exception from the operation of the amendment.

14. The agency’s denial of Mobil’s June 5, 1974

Request for Exception was arbitrary and capricious

because Mobil satisfied both the “serious hardship”

and “gross inequity” criteria for the requested re-

lief since the multi-million dollar cost absorption im-

posed on Mobil by the operation of the amendment

satisfied by reasonable application of a “serious hard-

ship” standard. That is especially so because Mobil

was uniquely penalized under the regulation by virtue

of its attempts to increase refinery yields through

use of coker units thereby causing it to be, by a wide

margin, the largest domestic producer of the by-

product petroleum coke. Because of this unique sit-

uation, the amendment had a particularly severe

effect on Mobil’s operations, causing Mobil to suffer

“sross inequity” as a result of the amendment. Since

the agency provided no rational explanation of its

denial of relief, its action must be set aside.

14a

15. The agency’s denial of Mobil’s December 11,

1975 Request for Exception must be set aside for the

same reasons stated above. While Mobil based its

second request only on the “gross inequity” criteria,

it provided ample evidence of the particularly adverse

impact of the amendment on its operations and the

agency provided no rational explanation for its fail-

ure to grant relief. In addition, the denial is arbi-

trary and capricious because the agency granted re-

lief to another refiner who was less severely af-

fected by the amendment. Although both the agency’s

regulations and fundamental fairness require rea-

sonable consistency in granting or denying relief un-

der similar circumstances, the agency provided no

rational explanation for granting relief to one re-

finer and denying the same relief to Mobil.

Based on the foregoing findings of fact and con-

clusions of law, the Court concludes that plaintiff is

entitled to judgment as a matter of law.

Signed and entered this the 31st day of January,

1979.

/s/ Joe J. Fisher

United States District Judge

ek ad aw a hy ea nse ds OR Me te ee i Oe th

l5a

APPENDIX B

UNITED STATES DISTRICT COURT

EASTERN DISTRICT

Civil Action No. B-76-273-CA

[Filed Jan. 31, 1979]

MOBIL OIL CORPORATION, PLAINTIFF

—against—

THE DEPARTMENT OF ENERGY and

Dr. JAMES R. SCHLESINGER,

Secretary of Energy, DEFENDANTS

JUDGMENT

At Beaumont, Texas, after full hearing and con-

sideration of the argument of counsel, plaintiff’s and

defendants’ cross motions for summary judgment,

the memoranda in support thereof and exhibits at-

tached thereto and the pleadings herein, the Court

made and filed its Findings of Fact and Conclusions

of Law and determined that based thereon plaintiff’s

motion for summary judgment should be granted and

defendants’ motion for summary judgment should be

denied.

Therefore, it is hereby ORDERED, ADJUDGED

AND DECREED by the Court that plaintiff’s motion

for summary judgment be, and the same is hereby,

granted and that;

1, The amendment of 10 C.F.R. § 212.83(c) (2) on

April 30, 1974, to require volumetric apportionment

16a

of costs between covered and exempt products is null

and void as being arbitrary and capricious;

2. The amendment of 10 C.F.R. § 212.83(c) (2) on

April 30, 1974, is null and void as being beyond the

agency’s authority under the Emergency Petroleum

Allocation Act of 1973, as amended;

3. The amendment of 10 C.F.R. § 212.83(c) (2) on

April 30, 1974, is null and void as having been prom-

ulgated in violation of the notice and opportunity for

comment provisions of the Administrative Procedure

Act;

4. Defendants’ decision and order dated December

2, 1974, in case no FEE-0896 and the denial of the

appeal therefrom dated June 6, 1974, in case No.

FEA-0336 are null and void as being beyond the

agency’s authority under the Emergency Petroleum

Allocation Act of 1973, as amended, insofar as they

purport to prevent Mobil Oil Corporation from allo-

cating increased crude oil costs to regulated products;

5. The aforementioned decision and order and de-

nial of the appeal are null and void as being arbi-

trary and capricious and not based on substantial evi-

dence insofar as they purport to prevent Mobil Oil

Corporation from allocating increased costs of crude

oil to regulated products;

6. Defendants’ decision and order dated January

23, 1976, in case No. FEE-2116 and the denial of the

appeal therefrom dated June 1, 1976, in case No.

FEA-0766 are null and void as being beyond the

agency’s authority under the Emergency Petroleum

Allocation Act of 1973, as amended, insofar as they

17a

purport to prevent Mobil Oil Corporation from allo-

cating increased costs of crude oil to regulated prod-

ucts;

7. The aforementioned decision and order and de-

nial of the appeal are null and void as being arbitrary

and capricious and not based on substantial evidence

insofar as they purport to prevent Mobil Oil Corpo-

ration from allocating increased costs of crude oil

to regulated products;

8. At all times since April, 1974, Mobil Oil Corpo-

ration has been and is entitled to allocate increased

crude oil costs to products regulated by defendants;

9. Defendants’ motion for summary judgment is

denied.

SIGNED AND ENTERED this 31st day of Janu-

ary, 1979.

/s/ Joe J. Fisher

United States District Judge

18a

APPENDIX C

TEMPORARY EMERGENCY COURT OF

APPEALS OF THE UNITED STATES

No. 5-36

[Filed November 19,1979]

MosIL OIL CORPORATION, PLAINTIFF-APPELLEE

DEPARTMENT OF ENERGY AND

CHARLES W. DUNCAN, JR.,

SECRETARY OF ENERGY,

DEFENDANTS-APPELLANTS

Appeal from the United States District Court

for the Eastern District of Texas

Beaumont Division

(B-76-283-CA)

(Argued September 28, 1979

Decided November 19, 1979)

Before INGRAHAM, MorGAN and GEWIN, Judges.

INGRAHAM, Judge.

This appeal by the defendant Department of En-

ergy (DOE) arises from a decision of the district

court that an April 30, 1974 amendment to the Man-

datory Petroleum Price Regulations in Subpart E of

Title 10 of the Code of Federal Regulations is null

19a

and void.’ Having traversed ali the prescribed ave-

nues for administrative relief, and finding each one a

cul-de-sac, the plaintiff Mobil Oil Corporation brought

this action in the district court challenging the validi-

ty of the amendment. The case was submitted on

cross-motions for summary judgment. On January

31, 1979 the district court denied defendant DOEK’s

motion for summary judgment and granted plaintiff

Mobil Oil’s motion for summary judgment. The court

entered its findings of fact and conclusions of law,

which findings supported Mobil’s contentions in all

respects. The DOE properly perfected its appeal to

this court. For the reasons set out below we affirm

the judgment of the district court with modification.

Mobil Oil Corporation, one of the nation’s largest

refiners of petroleum products, utilizes a secondary

refining process involving the use of “coker units,”

the effect of which is to increase by as much as 20% ~

1 The regulation in this case was first issued by the Cost-of-

Living Council under authority granted by the Economic

Stabilization Act of 1970, 12 U.S.C. § 1904 note. With the

enactment in 1973 of the Emergency Petroleum Allocation Act,

15 U.S.C. § 751, et seq., the Federal Energy Office acquired the

responsibility for administering the regulation. Subsequently,

the FEO republished and renumbered the regulations without

making any substantive changes. 39 Fed. Reg. 1924 (1974). ©

After the enactment of the Federal Energy Administration

Act, 15 U.S.C. § 761, et seq., the Federal Energy Administra-

tion (FEA) became responsible for administering the regu-

lations. The FEA became part of the Department of Energy .

(DOE) on October 1, 1977. 42 U.S.C. § 7151(a) ; Executive

Order No. 12009, 42 Fed. Reg. 46267 (1977). Throughout this

opinion the original defendants and their successors will be

referred to as the DOE.

20a

the refinery yield of gasoline and distillate. However,

a necessary consequence of Mobil’s use of this process

is that Mobil also produces a very substantial quantity

of petroleum coke, the solid residue of the process.

Petroleum coke produced at the refinery level con-

sists of two different grades, one of which, because

of its high sulphur content, has experienced a market

decline in recent years due to increasing environ-

mental concerns. It comes as no surprise that the

bulk of Mobil’s petroleum coke is of this high sulfur

grade.

The controversy surrounds the April 30, 1974

amendment to the Mandatory Petroleum Price Regu-

lations, the effect of which was to require Code of

Federal Regulations [sic], the effect of which was to

require that all products refined from crude oil, includ-

ing those products newly exempted from regulation

by the expiration on April 30, 1974 of the Economic

Stabilization Act (ESA), 12 U.S.C. § 1904 note, bear

their pro rata share of the refiner’s increased crude

oil costs. Among the exempted products after April

30, 1974 was petroleum coke; however, gasoline and

distillates remained among the covered products un-

der the successor statute, the Emergency Petroleum

Allocation Act (EPAA), 15 U.S.C. § 751, et seg. The

operation of this amendment prevented Mobil from al-

locating any of its increased costs of crude oil to its

covered products in any greater proportion than the

volume of crude oil attributable to each of those prod-

ucts.

lain sah © Wein aber Maiti dale

2la

The relevant portion of the pricing formula that

was affected by the amendment is referred to in the

industry as the V factor. Created under the old Cost

of Living Council (CLC) regulations, which were

promulgated under the authority of the ESA, this

factor was expressed as a fraction, the numerator of

which was the total volume of a particular product or

products category sold in a specified time period and

the denominator of which was the total volume of all

covered products sold in that same time period. On

December 13, 1973, the V factor was carried over

from the old CLC regulations to the successor regula-

tions issued by the Federal Energy Office pursuant to

the newly enacted EPAA, 15 U.S.C. § 751, et seg.

The new regulations in large part merely recodified

and renumbered the old CLC regulations applicable to

refiners as 10 C.F.R. § 212.81, et seg. See 38 Fed.

Reg. 34414 (1973).

Under the CLC cost apportionment scheme, prod .ct

categories were designated as either “special prod-

ucts,” which included gasoline, No. 2 diesel fuel and

No. 2 heating oil, or “covered products other than

special products,” which consisted of all other prod-

ucts. Thus, all products refined from crude oil were

regulated under the ESA.

The regulations specifically prohibited refiners from

allocating any increased costs attributable to “covered

products other than special products” to “special prod-

ucts.” In other words, each “special product” could

bear only its proportionate share by volume of crude

oil costs. 6 C.F.R. § 356(c) (1) (i). Among “covered

22a

products other than special products,” however, a re-

finer was permitted to apprrtion increased product

costs in any manner it deemed appropriate. Id. § 356

The enactment of the EPAA brought a change to

the CLC apportionment scheme. That legislation re-

quired the allocation and pricing of “all crude oil,

residual fuel oil, and refined petroleum products.”

15 U.S.C. § 753(a). Significantly, refined petroleum

products were defined as “gasoline, kerosene, distil-

lates (including Number 2 fuel oil), LPG, refined

lubricating oils, or diesel fuel.” Jd. § 752(5). The

EPAA thus exempted from regulation certain prod-

ucts previously regulated under the ESA, namely pe-

troleum coke, petroleum wax, asphalt, road oil and

refinery gas; in other words, refinery residue.

On April 3, 1974, in anticipation of the expiration

of the ESA on April 30th, 1974, the DOE amended

its regulations to exempt the products not covered by

the EPAA from the coverage provisions of the agen-

cy’s regulations.’ At this time, just prior to April 30,

1974, the denominator of the V factor in the cost ap-

portionment formula continued to refer to the total

volume of “covered products” sold. Basically, as be-

fore, all increased products costs could be passed

through in the prices of covered products. However,

not all products were “covered products” anymore and

therefore increased costs attributable to these exempt

products could be passed through in the prices of cov-

239 Fed. Reg. 12353 (1974) (codified at 10 CFR §§ 210.34

and 212.31).

3 ee a ee Aerie Saeed

28a

ered products. The DOE, believing that the EPAA

did not permit such action, reacted by promulgating

on April 30, 1974 the amendment at issue in this

case.” Anxious to change the V factor before the

ESA expired at midnight on April 30, 1974, and be-

lieving that an emergency situation existed, the DOE

promulgated the amendment without any prior notice

to interested parties or any opportunity for them to

comment.

The amendment changed the denominator of the V

factor in relevant part from “the total volume of all

covered products sold” to “the total volume of all

covered products and all products refined from crude

petroleum other than covered products... .” 10

C.F.R. § 212.83(c) (2). Thus, the effect of the amend-

ment was to preclude Mobil from apportioning any

increased crude oil costs attributable to the exempt

products, ¢nter alia petroleum coke, to the prices of

its covered products.

Mobil predicted that it would not be able to recover

all of its costs in the prices of its high sulphur grade

petroleum coke.* Therefore, on June 5, 1974, Mobil

filed with the DOE a request for exception relief from

the operation of the regulation. Such request was de-

nied on the grounds that Mobil had suffered neither

serious hardship nor gross inequity, one of which was

°39 Fed. Reg. 15139 (1974) (codified at 10 CFR § 212.83

*The record reveals that Mobil’s prediction was correct,

since the losses in 1974 and 1975 alone amounted to over

$75,000,000.

ee a ee nee eT ae ene tT ee

24a

necessary for relief. Subsequently another refiner

whose situation was nearly identical to Mobil’s was

granted exception relief.° Mobil then applied for ex-

ception relief again, based on the grant of relief to

the other refiner, and again relief was denied. The

reasons offered by the DOE for its denial of Mobil’s

second request for exception relief were identical to

its reasons given in Mobil’s earlier denial of relief.

The DOE opined that Mobil’s case was substantially

different from the other refiner’s case.

Mobil, having thus exhausted all its administrative

remedies, brought this action in the district court seek-

ing declaratory relief. Mobil alleged primarily that

the DOE’s action in promulgating the amendment was

arbitrary and capricious, in excess of the agency’s

statutory authority and an abuse of discretion. Mobil

alleged also that the agency’s two separate denials of

exception relief were arbitrary and capricious, an

abuse of discretion and unsupported by substantial

evidence. The DOE answered, denying virtually

every allegation. Mobil later amended its complaint

to allege that the amendment had been promulgated

in violation of the notice and comment provisions of

§ 4 of the Administrative Procedures Act (APA), 5

U.S.C. § 553.

Following extensive discovery, both parties moved

for summary judgment. After written and oral argu-

ments, the district court granted Mobil’s summary

judgment motion and denied the DOE’s, finding the

5 Getty Oil Co., 2 FEA § 83,231 (Aug. 4, 1975).

hi Re tN th et

25a

April 30, 1974 amendment to the Mandatory Petrole-

um Price Regulations to be both substantively and

procedurally invalid. The court also found that the

DOE’s denial on both occasions of Mobil’s requests

for exception relief was arbitrary and capricious and

not supported by substantial evidence.

There are three questions presented for review in

this appeal. We are asked to decide whether the

agency action in promulgating the amendment of 10

C.F.R. § 212.83(c) (2) on April 30, 1974 was arbi-

trary, capricious and beyond the authority conferred

by the EPAA, 15 U.S.C. § 751, et seg.; secondly,

whether the amendment was improperly promulgated

without compliance with the provisions of § 4 of the

APA, 5 U.S.C. § 553; and finally, whether the DOE’s

denials of exception relief were within its authority

and supported by substantial evidence. Our decision

today is based narrowly upon affirmative answers to

the first two questions. We need not reach the third

question and we therefore decline to decide it.

The scope of our judicial review has been restated

so often that further elaboration is unnecessary. We

must simply determine under the guidelines set forth

in § 211(d)(1) of the ESA, 12 U.S.C. § 1904 note,

which by virtue of § 5(a) (1) of the EPAA, 15 U.S.C.

§ 754(a)(1) governs our review here, whether there

was substantial evidence in the record to support the

findings of the district court that the promulgation of

the amendment was in excess of the DOE’s authority,

was arbitrary and capricious or was otherwise un-

lawful under the Act. Grigsby v. Department of

26a

Energy, 585 F.2d 1069, 1074 (TECA 1978), cert.

denied, 99 S. Ct. 1216 (1979); Texaco, Inc. v. FEA,

531 F.2d 1071, 1076 (TECA 1976), cert. denied, 426

U.S. 941 (1976).

The DOE maintains that the district court applied

an erroneous standard of review of action alleged to

be arbitrary and capricious. It argues that judicial

review of agency action is limited to a determination

of whether the challenged action has a rational basis.

In support of its position the DOE quotes language in

Pacific Coast Meat Jobbers Ass’n v. Cost of Living

Council, 481 F.2d 1388 (TECA 1975), affirming that

the “ ‘judicial function is exhausted when there is

found to be a rational basis for the conclusions ap-

proved by the administrative body.’” Jd. at 1391,

quoting Mississippi Valley Barge Co. v. United States,

292 U.S. 282, 286-87 (1934). Furthermore, main-

tains the DOE, in applying this rational basis test,

great deference is to be accorded the actions and de-

cisions of the administrative agency.

The flaw in this argument stems from the agency’s

misconception of the applicable test. The standard of

review of agency action alleged to be arbitrary and

capricious is not simply whether there exists a ra-

tional basis for the action. Rather, as noted in

Texaco, Inc. v. FEA, supra, the inquiry is “whether

the decision was based on a consideration of relevant

factors, whether there has been a clear error of judg-

ment and whether there is a rational basis for the

conclusions approved by the administrative body.”

531 F.2d at 1076-77; Bowman Transportation, Inc. v.

es ee pe

0 eee a et Lee eile,

at ta tas Pati asa Oe tli ss tink

27a

Arkansas-Best Freight System, Inc., 419 U.S. 281,

285 (1974); Citizens to Preserve Overton Park v.

Volpe, 401 U.S. 402, 416 (1971). The enumeration

by the Texaco court of the three elements in the con-

junctive negates any implication that the rational

basis test alone can suffice. The district court did not

apply an erroneous standard of review.

Both parties agree that the factors set out in § 4

(b) of the EPAA, 15 U.S.C. § 753(b) (1), were rele-

vant to the agency’s decision.® No single factor is

inherently more important than any of the other

factors. Instead, as this court has held, all nine fac-

tors are to be balanced objectively. Pasco, Inc. v.

FEA, 525 F.2d 1391, 1897 (TECA 1975) ; Air Trans-

port Ass’n of America v. Federal Energy Office, 520

F.2d 1339, 1342 (TECA 1975) ; Consumers Union v.

Sawhill, 525 F.2d 1068, 1079 (TECA 1975) (en

banc). The statute provides that the agency action

shall attempt to achieve those objectives “to the maxi-

mum extent practicable.” 15 U.S.C. § 753(b) (1).

® Some of the factors considered pertinent by both parties

include:

(D) preservation of an economically sound and com-

petitive petroleum industry .. .;

x * * *

(F) equitable distribution of crude oil, residual fuel

oil, and refined petroleum products at eqiutable prices. ..;

a - ak eo

(H) economic efficiency; and

(I) minimization of economic distortion, inflexibility,

and unnecessary interference with market mechanisms.

15 U.S.C. § 753(b) (1).

28a

The disagreement lies in whether or not the agency

was required to consider those factors prior to its

promulgation of the amendment. We have already

noted that the proper test includes a consideration of

the relevant factors. See Texaco, Inc. v. FEA, supra,

531 F.2d at 1076-77. However, the DOE claims that

since the amendment arguably fosters certain of the

objectives, then the district court erred when it held

the amendment invalid based upon the agency’s fail-

ure to consider those objectives sufficiently.

It is clear from the record that at no time prior to

promulgating the April 30, 1974 amendment did the

DOE even consider the relevant factors or objectives

set out in § 753(b) (1). The agency admitted that it

chose to adopt the volumetric apportionment scheme

of cost allocation solely because that was the only

method set forth in the regulations at that time. Ad-

ditionally, the agency confessed that the sole purpose

of the amendment was to conform the regulations to

the expiration of the ESA, notwithstanding the

EPAA requirement that the purpose of the regula-

tions be to achieve those nine EPAA objectives to the

maximum extent practicable.

It is therefore readily apparent to us that the

agency neglected to fulfill its statutory command when

it promulgated the amendment without considering

the Act’s objectives. As such, the DOE’s action was

beyond its statutory authority. See Texaco, Inc. v.

FEA, supra, 531 F.2d at 1¢76-77. See also Nader v.

Sawhill, 514 F.2d 1064, 1067 (TECA 1975). Pacific

Coast Meat Jobbers Ass’n v. Cost of Living Council,

Mata nome mh a rt Sola wt abl

lat ils ante had eNO LONI etl than Sige Bias Ces bc th Ui tT tg chan

29a

supra, on which the agency relies for its support,

even notes that the district court “found that the

defendant CLC did consider all the factors involved

and the potential side effects of its action, and made

a rational judgment in determining to act as it did.”

481 F.2d at 1392 (emphasis added). From this, it

may be inferred that the balancing of objectives

which is required of the agency under Consumers

Union v. Sawhill, supra, could not have occurred ab-

sent consideration of the objectives of the Act before

promulgation of the amendment. Thus, the district

court did not err when it found the promulgation of

the amendment to be arbitrary and capricious and

beyond the statutory authority of the agency under

the EPAA.’

We next confront the DOE’s argument that the

challenged amendment conformed with the provisions

of § 4 of the APA, 5 U.S.C. § 553, which is incorpo-

rated by reference in §5(a)(1) of the EPAA, 15

U.S.C. § 754(a) (1). This section provides for notice

of proposed rulemaking by the agency and affords

interested persons an opportunity to comment on and

participate in the agency rulemaking. The April 30,

1974 amendment required inclusion within the V fac-

tor of the pricing formula the sales volumes of exempt

7 The district court also found that the amendment violated

the dollar for dollar pass through provision of § 4(b) (2) of

the EPAA, 15 U.S.C. § 753(b) (2). The grounds for our

decision do not require resolution of that issue. Accordingly,

we express no opinion on the district court’s finding with re-

spect to that point.

30a

products, including petroleum coke. Under the CLC

regulations in force prior to the April 30, 1974

amendment, refiners were permitted to allocate in-

creased costs for “covered products other than special

products,” which category included petroleum coke,

in any manner they deemed appropriate. It seems

clear, therefore, that substantively the April 30, 1974

amendment altered the price regulation framework

and the informal rulemaking accompanying the pro-

cedure was subject to the notice and comment stand-

ard.

The agency contends that its procedure satisfied an

exception contained in the statute. Although the APA

generally requires that during the course of an in-

formal rulemaking interested parties be given notice

and an opportunity for comment, § 553 provides that

those requirements do not apply

(A) to interpretative rules, general statements

of policy, or rules of agency organization, pro-

cedure, or practice; or (B) when the agency for

good cause finds (and incorporates the finding

in a brief statement of reason therefor in the

rules issued) that notice and public procedure

thereon are impracticable, unnecessary, or con-

trary to the public interest.

5 U.S.C. § 553 (b).

The DOE argues that it made and published a find-

ing of good cause for dispensing with normal notice

and comment requirements, thus clearing the proce-

dural hurdle. Upon promulgation of the challenged

oe ee

ee eee ee Oe eed

8la

amendment, the agency incorporated therein its state-

ment that:

Because the purpose of these amendments is

to provide immediate guidance and information

with respect to the mandatory petroleum price

rules and regulations which apply to refiner’s

permissible prices in the month of May, the Fed-

eral Energy Office finds that normal rulemaking

procedure is impracticable and that good cause

exists for making these amendments effective in

less than 30 days.

39 Fed. Reg. 15189 (1974). The DOE submits that

this finding constituted good cause.*

It is axiomatic that a mere recital of good cause

does not create good cause. Similarly, a desire to

provide immediate guidance, without more, does not

suffice for good cause. In Nader v. Sawhill, supra,

the court noted that if the “conclusory statement that

normal procedures were not followed because of the

8 The DOE relies on National Helium Corp. v. FEA, 569

F.2d 1137 (TECA 1977). In National Helium the court re-

viewed the events surrounding the passage of the EPAA

and the expiration of the ESA and concluded that good

cause did in fact exist for the DOE’s promulgation of the

April 3, 1974 amendment, regarding the statutory classifica-

tion of various products as “covered products,” without notice

or opportunity to comment. That case involved essentially the

same statement of good cause as was used by the DOE herein.

However, the court’s observation that “ [nJotably the FEO

made no substantive changes in the price regulation frame-

work it had adopted on January 15 .. .,” id. at 1142 (emphasis

added), expresses the distinction between National Helium

and the present case. Here there was definitely a substantive

change in the price regulation framework. See id. at 1146 n.19.

32a

need ‘to provide immediate guidance and informa-

tion . . . constitutes good cause, then an exception to

the notice requirement would be created that would

swallow the rule.”’” 514 F.2d at 1068 (citation

omitted).

The only other justification offered by the agency

for its good cause finding appears to be that an emer-

gency condition existed. More specifically, the rapidly

approaching date of expiration of the ESA coupled

with the agency’s oversight regarding the effect of

the expiration on the pricing formula provided the

good cause necessary for dispensing with notice and

comment. As the district court noted, the expiration

of the ESA extinguished thy agency’s authority to

regulate certain by-products of the refining process

such as petroleum coke; however, it did not require

the agency to amend its cost allocation formula. The

ESA’s expiration therefore could not serve as a basis

for a finding of good cause to dispense with the notice

and comment requirements. Shell Oil Co. v. FEA,

527 F.2d 1243 (TECA 1975), rejects the DOE’s

justification :

The record clearly shows that good cause for

avoiding compliance with the requirements of

the Administrative Procedure Act did not exist

in this case. The expiration of the Stabilization

Act was not so unexpected as would have pre-

cluded advance notice by the FEA of its own

proposed regulations for controlling rents and

accepting comments thereon prior to April 30,

1974.

a ee en ee

33a

Id. at 1248. See also United Steel Corp. v. Environ-

mental Protection Agency, 595 F.2d 207 (5th Cir.

1979) (argument that statutory deadlines made prior

notice and comment impracticable and contrary to

the public interest rejected); Sharon Steel Corp. v.

Environmental Protection Agency, 597 F.2d 377 (3d

Cir. 1979) (mere existence of deadlines for agency

action, whether set by statute or court order, does not

in itself constitute good cause for dispensing with

notice and comment). -

The agency alternatively claims post hoc that the

April 30, 1974 amendment was an interpretative rul-

ing and therefore, under 5 U.S.C. § 553(b) (A), ex-

empt from notice and comment requirements, If the

DOE had concluded that either its statutory authority .

or the existing regulations were in need of clarifica-

tion by way of an interpretative ruling, then it would

have had no reason to incorporate a finding of good

cause.

The agency attempts to generalize this argument

by pointing out that in reality the April 30, 1974

amendment did nothing more than interpret the reg- -

ulations as they existed prior to the April 3, 1974

amendment. However, it is clear that the April 3,

1974 amendment exempted products not covered by

the EPAA. Thus, any “interpretation” of regulations

concerning cost apportionment among those exempted

products prior to their exemption from the Act’s cov-

erage is irrelevant. The court did not err when it

found that the April 30, 1974 amendment did not

84a

interpret the agency’s statutory authority or its reg-

ulations.

The DOE’s reliance on Vermont Yankee Nuclear

Power Corp. v. Natural Resources Defense Councii,

Inc., 435 U.S. 519 (1978), for the proposition that

the court is imposing on it a more stringent procedur-

al requirement than Congress mandated in the APA is

misplaced. We do not impose here any additional re-

quirement; we merely intimate that the agency failed

to satisfy the specific statutory directive that notice

and an opportunity for comment accompany the rule-

making absent the existence of one of the exceptions.

Our duty is to scrutinize the record to ascertain

whether in fact an exception did exist. As was noted

in Vermont Yankee:

In short, nothing in the APA, NEPA, the cir-

cumstances of this case, the nature of the issues

being considered, past agency practice, or the

statutory mandate under which the Commission

operates permitted the court to review and over-

turn the rulemaking proceeding on the basis of

the procedural devices employed (or not em-

ployed) by the Commission so long as the Com-

mission employed at least the statutory minima.

Id. at 548.

In sum, since none of the reasons advanced by the

agency support a finding of good cause, and since the

amendment cannot be considered an interpretative

ruling, the district court did not err when it found

the April 30, 1974 amendment of 10 CFR § 212.83

35a

violation of the notice and comment provision of the

APA.®

The DOE also challenges the district court finding

with respect to the denials of exception relief. The

district court found that since the agency had grant-

ed identical exception relief to another refiner, which

relief consisted of allocating to covered products those

increased product costs arguably attributable to pe-

troleum coke, then the agency’s denial of Mobil’s sec-

ond request for exception relief was arbitrary and

capricious, in excess of the agency’s statutory auth-

ority and unsupported by substantial evidence. This

finding, insists the agency, was error. Since we have

already determined for other reasons that the chal-

lenged amendment was never validly promulgated,

either substantively or procedurally, we assume, with-

out deciding, that Mobil is in need of no exception re-

lief from the operation of the amendment.

We note here that although the principal issue in

this case is the validity of the April 30, 1974 amend-

ment, it must be pointed out also that the district

court judgment in holding the amendment invalid

®The DOE stresses the fact that subsequent rulemakings

(concerning modification of the V factor and other allocation

and cost formulas) were conducted with notice and comment,

thus supporting its position that the V factor as modified by

the April 30, 1974 amendment ought to be upheld. But if the

agency deemed all those V factor rulemakings of a type that

necessitated notice and comment, surely the April 30, 1974

rulemaking required no less. Moreover, the opportunity to

comment after promulgation cannot substitute for notice and

an opportunity to comment beforehand.

36a

and permitting Mobil to allocate increased costs as-

sociated with exempt products to covered products

apparently entitles Mobil to reallocate costs continu-

ously from April 1974 up to the present. The agency

alleges that this is incorrect.’ We agree.

In December 1975, Congress enacted the Energy

Policy and Conservation Act, Pub. L. No. 94-163, 89

Stat. 871 (codified in scattered sections of 5, 10, 15,

30, 42, 50 U.S.C.). That Act amended § 4(b) (2) of

the EPAA, 15 U.S.C. § 753(b) (2) to provide in per-

tinent part that the regulations, in specifying prices

or the manner in which prices are determined, “shall

not permit more than a direct proportionate distribu-

tion (by volume) to Number 2 oils (Number 2 heat-

ing oil and Number 2-B diesel fuel), aviation fuel of

a kerosene or naphtha type, and propane produced

from crude oil, of any increased costs of crude oil in-

curred by a refiner... .” Id. § 753(b) (2) (B).

The argument is as follows: As of February 1,

1976, the effective date of the statutory amendment,

the agency was prohibited from authorizing pass

through of increased product costs to prices of speci-

fied products in any greater amount than a directly

proportionate amount by volume. Since the effect of

the district court judgment is to allow the pass

through to any covered products, including those prod-

10 Mobil, during the pendency of this appeal, filed a Motion

to Strike certain portions of the agency’s appellate brief and

appendix, alleging that factual and legal matters not raised

below were asserted initially on appeal to this court. We will

decide the case on its merits and judicially notice the relevant

statutes.

37a

ucts specifically restricted by § 4(b)(2)(B) without

any limitation on proportions by volume, then the

percentage of total costs allocated to the specified

products might be greater than a proportionate

amount by volume. Thus, the judgment contravenes

the statutory directive.

It may be argued, on the other hand, that so long

as Mobil does not allocate increased product costs to

those specified products in any greater amount than

statutorily authorized, then the judgment does not

conflict with the statute. However, we believe the de-

cisive point is that the judgment permits unrestricted

cost pass through to the specified products in a man-

ner which might result in a greater than proportion-

ate allocation by volume. For that reason alone, the

judgment must be modified." Accordingly, the case

must be remanded to the district court for findings

consistent with the foregoing comments.

In conclusion, we find that the district court did

not err when it found the challenged amendment to

The agency contends that a subsequent rulemaking in

September 1974, concerning non-product cost pass through,

also cures any defect in the April 30, 1974 amendment, since

Mobil was given notice and an opportunity to comment at that

time. However, Mobil’s opportunity to comment in a subse

qent rulemaking involving non-product cost pass through in

no way substitutes for its right to comment in the prior pro<'-

uct cost pass through rulemaking. Furthermore, the receipt

of comments after promulgation cannot cure prior rulemaking

defects. Consequently, the judgment was not incorrect insofar

as it permitted to [sic] Mobil to allocate exempt product costs

to covered products during the period of time between the

September 19, 1974 [sic] rulemaking and the February 1, 1976

effective date of the congressional amendment to the EPAA.

38a

the Mandatory Petroleum Price Regulations, 10

C.F.R. § 212.83(c) (2), promulgated on April 30,

1974 null and void as being arbitrary and capricious

and beyond the agency’s authority. Likewise, the dis-

trict court did not err when it found that the agency

did not comply with the requirements of § 4 of the

APA, 5 U.S.C. § 553, thus rendering the amendment

procedurally invalid. For the reasons discussed above,

we do not decide the issue of whether the agency’s

denials of exception relief were arbitrary and caprici-

ous and unsupported by substantial evidence. Based

solely upon the above narrow grounds the judgment is

affirmed as modified.

AFFIRMED IN PART and REMANDED FOR

FURTHER FINDINGS.

39a

APPENDIX D

TEMPORARY EMERGENCY COURT OF

APPEALS OF THE UNITED STATES

No. 5-386

MOBIL OIL CORPORATION, PLAINTIFF-APPELLEE

Vv.

DEPARTMENT OF ENERGY AND

CHARLES W. DUNCAN, JR.,

SECRETARY OF ENERGY,

DEFENDANTS-APPELLANTS

Before INGRAHAM, MORGAN and GEWIN, Judges.

[JUDGMENT]

This cause came on to be heard on the record on

appeal from the United States District Court for the

Eastern District of Texas, Beaumont Division, and

was argued by counsel. In consideration whereof,

IT IS ORDERED that the judgment of the dis-

trict court is AFFIRMED IN PART and the case is

REMANDED FOR FURTHER FINDINGS.

FOR THE COURT:

RUTH H. JACOBSON

Clerk

by: /s/ Donna M. Bold

DONNA M. BOLD

Chief Deputy Clerk

November 19, 1979

(District Court No. Civ. B-76-283-CA )

40a

APPENDIX E

TEMPORARY EMERGENCY COURT OF

APPEALS OF THE UNITED STATES

No. 5-36

MOoBIL OIL CORPORATION, PLAINTIFF-APPELLEE

Vv.

DEPARTMENT OF ENERGY AND

Dr. JAMES R. SCHLESINGER,

DEFENDANTS-APPELLANTS

[ORDER]

Before HONORABLE JOE MCDONALD INGRAHAM, HON-

ORABLE LEWIS R. MORGAN and HONORABLE WALTER

P. GEWIN, Judges.

Upon consideration of Appellants’ Petition for Re-

hearing and Suggestion for Rehearing En Banc,

It is ORDERED that said Petition for Rehearing

and Suggestion for Rehearing En Banc are DENIED.

The mandate will issue on February 11, 1980.

FOR THE COURT:

RUTH H. JACOBSON

Clerk

by: /s/ Michael S. Levine

MICHAEL S. LEVINE

Deputy Clerk

February 4, 1980

4la

APPENDIX F

5 U.S.C. 553 provides in part:

* * * * *

(b) General notice of proposed rule making shall

be published in the Federal Register, unless persons

subject thereto are named and either personally

served or otherwise have actual notice thereof in ac-

cordance with law. The notice shall include—

(1) a statement of the time, place, and nature

of public rule making proceedings;

(2) reference to the legal authority under

which the rule is proposed; and

(3) either the terms or substance of the pro-

posed rule or a description of the subjects and

issues involved.

Except when notice or hearing is .equired by statute,

this subsection does not apply—

(A) to interpretative rules, general state-

ments of policy, or rules of agency organization,

procedure, or practice; or

(B) when the agency for good cause finds

(and incorporates the finding and a brief state-

ment of reasons therefor in the rules issued)

that notice and public procedure thereon are im-

practicable, unnecessary, or contrary to the pub-

lic interest.

* * * * *

(d) The required publication or service of a sub-

stantive rule shall be made not less than 30 days

before its effective date, except—

(1) a substantive rule which grants or recog-

nizes an exemption or relieves a restriction;

(2) interpretative rules and statements of

policy; or

42a

(3) as otherwise provided by the agency for

good cause found and published with the rule.

* * * * *

15 U.S.C. 753 provides in part:

(a) Not later than fifteen days after November

27, 1973, the 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 deter-

mined in a manner prescribed by) such regulation.

Subject to subsection (d) of this section, such regu- |

lation shall take effect not later than fifteen days

after its promulgation. Such regulation shall apply

to all crude oil, residual fuel oil, and refined petro-

leum products produced in or imported into the United

States.

(b)(1) The regulation under subsection (a) of

this section, to the maximum extent practicable, shall

provide for—

(A) protection of public health (including the

production of pharmaceuticals), safety and wel-

fare (including maintenance of residential heat-

ing, such as individual homes, apartments and

similar occupied dwelling units), and the national

defense;

(B) maintenance of all public services (in-

cluding facilities and services provided by munic-

ipally, cooperatively, or investor owned utilities

or by any State or local government or authority,

and including transportation facilities and serv-

ices which serve the public at large) ;

including farming, ranching, dairy, and fishing

activities, and services directly related thereto;

43a

(D) preservation of an economically sound

and competitive petroleum industry; including

the priority needs to restore and foster competi-

tion in the producing, refining, distribution, mar-

keting, and petrochemical sectors of such indus-

try, 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, resid-

ual fuel oil, and refined petreleum 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

(ji) minerals essential to the require-

ments of the United States,

and for required transportation related thereto;

(H) economic efficiency ; and

(1) minimization of economic distortion, in-

flexibility, and unnecessary interference with

market mechanisms.

44a | 45a

Product Cost Allocation Under

APPENDIX G Regulations After

April 30, 1974

COMPARISON OF PRODUCT COST ALLOCATION a: ae

UNDER THE AGENCY’S REGULATIONS AND 40 gallons x $1000=$400

THE COURT OF APPEALS’ DECISION 100 gallons (total

: “covered” and “exempt’’)

The following calculations are based on a refiner : No. 2 Oils:

with $1000 of increased crude oil costs in a given 20 gallons x $1000=$200

period and the following petroleum product mix: (1) 100 gallons (total

40 gallons of gasoline, (2) 20 gallons of No. 2 oils “covered” and “exempt”)

and (3) 40 gallons of various other products, of which Other Covered Products:

10 gallons represent the five petroleum products 30 gallons x $1000=$300

exempted from coverage under the Emergency Petro- 100 gallons (total

leum Allocation Act. “covered” and “exempt”) Se

= $900

Product Cost Allocation Under ; The remaining costs (or more) could be recovered

ee olenog to in free market prices of exempt products.

initia wins Product Cost Allocation Under

Court of Appeals’ Decision

40 gallons x $1000=$400 From April 30, 1974 to

100 gallons (total February 1, 1976

“covered” products) Gasoline:

No. 2 Oils: 40 gallons x $1000=$444.45

20 gallons x $1000=$200 90 ae — a

100 gallons (total : —

“covered” products) No. 2 Oils:

Other Covered Products: 20 oe GI = fone

es 90 gallons (total

——— oe x $1000=$400 “covered” products)

gallons ,

“covered” products) Other Covered Products:

yee 30 gallons x $1000=$333.33

=$1000

90 gallons (total

“covered” products)

=$1000

Costs may be recovered without limit

in the price of exempt products.

46a

Thus, if the April 30, 1974, amendment were in-

valid, 100% of the increased crude oil costs would be

available for pass through in the prices of covered

products even though those products represent only

90% of the refiner’s total output. Moreover special

products (¢.g., No. 2 oils and, for a time, motor gas-

oline) would bear more than a volumetric share of in-

creased crude oil costs. Cost recovery in the sale of

exempt products would be unlimited.

YY U.S. GOVERNMENT PRINTING orrice; 1980 315123 248

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.