# Petition — Department of Energy v. Mobil Oil Corp. > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385006_1792%3A1 ## Record - **Collection:** Supreme Court brief - **Document type:** Petition - **Published:** January 1, 1980 - **Citation:** 446 U.S. 937 ## Text 4 P eres In the Supreme Cont of the United States OCTOBER TERM, 1979 DEPARTMENT OF ENERGY AND CHARLES W. DUNCAN, JR., SECRETARY OF ENERGY, PETITIONERS u. 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 IV 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 We 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) 2 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. 3 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- 4 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, 5 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 6 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.” 7 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). 8 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- 9 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. 10 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). 11 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). 12 “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). 13 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. 14 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. 15 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. 16 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 17 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- 18 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. 19 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 20 “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 21 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. 22 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. 23 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. 24 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 25 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). 26 (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 27 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 28 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. 29 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 - la 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- 2a 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 8a 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). 4a 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 (c) (2) to require that a percentage of increased 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- 5a 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 6a 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 Ta 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 8a 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 9a 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 v. 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 (c) (1) (ii). 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 (c) (2). *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 (c) (2) null and void as having been promulgated in 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) ; (C) maintenance of agricultural operations, 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 b] 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 --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385006_1792%3A1. Public record. Not legal advice.