Petition — Energy Consumers & Producers Ass'n v. Department of Energy

Supreme Court, U.S.

rIiLe 2

WAY 27 1980

Suihe Supreme Court of the Gnited Ipetateson JR., CLERK

OcTOBER TERM, 1979

No. ...°2.9.=..1 8 7 5

ENERGY CONSUMERS AND PRODUCERS

ASSOCIATION, INC.,

Petitioner,

VERSUS

DEPARTMENT OF ENERGY,

Respondent.

PETITION FOR A WRIT OF CERTIORARI TO THE

TEMPORARY EMERGENCY COURT OF APPEALS

OF THE UNITED STATES

RICHARD L. BOHANON

Andrews Davis Legg Bixler

Milsten & Murrah

1600 Midland Center

Oklahoma City, Oklahoma 73102

FRED A. GIPSON

Gipson, Johnston & McMains

P.O. Box 1641

Seminole, Oklahoma 74868

RICHARD S. ROBERTS

P.O. Drawer 839

Wewoka, Oklahoma 174884

Counsel for Petitioner

May 27, 1980

TABLE OF CONTENTS

PAGE

OPINIONS BELOW ...

1

JURISDICTION 2

QUESTIONS PRESENTED 2

STATUTORY PROVISIONS INVOLVED 2

3

5

STATEMENT OF THE CASE

REASONS FOR GRANTING THE WRIT

1. The Decision Conflicts With a Prior Decision

of this Court 5

2. The Decision Is In Conflict With Those of

Other Courts of Appeals 7

3. The Decision Concerns an Important Question

of Federal Law Which Should Be Settled by

this Court 9

CONCLUSION 13

APPENDIX

Opinion of Temporary Emergency Court of Appeals

(April 4, 1980) — A-1

Order of Temporary Emergency Court of Appeals

(May 6, 1980) _. A-33

Opinion of United States Court of Appeals for the

Tenth Circuit (Oct. 23, 1979) A-34

Memorandum Opinion of United States District Court

for the Eastern District of Oklahoma (June 29,

1979) A-39

Judgment of United States District Court for the East-

ern District of Oklahoma (June 29, 1979) _......-.-. A-54

—

TABLE OF AUTHORITIES

Cases

Associated General Contractors of America, Inc. v. La-

borers Int’] Union Local 612, 489 F.2d 749 (Temp.

Emer. Ct. App. 1973)

Bray v. United States, 423 U.S. 73 (1975)

Chrysler Corp. v. Brown, 441 U.S. 281 (1979) —.

City of Groton v. Federal Power Commission, 487 F.2d

927 (Temp. Emer. Ct. App. 1973)

Coastal States Marketing, Inc. v. New England Petro-

leum Corp., 604 F.2d 179 (2d Cir. 1979)

Energy Reserves Group, Inc. v. DOE, 589 F.2d 1082

(Temp. Emer. Ct. App. 1978)

General Electric Co. v. Gilbert, 429 U.S. 125 (1976) __

Gordon v. Laborer’s Int’] Union of North America, 490

F.2d 133 (10th Cir. 1973), cert. denied, 419 U.S. 836

(1974)

Morton v. Ruiz, 415 U.S. 199 (1974)

Municipal Electric Utility Ass’n v. Federal Power

Comm’n, 485 F.2d 967 (D.C. Cir. 1973)

NLRB v. Wyman-Gordon Co., 394 U.S. 759 (1969)

Oklahoma Association of Energy Consumers and Pro-

ducers v. Federal Energy Administration, No. 79-

1847 (10th Cir., Oct. 23, 1979)

Quincy Oil, Inc. v. FEA, No. 1-5 (Temp. Emer. Ct.

App., filed Apr. 24, 1980)

Skidmore v. Swift & Co., 323 U.S. 134 (1944) _.._ a

Spinetti v. Atlantic Richfield Company, 522 F.2d 1401

(Temp. Emer. Ct. App. 1975)

Texaco, Inc. v. DOE, No. 78-1433 (Temp. Emer. Ct.

App., filed Oct. 15, 1979)

PAGE

12

12

12

3, 7,9

alias

AUTHORITIES CONTINUED PAGE

United States v. Cooper, 482 F.2d 1393 (Temp. Emer.

Ct. App. 1973) 9

United States v. Wickland, No. 9-45 sited Emer. Ct.

App., filed Apr. 18, 1980) 8

Vermont Yankee Nuclear Power Corp. v. NRDC, 435

U.S. 519 (1978) 12

Whelan v. Brinegar, 538 F.2d 924 (2d Cir. 1976) ___ 9

United States Code

5 U.S.C. § 533 3

5 U.S.C. § 553(b) (A) 3, 10

12 U.S.C. § 1904 2,5

15 U.S.C. § 754(a) (1) 2,3

15 U.S.C. § 757 (i) 10

15 U.S.C. § 766 3

28 U.S.C. § 1254(1) 2

28 U.S.C. § 1331 3

Code of Federal Regulations

10 C.F.R. 210.32 10

Other Authorities

1 Davis, Administrative Law Treatise § 503, at 304

(1st ed. 1958) 11

- In the

Supreme Court of the United States

OcTOBER TERM, 1979

No.

ENERGY CONSUMERS AND PRODUCERS

ASSOCIATION, INC.,

Petitioner,

VERSUS

DEPARTMENT OF ENERGY,

Respondent.

PETITION FOR A WRIT OF CERTIORARI TO THE

TEMPORARY EMERGENCY COURT OF APPEALS

OF THE UNITED STATES

The petitioner Energy Consumers and Producers Asso-

ciation, Inc. (“ECPA”) respectfully petitions that a writ

of certiorari issue to review the judgment and opinion en-

tered in this proceeding on April 4, 1980.

OPINIONS BELOW

The opinion of the Temporary Emergency Court of Ap-

peals, not yet reported, appears in the Appendix together

with the Judgment and Memorandum Opinion of the United

States District Court for the Eastern District of Oklahoma.

or en

JURISDICTION

The judgment of the Temporary Emergency Court of

Appeals was entered on April 4, 1980. A timely petition for

rehearing en banc was denied on April 28, 1980, and this

petition was filed within 30 days. A copy of the order de-

nying rehearing is in the Appendix. Jurisdiction of this

Court is invoked under 28 U.S.C. § 1254(1).

QUESTIONS PRESENTED

1. What are the proper limits of the subject matter

jurisdiction of the Temporary Emergency Court of Appeals?

2. When is a rule interpretative and, therefore, ex-

cepted from the notice requirement of the Administrative

Procedure Act?

STATUTORY PROVISIONS INVOLVED

1. Section 211(b)(2) of the Economic Stabilization

Act of 1970, as amended, 12 U.S.C. § 1904 note provides in

pertinent part:

Except as otherwise provided in this section, the Temp-

orary Emergency Court of Appeals shall have exclusive

jurisdiction of all appeals from the district courts of the

United States in cases and controversies arising under

this title or under regulations or orders issued there-

under.

This grant of limited jurisdiction was incorporated by

reference into Section 5(a) (1) of the Emergency Petroleum

Allocation Act of 1975. 15 U.S.C. § 754(a) (1).

atin

2. Section 4(a) of the Administrative Procedure Act,

5 U.S.C. § 553(b) (A), provides in pertinent part:

(b) General notice of proposed rule making shall

be published in the Federal Register...

*x * *

Except when notice or hearing is required by stat-

ute, this subsection does not apply —

(A) to interpretative rules, general statements of

policy, or rules of agency organization, procedure, or

practice...

STATEMENT OF THE CASE

The ECPA! complained against the Federal Energy

Administration, now the Department of Energy (“DOE”),

seeking a judgment declaring two “rulings” invalid. Part

III of Ruling 1975-12 dealing with the stripper well exemp-

tion from crude oil price controls is the one in issue here

and was challenged on the grounds that its promulgation

did not comply with the Administrative Procedure Act,

particularly the notice requirement. See 5 U.S.C. § 553.

Federal jurisdiction is provided by 15 U.S.C. §§ 754(a) (1)

and 766. See also 28 U.S.C. § 1331.

The District Court held in favor of the ECPA on the

issue concerning Ruling 1975-12. The reasons stated in its

1 The Complaint was brought by Oklahoma Association of Energy Con-

sumers and Producers whose name was subsequently changed to Energy

Consumers and Producers Association.

2 On the issue of the other ruling the District Court held in favor of the

Government. ECPA appealed to the Court of Appeals for the Tenth

Circuit. It dismissed the appeal for lack of jurisdiction and its opinion

is in the Appendix. Oklahoma Association of Energy Consumers and

Producers V. Federal Energy Administration, No. 79-1847 (10th Cir.,

Oct. 23, 1979).

a en

Memorandum Opinion are that the Ruling was invalid be-

cause it is not interpretative and, thus, the Administrative

Procedure Act required notice.

The DOE appealed to the Temporary Emergency Court

of Appeals (“TECA”). ECPA’s motion to dismiss for lack

of subject matter jurisdiction was denied.

The ECPA argued that the TECA did not have juris-

diction, for the case does not arise under either the Eco-

nomic Stabilization Act or the Emergency Petroleum Allo-

cation Act. In its opinion the TECA shields its jurisdiction

with only a quotation from a footnote in one of its prior

decisions (App., pp. A-20 - A-21). It ignores decisions of this

Court and others holding that the TECA’s limited jurisdic-

tion as a special court extends only to appeals where the

issues adjudicated concern the substantive provisions of the

crude oil price regulation scheme.

On the rule making issue the decision holds that the

DOE was not obliged to provide notice prior to adopting

Ruling 1975-12. We would submit that Congress did not

intend for agencies to have a free hand to enact such rul-

ings without opportunity for comment. Furthermore, de-

cisions discussing the notice requirement are unclear. It

is a matter where the agencies could benefit by explicit

guidelines from this Court.

Both questions cause confusion and need to be set to

rest.

a we

REASONS FOR GRANTING THE WRIT

1. THE DECISION CONFLICTS WITH A PRIOR

DECISION OF THIS COURT.

It is fundamental that parties should not be required

to guess, at their peril, where an appeal lies or be required

to appeal a decision to more than one court. Nevertheless,

that is the situation which exists today in federal energy

law disputes.

By the Economic Stabilization Act, Congress set about

upon a program intended to create better economic condi-

tions and to stabilize wages and prices. It perceived that

the executive branch needs authority to act promptly. See

Section 202 of the Economic Stabilization Act of 1970, 12

U.S.C. § 1904 note. Accordingly, the TECA was created as

a special court to “. . . expedite the determination of cases

over which it has jurisdiction under this title.” Id. at Sec-

tion 211(b) (1).

Its limited jurisdiction is for review “. .. in cases and

controversies arising under this title or under regulations

cr orders issued thereunder.” Id. at Section 211(b) (2). The

Congressional reasoning is obvious. The scheme was orig-

inally for control of an emergency involving complex reg-

ulations for the production, refining and distribution of

petroleum products. The existence of an appellate court

possessing familiarity and special expertise, gained by repe-

tition, should provide expedited and consistent resolution

of disputes concerning it.

This case, however, concerns only issues of adminis-

trative law and is thus without the special jurisdictional

justification.

oe

The TECA chooses to leave unmentioned this Court’s

only decision touching the issue, Bray v. United States, 423

U.S. 73 (1975). Bray was convicted of criminal contempt

for failing to comply with a subpoena issued under the

Economic Stabilization Act and appealed to the Tenth Cir-

cuit. It dismissed his appeal saying it belonged in the TECA.

This Court reversed and remanded to the Tenth Cir-

cuit. The opinion explains the reasons for the special court

and says that “[r]Jeview in the TECA of criminal contempt

convictions relating to compliance investigations or enforce-

ment efforts is not necessary to assure uniform interpre-

tation of the substantive provisions of the stabilization

scheme. Indeed, a requirement of such review would only

serve to undermine the prompt resolution of Stabilization

Act questions by burdening the TECA with additional ap-

peals.” 423 U.S. at 75.

We seek opportunity to show that the same good logic

should apply to review of general administrative law is-

sues — and, as well, to all issues other than those tied di-

rectly to the price control program. And, regardless of the

final decision, the administration of justice in the develop-

ing energy law field requires predictability in a matter so

basic as the proper appellate forum.

=

2. THE DECISION IS IN CONFLICT WITH

THOSE OF OTHER COURTS OF APPEALS.

The Court of Appeals for the Second Circuit has taken

another, unusual, approach holding that the proper pro-

cedure for review is one of dual appeals. Coastal States

Marketing, Inc. v. New England Petroleum Corp., 604 F.2d

179 (2d Cir. 1979), began as an action on contract and the

defendant raised a defense based upon a price control regu-

lation which was rejected. It noticed appeals in both the

TECA and Second Circuit, and moved to transfer the latter

to the TECA.

The decision holds that the TECA’s jurisdiction is de-

pendent upon the issue actually adjudicated by the district

court; that the TECA would relinquish any other issues;

and that an appellant who may be in doubt must take two

appeals. If this novel procedure is proper we believe this

Court should be the one to resolve and explain it.

The Court of Appeals for the Tenth Circuit has spoken

of the bifurcated appeals procedure by saying “[t]here is

little to be gained, however, other than mass confusion, by

the promoting of simultaneous circuit court-TECA appeals.”

Oklahoma Ass’n of Energy Consumers and Producers v.

Federal Energy Administration (10th Cir., Oct. 23, 1979)

(App., p. A-34). It then held that since the Ruling under

consideration did involve a regulation dealing with sub-

stantive provisions the appeal was, correctly, to the TECA.

The confusing and inconsistent status of a rule which

ought to be absolutely fundamental is exemplified still

further by the TECA’s own rulings on the subject. In a

most recent decision the appellant guessed wrong and lost

sities

his right to be heard. See United States v. Wickland, No.

9-45 (Temp.Emer.Ct.App. filed Apr. 18, 1980). There Wick-

land was served with a subpoena to produce records and

was ordered to comply by the district court. He appealed

to the Ninth Circuit which transferred the appeal to the

TECA. Wickland relied upon the rationale of Coastal States,

supra, and argued that the district court had “adjudicated”

only general issues of subpoena enforcement which did not

require any special expertise. The TECA, interestingly,

again chose not to mention this Court’s holding in Bray v.

United States, supra, and said that “. . . ‘general questions

of administrative law’ are clearly interwoven with pro-

visions of the ESA and EPAA and invoke policy questions

directly affecting the EPAA and its enforcement.” United

States v. Wickland, supra (Slip op. at 7-8). This now cre-

ates an additional standard for determining the proper ap-

pellate forum — the “interwoven policy question” jurisdic-

tional theory.

In attempting to choose the correct court an appellant

has obvious dilemmas. Does he make his decision based

upon whether or not the appeal will turn upon a “substan-

tive” issue as in Bray, supra? Does he decide by pondering

whether or not the question “adjudicated” by the district

court was an “ESA issue” as in Coastal States, supra? Al-

ternatively, does he decide by speculating whether or not

there is an “interwoven policy question” which might affect

the EPAA or its enforcement as in United States v. Wick-

land, supra? Or, does he appeal simultaneously to multiple

courts and, in the Tenth Circuit’s language, create “mass

wien

confusion”? Oklahoma Ass’n of Energy Consumers and Pro-

ducers v. Federal Energy Administration, supra.*

That a party seeking review of a judgment should face

dilemmas like this concerning a matter so basic is absurd

to the point of injustice, lacking essential due process of

law.

Even though the proper appellate procedure may not

be clear, it is evident that there is a conflict between the

Courts of Appeals.

3. THE DECISION CONCERNS AN IMPORTANT

QUESTION OF FEDERAL LAW WHICH

SHOULD BE SETTLED BY THIS COURT.

In times of ever increasing lawmaking by administra-

tive agencies, they need settled guidelines explaining when

affected parties are entitled to notice and opportunity to

comment.

3 See also United States v. Cooper, 482 F.2d 1393, 1398-1399 (Temp.

Emer. Ct. App. 1973); Associated General Contractors of America, Inc.

v. Laborers Int'l Union Local 612, 489 F.2d 749 (Temp. Emer. Crt. App.

1973); City of Groton v. Federal Power Commission, 487 F.2d 927,

936 (Temp. Emer. Ct. App. 1973); Spinetti v. Atlantic Richfield Com-

pany, 522 F.2d 1401, 1403 (Temp. Emer.Ct. App. 1975); Municipal

Electric Utility Ass'n V. Federal Power Comm'n, 485 F.2d 967, 970

(DC. Cir. 1973); Whelan v. Brinegar, 538 F.2d 924 (2d Cir. 1976);

Gordon Vv. Laborer’s Int'l Union of North America, 490 F.2d 133, 139

(10th Cir. 1973), cert. denied, 419 US. 836 (1974); Texaco, Inc. V.

DOE, No. 78-1433 (Temp. Emer. Ct. App. filed Oct. 15, 1979) and

Quincy Oil, Inc. V. FEA, No. 1-5 (Temp. Emer. Ct. App. filed April 24,

1980).

That the jurisdictional question should have fostered so many de-

cisions in the short period of the TECA’s existence further exemplifies

the confusion.

— on

The DOE ruling in issue here is Part III of Ruling

1975-12 which is part of the exemption from price controls

provided for stripper wells. See 15 U.S.C. §'757(i) and

10 C.F.R. 210.32. In sum, the exemption pertains to wells

having daily production not in excess of 10 barrels of crude

oil. The Ruling deals with wells whose production comes

from multiple formations.

The ruling was issued without notice. The only ex-

cuse claimed is that the ruling is “interpretative” and, thus,

excepted from the notice requirement by 5 U.S.C. § 553

(b) (A).

The District Court held that this ruling did not qualify

for the exception. The TECA reversed, saying it was inter-

pretative and, therefore, valid without notice.

‘Unfortunately or perhaps inevitably, the law in this

area, especially as applied in the TECA, has sunk to a level

of games playing with meaningless labels and catchwords.

In order to determine rights of basic importance, agencies

and courts are caught up in attempts to decipher phrases

such as “substantial impact”, “rational basis”, “contempor-

aneous construction”, “judicial deference” and others, al-

most to the point of ridicule. The question of when an

agency must afford notice deserves a clear answer in the

interests of good administration of governmenta) policy.

The decision rendered by the TECA in our case shows

the need for meaningful standards. The gist of the holding

is that Ruling 1975-12 is interpretative because it interprets

4 The pertinent part of the Ruling is set out in the TECA’s decision.

See Appendix, pp. A-3 - A-5.

tettios

something or nothing. For this proposition it cites 1 Davis,

Administrative Law Treatise § 5.03, at 304 (1st ed. 1958).

The same paragraph of the treatise, however, goes on to

say:

... The theory [relied upon by the TECA] may have

a useful purpose and it may have in it an element of

validity. But for those who are more concerned with

immediete realities than with metaphysical brooding,

the plain fact is that giving specific meaning to vague

or ambiguous or nonexistent words of a statute is often

creative law making, whether or not the court or offi-

cer talks about the task in terms of discovering the

legislative intent. The Supreme Court increasingly ac-

knowledges that what is commonly called interpreta-

tion is in truth the creation of law.

Id. at 304-305.

Persons whose businesses and personal affairs are se-

verely affected by administrative acts are, quite definitely,

interested in the resulting “immediate realities.”

Since the decision for which we seek review relies

upon a previous one of the same Court, delivered by the

same Judge, it also deserves some attention. In Energy

Reserves Group, Inc. v. DOE, 589 F.2d 1082 (Temp.Emer.

Ct.App. 1978), another stripper well “ruling” was held to

be within the interpretative exception. There we again

confront the perplexing standard that a ruling was inter-

pretative because the agency applied that label to it; that

since it interprets something it is interpretative; and that

the “impact” of a ruling is not a factor in considering its

procedural validity. Id. at 1092. The decision also quotes

Professor Davis concerning the distinction between inter-

pretative and legislative rules sayi..., that “. . the Supreme

_ a

Court apparently has never provided a full-bodied discus-

sion of it.” Id. at 1093.

Statements of this Court indicate that the TECA is

encouraging the agencies to follow an im proper course. See

Chrysler Corp. v. Brown, 441 U.S. 281 (1979); NLRB v.

Wyman-Gordon Co., 394 U.S. 759 (1969); Morton v. Ruiz,

415 U.S. 199 (1974); General Electric Co. v. Gilbert, 429

U.S. 125 (1976); Skidmore v. Swift & Co., 323 U.S. 134

(1944) and Vermont Yankee Nuclear Power Corp. v. NRDC,

435 U.S. 519 (1978). These authorities all point to a rule

that the standards of the Administrative Procedure Act re-

quire notice in all but the most rare cases.

We submit that with increasing administrative activity

aimed at controlling fundamental rights the time is at hand

for a definitive statement explaining when the agencies

must provide notice.

sine

CONCLUSION

For these reasons, a writ of certiorari should issue to

review the judgment and opinion of the Temporary Emer-

gency Court of Appeals.

Respectfully submitted,

RICHARD L. BOHANON

Andrews Davis Legg Bixler

Milsten & Murrah

1600 Midland Center

Oklahoma City, Oklahoma 73102

FRED A. GIPSON

Gipson, Johnston & McMains

P.O. Box 1641

Seminole, Oklahoma 174868

RICHARD S. ROBERTS

P.O. Drawer 839

Wewoka, Oklahoma 74884

Counsel for Petitioner

May 27, 1980

APPENDIX

TEMPORARY EMERGENCY COURT OF APPEALS

OF THE UNITED STATES

No. 10-21

ENERGY CONSUMERS AND

PropucERS ASSOCIATION, INC.,

formerly OKLAHOMA ASSOCIATION OF

ENERGY CONSUMERS AND PRODUCERS, INC.,

PLAINTIFF-APPELLEE,

Ve

DEPARTMENT OF ENERGY,

DEFENDANT-APPELLANT.

Appeal from the United States District Court

for the Eastern District of Oklahoma

(Argued: November 16, 1979 Decided: April 4, 1980)

Dina R. Lassow, of the Department of Justice, with whom

Alice Daniel, Acting Assistant Attorney General, of the

Civil Division, Department of Justice, C. Max Vassanelli,

of the Department of Justice, Washington, D.C., John P.

McKenna, Arthur E. Gowran, and Frank W. Krogh of the

Office of General Counsel, Department of Energy, Wash-

ington, D.C., were on the brief for defendant-appellant De-

partment of Energy.

Frep A. Gipson of Seminole, Oklahoma, with whom Rich-

ard L. Bohanon and Lynn A. Pringle, of Bohanon & Barth,

Oklahoma City, Oklahoma and Richard S. Roberts of We-

woka, Oklahoma, were on the brief for plaintiff-appellee,

Energy Consumers and Producers Association, Inc., form-

erly Oklahoma Association of Energy Consumers and Pro-

ducers, Inc.

Before CHRISTENSEN, JOHNSON and BECKER, Judges

BECKER, Judge.

On this appeal the appellant Department of Energy

(DOE) assigns error in the ruling of the district court ad-

A-2

[APPENDIX]

judging invalid Part III of Ruling 1975-12, which was issued

on August 29, 1975 by the General Counsel of the Federal

Energy Administration (FEA), predecessor of DOE, as an

interpretative ruling, without prior public notice and op-

portunity to comment required by paragraphs (b) and (c)

of § 553, Title 5 U.S.C., a part of the Administrative Pro-

cedure Act (APA), codified as Subchapter IT, § 551 to § 559

inclusive, Title 5 U.S.C. Ruling 1975-12 was first published

on September 4, 1975. (40 F.R. 40828.)

Part III of Ruling 1975-12 purported to interpret the

exemption from price control of crude oil produced from

“stripper wells,” provided in successive statutes and regu-

lations of DOE and its predecessors FEA, Federal Energy

Office (FEO) and Cost of Living Council (CLC). The stat-

utory and regulatory history of the “stripper well” exemp-

tion, material to this appeal, is fully and accurately set

forth in the original majority and dissenting opinions in

Energy Reserves Group, Inc. v. Department of Energy

(TECA 1978) 589 F.2d 1082, explained in Duncan v. Theis

(TECA 1979) __. F.2d ___, (No. 10-22, December 27, 1979).

The successive statutes and regulations described in

the opinions in Energy Reserves Group, Inc. v. Department

of Energy, supra, imposed an emergency mandatory system

of allocation and control of prices of petroleum products

from which crude oil produced from “stripper wells” was

exempt. In §4(e)(2)(A) of the Emergency Petroleum

Allocation Act (EPAA), P.L. 93-159, 87 Stat. 627, effective

in 1973, the statutory “stripper well” exemption was as

follows:

The regulation promulgated under subsection (a) of

this section shall not apply to the first sale of crude oil

produced in the United States from any lease whose

average daily production of crude oil for the preceding

calendar year does not exceed 10 barrels per well.

Regulations defining the stripper well exemption were

promulgated successively by CLC and FEA. § 150.54(s),

A-3

[APPENDIX]

6 C.F.R. (page 146) (1974) and § 210.32, 10 C.F.R. (page

98) (1976). The formula for determining “average daily

production” as used in the statutes was consistently defined

in the regulations of CLC and FEA as follows:

(b) Definitions: “Average daily production” means the

qualified maximum total production of crude oil, in-

cluding condensates, produced from a property, divided

by a number equal to the number of days in the year

times the number of wells that produced crude oil, in-

cluding condensates, from that property in that year.

To qualify as maximum total production, each well on

the property must have been maintained at the maxi-

mum feasible rate of production, in accordance with

recognized conservation practices, and not significantly

curtailed by reason of mechanical failure or other dis-

ruption in production. [Emphasis added.] Energy Re-

serves Group, Inc. v. Department of Energy, supra,

(TECA 1978) 589 F.2d at 1091.

In 1975 FEA found it desirable to issue Ruling 1975-12,

Part III, purporting to interpret the application of the reg-

ulations and underlying statute defining the stripper well

exemption to multiple completion wells. Part III of Ruling

1975-12 is as follows:

III. Multiple Completion Wells.—Where a property

encompasses the right to produce crude oil from two

or more producing formations or reservoirs, producers

sometimes utilize a production technique involving

“multiple completion wells.” This technique, which

makes use of an existing well that produces from one

formation, involves drilling from the existing casing

separate well-bores or elongating existing well-bores in

order to reach other formations. By the installation of

additional tubing strings, crude oil may in this man-

ner be produced concurrently from two or more for-

mations. A multiple completion well is to be distin-

guished from a “recompleted well”, which involves the

A-4

[APPENDIX]

technique of drilling a separate well-bore from an ex-

isting casing in order to reach the same reservoir, or

redrilling the same well-bore to reach a new reservoir

after production from the original reservoir has been

abandoned. While a multiple completion well involves

the simulataneous production from two or more reser-

voirs, a recompleted well involves production from

only one formation.

Thus, a multiple completion well is designed to ac-

complish the same task as two or more separate and

distinct prodcing wells, although conserving initial cap-

ital outlay, it functions in many ways as two or more

separate producing wells: Crude oil from each forma-

tion remains isolated in distinct tubing strings until

reaching the surface, where it may either be com-

mingled with crude oil from other formations, or may

continue to be diverted separately through alternative

chokes and valves in the well-head “Christmas tree”

fitting. In this way, differences in API gravity, sulphur

content and mineral impurities that might be charac-

teristic of different formations, can be maintained.

Although a multiple completion well is a somewhat

less costly alternative to drilling an entirely separate

well in order to reach another producing formation in

the field, it nevertheless represents a significant capital

investment and poses certain additional problems be-

yond those encountered with single or separate wells.

For example, the artificial lift in a multiple comple-

ticn well is more complicated and, correspondingly

more costly to install. Furthermore, repairs to any of

the intervals are more costly than in separate wells

and can result in a temporary shut-down of production

from all reservoirs.

Therefore, the FEA has determined that multiple

completion wells may be considered as two (or more)

wells for the purpose of calculating “average daily pro-

A-5

(APPENDIX)

duction” pursuant to the stripper well lease exemption

of 10 CFR 210.32 if,

(a) The well consists of two (or more) separate

tubing strings run inside the casing, each of which

carries crude oil from a separate and distinct produc-

ing formation, and spi

(b) the production capabilities of each formation are

unaffected by any change in the production level of

any other formation producing through the same well.

This result is consistent with the congressional policy

of increasing the incentive and economic feasibility of

maintaining production of crude oil from stripper well

leases through advanced production techniques.

Application of Part III of Ruling 1975-12

To “Commingled Wells”

The district court properly described the administrative

application of Part III of Ruling 1975-12 to the problem

created by claims of the plaintiff-appellee (appellee) on be-

half of its members in the following parts of its Memoran-

dum Opinion (Tr. 876 at pages 878-879):

OAECP alleges that Ruling 1975-12 as applied to

commingled wells is arbitrary and capricious. Further,

OAECP alleges that the rule was improperly adopted

by the FEA and is void. FEA contends that Ruling

1975-12 is an interpretive rule and, as such, is not sub-

ject to the rulemaking requirements of the Adminis-

trative Procedure Act, 5 U.S.C. § 553.

A multiple completion well produces crude oil from

several oil bearing formations by utilizing a common

well casing while segregating the oil produced from

each formation into a separate tubing string. A com-

mingled well is similar to a multiple-completion well

in that it also produces crude oil from two or more

oil bearing formations through a common well casing.

However, a commingled well does not segregate the

A-6

(APPENDIX)

oil from each formation but produces the oil from the

several formations through a single tubing string. Thus

the crude oil from any single oil producing formation

is mixed with the crude oil from all other oil-producing

formations which have been tapped through the com-

mon well casing.

Several of the members of OAECP are engaged in

the production of crude oil through the utilization of

commingled wells in which one or more of the oil pro-

ducing formations produced less than ten barrels per

day at the time the well was completed as a com-

mingled well. However, now that the well is being

operated as a commingled well, the amount of crude

oil produced through the well from all of the oil pro-

ducing formations which have been tapped through the

common well casing totals in excess of ten barrels per

day. These members have previously sold the oil pro-

duced, or portions of it, at the unregulated market

price in the belief that if one of the oil producing for-

mations in the commingled well was producing a cer-

tain amount of oil at the time the formations were

commingled, and the amount of oil produced from that

formation would qualify a single completion well as a

stripper well, the amount of oil produced from that

formation in a commingled well would also qualify for

stripper well status. FEA disagreed. FEA adopted the

position that it is not possible to accurately determine

in a commingled well how much oil is being produced

from a formation at any given time while such deter-

mination is readily made in a multiple completion well.

In adopting this position, FEA determined that com-

mingled wells would not qualify for consideration as

two (or more) wells for the purpose of calculating

average daily production under the stripper well lease

exemption. As a result, FEA cited members of OAECP

for selling crude oil at a price in excess of the ceiling

price and issued remedial orders requiring those mem-

bers to make reimbursement for alleged overcharges.

A-7

[APPEND!IX)

Contrary to its contentions in this appeal, appellee con-

firms the uniform consistent application by FEA of Part III

of Ruling 1975-12 in the following language in its brief:

The primary issue in controversy between Plaintiff and

the FEA is this: Should a commingled well which pro-

duces simultaneously from more than one reservoir be

counted as more than one well for the purpose of the

stripper well lease execption [sic]. In every decision

on this issue the agency has said “no,” basing its orders

and denials of appeals from those orders exclusively

on Ruling 1975-12. (Appellee’s Brief, 1.)

(This last phrase ignores the underlying statute and regu-

lation, but the quotation concedes the uniformly consistent

administrative construction of the stripper well exemption. )

Trial Court Proceedings

Appellee Energy Consumers and Producers Association,

Inc. [formerly Oklahoma Association of Energy Consumers

and Producers, Inc. (OAECP)] a non-profit corporation,

filed the complaint in this action in the United States Dis-

trict Court for the Eastern District of Oklahoma, on behalf

of its members producing oil from “commingled wells” that

were denied the benefit of the stripper well exemption by

application of Part III of Ruling 1975-12. The complaint

sought declaratory and injunctive relief against FEA in

three claims for relief (each denominated as a “cause of

action”). (Transcript [Tr.] 8-15.) The relief granted on

the first and third claims for relief are the subject of this

appeal by appellant DOE (successor to FEA).

In the first claim for relief appellee sought a retroactive

and prospective declaratory judgment that Part III of Rul-

ing 1975-12 was invalid and void because (a) it exceeded

the statutory authority of FEA; (b) its adoption and ap-

plication were unlawful, arbitrary and capricious, and an

abuse of discretion; (c) it was contrary to “constitutional

right, power or privilege”; (d) its issuance was “without

A-8

[APPENDIX) niece

observance of procedure required by law”; (e) it was

“wholly unwarranted by the facts and the prudent and

economic production of crude oil” and “will cause waste

and does not facilitate the measurement of oil produced

from separate formations”; (f) its retroactive application

“is contrary to statutory or constitutional authority”; and

(g) its prospective application violates due process rights

of Amendment V of the Constitution of the United States.

(Tr. 5.)

The third claim for relief sought injunctive relief against

enforcement of Ruling 1975-12 on the same factual and

legal contentions of the first claim for relief.

Other factual and legal contentions of the complaint

concern a separate controversy and are not material to

this appeal.

FEA filed an answer (Tr. 16-21), and moved to dismiss

the action on the grounds the appellee lacks standing to

sue because (1) it is not representative of its members;

(2) it has not established that its members are suffering

from immediate harm; and (3) its members are indispens-

able parties. (Tr. 34.) This motion was denied by the Hon-

orable Joseph W. Morris, the district judge to whom this

action was assigned for pretrial proceedings and trial. (Or-

der Denying Motion to Dismiss, Tr. 34-37.)

FEA filed a motion for summary judgment, supported

by affidavits and exhibits, on the issue of validity of Ruling

1975-12 on the ground that it was an interpretative ruling

exempt from the notice and comment procedures of the

APA under § 553(b) and (c), Title 5 U.S.C., and otherwise

lawful and valid. (Tr. 38-131.) The district court denied

the motion of FEA for summary judgment. (Tr. 265-266.)

The action was tried without a jury, on the merits by

the district judge to whom the action was originally as-

signed. (Tr. 284-789.) That district judge, Judge Morris,

resigned and the parties agreed to submit the action for

A-9

[APPENDIX]

decision by the Honorable H. Dale Cook, United States Dis-

trict Judge, on the transcript of the trial before Judg« Mor-

ris. (Tr. 799.)

Decision by the District Court

On June 29, 1979, the district court field a memorandum

opinion holding that Part III of Ruling 1975-12 was “void

for lack of proper agency procedures and consideration for

its adoption.” (Tr. 876.) Because of the novely of one of

the two bases for this conclusion and to make clear the

other basis, the following material parts of the opinion of

the district court are set forth verbatim (Tr. 879-883):

In 1946, Congress passed the Administrative Pro-

cedure Act, Pub.L. 79-404, 60 Stat. 237. As originally

enacted, the rulemaking portion of the Administrative

Procedure Act (APA) stated in part:

RULE MAKING

Sec. 4. Except to the extent that there is involved

(1) any military, naval or foreign affairs function

of the United States or (2) any matter relating to

agency management or personnel or to public prop-

erty, loans, grants, benefits, or contracts—

(a) NOTICE.—General notice of proposed rule

making shall be published in the Federal Register

(unless all persons subject thereto are named and

either personally served or otherwise have actual

notice thereof in accordance with law) and shall

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

nature of public rule making proceedings; (2) ref-

erence to the authority under which the rule is

proposed; and (3) either the terms or substance

of the proposed rule or a description of the sub-

jects and issues involved. Except where notice or

hearing is required by statute, this subsection shall

not apply to interpretative rules, general state-

A-10

(APPENDIX)

ments of policy, rules of agency organization, pro-

cedure, or practice, or in any situation in which

the agency for good cause finds (and incorporates

the finding in a brief statement of the reasons

therefor in the rules issued) that notice and public

procedure thereon are impracticable, unnecessary,

or contrary to the public interest.

The APA survived essentially unchanged until Sep-

tember 6, 1966 when Congress codified the general and

permanent laws relating to the organization of the

government as Title 5 United States Code. At that

time, the APA became Chapter 5 of Title 5, and Sec-

tion 4, quoted above, became codified as 5 U.S.C. § 553

as follows:

§ 553. Rule making.

(a) This section applies, according to the pro-

visions thereof, except to the extent that there is

involved—

(1) a military or foreign affairs function of

the United States; or

(2) a matter relating to agency management

or personnel or to public property, loans, grants,

benefits or contracts.

(b) General notice of proposed rule making shall

be published in the Federal Register, unless per-

sons subject thereto are named and either person-

ally served or otherwise have actual notice thereof

in accordance with law. The notice shall include—

(1) a statement of the time, place and na-

ture of public rule making proceedings;

(2) reference to the legal authority under

which the rule is proposed; and

A-11

[APPENDIX]

(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 required by

statute, this subsection does 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 and a brief statement of

reasons therefor in the rules issued) that notice

and public procedure thereon are impracticable,

unnecessary, or contrary to the public interest.

By comparing Section 4 of the APA with 5 U.S.C.

§ 553, it is readily apparent that any changes of sub-

stantive law that have occurred during the process

of codification, at least so far as the above quoted

provisions are concerned, are minimal. Therefore, for

a proper understanding of the intent of Congress in

enacting section 4 of the APA and its successor, 5

U.S.C. § 553, it is appropriate to look to legislative

reports that originally accompanied the APA. Such

a report is the legislative history of the APA contained

in House Report No. 1980 by the House Committee on

the Judiciary dated May 3, 1946 reprinted in (1946)

U.S. Code Cong. Serv. 1195. This report begins with

a discussion of the recognized importance of the legis-

lation by stating:

For more than 10 years this legislation has been

under consideration. Certainly no measure of like

character has had the painstaking and detailed

study and drafting. Both the legislative and ex-

ecutive branches have participated, and private

interests of every kind have had an opportunity

to present their views. In the legislative branch

A-12

[APPENDIX]

there have been four major proposals for the cre-

ation of an administrative court, and at least eight

for the regulation of administrative procedure.

Two important studies were conducted in the ex-

ecutive branch under the late President Franklin

D. Roosevelt—each resulting in reports to Con-

gress with legislative recommendations. Private

individuals and organizations have made innum-

erable studies and recommendations. While vari-

ous proposals have been made over the years, the

continuous line of development leading to the pres-

ent bill is clear and illuminating.

1946 U.S. Code Cong. Serv. at 1195. In reviewing the

1937 report of the Presidential Committee on Adminis-

trative Management, the Judiciary Committee noted:

The problem has been how to deal with (adminis-

trative functions) in our complex governmental

setup, without unduly interfering with necessary

governmental operations.

1946 U.S. Code Cong. Serv. at 1196. By noting the

1938 Senate hearings on the creation of an adminis-

trative court, the committee stated:

There is need for a simple and standard plan of

administrative procedure, together with the state-

ment of legal and enforceable guides for adminis-

trative officers and agents in their daily operations.

In short, an important object of any legislation in

this field is not only to provide judicial redress

but to assure administrative fairness in the be-

ginning so that litigation may become unnecessary.

1946 U.S. Code Cong. Serv. at 1196. In discussing the

substance of the APA, the Judiciary Committee stated:

Manifestly the bill does not unduly encroach upon

the needs of any legitimate government operation,

although it is of course operative according to its

A-13

[APPENDIX]

terms even if it should cause some administrative

inconvenience or changes in procedure.

* * * 4

The bill is an outline of minimum essential rights

and procedures. Agencies may fill in details, so

long as they publish them. It affords private

parties a means of knowing what their rights are

and how they may protect them, while adminis-

trators are given a simple framework upon which

to base such operations as are subject to the pro-

visions of the bill.

* * * *

In the “rule making” (that is, “legislative”) func-

tion it provides that with certain exceptions agen-

cies must publish notice and at least permit inter-

ested parties to submit their views in writing for

agency consideration before the issuance of gen-

eral regulations (sec. 4).

* * * *

The public-information provisions of section 3 are

of the broadest application because, while some

functions and some operations may not lend them-

selves :o formal procedure, all administrative op-

erations should as a matter of policy be disclosed

to the public except as secrecy may obviously be

required or only internal agency “housekeeping”

arrangements may be involved. Sections 4 and 5

prescribe the basic requirements for the making

of rules and the adjudication of particular cases.

1946 U.S. Code Cong. Serv. at 1024-5.

Thus, it is clear that the Congressional intent in

formulating the APA was more than a desire to stan-

ardize the procedures utilized by the various agencies

but included an attempt to provide for procedures

that would recognize the fundamental fairness of gov-

A-14

(APPENDIX)

ernmental operations being conducted in full view of

the governed.

In issuing its Ruling 1975-12, the FEA has stipulated

that the procedures in 5 U.S.C. § 553 were not followed,

at least as to section 3 of the ruling. The government

contends that the ruling qualifies as an interpretative

rule under 5 U.S.C. §553(b)(A) and, as such, does

not require notice or hearing. However, for this agency

determination to survive, the rule promulgated cannot

be more than an “internal agency ‘housekeeping’ ar-

rangement.” Such is simply not the case here.

The creation of the FEA by Congress through the

Federal Energy Administration Act was accompanied

by administrative provisions the FEA was to apply.

These provisions were contained in section 7 of the act

and state, in part:

(i) (1) (A) Subject to paragraphs (B), (C), and

(D) of this subsection, the provisions of subchap-

ter II of chapter 5 of title 5, United States Code,

shall apply to any rule or regulation, or any order

having the applicability and effect of a rule as

defined in section 551(4) of title 5, United States

Code, issued pursuant to this Act, including any

such rule, regulation, or order of a State or local

government agency, or officer thereof, issued pur-

suant to authority delegated by the Administrator.

(B) Notice of any proposed rule, regulation, or

order described in paragraph (A) shall be given

by publication of such proposed rule, regulation,

or order in the Federal Register. In each case, a

minimum of ten days following such publication

shall be provided for opportunity to comment;

except that the requirements of this paragraph as

to time of notice and opportunity to comment may

be waived where strict compliance is found to

cause serious harm or injury to the public health,

A-15

[APPENDIX]

safety, or welfare, and such finding is set out in

detail in such rule, regulation or order. In addi-

tion, public notice of all rules, regulations, or

orders described in paragraph (A) which are

promulgated by officers of a State or local govern-

ment agency shall to the maximum extent prac-

ticable be achieved by publication of such rules,

regulations, or orders in a sufficient number of

newspapers of statewide circulation calculated to

receive the widest possible notice.

(C) In addition to the requirements of para-

graph (B), if any rule, regulation, or order de-

scribed in paragraph (A) is likely to have a sub-

stantial impact on the Nation’s economy or large

numbers of individuals or businesses, an oppor-

tunity for oral presentation of views, data, and

arguments shall be afforded. To the maximum

extent practicable, such opportunity shall be af-

forded prior to the issuance of any such rule, reg-

ulation or order. A transcript shall be kept of any

oral presentation.

(D) Any officer or agency authorized to issue

the rules, regulations, or orders described in para-

graph (A) shall provide for the making of such

adjustments, consistent with the other purposes of

this Act, as may be necessary to prevent special

hardship, inequity, or unfair distribution of bur-

dens and shall, by rule, establish procedures which

are available to any person for the purpose of

seeking an interpretation, modification, rescission

of, exception to, or exemption from, such rules,

regulations and orders. If such person is aggrieved

or adversely affected by the denial of a request for

such action under the preceding sentence, he may

request a review of such denial by the officer or

agency and may obtain judicial review in accord-

ance with paragraph (2) of this subsection when

A-16

[APPENDIX]

such denial becomes final. The officer or agency

shall, by rule, establish appropriate procedures,

including a hearing where deemed advisable by

the officer or agency, for considering such requests

for action under this paragraph.

Thus, under these procedures, it would appear that the

congressional intent in setting a procedural require-

ment in addition to those of the APA was to have the

FEA conduct its operations subject to even more public

scrutiny than the average administrative agency. Ad-

ditionally, under section 7(i) (1) (c), quoted above, it

would appear that even if a ruling of the FEA were

deemed to be interpretative under 5 U.S.C. § 553(b)

(A), it would still be required to afford an opportunity

for public comment if it were likely to have a “sub-

stantial impact” on either the national economy or

large numbers of individuals or businesses.

The evidence at trial shows that at the time the

wells were commingled, one or more of the producing

formations involved produced less than ten barrels of

crude oil per day. Acting on the clear legislative state-

ment that wells producing less than ten barrels per

day were to be exempt from the pricing restrictions,

the producers treated the recovered crude oil as com-

ing from separate wells and attempted to apportion

the crude oil among the producing formations and set

its price accordingly. The FEA then adopted its regula-

tion, without notice or opportunity for comment, which

determined that the producers were selling crude oil at

illegal prices. The FEA now adopts the position that

the regulation is valid since it is practically impossible

to determine which oil producing formation is actually

contributing a specific quantity of crude oil to the

commingled total. The FEA in section 3 of Ruling

1975-12 makes reference to justifying treating rultiple

completion wells as separate wells at each producing

formation because of the capital investment separate

A-17

(APPENDIX)

single completion wells would require; however, the

statute exempting wells producing less than ten barrels

of crude oil per day is silent as to justifying the ex-

emption on grounds of capital investment required.

Finally, as a result of its Ruling 1975-12, the FEA is

now requiring the producers to reimburse substantial

sums of money, in at least one instance an amount in

excess of $500,000.00.

Additionally, the FEA application of Ruling 1975-12

would seem to mandate inconsistent results. Assume

the case where there exists a well casing penetrating

through three distinct oil producing formations, each

of which have been shown to have an average daily

production of crude oil of four barrels. If the well is

completed as a multiple completion well, Rule 1975-12

will permit all twelve barrels recovered per day to be

sold at the unregulated price. However, if the well

is completed as a commingled well, Ruling 1975-12,

as applied here, prohibits the sale of any of the crude

oil recovered at the unregulated price. Inconsistencies

of this sort are the kinds of situations that the notice

requirements of the Administrative Procedure Act

sought to avoid by mandating full and informed

agency action.

Accordingly, the court concludes that section three of

Federal Energy Administration Ruling 1975-12 is void

for lack of proper agency procedures and consideration

for its adoption.

Bases of Decision of the District Court

From the foregoing quotation it is apparent that the

district court held that Ruling 1975-12, admittedly adopted

without the notice and comment procedures of the APA,

§ 553(b) and (c), Title 5 U.S.C., was invalid because:

(1) Part III of Ruling 1975-12 was not an interpreta-

tive ruling because an interpretative rule “cannot be

A-18

{tAPPENDIX]

more than an internal agency ‘housekeeping’ arrange-

ment”; and

(2) §7(i) of the Federal Energy Administration Act

(FEAA) (P.L. 93-275, 88 Stat. 96, formerly § 766(i),

Title 15 U.S.C., repealed by P.L. 95-91, 91 Stat. 565]

required notice and comment procedures prior to its

issuance even if Part III of Ruling 1975-12 is an inter-

pretative rule, because it was likely to have a “sun-

stantial impact” on either the national economy or a

large number of individuals or businesses.

Contentions of Appellee In Support

of Decision of the District Court

In its brief, appellee expands the bases of the decision

expressed by the district court, by contending that the

judgment should be affirmed on the merits for the follow-

ing reasons:

I. Ruling 1975-12 (Part III) is a substantive (legisla-

tive) ruling, requiring the notice and comment provi-

sions of the APA and FEAA because:

A. Ruling 1975-12 (Part III) was neither re-

B.

C.

E.

quired nor compelled by existing regulations;

There was no contemporaneous construction

of Ruling 1975-12 (Part III);

Ruling 1975-12 (Part III) either expanded ex-

isting regulations or constricted existing reg-

ulations;

Ruling 1975-12 (Part III) is the sole legal

authority for all multiple zone production as

it relates to the stripper well lease amend-

ment;

Ruling 1975-12 (Part III) had substantial im-

pact and is therefore invalid for failure to

A-19

[APPENDIX]

comply with notice and comment procedures;

and

F. Failure of FEA to comply with notice and

comment procedures resulted in a ruling

which is not based on substantial evidence,

and which is arbitrary and capricious.

Challenge to Jurisdiction of

This Appeal by Appellee

In point II of its brief, appellee contends that this Court

“has no jurisdiction over this appeal” because this appeal

does not arise under the Economic Stabilization Act of 1970

(ESA), § 1904 note, Title 12 U.S.C., or the Emergency Pe-

troleum Allocation Act (EPAA), §§ 751 et seq., Title 15

U.S.C.

This contention was made earlier in a motion of appelee

to dismiss the appeal, submitted on briefs before oral argu-

ment. The motion to dismiss was denied. Nevertheless,

the contention is resubmitted by appellee.

Contentions of Appellant DOE

As successor to FEA, DOE contends that the judgment

of the district court was erroneous and should be reversed

because:

A. Ruling 1975-12 (Part III) is an interpretative rul-

ing and is therefore exempt from the rule-making

requirements of the APA; and

B. The court below applied an erroneous definition of

an interpretative rule.

Questions Presented

The initial question presented is whether this Court

should reconsider and vacate its order denying the motion

ot appellee to dismiss the appeal for lack of jurisdiction.

A-20

{APPENDIX}

The question on the merits presented on this appeal is

whether Ruling 1975-12 (Part III) is an “interpretative

ruling” and therefore exempt from the rule making notice

and comment requirements of the APA, § 553(b) and (c),

Title 5 U.S.C. and of §7(i) of the FEAA [now repealed,

formerly § 766(i), Title 15 U.S.C.].

Decision on Appeal

For reasons stated hereinafter, we reaffirm our juris-

diction of this appeal and reverse the judgment of the

district court.

I.

Jurisdiction of TECA

After reconsideration, the earlier order denying the mo-

tion of appellee to dismiss this appeal is affirmed. In sup-

port of its motion appellee contends that the issues on this

appeal arise under the APA rather than the EPAA. The

issues on this appeal arise under the EPAA. The appeal

is based upon alleged error of the FEA in failing to comply

with the prior notice and comment requirements of the

original § 4 of the APA, codified as § 553(b) and (c), Title

5 U.S.C., “as amplified by the Federal Energy Administra-

tion Act,” §§ 761 et seq., Title 15 U.S.C. Judge Johnson of

this Court has recently stated the rule as follows:

But as this court plainly stated in Standard Oil...

“Section 4 of the APA was incorporated by reference

in Section 5(a) (1) of the Emergency Petroleum Allo-

cation Act of 1973, 15 U.S.C. § 754(a) (1).” An issue

arising under the APA is not a collateral issue, then,

but, by virtue of Section 5(a) (1) of the EPAA an issue

arising under the EPAA itself [Texaco, Inc. v. Depart-

ment of Energy (TECA 1979) —— F.2d ——, note 4,

at 9 (Nos. D.C.-52, 53 and 54, October 15, 1979) ].

In accord is the earlier ruling in Standard Oil Co. v.

Department of Energy (TECA 1978) 596 F.2d 1029, 1.c.

A-21

[APPEND!IX)

1056, the source of the quotation in the excerpt from the

Texaco, Inc. case, supra. That this Court has exclusive

jurisdiction of appeals from final decisions by district courts

on issues arising under the EPAA is not controverted.

II.

Part III of Ruling 1975-12 Was Interpretative And

Exempt From the Notice and Comment Requirements

of the APA and FEAA

The first reason given by the district court for holding

that Part III of Ruling 1975-12 was “void,” was the novel

conclusion that, under the APA, an interpretative rule can-

not be more than “an internal agency ‘housekeeping’ ar-

rangement.” No judicial or statutory authority in support

of this proposition is cited by the district court or the ap-

pellee. The portion of the legislative history of the APA

relied on by the district court, and quoted above, does not

support the conclusion of the district court, which is con-

trary to the plain wording of the exemption of § 553(b)

(3) (A) of the APA and the overwhelming case law in-

cluding cases cited in briefs of both parties on the defini-

tions and identification of interpretative and legislative

administrative rules.

The second reason given by the district court for its

holding that Part III of Ruling 1975-12 was “void” was

that, even if it is an interpretative ruling, notice and com-

ment procedures are required by §7(i) of the FEAA [now

repealed, formerly § 766(i), Title 15 U.S.C.] because the

ruling would have a “substantial impact” on either the

national economy or large numbers of individuals or busi-

nesses. This conclusion is directly contrary to the express

provisions of § 7(i) of the FEAA which subparagraph ex-

pressly makes it applicable to rules as defined in the APA

at § 551(4), Title 5 U.S.C., and no other rules.

Interpretative rules, interpreting an existing statute or

existing legislative regulation, or both, are not within the

A-22

{APPEND!1X)

definition of §551(4) of the APA because interpretative

rules do not have future effect as that term is used in

§ 551(4), and are not binding on the courts. Energy Re-

serves Group, Inc. v. Department of Energy, supra, (TECA

(1978) 589 F.2d at 1100.

Interpretative rules do not have primarily a future ef-

fect, as do legislative rules, to be applied prospectively

only. The effect of Part III of Ruling 1975-12 is retroactive,

as the appellee complains, as well as current and prospec-

tive. American Express Co. v. United States (C.C.P.A.

1973) 472 F.2d 1050; 3 B. Mezines, J. Stein & J. Gruff, Ad-

ministrative Law Treatise § 18.02[5] (1979 & Supp. 1979).

In the American Express Co. case, supra, after quoting

the provisions of § 551(4) of the APA, the court made it

clear that § 551(4) defined legislative rules primarily con-

cerned with the future rather than evaluation of past con-

duct, stating:

These definitions per se do not clearly establish

whether the Secretary’s activities in connection with a

countervailing duty determination under section 303

would constitute rule making or an adjudication pur-

suant to an order if the APA is assumed to be applic-

able to section 303 investigations. However, resort to

other sources, including Administrative Procedure Act,

Legislative History, 79th Congress 1944-46 (herein-

after History) and Attorney General’s Manual on the

Administrative Procedure Act, 1947 (hereinafter Man-

ual) helps resolve the question. Thus, it is indicated

that rule making is legislative in nature (History, pp.

193, 251, 353; Manual, pg. 14), is primarily concerned

with policy considerations for the future rather than

the evaluation of past conduct (History, pg. 355; Man-

ual, pg. 14), and looks not to the evidentiary facts but

to the policy-making conclusions to be drawn from the

facts (Manual, pg. 14). On the other hand, adjudica-

tion is judicial rather than legislative in nature (His-

A-23

[APPEND!X)

tory, pp. 193, 251, 353, 355), has an accusatory flavor

and may result in some form of disciplinary action

(History, pp. 353, 408; Manual, pg. 14), and is con-

cerned with issues of fact under stated law (History,

pg. 353; Manual, pp. 14-15). (American Express Co.

v. United States, supra, (C.C.P.A. 1973) 472 F.2d at

1055).

This definition excludes an interpretative rule which

may have some effect and “-it would be frivolous if it did

not-”. British Caledonian Airways, Ltd. v. C.A.B. (C.A.D.C.

1978) 584 F.2d 982, 1.c. 990.

So if Part III of Ruling 1975-12 is an interpretative rule,

neither reason given by the district court for holding it

invalid is legally sound.

We conclude that Part III of Ruling 1975-12 is an in-

terpretative rule, and that the judgment of the district

court must be reversed.

In the field of federal administrative law and within the

meaning of the APA, an interpretative rule is one that in

form and substance interprets (1) a statute, (2) a legis-

lative rule, (3) another interpretative rule, (4) judicial

decisions, (5) administrative decisions, (6) administrative

rulings, (7) any other law or interpretations, (8) any com-

bination of the above, or (9) nothing. 1 K. Davis, Adminis-

trative Law Treatise § 5.03, at 304 (1st ed. 1958); 2 K. Davis,

Administrative Law Treatise § 7.8, at 36-43 (2d ed. 1979);

Gibson Wine Co. v. Snyder (C.A. D.C. 1952) 194 F.2d 329;

Energy Reserves Group, Inc. v. Department of Energy,

supra, (TECA 1978) 589 F.2d at 1092. The definition in the

district court decision failed to recognize this established

meaning of the term “interpretative rule.”

Because Part III of Ruling 1975-12 was an interpretation

of the existing statutory stripper well exemption and of

the legislative regulation issued pursuant thereto, it is an

interpretative rule which is not binding on the courts, has

A-24

[APPENDIX]

no future effect and therefore is exempt from the notice

and comment procedures of the APA, §553(b) and (c),

Title 5 U.S.C., and § 7(i) of the FEAA. Energy Reserves

Group, Inc. v. Department of Energy, supra, (TECA 1978)

589 F.2d 1082, explained in Duncan v. Theis, supra, (TECA

1979) —— F.2d —— (No. 10-22, December 27, 1979).

This leaves the question whether for reasons not relied

on by the district court, but submitted by appellee, Part

III of Ruling 1975-12 is legislative rather than interpreta-

tive. If it is not interpretative, it is not exempt from the

notice and comment requirements of the APA, § 553 (b)

and (c), Title 5 U.S.C., and possibly of § 7(i) of the FEAA.

It is concluded that no other such reason, or reasons, exist

that support or require the conclusion that Part III of

Ruling 1975-12 is not an interpretative rule.

Appellee relies on several unrecognized tests to support

its contention that Part III of Ruling 1975-12 is legislative

rather than interpretative.

Contention A of appellee, quoted above, relies on a sup-

posed test, that the rule was “neither required nor com-

pelled.”

The authorities cited in support of this supposed test

do not support its existence. They include Energy Reserves

Group, Inc. v. Department of Energy, supra, (TECA 1978)

589 F.2d 1082, which is directly in conflict with this con-

tention of the appellee.

In contention B, supra, appellee asserts a supposed “con-

temporaneous construction” test. Whatever that test may

be, if it exists, it has no application to the issues in this

appeal.

The expansion or constriction test, relied on by appellee

in contention C, if it exists in any form, is inapplicable,

because Part III of Ruling 1975-12 did not in form or sub-

stance purport to expand or restrict the underlying statute

and regulation defining the “stripper well” exemption. It

A-25

(APPENDIX)

interpreted them. The assertion that DOE argued earlier

that it expanded the number of wells to be exempted by

the stripper well definition, is based on an unsound assump-

tion that the rule was legislative in nature and changed

the scope of the underlying statute and regulation.

In contention D, the sole legal authority contention, ap-

pellee relies on inapposite authority which relates to a

legislative rule. The contention ignores the fact that Part

III of Ruling 1975-12 in form and substance is an inter-

pretation of the legally controlling statute and regulation.

The contention lettered E of appellee, that Part III of

Ruling 1975-12 was a legislative rule and requires prior

notice and comment because it had “substantial impact”

is unsound for the reasons stated in the opinion in the

Energy Reserves Group, Inc. case, supra, (TECA 1978) 589

F.2d 1082, and authorities therein cited, including Vermont

Yankee Nuclear Power Corp. v. National Resources De-

fense Council, Inc., 435 U.S. 519, 98 S.Ct. 1197, 55 L.Ed.2d

460 (1978). Notwithstanding the view of Judge Christen-

sen that in some contexts a “substantial impact test” may

bear upon whether a rule is interpretative or legislative,

see Energy Reserves Group, Inc., supra, (TECA 1978) 589

F.2d at 1102-03 (Christensen, J., concurring), he agrees

that no such test on the facts of this case would render

Part III of Ruling 1975-12 anything other than interpreta-

tive within the contemplation of the APA.

The “informed reflection” test enunciated in contention

F of appellee, quoted above, is another way of stating that

the prior notice and comment requirements are applicable

to legislative rules. The underlying stripper well statute

and regulation used the word “wells” which was interpreted

by Part III of Ruling 1975-12. So appellee is in error in

contending that the “action at issue is not mentioned ex-

plicitly or implicitly in the ruling being challenged.” (Ap-

pellee’s Brief, 20.)

A-26

(APPENDIX)

Contention F, that Part III of Ruling 1975-12 is not

based on substantial evidence, because of failure to comply

with the notice and comment procedures is based on the

erroneous assumption that it is legislative rather than an

interpretative rule. The contention that it is arbitrary and

capricious is without merit, because, as pointed out here-

inafter, Part III of Ruling 1975-12 has a rational basis and

is a reasonable interpretation of the statutory stripper well

exemption and stripper well regulation adopted pursuant

to statutory authority.

Appellee contended that Part III of Ruling 1975-12 was

invalid because it was retroactive in effect, or at least

should not be applied retroactively. These contentions are

lacking in merit because the stripper well statute and regu-

lation are the basis of the challenged action by FEA, not the

interpretative rule. Energy Reserves Group, Inc. v. Depart-

ment of Energy, supra, (TECA 1978) 589 F.2d at 1098.

Appellee contended in the district court that Part III of

Ruling 1975-12 was arbitrary and capricious. That conten-

tion has been impliedly rejected in the conclusion that it

was a reasonable interpretative rule with a rational basis.

Appellee sought no formal opinion on its claim in this

action, but appellee offered evidence that, on oral inquiry

for guidance, appellee and some of its concerned members

had been referred to state practice in counting commingled

wells. Oklahoma had no parallel practice or problem. Nev-

ertheless, in the only proven Oklahoma rule of practice con-

ceivably relevant in the issuing of state “allowables” (al-

lowances to produce crude oil), only one allowable was

issued for commingled wells, while two allowables were

issued for multiple completion wells. (Tr. 385.) It is ques-

tionable whether this evidence should be accorded any

weight, but to the extent that it should, the evidence sup-

ports the appellant DOE rather than appellee.

Appellee further contends that Part III of Ruling 1975-

12 violates the Fifth Amendment to the Constitution of

A-27

[APPENDIX)

the United States by depriving members of the appellee

of due process of law. This contention is lacking in legal

substance. Mapco Inc. v. Carter (TECA 1978) 573 F.2d

1268, 1.c. 1280-83. In this connection attention is invited to

the provision of 10 C.F.R. § 205.50 permitting application

for relief by members of appellee from serious hardship or

gross inequity.

Part III of Ruling 1975-12 is in form and substance an

interpretation of the preexisting “stripper well” statutory

exemption and the preexisting regulation promulgated pur-

suant to the statutory authorization and mandate. It is pur-

ported to interpret, and did interpret, what in the opinion

of the General Counsel for FEA, the statutory exemption

and regulation always meant in the use of the term “well.”

Neither in form or substance did it expand or contract the

meaning of the term “well” as used in the statute on [sic]

regulation.

In summary, while the designation of Part III of Ruling

1975-12 as an interpretative rule by the FEA is not binding

on the courts, an examination of the material statute, the

legislative history, the regulation, and the rule demonstrates

that it is interpretative, and expressly exempt from the

notice and comment procedures of the APA, § 553(b) and

(c), Title 5 U.S.C. This conclusion is supported by an

opinion of this Court not available to the district court

when its decision was rendered. See Energy Reserves

Group, Inc. v. Department of Energy, supra, (TECA 1978)

589 F.2d 1082, explained in Duncan v. Theis, supra, (TECA

1979) —— F.2d —— (No. 10-22, December 27, 1979).

Reversal of Decision of District Court And Direction of

Entry of Judgment Affirming The Validity of

Applications of Part III of Ruling 1975-12

Before the trial, the district court fully defined all the

issues in the action below in a comprehensive pretrial

order. (Tr. 23-33).

A-28

(APPENDIX)

A plenary evidentiary trial was held by the district

court on all controverted issues, which were fully briefed.

(Tr. 284-536); Exhibits 537-789; Confidential Data Volume

II A.) Under these circumstances, if the record is sufficient

for a final decision, there is no reason to remand the action

for further proceedings. We find the record to be sufficient

for final decision on the litigated issues, and uphold the

action of FEA (and its successor DOE), applying Part III of

interpretative Ruling 1975-12. In so doing we recognize

that the interpretation of the underlying stripper well stat-

utory exemption and regulation is not binding on this

Court. Energy Reserves Group, Inc. v. Department of En-

ergy, supra, (TECA 1978) 589 F.2d at 1093; 2 K. Davis,

Administrative Law Treatise § 7.8, at 36-38 and § 7.13, at

59-64 (2d ed. 1979).

In determining whether there was a rational basis for

the actions of the FEA in applying Part III of Ruling 1975-

12 to commingled wells, the fundamental consideration is

whether the statutory provision and the legislative regula-

tion defining the stripper well exemption authorized or

permitted the actions of FEA in defining the term “well”

in the stripper well exemption to forbid a commingled

well to be more than one well. We are satisfied that Part

III of Ruling 1975-12 was authorized and permitted by the

underlying statutory provision and regulation. The defi-

nition in Part III of the interpretative ruling was not arbi-

trary or capricious. A rational basis existed for its adoption

and was enunciated in the ruling. It was based on the

similarities of multiple completition wells to two or more

separate wells in isolating crude oil from each formation

in separate tubing strings until it reaches the surface, main-

tenance of quality differences, additional capital expense

and maintenance expense not fequired in commingled wells.

Commingled wells do not have these characteristics. The

facts relied on for the basis of Part III of Ruling 1975-12 are

supported by the evidence received in the trial by the dis-

trict court.

A-29

[APPENDIX]

In the House-Senate Conference Report on the original

stripper well statutory exemption in the Trans-Alaska Pipe-

line Authorization Act (TAPAA), P.L. 93-153, 87 Stat. 576,

Congress enjoined the administering agency that its regu-

lations to be promulgated,

shall be so designed as to provide safeguards against

any abuse, overreaching or altering of normal patterns

of operations to achieve a benefit under this section

which would not otherwise be available. Congress spe-

cifically intends that the regulations shall, among other

things, prevent any “gerrymandering” of leases to aver-

age down high production wells with a number of low

production stripper wells to remove the high production

wells from price ceilings. (Footnote omitted.) [Energy

Reserves Group, Inc. v. Department of Energy, supra,

(TECA 1978) 589 F.2d at 1109-10, quoting Conf. Rep.

No. 93-624, 93d Cong., lst Sess., reprinted in (1973)

U.S. Code Cong. & Ad. News 2523, l.c. 2532.]

An interpretation of the statute and regulation was required

on the method of counting of commingled wells. The inter-

pretation in the challenged ruling was a reasonable choice

of possible interpretations by the responsible administrative

agency. It is not required that the interpretation be the

only reasonable choice. Udall v. Tallman, 380 U.S. 1, 1L.c. 4,

85 S.Ct. 792, 1.c. 795, 13 L.Ed.2d 616, 1.c. 619 (1965), Ful-

man v. United States, 434 U.S. 528, l.c. 536, 98 S.Ct. 841,

l.c. 846, 55 L.Ed.2d 1, l.c. 10 (1978).

In the absence of exceptional adverse circumstances this

Court should defer to a reasonable exercise of expertise

expressed in an interpretative rule by an administrative

agency. 2 K. Davis, Administrative Law Treatise, supra,

§ 7.13, at 58-64 (2d ed. 1979); Udall v. Tallman, supra, 380

U.S. at 4, 85 S.Ct. at 795, 13 L.Ed.2d at 619 (1965); Ful-

man v. United States, supra, 434 U.S. at 536, 98 S.Ct. at 846,

55 L.Ed.2d at 10 (1978). This Court has recognized and

applied this rule of deference in Southern Union Produc-

A-30

{APPENDIX}

tion Company v. Federal Energy Administration (TECA

1978) 569 F.2d 1147, 1.c. 1152; Marathon Oil Co. v. Federal

Energy Administration (TECA 1976) 547 F.2d 1140, cert.

denied, 430 U.S. 983, 97 S.Ct. 1679, 52 L.Ed.2d 378 (1977);

University of Southern California v. Cost of Living Council

(TECA 1972) 472 F.2d 1065, 1.c. 1068-69; among many other

cases.

In determining whether to defer to a reasonable inter-

pretation of a statute, a regulation, or both, courts give

extra authoritative weight to interpretative rules (1) which

are made contemporaneously with the enactment of the

statute, (2) which have been followed consistently over a

long period, or (3) which were outstanding at the time of

its reenactment. These three factors operate separately or

in any combination. 2 K. Davis, Administrative Law Treat-

ise § 7.14, at 64 (2d ed. 1979). Two of the three factors,

(2) consistent application and (3) interpretation outstand-

ing at the time of its reenactment, are present in this record

of the history of Part III of Ruling 1975-12.

In the portion of its brief quoted hereinabove, appellee

concedes the consistency of application of the challenged

interpretation. This element of consistency, among other

facts, distinguishes this case from Standard Oil Co. v. De-

partment of Energy (TECA 1978) 596 F.2d 1029, relied

upon by appellee.

Further, Part III of Ruling 1975-12 was outstanding on

August 14, 1976, when the stripper well exemption was re-

enacted by § 121 of the Energy Conservation and Produc-

tion Act of 1976, P.L. 94-385, 90 Stat. 1125, by amending

the EPAA, 15 U.S.C. § 757(i). (The stripper well statutory

exemption in force on August 29, 1975, when Ruling 1975-

12 was issued had been repealed on December 22, 1975, by

$ 401 of the Energy Policy and Conservation Act of 1975,

P.L. 94-163, 89 Stat. 871.) Reenactment of an underlying

statutory provision, in substantially the same language,

when an interpretative rule was outstanding has been rec-

A-31

[APPENDIX]

ognized as a strong reason for deference to an interpreta-

tive rule defining the stripper well exemption by this Court

in the Southern Union Production Company case, supra,

(TECA 1978) 569 F.2d 1147 and in the Energy Reserves

Group, Inc. case, supra, (TECA 1978) 589 F.2d 1082. We

follow those cases on this appeal.

It is true that Part III of Ruling 1975-12 was not issued

contemporaneously with the enactment of the stripper well

exemption in the TAPAA or the EPAA in 1973. There is

an interval of more than one year between the enactment

of the EPAA and the issuance of Ruling 1975-12. However,

deference should not be withheld on this ground when all

other circumstances are favorable to deference by this

Court.

In summary it is concluded that Part III of 1975-12 was

and is a valid interpretative rule entitled to deference by

the courts, in interpreting the statutory stripper well ex-

emption and regulations.

The questions that we have decided up to this point,

and the questions challenging Part III of Ruling 1975-12

submitted to the district court by the parties below are

questions of law arising from the challenges of the appellee

to the validity of Part III of Ruling 1975-12 as a proper

interpretation of the underlying statutory stripper well ex-

emption and the legislative regulation defining the statutory

stripper well exemption.

Appellee undertook in the district court to offer oral

and documentary evidence designed to transform the issues

to issues of fact or mixed issues of fact and law. So far

as the evidence exceeded that admissible on the issue of

standing, on the uncontroverted factual industrial back-

ground desirable to an understanding of the meaning of

the challenged rule, and on the effect of Part III of Ruling

1975-12 on a segment of the petroleum industry, it was

largely immaterial to a decision on the legality of appli-

A-32

(APPENDIX)

cation of Part III of Ruling 1975-12 to members of the ap-

pellee producing crude oil from commingled weils.

Because the parties have been afforded a fair plenary

evidentiary trial in the district court, the record is suf-

ficient for a final decision. Therefore, for the reasons stated

above, it is hereby

ORDERED that the judgment of the district court be,

and it is hereby, reversed and remanded with directions.

It is further

ORDERED that the district court be, and it is hereby,

directed to enter judgment in favor of the defendant De-

partment of Energy declaring that Part III of Ruling 1975-

12, and its application to exclude counting of commingled

wells as two or more wells, in applying the statutory strip-

per well exemption and regulations, is lawful and effective.

It is further

ORDERED that the district court shall enter such other

orders and judgments necessary or desirable to make resti-

tution for the effects of orders of the district court and of

the judgment of the district court heretofore entered which

are inconsistent with this opinion and these orders.

A-33

[APPENDIX]

TEMPORARY EMERGENCY COURT OF APPEALS

OF THE UNITED STATES

No. 10-21

ENERGY CONSUMERS AND PRODUCERS

ASSOCIATION, INC.,

Plaintiff-Appellee,

Vv.

DEPARTMENT OF ENERGY,

Defendant-Appellant.

BEFORE TECA COURT

Upon consideration of Appellee Energy Consumers and

Producers Association, Inc.’s Petition for Rehearing en banc,

it is ORDERED that said Petition is DENIED. The man-

date will issue on May 6, 1980.

FOR THE COURT:

Ruth H. Jacobson

Clerk

by: (s) Michael S. Levine

Michael S. Levine

Deputy Clerk

April 28, 1980

A-34

(APPENDIX)

NOT FOR ROUTINE PUBLICATION

UNITED STATES COURT OF APPEALS

TENTH CIRCUIT

[Filed Oct. 23, 1979]

OKLAHOMA ASSOCIATION OF ENERGY )

CONSUMERS AND PRODUCERS, a

non-profit corporation,

Plaintiff-Appellant,

VS. NO. 79-1847

FEDERAL ENERGY ADMINISTRATION

OF THE UNITED STATES,

)

)

)

)

)

)

)

Defendant-Appellee. )

Appeal From the United States District Court

For the Eastern District of Oklahoma

(D.C. No. 76-366-C)

Submitted on the briefs pursuant to Tenth Circuit Rule 9:

Richard L. Bohanon, Bohanon & Barth, Oklahoma City, Ok-

lahoma, Fred A. Gipson, Seminole, Oklahoma, and Richard

S. Roberts, Wewoka, Oklahoma, for Plaintiff-Appellant.

Betty Outhier Williams, Assistant United States Attorney,

Muskogee, Oklahoma, Leonard Schaitman and Dina R. Las-

sow, Civil Division, Department of Justice, Washington,

D.C., for Defendant-Appellee.

Before SetH, Chief Judge, Pickett and McWILLIAMs, Cir-

cuit Judges.

PER CURIAM

After examining the briefs and the appellate record,

this three-judge panel has determined unanimously that

A-35

[APPENDIX]

oral argument would not be of material assistance in the

determination of this appeal. See Fed.R.App.P. 34(a); Tenth

Circuit R. 10(e). This cause is therefore submitted with-

out oral argument.

This matter comes on for consideration of appellee’s

motion to dismiss the captioned appeal for lack of juris-

diction.

The case arose in the United States District Court for

the Eastern District of Oklahoma as a challenge to a certain

regulation promulgated by the Federal Energy Adminis-

tration (FEA) and an interpretation of one of its rules. In

ruling on the merits, the trial court entered a two-part

judgment:

1. Declaring §3 of FEA ruling 1975-12 invalid (for

failure of the agency to comply with the proper

APA procedures), and

2. Holding that an unwritten bonus offer is not to

be used by the FEA in calculating the ceiling price

of crude oil.

Appellant Oklahoma Association of Energy Consumers

and Producers (Association) filed a timely notice of appeal

to this court from the second part of the above judgment.

Simultaneously, defendant-appellee (FEA) filed a notice of

appeal with respect to the invalidation of its regulation

(part one above) in the Temporary Emergency Court of

Appeals (TECA).

The FEA has moved to dismiss this appeal for lack of

jurisdiction, contending the TECA has exclusive jurisdic-

tion. Appellant Association filed a similar motion in the

TECA with respect to the FEA’s appeal in that court, which

we have been advised was denied on September 18, 1979.

The Association argues in favor of this court’s juris-

diction by stating the issue as being whether the FEA (also

referred to as DOE) followed proper APA procedures in

A-36

(APPENDIX}

promulgating its regulation defining “posted price.” Thus

the Association would treat this case as a simple appeal of

a district court’s judgment declaring an agency’s action

proper.

The district court in its pre-trial order stated:

To the extent this Court has jurisdiction over this

matter, jurisdiction is based on Section 5(a)(1) of

the Emergency Petroleum Allocation Act of 1973, as

amended, 15 U.S.C. which incorporates by reference

Section 211 of the Economic Stabilization Act of 1970,

as amended, 12 U.S.C. Section 1904. Plaintiff contends

that jurisdiction also arises under the Federal Energy

Administration Act (““FEAA”), 15 U.S.C. Section 766.

The FEAA provided a successor agency, which incor-

porated the Federal Energy Office and parts of other agency

functions to form one agency. This incorporation thus auto-

matically included the provisions of the 1970 Economic

Stabilization Act, 12 U.S.C. § 1904, et seq., and the creation

of the TECA. See M. Spiegel & Sons Oil Corp. v. B. P. Oil

Corp., 531 F.2d 669 (2nd Cir. 1976); Newell v. Federal

Energy Administration, 591 F.2d 704, 706, n.3 (Em. App.

1979). Thus under either of the jurisdictional bases stated

by the trial court the provisions of the Economic Stabili-

zation Act are applicable.

In Bray v. United States, 423 U.S. 73, 74 (1975) the

Supreme Court held that the TECA was vested with the

exclusive jurisdiction of all appeals from the district courts

of the United States arising under the Economic Stabiliza-

tion Act or under regulations or orders issued thereunder.

12 U.S.C. § 1904 Note, §211(b) (2). Thus it is exactly the

types of regulations on oil and gas pricing here presented

that the TECA was established to handle. Mountain Fuel

Supply Co. v. Johnson, 586 F.2d 1375 (10th Cir. 1978), cert.

denied, 99 S.Ct. 2182 (1979). See also V.V. Car Wash, Inc.

v. Mobil Oil Corporation, Unpublished No. 77-1313 (10th

Cir. filed December 27, 1977) (distinguishing “arising un-

A-37

{APPENDIX}

der” jurisdiction from court’s decision in McCulloch Gas

Processing Corp. v. Black Hills Oil Marketers, Inc., 564 F.2d

916 [10th Cir. 1977]); Withington v. Federal Energy Ad-

ministration, Unpublished No. 76-1612 (10th Cir. filed Au-

gust 25, 1976) (challenge to FEA regulations on “old” and

“new” oil pricing).

This appeal clearly involves “(1) a challenge to the

FEA’s interpretation of the regulations, and (2) a chal-

lenge to the procedures followed by the FEA in adopting

certain of the regulations.” Standard Oil Co. v. Department

of Energy, 596 F.2d 1029, 1039 (Em. App. 1978). See also

Energy Reserves Group, Inc. v. Department of Energy, 589

F.2d 1082 (Em. App. 1978) (appeal from District of Kansas

on DOE interpretation of “stripper wells”); Sohio Petrol-

eum Co. v. Caribou Four Corners, 573 F.2d 1259, 1262-1263

(appeal from District of Wyoming on stripper well exemp-

tion) (Em. App. 1978); Shell Oil Co. v. Federal Energy Ad-

ministration, 574 F.2d 512 (Em. App. 1978) (challenge to

FEA rulemaking procedure on pricing unleaded gasoline);

Grigsby v. Department of Energy, 585 F.2d 1069 (Em. App.

1978), cert. denied, 99 S.Ct. 1216 (1979) (challenge to FEA

regulations concerning similar issue on “posted price”); Na-

tional Helium Corp. v. Federal Energy Administration, 569

F.2d 1137 (Em. App. 1977) (interpretation of FEA’s rules

under APA); M. Spiegel & Sons Oil Corp. v. B. P. Oil Corp.,

supra.

The Second Circuit has recently discussed the juris-

dictional boundaries of the TECA and concluded that case

law indicates that the TECA has more of an “issue” type

of jurisdiction than a strict “arising under” jurisdiction.

Part of the court’s reasoning is based on the fact that it is

possible to take a bifurcated appeal to both a circuit court

and to the TECA from the same district court judgment.

See Coastal States Marketing, Inc. v. New England Petro-

leum Corp., ._. F.2d ___, No. 79-7330 (2nd Cir. filed Au-

gust 1, 1979). There is little to be gained, however, other

than mass confusion, by the promoting of simultaneous cir-

A-38

(APPENDIX)

cuit court-TECA appeals. Compare Associated General Con-.

tractors of America, Inc., Etc. v. Laborers’ International

Union of North America, Local 612, 476 F.2d 1388 (Em.

App. 1973) with Gordon v. Laborers’ International Union

of North America 490 F.2d 133 (10th Cir. 1973), cert. de-

nied, 419 U.S. 836 (1974).

In the case at bar even under the traditional “arising

under” concept of jurisdiction, the instant appeal belongs

in the Temporary Emergency Court. The FEA, by virtue

of its authority under the various energy acts, has deter-

mined that the fifteen-cent bonus for long term contracts

cannot be included as part of the posted price. It is clear

that the “contract law” allegations are not separable from

the federal acts and regulations concerning the issue of

posted price. Mountain Fuel Supply Co. v. Johnson, supra,

586 F.2d at 1384.

Appellee’s motion to dismiss is granted and the appeal

is dismissed for lack of jurisdiction.

A-39

[APPENDIX]

IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF OKLAHOMA

{Filed June 29, 1979}

OKLAHOMA ASSOCIATION OF ENERGY )

CONSUMERS AND PRODUCERS, )

Plaintiff, )

-VS- ) No. 76-366-C

)

FEDERAL ENERGY ADMINISTRATION )

OF THE UNITED STATES, )

Defendant. )

MEMORANDUM OPINION

Plaintiff Oklahoma Association of Energy Consumers

and Producers (OAECP) is a non-profit corporation organ-

ized under the laws of the State of Oklahoma for the stated

purpose of benefiting Oklahoma producers and consumers of

energy. Defendant Federal Energy Administration (FEA)

is an agency of the United States created pursuant to the

Federal Energy Administration Act of 1974, 15 U.S.C. §§

761-787. Plaintiff instituted this action seeking declaratory

judgment and injunctive relief invalidating two separate

and distinct rulings and regulations of the FEA, one in

which the FEA requires a well producing crude oil from

more than one formation to produce the crude oil through

a separate tubing string inside the well casing for each pro-

ducing formation that is tapped in order for the well, or

the production of the separate formations, to qualify for

the stripper well exemption. The second agency action com-

plained of is a determination that the highest posted price

for crude oil used to determine the ¢eiling price of the oil

does not include an unwritten bonus for term contracts of

sale over and above the publicly circulated written offer to

purchase.

On March 16 and 17, 1978 proceedings were conducted

before the Honorable Joseph W. Morris on the issues pre-

A-40

[APPENDIX]

sented by the complaint. Judge Morris resigned from the

bench prior to a determination of this action, and the parties’

agreed to submit the matter to the court for resolution on

the basis of the transcript of the trial before Judge Morris.

1. Oitl Production.

Section 4(e) (2) of the Emergency Petroleum Alloca-

tion Act (EPAA), Pub.L. 93-159, provided: :

(A) The regulation promulgated under subsection (a)

of this section shall not apply to the first sale of crude

oil produced in the United States from any lease whose

average daily production of crude oil for the preceding

calendar year does not exceed ten barrels per well.

(B) To qualify for the exemption under this para-

graph, a lease must be operating at the maximum

feasible rate of production and in accord with recog-

nized conservation practices.

(C) Any agency designated by the President under

section 5(b) for such purpose is authorized to conduct

inspections to insure compliance with this paragraph

and shall promulgate and cause to be published regu-

lations implementing the provisions of this paragraph.

Pursuant to this statutory requirement FEA promulgated

an exemption from the mandatory petroleum allocation and

price regulations for the first sale of crude oil and conden-

sates produced in the United States from any property

whose average daily production of crude oil and conden-

sate did not exceed 10 barrels per well. 10 C.F.R. § 210.32.

On August 29, 1975 FEA promulgated and adopted Ruling

1975-12, without public proceedings, for the stated purpose

of setting forth “the guidelines to be applied in those cases

where production from a property for which the stripper

well lease exemption is claimed appears not to have been

maintained at the maximum feasible rate of production or

to have been significantly curtailed.” The substance of Rul-

A-41

(APPENDIX)

ing 1975-12 dealt with four distinct issues: (1) Stripper

well lease production requirements; (2) Adjustments for

significantly curtailed or disrupted production; (3) Multiple

completion wells; and (4) Enforcement. In regard to multi-

ple completion wells, Ruling 1975-12 stated:

III. Multiple Completion Wells.— Where a property

encompasses the right to produce crude oil from two

or more producing formations or reservoirs, producers

sometimes utilize a production technique involving

“multiple completion wells.” This technique, which

makes use of an existing well that produces from one

formation, involves drilling from the existing casing

separate well-bores or elongating existing well-bores

in order to reach other formations. By the installation

of additional tubing strings, crude oil may in this man-

ner be produced concurrently from two or more for-

mations. A multiple completion well is to be distin-

guished from a “recompleted well” which involves the

technique of drilling a separate well-bore from an ex-

isting casing in order to reach the same reservoir, or

redrilling the same well-bore to reach a new reservoir

after production from the original reservoir has been

abandoned. While a multiple completion well involves

the simultaneous production from two or more reser-

voirs, a recompleted well involves production from

only one formation.

Thus, a multiple completion well is designed to ac-

complish the same task as two or more separate and

distinct producing wells, although conserving initial

capital outlay, it functions in many ways as two or

more separate producing wells: Crude oil from each

formation remains isolated in distinct tubing strings

until reaching the surface, where it may either be com-

mingled with crude oil from other formations, or may

continue to be diverted separately through alternative

chokes and valves in the wellhead “Christmas tree”

fitting. In this way, differences in API gravity, sul-

A-42

(APPENDIX)

phur content and mineral impurities that might be

characteristic of different formations, can be main-

tained.

Although a multiple completion well is a somewhat

less costly alternative to drilling an entirely separate

well in order to reach another producing formation in

the field, it nevertheless represents a significant capi-

tal investment and poses certain additional problems

beyond those encountered with single or separate wells.

For example, the artificial lift in a multiple completion

well is more complicated and, correspondingly more

costly to install. Furthermore, repairs to any of the

intervals are more costly than in separate wells and

can result in a temporary shut-down of production from

all reservoirs.

Therefore, the FEA has determined that multiple com-

pletion wells may be considered as two (or more) wells

for the purpose of calculating “average daily produc-

tion” pursuant to the stripper well lease exemption of

10 CFR 210.32 if:

(a) The well consists of two (or more) separate tub-

ing strings run inside the casing, each of which carries

crude oil from a separate and distinct producing for-

mation, and

(b) the production capabilities of each formation are

unaffected by any change in the production level of

any other formation producing through the same well.

This result is consistent with the congressional policy

of increasing the incentive and economic feasibility of

maintaining production of crude oil from stripper well

leases through advanced production techniques.

OAECP alleges that Ruling 1975-12 as applied to com-

mingled wells is arbitrary and capricious. Further, OAECP

alleges that the rule was improperly adopted by the FEA

and is void. FEA contends that Ruling 1975-12 is an inter-

A-43

(APPENDIX)

pretive rule and, as such, is not subject to the rulemaking

requirements of the Administrative Procedure Act, 5 U.S.C.

§ 553.

A multiple completion well produces crude oil from

several oil bearing formations by utilizing a common well

casing while segregating the oil produced from each for-

mation into a separate tubing string. A commingled well

is similar to a multiple completion well in that it also pro-

duces crude oil from two or more oil bearing formations

through a common well casing. However, a commingled

well does not segregate the oil from each formation but

produces the oil from the several formations through a

single tubing string. Thus the crude oil from any single

oil producing formation is mixed with the crude oil from

all other oil producing formations which have been tapped

through the common well casing.

Several of the members of OAECP are engaged in the

production of crude oil through the utilization of com-

mingled wells in which one or more of the oil producing

formations produced less than ten barrels per day at the

time the well was completed as a commingled well. How-

ever, now that the well is being operated as a commingled

well, the amount of crude oil produced through the well

from all of the oil producing formations which have been

tapped through the common well casing totals in excess of

ten barrels per day. These members have previously sold

the oil produced, or portions of it, at the unregulated mar-

ket price in the belief that if one of the oil producing for-

mations in the commingled well was producing a certain

amount of oil at the time the formations were commingled,

and the amount of oil produced from that formation would

qualify a single completion well as a stripper well, the

amount of oil produced from that formation in a com-

mingled well would also qualify for stripper well status.

FEA disagreed. FEA adopted the position that it is not

possible to accurately determine in a commingled well how

much oil is being produced from a formation at any given

A-44

[APPENDIX]

time while such determination is readily made in a multi-

ple completion well. In adopting this position, FEA deter-

mined that commingled wells would not qualify for con-

sideration as two (or more) wells for the purpose of cal-

culating average daily production under the stripper well

lease exemption. As a result, FEA cited members of OAECP

for selling crude oil at a price in excess of the ceiling price

and issued remedial orders requiring those members to

make reimbursement for alleged overcharges.

In 1946, Congress passed the Administrative Procedure

Act, Pub.L. 79-404, 60 Stat. 237. As originally enacted, the

rulemaking portion of the Administrative Procedure Act

(APA) stated in part:

RULE MAKING

Sec. 4. Except to the extent that there is involved (1)

any military, naval, or foreign affairs function of the

United States or (2) any matter relating to agency

management or personnel or to public property, loans,

grants, benefits, or contracts —

(a) NOTICE. — General notice of proposed rule mak-

ing shall be published in the Federal Register (unless

all persons subject thereto are named and either per-

sonally served or otherwise have actual notice thereof

in accordance with law) and shall include (1) a state-

ment of the time, place and nature of public rule mak-

ing proceedings; (2) reference to the authority under

which the rule is proposed; and (3) either the terms

or substance of the proposed rule or a description of

the subjects and issues involved. Except where notice

or hearing is required by statute, this subsection shall

not apply to interpretative rules, general statements of

policy, rules of agency organization, procedure, or prac-

tice, or in any situation in which the agency for good

cause finds (and incorporates the finding in a brief

statement of the reasons therefor in the rules issued)

that notice and public procedure thereon are imprac-

ticable, unnecessary, or contrary to the public interest.

A-45

[APPENDIX]

The APA survived essentially unchanged until September

6, 1966 when Congress codified the general and permanent

laws relating to the organization of the government as Title

5 United States Code. At that time, the APA became Chap-

ter 5 of Title 5, and Section 4, quoted above, became codi-

fied as 5 U.S.C. § 553 as follows:

§ 553. Rule making.

(a) This section applies, according to the provisions

thereof, except to the extent that there is involved —

(1) a military or foreign affairs function of the

United States; or

(2) a matter relating to agency management or

personnel or to public property, loans, grants, benefits

or contracts.

(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 accordance

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 required by statute,

this subsection does not apply —

(A) to interpretative rules, general statements of

policy, or rules of agency organization, procedure, or

practice; or

(B) when the agency for good cause finds (and in-

corporates the finding and a brief statement of reasons

therefor in the rules issued) that notice and public pro-

cedure thereon are impracticable, unnecessary, or con-

trary to the public interest.

A-46

(APPENDIX)

By comparing Section 4 of the APA with 5 U.S.C. § 553, it

is readily apparent that any changes of substantive law

that have occurred during the process of codification, at

least so far as the above quoted provisions are concerned,

are minimal. Therefore, for a proper understanding of the

intent of Congress in enacting section 4 of the APA and its

successor, 5 U.S.C. § 553, it is appropriate to look to legis-

lative reports that originally accompanied the APA. Such

a report is the legislative history of the APA contained in

House Report No. 1980 by the House Committee on the

Judiciary dated May 3, 1946 reprinted in (1946) U.S. Code

Cong. Serv. 1195. This report begins with a discussion of

the recognized importance of the legislation by stating:

For more than 10 years this legislation has been under

consideration. Certainly no measure of like character

has had the painstaking and detailed study and draft-

ing. Both the legislative and executive branches have

participated, and private interests of every kind have

had an opportunity to present their views. In the legis-

lative branch there have been four major proposals for

the creation of an administrative court, and at least

eight for the regulation of administrative procedure.

Two important studies were conducted in the executive

branch under the late President Franklin D. Roosevelt

— each resulting in reports to Congress with legislative

recommendations. Private individuals and organiza-

tions have made innumerable studies and recomenda-

tions. While various proposals have been made over

the years, the continuous line of development leading

to the present bill is clear and illuminating.

1946 U.S. Code Cong. Serv. at 1195. In reviewing the 1937

report of the Presidential Committee on Administrative

Management, the Judiciary Committee noted:

The problem has been how to deal with (administrative

functions) in our complex governmental setup, without

unduly interfering with necessary governmental oper-

ations.

A-47

[APPENDIX]

1946 U.S. Code Cong. Serv. at 1196. By noting the 1938

Senate hearings on the creation of an administrative court,

the committee stated:

There is need for a simple and standard plan of ad-

ministrative procedure, together with the statement of

legal and enforceable guides for administrative officers

and agents in their daily operations. In short, an im-

portant object of any legislation in this field is not only

to provide judicial redress but to assure administrative

fairness in the beginning so that litigation may become

unnecessary.

1946 U.S. Code Cong. Serv. at 1196. In discussing the sub-

stance of the APA, the Judiciary Committee stated:

Manifestly the bill does not unduly encroach upon the

needs of any legitimate government operation, although

it is of course operative according to its terms even if

it should cause some administrative inconvenience or

changes in procedure.

* * *

The bill is an outline of minimum essential rights and

procedures. Agencies may fill in details, so long as they

publish them. It affords private parties a means of

knowing what their rights are and how they may pro-

tect them, while administrators are given a simple

framework upon which to base such operations as are

subject to the provisions of the bill.

In the “rule making” (that is, “legislative”) function

it provides that with certain exceptions agencies must

publish notice and at least permit interested parties to

submit their views in writing for agency consideration

before the issuance of general regulations (sec. 4).

* * *

A-48

[APPENDIX]

The public-information provisions of section 3 are of

the broadest application because, while some functions

and some operations may not lend themselves to formal

procedure, all administrative operations should as a

matter of policy be disclosed to the public except as

secrecy may obviously be required or only internal

agency “housekeeping” arrangements may be involved.

Sections 4 and 5 prescribe the basic requirements for

the making of rules and the adjudication of particular

cases.

1946 U.S. Code Cong. Serv. at 1024-5.

Thus, it is clear that the Congressional intent in form-

ulating the APA was more than a desire to standardize the

procedures utilized by the various agencies but included an

attempt to provide for procedures that would recognize the

fundamental fairness of governmental operations being con-

ducted in full view of the governed.

In issuing its Ruling 1975-12, the FEA has stipulated

that the procedures in 5 U.S.C. § 553 were not followed, at

least as to section 3 of the ruling. The government con-

tends that the ruling qualifies as an interpretative rule

under 5 U.S.C. § 553(b) (A) and, as such, does not require

notice or hearing. However, for this agency determina-

tion to survive, the rule promulgated cannot be more than

an “internal agency ‘housekeeping’ arrangement.” Such is

simply not the case here.

The creation of the FEA by Congress through the Fed-

eral Energy Administration Act was accompanied by ad-

ministrative provisions the FEA was to apply. These pro-

visions were contained in section 7 of the act and state, in

part:

(i) (1) (A) Subject to paragraphs (B), (C), and (D)

of this subsection, the provisions of subchapter II of

chapter 5 of title 5, United States Code, shall apply to

any rule or regulation, or any order having the appli-

A-49

[APPENDIX]

cability and effect of a rule as defined in section 551 (4)

of title 5, United States Code, issued pursuant to this

Act, including any such rule, regulation, or order of a

State or local government agency, or officer thereof,

issued pursuant to authority delegated by the Adminis-

trator.

(B) Notice of any proposed rule, regulation, or order

described in paragraph (A) shall be given by publica-

tion of such proposed rule, regulation, or order in the

Federal Register. In each case, a minimum of ten days

following such publication shall be provided for op-

portunity to comment; except that the requirements of

this paragraph as to time of notice and opportunity to

comment may be waived where strict compliance is

found to cause serious harm or injury to the public

health, safety, or welfare, and such finding is set out

in detail in such rule, regulation or order. In addition,

public notice of all rules, regulations, or orders de-

scribed in paragraph (A) which are promulgated by

officers of a State or local government agency shall to

the maximum extent practicable be achieved by publi-

cation of such rules, regulations, or orders in a suffi-

eient number of newspapers of statewide circulation

calculated to receive the widest possible notice.

(C) In addition to the requirements of paragraph

(B), if any rule, regulation, or order described in para-

graph (A) is likely to have a substantial impact on the

Nation’s economy or large numbers of individuals or

businesses, an opportunity for oral presentation of

views, data, and arguments shall be afforded. To the

maximum extent practicable, such opportunity shall be

afforded prior to the issuance of any such rule, regula-

tion or order. A transcript shall be kept of any oral

presentation.

(D) Any officer or agency authorized to issue the

rules, regulations, or orders described in paragraph (A)

A-50

[APPENDIX]

shall provide for the making of such adjustments, con-

sistent with the other purposes of this Act, as may be

necessary to prevent special hardship, inequity, or un-

fair distribution of burdens and shall, by rule, establish

procedures which are available to any person for the

purpose of seeking an interpretation, modification, re-

scission of, exception to, or exemption from, such rules,

regulations and orders. If such person is aggrieved or

adversely affected by the denial of a request for such

action under the preceding sentence, he may request

a review of such denial by the officer or agency and

may obtain judicial review in accordance with para-

graph (2) of this subsection when such denial becomes

final. The officer or agency shall, by rule, establish

appropriate procedures, including a hearing where

deemed advisable by the officer or agency, for con-

sidering such requests for action under this paragraph.

Thus, under these procedures, it would appear that the

congressional intent in setting a procedural requirement in

addition to those of the APA was to have the FEA conduct

its operations subject to even more public scrutiny than the

average administrative agency. Additionally, under section

7(i) (1) (c), quoted above, it would appear that even if a

ruling of the FEA were deemed to be interpretative under

5 U.S.C. § 553(b) (A), it would still be required to afford

an opportunity for public comment if it were likely to have

a “substantial impact” on either the national economy or

large numbers of individuals or businesses.

The evidence at trial shows that at the time the wells

were commingled, one or more of the producing formations

involved produced less than ten barrels of crude oil per day.

Acting on the clear legislative statement that wells pro-

ducing less than ten barrels per day were to be exempt from

the pricing restrictions, the producers treated the recovered

crude oil as coming from separate wells and attempted to

apportion the crude oil among the producing formations and

5 A-51

[APPENDIX]

set its price accordingly. The FEA then adopted its regu-

lation, without notice or opportunity for comment, which

determined that the producers were selling crude oil at il-

legal prices. The FEA now adopts the position that the reg-

ulation is valid since it is practically impossible to deter-

mine which oil producing formation is actually contributing

a specific quantity of crude oil to the commingled total. The

FEA in section 3 of Ruling 1975-12 makes reference to justi-

fying treating multiple completion wells as separate wells

at each producing formation because of the capital invest-

ment separate single completion wells would require; how-

ever, the statute exempting wells producing less than ten

barrels of crude oil per day is silent as to justifying the ex-

emption on grounds of capital investment required. Finally,

as a result of its Ruling 1975-12, the FEA is now requiring

the producers to reimburse substantial sums of money, in

at least one instance an amount in excess of $500,000.00.

Additionally, the FEA application of Ruling 1975-12

would seem to mandate inconsistent results. Assume the

case where there exists a well casing penetrating through

three distinct oil producing formations, each of which has

been shown to have an average daily production of crude

oil of four barrels. If the well is completed as a multiple

completion well, Ruling 1975-12 will permit all twelve bar-

rels recovered per day to be sold at the unregulated price.

However, if the well is completed as a commingled well,

Ruling 1975-12, as applied here, prohibits the sale of any

of the crude oil recovered at the unregulated price. Incon-

sistencies of this sort are the kinds of situations that the

notice requirements of the Administrative Procedure Act

sought to avoid by mandating full and informed agency

action.

Accordingly, the court concludes that section three of

Federal Energy Administration Ruling 1975-12 is void for

lack of proper agency procedures and consideration for its

adoption.

A-52

(APPENDIX)

2. Ceiling Price.

In regard to its second cause of action, plaintiff alleges

that on August 19, 1973 defendant promulgated a regula-

tion stating that the ceiling price for crude oil is to be the

highest posted price at 6:00 a.m. on May 15, 1973. Plaintiff

further alleges that “posted price” was not defined until

November 30, 1973 when it was stated to be “. . . a publicly

circulated written offer to purchase.”

Testimony at trial showed that Sun Oil Company initi-

ated a premium offer whereby those producers agreeing to

continue to sell their crude oil to Sun Oil Company, for a

period of twenty months commencing May 1, 1973, could

elect to receive a bonus option. The two options offered

were:

1. $4.15 per barrel or Sun Oil Company’s posted price

plus 15 cents per barrel, whichever was higher, or

2. 15 cents per barrel plus the arithmetical average

of the posted price of Sun Oil Company, Conti-

nental Oil Company and Atlantic Richfield.

Plaintiff’s contention is that the 15 cent inducement bonus

offered by Sun Oil Company constituted a part of the high-

est posted price as used in determining the ceiling price for

crude oil. The court does not agree.

In adopting the November 30, 1973 definition of “posted

price,” the government appears to have been merely adop-

ting the definition of posted price as used by the industry.

Additionally, the options offered by Sun Oil Company seem

to state that the fifteen-cent bonus was not contemplated

by Sun as constituting a part of its posted price as the bonus

was to be computed with reference to Sun’s posted price.

At trial only one witness was produced i: reference to

this issue. Mr. James E. Ragsdale, Sun Oil Company’s Man-

ager of Western Region Crude Oil Purchasing and Sales,

A-53

[APPENDIX)}

was called by plaintiff and gave the following testimony

on direct examination:

Q. All right, Mr. Ragsdale, what is your understand-

ing — you have been in the crude oil purchasing

business a number of years — what is your under-

standing of the term “posted price”?

A. My understanding of a “posted price” is a printed

document which is widely circulated in the oil in-

dustry, and which indicates a price a purchaser is

willing to pay for crude oil and condensate.

Transcript, p. 212. There was no evidence offered to show

that any of the parties ever considered the posted price of

crude oil to be anything other than as defined by the gov-

ernment. Additionally, there was no evidence offered to

show that the adoption of the definition of “posted price”

was anything other than the lawful exercise of regulatory

powers.

Accordingly, and for the reasons stated herein, it is the

conclusion of this court that section 3 of Ruling 1975-12 of

the Federal Energy Administration is void and without legal

effect and that the definition of “posted price” as adopted

by the Federal Energy Administration is proper in that it

does not include bonus offers over and above written offers.

ORDERED this 29th day of June, 1979.

(s) H. Dale Cook

United States District Judge

A-54

(APPENDIX)

JUDGMENT

[Caption omitted in printing]

Based upon the Memorandum Opinion of even date, it

is by the court ordered, adjudged and decreed that section

3 of Ruling 1975-12 issued by the Federal Energy Adminis-

tration on August 29, 1975 is void and without legal effect.

Furthermore, it is the additional judgment of this court

that an unwritten bonus offer is not to be used by the Fed-

eral Energy Administration in calculating the ceiling price

cf crude oil.

DONE this 29th day of June, 1979.

(s) H. Dale Cook

United States District Judge