Dorchester Gas Producing Co. v. United States Department of Energy

582 F. Supp. 927, 1983 U.S. Dist. LEXIS 11424
District Court, N.D. Texas·Decided November 23, 1983·No. Civ. A. No. CA-3-75-0836-W·Published·Cited by 1 cases

Opinion

MEMORANDUM ORDER

WOODWARD, Chief Judge.

Judgment has not been entered in this case but a memorandum opinion was filed on June 24, 1983. Various motions have since been filed by the plaintiffs. The court’s opinion of June 24th is referred to and adopted as a part of this memorandum order except to the extent that it may be modified or changed herein. All outstanding motions will be disposed of by this memorandum order.

Briefly, the plaintiffs in this case seek a declaratory judgment which would in effect nullify certain regulations and interpretations of the defendant and its predecessor agencies and the defendants pray for a declaratory judgment upholding these same regulations and interpretations.

BACKGROUND

Under the authority of the Emergency Petroleum Allocation Act (EPAA) 15 U.S.C. §§ 751 et seq., the FEA promulgated Sub-part E which controlled the price refiners could charge for certain petroleum products, including NGLs. Natural gas processors were held to be “refiners” and thus subject to Subpart E. National Helium Corp. v. FEA, 569 F.2d 1137, 1145 (TECA 1977). The Subpart E regulations, however, were better suited for crude oil refiners, and in 1974 the FEA proposed Subpart K regulations specifically applicable to natural gas processors. Subpart K became effective January 1, 1975.

Both parties (by cross motions for summary judgment) seek to have their methods for calculating the increased costs of natural gas from which NGLs are extracted declared reasonable and the methods of the opposing party declared unreasonable.

In its previous memorandum, the court essentially held that the regulations and interpretations of the Department of Energy (DOE) were proper and, with the exception of the ethane exclusion, the court denied plaintiffs’ motion for summary judgment and granted the cross motion for summary judgment filed by the defendant. The various motions subsequently filed by plaintiffs generally assert the following:

(1) Though the court held the transfer-pricing method unreasonable under Subpart E, given the ambiguity of the regulation, plaintiffs’ alternative “incremental” method should be held reasonable.
(2) Under the recent Supreme Court decision the promulgation of Subpart K was arbitrary and capricious since DOE failed to consider fixed-quantity contracts.
[930]*930(3) The court misread or overlooked various agency interpretations.
(4) The inclusion of the fixed-quantity contract price in the weighted average cost of shrinkage is an unreasonable interpretation of Subpart K in that there was no revenue loss attributable to the fixed-quantity contracts.
(5) The underlying Acts, the EPAA and EPCA, are invalid (under the Chadha decision) because they both contain one-house veto provisions.

Because this case covers two distinct regulatory periods, it is necessary to briefly outline the methods actually used by the plaintiffs during the relevant periods. Sub-part E was in effect from late 1973 through 1974 and Subpart K became effective January 1, 1975.

TEXACO

During Subpart E period and until 1976, Texaco used a transfer pricing method of calculating increased costs. During 1976 and early 1977, Texaco used the weighted average method of calculating cost of shrinkage now advocated by DOE. During this latest period, Texaco computed the weighted average by using the sales price for all contracts from the sale of gas from its processing plant, including fixed-quantity contracts and contracts for the sale of surplus gas.1 In May 1977, Texaco began using its so-called “incremental method”; that is, Texaco calculated shrinkage costs based on surplus contract prices, excluding from the calculation the price received under the fixed-quantity contracts. Affidavit of B.B. Fox in Support of Texaco Inc.’s Motion for New Trial, page 2. In December 1978, Texaco refiled to claim increased costs for the period prior to May 1977 to reflect costs computed pursuant to the incremental method.2 Counsel for Texaco at the October 25, 1983 hearing stated that the re-filings were “accepted by DOE.”

EXXON

Plaintiff Exxon passed through no increased costs for NGLs during August, September, and October 1973. During the period November 1973 through March 1974, Exxon computed increased costs under a formula permitted for old crude oil. See Exxon’s Supplemental Answers to Defendant’s First Set of Consolidated Interrogatories and Request for Production of Documents filed April 1, 1982. In April 1974, Exxon again changed methods and until December 1974, utilized a transfer pricing method, based on its historical system of accounting. This formula utilized the Exxon posted prices for propane and motor gasoline. Exxon re-filed, seeking to make this transfer pricing method effective as of November 1973. Id. During Subpart K, Exxon employed its incremental method of calculating shrinkage.

MOBIL

Plaintiff Mobil initially challenged the regulatory control of NGLs under Subpart E, lost this suit, and then refiled and used what is in effect the incremental method. Mobil Oil Corp. v. F.E.A., 566 F.2d 87 (TECA 1977). The court in Mobil affirmed the holding of the district court that the FEA has authority “to regulate the allocation and pricing of all liquid petroleum products recovered from the ‘wet’ natural gas streams, including condenstate, natural gas liquids and natural gas liquid products recovered at gas processing plants (propane, butane, and natural gasoline except ethane).” 566 F.2d 87 (TECA 1977). Mobil, during both the Subparts E and K periods, sold processed gas under five fixed volume contracts and sold the remainder under a sixth contract to Channel Industries. The parties disagree over the characterization of the Channel Industries contract as a “surplus” contract. The Channel contract did in fact contain a maximum [931]*931volume limit term, but that limit was exceeded only once. In calculating its increased costs, Mobil used only the prices received from the Channel Industries contract and ignored the fixed-quantity contracts.

RE-FILING PROVISION

Texaco and Exxon claim the above to be the methods they “actually used” by virtue of resubmitting monthly reports.

Section 212.126(b) of the DOE Mandatory Petroleum Price Regulations (10 C.F.R. § 212.126(b), 39 Fed.Reg. 1961, January 15, 1974) requires that refiners

... shall prepare and file with the FEO periodic reports in accordance with forms and instructions issued by FEO. Each refiner shall submit its calculations under the formulas of § 212.83 in accordance with the forms and instructions issued by FEO.

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Dorchester Gas Producing Co. v. United States Department of Energy, 582 F. Supp. 927, 1983 U.S. Dist. LEXIS 11424 (N.D. Tex. 1983).

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