Exxon Corp. v. Department of Energy

802 F.2d 1400
CourtTemporary Emergency Court of Appeals
DecidedAugust 26, 1986
DocketNos. 3-38 to 3-43
StatusPublished
Cited by12 cases

This text of 802 F.2d 1400 (Exxon Corp. v. Department of Energy) is published on Counsel Stack Legal Research, covering Temporary Emergency Court of Appeals primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Exxon Corp. v. Department of Energy, 802 F.2d 1400 (tecoa 1986).

Opinion

PER CURIAM:

Led by Exxon Corporation, several major oil companies brought this action to set aside a decision by the Department of Energy (“DOE”) awarding $63.8 million in relief from regulatory burdens to an oil producer called the 341 Tract Unit of the Citronelle Field (“Citronelle”). This legal battle between plaintiffs, DOE, and Citronelle hinges on the interrelationship between a series of regulatory programs enacted in the wake of the Arab oil embargo.

I. Regulatory Framework

A. Programs

In 1974, acting pursuant to the Emergency Petroleum Allocation Act of 1973, 15 U.S.C. §§ 751-760h (1982), DOE’s predecessor, the Federal Energy Administration (“FEA”), issued regulations controlling the price of crude oil. The regulations divided crude oil into three categories: “old” oil, which was oil drawn from a producing property up to or equaling the amount drawn from that property in the base year 1972, could be sold only at the “lower tier” maximum price; “new” oil, which was oil produced in excess of the base-year level, could be sold at the “upper tier” price; “exempt” oil, which was foreign oil and certain types of domestic oil, could be sold at market prices.

The regulatory system caused competitive distortions because refiners did not have equal access to the old, cheaper crude. The Old Entitlements Program was created to remedy this problem. See Cities Service Co. v. FEA, 529 F.2d 1016 (Temp.Emer.Ct. App.1975), cert. denied, 426 U.S. 947, 96 S.Ct. 3166, 49 L.Ed.2d 1184 (1976); 10 C.F.R. § 211.67 (1985). Under this program, refiners had “entitlements” each month to a certain number of barrels of old oil, the number being based on the refiner’s [1402]*1402proportionate share of old oil. In general, if a refiner bought more old oil than that allowed by its monthly entitlements, the refiner would have to buy entitlements from a refiner who had not received as much old oil as it was entitled to in that month.

The Entitlements Program helped to ensure more balanced access to price-controlled oil, but it did not encourage production from operating wells. Congress responded with the Energy Conservation and Production Act (“ECPA”), Pub.L. No. 94-385, 90 Stat. 1125 (codified as amended at 42 U.S.C. §§ 6801-6892 (1982 & Supp. II)). The ECPA gave DOE latitude within which to set prices, and the agency accordingly developed a “marginal property rule” designed to provide an incentive for the increased production of domestic crude oil. See 44 Fed.Reg. 22,010 (April 12, 1979). The rule allowed producers, beginning in June 1979, to sell at upper-tier prices crude oil taken from “marginal properties”— properties producing little oil from deep wells at great expense. Id. at 22,013-14; see also 45 Fed.Reg. 47,406 (July 14, 1980) (amending marginal property rule to include larger volumes of oil taken from deeper wells).

In addition to authorizing the marginal property rule, the ECPA directed DOE to amend its regulations to “provide additional price incentives for bona fide tertiary enhanced recovery techniques.” 15 U.S.C. § 757(j)(1)(A) (1982); see Union Oil Co. of California v. DOE, 688 F.2d 797, 800 (Temp.Emer.Ct.App.1982), cert. denied, 459 U.S. 1202, 103 S.Ct. 1186, 75 L.Ed.2d 433 (1983); see also id. n. 3 (“Tertiary enhanced recovery techniques are higher cost production methods which maximize oil production from a depleting field” by injecting “carbon dioxide, steam, or other substances in order to increase pressures in the oil reservoir and thereby promote production”). Consequently, DOE in 1978 exempted from price controls the increased production of domestic crude oil resulting from a tertiary enhanced recovery project. 43 Fed.Reg. 33,678 (Aug. 1, 1978). The tertiary incentive program was thus formed, encouraging producers to undertake tertiary projects by giving them greater revenues once oil was recovered using tertiary methods.

Yet the encouragement was not enough for all producers. Some still refrained from starting tertiary projects, despite the benefits, because the projects tended to be risky and usually demanded high pre-production costs. See 44 Fed.Reg. 18,677 (March 29, 1979). DOE, in response, structured the program “to provide ‘front-end’ money to producers engaged in the initiation or expansion of tertiary enhanced crude oil recovery projects that involve substantial pre-production expenses and a high risk of failure.” Id. Front-end money in the amount of $20 million was available for each property, more money being available if a project encompassed more than one property. Id. at 18,679.

The final chapter in this regulatory background is the end of price controls itself. On September 30, 1981, the statutory basis for the President’s authority to maintain such controls was scheduled to end. See 15 U.S.C. § 760g. In an Executive order dated January 28, 1981, President Reagan ordered not only that present price controls be lifted but also that DOE immediately take action to revoke the regulations governing the controls. Executive Order No. 12,287, 46 Fed.Reg. 9909 (Jan. 28, 1981). DOE accordingly ruled that participants in the program could recover only those tertiary incentive expenses incurred, paid, and reported before March 31, 1981. 46 Fed. Reg. 12,945, 12,947 (Feb. 19, 1981). The program, in other words, ended after that date.

B. Exception Relief

The above programs are not implemented rigidly. DOE’s exception authority ensures that the strictures of a regulatory program will be applied in as flexible a fashion as is consistent with the goals of the program. The exception authority derives from the following provision of the DOE Act:

[1403]*1403The Secretary ... shall provide for the making of such adjustments to any rule, regulation or order ... issued under [several federal energy acts], consistent with the other purposes of the relevant Act, as may be necessary to prevent special hardship, inequity, or unfair distribution of burdens____

42 U.S.C. § 7194(a) (1982). The provision seeks to avoid the hardship that would result from a wooden application of rules and thus grants DOE broad discretion in tailoring a program to a situation. Recognizing the necessity of such discretion, courts have accorded great deference to DOE's exercise of its exception authority. See infra Part IV.A.

II. Factual Background

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802 F.2d 1400, Counsel Stack Legal Research, https://law.counselstack.com/opinion/exxon-corp-v-department-of-energy-tecoa-1986.