Placid Oil Co. v. Federal Energy Administration

465 F. Supp. 1199, 1979 U.S. Dist. LEXIS 14206
CourtDistrict Court, N.D. Texas
DecidedFebruary 26, 1979
DocketCiv. A. No. CA-3-77-1057-G
StatusPublished
Cited by2 cases

This text of 465 F. Supp. 1199 (Placid Oil Co. v. Federal Energy Administration) is published on Counsel Stack Legal Research, covering District Court, N.D. Texas primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Placid Oil Co. v. Federal Energy Administration, 465 F. Supp. 1199, 1979 U.S. Dist. LEXIS 14206 (N.D. Tex. 1979).

Opinion

MEMORANDUM OPINION AND ORDER

PATRICK E. HIGGINBOTHAM, District Judge.

This action for judicial review of a decision of the Federal Energy Administration (now the Department of Energy) reveals both the anomalous consequences that flow from pervasive federal regulation of a complex industry as well as the inherent difficulty of “substantial evidence” review of a somewhat intricate administrative proceeding.

The appeal by Placid Oil Co. is from the FEA’s denial of its application for exemption from certain FEA regulations. Placid Oil is engaged primarily in oil and gas exploration, development, and production. On December 30, 1974, Placid Oil acquired through a wholly-owned subsidiary, Placid Refining Company, a small (36,000 bbls/day) refinery at Port Allen, Louisiana. Placid Refining thereafter undertook substantial capital improvements aimed at improving the efficiency of the operation of the refinery, with a view toward refining at Port Allen the type of crude produced by Placid Oil. Placid’s goal of integrating its production and refining operations, however, has never been achieved due to the effect of FEA regulations from which Placid Oil seeks relief.

The principal FEA regulation which has frustrated Placid’s effort to achieve a measure of integration is the so-called “December 1 Rule,” part of the supplier/purchaser program set out at 10 C.F.R. § 211.63 (1978).1 The December 1 Rule, promulgated pursuant to the Emergency Petroleum [1201]*1201Allocation Act of 1973 (EPAA), provides that all contracts for the sale of domestic crude oil which were in effect on December 1. 1973 must remain in effect for the duration of the FEA’s regulatory program regardless of their original terms, unless terminated voluntarily by both parties to the contract. (The regulation now refers to contracts in effect on January 1, 1976). On December 31,1973, Placid Oil was selling all of its crude production to other firms under various contracts, the terms and operation of which were effectively frozen by the December 1 Rule. Likewise, all of Placid's production was under contract for sale to other firms on January 1, 1976. Consequently, Placid Oil may not sell the crude oil it produces to the Placid Refining Company.

Placid Oil also seeks exception relief from certain provisions of the FEA’s buy/sell program, 10 C.F.R. § 211.65 (1978), also promulgated pursuant to the EPAA.2 That program, though it has been substantially modified in recent years, essentially requires certain specified large refiners with ample supplies of crude oil to sell a portion of those supplies to small refiners. The regulations include a formula for determination of the price at which such sales must be made and, until March, 1976, permitted sellers to charge a handling fee of $.30 per barrel. That handling charge was reduced in March, 1976, along with substantial changes in the pricing formula. Placid Refining obtained its supply of crude through the buy/sell program until February, 1978, when it became cheaper to obtain crude in the open market due to changes in the regulatory pricing formula.

As a consequence of FEA regulatory programs, then, Placid Oil was not permitted to sell its crude oil production to its refining subsidiary, but rather was required to sell it to other firms at a regulated price well below the world market price (most of Placid Oil’s production was “old oil” as defined by FEA regulations and hence had to be sold at the lower tier controlled price prescribed for old oil). At the same time, Placid Refinery was forced to obtain its supply of crude oil under the buy/sell program, paying for several years the seller’s average cost of crude oil plus a $.30 per barrel handling charge, and later paying the seller’s average cost of imported crude plus a $.05 per barrel handling charge.3 In fact, some of the firms to which Placid Oil was selling crude were the same firms from which Placid Refining was purchasing crude at a higher price that included a handling charge. Largely as a result of the impact of the regulatory programs, Placid Refining sustained either a loss or a slight profit in its first year of operation.4

On December 5, 1975, Placid Oil filed with the FEA an application pursuant to 10 C.F.R. §§ 205.50-205.58 for exceptions to the December 1 Rule with respect to its short-term crude oil sales contracts and to the $.30 handling charge provision of the buy/sell program with respect to the crude oil purchased by the refinery under that program. The portion of the FEA regulation governing exceptions particularly relevant here is 10 C.F.R. § 205.55(b), which provides in part:

(2) An application for an exception may be granted to alleviate or prevent serious hardship or gross inequity .
(3) An application for an exception shall be decided in a manner that is, to the extent possible, consistent with the dispo[1202]*1202sition of previous applications for exception.

Following Placid’s application for exception relief, the FEA notified those firms that would be affected by the granting of an exception to Placid — the firms receiving crude oil from Placid — of the filing of the application. Nearly all of these firms objected to the granting of an exception and contended that they would be adversely affected by such action. One firm, Shell Oil Company, indicated that it had no objection to the granting of the relief requested by Placid so long as its own obligations under the buy/sell program were reduced by the amount it was receiving from Placid, in accordance with the FEA decision in Continental Oil Co., 2 FEA ¶ 80503 (January 7, 1975).

The FEA’s Office of Exceptions and Appeals issued a decision on April 9, 1976 denying Placid Oil’s application for exception. Placid’s appeal from this decision pursuant to 10 C.F.R. § 205.100 et seq. was denied by the FEA on September 8, 1976. Finally, after its request for a reconsideration of the appeal was denied, Placid Oil commenced this suit on August 3, 1977 for review of the FEA’s action.

Placid Oil argues here that the FEA’s decision denying an exception was arbitrary, discriminatory, and an abuse of discretion because the decision is contrary to the FEA’s decision in Louisiana Land and Exploration Company, 2 FEA ¶ 83,339 (October 22, 1975), modified, 3 FEA ¶ 80,586 (February 26, 1976) (LL&E). Placid contends further that the FEA decision was not supported by substantial evidence, and that the FEA failed to properly distinguish the LL&E decision and failed to properly consider evidence introduced in the administrative proceeding. Placid has moved for partial summary judgment with respect to these contentions, and FEA has filed a cross-motion for summary judgment.

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Related

Koch Refining Co. v. United States Department of Energy
504 F. Supp. 593 (D. Minnesota, 1980)
Placid Oil Co. v. Federal Energy Administration
600 F.2d 813 (Temporary Emergency Court of Appeals, 1979)

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Bluebook (online)
465 F. Supp. 1199, 1979 U.S. Dist. LEXIS 14206, Counsel Stack Legal Research, https://law.counselstack.com/opinion/placid-oil-co-v-federal-energy-administration-txnd-1979.