Standard Oil Co. v. Federal Energy Administration

465 F. Supp. 274, 1978 U.S. Dist. LEXIS 14285
District Court, N.D. Ohio·Decided November 20, 1978·No. No. C75-179·Published·Cited by 1 cases

Opinion

[276]*276MEMORANDUM OF OPINION

MANOS, District Judge.

On February 20, 1975 plaintiff filed the above-captioned appeal from an administrative remedial order. In its complaint The Standard Oil Company of Ohio (Sohio) ' alleges that the Federal Energy Administration’s (FEA) remedial order of September 20, 1974 exceeded the scope of FEA’s authority. Sohio seeks injunctive and declaratory relief. Counterclaimant United States of America seeks civil penalties from Sohio pursuant to Section 5(a)(1) of the Emergency Petroleum Allocation Act (EPAA), 15 U.S.C. § 754(a)(1).

Subject matter jurisdiction is based upon Section 7(i)(2)(B) of the Federal Energy Administration Act (FEAA) and 28 U.S.C. § 1337. Venue in this district is proper. 28 U.S.C. § 1391(e). It is undisputed that Sohio exhausted its administrative remedies by appealing the remedial order of September 20, 1974 to FEA’s Office of Exceptions and Appeals. (Plaintiff’s Exhibit C). On January 30, 1975 the remedial order was affirmed by FEA’s Office of Exceptions and Appeals.

On November 18, 1976 cross motions for summary judgment were filed to which briefs and affidavits were attached. On December 28,1976 Sohio filed a brief opposing FEA’s motion for summary judgment and on December 29, 1976 FEA filed its brief opposing Sohio’s motion for summary judgment. Because the facts are not in dispute, it is proper to decide the case by summary judgment. See, e. g., Felix v. Young, 536 F.2d 1126 (6th Cir. 1976); United States v. Articles of Device Consisting of Three Devices . . . “Diapulse”, 527 F.2d 1008 (6th Cir. 1976).

I.

In 1972 crude oil became scarce in the United States. In 1973 the production of crude oil by exporting countries failed to keep pace with the rapidly increasing demand of the industrialized nations. The resultant shortages encouraged the exporting countries to gradually increase their posted crude oil prices. In October of 1973 the Organization of Petroleum Exporting Countries (OPEC) increased the posted price of crude oil from approximately $3.00 per barrel to approximately $6.00 per barrel. Moreover, on October 12, 1973 the Arab exporting countries imposed an embargo on crude oil shipments to the United States and to other industrialized oil importing countries which they did not lift until April, 1974. The embargo further limited the world supply of oil, causing market prices to rise above the OPEC levels. In November and December, 1973 OPEC raised oil prices to approximately $11.00 per barrel. Again, market prices rose higher than the OPEC levels because of the embarr go and because many of the industrialized nations were willing to pay a premium for clean-burning low sulfur “sweet” crude oil.

Sohio is an independent refiner of petroleum products. Until domestic crude oil became scarce, Sohio had purchased the crude oil it required from domestic producers. During the period May, 1973 through February, 1974, however, Sohio supplied its refineries with a mixture of foreign and domestic crude oil. Sohio’s accounting of two types of transactions used by it to supply its refineries during this period is at issue in this case. Both types of transactions are arms-length transactions in which the crude oil Sohio purchased from independent sellers was shipped by independent carriers.

The first type of transaction is a “time-trade exchange.” A time-trade exchange is a transaction in which a company needing oil to meet present customer demands receives oil from a second company; simultaneously promising that second company to repay it in the future by delivering oil of a similar quality and quantity.

During the period May, 1973 through December, 1973 Sohio needed crude oil to preserve its market. By exchange transaction, Sohio acquired approximately a million and one-half barrels of “sweet” domestic crude oil from an independent supplier. The exchange agreement required Sohio to deliver an equal amount of “payback” oil — crude [277]*277oil of similar grade — to the independent supplier during the first quarter of 1974. Due to the shortage of domestic sweet crude oil, Sohio intended to make its repayment deliveries by purchasing sweet foreign crude oil from a third party on the open market. Accordingly, Sohio contracted in September, 1973 with a foreign oil company from which it acquired the payback oil in 1974 at the then prevailing price of foreign sweet crude oil.

Until October, 1973 Sohio booked at $4.81 the cost of the sweet crude oil it acquired pursuant to the exchange transactions. However, the price of foreign oil increased. Concurrently, Sohio increased the book cost of the exchange oil pursuant to generally accepted accounting principles to reflect the prevailing price of the foreign sweet crude oil — the price that Sohio would be required to pay in 1974 for the foreign repayment oil. These prices ranged from $8.55 per barrel in October, 1973 to $12.62 per barrel in November and December, 1973.

Sohio’s accounting of outright purchases of domestic crude oil from independent domestic suppliers is also contested in this administrative appeal. Like the direct-time exchange, this second type of contested transaction occurred during the last quarter of 1973 and the first quarter of 1974.

On August 19, 1973, the Cost of Living Council (CLC) adopted mandatory petroleum pricing regulations.1 These regulations were promulgated under the Economic Stabilization Act of 1970, as amended 12 U.S.C. § 1904 note, and Phase IV of the Economic Stabilization Program. CLC’s crude oil price controls were designed (1) to curb inflation, and (2) to increase declining domestic production by providing financial incentives.

The CLC Stabilization Program imposed a two-tier pricing system on domestic crude oil. However, only domestic wells producing crude oil in 1972 were subject to the two-tier system. Wells producing at or below their 1972 levels were said to produce “old” oil. Old oil was subject to a ceiling price equal to the highest posted crude oil price of that well on May 15,1973, plus $.35 per barrel. Crude oil produced from post-1972 wells, or from an older well producing in excess of its 1972 production level, was “new” oil. New oil could be sold at uncontrolled prices. Furthermore, a barrel of old oil was “released” from price controls for each barrel of new oil produced from a well that was producing in 1972.2

Sohio’s suppliers of domestic oil were unable to certify the proportions of “new,” or “released” oil, versus “old” oil in each delivery at the time of the delivery. Sohio often waited up to five months from the delivery date for a supplier’s written certification of the content of a domestic crude oil delivery.

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Standard Oil Co. v. Federal Energy Administration, 465 F. Supp. 274, 1978 U.S. Dist. LEXIS 14285 (N.D. Ohio 1978).

465 F. Supp. 274 (Standard Oil Co. v. Federal Energy Administration) — published by Counsel Stack Legal Research, free access to 12M+ legal documents.

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