Tosco Corp. v. Department of Energy

532 F. Supp. 686, 1982 U.S. Dist. LEXIS 9328
CourtDistrict Court, D. Nevada
DecidedFebruary 10, 1982
DocketNo. CIV-R-81-99-ECR
StatusPublished
Cited by1 cases

This text of 532 F. Supp. 686 (Tosco Corp. v. Department of Energy) is published on Counsel Stack Legal Research, covering District Court, D. Nevada primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Tosco Corp. v. Department of Energy, 532 F. Supp. 686, 1982 U.S. Dist. LEXIS 9328 (D. Nev. 1982).

Opinion

MEMORANDUM DECISION

EDWARD C. REED, Jr., District Judge.

Cross-motions for summary judgment are before the Court. Extensive points and authorities have been filed, and oral argument has been heard, the plaintiff being represented by attorney Kenneth L. Bach-man, Jr., and the defendants by attorney Kathrine L. Henry.

The plaintiff (Tosco) is a refiner and marketer of petroleum products. However, it produces no crude oil. Its Complaint relates that defendant Department of Energy (DOE) was directed by Congress to amend its price and allocation regulations so as to provide additional price incentives for producers who would utilize tertiary enhanced recovery techniques. The objective was to increase domestic oil production by encouraging the use of engineering procedures that would not otherwise have been economically feasible at the time due to the price controls on crude oil produced in this country, according to the plaintiff.

[688]*688The Complaint states that DOE adopted a Tertiary Incentive Program which, in essence, permitted a producer who incurred and paid expenses in connection with a qualified tertiary enhanced recovery project to recoup 75 percent of those expenses at once, even though the project would not be worked on until some future time. The recoupment was accomplished by permitting the producer to sell price-controlled crude oil, from any property in which it had an interest, at market price; that is, as though the oil was exempt from price controls.

If the recovery technique to be used was of a type listed by DOE, the producer self-certified its own project as qualified. If some other technique was to be utilized, DOE had to certify the project.

DOE’s regulations, the Complaint continues, required a producer to certify to each purchaser of its oil, within two months after the month of sale, the price category of the oil. For example, crude oil purchased by a refiner in January at the lower price-controlled price for domestic oil could be recertified by the producer in March as tertiary incentive oil. Since tertiary incentive oil could be sold at market price, there was a substantial difference in cost to the refiner, who had to pay that difference. It amounted to a retroactive increase in price.

Under the Tertiary Incentive Program as originally promulgated, expenses paid to affiliated entities could not be recouped by the producer. To be recoupable, expenses had to have been incurred in arm’s length transactions with non-related contractors. The Complaint alleges that on December 29, 1980, DOE amended the Program to allow expenses incurred and paid to affiliated entities to be recouped. DOE made the amendment effective on January 5, 1981, the date of its publication in the Federal Register, and applicable to expenses incurred and paid after December 29, 1980. As a result of the amendment, recertifications increased enormously, thereby subjecting Tosco and other refiners to substantial additional financial burdens.

The plaintiff’s Complaint recites that virtually all oil was decontrolled by President Reagan’s Executive Order of January 28, 1981. That Order was immediately effective. Certain DOE regulatory programs were specifically excepted (left in effect), but the Tertiary Incentive Program was not one of them. However, DOE was expressly authorized to issue entitlement notices for the period up to the date of decontrol, although the notices would actually be issued subsequent to that date.

The entitlement program had been set up in order to spread the benefit of cheaper domestic oil throughout the petroleum industry. Basically, each refiner, whether a large integrated oil company or a small independent refiner, was entitled to a proportion of the lower priced domestic oil, based upon the total amount of crude oil each refined. Rather than actually transport domestic oil from one refinery to another, the equalization process was done on paper. A refiners who had received more than its proportionate share of price-controlled domestic oil during a month had to purchase entitlements from refiners who had received less than their shares. The cost of an entitlement represented the difference between the price per barrel of price-controlled crude and that of exempt (e.g., foreign or tertiary) crude. Because of the time necessary to enable the refiners to report to DOE, the time required by DOE to ascertain the size of the entitlements right of each refiner, and the time needed by DOE to calculate the dollar and cent value of an entitlement, entitlements notices were not issued by DOE until almost two months after the end of the calendar month to which they applied.

On February 12, 1981, DOE issued its Ruling 1981-1, which, in question and answer form, explained the effect of the President’s decontrol Executive Order on DOE’s allocation and price regulations. The Ruling declared that a producer could qualify under the Tertiary Incentive Program subsequent to the date of the Executive Order. Further, the producer could recoup Tertiary Program expenses through recertification of an appropriate amount of its domestic oil [689]*689sold during December 1980 and January 1981, just so those expenses were incurred and paid during the months of February 1981 and March 1981, respectively.

The Complaint complains that this amounted to a continuance of the Tertiary Incentive Program for two months after decontrol of oil by the Executive Order. The combination of such continuance and the regulatory amendment permitting recoupment of Tertiary project expenses incurred and paid to an affiliated (“in-house”) entity resulted in recertification nationwide, under the Tertiary Incentive Program, of 290 percent more oil in the month after decontrol compared to the prior month. Plaintiff Tosco was subjected to recertification of twelve times as much crude oil in the first month after decontrol as for the last month prior thereto. This retroactive increase in price undermined the Entitlements Program, Tosco argues, because it had the effect of changing price-controlled oil to exempt market price oil.

The prayer of the Complaint asks for a declaratory judgment that: (1) Ruling 1981-1 and the actions of DOE pursuant thereto insofar as they permit recertifications of price-controlled oil after January 27,1981, are unlawful and void; (2) all such recertifications are unlawful and void; and (3) the January 5, 1981, affiliate amendment to the Tertiary Incentive Program was promulgated contrary to the procedure required by law, so that the amendment and all recertifications pursuant thereto are unlawful and void. In addition, the prayer asks the Court to order DOE to identify all recertifications declared invalid as a result of this legal action and to issue an Entitlements Notice to rectify their effect on prior Entitlements Notices. Finally, the prayer of the Complaint asks this Court to determine that a substantial constitutional issue exists with respect to recertifications after January 27, 1981, under Ruling 1981-1 and to certify the issue to the Temporary Emergency Court of Appeals.

The Answer of the defendants admits jurisdiction in this Court by reason of 15 U.S.C. § 754(a), which incorporates Section 211 of the Economic Stabilization Act of 1970, 12 U.S.C. § 1904 note. It admits factual allegations of the Complaint, but denies the plaintiff’s conclusions derived therefrom.

Discussion:

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Related

Union Oil Co. v. United States Department of Energy
688 F.2d 797 (Temporary Emergency Court of Appeals, 1982)

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Bluebook (online)
532 F. Supp. 686, 1982 U.S. Dist. LEXIS 9328, Counsel Stack Legal Research, https://law.counselstack.com/opinion/tosco-corp-v-department-of-energy-nvd-1982.