Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

EXXON CORP. v. FEDERAL ENERGY ADMIN.

June 17, 1975

EXXON CORPORATION and ESSO STANDARD OIL S.A., LTD., Plaintiffs,
v.
FEDERAL ENERGY ADMINISTRATION, et al., Defendants, UNITED STATES OF AMERICA and COMMONWEALTH OIL REFINING COMPANY, Intervenor-Defendants. MOBIL OIL CORPORATION and MOBIL OIL CARIBE, INC., Plaintiffs, v. FEDERAL ENERGY ADMINISTRATION, et al., Defendants, UNITED STATES OF AMERICA, COMMONWEALTH OF PUERTO RICO, and COMMONWEALTH OIL REFINING COMPANY, Intervenor-Defendants. TEXACO, INC., and TEXACO PUERTO RICO, INC., Plaintiffs, v. FEDERAL ENERGY ADMINISTRATION, et al., Defendants, UNITED STATES OF AMERICA and COMMONWEALTH OIL REFINING COMPANY, Intervenor-Defendants



The opinion of the court was delivered by: FLANNERY

 The three above-captioned cases are before the court on cross-motions for summary judgment. Although the cases have not been consolidated, they involve many common questions, have been briefed according to similar schedules, and were argued together on March 17, 1975. This Memorandum Opinion will cover the issues in all three cases, pointing out where necessary those issues that pertain only to certain parties.

 These actions all challenge the Federal Energy Administration's [FEA] issuance of a mandatory petroleum price regulation pertaining to the price of petroleum products in Puerto Rico. This court has jurisdiction under the Emergency Petroleum Allocation Act of 1973, 15 U.S.C. § 754(a)(1) (Supp. 1975) and section 211 of the Economic Stabilization Act of 1970. The plaintiffs assert that the regulation must be set aside for both substantive and procedural reasons. These challenges raise a host of issues which make simple resolution quite difficult. Accordingly, the court first will review the factual background of these cases and will set forth the procedural posture of each case. Then the court will address the merits of the various challenges.

 I. Factual Background

 The Commonwealth of Puerto Rico is uniquely dependent upon petroleum products for its energy needs. Indeed, 99 percent of Puerto Rico's energy is derived from petroleum products and nearly 100 percent of that petroleum is imported from foreign countries, chiefly Venezuela. Historically foreign crude oil has been considerably less expensive than domestic crude oil and in the past Puerto Rico has benefited by having prices lower than those in mainland United States. Thanks at least in part to these lower prices, Puerto Rico, economically the poorest part of the United States, recently has experienced rapid growth at a rate considerably in excess of that in mainland United States. Much of this growth has centered in an extensive petro-chemical and oil refining industry.

 
Not later than fifteen days after November 27, 1973, the President shall promulgate a regulation providing for the mandatory allocation of crude oil, residual fuel oil, and each refined petroleum product, in amounts specified in (or determined in a manner prescribed by) and at prices specified in (or determined in a manner prescribed by) such regulation. Id. § 753(a).

 Thus Congress made mandatory that the President both allocate supplies and regulate prices of petroleum products.

 Pursuant to this Congressional directive, the President, through his delegate, published proposed regulations and later, on January 15, 1974, issued the mandatory petroleum allocation and price regulations. See 39 Fed. Reg. 1923-61 (1974), codified in 10 C.F.R. §§ 205, 210-12. Under the petroleum price regulations -- the regulations directly in issue in these cases -- FEA set up two general pricing rules, the reseller and the refiner. These rules are used to determine the maximum price which a firm may charge for its products and provide for a dollar-for-dollar pass-through of increased product costs. See 15 U.S.C. § 753(b)(2)(A) (Supp. 1975). When a company that is subject to the refiner rule incurs increased product costs, it must determine the weighted average of all such increased costs and may pass them through equally over its entire distribution system. When a company subject to the reseller rule incurs increased product costs, it may pass its increased product costs directly through to its customers without averaging such increased costs equally through an entire or larger distribution system. Generally, the refiner rule applies to any firm defined as a "refiner," meaning a firm or part of a firm "which refines covered products or blends and substantially changes covered products. . . ." 10 C.F.R. § 212.31. The reseller rule applies generally to any firm defined as a "reseller," meaning "a firm (other than a refiner or retailer) or that part of such a firm which carries on the trade or business of purchasing covered products, and reselling them without substantially changing their form to purchasers other than ultimate consumers." Id. The reseller rule also applied to any entity of a refiner that was engaged in purchasing and reselling covered products, provided that the entity received less than five percent of those products from its parent refiner, and provided "that the entity has historically and consistently exercised the exclusive price authority with respect to sales by the entity." Id. § 212.91.

 In Puerto Rico there are two main refiners of crude oil -- Caribbean Gulf Refining Corporation and the Commonwealth Oil Refining Company [CORCO]. Under the regulations promulgated by FEA, Caribbean Gulf and CORCO would be treated under the refiner rule. Caribbean Gulf would have to average its increased product costs in with the increased product costs incurred by its parent, Gulf Oil Corporation of the United States. CORCO, however, having no larger distribution system, would be permitted to pass its increased product costs directly to Puerto Rican wholesalers. This situation resulted in Gulf, which refined about 25 percent of Puerto Rico's petroleum products, being required to sell its refined products at a price considerably below that of CORCO, the seller of about 75 percent of Puerto Rico's refined petroleum products.

 This situation was made more complex because certain wholly owned subsidiaries of mainland United States refiners, including Esso Standard Oil S.A., Ltd. [ESSO], subsidiary of EXXON Corporation, Mobil Oil Caribe, Inc. [Mobil Caribe], subsidiary of Mobil Oil Corporation, and Texaco Puerto Rico, Inc. [Texaco P.R.], subsidiary of Texaco, Inc., bought all of their petroleum products from CORCO and were subject to the reseller rule. These subsidiaries, upon purchase of petroleum products from CORCO, could pass on any increased prices that CORCO passed on to them. This would have meant that a large portion of the sellers of petroleum products in Puerto Rico (together the EXXON, Mobil, and Texaco subsidiaries sell about 55-60 percent of all petroleum products sold in Puerto Rico) would have been in a position to pass extremely large price increases directly to the Puerto Rican consumer. These price increases would have been larger than those being incurred in the mainland United States because CORCO depended almost entirely on Venezuelan crude oil for its supplies and the price of that oil had increased from about $3 to over $14 per barrel while the price of mainland crude oil had been held to about $5.50 per barrel. Thus, under FEA's price regulations that were promulgated in January, 1974, Puerto Rico was faced with the prospect of greatly increased fuel costs; some estimates were that gasoline at some retail stations would increase by 17 cents a gallon.

 One other seller of petroleum products in Puerto Rico, The Shell Company (Puerto Rico) Ltd., [Shell P.R.], also was a major purchaser from CORCO and also was subject to the reseller rule. Shell P.R. in FEA's opinion was not controlled directly or indirectly by any mainland United States refiner. Thus FEA reasoned that Shell P.R. was subject to the reseller rule and accordingly after January 15, 1974, was, like the EXXON, Mobil and Texaco subsidiaries, in a position to pass on any increased product costs directly to Puerto Rican consumers. Shell P.R. sold about 18 percent of the petroleum products consumed in Puerto Rico.

 FEA, soon after the January 15, 1974 promulgation of the pricing regulations, became concerned about the effect that the application of the reseller rule would have on the Puerto Rican economy. For instance, in March 1974, Shell P.R. and Mobil Caribe attempted to increase prices by 12-14 cents per gallon. Similarly, in February, 1974, the gasoline retailers association decreed a two-day shutdown of gasoline stations to protest the petroleum problem. During that shutdown there also was a major transportation strike, causing severe dislocation in the Puerto Rican economy. FEA began to fear the emergence of a two-tiered pricing structure for fuel in Puerto Rico. FEA reasoned that those few retailers purchasing fuel that had been refined by Gulf would have low prices while the majority, those purchasing fuel refined by CORCO, would have significantly higher prices. In its submission to the FEA, the Commonwealth of Puerto Rico stated:

 
The retailers with the lower prices would inevitably exhaust their inventory in the first days of the month. Those with higher prices would experience very low sales volumes during these early days, until the low cost products available on the island were exhausted.
 
Price disparity will cause long lines at gasoline stations, which in addition to causing inconveniences to consumers, causes economic hardships to business purchasers, such as truckers and construction companies which must pay employees to wait in lines to purchase fuel.

 FEA published its amended regulations and notice of rule-making on March 27, 1974. Pursuant to those notices many interested parties submitted comments concerning the proposed rule-making and FEA held two days of hearings on April 8 and 9, 1974. On May 20, 1974, FEA published its final mandatory petroleum price regulations applicable to Puerto Rico. See 39 Fed. Reg. 17764 (1974). In its first conclusion FEA determined that the refiner rule, not the reseller rule should be applied in Puerto Rico:

 
The FEO [now FEA] has concluded that the refiner price rule should be applied in Puerto Rico. The foremost consideration in this regard is the adverse impact that the reseller rule would have on the economy of Puerto Rico.
 
The Emergency Petroleum Allocation Act of 1973 included Puerto Rico in the allocation and price regulation system contemplated by the Act, and the need to maintain "equitable" prices for petroleum products in Puerto Rico is particularly acute in view of the nature of the Puerto Rican economy.
 
Although Puerto Rico does have a semi-autonomous governmental status, the fact that it has been included in the definition of the United States under the Emergency Petroleum Allocation Act of 1973 means that the averaging of costs in Puerto Rico with costs in the mainland United States cannot properly be regarded as a subsidy, any more than the averaging of costs with respect to one state where costs are high with those of another state where costs are low can be regarded as a subsidy from one state to another.
 
The FEO recognizes, however, that the differing treatment of Puerto Rico under the tax laws of the United States results in subjecting increased product cost recoupment revenues to Federal corporate income taxes in the mainland United States, which would not be subject to such taxes in Puerto Rico. The FEO has concluded, however, that the public policy expressed in the Emergency Petroleum Allocation Act of 1973, together with the consistent United States policy of promoting the Puerto Rican economy, favors the conclusion reached here. The tax consequences on each marketing company will vary, depending on its tax situation, and FEO will cooperate with the affected companies in trying to resolve tax problems resulting from this decision. 39 Fed. Reg. at 17765.

 With respect to Shell P.R. FEA came to a somewhat different conclusion.

 II. Procedural Background

 Subsequent to issuance of the above-noted regulation, CORCO, as required by the regulation, sought from ESSO, Mobil Caribe, and Texaco P.R. certain information so that it could figure according to a complex FEA formula the amount by which CORCO would have to reduce its price to Shell. Despite the use of the word "permit" with regard to the Shell adjustment, both CORCO and FEA took the position from the beginning that the rule was mandatory in its terms: CORCO was required to lower its prices to Shell and if it raised its prices to ESSO, Mobil Caribe and Texaco P.R. in order to compensate for the Shell reduction, ESSO, Mobil Caribe and Texaco P.R. were required to accept and pay those higher prices.

 After the May 20, 1974 publication of the Puerto Rican price regulations, Mobil Caribe, ESSO and Texaco P.R. all observed the refiner rule. Texaco on June 25, 1974, appealed to FEA to set aside the May 20 price regulation; neither Mobil Caribe or ESSO challenged the price regulation at that time. In Summer, 1974, CORCO sent Mobil Caribe and ESSO invoices reflecting the amount they owed CORCO for the Shell adjustment. Both Mobil Caribe and ESSO refused to pay these invoices, contending that the Shell adjustment was invalid. On August 27, 1974, FEA served EXXON and ESSO with a notice of probable violation of the May 20, 1974 regulation. After considerable consultation, FEA issued a remedial order against EXXON and ESSO on October 9, 1974, and, after denying a stay pending appeal, finally rejected EXXON and ESSO's appeal on November 14, 1974. Similarly, Mobil and Mobil Caribe received notice of probable violation on September 3, 1974, and after proceedings similar to those experienced by EXXON and ESSO, finally were denied an appeal on November 19, 1974. *fn1" Texaco never received a notice of probable violation but its appeal of the May 20, 1974 regulation finally was denied on November 26, 1974.

 EXXON and ESSO commenced Civil Action 74-1617 on November 7, 1974, seeking injunctive and declaratory relief that the Shell adjustment of the May 20, 1974 regulation was invalid and that the remedial order and denial of an intra-agency appeal were unsupported by any valid regulation. They moved for a temporary restraining order which was heard and granted on November 15, 1974. In Civil Action 74-1658 Mobil and Mobil Caribe commenced suit on November 14, 1974, seeking not only relief similar to that in Civil Action 74-1617 but also attacking the application of the refiner rule to Puerto Rican subsidiaries of mainland United States oil corporations. They moved for a temporary restraining order which was heard and granted on November 15, 1974. In Civil Action 74-1705 Texaco and Texaco P.R. commenced suit on November 22, 1974, attacking the validity of the Shell adjustment. A temporary restraining order was entered on November 22, 1974.

 In each of the three cases presently before the court the parties stipulated to continuation of the temporary restraining orders and set up a briefing schedule for cross-motions for summary judgment. In each of the cases CORCO sought and was granted intervention. Similarly, in each case the United States of America was allowed to intervene solely for the purpose of asserting a counterclaim that the respective defendants be ordered to pay the sums allegedly due to CORCO. The Commonwealth of Puerto Rico intervened only in Civil Action 74-1658. All the parties, including the intervenors, have filed motions for summary judgment and there has been extensive briefing of all issues. In addition, the court heard three hours of oral ...


Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.