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MARATHON OIL CO. v. DOE

December 19, 1979

MARATHON OIL CO. et al., Plaintiffs,
v.
DEPARTMENT OF ENERGY et al., Defendant, and Ashland Oil, Inc. (Intervenor-Defendant).



The opinion of the court was delivered by: GREENE

On November 12, 1979, the President issued a proclamation pursuant to 19 U.S.C. § 1862 banning the importation to the United States of crude oil produced in Iran. 44 Fed.Reg. 65581. The next day the government of Iran imposed an embargo on the export of its crude oil to all United States firms. Ten days later on November 23, 1979, the Economic Regulatory Administration (ERA) of the Department of Energy issued a Notice of Proposed Rulemaking in which it was stated that ERA was considering implementing its Standby Mandatory Crude Oil Allocation Program so as to mitigate possible impacts caused by the loss of Iranian oil. 44 Fed.Reg. 67602. *fn1"

Prior to that time, on November 20, 1979, Ashland Oil, Inc., had applied to the Office of Hearings and Appeals (OHA) of the Department of Energy for an exception in which it requested that Office to provide it with an allocation of 100,000 barrels of crude oil per day from other domestic refiners, beginning in December 1979, to replace the oil which Ashland anticipated losing from Iran. A hearing on the application was convened on November 26, 1979, and a substantial number of witnesses testified, including witnesses from several plaintiff companies. On November 27, 1979, the Director of OHA issued an order granting Ashland a temporary exception.

 In taking this action, the Director concluded that there was a very substantial likelihood that Ashland would ultimately receive exception relief from OHA on the basis that it and its customers were bearing a disproportionate burden of the President's action. Specifically, the Director found that (1) as a result of that action Ashland is losing 100,000 barrels of crude oil per day, or 25 per cent of its entire supply; (2) no other firm in the United States is in a similar position as Ashland; (3) if Ashland purchased oil on the "spot" market in excess of $ 40 per barrel and passed the cost on to its customers, it would unfairly burden many of them; (4) without a temporary exception, Ashland would, at best, have to reduce its production of petroleum products to 75 per cent of its previous supply effective December 1, and that production would fall to between 54 and 55 per cent in January, 1980; (5) if Ashland raised its prices or reduced its allocation, its customers would face disruptions to their businesses so as to present an imminent threat of curtailment of those business activities. *fn2"

 Based upon his conclusion that, on balance, Ashland had demonstrated that temporary exception relief should be granted, the Director decided that it should receive an allocation of 80,000 barrels per day from nine other refiners during December, January, and February. *fn4" These refiners were selected on the basis that each had a total domestic refining capacity in excess of 500,000 barrels per day. *fn5" He specified that the price of the oil sold to Ashland was not to exceed the weighted average F.O.B. cost of foreign crude oil purchased by the particular firm for delivery into the United States during November and December 1979, but, in addition, he allowed the cost of transportation and a profit of $ 1.50 per barrel.

 Ashland, in turn, was required to maintain average refinery runs during December, January, and February equal to its runs during a June-through-December base period. It was also specifically required to refine 87 per cent of the gasoline refined in comparable periods of a year ago and maintain pre-crisis production levels of other fuels.

 On December 9, 1979, plaintiffs filed this action for judicial review of the OHA order and for a preliminary injunction to stay the OHA action, which requires plaintiffs to begin oil shipments to Ashland as of December 20, 1979. The five complaints, involving eight oil companies, were consolidated *fn6" and Ashland was permitted to intervene as a defendant. Voluminous memoranda and other papers were filed by the parties, *fn7" and a hearing on the motion for preliminary injunction was held on December 18, 1979.

 I

 Both intervenor-defendant Ashland and the federal defendants have filed motions to dismiss *fn8" based essentially on the theory of failure to exhaust administrative remedies. Defendants argue that the Temporary Emergency Court of Appeals has consistently required the exhaustion of administrative remedies prior to judicial review, *fn9" and that 10 C.F.R. Part 205 provides such a remedy by allowing an administrative stay. However, another regulation, 10 C.F.R. § 205.128(g), explicitly directs that the "grant or denial of a temporary exception is not an order of the DOE subject to administrative review." Defendants' efforts to explain away the clear meaning of that regulatory provision are unpersuasive. Moreover, no case is cited where any court has required an application for a stay as a prerequisite to judicial review of the agency's order. Since the agency developed a factual record, and came to a reasoned conclusion based thereon, it would make little sense to send the parties back to OHA merely to have that body's director restate his conclusions. See Phillips Petroleum Co. v. FEA, 435 F. Supp. 1239 (D.Del.1977). *fn10" Accordingly, defendants' presently pending motions to dismiss are hereby denied. *fn11"

 II

 With respect to the merits, plaintiffs argue first that, while under the law adjustments to rules or regulations may be made if they would cause special hardship (see Part III Infra), guidelines issued by OHA restrict such relief to the alleviation of problems "which have arisen as a direct result of a Department of Energy regulatory program." 41 Fed.Reg. 50856. That, claim the plaintiffs, is not the situation here, for Ashland's problems are said to be the result of (1) the President's proclamation, (2) the actions of the Iranian government, and (3) Ashland's own business decisions. These contentions, which lie at the heart of plaintiffs' substantive arguments *fn12" are not persuasive.

 While, to be sure, the guidelines issued by the Department of Energy do not explicitly mention actions by the President with regard to energy supplies, it would be exalting appearance over substance to exclude what occurred here from the scope of the guidelines.

 The President's proclamation of November 12, 1979, when viewed in conjunction with his direction to the Secretary of Energy to "ensure equitable and fair distribution of petroleum products and to ensure a minimum disruption of our Nation's economy," *fn13" were in the present context a part of the DOE regulatory program. Governmental policy for decades encouraged American oil companies to deal with Persian Gulf nations. As a consequence of the recent events in Iran, the President ended such commerce, and an effort is now being made to bring about some equalization of the burdens flowing from these successive government policies. The Court is not prepared to hold that under the DOE guidelines exception relief may be granted from special hardships or inequities if they are brought about directly by the Department of Energy but not if they are caused by energy actions of the President, the Department's superior.

 Moreover, the Presidential proclamation must be viewed in the context of DOE's buy/sell program and the general DOE freeze rules which as a practical matter prevent Ashland from obtaining domestic oil to replace the Iranian crude. Thus, even in a more literal sense, there has been compliance with the ...


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