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BONNAFFONS v. UNITED STATES DOE

June 10, 1980.

Louis J. BONNAFFONS, William D. Melton, Shell Oil Company, Plaintiffs,
v.
The UNITED STATES DEPARTMENT OF ENERGY, Defendant; The Government of Puerto Rico, the Shell Company (Puerto Rico) Limited, Commonwealth Oil Refining Company, Inc., Intervening Defendants.



The opinion of the court was delivered by: GESELL

MEMORANDUM AND ORDER

 GESELL, District Judge.

 Shell Oil Company ("Shell USA"), a major American oil company, joins one of its service station operators and a gasoline customer as plaintiffs suing to set aside an order of the United States Department of Energy ("DOE"). The order, issued by DOE's Office of Hearings and Appeals ("OHA"), directs Shell USA to supply a related Puerto Rican distributor, The Shell Company (Puerto Rico) Limited ("Shell P.R.") with motor gasoline and to purchase the gasoline from Puerto Rican refiners.The effect of the order is to impose a cost burden on Shell USA and to assure availability of gasoline at lower cost to Shell P.R., which had sought the relief before OHA.

 Plaintiffs *fn1" in essence contend that DOE exceeded its lawful authority and that its action is not supported by substantial evidence in the record of this proceeding. Their motion for summary judgment was met by cross-motions from DOE and the three interested parties allowed to intervene. *fn2" The Court thus is called upon to determine whether or not OHA's order is within the agency's lawful authority and whether, if such be the case, its determinations are supported by substantial evidence. The issues have been fully briefed and argued, and the Court has reviewed the 1229-page administrative record. Jurisdiction is properly invoked by the parties. 42 U.S.C. § 7192 (1976 & Supp. II 1978); 15 U.S.C. § 754(a)(1) (1976). *fn3"

 I.

 The grant of exception relief challenged herein was intended to alleviate the effect of DOE's gasoline price regulations, promulgated pursuant to the Emergency Petroleum Allocation Act of 1973, 15 U.S.C.§§ 751 et seq. (1976). The origin and operation of the mandatory petroleum price regulations, 10 C.F.R. § 212 (1979), need not be addressed at length. The agency distinguishes between "refiners," whose production costs must be averaged or "rolled in" on a nationwide basis, and "resellers," who can pass through increased costs directly to local customers. See 10 C.F.R. §§ 212.83, 212.93 (1979). This distinction is of particular significance in Puerto Rico, where the gasoline distributed is purchased largely from local refiners (principally Corco) dependent on unpredictably expensive foreign crude oil for their refinery feedstock. In 1974, responding to price inequities between Puerto Rican and mainland consumers, the predecessor to DOE amended its regulations to provide that Puerto Rican distributors affiliated with mainland refiners (i.e., Shell P.R.'s principal competitors) be designated "refiners." 39 Fed.Reg. 17764 (1974). As a result, resale prices in Puerto Rico no longer fully reflected the higher cost of the foreign oil that was being purchased.Instead, prices appreciably diminished when island costs were rolled in with the lesser cost of domestic oil being used by mainland affiliates.

 Unlike the other major gasoline wholesalers or distributors on the island, Shell P.R. is not directly affiliated with a United States mainland refiner. *fn4" Because of its different status, Shell P.R. is thus peculiarly vulnerable to substantial variations in the price of the gasoline it acquires for marketing.As part of the larger rulemaking proceeding in 1974, Shell P.R. did benefit from a special arrangement whereby Corco sold it gasoline at a reduced price and recouped lost revenues by charging higher prices to other island distributors. 39 Fed. Reg. 17765 (1974). This "Shell differential," upheld in the courts as a proper exercise of agency discretion, *fn5" was withdrawn several months later upon a finding that market conditions no longer demanded it. 39 Fed.Reg. 36320 (1974). For the next ensuing period, Shell P.R. apparently remained competitive with other major distributors on the island.

 In early 1979, however, renewed tensions within the foreign crude oil market resulted in substantial cost increases for all island distributors. Because Shell P.R. was unable to spread these higher costs as its principal affiliated competitors were required to do, it claimed to be suffering large losses in sales volume and substantially diminished profit margins. On March 16, 1979, Shell P.R. applied to OHA for exception relief from the effect of the petroleum price regulations. Specifically, Shell P.R. stated that unless an adjustment was made to offset its severe competitive disadvantage, it would experience a serious hardship and a gross inequity.It proposed several possible forms of relief.

 A number of third paties took an interest in Shell P.R.'s application.OHA solicited and reviewed extensive written comments, and on May 8, 1979, a hearing was held at which representatives from the applicant, several of its principal competitors, and the Government of Puerto Rico testified. Shell USA received notice of the proceeding, and was urged to attend. It did not do so, although aware that its interests might be affected. Following the heaing, and substantial post-hearing submissions from many interested parties, OHA issued a proposed decision and order on July 13, 1979.The Order proposed to effectuate relief by requiring Shell USA to supply. Although not one of the forms of relief suggested by Shell P.R. in its application, this remedial approach had been publicly raised and discussed both before and during the hearing. Shell USA filed the only statement of obections to OHA's tentative results. The agency's proposed decision was in essence fully adopted on August 28, 1979, along with a particularized rebuttal to each objection made. This action then followed.

 II.

 DOE is authorized to grant such exception relief from "any rule, regulation or order issued under... [various energy statutes], consistent with the other purposes of the relevant Act, as may be necessary to prevent special hardship, inequity, or unfair distribution of burdens ..." Section 504(a), DOE Organization Act, 42 U.S.C. § 7194(a) (1976 & Supp. II 1978) (emphasis added). The current mandate confers broad agency discretion to fashion appropriate exception relief. Plainly permissive language in the DOE Organization Act supports this discretion.The legislative history confirms it.

 Through a series of federal energy statutes enacted since 1970, Congress has attempted to develop an emergency response to the enormous increase in world oil prices attributable to the Arab oil embargo and other turbulent events in the Middle East and elsewhere. The authorit to confer exception relief is an integral part of this emergency statutory network. Congress has repeatedly recognized that an exceptions process, by its very nature designed to resolve unforeseen or unforeseeable factual situations in a complex, technical and highly volatile field, must remain open ended. Although the agency has promulgated regulations *fn6" and guidelines *fn7" to assist in the review of exception applications, even the general language of these administrative aids is not meant to anticipate all possible forms of appropriate relief. *fn8" Given this broad discretion, it is hardly surprising that courts have exercised great deference in reviewing challenges to the agency's exception determinations. See, e.g., Powerine Oil Co. v. FEA, 536 F.2d 378 (Em.App.1976); Pasco, Inc. v. FEA, 525 F.2d 1391 (Em.App.1975); New England Petroleum Co. v. FEA, 455 F.Supp. 1280 (S.D.N.Y. 1978).

 In this instance, the "relevant Act" with which a grant of exception relief must be consistent is the Emergency Petroleum Allocation Act of 1973 ("EPAA"), 15 U.S.C. §§ 751 et seq. (1976). The Act authorizes the President to provide for equitable allocation of scarce petroleum products.In drafting the EPAA, Congress declared its intent to preserve administrative flexibility by "[recommending] that the Executive be assigned the responsibility for crafting the program pursuant to Congressionally defined (though generally stated) objectives." H.R.Rep.No.531, 93d Cong., 1st Sess. 12, reprinted in [1973] U.S.Code Cong. & Admin.News, pp. 2582, 2589.The final objectives re both general and far-reaching. See 15 U.S.C. § 753(b)(1)(A) to (I) (1976). Their mandated attainment, "to the maximum extent practicable," *fn9" reflects Congress's intent that the agency balance the various objectives in its effort to implement a complex allocation scheme for the petroleum industry. *fn10" The necessity for such rough accommodations in a difficult and rapidly changing area again warrants restraint in the exercise of judicial review. See Powerine Oil Co. v. FEA, supra; Leffler v. FEA, 455 F.Supp. 623 ...


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