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June 10, 1980

UNITED STATES DEPARTMENT OF ENERGY et al., Defendants; American Agri-Fuels Corporation, Intervening Defendant.

The opinion of the court was delivered by: GESELL


Cross-motions bring the parties before the Court for review of a decision of the Department of Energy ("DOE") granting administrative relief to American Agri-Fuels Corporation ("AAF"), a manufacturer of gasohol.

 On February 16, 1979, AAF filed with the Office of Hearings and Appeals ("OHA") of DOE a request for exception relief pursuant to 42 U.S.C. § 7194(a) (1976 & Supp. II 1978). Claiming inability to overcome the restrictive impact of the agency's Mandatory Petroleum Allocation Regulations, 10 C.F.R. Part 211 (1979), *fn1" AAF sought a large allocation of unleaded gasoline for use in the production of gasohol so that it could become a new entrant into the petroleum products market.

 On May 9, 1979, OHA issued a proposed decision and order which, among other things, directed the Amoco Oil Company ("Amoco") to sell unleaded gasoline to AAF. After a further administrative hearing at which Amoco and others testified, OHA reduced Amoco's obligation to supply AAF but still granted the relief sought by AAF in modified form. Amoco then brought its challenge to the order before the Court. AAF has intervened as a defendant, and all parties have briefed and argued the issues. The full administrative record is on file and has been reviewed.

 Gasohol is a product consisting of unleaded gasoline blended (or mixed) with ethyl alcohol in a 9-to-1 ratio. It can be used in present automobile engines as a substitute for unleaded gasoline. AAF, a company located in Kansas City, Missouri, was incorporated in September, 1978, specifically for the purpose of producing and selling gasohol in several Midwestern states. The company has built a pilot facility and is constructing a full-scale plant to produce alcohol from agricultural products. It plans to combine the alcohol with unleaded gasoline and sell the final product to distributors in the mid-West area.

 AAF approached some 51 suppliers in the mid-West. None would furnish it gasoline, due apparently to the agency's allocation regulations which require suppliers first to satisfy gasoline needs of existing customers. 10 C.F.R. § 211.9 (1979). In view of periodic and often acute shortages of supply, the regulations perforce disadvantage a potential entrant into the petroleum business like AAF. Anticipating that such instances of hardship or inequity would arise, Congress and DOE have provided for an exception procedure which in the absence of an available voluntary supply AAF chose to invoke to meet its needs. See 42 U.S.C. § 7194 (1976 & Supp. II 1978); 10 C.F.R. §§ 205.50 et seq. (1979). The company prevailed in the exception procedure, and consequently was assured a maximum of some 50 million gallons of gasoline over the twelve months ending in August, 1980. As one of several designated suppliers, *fn2" Amoco was ordered to supply some 20 percent of this total, through sales of relatively small amounts during the first ninety days building to quite substantial transfers over the final six months when AAF was expected to be more fully operational.

 Amoco strenuously objects to the granting of this exception relief. It is urged that exceptions to the agency's regulatory allocation program can be granted solely to prevent an unintended injury, and that the record shows no such injury has been or will be suffered by AAF. Further, Amoco contends that OHA cannot entertain an exception application where, as here, other more appropriate procedures are available. Should the government decide to promote gasohol production by new entrants in the market, plaintiff argues that a rulemaking proceeding is both appropriate and necessary to meet the major policy issues presented. Finally, Amoco claims that the record before the agency lacks substantial evidence to support OHA's determinations, and objects on constitutional grounds to the failure to afford certain procedural protections.

 It is important to place this litigation in proper perspective. Amoco filed its complaint in October, 1979, over a month after the agency order took effect. No temporary or preliminary relief was sought, presumably because nothing approaching irreparable injury could be shown. AAF has purchased considerably less gasoline than its allocated supply, due to construction problems that delayed initiation of its larger facility and also because Amoco and other designated suppliers have imposed harsh credit terms. Moreover, unexpected alterations in supply conditions since August, 1979, have resulted in a glut of unleaded gasoline on the mid-West spot market, further attenuating the impact of the challenged forced sales.

 Under these circumstances, an extension of exception relief beyond August, 1980, is at best questionable. There is no indication that Amoco, any of its dealers or jobbers, or independent distributors in the mid-West, have been injured substantially or otherwise by the effects of this exception award. Were the Court to determine that the exception was erroneously granted, it is not at all clear how the present situation would be changed. With three months to run on a supply arrangement that apparently has been overtaken by events, any harm suffered by plaintiff may well be de minimis.

 At the heart of the controversy lies Amoco's objection to creating a competitor in the gasohol market. The company has its own long-term plans for the production and marketing of gasohol, and would prefer to see AAF functioning solely as an alcohol manufacturer, supplying that additive to existing refineries for blending and sale through the regular marketing network. It is apparent that DOE desired to encourage AAF's entry for contrary policy reasons, and the issue boils down to whether or not the statutory and regulatory framework permit the result reached here.

 Exception relief may be granted to alleviate or prevent special hardship or inequity primarily attributable to DOE's own regulatory program. See 10 C.F.R. § 205.55(b)(2) (1979); Exceptions and Appeals Guidelines, 7 En. Mngm't Rep. (CCH) P 80,006 (1978). Each application is reviewed on its own facts and circumstances, and both Congress and the courts have vested broad discretion in the agency's judgment. See generally Powerine Oil Co. v. FEA, 536 F.2d 378 (Em.App.1976); Pasco, Inc. v. FEA, 525 F.2d 1391 (Em.App.1975); Bonnaffons v. DOE, 492 F. Supp. 1276 (D.D.C.1980). Although agency discretion is not unlimited, liberal construction of the exception criteria is encouraged in order to effectuate underlying statutory objectives. No order granting such relief will be enjoined unless in excess of the agency's authority or based upon findings not supported by substantial evidence. 12 U.S.C. § 1904 note (1976) (Section 211(d)(1) of Economic Stabilization Act of 1970, incorporated via 15 U.S.C. § 754(a)(1) (1976)).

 Similarly, DOE's determination that a gross inequity existed is well substantiated. AAF was a potential new entrant into the petroleum business, offering as its product an important energy source. Ample evidence exists that gasohol is well designed appreciably to alleviate shortages of petroleum products. Both Congress and the President have moved to encourage development of alternative energy sources such as gasohol in an effort to reduce the nation's dependence on foreign energy supplies. *fn3" The present emergency led the Congress to intervene. Although the major oil companies naturally would act to preserve their competitive positions, Congress identified considerations that were deemed more significant in the public interest. Preservation of independent competitors, equitable distribution of petroleum products throughout the industry, and expansion of readily usable energy sources are, for example, among the major energy objectives that would be frustrated in the absence of exception relief in this case. See 15 U.S.C. §§ 753(b)(1)(D), (F); 761(a) (1976). Under DOE guidelines, such considerations are sufficient to establish gross inequity. Exceptions and Appeals Guidelines, supra, P 80,006 at 80,010. See Atlantic Richfield Co., 4 FEA P 80,575 (1976); Macmillan Ring-Free Oil Co., 1 Exceptions & Appeals P 20,733 (1974). Indeed, a comparable public policy showing by Amoco earlier exempted that company temporarily from regulatory constraints on its own gasohol production program. Amoco Oil Co., 3 DOE P 82,073 at 84,704 (1979). See also Twin City Barge & Towing Corp. v. Schlesinger, 603 F.2d 197, 201 (Em.App.1979).

 The separate argument that OHA exceeded its authority may essentially be reduced to whether or not the agency was compelled to proceed by rulemaking from the start. Exception relief is available only if DOE "determines that a more appropriate proceeding is not provided." 10 C.F.R. § 205.55(b)(1). AAF first sought a supplier through assignment, see 10 C.F.R. § 211.12(e)(3), but was informed by the agency that no such action would be taken. It then requested exception relief, the first gasohol manufacturer to make such a request. The agency, faced with a competent applicant proposing to satisfy a perceived public need which existing regulations could not accommodate, moved to fill the void on an interim basis. At the same time, DOE promptly began exploring the prospect of treating gasohol production and its attendant supply problems through rulemaking. The agency informed the public that it was considering development of a rule in this area. 44 Fed.Reg. 68,223 (Nov. 28, 1979). After further consideration, it recently issued ...

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