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CONSOLIDATED EDISON CO. OF NEW YORK v. O'LEARY

November 13, 1998

CONSOLIDATED EDISON COMPANY OF NEW YORK, INC., et al., Plaintiffs,
v.
HAZEL O'LEARY, et al., Defendants.



The opinion of the court was delivered by: KENNEDY

MEMORANDUM

 This case concerns a challenge to an October 10, 1996, decision of the Department of Energy's Office of Hearings and Appeals ("OHA") that awarded refunds totaling $ 1,746,845 to five refiner-cooperatives. A refiner-cooperative is a marketing association comprised of smaller petroleum refining operations, some or all of which may also be end users of refined petroleum products. The OHA refund award at issue in this case included $ 1,640,303 awarded on the condition that the refiner-cooperatives pass the refunds through to their members. Plaintiffs contend that the refiner-cooperatives were entitled to refunds only in their capacity as refiners, not in their capacity as representatives of end users, and that the OHA's decision was therefore in error.

 Presently before the court are plaintiffs' motion for summary judgment, defendant's motion to dismiss or for summary judgment, and intervenor-defendants' motion for summary judgment. *fn1" Upon consideration of the motions, the responses thereto, and the entire record of this case, the court concludes that plaintiffs' motion for summary judgment must be denied and defendants' and intervenor-defendants' motions for summary judgment must be granted.

 I. BACKGROUND

 Pursuant to the Emergency Petroleum Allocation Act ("EPAA"), 15 U.S.C. 751 et seq., the Department of Energy ("DOE") in 1974 capped the price of oil from low production oil wells, commonly called "stripper wells." Ruling 1974-29, 39 Fed. Reg. 44414 (Dec. 24, 1974). The validity of the ruling was challenged in federal district court in Kansas. That court enjoined enforcement of the ruling pending a decision on its validity, thus allowing oil producers to sell at the typically higher market price, rather than at the DOE's controlled price. In re Dep't of Energy Stripper Well Exemption Litigation, 520 F. Supp. 1232, 1275 (D. Kan. 1981). The difference between the market price and the controlled price was deposited in an escrow account with the court. Subsequently, the Temporary Emergency Court of Appeals found the ruling valid and remanded the case to the district court to enter judgment for DOE. 690 F.2d 1375 (Temp. Emer. Ct. App. 1982), cert. denied, 459 U.S. 1127 (1983).

 Under the district court's order, DOE was to distribute the funds in the escrow account, predicted to total between $ 4 billion and $ 5 billion, among those who were injured by the overcharges. The refiners argued that they had absorbed all of the excess costs, while the end users of the refined oil (e.g., airlines, power companies) argued that the costs had been passed on to them. After a public comment period and extensive hearings, DOE concluded that it was impossible to trace directly the impact of the crude oil overcharges, as the overcharges were passed on to purchasers of the crude oil, called "refiners," who, in turn, passed on the overcharges to purchasers of the refined oil, called "end users." DOE's Office of Hearings and Appeals was charged with determining generally who absorbed what percent of a crude oil overcharge. OHA found that refiners generally absorbed 2.7 to 8.1 percent of the overcharges while an estimated 91.9 to 97.3 percent of the overcharges were passed on to end users.

 With these figures in mind, the parties entered into a settlement agreement on May 5, 1986, which the court approved on July 7, 1986. In re The Department of Energy Stripper Well Exemption Litigation, 653 F. Supp. 108, 121 (D.Kan.1986). Parties to the agreement included the DOE, all fifty states and six territories and possessions, refiners, resellers, retailers, agricultural cooperatives, airlines, surface transporters, and utilities. Under the agreement, parties and claimants receiving funds waived further claims to crude oil refunds. The waivers were subject to certain exclusions and varied according to the status of the claimant. The refiner-cooperatives involved in this case were parties to this agreement and signed two waivers: a "refiner's release," and a "cooperative release and waiver."

 In the text of both the settlement agreement and the refiner's release are exclusions relating to DOE's Citronelle proceedings. Because the scope of these exclusions is the central issue in this case, some further background is necessary.

 DOE in December 1980 granted the 341 Tract Unit of the Citronelle Field, a crude oil producer, what is termed "exception relief": that is, DOE allowed Citronelle to sell a certain volume of crude oil at market price rather than at DOE's controlled price. This exception to DOE's pricing scheme was granted in order to provide financing to Citronelle for a tertiary enhanced oil recovery project. The exception relief funds were placed in escrow in Alabama. After much litigation, in 1991, OHA terminated the exception relief and ordered that Citronelle's remaining funds be transferred to the U.S. Treasury. The OHA then determined to whom the remaining funds should be disbursed. More litigation ensued and in 1995, DOE settled with Citronelle and with the "Refiner-Litigants," in agreements approved by the District Courts for the Southern District of Texas and for the Southern District of Alabama.

 On October 10, 1996, OHA issued a Final Decision and Order. OHA found that the refiner-cooperatives' entitlements to the Citronelle funds were not waived in the Stripper Well settlement. Accordingly, OHA awarded the refiner cooperatives $ 1,746,845: a combination of 100 percent of their share of the net recovery of funds for the portion of their refined products they sold to cooperative members, and 5.4 percent of their share of the net recovery for that portion of their refined products sold to non-members.

 Plaintiffs contest the OHA order. They argue that all of the above recipients of the Citronelle funds had waived their rights to some or all of this money when they signed the Stripper Well settlement.

 II. STANDARD OF REVIEW

 Although there is no statutorily prescribed standard of review over EPAA agency actions, courts apply a deferential standard of review. In Phoenix Petroleum Co. v. FERC, 95 F.3d 1555, 1566-67 (Fed. Cir. 1996), the Federal Circuit, inter alia, reviewed DOE actions requiring restitution of crude oil resale overcharges. Noting that Congress, "apparently due to an oversight," abolished the statutory standard, 12 U.S.C. § 1904 (1970), when it created the Federal Circuit, see Federal Courts Administration Act of 1992, Pub. L. No. 102-572, § 102, 106 Stat. 4506, 4506-07 (1992), the court nevertheless adopted the statutory standard that was used by its predecessor:

 
This court will set aside an EPAA/ESA agency action only if it is in excess of the agency's authority, or is based upon findings which are not supported by substantial evidence. We recognize DOE's administrative expertise, accord the agency's determination great deference, ...

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