Full opinion text
MEMORANDUM OF OPINION MANOS, District Judge. I. PROCEDURAL HISTORY On July 21, 1977, this court issued an order denying the defendants’ motions to dismiss the actions filed by each of the petroleum refiner plaintiffs. That earlier decision, which is reported, contains a detailed discussion of the procedural history of each of the nine cases up to July 21, 1977. See Standard Oil Company, et a1. v. F. E. A., 440 F.Supp. 329, 331 (N.D.Ohio, 1977) [hereinafter cited as “Standard Oil I”]. The court shall not repeat the procedural history delineated in its previous Memorandum of Opinion. In Standard Oil I this court concluded that it sustained jurisdiction to determine three purely legal questions common to the complaints filed by all nine refiner plaintiffs. Those issues were: (1) “Whether the FEA’s interpretation of the semantic meaning of the regulations governing refiner passthroughs of increased costs during the period January 1, 1975 through January 31, 1976, is correct.” (2) “Assuming, arguendo, that the FEA’s current interpretation of the semantic meaning of the applicable regulations is correct, are those regulations inconsistent with the procedural . statutes pursuant to which the regulations were promulgated?” (emphasis added). (3) “Assuming, arguendo, that the F.E. A.’s current interpretation of the semantic meaning of the applicable regulations is correct, are those regulations_ inconsistent with the . substantive statutes pursuant to which the regulations were promulgated?” (emphasis added) On July 27, 1977 the court ordained a schedule for filing cross-motions for summary judgment on the merits of the three above-delineated legal issues, along with a schedule for filing documentary materials, and argumentative memoranda. The parties complied with that schedule, and today the court rules on their respective summary judgment motions. II. FACTS PERTAINING TO THE MERITS OF THE REFINER-PLAINTIFFS’ COMPLAINTS A. THE EVOLUTION OF PETROLEUM REFINER PRICE REGULATIONS UNDER THE COST OF LIVING COUNCIL The FEA’s regulations evolved from rules originally promulgated by the Cost of Living Council (“CLC”) under President Nixon’s Economic Stabilization Program. The program began with Executive Order 11615, 36 Fed.Reg. 15727 (August 17, 1971), which froze prices and wages at levels existing during the 30-day period ending August 14, 1971. During the next 18 months the federal government endeavored to stop inflation with mandatory price controls, applied to the nation’s economy. In January 1973 the government instituted “Phase III,” which attacked inflation through a system of self-administered voluntary restraints, and federally promulgated wage and price guidelines which were designed to compress inflation to an annual rate of two and one-half percent. At this time domestic crude oil production was declining, and the nation was becoming increasingly dependent on foreign crude. Foreign producers were raising their prices, and prices for home heating oil and other refined petroleum products were on the rise. On March 6, 1973, the CLC issued “Special Rule No. 1,” reintroducing mandatory price controls for refiners that had annual sales of $250 million or more. Special Rule No. 1 imposed a profit margin limitation and established a pre-notification procedure for companies that sought to increase prices more than one and one-half percent above their base prices. Base prices were defined as prices in effect during a specified historical base period. On June 13, 1973, President Nixon issued an executive order imposing a new 60-day freeze on the prices of most commodities and services. In July of 1973 the CLC published proposed rules for “Phase IV” price controls to become effective at the end of the 60-day freeze. Special rules — to be included in Subpart L of the regulations — were proposed for the petroleum industry. Under the proposed rules, maximum lawful prices for refined petroleum products would consist of three elements: 1. May 15, 1973 price to a class of customer (base price); 2. Increased costs of domestic crude oil and imports, subject to a profit margin limitation; 3. Other allowable costs, subject to prenotification and a profit margin limitation. “Base price” was defined as: “. . . the price the manufacturer charged for that product (reflecting any applicable customary price differential) on May 15, 1973.” The Phase IV proposal retained the base price concept inherent in earlier Special Rule No. 1 — i. e., the use of base price fixed as of an historical point in time. Increased costs incurred subsequent to the base period could be added, under the proposal, to the base price to determine the maximum lawful price. Unlike Special Rule No. 1, the proposed Phase IV regulations would have permitted the recovery of increased costs of imports and domestic crude oil, /. e., product costs, without pre-notification. “Other allowable costs” would have continued to be subject to the pre-notification requirement, and all increased costs would have been subject to the profit margin limitation. The CLC furnished no explicit notice that its proposed regulations required the various cost elements to be recovered in any particular order when selling prices were less than the lawful maximum. On its face, the proposal appears to have focused solely on the establishment of a maximum price which could not lawfully be exceeded. On August 10, 1973 the CLC extended the price freeze for petroleum and petroleum products for one week, with the explanation that the CLC needed a week to consider the comments received on the proposed Subpart L regulations, review the methods by which the CLC’s policy decisions would be implemented, and write the regulations in final form. When Dr. John T. Dunlop, Chairman of the CLC, announced this one week extension he stressed that: “The Council has been very concerned that the final regulations strike a delicate balance between constraining prices while at the same time encouraging the necessary increase in supplies which the country must have. The Council is aware that energy prices must be allowed to rise in order to stimulate development of new energy reserves and make possible the purchase of higher cost foreign oil. At the same time we must prevent unnecessary price increases.” The Council received 272 written comments on Subpart L, and “each comment was reviewed by the attorneys and economic analysts responsible for the subpart.” In addition, the CLC staff “conducted numerous meetings with affected parties and made an intensive re-examination of the regulations. . . . ” The final Phase IV petroleum price regulations were issued on August 17, 1973. That regulatory framework, on its face, appeared to focus solely on the establishment of a maximum lawful price. The price was comprised of the same cost elements previously identified in the notice of proposed rulemaking. However, the definition of base price was expanded to include the cost of imports and domestic crude oil. This change effectively removed the profit margin limitation from recovery of all costs associated with the procurement of raw petroleum products, i. e., “product costs.” The original Subpart L proposal would have waived the pre-notification requirement for price adjustments reflecting certain increases in the cost of crude petroleum and imported petroleum products. In the final version of Subpart L, this concept was translated into a re-definition of the base price “to cover both the historical price, plus increased costs in the raw material.” Nothing in the regulations published in the Fall of 1973 affirmatively suggests that the expansion of the definition of “base price,” to include product costs, was crafted to embrace an unarticulated sequence of recovery rule. In September of 1973 the CLC amended its Phase IV petroleum regulations to spell out the refiners’ right to “bank” product cost increases for recovery in the future. This amendment also made it clear that in calculating base prices, refiners were not required to include the full amount of their increased product costs; they could exclude from base prices such portion of their product cost increases as they chose to bank. The amendment pertinently provided: “If, in any month beginning with September 1973, a firm establishes a base price for any covered product . which does not include the entire amount of increased [product] costs . . the unused portion may be added to the May 15,1973, selling price to compute the respective base price for a subsequent month.” (emphasis supplied) The flexibility afforded refiners in determining the quantity of increased product costs that could be included in the base price was a prominent feature of the Phase IV regulations. A similar feature permitted refiners discretion to allocate increased product costs among various product categories. The Phase IV regulations singled out gasoline, No. 2 heating oil and No. 2 diesel fuel for special treatment in this regard. In computing base prices with respect to each of these “special products,” a refiner could include no more than that particular product’s proportionate share (by volume) of increased crude oil costs. With respect to other covered products, however, the refiner could use as much of its increased crude oil costs as it desired, including costs allocable to gasoline, No. 2 heating oil and No. 2 diesel fuel. Should the refiner so elect, it could use all its increased crude oil costs in computing base prices for “other covered products.” The regulations thus created a flexible base price that permitted a refiner to recover a disproportionate amount of its increased crude oil costs on sales of other covered products or to bank such costs for recovery at a later date. The Phase IV regulations also afforded refiners flexibility with respect to the allocation of non-product cost increases. By a notice of proposed rulemaking published in October of 1973, the CLC proposed adoption of a formula designed to provide for the allocation of non-product cost increases in a manner similar to that used in allocating increased product costs. The proposed formula was simplified in a notice of proposed rulemaking published in November, 38 Fed.Reg. 31686 (November 16,1973), and this simplified version was adopted without change. The non-product cost formula provided a means whereby a pre-notified non-product cost increase expressed in percentage form could be translated into a total dollar amount reflecting projected sales for a 12-month period. The regulations provided that all increased non-product costs could be allocated to covered products other than special products, at the refiner’s option, and the total pool of non-product cost increases so allocated was available for recovery over a 12-month period. B. THE EVOLUTION OF REFINER PRICE RULES UNDER THE FEDERAL ENERGY OFFICE In 1973 Congress passed the Emergency Petroleum Allocation Act. Pub.L. 93-159, 87 Stat. 628 (November 27, 1973), 15 U.S.C. §§ 751 et seq. [hereinafter “EPAA”]. The EPAA conferred petroleum product price control authority on the President of the United States who was to exercise that authority “for the purpose of minimizing the adverse effects of such [petroleum] shortages . . ..” Section 4(b)(1) of the EPAA set forth nine objectives that were to be achieved “to the maximum extent practicable” in the allocation and pricing regulations that the President was to promulgate. The price control authority conferred by the EPAA was further qualified by § 4(b)(2) of the Act, which required the regulations to provide a “dollar-for-dollar” passthrough of net increases in petroleum product costs. On December 4,1973 the President established the Federal Energy Office [hereinafter FEO] and delegated authority to implement the allocation and price stabilization provisions of the EPAA to the Administrator of the FEO. On December 11, 1973, the FEO proposed adopting, without modification, the CLC’s Phase IV petroleum price regulations applicable to refiners. Those regulations were adopted by reference on December 27,1973, and two weeks later they were republished and renumbered. On May 7, 1974 the Federal Energy Administration Act of 1974 was signed into law. Pub.L. 93-275, 88 Stat. 96, 15 U.S.C. §§ 761, et seq. On May 21, 1974, the FEO issued Ruling 1974-12. Illustrating the flexibility of the regulations with respect to base price calculations, the Ruling gave an example which assumed that a refiner allocated product cost increases of 17 cents per gallon to jet fuel, and also assumed the refiner’s jet fuel price to have been 20 cents per gallon on May 15, 1973. Thus, Ruling 1974-12 assumed a lawful jet fuel base price of 37 cents. However, Ruling 1974-12 also assumed that if the refiner used only five cents of product cost increases in the current month, it would lawfully arrive at “a base price of 25<p per gallon.” Thus “[t]he balance of the . . . increased product cost which was available for use in computing jet fuel prices could . . . have been assigned to other covered products other than special products, or could have been voluntarily ‘banked’ for recovery in a subsequent month.” In June 1974 the President abolished the FEO and delegated all authority previously exercised by that agency to the new Federal Energy Administration. C. THE EVOLUTION OF REFINER PRICE RULES UNDER THE FEDERAL ENERGY ADMINISTRATION On September 6, 1974, the FEA issued a notice of proposed rulemaking that the agency characterized as the “first proposed comprehensive revision” of the price regulations since December of 1973. The notice indicated that the proposed revisions were designed to accomplish three basic objectives: (1) simplification and clarification of the price regulations; (2) elimination of unnecessary regulatory restrictions; and (3) restoration of competition in place of rigid price regulations. The notice of the proposed rulemaking did not explicitly address whether the then existing regulations contained a sequence rule requiring refiners to pass through into selling prices all accumulated product costs, prior to passing through any non-product costs. Similarly the notice of the proposed rulemaking was mute regarding any proposal that would prohibit the banking of increased non-product costs. Instead the agency proposed to eliminate the pre-notification procedure and adopt an “automatic passthrough” that would allow non-product cost increases to be recovered without prenotification (but still subject to the profit margin limitation) under a procedure “similar to the procedure now used for the pass-through of increased product costs.” The notice proposed “[mjodification of the regulations to limit the extent to which increased product costs unrecouped in one month may be recouped in subsequent months.” There was no suggestion of any corresponding changes with respect to non-product costs. The FEA indicated it intended to retain “the essential substantive features of the current non-product cost pass-through regulations.” The notice invited interested persons to submit written comments on the proposed changes, and public hearings were scheduled for September 30 and October 1, 1974. Approximately 20 persons presented formal statements at the public hearings, and the agency received and evaluated comments from more than 80 persons. None of the written comments dealt with the banking of increased non-product costs or with the sequence of cost recoupment. On November 1,1974, the FEA issued the first of the regulatory revisions foreshadowed by the September 6 notice. Although the FEA had originally proposed to eliminate banking of product cost increases, the November 1 amendment abandoned this approach and in its place adopted a limit on the amount of banked product costs that could be passed through in a single month in order to alleviate that month’s prices. The limit was set at ten percent of the refiner’s total product cost bank. Based on the comments it had received, the FEA determined that elimination of product cost banks would have an inflationary impact and would have been “impracticable.” The FEA had previously acknowledged that the banking provisions permitted refiners “to smooth out price adjustments over a period of time,” and “may” have been used by “certain refiners . to keep prices at reasonable levels.....” On November 29, 1974, the FEA issued final amendments eliminating the pre-notification requirement. In its statement of the basis and the purpose for the change, the FEA explained, that the “new method will allow product and non-product costs to be calculated using the same ‘dollar amount’ method of calculation.” At the same time the FEA also limited to certain specific categories the types of increased non-product costs that were recoverable. These categories included refinery labor, fuel additives, utilities, pollution control equipment, containers, interest, and certain marketing costs. The base price concept was not altered. Prior to the November 29 amendment, refiners could treat oil used to energize refineries as a product cost. Because such refinery fuel costs may account for as much as 50 percent of a refiner’s total non-product costs, any limitation on the recovery of such costs would have significant impact on refiners. In its notice of proposed rulemaking, the FEA stated that under the proposed change refiners could “generally pass through’’ the increases in “this important cost item,” subject only to a profit margin limitation. There was no explicit indication in the preamble that the change of refinery fuel from the product cost category to the non-product cost category would have any impact on the refiner’s ability to recover this significant cost item except for the impact of the profit margin limitation. The FEA also adopted a new regulation, which had never been explicitly set forth previously. The new section banned the banking of increased non-product costs which were not fully recouped in the month after such non-product costs were incurred. The Federal Register, Section 212.83(e)(4), announcement prohibiting the banking of non-product costs does not affirmatively state that the prohibition on banking non-product costs was structured in order to impose a sequence of recovery rule requiring that all accumulated product costs be passed through into actual market prices before the pass through of any non-product costs into market prices. The December 5, 1974 Federal Register regulatory announcements, on their face, are silent with respect to the crucial sequence of recovery issue. D. FEA OFFICIALS REPEATEDLY INTERPRETED THE APPLICABLE REFINER PRICE REGULATIONS IN A FASHION INCONSISTENT WITH THE AGENCY’S CURRENT INTERPRETATION OF THE REGULATIONS GOVERNING THE PERIOD JANUARY 1, 1975 THROUGH JANUARY 81, 1976. On November 22,1974 high level officials of the FEA met with an industry advisory committee established to provide a channel of communication between the FEA and the industry regarding liquified petroleum gas (“L-P gas”). The refiner-plaintiffs uncontroverted rendition of the events of that meeting reveals that Mr. Chuck Boehl, a member of the pricing section of the FEA, informed the group that, as he understood the agency’s interpretation of the regulations applicable to L-P gas, non-product cost increases were not bankable. Mr. Boehl then went on to state ambiguously: “However, the regulations do not specify that you have to use your non-product costs before your product costs. So you could, in effect, bank or use your non-product costs or bank your product costs, which seems to be — well, it is rather an odd way of doing it. I am not going to suggest whether they should or should not be bankable. I am just going to say we hope to make it clarified one way or the other.” (emphasis supplied) At a meeting of the L — P Gas Industry Advisory Committee held on March 26, 1975, Mr. Boehl said: “I don’t think there is anything that states the product cost is first. You put down your non-product cost first and then supply your product cost.” In January of 1975 the compliance section of Mr. Smith’s headquarters staff sent the FEA’s field auditors a ten-page insert for Section 3 of a compendium of information called the “CARD Audit Handbook.” This document expressly recognized that the regulations did not address the issue of cost recovery. The handbook insert reported the elimination of the pre-notification procedure and various other changes in the regulations; laid out a series of audit problems that might arise under the new regulations and offered solutions to those problems; and set forth a “Non-Product Cost Increase Schedule” for discretionary use by FEA audit teams in obtaining detailed non-product cost information from refiners. The schedule reflected a proportional recovery concept. It would be impossible to follow all of the steps set forth in the schedule and arrive at a result that left non-product cost increases available for recovery only after recovery of all available product cost increases. FEA auditors submitted non-product cost schedules, or “work sheets,” to refiners in the first part of 1975. The FEA’s auditors told some refiners to use a proportional recovery sequence, furnishing copies of the work sheet for that purpose. During this period, high level officials of the FEA, including members of the General Counsel’s Office, knew that the auditors were conduits for providing information, work sheets, and advice to refiners. Mr. Smith acknowledged that the guidance issued by his headquarters staff in January of 1975 reflected an approach that necessarily entailed recovery of some increased non-product costs before recovery of all product cost increases. In their subsequent explanation of why they considered this approach “authorized” the staff members told Mr. Smith that their conclusion had been based on the fact that “the regulations had no explicit treatment of cost recovery.” In the absence of any clear requirement that costs be recovered in some particular sequence, they told Mr. Smith they had assumed that the recovery of non-product costs “would be treated in a manner analogous to the allocation of non-product costs spoken to explicitly in 212.-83(d).” As Mr. Smith explained, § 212.83(d), “spoke not at all to cost recovery. It spoke to cost allocation.” (emphasis added). Thus in the statement of the problem on page 3 of the handbook insert, following the question “[h]ow are recoveries computed when both PCI [Product Cost Increases] and NPCI [Non-Product Cost Increases] are included in computing price adjustments to May 15, 1973 selling prices,” Mr. Smith pointed out that the handbook stated, “[t]his is not addressed in Section 212.-83(d).” (emphasis added). Thus Mr. Smith’s uncontroverted deposition clearly indicates that in 1975 the FEA’s headquarters compliance staff understood that the regulations did not expressly mandate an all product costs first sequence rule for recovering increased costs. However, these same FEA officials apparently believed that Section 212.83(d) should be used “as a guide” to justify a proportional recovery sequence. Thus, the method of recovery developed by the compliance staff and presented in the audit handbook was devised as “an analogue to 212.83(d),” in apparent recognition that Section 212.83(d) did not deal with the subject of cost recovery at all. (emphasis supplied) The notion that the FEA did not construe the applicable refiner price regulations to embody an all product costs first rule during 1975 is supported by records of meetings attended by several high officials of the FEA in March 1975. The first such document is a memorandum, reflecting the discussion at a meeting conducted on March 5, 1975 on the subject of revising Form FEO-96 in light of the November 1974 amendments to the refiner price regulations. In attendance were officials from Price Waterhouse & Co., who had been engaged by the FEA to assist in resolving various regulatory problems; the Director of the Refinery Audit Review Program; the FEO-96 Technical Project Officer; and representatives from the Office of Compliance and Enforcement, the Office of General Counsel, and the Office of Planning and Analysis. Sequence of recovery was among the “special issues” discussed, and the memorandum states: “During the discussion of special issues, it was noted that the regulations, although specifying that non-product cost increases cannot be carried over, do not specify in what sequence cost increases are recovered. The result is refiners many [sic] consider non-product costs to be recovered first in any month and product costs second because these increases can be carried over, if not fully recovered. It was noted that the FEA is currently telling refiners that these costs are recovered pro rata in the same proportion as the cost increases.” (emphasis supplied) The second document is a memorandum dated March 26, 1975, addressed to the FEO-96 Technical Project Officer from two attorneys in the Office of General Counsel, transmitting comments on the proposed new FEO form. The memorandum expressly states, “The pro rata recovery of product vs. non-product costs is not set forth in the regulations.” The third document is a memorandum, which reflects the discussions at a subsequent meeting on the same issue held on March 31,1975. Most of the participants in the March 5, 1975 meeting were also present on this occasion. As the memorandum reflects, written comments on the proposed new form had been received from the Office of General Counsel, the Office of Planning Policy and the Pricing Regulation Division within the Office of Operations, Regulations and Compliance. The memorandum states that: “It was decided to strike the language with regard to the pro-rata application of the recouped cost increases. There is nothing in the regulations that requires such a pro-rata application and it was decided that until something is made clear on this issue, the form can reflect only what is in the regulations.” These documents suggest that many high officials in the FEA understood that the regulations, as written in 1975, permitted at least a proportional, non-product cost recovery interpretation. On April 29, 1975, Mobil Oil Corporation submitted a formal request for an interpretation to the FEA under the procedures articulated in 10 C.F.R. §§ 205.80 et seq. In that request Mobil suggested the same regulatory interpretation that was ultimately adopted in the amended rules that became effective in April 1976. After the passage of several months the agency told Mobil that the request had been lost. Mobil submitted a second request, identical to the first, on July 30, 1975. This was a period when the agency was “taking longer to respond to requests for interpretation,” and neither of Mobil’s requests for interpretation had been answered when the FEA promulgated its first explicit sequence of recovery rule in February of 1976. On May 1, 1975 the FEA proposed replacing Form FEO — 96 with a new form P — 110-M — 1, accompanied by supporting schedules and instructions. Schedule E of the proposed new form was designed to provide a means for calculating non-product cost increases. That schedule provided for a proportional allocation of non-product cost increases among different refined products, but it was silent as to the method or methods under which non-product cost increases might be recovered, Additional documents obtained from FEA further delineate the agency insiders’ interpretation that the applicable regulations did not impose an a 11 product costs first sequence rule. On November 12, 1975, Gordon W. Harvey, Director of FEA’s Office of Compliance and Program Development wrote an internal memorandum to J. Peter Luedtke, FEA Deputy General Counsel for Pricing, stating: “On 12/5/74 FEA published regulations permitting refiners to pass through increased non-product costs without prenotification to FEA. These regulations made no provision for the recovery of the nonproduct cost increases. However, both General Counsel and Compliance held the interpretation that such recoveries were to be made on a pro rata basis with the recovery of increased product costs. “On 1/17/75, the National Office RARP issued instructions and a worksheet (CARD Audit Handbook # 3, 1975-1) which reiterated the interpretation of pro rata recoveries. Audit teams were instructed to provide copies of the worksheet to the refiners and did so. Therefore, the oil industry had been using the compliance worksheet in computing recoveries of product and nonproduct cost increases. “Section 212.83(d) discusses the pro rata method [i. e. proportional] of recovery of nonproduct cost increases when such would result in a price above the base price. However, no mention is made of the recovery of such costs when the price being charged is below the base price. Consequently, oil companies and FEA compliance interpreted the regulations to be the same in both situations. “ ‘FEA may be committed to that interpretation for the period that the guidance has been available, but we could issue a ruling which changes that interpretation on a prospective basis. It would seem unfair to require refiners to make a retroactive adjustment when they followed our guidance in good faith.’ ” E. EVENTS AFTER JANUARY 1976 On December 22,1975, the Energy Policy Conservation Act of 1975 (hereinafter, “EPCA”], Pub.L. 94-163, became law. Section 402(a) of the EPCA amended the EPAA, Pub.L. 93-159, § 4(b)(2)(A) to insure that petroleum price regulations: “Shall provide for a dollar-for-dollar pass-through of net increase in the cost of crude oil, residual fuel oil, and refined petroleum products at all levels of distribution from the producer through the retail level . . . ,” On January 7, 1976, the FEA announced a Notice of Proposed Rulemaking in preparation for designing amendments to the petroleum refiner price regulations in order to reflect the policy adjustments which Congress mandated by enacting the EPCA, Pub.L. 94-163. The January 7, 1976 notice did not explicitly state whether all product costs must be passed through into price increases before any non-product costs could be passed through into a price increase, nor did it state that the FEA viewed this question as an issue to be resolved in the upcoming rulemaking proceeding. On February 1, 1976, after conducting a public hearing, the FEA issued a new regulation, 10 C.F.R. § 212.85, expressly stating that all product costs must be passed through into increased purchaser prices before any non-product costs could be passed through into increased purchaser prices. The new regulations retained the old rule that non-product costs which were not passed through into price increases, within a specified time, could not be “banked” for recoupment at a later date. The February 1, 1976 regulations also retained the rule that product costs, which a refiner chose not to immediately pass through into his base price could be banked, and thus stored for recoupment at an indefinite future date. The February 1, 1976 rule, expressly mandating the “all product costs first” sequence for price increases, applied to all price increases from February 1, 1976 forward, as a component of the regulatory amendments generated in response to the enactment of the EPCA, Pub.L. 94-163, in December 1975. The preamble to the February 1,1976 promulgation affirmatively admitted the FEA’s previously “proposed regulations were silent” on the sequence of recoupment. Nevertheless in that same preamble the FEA concluded that the regulations governing the period January 1, 1975 through January 31, 1976 implicitly embodied an identical “all product costs first” sequence rule. The pertinent events following the February 1, 1976 preamble announcement, and regulatory promulgation are detailed in this court’s Memorandum of Opinion denying the FEA’s motion to dismiss. See Standard Oil I, 440 F.Supp. supra, at 338. The February 1, 1976 promulgation triggered an immediate storm of protest from two classes of refiners. Prior to February 1, 1976 one class of refiners had interpreted the applicable regulations to permit a “Reverse Sequential” approach to passing through increased costs into prices charged their customers, while a second class of refiners had interpreted the applicable regulations to permit a “proportional” approach to the passthrough of increased costs into prices charged. On March 3, 1976, the FEA, for the first time, explicitly solicited information regarding the economic impact of the February 1,1976, “all product costs first” passthrough sequence rule. At the same time, the FEA admitted that “clarifying amendments . . . with respect to the order in which increased non-product costs were to have been recovered under regulations in effect prior to February 1, 1976” might be appropriate. In a Memorandum dated March 5, 1976, Mr. Boehl, advised Mr. Smith that, “a quick survey of 65 refiners who were audited in 1975” disclosed only six refiners that recovered non-product costs last. A more detailed survey taken by the FEA in September of 1976 disclosed that subject to one possible exception, every major refiner in the United States had been using a method of cost recovery different from the method that the FEA now claims was required. On March 18, 1976, FEA conducted a public hearing at which both the Reverse Sequential and Proportional Refiners catalogued the dire economic consequences which the “a 11 product cost first” sequence rule would inflict on the American public, as well as on the refining industry. This court already has examined the tenor of the industry’s critique. Sohio’s experience with the sequence rule in February of 1976 illuminates the problems created by the new rule. As soon as the rule was issued, Sohio started disposing of refined products that would otherwise have been placed in inventory. At the same time, Sohio cut back on the amount of crude oil it purchased to process in its refineries, to the extent that prior contractual commitments permitted. Despite these efforts to reduce monthly non-product costs by endeavoring to balance monthly sales and monthly production, Sohio found that the new sequence rule would result in loss of the opportunity to recover costs of almost six million dollars for February 1976 alone. Sohio explained in the presentation it made to the FEA in March that Sohio would have to cut back refinery operations even more sharply in the ensuing months if the rule was not repealed. On April 6, 1976, the FEA rescinded § 212.85, the only explicit “all product cost first” rule it had ever promulgated, ordering the rescission effective retroactively as of the date on which § 212.85 was issued. This court has already outlined the reasons stated by the FEA for revoking its only explicit all product costs first rule. “ . . . [T]he FEA catalogued a wide array of adverse consequences that could be expected to flow from the ‘product-cost first’ rule in combination with other restrictions in the regulations. Specifically, the FEA stated that the rule ‘would tend to have undesirable inflationary effects on current market prices,’ that ‘prices would also tend to wide monthly fluctuations,’ that the rule could operate as ‘a disincentive for refiners to build up inventories,’ that it would provide refiners an incentive to ‘decrease refinery production,’ and that, because of the restrictions, ‘capital investment to expand refiner capacity might be reconsidered and deferred or eliminated.’ ” In addition to rescinding the February 1, 1976 regulatory promulgation, the April 6, 1976 regulatory amendments revamped the regulatory structure, for the time frame February 1, 1976 forward, in a fashion which erased the increased all non-product/product costs first passthrough sequence concept. Nevertheless, that question was left unresolved with respect to the time frame January 1, 1975 through January 31, 1976. According to David Goss Wilson, ultimately the FEA decided that it would not amend the 1975 regulations, but that “procedurally it would be better to go the proposed class exception route than to issue a proposed retroactive rulemaking.” On August 3, 1976 the FEA announced that it was currently considering a “Proposed Class Exception” for at least some of the refiners who, between January 1, 1975 and January 31, 1976, had passed non-product costs into price increases in a fashion different than the all product cost first rule. Previously this court noted that on August 3, 1976, “The FEA acknowledged that some refiners might, in ‘good faith’ have ‘misinterpreted’ the regulations to permit recoupment of non-product costs on a proportional basis; that the FEA audit manual also ‘partially reflected this view;’ that the regulations contained ‘possibly ambiguous language;’ that refiners might have been misled by ‘certain information disseminated by FEA;’ and that enforcing an all ‘product-cost first’ approach might result in ‘potentially massive refunds or bank reductions,’ which could have a drastic effect on the cash resources of refiners who in good faith set prices on a proportional interpretation of the regulations. (emphasis added). See 41 Fed. Reg. 33282, 33283 (August 9, 1976).” On September 14, 1976, FEA Administrator Zarb sent an explanatory letter to Chairman Moss of the Oversight and Investigations Subcommittee of the House Committee on Interstate and Foreign Commerce. In that letter Mr. Zarb stated that “[t]he regulations in effect during that period [January, 1975 through January, 1976] contained ambiguities with respect to whether ... all increased product costs had to be recovered before any increased non-product costs could be recovered.” A similar admission was made by Mr. Wilson in an interview with a reporter for the Wall Street Journal. The. ensuing article, published on September 10, 1976, announced that “[t]he Federal Energy Administration said it and the oil industry made a pricing mistake that could cost consumers $1.3 billion." The article quoted Mr. Wilson as saying that the FEA proposal to allow the industry to keep the 1.3 billion dollars would be “to bless what’s already been done.” On the same day the article appeared, Mr. Wilson received a telephone call from the staff counsel of the Subcommittee on Energy and Power of the House Committee on Interstate and Foreign Commerce, chaired by the Congressman John Dingell. Mr. Wilson was informed that Congressman Dingell, was disturbed by the agency’s position and that he had decided to convene a subcommittee hearing on the matter for September 20. On September 17 Congressman Dingell issued a strongly worded press release announcing that his subcommittee had scheduled a hearing to look into what was characterized as a “scandalous example of what can happen when a regulatory agency becomes intimate with those whom it regulates.” Mr. Smith, accompanied by Mr. Wilson, appeared at the hearing to present the agency’s position. At the outset of the hearing Congressman Dingell distributed an opening statement which referred to “the question whether a possible ambiguity exists” in the regulations. The statement disposed of that question by stating that “[a]ny further examination of the regulatory language is unnecessary” in view of the FEA’s “admission” that it “believes” its product cost first interpretation was correct. Mr. Smith, as spokesman for the FEA, proposed to read a prepared statement. Congressman Dingell elected not to hear Mr. Smith’s testimony, and said that “he would not hold the hearings until Mr. Zarb or Mr. Hill were prepared to testify. " Mr. Zarb and Mr. Wilson met privately with Congressman Dingell the following day in an effort to persuade him to cancel the proposed hearing altogether. The Congressman was assured “that it was not the intent of the Agency to excuse any firm from complying solely because it had relied in good faith upon an erroneous interpretation.” That assurance apparently made Congressman Dingell “feel much better.” A letter from Mr. Zarb to send Congressman Dingell was drafted “right after the meeting,” and the text of the draft was cleared with Congressman Dingell’s staff counsel, who offered a few minor suggestions, “most” of which were adopted. The final version of the negotiated letter committed the agency to a hard line in the exception proceedings and eliminated any class exception relief for refiners who did not adhere to the all product-costs first sequence approach during the period January 1, 1975 through January 31, 1976. On October 5, 1976, the FEA published a Federal Register notice echoing the views stated in Zarb’s letter. Paradoxically, the FEA’s October 5,1976 Federal Register notice openly admits that, “FEA acknowledged in its August 3, 1976 notice that refiners might have concluded in good faith that other interpretations of the regulations than the sequential interpretation adopted by the FEA were correct. . . . ” (emphasis added). Ever since the Dingell-Zarb encounter, the FEA has steadfastly maintained that its regulations governing the period January 1,1975 through January 31, 1976 clearly contained an implicit “all product costs first" sequence rule. The court now examines the FEA’s arguments in support of the Dingell-Zarb interpretation. III. THE FEA’s REFINER PRICE RULES GOVERNING THE TIME FRAME JANUARY 1, 1975 THROUGH JANUARY 31, 1976 DID NOT REQUIRE ALL INCREASED PRODUCT COSTS TO BE PASSED THROUGH INTO THE PRICES THAT REFINERS CHARGED THEIR CUSTOMERS BEFORE REFINERS COULD PERMISSIBLY PASS THROUGH NON-PRODUCT COST INCREASES INTO MARKET PRICES. A. THE APPLICABLE REGULATIONS ARTICULATE NO EXPRESS ALL PRODUCT COSTS FIRST SEQUENCE RULE. The language of the FEA’s applicable regulations do not state an explicit rule governing the sequence of cost recoupment. However, the FEA maintains that the “base price concept,” including the applicable mathematical formula, and the prohibition against banking non-product cost increases inaugurated an all product costs first rule. The general price rule, 10 C.F.R. § 212.82, prohibited a refiner from charging a price higher than its base price unless it incurred non-product cost increases. The “base price” is defined in Section 212.82 as the weighted average price charged by the refiner to a particular class of purchaser on May 15, 1973, plus product cost increases incurred by the refiner and measured pursuant to Section 212.83. The FEA argues that throughout 1975 and during 1976 the regulations required all available product cost increases, including product costs “banked” in prior months and available for recovery in the current month, to be included in the base price for purposes of computing maximum allowable prices. In addition, the FEA claims that the refiners should have inferred a sequence of recovery rule from the general price rule. The FEA’s contention is that the price rule not only required refiners to calculate maximum allowable prices in a particular fashion, it also required refiners to deem costs recovered in the same fashion. Therefore, according to the FEA, non-product cost increases could be recovered only after all recently incurred, and previously banked product cost increases had been recovered in the “base price.” To sustain its position that the “regulations permitted non-product costs to be recovered only after the full ‘base price’ (i. e., the May 15,1973 selling price plus, all available increased product costs) had been recovered,” the FEA must establish two points. If the agency is incorrect about either one of them its “base price” argument fails. First, FEA must show that the price rule also inaugurated a rule dictating a sequence for the passthrough of increased costs. If the price rule does not set forth a sequence of recovery rule, this matter is at an end. Second, FEA must show that the “base price” calculation necessarily included all recently incurred, and previously banked product cost increases. If a refiner could withhold product cost increases from its base price and “bank” them for later recovery, it could set the base price low enough to allow the recovery of those non-product costs increases which the market would pay in the current month, before the refiner recovered all recently incurred, and previously banked product cost increases. Thus, if the “base price” calculation, as semantically and mathematically set forth in the applicable regulations, failed to clearly direct a refiner to pass through all accumulated product costs into market prices, before passing through any non-product costs into market prices, then the FEA’s argument is specious. The FEA carefully delineates the history of the applicable FEA regulations, and dissects the terms of those regulations, in order to buttress its assertion that the maximum price rule also specified a sequence of cost increase recovery, and that the base price calculation mandated the passthrough of all banked and recently incurred product cost increases ahead of the passthrough of any non-product costs. The FEA’s recitation of regulatory history is not persuasive. In August 1973, the CLC published the Phase IV price control regulations which applied to the manufacturing sector of the economy in general. The Phase IV general regulations required all manufacturers to compute fixed base prices; requiring firms to pre-notify their cost rooted price increases 30 days in advance; permitting price increases above base price to reflect only allowable cost increases, subject to productivity offsets and a profit margin limitation; and imposing a system of rate-based cost justification under which allowable cost increases could be passed through on a prospective basis, and only in the form of a percentage increase to the base prices of the firm’s products, and only so long as they continued to be incurred. The Phase IV cost related price increase reporting form was the Form CLC-22. The Form CLC-22 instituted a rate basis of cost computation, under which allowable cost increases were expressed as a percentage increase in current costs over base cost levels. After appropriate adjustments for volume and productivity increases, this percentage figure was the percentage price increase which could be applied prospectively under the CLC-22 to the base price of the product line concerned. Cost increases which were incurred prior to price increase approval by the CLC and which could not be passed through during the pre-notification period, also could not be banked for subsequent recovery but had to be absorbed by the manufacturer. The FEA contrasts the CLC’s generally applicable Phase IV regulations, with the parallel, special regulatory treatment extended to the petroleum refining industry under the Phase IV complex. On August 22, 1973, one week after the CLC promulgated its Phase IV general regulations, the Council adopted special regulations applicable only to the petroleum industry [hereinafter, “Subpart L”]. As noted earlier, Dr. Dunlop, Chairman of the CLC explained the special need for petroleum price control regulations that would strike a balance between keeping prices as low as reasonably possible, without adversely affecting the availability of petroleum products. Accordingly, when the Phase IV petroleum regulations were issued, a key difference between the Subpart L rules pertaining to refiners, and the Phase IV general regulations pertaining to the manufacturing sector generally, was their different treatment of certain increased costs. Under the Phase IV Subpart L regulations, increases which refiners incurred in purchasing certain raw materials (i. e., the increased costs of imported crude oil and petroleum products and the increased costs of domestic crude oil) were allowed to be passed through on a dollar-for-dollar basis automatically each month, as part of a refiner’s “base price,” without regard to any of the restraints imposed on the economy’s manufacturing sector by the Phase IV general regulations. Refiner price increases to recover all other cost increases, remained subject to the anti-inflationary cost-absorption rules described above, regarding the Phase IV regulations applicable to the general manufacturing sector of the economy; i. e., refiner cost increases, which were unrelated to increased costs of imported crude oil, imported petroleum products, and raw domestic crude oil, could only be passed through into augmented prices charged to the refiners customers, after pre-notification to the CLC, and then only as a percentage price increase “in excess of the base price.” Those costs which were unrelated to increased costs of imported crude oil, imported petroleum products, and raw domestic crude oil, formed the nucleus of what eventually came to be known as “non-product costs.” The FEA asserts that in August 1973, the purpose of delaying recovery of non-product cost increases until after recovery of the base price (i. e., May 15, 1973 selling prices plus increased product costs) and then holding non-product cost increases to the full force of the CLC’s anti-inflationary cost-absorption regulations was to “prevent unnecessary price increases.” On September 14, 1973, the CLC shifted its “Subpart L” petroleum refiner price regulations in a fashion radically beneficial to refiners by promulgating the “banking” rule for increased product costs which were not passed through immediately when incurred. On that date the CLC published amended regulations substituting for the earlier language a mathematical formula for measuring the precise amounts of increased costs of imports and domestic crude oil which a refiner could allocate among its array of products. In so amending the regulations the CLC made it clear that refiners would be required to use the formula to compute the increased product cost portion of their base prices. Thus, the preamble stated: “Section 150.356 provides a more precise method for calculating the allocation of increased costs of imports and domestic crude petroleum to various products. The Council has furnished in this amendment a mathematical formula which firms must use in calculating the dollar amount of the increased costs of imports and domestic crude petroleum. The formula is intended to further implement the Council’s intention of allowing recovery of increased costs of imports and domestic crude on a dollar-for-dollar basis. The substance of the corresponding provisions in the regulations, as originally published on August 17, 1973, has been generally retained. Having been made aware of some uncertainty among firms as to precisely what form of computations should be employed, the Council developed this formula to provide explicit guidance and to avoid misunderstandings.” (emphasis added) The language of the regulations similarly reflected this requirement to use the formula to measure increased product costs in computing base prices. The new § 150.-356(c) was amended to read as follows: (c) “Allocation of increased costs — (1) General Rule. — In computing its ceiling prices and base prices for covered products pursuant to §§ 150.355(c) and 150.-358(g), a refiner may increase its May 15, 1973 selling prices to each class of purchaser on the first day of each month beginning with September 1973 by an amount to reflect the increased costs of imports and increased costs of domestic crude petroleum allowable under paragraphs (d), (e), and (f) of this section, provided that the amount of increased costs used in computing a ceiling price or base price is calculated by use of the general formula set forth in paragraph (c)(2) of this section.” (emphasis added) The September 14, 1973 rulemaking also introduced procedures for “banking” unrecouped increases in the cost of imports, by adding the following proviso to the general cost allocation regulation in § 150.356(c)(1): “If, in any month beginning with September 1973, a firm establishes a base price for any covered product or a ceiling price for No. 2 heating oil which does not include the entire amount of increased costs calculated pursuant to this formula and allowable under paragraphs (d), (e), and (f) of this section for a particular item, the unused portion may be added to the May 15,1973, selling price to compute the respective base price or ceiling price for a subsequent month, (emphasis added) Citing these regulations, the FEA argues that the September 14, 1973 creation of the increased product costs banking rule gave no indication that the sequence of increased costs recovery, which the FEA maintains was inherent in the original “Subpart L” refiner price regulations, was altered. The FEA reaches this conclusion relying on: (1) those regulations which continued to specify that non-product cost increases could be recovered only pursuant to the pre-notification procedures applicable generally to all firms and only then by charging a price “in excess of the base price;” and (2) those regulations which continued to define base price as May 15, 1973 selling prices plus increased cost of imports and domestic crude oil measured pursuant to the formula in $150.356(c)(2). The point which the FEA misses, is that the allocation of increased costs provision of § 150.356(c) and the new increased product costs banking provision embodied in § 150.356(c)(1) were both couched in terms of “may,” thus vesting refiners with discretion to either pass through increased product costs by adding them to base prices under § 150.356(c), or to bank increased product costs and pass them through at some future date, under § 150.356(c)(1), when the refiners “may ” deem it appropriate to do so. This banking approach represents a significant departure from both the CLC’s Phase IV general regulations applicable to the manufacturing sector and with the earlier Subpart L refiner regulations. The discretionary “banking” of product costs rule furnished greater product acquisition incentives to refiners than the old Sub-part L, because it not only allowed increased product costs to be passed through automatically as part of base prices in the current month, but it also furnished refiners with an incentive to purchase raw petroleum products, at rising costs, by guaranteeing an opportunity to recover such increased product costs at a future date, if, for market reasons, they could not be recouped immediately. Thus the promulgation of the banking rule represents a shift away from a “cost absorption” theme in the refiner price regulations, toward a cost passthrough incentive for refiners, and was obviously calculated to induce them to serve the national interest by financing a steady flow of raw petroleum products into this country. At the same time the CLC did not dilute the inducement effect of the new discretionary product cost banking rules by altering any portion of the well-established mechanism that, non-product costs, if prenotified, could be passed through into price increases, on top of whatever base price the refiner selected. Any alteration of the prenotified non-product costs passthrough on top of “base prices” rule, simultaneously with the promulgation of the innovative, discretionary product cost banking rule, in the direction of requiring all banked product costs to be exhausted through increments to base prices, prior to pre-notified non-product cost passthroughs, would have destroyed the raw product procurement incentive of the new banking rule and rendered its promulgation nugatory. Therefore, the court concludes that the September 14, 1973 promulgation of the increased product cost banking rule was crafted to chart a refiner cost recovery mechanism different from the sequence of recovery, cost absorption thesis, which the FEA maintains was inherent in the original Subpart L. FEA argues that the CLC’s regulatory amendments to the formula incorporated into §§ 150.356(c), 150.356(c)(1) “implicitly” imposed on all product costs first sequence of recovery rule. The FEA focuses on the “G” factor which it asserts was added to the formula to reflect banked product cost increases in the computation of base prices. The agency notes that after December 6, 1973, the general formula for computing the amount of increased product costs was described as: “d¡u = The dollar increase that may be applied in the period ‘u’ (the current month) to the May 15, 1973 selling price of a special product or products of the type ‘i’ to each class of purchaser to compute the base price to each class of purchaser. . . . ” (emphasis added) The analogous formula for computing increased non-product costs was described as: “dje = The dollar amount that may be added to each base price of the special product or products of the type T in the period ‘e’ (the consecutive 12 month period). . . .” (emphasis added) Under the formulae, increased product cost increments (represented by the symbol “d¡u”) could be added to the May 15 selling prices of special products for the purposes of computing base prices, while increased non-product cost increments (represented by the symbol “dje”) were to be added to base prices. Thus a base price had to be computed before any non-product costs could be passed through. In addition, the inclusion of a “G” factor in the increased product cost allocation formula to reflect banked costs in the symbol “d¡u,” and the absence of an analogous provision in the formula for the allocation of increased non-product costs, made it clear, according to the FEA, that all banked costs were to be included in the computation of base prices and that only increased product costs were to be banked. The FEA then furnishes an example to illustrate its understanding of the applicable formula. The CLC regulations, with the December 1973 amendments to the maximum price calculation formula, were renumbered and repromulgated by the FEO on January 14, 1974. The court is not persuaded by the FEA’s view that the maximum price formula, defined by the CLC in December 1973, implicitly imposes a sequence of recovery rule. As discussed above, the price rules explicitly gave a refiner discretion over the amount of increased product costs to be included in the base price of any product. The regulations said a refiner “may” increase the base price to reflect increased product costs; “may,” subject to certain limitations, allocate increased product costs to the base price of different products in whatever amounts it deems appropriate; and “may” bank increased product costs for use in a subsequent period. The agency contends that the value of “d¡ u,” which is arrived at by performing the computations contemplated by Section 212.-83(c)(2), is the amount of increased product costs that must be included within base price. The agency attempts to illustrate the use of the formulae by explaining how “d¡u” would be computed for gasoline. However, the agency’s approach fails to take into account that the formula’s definition of “d¡u” is “[t]he dollar increase that may be applied ... to the May 15, 1973 selling price ... to compute the base price . . .”§ 212.83(c)(2). Significantly, the FEA’s example of the application of the price rules and incorporated formula does not reflect the discretionary language in the definition of “d¡u.” The original CLC Phase IV Subpart L base price definition stated that increases in product costs were to be “measured pursuant to Sections 150.356 and 150.357.” Those sections in turn said that refiners “may . . . include” product cost increases in their base prices of those products. Likewise, the original CLC banking regulation unquestionably contemplated that a refiner could apply less than all of its available product cost increases in calculating its base price. It pertained only if a refiner “established” a base price that did “not include the entire amount of increased costs . . . allowable.” O