Mobil Oil Corp. v. Department of Energy (469 F. Supp. 1119, 1979)

OPINION

KEVIN THOMAS DUFFY, District Judge:

This action was commenced by the plaintiff, Mobil Oil Corporation [hereinafter referred to as “Mobil”], against the Department of Energy [hereinafter referred to as “DOE”], the Secretary of Energy, Dr. James R. Schlesinger, and the Assistant Administrator of Energy in the Office of Fuels Regulation, Barton R. House. The action was precipitated by the issuance of three orders by the DOE directing Mobil to sell a total of 2,466,240 gallons of motor gasoline to three designated refineries. Mobil, at the time of the orders had no contract with any of the three refiners involved for the supply of motor gasoline or crude oil.

I. Statutory Background:

In November 1973 Congress enacted and the President signed into law the Emergency Petroleum Allocation Act [hereinafter referred to as the “EPAA”]. 15 U.S.C. § 751 et seq. The stated purpose of the EPAA was to grant to the President authority to effectively deal with shortages of various petroleum products or the inequitable distribution of these products across the nation. The Act authorized the President, inter alia, to “promulgate a regulation providing for the mandatory allocation of [petroleum products] in amounts specified in (or determined in a manner prescribed by) and at prices specified in (or determined in a manner prescribed by) such regulation.” 15 U.S.C. § 753(a).

The general objectives outlined in the Act are many and varied. Those objectives applicable to the case at bar provide that to the maximum extent practicable the regulation promulgated under 15 U.S.C. § 753(a) shall provide for:

(C) maintenance of agricultural operations, including farming, ranching, dairy, and fishing activities, and services directly related thereto;

(D) preservation of an economically sound and competitive petroleum industry; including the priority needs to restore and foster competition in the producing, refining, distribution, marketing, and petrochemical sectors of such industry, and to preserve the competitive viability of independent refiners, small refiners, nonbranded independent marketers, and branded independent marketers;

(F) equitable distribution of crude oil, residual fuel oil, and refined petroleum products at equitable prices among all regions and areas of the United States and sectors of the petroleum industry, including independent refiners, small refiners, nonbranded independent marketers, branded independent marketers, and among all users; and

(I) minimization of economic distortion, inflexibility, and unnecessary interference with market mechanisms.

In December 1973 the President, via Executive Order, established the Federal Energy Office [hereinafter referred to as the “FEO”], and delegated to that office all authority vested in him by the EPAA. Thereafter, the FEO adopted Mandatory Fuel Allocation Rules. These Rules, as revised, now appear at 10 C.F.R. Part 211, §§ 211.1 et seq. and, in pertinent part provide:

(a) To meet imbalance that may occur in the supplies of any product subject to this part, the FEO may order the transfer of specified amounts of any such product from one region or area to another. Further, the FEO may allocate any such supplies of such products among suppliers in order to remedy supply imbalances. § 211.14.

The above quoted section remains in full force and effect.

The FEO was subsequently replaced by the Federal Energy Administration which in turn gave way to the Department of Energy. Suffice it to say that DOE is now responsible for the administration and enforcement of the Mandatory Petroleum Allocation Regulations [hereinafter referred to as “the regulations”].

The practical import of the regulations is that a petroleum refiner, such as Mobil, may be ordered by the DOE to supply a specified amount of a designated petroleum product to another petroleum supplier/marketer at a set price if that supplier/marketer is otherwise unable to obtain that product. The mechanics of the mandatory allocation program, as set forth in the EPAA, dictates that any mandatory allocation to a supplier/marketer be in an amount not less than the amount sold or otherwise supplied to the supplier/marketer during the corresponding “base period.” Simply stated, it is that amount of the particular product being allocated which was sold to the supplier/marketer during the comparable month during the period July 1977 through June 1978.

On the other side of this allocation equation, we have the “allocation fraction.” This fraction represents the amount of a particular petroleum product available to the supplier, divided by the amount required to fulfill its base period (comparable month during July 1977 through June 1978) supply obligations. It is the percentage of the allocated product that must be delivered. This allocation fraction applies to all mandatory allocations save allocations to those supplying agricultural users in which case supply of 100 percent of their current requirement is mandated.

This action arises out of three “allocation orders” issued by the DOE which directed Mobil to deliver certain quantities of gasoline to three agricultural cooperatives due to certain “supply imbalances.”

Mobil commenced this action and moved for preliminary re’ief to enjoin enforcement of these orders pending final determination of this suit. A hearing was held before me on April 5, 1979. Both sides were given the opportunity to present witnesses and evidence in support of their positions. This opinion shall constitute my findings of fact and conclusions of law.

II. Facts:

In late February and early March of this year, the Midland Cooperatives, Inc. [hereinafter referred to as “Midland”], Farmland Industries [hereinafter referred to as “Farmland”] and Land-O-Lakes, Inc. [hereinafter referred to as “Land-O-Lakes”], three agricultural cooperatives, applied to the DOE for the issuance of orders, pursuant to 10 C.F.R. § 211.14(a), directing that they be supplied with various quantities of motor gasoline for March 1979 by suppliers serving their market area. The three applications for mandatory allocations were specifically made to “remedy a supply imbalance for March 1979” in the market area of Midland, Farmland and Land-O-Lakes. In all three cases the DOE issued the requested orders directing that Mobil, together with other suppliers, deliver the specified quantities of petroleum products to the applicants.

A. The Midland Order

Midland is a cooperative association. One of its primary functions is to provide petroleum to its agricultural customers. Midland has a substantial interest in two refineries which act as its suppliers. Due to crude oil shortages, however, these suppliers have recently been operating at less than full capacity. Consequently, Midland’s percentage share from these suppliers has been reduced to such a point that it can only supply the total requirements of its agricultural customers by meeting only 5 percent of its non-agricultural obligations.

On March 8,1979 Midland applied for the issuance of a mandatory allocation order. On March 22, 1979 Mobil was served with notice that the application had been made and if granted Mobil would be directed to supply 852,726 gallons of gasoline to Midland for March, 1979. The notice also provided that Mobil could submit comments as to its position on the proposed order by 4:30 p. m. that afternoon. The following day the allocation order issued.

B. Farmland

Farmland is a cooperative association which also acts as a supplier to many agricultural customers. Farmland, through its wholly owned subsidiary, operates three refineries and has a 30 percent stake in another refinery. Due to crude shortages, however, its refineries were not operating at full capacity. Consequently, of its 46,300,-000 gallon agricultural requirements it could supply only 44,856,000 gallons. In addition, Farmland could meet none of its 8.925.000 gallon non-agricultural obligations.

Farmland applied for mandatory allocation on February 28, 1979. On March 16, 1979 the DOE served notice of the application and the consequences of the order should it issue. Mobil asserts that it never received the notice and therefore was given no advance warning to the issuance of the allocation order on March 20, 1979.

C. Land-O-Lakes

Like Midland and Farmland, Land-O-Lakes is an agricultural cooperative which supplies petroleum products to many agricultural customers. It too was feeling the pinch of short crude supplies and the supply from both of its wholly owned refineries was somewhat less than capacity. Accordingly, Land-O-Lakes found itself some 1.579.000 gallons short of its 7,536,000 gallon agricultural obligations and totally deficient as to its 749,000 gallon non-agricultural obligations.

Land-O-Lakes applied for an allocation order on March 7, 1979. Notice of the “pending” application was sent to Mobil on March 22, 1979 which required Mobil to comment upon the application by 4:30 p. m. that afternoon. The allocation order issued on the following day.

Mobil has appealed from these three allocation orders to DOE’s Office of Hearings and Appeals. In addition, plaintiff has applied for a stay of the allocation orders pending determination of its appeal. There has been no determination of the stay which, under the DOE’s own guidelines; need only be decided within ten days if administratively feasible. In this regard, it is interesting to note that the DOE represented to this Court at the hearing that in light of the number of appeals now pending it could not even offer an estimate as to when Mobil’s request for a stay might be acted upon. It should also be noted that while Mobil’s application for a stay remains pending, Mobil was required, under pain of DOE sanctions, to deliver gasoline to Midland on April 3, 1979. This delivery has already been made.

Contained in the three applications as well as the three orders in issue was the fact that there were sufficient quantities of gasoline available to the cooperatives on the open market which would enable them to meet 100 percent of both their agricultural and non-agricultural requirements. However, to secure these quantities of gasoline the cooperatives would have to go out into the open market and negotiate for the gasoline at “spot market” prices.

The spot market is that market resorted to by suppliers who do not have contractual agreements with refiners for the periodic delivery of gasoline. The advantage of spot market purchases is that in times of surplus availability the spot market price is below that charged by a refinery for a secured monthly delivery. Indeed, it was established at the hearing that suppliers pay a premium for the security of a supply contract with a refiner in times of surplus. In times of shortage, however, the spot market price tends to rise above that of gasoline delivered pursuant to a supply contract with a refiner.

In the case at bar, the spot market price available to the three cooperatives ranged from 57