Proposed Implementation of Special Refund Procedures

DEPARTMENT OF ENERGY

Office of Hearings and Appeals

Proposed Implementation of Special Refund Procedures

AGENCY: Office of Hearings and Appeals, Department of Energy.

ACTION: Notice of Proposed Implementation of Special Refund Procedures.

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SUMMARY: The Office of Hearings and Appeals (OHA) of the Department of

Energy (DOE) announces the proposed procedures for disbursement of the

total amount of $2,226,782.70 in crude oil overcharges obtained by the

DOE under the terms of a Consent Order that Mt. Airy Refining Company

(Mt. Airy) and its former shareholders, William P. Boswell, W. Luke

Boswell, Lindsay B. McLean, David P. Boswell, P. Wilson Boswell II and

Ellen W. Boswell, entered into with DOE on November 14, 1990. Case No.

LEF-0121. OHA has tentatively determined that the funds will be

distributed in accordance with DOE's Modified Statement of

Restitutionary Policy in Crude Oil Cases.

DATE AND ADDRESS: Comments must be filed in duplicate by July 11, 1994

and should be addressed to the Office of Hearings and Appeals,

Department of Energy, 1000 Independence Avenue, SW., Washington, DC

20585. All comments should display a reference to Case Number LEF-0121.

FOR FURTHER INFORMATION CONTACT: Kim L. Hargrove, Staff Attorney,

Office of Hearings and Appeals, 1000 Independence Avenue, SW.,

Washington, DC 20585 (202) 586-2400.

SUPPLEMENTARY INFORMATION: In accordance with 10 CFR 205.282(b), notice

is hereby given of the issuance of the Proposed Decision and Order set

out below. The Proposed Decision sets forth the procedures that DOE has

tentatively formulated to distribute the total amount of $2,226,782.70

obtained under the terms of a Consent Order that DOE entered into with

Mt. Airy Refining Company and its former shareholders on November 14,

1990. The Consent Order settles claims by DOE that Mt. Airy had

violated reporting provisions of the Mandatory Petroleum Allocation

Regulations and the Administrative Procedures and Sanctions Regulations

with regard to its sale of crude oil.

OHA proposes to distribute the Mt. Airy Consent Order funds in

accordance with DOE's Modified Statement of Restitutionary Policy in

Crude Oil Cases (the MSRP). 51 FR 27899 (August 4, 1986). Under the

MSRP, crude oil overcharge monies are divided between the Federal

government, the states, and injured purchasers of refined petroleum

products. Refunds to the states are distributed in proportion to each

state's consumption of petroleum products during the price control

period. Refunds to eligible purchasers are based on the total volume of

petroleum products purchased and the degree to which they can

demonstrate injury.

Any member of the public may submit written comments regarding the

proposed refund procedures. Commenting parties are requested to forward

two copies of their submissions, within 30 days of publication of this

notice in the Federal Register, to the address set forth at the

beginning of this notice. Comments so received, will be made available

for public inspection between the hours of 1 p.m. and 5 p.m., Monday

through Friday, except Federal holidays, in the Public Reference Room

1E-234, 1000 Independence Avenue, SW., Washington, DC 20585.

Dated: June 3, 1994.

George B. Breznay,

Director, Office of Hearings and Appeals.

Proposed Decision and Order of the Department of Energy

Implementation of Special Refund Procedures

Name of Firm: Mt. Airy Refining Company.

Date of Filing: February 3, 1994.

Case Number: LEF-0121.

Dated: June 3, 1994.

On February 3, 1994, the Economic Regulatory Administration

(ERA) of the Department of Energy filed a Petition requesting that

the Office of Hearings and Appeals (OHA) formulate and implement

Subpart V special refund proceedings for crude oil overcharge funds.

Under DOE procedural regulations, special refund proceedings may be

implemented to refund monies to persons injured by violations of DOE

petroleum price and allocation regulations, provided DOE is unable

to readily identify such persons or ascertain the refund amount each

person should receive. 10 CFR 205.280. We have considered ERA's

request to formulate refund procedures for the disbursement of

$2,226,782.70 remitted by Mt. Airy Refining Company (Mt. Airy) and

its former shareholders, William P. Boswell, W. Luke Boswell,

Lindsay B. McLean, David P. Boswell, P. Wilson Boswell II and Ellen

W. Boswell, in connection with a Consent Order Mt. Airy and its

former shareholders entered into with DOE and have determined that

such procedures are appropriate.

The Mt. Airy Consent Order funds were remitted to DOE to remedy

the firm's alleged violation of the Mandatory Petroleum Allocation

Regulations published at 10 CFR part 211 and the provisions of the

Administrative Procedures and Sanctions Regulations set forth at 10

CFR part 205. These funds are being held in an escrow account

established with the United States Treasury pending a determination

of their proper distribution. This Decision sets forth OHA's

tentative plan to distribute those funds. The specific application

requirements appear in Section III of this Decision. Because these

procedures are set forth in proposed form, refund applications

should not be filed at this time. Comments are solicited.

I. Jurisdiction and Authority

The general guidelines that govern OHA's ability to formulate

and implement a plan to distribute refunds are set forth at 10 CFR

part 205, subpart V. These procedures apply in situations where DOE

cannot readily identify persons injured as a result of actual or

alleged violations of its regulations or ascertain the refund amount

each person should receive. For a more detailed discussion of

subpart V and OHA's authority to fashion procedures to distribute

refunds see, Office of Enforcement, 9 DOE 82,508 (1981) and Office

of Enforcement, 8 DOE 82,597 (1981).

II. Background

Mt. Airy operated a refinery in Mt. Airy, Louisiana from the

date of its incorporation under the laws of the state of Ohio in

1977 until its dissolution on August 11, 1983. It was therefore a

``refiner'' as that term has been defined in the federal petroleum

price and allocation regulations. As such, Mt. Airy was subject to

the jurisdiction of DOE.

In accordance with the reporting requirements found at 10 CFR

211.66(b)(h), Mt. Airy was required to submit a ``Refiners Monthly

Report'' detailing its crude oil receipts, runs to stills and volume

of crude oil processed. DOE reviewed Mt. Airy's compliance with

those regulatory provisions, as well as provisions set forth at

section 211.67, during the course of an audit of Mt. Airy's

principal business operations. The audit was conducted during the

period beginning on January 1, 1977 and ending on January 27, 1981.

On July 25, 1986, ERA issued a Proposed Remedial Order (PRO) which

found that Mt. Airy had improperly reported its crude oil receipts

for the period beginning July 1977 and ending November 1977, by

approximately 300,000 barrels of controlled crude oil.

ERA amended that Proposed Remedial Order on May 27, 1987 (the

May 1987 PRO) to include additional entitlement reporting violations

by Mt. Airy. In its May 1987 PRO ERA found that Mt. Airy under

reported its crude receipts by a total of (i) 1,018,905 barrels of

controlled crude oil; or (ii) 718,905 barrels of controlled crude

oil, in the event OHA found that Mt. Airy was not required to report

the 300,000 barrels identified in the original PRO. The May 1987 PRO

directs Mt. Airy to refund the amount of its violation, plus

interest. The PRO further states that Mt. Airy shareholders were

individually liable, to the extent that Mt. Airy's assets were

distributed to them upon its dissolution in 1983, for refunding the

violation amount.

ERA found that shareholder liability in this case was predicated

upon the ``trust fund doctrine'', which provides that stockholders

who receive assets upon corporate dissolution hold those assets in

trust for the payment of bona fide corporate debts incurred before

dissolution. See Bayport, 18 DOE 83,007 at 86,058 (1989). Mt. Airy

and its former shareholders vigorously contested the May 1987 PRO in

proceedings before OHA. Nonetheless, without admitting any

violations, they agreed to enter into a Consent Order with DOE to

settle the alleged violations. The Consent Order was published in

proposed form in the Federal Register on November 26, 1990 (the

November 1990 Order). 55 FR 49104.1

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\1\On January 17, 1991, ERA published a notice making the

Proposed Consent Order a final DOE Order pursuant to 10 CFR

205.199J. 56 FR 1804.

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According to the November 1990 Order, Mt. Airy's alleged

violations resulted in its receipt of $2,059,649.94 in entitlements

which it was not authorized to receive. The maximum potential

liability, with interest, was estimated by ERA as roughly $7.6

million. Id. After assessing a number of factors, including the time

and expense required to litigate fully every issue in order to

obtain any recovery, ERA concluded that the resolution of the

matters referred to in the Proposed Consent Order for the principal

sum of $2,000,000 was both an appropriate settlement and in the

public interest. Id.

In accordance with the November 1990 Order, Mt. Airy and its

former shareholders (1) paid the principal sum of two million

dollars ($2,000,000.00), plus interest, in full and final settlement

of all matters covered by the Order; and (2) agreed to retain (i)

Mt. Airy's records evidencing sales volume data for each product

subject to controls, during the period covered by the audit; and

(ii) Mt. Airy's customers' names and addresses. The November 1990

Order requires Mt. Airy to retain the records described above for a

period of thirty (30) days following DOE's final distribution of the

Mt. Airy Consent Order funds or January 1, 2000, whichever occurs

earlier. Mt. Airy shall make such information available to DOE, if

so requested.

III. The Proposed Refined Product Refund Procedures

A. Crude Oil Refund Policy

The Mt. Airy Consent Order funds will be distributed in

accordance with DOE's Modified Statement of Restitutionary Policy in

Crude Oil Cases (MSRP). See 51 FR 27899 (August 4, 1986). This

policy has been utilized in all subpart V proceedings involving

alleged crude oil violations. See Order Implementing the MSRP, 51 FR

29689 (August 20, 1986). Under the MSRP, 40 percent of the crude oil

overcharge funds will be refunded to the Federal government, another

40 percent to the states, and up to 20 percent may initially be

reserved for the payment of claims by injured parties. The MSRP also

specified that, after all valid claims by injured purchasers are

paid, any remaining monies will be disbursed to the Federal

government and to the states in equal amounts. For a more detailed

discussion of the MSRP see, In re: The Department of Energy Stripper

Well Exemption Litigation, 653 F. Supp. 108 (D. Kan.), 6 Fed. Energy

Guidelines 90,509 (1986)(the Stripper Well Settlement Agreement).

In its April 10, 1987 Notice, OHA stated that Subpart V

claimants, anticipating filing refund applications for crude oil

monies, would generally be required to (1) document the volume of

petroleum products they purchased from August 19, 1973 to January

27, 1981; and (2) prove they were injured by the alleged crude oil

overcharges. End-users of petroleum products whose businesses are

unrelated to the petroleum industry are presumed injured by the

alleged crude oil overcharges and therefore need not submit

additional proof of injury. End-users need only document the volume

of their petroleum purchases in order to be eligible to receive a

refund. See City of Columbus, Georgia, 16 DOE 85,550 (1987).

B. Refund Claims

We propose that standard DOE procedures, as set forth in the

MSRP, govern the distribution of the $2,226,782.70 in crude oil

monies obtained from Mt. Airy. We have chosen initially to reserve

20 percent of the fund ($445,357.00) for direct refunds to

applicants. We propose that refund applications in the Mt. Airy

proceeding be evaluated in exactly the same manner as refund

applications submitted in other crude oil proceedings. Applicants

generally will be required to document the volume of petroleum

products they purchased and prove that they were injured as a result

of the alleged violations. We will adopt a presumption that the

alleged crude oil overcharges were absorbed rather than passed on,

by applicants who were (1) end-users of petroleum products, (2)

unrelated to the petroleum industry, and (3) not subject to the

regulations promulgated under the Emergency Petroleum Allocation Act

of 1973 (EPAA), 15 U.S.C. 751-760h. In order to receive a refund,

end-user applicants need only document the volume of petroleum

products they purchased. See Shell, 17 DOE 85,204 (1988). Petroleum

retailer, reseller and refiner applicants will be required to submit

detailed evidence of injury. They may not rely upon the injury

presumptions utilized in some refined product refund cases. Id.

As has been stated in prior Decisions, a crude oil refund

applicant will only be required to submit one application for its

share of all available crude oil overcharge funds. See e.g., A.

Tarricone, Inc., 15 DOE 85,495 (1987). A party that has already

submitted a claim in any other crude oil refund proceeding

implemented by the DOE need not file another claim. The prior

application will be deemed to be filed in all crude oil refund

proceedings implemented by DOE. Any applicant who has executed and

submitted a valid waiver, pursuant to one of the escrow accounts

established by the Stripper Well Settlement Agreement, has waived

his right to file an application for Subpart V crude oil refund

monies. See Mid-America Dairymen v. Herrington, 878 F.2d 1448 (Temp.

Emer. Ct. App.), 3 Fed. Energy Guidelines 26,617 (1989); In re:

Department of Energy Stripper Well Exemption Litigation, 707 F.

Supp. 11267 (D. Kan.), 3 Fed. Energy Guidelines 26,613 (1987).

The current deadline for filing an Application for Refund is

June 30, 1994. All crude oil refund claims filed before June 30,

1994, will be paid at the rate of $.0008 per gallon. We anticipate,

however, that applicants who filed their claims by June 30, 1988,

will receive a supplemental refund payment. We will decide in the

future whether applicants that filed applications after that date

should receive additional refunds. Applicants may be required to

submit additional information to support their claims for future

amounts. Notice of any such additional amounts will be published in

the Federal Register.

C. Payments to the States and Federal Government

Under the terms of the MSRP, we propose that the remaining 80

percent of the alleged crude oil violation amounts subject to this

Proposed Decision or $1,781,426.00 in principal, plus accrued

interest, should be disbursed in equal shares to the states and

Federal government for indirect restitution. Refunds to the states

will be in proportion to the consumption of petroleum products in

each state during the period of price controls. The share or ratio

of the funds allocated to each state is contained in Exhibit H of

the Stripper Well Agreement. When disbursed, these funds will be

subject to the same limitations and reporting requirements that

apply to any other crude oil funds received by the states in

accordance with the Stripper Well Agreement.

It Is Therefore Ordered That:

The $2,226,782.70 refund amount remitted to the Department of

Energy by Mt. Airy and its former shareholders pursuant to the

Consent Order finalized on January 17, 1991 will be distributed in

accordance with the foregoing Decision.

[FR Doc. 94-14199 Filed 6-9-94; 8:45 am]

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