Proposed Implementation of Special Refund Procedures

DEPARTMENT OF ENERGY

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 a

total of $38,214.98, plus accrued interest, in refined petroleum

overcharges obtained by the DOE under the terms of a Remedial Order

issued to County Fuel Company, Inc., Case No. LEF-0061. The OHA has

tentatively determined that the funds will be distributed in accordance

with the provision of 10 CFR part 205, subpart V and 15 U.S.C. 4501,

the Petroleum Overcharge Distribution and Restitution Act (PODRA).

DATE AND ADDRESS: Comments must be filed in duplicate on or before

April 14, 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-

0061.

FOR FURTHER INFORMATION CONTACT: Janet R. H. Fishman, 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 the DOE

has tentatively formulated to distribute to eligible claimants

$38,214.98, plus accrued interest, obtained by the DOE under the terms

of a Remedial Order that the DOE issued to County Fuel Company, Inc.,

on May 7, 1984. Under the Remedial Order, County Fuel Company, Inc.,

was found to have violated the federal petroleum price and allocation

regulations involving the sale of motor gasoline during the relevant

audit period.

The OHA has proposed to distribute the Remedial Order fund in a two

stage refund proceeding. Purchasers of motor gasoline from County Fuel

Company, Inc., will have an opportunity to submit refund applications

in the first stage. Refunds will be granted to applicants who

satisfactorily demonstrate they were injured by the pricing violations

and who document the volume of motor gasoline they purchased from

County Fuel Company, Inc., during the relevant audit period. In the

event that money remains after all first stage claims have been

disposed of, the remaining funds will be disbursed in accordance with

the provisions of 15 U.S.C. 4501, the Petroleum Overcharge Distribution

and Restitution Act of 1986 (PODRA).

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: March 8, 1994.

George B. Breznay,

Director, Office of Hearings and Appeals.

Proposed Decision and Order of the Department of Energy

Implementation of Special Refund Procedures

March 8, 1994.

Name of Petitioner: County Fuel Company, Inc.

Date of Filing: March 6, 1990.

Case Number: LEF-0061.

On March 6, 1990, the Economic Regulatory Administration (ERA)

of the Department of Energy (DOE) filed a petition with the Office

of Hearings and Appeals (OHA), requesting that the OHA formulate and

implement procedures for distributing funds obtained through the

settlement of enforcement proceedings involving County Fuel Company,

Inc. (County), pursuant to 10 CFR part 205, subpart V. This Proposed

Decision sets forth the OHA's tentative plan for distributing these

funds to qualified refund applicants. Since the procedures set forth

in this Decision are in proposed form, no refund applications should

be filed at this time. A final determination will be issued at a

later date announcing that the filing of County refund applications

is authorized.

I. Background

County was a ``reseller-retailer'' of refined petroleum products

as that term was defined in 10 CFR 212.31 and was located in

Baltimore, Maryland. On May 24, 1982, the DOE issued a Proposed

Remedial Order (PRO) to County alleging that the firm violated the

Mandatory Petroleum Price Regulations by overcharging its retail

customers in its sales of motor gasoline at the wholesale and retail

levels between March 1, 1979, through March 18, 1980. The PRO

ordered County to refund the full amount of the alleged violations,

$197,305.49, plus interest, to the United States Treasury.

County filed a Statement of Objections to the PRO on August 23,

1982. On October 12, 1982, the ERA filed its Response to County's

Statement of Objections. As requested by County, a hearing for the

purpose of oral argument was held on December 22, 1983. In the final

Remedial Order issued on May 7, 1984, County's Statement of

Objections was denied, and the PRO was issued as a final Remedial

Order with one modification. The Remedial Order directed that the

overcharges, plus interest, be remitted to the DOE for deposit into

an interest-bearing escrow account pending ultimate distribution

through a special refund proceeding. County Fuel Company, Inc., 12

DOE  83,007 (1984).

The Remedial Order was affirmed by the Federal Energy Regulatory

Commission on August 23, 1985. County Fuel Company, Inc., 32 FERC 

61,301 (1985). The Temporary Emergency Court of Appeals (TECA)

affirmed the decision on August 12, 1987. County Fuel Company, Inc.

v. Department of Energy, 3 Fed. Energy Guidelines  26,588 (Temp.

Emer. Ct. App. 1987).

However, County had filed for bankruptcy on July 6, 1981.

Following the TECA decision, the DOE's claim as an unsecured

creditor was allowed by the bankruptcy court in the amount of

$254,766.49, including interest. In re: County Fuel Company, Inc.,

No. 81-2-2208-L (D. Md. 1986). Under the Second Amended Plan of

Reorganization, unsecured creditors were paid 15 percent of the

allowed claim in cash or 100 percent of the claim in common stock.

On August 25, 1988, County delivered a check in the amount of

$38,214.98 to the DOE, representing 15 percent of the allowed claim.

The ERA accepted this amount in lieu of payment in common stock.

Interest in the amount of $13,770.57 has accrued as of January 31,

1994, making available a total of $51,985.55 (the County Remedial

Order Fund) for distribution through Subpart V.

II. Jurisdiction

The procedural regulations of the DOE set forth general

guidelines by which the Office of Hearings and Appeals may formulate

and implement a plan of distribution for funds received as a result

of an enforcement proceeding. 10 CFR part 205, subpart V. It is the

DOE policy to use the Subpart V process to distribute such funds.

For a more detailed discussion of Subpart V and the authority of the

Office of Hearings and Appeals to fashion procedures to distribute

refunds obtained as part of settlement agreements, see Office of

Enforcement, 9 DOE  82,553 (1982); Office of Enforcement, 9 DOE 

82,508 (1981); Office of Enforcement, 9 DOE  82,597 (1981). We have

considered the ERA's petition that we implement a Subpart V

proceeding with respect to the County remedial order fund and have

determined that such a proceeding is appropriate. This Proposed

Decision and Order sets forth the OHA's tentative plan to distribute

this fund.

II. Proposed Refund Procedures

We propose to implement a two-stage refund process by which

purchasers of County refined products during the remedial order

period may submit Applications for Refund in this initial stage.

From our experience with Subpart V proceedings, we expect that

potential applicants generally will fall into the following

categories: (i) End-users; (ii) regulated entities, such as public

utilities and cooperatives; and (iii) refiners, resellers, and

retailers (collectively ``resellers'').

A. First Stage Refund Procedures

In order to receive a refund, each claimant will be required to

submit a schedule of its monthly purchases of County motor gasoline

during the remedial order period. If the product was not purchased

directly from County, the claimant must establish that the product

originated with County. Additionally, a reseller claimant, except

one who chooses to utilize the injury presumptions set forth below,

will be required to make a detailed showing that it was injured by

County's alleged overcharges. This showing will generally consist of

two distinct elements. First, a reseller claimant will be required

to show that it had ``banks'' of unrecouped increased product costs

in excess of the refund claimed.1 Second, because a showing of

banked costs alone is not sufficient to establish injury, a claimant

must provide evidence that market conditions precluded it from

increasing its prices to pass through the additional costs

associated with the alleged overcharges. See Vickers Energy Corp./

Hutchens Oil Co., 11 DOE  85,070, at 88,105 (1983). Such a showing

could consist of a demonstration that a firm suffered a competitive

disadvantage as a result of its purchases from County. See National

Helium Co./Atlantic Richfield Co., 11 DOE  85,257 (1984), aff'd sub

nom. Atlantic Richfield Co. v. Department of Energy, 618 F. Supp.

1199 (D. Del. 1985).

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\1\Claimants who have previously relied upon their banked costs

in order to obtain refunds in other special refund proceedings

should subtract those refunds from the cumulative banked costs

submitted in this proceeding. See Husky Oil Co./Metro Oil Products,

Inc., 16 DOE  85,090 at 88,179 (1987). Additionally, a claimant may

not receive a refund for any month in which it has a negative

cumulative bank (for that product) or for any preceding month. See

Standard Oil (Indiana)/Suburban Propane Gas Corp., 13 DOE  85,030

at 88,082 (1985). If a claimant no longer has records showing its

banked costs, the OHA may use its discretion to allow approximations

of those banks prepared by the applicant. See, e.g., Gulf Oil Corp./

Sturdy Oil Co., 15 DOE  85,187 (1986).

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Our experience also indicates that the use of certain

presumptions permits claimants to participate in the refund process

without incurring inordinate expense and ensures that refund claims

are evaluated in the most efficient manner possible. See, e.g.,

Marathon Petroleum Co., 14 DOE  85,269 (1986) (Marathon).

Presumptions in refund cases are specifically authorized by the

applicable subpart V regulations at 10 CFR Sec. 205.282(e).

Accordingly, we propose to adopt the presumptions set forth below.

1. Calculation of Refunds

First, we will adopt a presumption that the alleged overcharges

were dispersed equally in all of County's sales of motor gasoline

during the remedial order period. In accordance with this

presumption, refunds will be made on a pro-rata or volumetric

basis.2 In the absence of better information, a volumetric

refund is appropriate because the DOE price regulations generally

required a regulated firm to account for increased costs on a firm-

wide basis in determining its prices.

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\2\Because we realize that the impact on an individual claimant

may have been greater than the volumetric refund amount, we will

allow any purchaser to file a refund application based upon a claim

that it suffered a disproportionate share of County's alleged

overcharges. See, e.g., Standard Oil (Indiana)/Army and Air Force

Exchange Service, 12 DOE  85,015 (1984). Such an application will

be granted only if an applicant makes a persuasive showing that: (1)

it was ``overcharged'' by a specific amount, (2) it sustained a

disproportionate share of County's alleged overcharges, and (3) it

was injured by those overcharges. See MCO Holdings, Inc., MGPC,

Inc./Little America Refining Co., 19 DOE  85,560 (1989); Marathon

Petroleum Co./Red Diamond Oil Co., 19 DOE  85,543 (1989); Getty Oil

Co./Atchison, Topeka & Santa Fe Railroad Co., 18 DOE  85,107

(1988). To the extent that a claimant makes this showing, it will

receive a refund above the volumetric refund level. In computing the

appropriate refunds of this type, we will prorate the refund amount

by the ratio of the County remedial order amount as compared to the

aggregate overcharge amount alleged by the ERA. Amtel, Inc./Whitco,

Inc., 19 DOE  85,319 (1989) (Amtel/Whitco).

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Under the volumetric approach, a claimant's ``allocable share''

of the remedial order fund is equal to the number of gallons

purchased from the remedial order firm during the applicable

remedial order period times the per gallon refund amount. In the

present case, the per gallon refund amount is $0.0214. We derived

this figure by dividing the remedial order fund, $51,985.55, by

2,431,180 gallons, the approximate number of gallons of covered

refined products which County sold from March 1, 1979, through March

18, 1980. A firm that establishes its entitlement to a refund will

receive all or a portion of its allocable share plus a pro-rata

share of the accrued interest.\3\

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\3\As in previous cases, we propose to establish a minimum

refund amount of $15. We have found through our experience that the

cost of processing claims in which refunds for amounts less than $15

are sought outweighs the benefits of restitution in those instances.

See Exxon Corp., 17 DOE  85,590, at 89,150 (1988) (Exxon).

Accordingly, an applicant must have purchased at least 678 gallons

of motor gasoline from County in order for its claim to be

considered.

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In addition to the volumetric presumption, we also propose to

adopt a number of presumptions regarding injury for claimants in

each category listed below. These presumptions are intended to ease

what would be a time-consuming and potentially expensive process if

an applicant were forced to demonstrate that they absorbed the

alleged overcharges.

2. End-Users

In accordance with prior Subpart V proceedings, we propose to

adopt the presumption that an end-user or ultimate consumer of

County motor gasoline whose business is unrelated to the petroleum

industry was injured by the alleged overcharges settled by the

remedial order. See, e.g., Texas Oil and Gas Corp., 12 DOE 85,069,

at 88,209 (1984) (TOGCO). Unlike regulated firms in the petroleum

industry, members of this group generally were not subject to price

controls during the remedial order period and were not required to

keep records which justified selling price increases by reference to

cost increases. Consequently, analysis of the impact of the alleged

overcharges on the final prices of goods and services produced by

members of this group would be beyond the scope of the refund

proceeding. Id. We therefore propose that the end-users of County

motor gasoline need only document their purchase volumes from County

during the remedial order period to make a sufficient showing that

they were injured by the alleged overcharges.

3. Regulated Firms and Cooperatives

We further propose that, in order to receive a full volumetric

refund, a claimant whose prices for goods and services are regulated

by a governmental agency, i.e., a public utility, or an agricultural

cooperative which is required by its charter to pass through cost

savings to its member purchasers, need only submit documentation of

purchases used by itself or, in the case of a cooperative, sold to

its members. However, a regulated firm or a cooperative will also be

required to certify that it will pass any refund received through to

its customers or member-customers, provide us with a full

explanation of how it plans to accomplish the restitution, and

certify that it will notify the appropriate regulatory body or

membership group of the receipt of the refund. See Marathon, 14 DOE

at 88,514-15. This requirement is based upon the presumption that,

with respect to a regulated firm, any overcharge would have been

routinely passed through to its customers. Similarly, any refunds

received should be passed through to its customers. With respect to

a cooperative, in general, the cooperative agreement which controls

its business operations would ensure that the alleged overcharges,

and similarly refunds, would be passed through to its member-

customers. Accordingly, these firms will not be required to make a

detailed demonstration of injury.4

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\4\A cooperative's purchases of County products which were

resold to non-members will be treated in a manner consistent with

purchases made by other resellers. See Total Petroleum, Inc./Farmers

Petroleum Cooperative, Inc., 19 DOE 85,215 (1989).

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4. Refiners, Resellers, and Retailers

a. Small claims presumption. We propose to adopt a ``small

claims'' presumption that a firm which resold County products and

requests a relatively small refund was injured by the alleged

overcharges. Under the small claims presumption, a refiner,

reseller, or retailer seeking a refund of $5,000 or less, exclusive

of interest, will not be required to submit evidence of injury

beyond documentation of the volume of County products it purchased

during the remedial order period. See TOGCO, 12 DOE at 88,210. This

presumption is based on the fact that there may be considerable

expense involved in gathering the types of data necessary to support

a detailed claim of injury; for small claims the expense might even

exceed the potential refund. Consequently, failure to allow

simplified refund procedures for small claims could deprive injured

parties of their opportunity to obtain a refund. Furthermore, use of

the small claims presumption is desirable because it allows the OHA

to process the large number of routine refund claims in an efficient

manner.5

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\5\In order to qualify for a refund under the small claims

presumption, a refiner, reseller, or retailer must have purchased

less than 584,171 gallons of County motor gasoline during the

remedial order period.

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b. Mid-level claim presumption. In addition, a refiner,

reseller, or retailer claimant whose allocable share of the refund

pool exceeds $5,000, excluding interest, may elect to receive as its

refund either $5,000 or 40 percent of its allocable share, up to

$20,000,6 whichever is larger.7 The use of this

presumption reflects our conviction that these larger, mid-level

claimants were likely to have experienced some injury as a result of

the alleged overcharges. See Marathon, 14 DOE at 88,515. In some

prior special refund proceedings, we have performed detailed

analyses in order to determine product-specific levels of injury.

See, e.g., Getty Oil Co., 15 DOE 85,064 (1986). However, in Gulf

Oil Corp., 16 DOE 85,381, at 88,737 (1987), we determined that

based upon the available data, it was more accurate and efficient to

adopt a single presumptive level of injury of 40 percent for all

mid-level claimants, regardless of the refined product that they

purchased, based upon the results of our analyses in prior

proceedings. We believe that approach generally to be sound, and we

therefore propose to adopt a 40 percent presumptive level of injury

for all mid-level claimants in this proceeding. Consequently, an

applicant in this group will only be required to provide

documentation of its purchase volumes of County motor gasoline

during the remedial order period in order to be eligible to receive

a refund of 40 percent of its total allocable share, up to $20,000,

or $5,000, whichever is greater.8

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\6\In most prior proceedings, we have used a $40,000 mid-level

claim presumption. However, due to the small size of the County

Remedial Order Fund, this amount would be impractical.

\7\That is, claimants who purchased more than 584,171 gallons of

County motor gasoline during the remedial order period (mid-level

claimants) may elect to utilize this presumption.

\8\A claimant who attempts to make a detailed showing of injury

in order to obtain 100 percent of its allocable share but, instead,

provides evidence that leads us to conclude that it passed through

all of the alleged overcharges, or that it is eligible for a refund

of less than the applicable presumption-level refund, may not then

be eligible for a presumption-based refund. Instead, such a claimant

may receive a refund which reflects the level of injury established

in its application. No refund will be approved if its submission

indicates that it was not injured as a result of its purchases from

County. See Exxon, 17 DOE at 89,150 n.10.

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c. Spot purchasers. We propose to adopt a rebuttable presumption

that a reseller that made only spot purchases from County did not

suffer injury as a result of those purchases. As we have previously

stated, spot purchasers generally had considerable discretion as to

the timing and market in which they made their purchases and

therefore would not have made spot market purchases from a firm at

increased prices unless they were able to pass through the full

amount of the firm's selling price to their own customers. See,

e.g., Vickers, 8 DOE at 85,396-97. Accordingly, a spot purchaser

claimant must submit specific and detailed evidence to rebut the

spot purchaser presumption and to establish the extent to which it

was injured as a result of its spot purchases from County.9

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\9\In prior proceedings, we have stated that refunds will be

approved for spot purchasers who demonstrate that: (1) they made the

spot purchases for the purpose of ensuring a supply for their base

period customers rather than in anticipation of financial advantage

as a result of those purchases and (2) they were forced by market

conditions to resell the product at a loss.

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B. Allocation Claims

We may also receive claims based upon County's alleged failure

to furnish motor gasoline that it was obliged to supply under the

DOE allocation regulations that became effective in January 1974.

See 10 CFR part 211. Any such applications will be evaluated with

reference to the standards set forth in Subpart V implementation

cases such as Office of Special Counsel, 10 DOE 85,048, at 88,220

(1982), and refund application cases such as Mobil Oil Corp./

Reynolds Industries, Inc., 17 DOE 85,608 (1988); Marathon Petroleum

Co./Research Fuels, Inc., 19 DOE 85,575 (1989) (Marathon/RFI),

aff'd sub nom. Research Fuels, Inc. v. Department of Energy, No.

CA3-89-2983G (N.D. Tex. 1990), aff'd, 977 F.2d 601 (Temp. Emer. Ct.

App. 1992). These standards generally require an allocation claimant

to demonstrate the existence of a supplier/purchaser relationship

with the remedial order firm and the likelihood that the remedial

order firm failed to furnish motor gasoline that it was obliged to

supply to the claimant under 10 CFR Part 211. In addition, the

claimant should provide evidence that it had contemporaneously

notified the DOE or otherwise sought redress from the alleged

allocation violation. Finally, the claimant must establish that it

was injured and document the extent of the injury.

In our evaluation of whether allocation claims meet these

standards, we will consider various factors. For example, we will

seek to obtain as much information as possible about the agency's

treatment of complaints made to it by the claimant. We will also

look at any affirmative defenses that County may have had to the

alleged allocation violation. See Marathon/RFI, 19 DOE  85,575. In

assessing an allocation claimant's injury, we will evaluate the

effect of the alleged allocation violation on its entire business

operations with particular reference to the amount of product that

it received from suppliers other than County. In determining the

amount of an allocation refund, we will utilize any information that

may be available regarding the portion of the County remedial order

amount that the agency attributed to allocation violations in

general and to the specific allocation violation alleged by the

claimants. Finally, since the County Remedial Order Fund is less

than County's potential liability in the proceedings, we will pro

rate those allocation refunds that would otherwise be

disproportionately large in relation to the remedial order fund. Cf.

Amtel/Whitco, 19 DOE  85,319.

C. Distribution of Funds Remaining After First Stage

We propose that any funds that remain after all first stage

claims have been decided be distributed in accordance with the

provisions of the Petroleum Overcharge Distribution and Restitution

Act of 1986 (PODRA), 15 U.S.C. 4501-07. PODRA requires that the

Secretary of Energy determine annually the amount of oil overcharge

funds that will not be required to refund monies to injured parties

in Subpart V proceedings and make those funds available to state

governments for use in four energy conservation programs. The

Secretary has delegated these responsibilities to the OHA, and any

funds in the County remedial order escrow account that the OHA

determines will not be needed to effect direct restitution to

injured customers will be distributed in accordance with the

provisions of PODRA.

It Is Therefore Ordered That:

The payments remitted to the Department of Energy by County Fuel

Company, Inc., pursuant to the remedial order issued on May 7, 1984,

will be distributed in accordance with the foregoing Decision.

[FR Doc. 94-5991 Filed 3-14-94; 8:45 am]

BILLING CODE 6450-01-P