Implementation of Special Refund Procedures

DEPARTMENT OF ENERGY

Office of Hearings and Appeals

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 of the Department of Energy

announces proposed procedures for the disbursement of $592,001 (plus

accrued interest) collected pursuant to a consent order with Macmillian

Oil Company and $15,822 (plus accrued interest) collected pursuant to a

consent order with Kenny Larson Oil Company. The funds will be

distributed in accordance with the DOE's special refund procedures, 10

C.F.R. Part 205, Subpart V.

DATE AND ADDRESS: Comments must be filed in duplicate within 30 days of

the date of publication in the Federal Register and should be addressed

to: Office of Hearings and Appeals, Department of Energy, 1000

Independence Avenue, S.W., Washington, D.C. 20585. All comments

concerning the Kenny Larson proceeding should conspicuously display

reference to Case Number LEF-0046 and those concerning the Macmillian

proceeding should display reference to Case Number VEF-0002.

FOR FURTHER INFORMATION CONTACT: Bryan F. MacPherson, Assistant

Director, Office of Hearings and Appeals, Department of Energy, 1000

Independence Avenue, S.W., Washington, D.C. 20585, (202) 586-5405.

SUPPLEMENTARY INFORMATION: In accordance with Section 205.282(b) of the

procedural regulations of the Department of Energy (DOE), 10 CFR

205.282(b), notice is hereby given of the issuance of the Proposed

Decision and Order set out below. The Proposed Decision and Order sets

forth the procedures that the DOE has tentatively formulated to

distribute monies that have been collected by the DOE pursuant to a

consent orders with Macmillian Oil Company (Macmillian) and Kenny

Larson Oil Company (Larson). The consent order with Macmillian settled

possible pricing violations with respect to Macmillian's sales of

propane, No. 2 fuel oil and Nos. 5 and 6 residual fuel oil. The DOE has

collected $592,001 from Macmillian. The consent order with Larson

settled possible pricing violations with respect to Larson's sales of

motor gasoline. The DOE has collected $15,822 from Larson. The DOE is

holding the funds in interest-bearing escrow accounts pending

distribution.

Applications for Refund should not be filed at this time.

Appropriate public notice will be given when the submission of claims

is authorized. Any member of the public may submit written comments

regarding the proposed refund procedures. Commenting parties are

requested to submit two copies of their comments. Comments should be

submitted within 30 days of the publication of this notice in the

Federal Register and should be sent to the address provided at the

beginning of the notice. All comments received will be available for

public inspection between the hours of 1:00 p.m. and 5:00 p.m., Monday

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

of the Office of Hearings and Appeals, located in Room 1E-234, 1000

Independence Avenue, S.W., Washington, D.C. 20585.

Dated: August 2, 1995.

George B. Breznay,

Director, Office of Hearings and Appeals.

Proposed Decision and Order of the Department of Energy

Special Refund Procedures

August 2, 1995.

Name of Firms:

Macmillan Oil Company

Kenny Larson Oil Company

Dates of Filings:

June 5, 1992

October 18, 1994

Case Numbers:

LEF-0046

VEF-0002

In accordance with the procedural regulations of the Department of

Energy (DOE), 10 CFR Part 205, Subpart V, the Economic Regulatory

Administration (ERA) of the DOE filed Petitions for the Implementation

of Special Refund Procedures with the Office of Hearings and Appeals

(OHA) on June 5, 1992 and on October 18, 1994. The petitions request

that the OHA formulate and implement procedures for the distribution of

funds received pursuant to consent orders entered into between the DOE

and Kenny Larson Oil Company (Larson) of Oregon City, Oregon, and

Macmillan Oil Company (Macmillan) of Des Moines, Iowa.

I. Background

Larson and Macmillan were ``reseller-retailers'' as defined in 6

CFR 150.352 and 10 CFR 212.31. During the period from August 1973 to

January 28, 1981, these companies were subject to the Mandatory

Petroleum Price Regulations, 10 CFR Part 212, Subpart F, and antecedent

regulations at 6 CFR Part 150, Subpart L. An ERA audit of Larson's

business records revealed possible pricing violations with respect to

the firm's sales of motor gasoline during the period May through

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December 1979. An ERA audit of Macmillan's business records revealed

possible pricing violations with respect to the firm's sales of

propane, No. 2 fuel oil, and Nos. 5 and 6 residual fuel oil during the

period November 1, 1973, through April 30, 1974. In order to settle all

claims and disputes between these companies and the DOE regarding their

compliance with the price regulations, the DOE entered into consent

orders with Larson and Macmillan on September 21, 1981, and March 7,

1988, respectively.

In the Larson consent order, the firm agreed to remit a total of

$7,415, approximately 38 percent of the amount of the overcharges

alleged by the DOE, plus installment interest. Of the principal amount,

$5,842 was to be remitted to the DOE, and $1,573 was to be paid

directly to six of Larson's customers. Larson failed to comply with the

Consent Order and remitted no funds to either the DOE or the six

customers.1 On August 29, 1994, we granted Larson a refund of

$15,822 in the Texaco special refund proceeding. Texaco Inc./Kenny

Larson Oil Company, 24 DOE para. 85,081 (1994) (Texaco/Larson). At that

time, Larson was in default in the amount of $26,168 ($7,415 principal

plus $18,753 interest) in its obligations pursuant to the Consent

Order. Accordingly, in Texaco/Larson, we determined that the Texaco

refund should be used to fund Larson's consent order escrow account, in

satisfaction of the firm's principal settlement amount and partial

satisfaction of its debt for interest accrued. Accordingly, the $15,822

Texaco refund was deposited into the Kenny Larson Oil Company escrow

account maintained at the Department of the Treasury, Consent Order No.

000H00439. This is the amount which is available for distribution in

this proceeding.

\1\ On October 13, 1983, ERA filed a Subpart V petition with

respect to the Larson Consent Order (Case No. HEF-0104). However,

because of Larson's failure to remit the settlement amount, that

petition was dismissed without prejudice. See Memorandum from

Richard T. Tedrow, OHA Deputy Director, to Rayburn Hanzlik, ERA

Administrator (July 3, 1985).

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On February 1, 1983, a Proposed Remedial Order was issued to

Macmillan which alleged that the firm violated the price regulations

with respect to its sales of propane, No. 2 fuel oil, and Nos. 5 and 6

residual fuel oil. Macmillan contested the PRO before the OHA (Case No.

HRO-0122). During the course of that proceeding, the ERA reduced the

amount of the alleged overcharges from $383,268 to $333,853. See Letter

from Ann C. Grover, Associate Solicitor, ERA, to Richard T. Tedrow, OHA

Deputy Director (October 5, 1987). On March 7, 1988, Macmillan and DOE

entered into a consent order that settled the PRO's allegations.

Pursuant to the consent order obligation, Macmillan remitted a total

amount of $592,001 (including pre-settlement interest) to the DOE in

full satisfaction of the amount owed. The audit workpapers identify the

customers that Macmillan allegedly overcharged.

II. Jurisdiction

The procedural regulations of the DOE set forth general guidelines

by which the OHA may formulate and implement plans of distribution for

funds received as a result of enforcement proceedings. 10 CFR Part 205,

Subpart V. It is 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 OHA to fashion procedures to distribute refunds

obtained as part of settlement agreements, see Office of Enforcement, 9

DOE para. 82,553 (1982); Office of Enforcement, 9 DOE para. 82,508

(1981). After reviewing the records in the present cases, we have

concluded that a Subpart V proceeding is an appropriate mechanism for

distributing the Larson and Macmillan consent order funds. We therefore

propose to grant the ERA's petitions and assume jurisdiction over

distribution of the funds.

III. Proposed Refund Procedures

A. Refund Claimants

In the first stage, refund monies will be distributed to those

parties which were directly injured in transactions with Larson and

Macmillan during the audit periods. We believe that the Larson and

Macmillan customers who were adversely affected by the alleged

overcharges are primarily those purchasers specifically identified in

the consent orders and in the audit papers. In addition, customers who

purchased motor gasoline from the three retail outlets operated by

Larson were referred to as a class in the ERA audit files but could not

be individually identified.2 These parties may also file for

refunds in this proceeding.

\2\ See Memorandum from Leslie Adams, Director of the Case

Settlement Division, ERA, to Milton Lorenz, Special Counsel, ERA,

Case No. HEF-0104 (June 24, 1982).

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Based on the information we have about Larson's business, we expect

that all applicants in the Larson proceeding and most applicants in the

Macmillan proceeding will be ultimate consumers. As in many other

refund proceedings, we are making a finding that end-users or ultimate

consumers whose businesses are unrelated to the petroleum industry were

injured by the alleged overcharges covered by the Consent Order. Unlike

regulated firms in the petroleum industry, members of this group were

generally not subject to price controls during the audit period and

were not required to keep records which justified selling-price

increases by reference to cost increases. See, e.g., Marion Corp., 12

DOE para. 85,014 (1984); Thornton Oil Corp., 12 DOE para. 85,112

(1984). For these reasons, an analysis of the impact of the increased

cost of petroleum products on the final prices of non-petroleum goods

and services would be beyond the scope of this special refund

proceeding. See Office of Enforcement, 10 DOE para. 85,072 (1983); see

also Texas Oil & Gas Corp., 12 DOE para. 85,069 at 88,209 (1984). We

therefore propose that the end-users of Larson and Macmillan petroleum

products named in the consent orders or workpapers be presumed injured

by the alleged overcharges. Other end-user applicants in the Larson

proceeding, if any, need only demonstrate that they purchased from

Larson and document their purchase volumes to make a sufficient showing

that they were injured by the alleged overcharges.3

\3\ One of the named Larson customers (Portland General

Electric) and three Macmillan customers (Iowa Power & Light,

Atlantic Municipal Utilities, and Iowa South Utilities) are public

utilities. As in other Subpart V proceedings, we will treat the

utilities as end-users. Moreover, because each of their potential

refunds is less than $5,000, we will not require them to submit the

type of certification of pass-through required of public utilities

that receive refunds in excess of the $5,000 small claims threshold.

See, e.g., Placid Oil Co., 18 DOE para. 85,176 at 88,290 (1988).

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We expect some of the applicants in the Macmillan proceeding to be

resellers or retailers. With respect to such applicants, we shall adopt

a small-claims threshold of $5,000. Reseller or retailer applicants

seeking refunds of $5,000 or less will not be required to demonstrate

that they were injured by Macmillan's alleged overcharges. In addition,

one former customer of Macmillan, E.L. Bride, appears to be a reseller

whose potential refund amount is $141,986. Consistent with prior cases,

it will be able to obtain a refund of $50,000 without making a

demonstration that it was injured by Macmillan's overcharges. In order

to obtain a refund of its full overcharge amount, it would have to show

that it was injured by the overcharges. See Gulf Oil Corporation, 16

DOE para. 85,381 at 88,738 (1987); Marathon Petroleum Company, 14 DOE

para. 85,269 at 88,510 (1986).

[[Page 40582]]

B. Calculation of Refund Amounts

As stated above, the audits which gave rise to the Macmillan

Consent Order identified all of the customers allegedly overcharged

during the audit period. In total, there are 66 identified customers

who were allegedly overcharged by Macmillan during its refund period.

The Larson audit identified six customers which account for 21.2

percent of the alleged overcharges, while the remaining 78.8 percent of

the alleged overcharges were attributed to Larson's sales to customers

at its retail stations. With respect to the identified customers of

Larson and Macmillan, we have determined that the use of the audit

results to establish potential refunds on a firm-specific basis is more

accurate than any other method to relate probable injury to refund

amount.

We shall therefore base the identified customers--potential refunds

on the amount that each of these firms was allegedly overcharged, as

determined by the ERA audit. Thus, the principal amount of each firm's

maximum refund is 100 percent of the amount designated for that firm in

the Consent Order plus a pro rata share of the interest that the DOE

has collected on that amount. (For Larson, the latter is approximately

45 percent of the interest that Larson actually owed at the time the

money was placed in the escrow account.) The firms and their potential

refund amounts are listed in the Appendices to this Decision.

We propose to use a volumetric methodology to distribute that

portion of the consent order fund attributable to transactions with

members of Larson's retail class of purchaser. The volumetric refund

presumption assumes that the alleged overcharges by a firm were spread

equally over all gallons of product marketed by that firm. In the

absence of better information, this assumption is sound because the DOE

price regulations generally required a regulated firm to account for

increased costs on a firm-wide basis in determining its prices. This

presumption is rebuttable, however. A retail customer claimant which

believes that it suffered a disproportionate share of the alleged

overcharges may submit evidence proving this claim in order to receive

a larger refund. See Sid Richardson Carbon and Gasoline Co./Siouxland

Propane Co., 12 DOE 85,054 (1984).

Under the volumetric methodology we plan to adopt for the Larson

proceeding, a retail customer claimant will be eligible to receive a

refund equal to the number of gallons of motor gasoline purchased from

Larson from May through December 1979 multiplied by the volumetric

factor. The volumetric factor for Larson is equal to $0.0123.4 We

also propose to establish a minimum amount of $15 for refund claims. We

have found that the cost of processing claims in which refunds are

sought for amounts less than $15 outweighs the benefits of restitution

in those situations. See, e.g., Uban Oil Co., 9 DOE para. 82,541 at

82,225 (1982); see also 10 CFR 205.286(b). Therefore, a claimant must

have purchased at least 1,220 ($15/$0.0123) gallons of Larson motor

gasoline during the Larson audit period in order to be eligible for a

refund.

\4\ The volumetric factor was computed by dividing $12,467 (78.8

percent of the $15,822 collected for the Larson escrow account) by

1,016,250 (the approximate number of gallons of motor gasoline sold

by Larson to its retail customers during the audit period). The

latter figure was obtained using information provided by Larson and

by its primary supplier, Texaco Inc.

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In addition, each successful claimant will receive a pro rata share

of the interest accrued on the consent order funds between the date the

funds were placed in the Larson and Macmillan escrow accounts and the

date the applicant's refund is disbursed.

IV. Conclusion

Refund applications in this proceeding should not be filed until

the issuance of a final Decision and Order. Detailed procedures for

filing applications will be provided in the final Decision and Order.

Before disposing of any of the funds received, we intend to publicize

the distribution process and to provide an opportunity for any affected

party to file a claim.

Any funds that remain after all first-stage claims have been

decided will be distributed in accordance with the provisions of the

Petroleum Overcharge Distribution and Restitution Act of 1986 (PODRA),

15 U.S.C. Sec. 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 OHA. Any funds in the Larson and Macmillan escrow

account that OHA determines will not be needed to effect direct

restitution to injured Larson and Macmillan customers will be

distributed in accordance with the provisions of PODRA.

It Is Therefore Ordered That

(1) The refund amount remitted to the Department of Energy by Kenny

Larson Oil Company pursuant to the September 21, 1981 Consent Order

will be distributed in accordance with the foregoing Decision.

(2) The refund amount remitted to the Department of Energy by

Macmillan Oil Company pursuant to the March 7, 1988 Consent Order will

be distributed in accordance with the foregoing Decision.

Appendix A--Larson Customers and Their Potential Refund Amounts

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Consent Potential

Customer name order Interest principal

amount collected refund

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Schultz Sanitary Service................. $416 $471 $887

B & C Towing............................. 96 109 205

D & A Supply............................. 91 101 192

Portland General Electric................ 685 773 1,458

Larry Hepler............................. 93 109 202

Skig Nagal Farms......................... 192 219 411

Retail Customers......................... 5,842 6,625 12,467

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Total.................................... 7,415 8,407 15,822

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Appendix B--Macmillan Customers and Their Potential Refund Amounts

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Pre- Potential

Customer name Overcharge settlement refund

amount interest amount

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Ace Lines, Inc....................... $223 $172 $395

Armstrong Rubber..................... 17,982 13,904 31,886

Associated Milk Producers............ 635 491 1,126

Atlantic Municipal Utilities......... 694 537 1,231

Bankers Life......................... 2,068 1,599 3,667

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Beaver Valley Canning................ 4,922 3,806 8,728

Bell Watcher......................... 1,834 1,418 3,252

Bitucote Products.................... 14 11 25

Boesen the Florist................... 285 220 505

Bookey Packing....................... 843 652 1,495

C&K Enterprises...................... 360 278 638

Charles Krizan....................... 556 430 986

City of Pleasant Hill................ 7 5 12

College Osteopath Medicine........... 222 172 394

Crees Enterprises.................... 1,015 785 1,800

Crouse Cartage....................... 414 320 734

Dakota Oil Co........................ 650 503 1,153

Dept. General Services............... 3,092 2,391 5,483

Des Moines Community College......... 411 318 729

Des Moines Independent Schools....... 10,035 7,759 17,794

E.L. Bride Company................... 80,066 61,920 141,986

Elview Construction.................. 1,345 1,040 2,385

Equitable Life Insurance Co.......... 4,736 3,662 8,398

Everds Bros.......................... 213 165 378

Exco Industries...................... 520 402 922

Fidelity Warehouse................... $3,146 2,432 5,578

Firestone............................ 196 152 348

Fort Dodge Transport................. 517 400 917

George A. Hormel & Co................ 11,756 9,090 20,846

H. West Construction................. 25 19 44

Hotel Des Moines..................... 325 251 576

Hotel Ft. Des Moines................. 3,494 2,702 6,196

Howe Laundry......................... 1,093 845 1,938

Inland Mills......................... 2,565 1,983 4,548

Iowa Road Builders................... 4,379 3,386 7,765

Iowa South Utilities................. 409 316 725

Iowa Power and Light................. 4,352 3,365 7,717

Keck, Inc............................ 1,071 828 1,899

Little Giant Crane................... 652 504 1,156

Local 334............................ 99 77 176

Matt Construction.................... 523 404 927

Maytag............................... 88,470 68,405 156,875

Meredith Publishing Co............... 2,721 2,104 4,825

National Gypsum...................... 508 393 901

New Monroe Community Schools......... 2,111 1,632 3,743

Parker Oil Co........................ 746 577 1,323

Pepsi Cola Bottlers.................. 957 740 1,697

Ralston Purina....................... 1,281 990 2,271

Savory Hotel......................... 3,617 2,797 6,414

Sendler Stone Products............... 193 149 342

Shaver Oil Co........................ 582 450 1,032

Stark Heating........................ 761 588 1,349

State of Iowa Bldg................... 183 141 324

State of Iowa........................ 1,222 945 2,167

Swift & Co........................... 1,766 1,365 3,131

Swift Edible Oil Co.................. 8,054 6,227 14,281

Target Ready Mix..................... 18,175 14,053 32,228

Univ of N. Iowa...................... 4,519 3,494 8,013

Univ of Iowa......................... 21,616 16,713 38,329

VA Hospital.......................... 12 9 21

Veterans Memorial Auditorium......... 1,009 780 1,789

West Towers.......................... 3,406 2,634 6,040

Western Electric..................... 952 736 1,688

Wilson & Co.......................... 1,822 1,409 3,231

Younkers (Dan Thomas)................ 407 315 722

[Illegible] Oil...................... 1,019 788 1,807

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Total............................ 333,853 258,148 592,001

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[[Page 40584]]

[FR Doc. 95-19689 Filed 8-8-95; 8:45 am]

BILLING CODE 6450-01-P