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, DOE.

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 announces the proposed procedures for disbursement of

$4,567,399.72 (plus accrued interest) in alleged or adjudicated crude

oil overcharges obtained by the DOE from Malcolm Turner (Case No. VEF-

0013), Revere Petroleum Corporation (Case No. VEF-0014), Granite

Petroleum Corporation (Case No. VEF-0015), and Dalco Petroleum

Corporation (Case No. VEF-0016). The OHA has tentatively determined

that the funds obtained from these firms, plus accrued interest, be

distributed in accordance with the DOE's Modified Statement of

Restitutionary Policy in Crude Oil Cases, 51 Fed. Reg. 27899 (August 4,

1986).

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

October 19, 1995, and should be addressed to the Office of Hearings and

Appeals, Department of Energy, 1000 Independence Avenue SW.,

Washington, D.C. 20585. All comments should conspicuously display a

reference to Case Nos. VEF-0013, et al.

FOR FURTHER INFORMATION CONTACT: Richard W. Dugan, Associate Director,

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

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Washington, D.C. 20585, (202) 586-2860.

SUPPLEMENTARY INFORMATION: In accordance with 10 C.F.R. 205.282(b),

notice is hereby given of the issuance of the Proposed Decision and

Order set forth below. The Proposed Decision and Order sets forth the

procedures that the DOE has tentatively formulated to distribute a

total of $4,567,399.72, plus accrued interest, remitted to the DOE by

Malcolm Turner, Revere Petroleum Corporation, Granite Petroleum

Corporation and Dalco Petroleum Corporation. The DOE is currently

holding these funds in interest bearing escrow accounts pending

distribution.

The OHA proposes to distribute these funds in accordance with the

DOE's Modified Statement of Restitutionary Policy in Crude Oil Cases,

51 FR 27899 (August 4, 1986) (the MSRP). Under the MSRP, crude oil

overcharge monies are divided among the federal government, the states,

and injured purchasers of refined petroleum products. Refunds to the

states will be distributed in proportion to each state's consumption of

petroleum products during the price control period. Refunds to eligible

purchasers will be based on the volume of petroleum products that they

purchased and the extent to which they can demonstrate injury.

Because the June 30, 1995, deadline for crude oil refund

applications has passed, we propose not to accept any new applications

from purchasers of refined petroleum products for these funds. As we

state in the Proposed Decision, any party who has previously submitted

a refund application in the crude oil refund proceeding should not file

another Application for Refund. The previously filed crude oil

application will be deemed filed in all crude oil proceedings as the

proceedings are finalized.

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 publication of this notice in the Federal Register, and should

be sent to the address set forth at the beginning of this notice. All

comments received in these proceedings will be available for public

inspection between the hours of 1:00 p.m. to 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 SW., Washington, D.C. 20585.

Dated: September 13, 1995.

George B. Breznay,

Director, Office of Hearings and Appeals.

Proposed Decision and Order of the Department of Energy

Implementation of Special Refund Procedures

Names of Firms:

Malcolm M. Turner

Revere Petroleum Corporation et al.

Granite Petroleum Corporation

Dalco Petroleum Corporation

Dates of Filing:

April 10, 1995

April 10, 1995

April 10, 1995

May 2, 1995

Case Numbers:

VEF-0013

VEF-0014

VEF-0015

VEF-0016

September 13, 1995.

In accordance with the procedural regulations of the Department

of Energy (DOE), 10 CFR Part 205, Subpart V, the Office of General

Counsel, Regulatory Litigation (OGC) (formerly the Economic

Regulatory Administration (ERA), Office of Enforcement Litigation),

filed four Petitions for the Implementation of Special Refund

Procedures with the Office of Hearings and Appeals (OHA) on April

10, 1995, and May 2, 1995. The Petitions request that OHA formulate

and implement procedures to distribute funds received by the DOE

from Malcolm M. Turner (Turner), Revere Petroleum Corporation

(Revere), Granite Petroleum Corporation (Granite), and Dalco

Petroleum Corporation (Dalco), pursuant to court-approved

settlements between the parties and the DOE, DOE consent orders or

remedial orders. This Decision and Order sets forth the OHA's plan

to distribute these funds.

I. Background

As indicated by the following summaries of the relevant

enforcement proceedings, all of the funds that are subject to this

Decision were obtained through enforcement actions involving alleged

or adjudicated crude oil overcharges.

A. Malcolm Turner

Turner, the sole Director and President of Bayport Refining Co.

(Bayport), was a reseller of crude oil during the period of

petroleum price controls and was subject to regulations governing

the pricing and allocation of crude oil set forth at 10 CFR Parts

211 and 212 of the Mandatory Petroleum Price and Allocation

Regulations. As the result of an ERA audit of Turner's and Bayport's

operations, the ERA issued a Proposed Remedial Order (PRO) on

September 20, 1984, alleging that they violated the provisions of 10

CFR Sec. 212.186, by charging prices for crude oil in excess of

actual purchase prices without providing any service or other

function traditionally and historically associated with the resale

of crude oil during the period from September 1978 through December

1980. According to the PRO, those transactions resulted in

overcharges amounting to $11,810,639.84. The PRO further alleged

that during the period from December 1979 through December 1980, the

Respondents violated the provisions of 10 CFR Sec. 212.131 by the

miscertification of crude oil. According to the PRO, those

transactions resulted in overcharges amounting to $12,554,371.74.

The OHA in large part affirmed the findings of the PRO and issued a

Remedial Order (RO) to the Respondents on February 16, 1989. Bayport

Refining Co., 18 DOE para.83,007, (1989). The RO was upheld by the

Federal Energy Regulatory Commission (FERC) on October 4, 1993.

Bayport Refining Company and Malcolm M. Turner, 65 FERC para.61,021

(1993). Turner appealed to the United States District Court for the

Northern District of Texas on March 31, 1994.\1\ In January 1995,

the court entered an Agreed Judgment resolving the issues addressed

by the RO against Turner. Pursuant to the Agreed Judgment, Turner

agreed to pay to the DOE the sum of $65,000. Turner has fulfilled

his financial obligation to the DOE. As of May 31, 1995, the Bayport

Consent Order fund contained $65,000 in principal plus accrued

interest.\2\

\1\Bayport, which was dissolved in November 1982, did not appeal

the RO. While the matter was referred for enforcement of the RO

against Bayport, no funds were ever collected from the corporation.

\2\The funds submitted by Turner pursuant to the Agreed Judgment

are deposited in the Bayport Consent Order fund, No. 6AOX00329.

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B. Revere Petroleum Corp.

During the period of Federal petroleum price controls, Revere

was engaged in crude oil reselling.\3\ The firm was therefore

subject to regulations governing the pricing of crude oil set forth

at 10 CFR Parts 205, 210, 211, and 212 of the Mandatory Petroleum

Price and Allocation Regulations. As a result of an ERA

investigation of Revere's compliance with the price and allocation

regulations, the ERA issued a PRO to Revere on January 18, 1983.

However, on August 9, 1983, that PRO was amended by the ERA to

include additional violations of 10 CFR Sec. 212.186, alternative

violations of 10 CFR Sec. 212.183, and five additional parties as

co-respondents of the PRO.\4\ On May 29, 1992, the OHA issued the

Amended PRO, with modifications, as an RO. Revere Petroleum Corp.,

22 DOE para.83,004 (1992). The RO found Revere liable for violations

of 10 CFR Sec. 212.186 in connection with its resales of crude oil

during the period April 1979 through March 1980. Revere appealed to

FERC (Case No;. R092-4-00). However, subsequently, this enforcement

proceeding was settled when Revere and DOE entered into a settlement

on an ability-to-pay basis in order to resolve DOE's claims against

the firm. Revere agreed to pay the DOE the sum of $50,000.00, plus a

percentage of the

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proceeds of Revere's asset liquidation. As of May 31, 1995, Revere and

the other respondents have paid to the DOE the sum of $1,310,140.13

in satisfaction of their obligations.\5\ Although additional

revenues may be collected, no good reason exists to delay

implementing distribution of the current balance of the fund.

\3\References to Revere in this Decision include Richard E.

Dobyns, President of Revere, during the price control period.

\4\Those five individuals were James J. Cross, M. Kemp McMillan,

Gordon K. Walz, and Milton E. Walz, who entered into a separate

Consent Order with the DOE in December 1987, and John E. Woolsey,

who entered into a separate Consent Order with the DOE in September

1986.

\5\Revere and all of the named individuals except Woolsey have

satisfied their obligations to the DOE. Although Woolsey has made

substantial payments to the DOE, he is delinquent in his payments,

and the possibility exists that additional funds will be paid by

him.

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C. Granite Petroleum Corporation

Granite engaged in the reselling and marketing of crude oil

during the period of petroleum price controls. The firm was

therefore subject to regulations governing the pricing and

allocation of crude oil set forth at 10 CFR Parts 211 and 212 of the

Mandatory Petroleum Price and Allocation Regulations. The ERA

conducted a detailed audit to determine Granite's compliance with

the federal petroleum price and allocation regulations during the

period from September 1, 1979 through January 27, 1981. As a result

of the audit, on March 4, 1983, the ERA issued a PRO to the firm

alleging violations of the crude oil price and allocation

regulations (Case No. 640X00447). In September 1983, Granite and the

DOE entered into a Consent Order which resolved a number of

outstanding enforcement issues involving Granite. Under the terms of

the settlement, Granite agreed to pay $200,000 in installment

payments to the DOE.\6\ As of May 31, 1995, Granite has paid to the

DOE the sum of $176,698.85. Granite is currently delinquent in its

payments to the DOE. Although we anticipate that additional sums may

be collected from Granite, no good reason exists to forestall

distribution of the current balance of the fund.

\6\Granite Petroleum Corporation and John E. Woolsey, President

of Granite, are collectively referred to as Granite in the text.

Both were parties to the Consent Order.

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D. Dalco Petroleum Corporation

Dalco\7\ was a reseller of crude oil during the period of price

controls and was subject to regulations governing the pricing and

allocation of crude oil set forth at 10 CFR Parts 211 and 212 of the

Mandatory Petroleum Price and Allocation Regulations. As the result

of an ERA audit, the ERA issued a PRO to Dalco on April 30, 1982,

alleging that between March 1976 and September 1978, Dalco violated

the DOE mandatory petroleum price regulations which governed the

resale of domestic crude oil, pursuant to 10 CFR Secs. 212.93,

212.10, 212.131, 205.202, 210.62(c), and 212.185, resulting in the

illegal receipt of revenues. After the issuance of the PRO, but

before a Statement of Objections was filed, Dalco filed for

bankruptcy.\8\ In August 1983, the Bankruptcy Court for the Northern

District of Oklahoma issued an injunction which stayed the

enforcement proceeding against the respondents. The bankruptcy court

ultimately approved and allowed the DOE's claims against Dalco and

as of May 31, 1995, Dalco has paid $3,015,560.74 to the DOE.

Although the possibility exists that additional revenues will be

obtained by the DOE in the Dalco bankruptcy proceeding, no reason

exists to delay in implementing distribution of the current balance

of the funds.\9\

\7\References to Dalco in this Decision include W. Darryl Zang

and Louis Porter, the firm's owners.

\8\Zang, Porter and Dalco filed for bankruptcy on August 16,

1982, June 15, 1983, and July 20, 1983 respectively.

\9\Porter has satisfied his obligations to the DOE under the

PRO. Additional funds may be collected from the Dalco and Zang

estates.

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II. Jurisdiction and Authority

The Subpart V regulations set forth general guidelines which may

be used by the OHA in formulating and implementing a plan of

distribution of fund received as a result of an enforcement

proceeding. The DOE policy is 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, see Petroleum Overcharge Distribution and Restitution Act

of 1986, 15 U.S.C. Secs. 4501 et seq.; see also Office of

Enforcement, 9 DOE para.82,508 (1981), and Office of Enforcement, 8

DOE para.82,597 (1981).

We have considered the OGC's petitions that we implement Subpart

V proceedings with respect to the Turner, Revere, Granite and Dalco

funds and have determined that such proceedings are appropriate.

This Proposed Decision and Order sets forth the OHA's tentative plan

to distribute these funds. Before taking the actions proposed in

this Decision, we intend to publicize our proposal and solicit

comments from interested parties. Comments regarding the tentative

distribution process set forth in this Proposed Decision and Order

should be filed with the OHA within 30 days of its publication in

the Federal Register.

III. Proposed Refund Procedures

A. Crude Oil Refund Policy

We propose to distribute the monies remitted pursuant to the

Turner, Revere, Granite, and Dalco enforcement proceedings in

accordance with DOE's Modified Statement of Restitutionary Policy in

Crude Oil Cases (MSRP), 51 FR 27899 (August 4, 1986), which was

issued as a result of the Settlement Agreement approved by the court

in The Department of Energy Stripper Well Exemption Litigation, 653

F. Supp. 108 (D. Kan. 1986). Shortly after the issuance of the MSRP,

the OHA issued an Order that announced that this policy would be

applied in all Subpart V proceedings involving alleged crude oil

violations. Order Implementing the MSRP, 51 FR 29689 (August 20,

1986) (the August 1986 Order).

Under the MSRP, 40 percent of crude oil overcharge funds will be

disbursed to the federal government, another 40 percent to the

states, and up to 20 percent may initially be reserved for the

payment of claims to injured parties. The MSRP also specified that

any funds remaining after all valid claims by injured purchasers are

paid will be disbursed to the federal government and the states in

equal amounts.

In April 1987, the OHA issued a Notice analyzing the numerous

comments received in response to the August 1986 Order. 52 FR 11737

(April 10, 1987) (April 10 Notice). This Notice provided guidance to

claimants that anticipated filing refund applications for crude oil

monies under the Subpart V regulations. In general, we stated that

all claimants would be required to (1) document their purchase

volumes of petroleum products during the August 19, 1973 through

January 27, 1981 crude oil price control period, and (2) prove that

they were injured by the alleged crude oil overcharges. Applicants

who were end-users or ultimate consumers of petroleum products,

whose businesses are unrelated to the petroleum industry, and who

were not subject to the DOE price regulations would be presumed to

have been injured by any alleged crude oil overcharges. In order to

receive a refund, end-users would not need to submit any further

evidence of injury beyond the volume of petroleum products purchased

during the period of price controls. See City of Columbus Georgia,

16 DOE para. 85,550 (1987).

The amount of money subject to this Proposed Decision is

$4,567,399.72, plus accrued interest. In accordance with the MSRP,

we propose initially to reserve 20 percent of those funds

($913,479.94 plus accrued interest) for direct refunds to applicants

who claim that they were injured by crude oil overcharges. We

propose to base refunds to claimants on a volumetric amount which

has been calculated in accordance with the description in the April

10 Notice. That volumetric refund amount is currently $0.0016 per

gallon. See 60 FR 15562 (March 24, 1995).

Applicants who have executed and submitted a valid waiver

pursuant to one of the escrows established by the Stripper Well

Settlement Agreement have waived their rights to apply for a crude

oil refund under Subpart V. See Mid-America Dairyman Inc. v.

Herrington, 878 F.2d 1448, 3 Fed. Energy Guidelines para.26,617

(Temp. Emer. Ct. App. 1989); In re Department of Energy Stripper

Well Exemption Litigation, 707 F. Supp. 1267, 3 Fed. Energy

Guidelines para.26,613 (D. Kan. 1987). Because the June 30, 1995,

deadline for crude oil refund applications has passed, we propose

not to accept any new applications from purchasers of refined

petroleum products for these funds. See Western Asphalt Service,

Inc., 25 DOE para.________, LEF-0047 (July 17, 1995). Instead, these

funds will be added to the general crude oil overcharge pool used

for direct restitution.\10\

\10\A crude oil refund application is only required to submit

one application for its share of all available crude oil overcharge

funds. See, e.g., Ernest A. Allerkamp, 17 DOE Sec. 85,079 at 88,176

(1988).

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B. Payments to the States and Federal Government

Under the terms of the MSRP, the remaining 80 percent of the

alleged crude oil violation amounts subject to this Proposed

Decision, or $3,653,919.78 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

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period of price controls. The share of ratio of the funds which each

state will receive is contained in Exhibit H of the Stripper Well

Settlement Agreement. When disbursed, these funds will be subject to

the same limitations and reporting requirements as all other crude

oil monies received by the states under the Stripper Well Agreement.

It Is Therefore Ordered That

The refund amounts remitted to the Department of Energy by

Malcolm M. Turner, Revere Petroleum Corporation, Granite Petroleum

Corporation, and Dalco Petroleum Corporation pursuant to their

respective settlement agreements or judgments will be distributed in

accordance with the foregoing Decision.

[FR Doc. 95-23230 Filed 9-18-95; 8:45 am]

BILLING CODE 6450-01-P