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 implementation of special refund procedures.

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

Energy announces the procedures for disbursement of $4,567,399.72 (plus

accrued interest) in alleged or adjudicated crude oil overcharges

obtained by the DOE from Malcolm M. Turner (Case No. VEF-0013), Revere

Petroleum Corporation et al. (Case No. VEF-0014), Granite Petroleum

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

No. VEF-0016). The OHA has determined that the funds obtained from

these firms, plus accrued interest, will be disbursed in accordance

with the DOE's Modified Statement of Restitutionary Policy in Crude Oil

Cases, 51 FR 27899 (August 4, 1986).

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

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

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

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

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

below. The 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 M. Turner, Revere

Petroleum Corporation et al., Granite Petroleum Corporation and Dalco

Petroleum Corporation. The DOE is currently holding these funds in

interest bearing escrow accounts pending distribution.

The OHA will 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,

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crude oil overhcarge 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 the crude oil refund

applications has passed, no new applications from purchasers of refined

petroleum products will be accepted for the 20 percent of these funds

allocated to individual claimants. Instead, that share of the funds

will be added to the general crude oil overcharge pool used for direct

restitution.

Dated: November 6, 1995.

George B. Breznay,

Director, Office of Hearings and Appeals.

November 6, 1995.

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

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 September 30, 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.

6A0X00329.

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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 proceeds of Revere's asset

liquidation. As of September 30, 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 September 30, 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 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.

[[Page 57239]]

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 September 30, 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\

\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. 4501 et seq.; see also Office of Enforcement, 9

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

82,597 (1981).

III. The Proposed Decision and Order

On September 13, 1995, OHA issued a Proposed Decision and Order

(PDO) setting forth the OHA's tentative plan to distribute these

funds. See 60 Fed. Reg. 48510 (September 19, 1995). OHA tentatively

concluded that the funds should be distributed in accordance with

the DOE's Modified Statement of Restitutionary Policy in Crude Oil

Cases (MSRP), 51 Fed. Reg. 27899 (August 4, 1986). Pursuant to the

MSRP, OHA proposed to reserve 20 percent of those funds for direct

refunds to applicants who claim that they were injured by the crude

oil violations. We stated that the remaining 80 percent of the funds

would be distributed to the states and federal government for

indirect restitution.

We provided a period of 30 days from the date of the PDO

publication in the Federal Register in which the public could submit

comments regarding the tentative refund procedures. More than 30

days have elapsed, and the OHA has received no comments concerning

the proposed procedures.

IV. The Refund Procedures

A. Crude Oil Refund Policy

We adopt the tentative determination of the Proposed Decision

and Order to distribute the monies remitted pursuant to the Turner,

Revere, Granite, and Dalco enforcement proceedings in accordance

with the MSRP, 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 Fed. Reg. 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 Fed. Reg.

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, DOE para. 85,550 (1987).

B. Refund Claims

The amount of money subject to this 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 Fed. Reg. 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 will not

accept any new applications from purchasers of refined petroleum

products for these funds. See Western Asphalt Service, Inc., 25 DOE

para. 85,047 (1995). Instead, these funds will be added to the

general crude oil overcharge pool used for direct restitution.\10\

\10\ A crude oil refund applicant 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 para. 85,079 at 88,176

(1988).

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C. 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 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 period of

price controls. The share or 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:

(1) The Director of Special Accounts and Payroll, Office of

Departmental Accounting and Financial Systems Development, Office of

the Controller of the Department of Energy shall take all steps

necessary to transfer the consent order funds shown in the Appendix

to this Decision and Order, plus all accrued interest from the

escrow accounts of the firms listed in the Appendix, pursuant to

Paragraphs (2), (3), and (4) of this Decision.

(2) The Director of Special Accounts and Payroll shall transfer

$1,826,959.89 plus any accrued interest, of the funds referenced in

Paragraph (1) above, into the subaccount denominated ``Crude

Tracking-States,'' Number 999DOE0003W.

(3) The Director of Special Accounts and Payroll shall transfer

$1,826,959.89 plus any accrued interest, of the funds referenced in

Paragraph (1) above, into the subaccount denominated ``Crude

Tracking-Federal,'' Number 999DOE002W.

(4) The Director of Special Accounts and Payroll shall transfer

$913,479.94 plus any accrued interest, of the funds referenced in

Paragraph (1) above, into the subaccount denominated ``Crude

Tracking-Claimants 4,'' Number 999DOE0010Z.

[[Page 57240]]

(5) This is a final Order of the Department of Energy.

George B. Breznay,

Director, Office of Hearings and Appeals.

Dated: November 6, 1995.

Appendix

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Case No. Firm ERA order No. Principal amount

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VEF-0013.................. Malcolm M. Turner (Bayport 6A0X00329 $65,000.00

Consent Order Fund).

VEF-0014.................. Revere Petroleum Corp. et al.... 6A0X00336W 1,310,140.13

VEF-0015.................. Granite Petroleum Corporation... 640X00447W 176,698.85

VEF-0016.................. Dalco Petroleum Corporation..... 6C0X00240W 3,015,560.74

Total............... ................................ ................................ 4,567,399.72

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[FR Doc. 95-28060 Filed 11-13-95; 8:45 am]

BILLING CODE 6450-01-P