Proposed Implementation of Special Refund Procedures

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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 announces the proposed procedures for disbursement of

$275,000,000 (plus interest) in alleged overcharges remitted or to be

remitted to the DOE by Occidental Petroleum Corporation and its wholly

owned subsidiary OXY USA, Inc., Case No. VEF-0030. The OHA has

tentatively determined that these funds should be distributed in

accordance with the DOE's Modified Statement of Restitutionary Policy

in Crude Oil Cases, 51 Fed. Reg. 27899 (August 4, 1986).

DATES AND ADDRESSES: Comments must be filed in duplicate by January 19,

1996, and should be addressed to the Office of Hearings and Appeals,

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

20585-0107. All comments should conspicuously display a reference to

Case No. VEF-0030.

FOR FURTHER INFORMATION CONTACT: Thomas L. Wieker, Deputy Director,

Janet N. Freimuth, Deputy Assistant Director, Office of Hearings and

Appeals, 1000 Independence Avenue, SW., Washington, DC 20585-0107,

(202) 586-2390 [Wieker]; (202) 586-2400 [Freimuth].

SUPPLEMENTARY INFORMATION: In accordance with 10 CFR 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

$275,000,000 plus interest, remitted or to be remitted to the DOE by

Occidental Petroleum Corporation. The DOE is currently holding

$100,000,000, plus accrued interest, of these funds in an interest

bearing escrow account pending distribution. The DOE will receive

additional annual payments of $35,000,000 plus interest during the

years 1996 through 2000.

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 will not 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. Any party whose crude oil application

is approved will share in all crude oil overcharge funds.

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, DC 20585-0107.

Dated: December 1, 1995.

George B. Breznay,

Director, Office of Hearings and Appeals.

Proposed Decision and Order of the Department of Energy

Implementation Order

Name of Case: OXY USA, Inc.

Date of Filing: September 18, 1995

Case Number: VEF-0030

The Office of General Counsel, Regulatory Litigation (OGC),

formerly the Economic Regulatory Administration (ERA), filed a

Petition for Implementation of Special Refund Procedures with the

Office of Hearings and Appeals (OHA) of the Department of Energy

(DOE). The Petition concerns funds remitted to the DOE pursuant to a

Consent Order executed by the DOE and Occidental Petroleum

Corporation (Occidental), including its wholly-owned subsidiary, OXY

USA, Inc. (OXY). OXY was formerly Cities Service Oil and Gas

Corporation, which in turn was a successor in interest to Cities

Service Corporation (Cities). Unless otherwise indicated, the firms

collectively are referred to as Occidental.

Pursuant to the Consent Order, Occidental agreed to remit $100

million within 30 days of the Consent Order and then to make five

annual payments of $35 million plus interest. On September 17, 1995,

OXY remitted $100 million to the DOE.

In accordance with procedural regulations codified at 10 C.F.R.

Part 205, Subpart V (Subpart V), the OGC requests that the OHA

establish special refund procedures to remedy the effects of the

alleged regulatory violations which were resolved by the Consent

Order. This Decision and Order sets forth the OHA's proposed

procedures for distributing the consent order funds.

I. Background

The Consent Order at issue was executed on June 27, 1995 in

proposed form. The DOE published notice of the Proposed Consent

Order and the opportunity to file comments. See 60 FR 35186 (July 6,

1995). Following the comment period, the DOE issued the Proposed

Consent Order as a final order, pursuant to 10 C.F.R. 205.199J. See

60 FR 43130 (August 18, 1995).

The Consent Order covers the period October 1, 1979 through

January 27, 1981 and reflects the resolution of enforcement

proceedings related to 91 reciprocal crude oil transactions engaged

in by Cities during that period. In those transactions, Cities sold

price-controlled crude oil in its refinery inventory in exchange for

deeply discounted exempt crude oil.

In 1988, the DOE issued a Remedial Order (RO) holding that the

transactions violated the price regulations and that the violation

amount of $264 million, plus interest, should be remitted to the

DOE. Cities Service Oil and Gas Corp., 17 DOE para. 83,021 (1988).

The 1988 RO also remanded the issue of whether the transactions

violated other regulations.

In 1992, the OGC issued a Revised Proposed Remedial Order

(RPRO), specifying an alternate liability of $254 million, plus

interest, on the ground that 83 of the transactions violated the

entitlements reporting requirements. OXY filed objections to the

RPRO with the OHA. OXY USA, Inc., Case No. LRO-0003 (dismissed

August 30, 1995). The case was ready for oral argument at the time

of the June 27, 1995 execution of the Proposed Consent Order.

During the pendency of the OHA proceeding on the RPRO, the

Federal Energy Regulatory Commission (FERC) reversed the 1988 RO.

Cities Service Oil and Gas Corp., 65 FERC para. 61,403 (1993),

reconsideration denied, 66 FERC para. 61,222 (1994). After FERC's

denial of reconsideration motions filed by the DOE and intervenor

parties, intervenor parties appealed to federal district court,

which dismissed their appeals for lack of standing. Alabama v. FERC,

3 Fed. Energy Guidelines para. 26,693 (D.D.C. June 8, 1995). One of

the intervenors had noticed an appeal at the time of the June 27,

1995 execution of the Proposed Consent Order. See 60 FR 35187 note

2.

Although the Consent Order resulted from the enforcement

proceeding involving the 91 reciprocal crude oil transactions, the

Consent Order is global. The Consent Order provides that it settles

all pending and potential civil and administrative claims against

Occidental

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under the federal petroleum price and allocation regulations during the

consent order period. Thus, the Consent Order settles not only

issues related to the 91 reciprocal transactions but also any other

potential liability of Occidental with respect to its compliance

with the federal price and allocation regulations during the consent

order period .

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 funds 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); Office of Enforcement, 8 DOE para. 82,597

(1981).

III. Proposed Refund Procedures

A. The DOE's Modified Statement of Restitutionary Policy

The distribution of crude oil overcharge funds is governed by

the DOE's July 1986 Modified Statement of Restitutionary Policy in

Crude Oil Cases (MSRP). See 51 Fed. Reg. 27899 (August 4, 1986). The

MSRP was issued in conjunction with the Stripper Well Settlement

Agreement. See In re: The Department of Energy Stripper Well

Exemption Litigation. 653 F. Supp. 108 (D. Kan. 1986).

Under the MSRP, up to 20 percent of crude oil overcharge funds

may be reserved for direct restitution to injured purchasers, with

the remainder divided equally between the states and the federal

government. The MSRP also specifies that any funds remaining after

all valid claims by injured purchasers are paid be disbursed to the

states and the federal government in equal amounts.

In August 1986, shortly after the issuance of the MSRP, the OHA

issued an Order that announced that the MSRP would be applied in all

Subpart V proceedings involving alleged crude oil violations. See

Order Implementing the MSRP, 51 FR 29689 (August 20, 1986) (the

August 1986 Order). In response, parties filed comments.

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

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

11737 (April 10, 1987). This Notice provided guidance to claimants

that anticipated filing refund applications for crude oil funds

under the Subpart V regulations. A crude oil refund applicant was

only required to submit one application for its share of crude oil

overcharge funds.

Consistent with the foregoing, the OHA accepted refund

applications from 1987 until the June 30, 1995 deadline. See 60 FR

19914 (April 20, 1995). Applicants who filed before the deadline and

whose applications are approved will share in the crude oil

overcharge funds. Approved applicants are currently receiving $.0016

per gallon of purchased refined product.

B. Proposal To Distribute the OXY Consent Order Funds in Accordance

With the MSRP

We have tentatively determined that all of the consent order

funds are crude oil funds and, therefore, should be distributed in

accordance with the MSRP. Although the Consent Order was global,

i.e., it settled any potential claims against Occidental, the

Consent Order was the result of a pending enforcement proceeding

related to OXY's reciprocal purchases and sales of crude oil and the

reporting of the purchased crude oil to the DOE Entitlements

Program. The Consent Order does not identify any potential refined

product claims, let alone indicate that any such potential

violations were taken into account in arriving at the settlement

amount. In fact, a provision in the Consent Order refers to an

apportionment of the principal portion of consent order funds as

payments of the principal and interest sought by the agency based on

the ratio of principal and interest sought in the RPRO.1 In

addition to the Consent Order itself, the Notice of Proposed Consent

Order and the Petition for Implementation of Special Refund

Procedures both support the conclusion that the consent order funds

are crude oil funds. The Notice of Proposed Consent Order indicates

that the settlement amount was determined by reference to the

litigation concerning the reciprocal crude oil transactions. See 60

FR at 35187 (Part II. Determination of Reasonable Settlement

Amount). The Petition for Implementation of Special Refund

Procedures states that the alleged violations underlying the Consent

Order concern the improper reporting of crude oil certifications to

the Entitlements Program, i.e., the claim in the RPRO. Petition at

2. Under the foregoing circumstances, we have tentatively determined

that 100 percent of the consent order funds are crude oil

funds.2

\\\1\ Section 406 provides in full:

Inasmuch as this Consent Order settles both the principal and

interest portions of all claims made by the DOE against Occidental,

the principal portion of the payments made pursuant to paragraphs

402 through 404 shall be deemed to be a payment of principal and

interest in the same ratio that the principal portion of the DOE's

claim in the proceeding styled In the Matter of OXY USA Inc., Case

No. LRO-0003, bears to the interest portion of the DOE's claim in

that case as of the Effective Date.

60 FR at 35189.

\\\2\ See generally Mt. Airy Refining Co., 24 DOE para. 85,094

at 88,305 n.1 (1994) (consent order funds considered crude oil funds

where most of consent order funds related to crude oil violations);

DeMenno-Kerdoon, 23 DOE para. 85,046 at 88,112 n.1 (1993) (global

consent order funds considered crude oil funds where the funds were

less than the crude oil violations alleged in PRO that was settled

by the consent order).

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Because we have tentatively determined that 100 percent of the

consent order funds are crude oil funds, we propose to distribute

the funds according to the MSRP. We propose to reserve initially the

full 20 percent ($55 million), plus accrued interest, for direct

restitution to injured purchasers of crude oil and refined petroleum

products. We propose to distribute the remaining 80 percent ($220

million) in equal shares to the states and the federal government.

As indicated above, the funds reserved for direct restitution to

injured purchasers will be available for distribution through OHA's

Subpart V crude oil overcharge refund proceeding. We have previously

discussed the application requirements and standards that apply in

that proceeding. Because the deadline for the filing of applications

has now passed, we do not believe that it is necessary to reiterate

those matters. In accordance with the MSRP, we propose that any

funds remaining after the conclusion of the Subpart V crude oil

overcharge refund proceeding be disbursed to the states and the

federal government in equal shares.

With respect to the funds made available to the states for

indirect restitution, we note that 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 Settlement Agreement. Based on the foregoing, we propose that

the $100 million initial payment made by Occidental be disbursed as

follows: $20 million, plus accrued interest, to the DOE interest-

bearing escrow account for crude oil claimants, $40 million, plus

accrued interest, to the DOE interest-bearing escrow account for the

states, and $40 million, plus accrued interest, to the DOE interest-

bearing escrow account for the federal government. We propose that,

upon remittance to the DOE, Occidental's subsequent five annual

payments of $35 million, plus accrued interest, be distributed to

the same accounts in the same proportions.

It is therefore ordered That:

The consent order funds remitted by Occidental Petroleum

Corporation will be distributed in accordance with the foregoing

Decision.

[FR Doc. 95-30960 Filed 12-19-95; 8:45 am]

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