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 $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 determined that these funds

should be distributed 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: 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 C.F.R. 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 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 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, 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 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.

Dated: January 31, 1996.

George B. Breznay,

Director, Office of Hearings and Appeals.

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.

On December 1, 1995, the Office of Hearings and Appeals (OHA) of

the Department of Energy (DOE) issued a Proposed Decision and Order

which tentatively established refund procedures for the distribution

of the Occidental Petroleum Corporation (Occidental) consent order

funds. After a review of the comments received, the DOE has

determined that the procedures set forth in the Proposed Decision

and Order should be adopted.

I. Background

A. The Occidental Enforcement Proceeding

The Occidental consent order concerned reciprocal crude oil

transactions between Cities Service Corporation (Cities) and various

crude oil resellers.1 In those transactions, Cities sold price-

controlled crude oil in its refinery inventory in exchange for

deeply discounted exempt crude oil. Cities reported the exempt crude

oil to the DOE Entitlements Program, thereby significantly reducing

its entitlements obligations.

\1\ Occidental's wholly-owned subsidiary OXY USA, Inc. (OXY) was

formerly Cities Service Oil and Gas Corporation, which in turn was a

successor in interest to Cities. Unless otherwise indicated, the

firms collectively are referred to as Occidental.

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In 1985, the DOE's Economic Regulatory Administration, now the

DOE's Office of General Counsel, Regulatory Litigation (OGC), issued

a Proposed Remedial Order (PRO) to the firm. 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.

Subsequently, the Federal Energy Regulatory Commission (FERC)

reversed the 1988 RO, except for the remand provision. Cities

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

reconsideration denied, 66 FERC para. 61,222 (1994). A group of

utilities, transporters, and manufacturers (the UTM) and a group of

states appealed to federal district court, which dismissed their

appeals for lack of standing. Alabama v. FERC, 3 Fed. Energy

Guidelines para. 26,693 (CCH) (D.D.C. June 8, 1995). The UTM had

noticed an appeal at the time of the execution of the proposed

consent order.

In 1992, pursuant to the remand provision of the 1988 RO, the

OGC issued a Revised Proposed Remedial Order (RPRO), specifying an

alternate liability of $254 million, plus interest, on the ground

that the reporting of the transactions, except those in January

1981, violated the entitlements reporting requirements. The firm

filed objections to the RPRO with the OHA, which were ready for oral

argument at the time of execution of the consent order. OXY USA,

Inc., Case No. LRO-0003 (dismissed August 30, 1995).

B. The Occidental Consent Order

On June 27, 1995, the DOE issued the consent order in proposed

form. The DOE published notice of the proposed consent order and of

the opportunity to file

[[Page 5396]]

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. The DOE then published notice of the final

consent order. See 60 FR 43130 (August 18, 1995).

The Consent Order requires that Occidental remit a total of $275

million to the DOE. The Consent Order requires an initial payment of

$100 million and then five annual payments of $35 million plus

accrued interest. On September 15, 1995, Occidental remitted its

initial $100 million payment. On September 18, 1995, the OGC filed

the Petition for Implementation of Special Refund Procedures.

C. The Petition for Implementation of Special Refund Procedures

The OGC filed its Petition pursuant to 10 C.F.R. Part 205,

Subpart V. In the Petition, 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.

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. Sec. 4501 et seq.; see also Office of

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

para. 82,597 (1981).

III. The DOE's Modified Statement of Restitutionary Policy in Crude

Oil Cases

In July 1986, the DOE issued its 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. Any funds remaining after all valid claims by

injured purchasers are paid are 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 Fed. Reg. 29689 (August 20, 1986)

(the August 1986 Order).

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

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

Reg. 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 Fed.

Reg. 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.

IV. The Proposed Decision and Order

The Proposed Decision and Order tentatively determined that the

consent order funds should be distributed pursuant to the MSRP,

because the consent order funds were crude oil overcharge funds and,

therefore, governed by the MSRP. The Proposed Decision and Order

tentatively determined that the consent order funds were crude oil

funds because the consent order settled specific crude oil

overcharge proceedings and because the consent order and notice

thereof indicated that the settlement amount was specifically

related to the settled proceedings.

Based on the foregoing, the Proposed Decision and Order

tentatively determined that 20 percent of the funds should be

reserved for direct restitution through the OHA's Subpart V process

and the remaining 80 percent should be divided equally between the

states and the federal government.

V. Comments Received

The UTM filed comments in opposition to the proposed

distribution. Although the UTM do not challenge our tentative

determination that the Occidental consent order funds are crude oil

overcharge funds, the UTM oppose the 20-40-40 distribution provided

for in the MSRP and our Proposed Decision and Order.

The UTM contend that 100 percent of the Occidental consent order

funds should be reserved for Subpart V claimants. Under this theory,

neither the states nor the federal government would receive a share

of the consent order funds. Alternatively, the UTM contend that 60

percent of the Occidental consent order funds should be reserved for

Subpart V claimants: the 20 percent ordinarily reserved for such

claimants, as well as the federal government's 40 percent share.

Two groups of states also filed comments. Both groups oppose the

UTM's request and, instead, support adoption of the procedures set

forth in the Proposed Decision and Order.

VI. Analysis

A. The UTM's Contention that Subpart V Claimants are Entitled to

100 Percent of the Occidental Consent Order Funds

The UTM's contention that Subpart V claimants are entitled to

100 percent of the Occidental consent order funds is based on their

contention that Subpart V claimants are entitled to more than 20

percent of all crude oil overcharge funds. The UTM maintain that the

OHA is required to reserve 31-32 percent of all crude oil overcharge

funds for the Subpart V process in order to give Subpart V claimants

``full parity'' with entities that received a refund pursuant to the

Stripper Well Settlement Agreement. Because the OHA has consistently

reserved 20 percent for Subpart V claimants, the UTM contend that a

reserve of 100 percent of the Occidental consent order funds for

Subpart V claimants is necessary to make up for the alleged

shortfall.

As indicated above, two groups of States oppose the UTM's

contention. The States argue that the UTM's contention is

inconsistent with the express terms of the Stripper Well Settlement

Agreement and the DOE's MSRP. The States note that the UTM's claimed

right to ``full parity'' is currently the subject of a pending court

proceeding against the DOE. The States contend that the issue should

be resolved in that forum. In the meantime, the States contend, in

the absence of a court order to the contrary, the DOE should

continue to distribute crude oil overcharge funds in the manner

specified in the Stripper Well Settlement Agreement and the MSRP.

We agree with the States' position. The UTM do not dispute that

the DOE's distribution of crude oil overcharge funds, including the

distribution to Subpart V claimants, is governed by the Stripper

Well Settlement Agreement. The UTM also do not dispute that a

provision in the agreement provides that the reserve for Subpart V

claimants ``shall not exceed 20 percent'' of the crude oil

overcharge funds at issue.2 The DOE, like the other signatories

to the Stripper Well Settlement Agreement, is bound by its terms.

The DOE incorporated this limitation in its MSRP and has uniformly

applied it. Accordingly, the maximum that the DOE may reserve for

Subpart V claimants is 20 percent of crude oil overcharge funds.

\2\ See Stripper Well Settlement Agreement, 6 Fed. Energy

Guidelines (CCH) para. 90,509 at 90,655 (Part IV.B.6) (``IV. Other

Alleged Crude Oil Violation Proceedings,'' ``B. Pending and Future

Proceedings,'' ``6. Future Subpart V Proceedings.'')

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B. The UTM's Contention that Subpart V Claimants are Entitled to

60 Percent of the Occidental Consent Order Funds

In support of their alternative contention that 60 percent of

the Occidental consent order funds should be reserved for Subpart V

claimants, the UTM argue that Subpart V claimants are entitled not

only to their maximum 20 percent but also to the federal government

share. The UTM alleged that the DOE, FERC and the Department of

Justice took actions which undermined the success of the Occidental

enforcement proceeding. Based on this allegation, the UTM contend

that the federal government should forfeit its share.

As indicated above, the distribution of crude oil overcharge

funds is governed by the Stripper Well Settlement Agreement, which

provides for a maximum reserve of 20 percent for Subpart V

claimants. Moreover, the UTM's claimed entitlement is inconsistent

with the Economic Stabilization Act of 1970 (formerly 12 U.S.C.

Sec. 1094 note), which provided separate statutory authority for

public (Section 209) and private (Section 210) enforcement actions.

The courts have consistently held that a private party's interest in

some ultimate restitutionary benefit does not confer a legal right

to intervene in a Section 209 public proceeding. See, e.g., Alabama

v. FERC, 3 Fed. Energy

[[Page 5397]]

Guidelines para. 26,693 (D.D.C. June 8, 1995). In fact, in the case

just cited, the UTM had attempted to appeal the 1993 Order that FERC

issued to Occidental; the federal district court granted the DOE's

motion to dismiss for lack of standing. Accordingly, the UTM, having

declined to pursue their own private action pursuant to Section 210,

have no right to complain about the government's enforcement

efforts, let alone seek the federal government's share of the funds

resulting from those efforts.

VII. Final Refund Procedures

Because we have determined that 100 percent of the consent order

funds are crude oil funds, the funds will be distributed according

to the Stripper Well Settlement Agreement and the MSRP. We have

reserved the full 20 percent ($55 million), plus accrued interest,

for direct restitution to injured purchasers of crude oil and

refined petroleum products. The remaining 80 percent ($220 million)

will be distributed 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, any funds remaining

after the conclusion of the Subpart V crude oil overcharge refund

proceeding will be distributed 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 have determined that the $100 million

initial payment made by Occidental be distributed 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 have further determined 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:

(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 remitted by Occidental

Petroleum Corporation, plus accrued interest, pursuant to Paragraphs

(2), (3), (4), and (5) of this Decision and Order.

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

$40 million, plus any accrued interest, of the funds referenced in

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

Tracking-States,'' Number 999DOE003W.

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

$40 million, 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

$20 million, plus any accrued interest, of the funds referenced in

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

Tracking-Claimants 4,'' Number 999DOE010Z.

(5) Upon each future receipt of funds referenced in Paragraph

(1) above, the Director of Special Accounts and Payroll shall

transfer 40 percent, plus any accrued interest, to each of the

subaccounts specified in Paragraphs (2) and (3) above, and 20

percent to the subaccount specified in Paragraph (4) above.

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

Dated: January 31, 1996.

George B. Breznay,

Director, Office of Hearings and Appeals.

[FR Doc. 96-3057 Filed 2-9-96; 8:45 am]

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