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.

-----------------------------------------------------------------------

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

Energy announces the procedures for disbursement of $721,973.05 (plus

accrued interest) in alleged or adjudicated crude oil overcharges

obtained by the DOE from Brio Petroleum, Inc. (Case No. VEF-0017),

Merit Petroleum Company (Case No. VEF-0018), Transcontinental Energy

Corp. (VEF-0020) and Utex Oil Co. (Case No. VEF-0021). The OHA has

determined that the funds obtained from these firms, plus accrued

interest, will 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: Richard W. Dugan, Associate Director,

Office of Hearings and Appeals, 1000 Independence Avenue, S.W.,

Washington, D.C. 20585-0107, (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 $721,973.05, plus

accrued interest, remitted to the DOE by Brio Petroleum, Inc., Merit

Petroleum, Inc., Transcontinental Energy Corp., and Utex Oil Co. 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, 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, no new applications from purchasers of refined

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

allocated to individual claimants.

Dated: March 14, 1996.

Thomas O. Mann,

Acting Director, Office of Hearings and Appeals.

Implementation of Special Refund Procedures

Names of Firms:

Brio Petroleum, Inc.

Merit Petroleum Company

Transcontinental Energy Corporation

Utex Oil Company

Date of Filings:

September 1, 1995

Case Numbers:

VEF-0017

VEF-0018

VEF-0020

VEF-0021

[[Page 11828]]

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 September 1, 1995. The

Petitions request that OHA formulate and implement procedures to

distribute funds received by the DOE from Brio Petroleum, Inc. (Brio),

Merit Petroleum Company (Merit), Transcontinental Energy Corp.

(Transcontinental), and Utex Oil Company (Utex), as a result of

enforcement proceedings against the firms.

On January 16, 1996, we issued a Proposed Decision and Order (PDO)

that tentatively established refund procedures for the distribution of

crude oil overcharge funds obtained from these four firms.1 Brio

Petroleum, Inc., Case Nos. VEF-0017 et al., 61 FR 1919 (January 24,

1996). We provided a period of 30 days from the date of the PDO's

publication in the Federal Register in which the public could comment

on the tentative refund procedures. More than 30 days have elapsed, and

the OHA has received no comments concerning the proposed procedures.

Accordingly, this Decision and Order sets forth the OHA's plan to

distribute these funds received from the four firms.

\1\ One other firm, Texas American Oil Corporation (Texas

American), was included in the PDO. However, because of additional

information that we have received concerning the Texas American

proceeding, that firm has been omitted from the present Decision and

instead will be the subject of a new Proposed Decision.

---------------------------------------------------------------------------

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. Brio

Brio 2 was a reseller of crude oil during the period May 1,

1978 through December 31, 1979 (the audit period), and was subject to

the crude oil reseller regulations set forth at 10 CFR Part 212,

Subpart L. As the result of an ERA audit of Brio's operations, on

November 20, 1984, the ERA issued a Proposed Remedial Order (PRO) to

the firm alleging that it had engaged in layered crude oil transactions

in violation of 10 C.F.R. 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 audit period. After denying a Statement of

Objections filed by White, Brio was issued a Remedial Order (RO) by the

OHA on April 16, 1987. Brio Petroleum, Inc., 15 DOE para. 83,033

(1987).3

\2\ References to Brio in this Decision include L.B. White,

President, Treasurer, and a Director (White), who maintained a

controlling interest in the firm during the price control period.

\3\ The RO found that the firm alone was liable for refunding

$1,093,548, plus accrued interest, for the layering violations that

occurred from May through July 1978. White and the firm were jointly

liable for the layering violations which occurred after August 1,

1978, that resulted in overcharges amounting to $849,570.

---------------------------------------------------------------------------

Subsequently, the matter was referred to the U.S. Department of

Justice (DOJ) for enforcement of the RO. Although judgment was entered

against Brio, the firm had previously filed for bankruptcy. The firm

possessed assets insufficient to satisfy claims of general unsecured

creditors, including the DOE. On July 14, 1993, the DOJ compromised the

claim against White for $5,000. As of February 29, 1996, the Brio

Consent Order fund contained $5,000 in principal plus $613.86 in

accrued interest.

B. Merit

Merit 4 was a reseller of crude oil, and was subject to the

crude oil reseller regulations set forth at 10 CFR Part 212, Subpart L.

As the result of an ERA audit of Merit's operations, on October 20,

1986, the ERA issued a PRO to the firm alleging that during the period

November 1978 through December 1980, the firm engaged in layered crude

oil transactions in violation of 10 CFR Part 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. Merit submitted a Statement of

Objections to the PRO. After considering and rejecting Merit's

objections, the OHA issued an RO to Merit on January 31, 1990. Merit

Petroleum, Inc., 20 DOE para. 83,002 (1990). The RO found that Merit's

layered transactions resulted in overcharges amounting to

$48,290,793.17. The RO was affirmed by the Federal Energy Regulatory

Commission (FERC). Merit Petroleum, Inc., 65 FERC para. 61,175. During

the course of a subsequent federal district court proceeding, Merit and

the DOE stipulated to an Agreed Judgment, which resolved the Merit

enforcement proceeding. Pursuant to the Agreed Judgment, Merit agreed

to pay to the DOE the sum of $64,715. Merit has fulfilled its financial

obligation to the DOE. As of February 29, 1996, the Merit Consent Order

fund contained $64,715 in principal plus $3,766.80 in accrued interest.

\4\ References to Merit in this Decision include Thomas H.

Battle, President and a Director of Merit, and Anton E. Meduna, Vice

President, a Director, General Manager and Secretary of Merit.

---------------------------------------------------------------------------

C. Transcontinental

Transcontinental was a producer of crude oil during the period of

January 1975 through December 1980, and was subject to the Federal

petroleum price and allocation regulations. On March 30, 1979, the ERA

issued a Notice of Probable Violation to Transcontinental alleging

$372,151.67 in crude oil overcharge violations from several properties

it operated. Transcontinental had filed a petition in bankruptcy on

October 14, 1977, and had been adjudicated bankrupt on October 5, 1978.

The trustee appointed by the Bankruptcy Court opposed DOE's claim, but

the United States District Court in Nevada on appeal ruled in favor of

the DOE. In re Transcontinental Energy Corp. v. United States

Department of Energy, 3 Fed. Energy Guidelines para. 26,638 (D. Nev.

1990), aff'd, 950 F.2d 733 (Temp. Emer. Ct. App. 1991).

Transcontinental's estate was insufficient to satisfy completely the

claims of unsecured creditors, including the DOE. As a result, DOE

received $231,335.32. As of February 29, 1996, the Transcontinental

settlement fund contained $231,335.32 in principal plus $18,696.40 in

accrued interest.

D. Utex

During the period of Federal petroleum price controls, Utex was

engaged in producing and selling crude oil. Utex was therefore subject

to the regulations governing the pricing of crude oil set forth at 10

C.F.R. Parts 205, 210, 211, and 212 of the Mandatory Petroleum Price

and Allocation Regulations. On June 16, 1982, the ERA issued a PRO to

the firm in which it alleged that during the period from July 1, 1975

through April 30, 1980, Utex improperly classified and priced crude oil

produced from several properties it operated. In addition, the PRO also

alleged that Utex disregarded the current cumulative deficiency rule,

erroneously computed the base production control level, and erroneously

applied the stripper well lease exemption to certain properties. As a

result of these violations, the PRO alleged that Utex overcharged its

customers by $502,833.21. Utex filed a Statement of Objections to the

PRO on

[[Page 11829]]

September 29, 1982. On February 19, 1985, the OHA issued the PRO as a

RO. Utex Oil Co., 12 DOE para. 83,031 (1985). The RO was affirmed by

the FERC. Utex Oil Co., 36 FERC para. 61,099 (1986). In the course of

an appeal to the United States District Court in Utah, Utex and the DOE

entered into a Stipulation for Withdrawal of Appeal and Judgment on

Counterclaim and Order (Stipulation). Accepting the Stipulation, the

Court granted DOE a judgment against Utex of $884,794.01. The judgment

provided the basis for DOE's claim in the bankruptcy proceeding

initiated by Utex on August 1, 1986. Utex's estate was insufficient to

satisfy completely the claims of general unsecured creditors, including

the DOE. As a result, DOE received distributions totalling $420,922.73.

As of February 29, 1996, the Utex settlement fund contained $420,922.73

in principal plus $117,473.37 in accrued interest.

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. 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).

III. The Refund Procedures

A. Crude Oil Refund Policy

We adopt the tentative determination of the PDO to distribute the

funds obtained from the four enforcement proceedings in accordance with

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

(MSRP), 51 Fed. Reg. 27899 (August 4, 1986), which was issued as a

result of the Settlement Agreement approved by the court in In re 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, 16 DOE para. 85,550 (1987).

B. Refund Claims

The amount of money subject to this Decision is $721,973.05 plus

accrued interest. In accordance with the MSRP, we shall initially

reserve 20 percent of those funds ($144,394.61 plus accrued interest)

for direct refunds to applicants who claim that they were injured by

crude oil overcharges. We shall 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 shall not accept any new applications 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.5

\5\ 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).

---------------------------------------------------------------------------

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

$577,578.44 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.

Accordingly, we will direct the DOE's Office of the Controller to

transfer one-half of that amount, or $288,789.22, plus interest, into

an interest bearing subaccount for the states, and one-half or

$288,789.22, plus interest, into an interest bearing subaccount for the

federal government. In accordance with previous practice, when the

amount available for distribution to the states reaches $10 million, we

will direct the DOE's Office of the Controller to make the appropriate

disbursement to the individual states.

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

$288,789.22 plus 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 Payroll shall transfer

$288,789.22, plus

[[Page 11830]]

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

$144,394.16, plus accrued interest, of the funds referenced in

Paragraph (1) above, into the subaccount denominated Crude Tracking-

Claimants 4,'' Number 999DOE0010Z.

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

Dated: March 14, 1996.

Thomas O. Mann for George B. Breznay,

Director, Office of Hearings and Appeals.

Appendix

------------------------------------------------------------------------

Firm and consent

Case No. order No. Principal

------------------------------------------------------------------------

VEF-0017.......................... Brio Petroleum, $5,000.00

Inc., 6A0X00283W.

VEF-0018.......................... Merit Petroleum 64,715.00

Company, 650X00288W.

VEF-0020.......................... Transcontinental 231,335.32

Energy Corp.,

940C00224W.

VEF-0021.......................... Utex Oil Company, 420,922.73

810C00336W.

---------------

Total....................... .................... 721,973.05

------------------------------------------------------------------------

[FR Doc. 96-7022 Filed 3-21-96; 8:45 am]

BILLING CODE 6450-01-P