[Federal Register Volume 61, Number 16 (Wednesday, January 24, 1996)]
[Notices]
[Pages 1919-1922]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-903]



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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 
$770,280.18 (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), Texas American 
Oil Corp. (Case No. VEF-0019), 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 Fed. Reg. 27899 (August 4, 
1986).

DATE AND ADDRESS: Comments must be filed in duplicate February 23, 
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 Nos. VEF-0017, et al.

FOR FURTHER INFORMATION CONTACT: Richard W. Dugan, Associate Director, 
Office of Hearings and Appeals, 1000 Independence Avenue, SW., 
Washington, DC 20585-0107, (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 $770,280.18, plus accrued interest, remitted to the DOE by 
Brio Petroleum, Inc., Merit Petroleum, Inc., Texas American Oil Corp., 
Transcontinental Energy Corp., and Utex Oil Co. 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, DC 20585-0107.

    Dated: January 16, 1996.
George B. Breznay,
Director, Office of Hearings and Appeals.

Implementation of Special Refund Procedures

    Names of Firms: Brio Petroleum, Inc., Merit Petroleum Company, 
Texas American Oil Corporation, Transcontinental Energy Corporation, 
Utex Oil Company. 

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    Date of Filings: September 1, 1995.
    Case Numbers: VEF-0017, VEF-0018, VEF-0019, VEF-0020, VEF-0021.
    In accordance with the procedural regulations of the Department of 
Energy (DOE), 10 C.F.R. Part 205, Subpart V, the Office of General 
Counsel, Regulatory Litigation (OGC) (formerly the Economic Regulatory 
Administration (ERA), Office of Enforcement Litigation), filed five 
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), Texas American Oil Corporation (Texas 
American), Transcontinental Energy Corp. (Transcontinental), and Utex 
Oil Company (Utex), pursuant to bankruptcy proceedings in which the DOE 
was a creditor as a result of enforcement proceedings against the 
firms. This Proposed Decision and Order sets forth the OHA's tentative 
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. Brio

    Brio 1 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 C.F.R. 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. 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 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).2 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 November 30, 
1995, the Brio Consent Order fund contained $5,000 in principal plus 
accrued interest.

    \1\ 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.
    \2\ 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.
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B. Merit

    Merit 3 was a reseller of crude oil, and was subject to the 
crude oil reseller regulations set forth at 10 C.F.R. 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 C.F.R. 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. 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 November 30, 1995, the Merit Consent Order 
fund contained $64,715 in principal plus accrued interest.

    \3\ 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.
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C. Texas American

    During the price control period, Texas American was engaged in 
crude oil refining and reselling. The firm was therefore subject to 
regulations governing the pricing and allocation of crude oil set forth 
at 10 C.F.R. Parts 211 and 212 of the Mandatory Petroleum Price and 
Allocation Regulations. In an audit which covered the period from 
October 1976 through February 1977, the ERA identified instances in 
which it found that Texas American misreported certain crude oil 
subject to ``processing agreements'' in its Refiners' Monthly Reports, 
and thereby received excessive small refiner bias benefits under DOE's 
Entitlements Program, 10 C.F.R. 211.66, 211.67. As a result of the ERA 
audit, a PRO was issued to Texas American on September 30, 1986. Texas 
American filed a Statement of Objections on April 14, 1987. On 
September 19, 1988, the OHA denied the Statement of Objections, 
affirmed the findings of the PRO, and issued an RO to Texas American. 
Texas American Oil Corp., 17 DOE para. 83,017 (1988). Texas American 
had filed a petition of bankruptcy on July 2, 1987, and the petition 
was still pending when the RO was issued. After protracted litigation, 
the Bankruptcy Court for the Northern District of Texas, Dallas 
Division, entered a Final Consent Order that had been agreed to by the 
parties concerning the DOE's proof of claim, and ordered $48,307.13 to 
be distributed to the DOE in full satisfaction of its claim. Texas 
American has fulfilled its financial obligation to the DOE. As of 
November 30, 1995, the Texas American Consent Order fund contained 
$48,307.13 in principal plus accrued interest.

D. 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 November 30, 1995, the Transcontinental 
settlement fund 

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contained $231,335.32 in principal plus accrued interest.

E. 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 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 November 30, 1995, the Utex settlement fund contained $420,922.73 
in principal plus 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).
    We have considered the OGC's petitions that we implement Subpart V 
proceedings with respect to the five settlement funds and have 
determined that such proceedings are appropriate. The following section 
of 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 five 
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 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 
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 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).
    The amount of money subject to this Proposed Decision is 
$770,280.18 plus accrued interest. In accordance with the MSRP, we 
propose initially to reserve 20 percent of those funds ($154,056.04 
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. 85,047 (1995). Instead, these funds 
will be added to the general crude oil overcharge pool used for direct 
restitution.4

    \4\ 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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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 $616,224.14 plus accrued interest, should be disbursed in equal 
shares to the states and federal government, for indirect restitution. 
Refunds to the states will be 

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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: The refund amounts remitted to the 
Department of Energy by Brio, Merit, Texas American, Transcontinental 
and Utex pursuant to their respective settlement agreements or 
judgments will be distributed in accordance with the foregoing 
Decision.
[FR Doc. 96-903 Filed 1-23-96; 8:45 am]
BILLING CODE 6450-01-P