[Federal Register Volume 61, Number 57 (Friday, March 22, 1996)]
[Notices]
[Pages 11827-11830]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-7022]



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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 $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.
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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.
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    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.
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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).
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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 
$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                                
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                                      Firm and consent                  
             Case No.                     order No.          Principal  
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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
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[FR Doc. 96-7022 Filed 3-21-96; 8:45 am]
BILLING CODE 6450-01-P