[Federal Register Volume 68, Number 218 (Wednesday, November 12, 2003)]
[Notices]
[Pages 64098-64101]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-28316]


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DEPARTMENT OF ENERGY


Proposed Procedures for Distribution of Remaining Crude Oil 
Overcharge Refunds

AGENCY: Office of Hearings and Appeals, Department of Energy.

ACTION: Notice of proposed procedures for distribution of remaining 
crude oil overcharge refunds and opportunity for comment.

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SUMMARY: The Department of Energy (DOE) Office of Hearings and Appeals 
(OHA) announces, in this notice, proposed procedures for making the 
final round of payments to successful claimants in the crude oil 
overcharge refund proceeding. In May 2003, the United States District 
Court for the District of Columbia issued a decision in Consolidated 
Edison Company of New York v. Abraham, No. CIV.A.1:01CV00548 (D.D.C. 
May 9, 2003) (Westlaw, 2003 WL 21692698), appeal docketed, No. 03-1498 
(Fed. Cir.), which, inter alia, rendered a declaratory judgment that 
successful claimants are entitled to a distribution of the entire 
remaining amount of crude oil overcharges reserved for direct 
restitution, ``insofar as practicable.'' OHA will therefore make a 
final distribution in the long-standing crude oil refund proceeding.

DATES: Comments may be filed by January 12, 2004.

ADDRESSES: Comments should be addressed to: Crude Oil Refund 
Proceeding, Office of Hearings and Appeals, Department of Energy, 
Washington, DC 20585-1615, and submitted electronically to 
[email protected].

FOR FURTHER INFORMATION CONTACT: Tami L. Kelly, Secretary, or Thomas O. 
Mann, Deputy Director, Office of Hearings and Appeals, Department of 
Energy; telephone: 202-287-1449, e-mail: [email protected], 
[email protected].

SUPPLEMENTARY INFORMATION:

I. Background

    Over two decades ago--during the period August 1973 through January 
1981--federal regulations governed the pricing and allocation of 
domestic crude oil and refined petroleum product (``the controls 
period''). During this controls period and for some time afterwards, 
DOE took enforcement actions against firms for violating those 
regulations. As a result of those actions, firms in the petroleum 
industry remitted several billion dollars in crude oil overcharges to 
DOE.
    The largest court proceeding involving crude oil overcharges was 
multidistrict litigation over the pricing of crude oil produced from 
low-output ``stripper wells.'' Once the existence of overcharges was 
established, a federal district court considered the issue of how those 
funds should be distributed in order to make restitution to injured 
parties. In Re The Department of Energy

[[Page 64099]]

Stripper Well Exemption Litigation, 578 F. Supp. 586 (D. Kan. 1983). 
Groups at each level of distribution claimed they were injured by the 
overcharges, including refiners, resellers, retailers, larger 
consumers, and state governments representing their citizens. The court 
referred the issue of who was injured by crude oil overcharges and in 
what amount to OHA, which conducted hearings and issued a report. OHA 
Report on Stripper Well Oil Overcharges, 6 CCH Fed. Energy Guidelines ] 
90,507.
    In 1986, the Stripper Well litigation was settled by an agreement 
that provided for the distribution of existing crude oil overcharge 
funds, as well as those received in the future. Stripper Well 
Settlement Agreement, 6 CCH Fed. Energy Guidelines ] 90,649. The court 
approved the settlement agreement, In Re Stripper Well Exemption 
Litigation, 653 F. Supp. 108 (D. Kan 1986), and DOE issued a Modified 
Statement of Restitutionary Policy to authorize the distribution of 
these refunds. Statement of Modified Restitutionary Policy in Crude Oil 
Cases, 51 FR 27899 (1986). Congress, in subsequent legislation 
concerning refunds, expressly recognized the agreement and excluded 
from the legislation funds subject to the agreement. Petroleum 
Overcharge Distribution and Restitution Act of 1986 (``PODRA''), 15 
U.S.C. 4502(a)(2).
    The agreement divided the crude oil overcharge funds among escrows 
established for various types of claimants as well as the States and 
Federal Government. By choosing to receive a refund from one of the 
escrows, a claimant became a party to the agreement, and waived the 
right to request any future crude oil overcharge refunds. The agreement 
included escrows for various types of end-user claimants. Over 2,000 
firms received refunds from those escrows and waived the right to 
future crude oil overcharge refunds.
    The agreement provided that OHA could initially reserve up to 20 
percent of the crude oil overcharge funds for refunds to claimants who 
demonstrated injury under DOE procedural regulations in 10 CFR part 
205, subpart V. Agreement Sec.  IV.B.6, 6 Fed. Energy Guidelines at 
90,664-65. The agreement provided that the remaining amount (at least 
80 percent of the total funds) would be divided equally between the 
States and DOE for indirect restitution. The agreement further provided 
that if OHA did not refund all of the amount in the initial reserve, 
the balance of the reserve would be divided equally between the States 
and DOE for indirect restitution. Finally, the agreement provided that 
the States must use the funds to make indirect restitution through 
programs designed to benefit injured consumers of refined petroleum 
products, including programs: (1) Approved by OHA, (2) listed in a 1981 
DOE consent order, or (3) set forth in specified energy conservation 
statutes.
    During the period 1987 through 1995, non-waiving injured parties 
were allowed to file crude oil overcharge refund applications with OHA. 
Notice Explaining Procedures for Processing Refund Applications in 
Crude Oil Refund Proceedings Under 10 CFR part 205, subpart V, 52 FR 
11737; 7 DOE (CCH) ] 90,512 (April 10, 1987) (``the 1987 Notice''). 
Even as OHA processed these applications, DOE continued to collect 
crude oil overcharge funds and refer them to OHA for distribution. Each 
time OHA received crude oil overcharge funds for distribution, we 
issued an order providing for an initial reserve of 20 percent of the 
funds for refund claimants, which was held in a claimants' account. 
See, e.g., OXY USA, Inc., 25 DOE ] 85,087 (1996). OHA ordered that the 
remaining 80 percent of the funds be deposited in equal shares in a 
States' account and a DOE account, and OHA periodically directed the 
transfer of funds to the States for indirect restitution. See, e.g., 
State Escrow Distribution, 6 Fed. Energy Guidelines ] 85,001 (2000). 
Over the last 16 years, OHA has refunded more than $600 million in 
direct restitution to 86,000 successful claimants through the Subpart V 
process. The total volume of petroleum products which formed the basis 
for these refunds approaches 400 billion gallons, approximately 20 
percent of the total 2,020,997,335,000 gallons of refined petroleum 
products consumed in the United States during the controls period 
(August 22, 1973 through January 21, 1981).
    The successful claimants were almost exclusively end-users and are 
quite diverse. They include utilities and cooperatives; federal, state 
and local governmental entities that purchased petroleum products for 
their operations; transportation companies (air, water, rail, and 
truck); manufacturers; and farmers. The following entities comprise 
approximately 50 percent of the total approved volume: utilities and 
cooperatives (29 percent); the Defense Logistics Agency (a federal 
government agency) (11 percent); state and local governments (6 
percent); and foreign companies (about 4 percent).
    During the first ``round'' of crude oil refunds, OHA paid 
successful claimants at a volumetric refund amount of $.0002 per gallon 
of petroleum products purchased. OHA subsequently raised the volumetric 
twice. In 1989, OHA increased the cumulative volumetric to $.0008 per 
gallon, and issued supplemental refund checks to successful claimants 
who had been paid the lower $.0002 rate. See Crude Oil Supplemental 
Refund Distribution, 18 DOE ] 85,878 (1989). In 1995, OHA raised the 
cumulative volumetric to $.0016 per gallon, and notified successful 
claimants that had been paid at the lower rate that they could file for 
a supplemental refund.
    During the 1989 round of supplemental refunds, a significant number 
of checks issued to successful claimants were returned uncashed to OHA. 
OHA found that many successful claimants had undergone changes in 
address, and failed to inform OHA of their address changes, as required 
by the terms of the orders granting their original refunds. When checks 
were returned, OHA was able to get new mailing addresses for many of 
these successful claimants and issue new checks to them, but this task 
consumed considerable time and resources to accomplish.
    In 1995, OHA did not approve the immediate mailing of supplemental 
refund checks as it had in 1989, based on the difficulties we 
experienced during the 1989 round. Issuance of Supplemental Refund 
Checks in Special Refund Proceeding Involving Crude Oil Overcharge 
Refunds, 60 FR 15562 (1995). Instead, OHA notified successful claimants 
(by mailing notice to the address listed in the database) that they 
could file for the supplemental refund. In addition, OHA elected not to 
give direct notice to the 21,000 successful claimants whose refunds 
were $50 or less. OHA concluded that the cost and administrative burden 
of mailing was not justified given the small amount of the refunds and 
likely changes in status and address. Nevertheless, all successful 
claimants were able to request and receive supplemental refunds. OHA's 
processing of the requests also confirmed that many successful 
applicants had undergone changes in status that affected their right to 
receive a supplemental refund. Examples of changes in status that might 
affect the right to a refund included the acquisition, sale, or 
liquidation of business entities, the merger or creation of school 
districts, and the divorce or death of individuals.
    In 1999, OHA set a January 2000 deadline for successful claimants 
to request the supplemental refund payment authorized in 1995. 
Announcement of Final Deadline to Request Supplemental Payment, 64 FR 
19998 (1999). The deadline did not

[[Page 64100]]

apply to small claimants, so they have been eligible to date to request 
a supplemental refund up to the cumulative $.0016 volumetric amount. 
OHA has now completed processing all original crude oil overcharge 
refund applications and all pending requests for the 1995 supplemental 
payment. With the completion of all original and supplemental refund 
requests, approximately $262 million will remain in the reserve for 
refund claimants. OHA does not expect to receive any significant 
additional crude oil overcharge funds.
    In May 2003, the United States District Court for the District of 
Columbia issued a declaratory judgment in Consolidated Edison Company 
of New York v. Abraham, supra, which led OHA to establish procedures 
for making a final distribution of the entire amount remaining in the 
20 percent reserve for successful crude oil refund claimants, ``insofar 
as practicable.'' Slip. op. at 14.
    The volumetric amount for the final crude oil refund payment will 
be calculated by dividing the entire amount remaining in the claimants' 
reserve, approximately $262 million (``the numerator''), by the total 
number of gallons purchased by successful claimants, approximately 390 
billion gallons (``the denominator''), yielding a volumetric of 
$.00067. This method of calculating the volumetric refund is consistent 
with OHA's historic practice in the 1995 supplemental refund, and it is 
intended to distribute the entire amount remaining in the 20 percent 
reserve for successful crude oil refund claimants, ``insofar as 
practicable,'' as envisioned by the court in Consolidated Edison 
Company of New York v. Abraham, supra.
    When the initial volumetric refund amount was set in the 1987 
Notice, OHA used the ``full parity'' method to place claimants seeking 
refunds under Subpart V on a par with the parties who could get 
immediate refunds under one of the several escrows established under 
the Stripper Well settlement agreement. Notice Explaining Procedures 
for Processing Refund Applications in Crude Oil Refund Proceedings 
Under 10 CFR part 205, subpart V, supra. To get an immediate refund 
from a Stripper Well escrow, a claimant had to waive the right to 
future refunds under subpart V. As explained in the 1987 Notice, the 
full parity method counted in the numerator of the volumetric 
calculation a portion of the moneys in the Stripper Well litigation, 
even though that amount of overcharges was not yet available for 
distribution to subpart V claimants as part of the 20 percent reserve. 
This reflected DOE's estimate that substantial additional crude oil 
overcharges would be collected in future settlements, and gave 
potential claimants a more realistic idea of the refunds they could 
expect to receive under Subpart V.
    OHA has consistently adhered to the principle established in the 
Stripper Well settlement agreement, the Modified Statement of 
Restitutionary Policy, and the 1987 Notice, that the volumetric refunds 
actually paid to successful claimants were limited by the 20 percent 
ceiling placed on the claimants' reserve. Thus, while the 1987 Notice 
established the initial volumetric refund at $.0008, successful 
claimants were paid at the rate of $.0002 per gallon until that amount 
could be increased by $.0006 per gallon in 1989, as additional crude 
oil overcharges were collected by DOE, to reach the cumulative refund 
amount of $.0008. For the supplemental refund payment authorized by OHA 
in 1995, the volumetric was calculated by dividing the dollar amount of 
crude oil overcharges in the 20 percent reserve then available for 
distribution by the approved gallons of refined petroleum products 
purchased by successful claimants in the United States during the 
controls period. This resulted in the total cumulative refund amount of 
$.0016 per gallon paid to date. With the final distribution proposed in 
this Notice, the cumulative refund amount will increase to $.00227 per 
gallon.
    OHA will try to distribute the entire amount of the 20 percent 
reserve. However, since not every successful applicant will apply for 
this final refund payment, some money will remain undistributed. Under 
the Stripper Well settlement agreement, any amount that remains in the 
claimants' account at the conclusion of this final round of crude oil 
refunds should be divided evenly between the States and the Federal 
Government for indirect restitution.

II. Proposed Procedure for Final Distribution of Crude Oil Refunds

    In deciding how to make the final crude oil refund distribution, 
OHA's experience gained during the past 16 years will be invaluable. 
For example, OHA will mail notice of the final refund distribution to 
successful claimants, and we intend to use the extensive database 
developed during the crude oil refund proceeding as the basis for the 
initial mailing. However, some changes are warranted in the process OHA 
will use for this final refund distribution. Eight years have passed 
since 1995 when the second round of supplemental refunds was 
authorized. The passage of additional time means that successful 
claimants have undergone even more changes in status and address than 
we encountered in the two prior rounds of supplemental refunds. 
Although OHA decisions granting refunds ordered successful claimants to 
report address changes to OHA, experience teaches that many have not, 
and the information in our database, although the best available, has 
become somewhat outdated. We need to verify the information about 
status and address before disbursing final refunds to individual 
claimants.
    Fortunately, information technology, particularly the Internet and 
the World Wide Web, is now available to a greater number of claimants 
since OHA last made supplemental crude oil refund payments in 1995. 
Thus OHA proposes to augment the normal paper application process by 
developing an online application system that will make it easier for 
many claimants to request a final supplemental crude oil refund 
payment. OHA will use appropriate safeguards to prevent fraud. Filing 
services represented many successful claimants in the crude oil refund 
proceeding. In addition to notifying claimants, OHA will mail notice to 
the filing services at the commencement of the final crude oil refund 
distribution. For simplicity, final refund checks will be made payable 
to, and mailed to, the applicant.
    OHA will follow the practice used for distributing the 1995 
supplemental crude oil refund, and not give direct notice to the 
smallest successful claimants. In 1995, we did not mail notice to 
claimants whose supplemental refund payments would be less than $50. 
For the final crude oil refund, we will not mail notice to claimants 
whose final payments would be less than $250. We continue to believe 
that the cost and administrative burden of mailing information to these 
claimants is not justified given the small amount of the refunds. As 
with the 1995 supplemental refund payment, however, we will accept 
applications from all successful claimants, as long as they are filed 
within the 180-day application period. Section 205.286(b) of the 
subpart V regulations states that OHA may decline to consider 
applications for refund amounts that are too small to warrant 
individual consideration, in view of the costs involved. Although OHA 
never established a floor amount for crude oil refunds, in refund cases 
involving overcharges on refined petroleum products OHA conducted under 
PODRA, it was standard practice to exclude small claims altogether. Cf. 
Exxon Corp., 17 DOE ] 85,590 (1988). In our view, the proposed 
treatment of smaller claimants in the final

[[Page 64101]]

distribution of crude oil refunds represents a reasonable compromise 
between costs to the government and potential benefits to the 
claimants.
    Additional limitations will be necessary in the final round of 
crude refunds. All successful claimants have already had extensive 
opportunities over many years to establish their respective purchase 
volumes of refined petroleum products, which form the bases for their 
respective refunds. There will be no further opportunities to revise 
volumes during the final distribution. Furthermore, the period within 
which to apply for the final round of refund payments will be strictly 
limited to 180 days. No extensions of time will be granted, and no late 
applications will be accepted. No new-applications will be accepted--
the final crude oil refund payment is available only to successful 
claimants. After 16 years, it is important to bring this proceeding to 
a conclusion.
    OHA seeks comments on these proposed procedures. Interested parties 
should send comments to the address shown on the present Notice. After 
OHA considers the comments received, we will issue a final Notice that 
will explain how successful claimants can apply for a final crude oil 
refund payment. The final Notice will be published in the Federal 
Register, and it will be available on the OHA Web site, http://www.oha.doe.gov/.

    Issued in Washington, DC on November 5, 2003.
George B. Breznay,
Director, Office of Hearings and Appeals.
[FR Doc. 03-28316 Filed 11-10-03; 8:45 am]
BILLING CODE 6450-01-P