Final Procedures for Distribution of Remaining Crude Oil Overcharge Refunds

AGENCY:

Office of Hearings and Appeals, Department of Energy.

ACTION:

Notice of final procedures for distribution of remaining crude oil overcharge refunds.

SUMMARY:

This document provides the text of procedures that will govern the final round of payments to successful claimants in the crude oil overcharge refund proceeding by the Department of Energy (DOE) Office of Hearings and Appeals (OHA). Two important issues addressed are the computation of the per-gallon “volumetric” refund amount, and the mechanics of the refund application process.

DATES:

All required information must be submitted between July 1 and December 31, 2004.

ADDRESSES:

Inquiries should be submitted electronically to crudeoilrefunds@hq.doe.gov.

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: tami.kelly@hq.doe.gov, thomas.mann@hq.doe.gov.

SUPPLEMENTARY INFORMATION:

I. Introduction

OHA published a notice of proposed procedures for final crude oil refunds in the Federal Register on November 12, 2003, and requested comments from interested parties (“the November 12 notice”). 68 FR 64098. The November 12 notice recounted the history of the federal regulations governing the pricing and allocation of domestic crude oil and refined petroleum products during the period August 1973 through January 1981 (“the controls period”), and the 1986 Stripper Well settlement agreement that formed the basis for DOE's modified restitutionary policy for refunding crude oil overcharges. Acting under the Stripper Well agreement, OHA distributed 80 percent in equal shares to the States and the Federal government for indirect restitution, and reserved 20 percent of the crude oil overcharges for direct restitution to injured claimants (i.e. end-users of refined petroleum products), in a refund proceeding conducted by OHA under the procedural regulations in 10 CFR Part 205, Subpart V. The refund process was prolonged because DOE continued to collect crude oil overcharge funds into the 21st century. In a series of initial and supplemental refund payments, OHA has paid successful claimants at the cumulative “volumetric” rate of $0.0016 per gallon. Those initial and supplemental refund claims have now been resolved, and OHA intends to distribute all remaining crude oil overcharge funds held by DOE for successful claimants “insofar as practicable.” Consolidated Edison Company of New York v. Abraham, No. CIV.A.1:01CV00548 (D.D.C. May 9, 2003) (Westlaw, 2003 WL 21692698), aff'd, No. 03-1498 (Fed. Cir. Feb. 9, 2004).

In order to distribute the entire amount of the 20 percent reserve, OHA proposed to use an electronic verification and application process, and to pay refunds through electronic fund transfers. The November 12 notice proposed to calculate the volumetric refund amount at the outset by dividing the money in the reserve, then $262 million (“the numerator”), by the number of gallons of refined petroleum products purchased during the controls period by successful claimants, then estimated at 390 billion gallons (“the denominator”), yielding a volumetric refund amount of $0.00067 per gallon. The November 12 notice proposed to send direct notice of the final refund distribution only to claimants who would be eligible to receive refunds greater than $250. While they would not receive notice of the final refund payment, the November 12 notice proposed that successful claimants eligible for refunds below $250 would still be permitted to file claims. Although filing services had represented many claimants, we proposed to send final payments directly to claimants. We also proposed to limit the application period for final refunds to 180 days, and indicated that we would not permit claimants to revisit their purchase volume figures established earlier. Finally, we stated that any money left unclaimed after the final round of crude oil refunds would be divided equally between the States and the Federal government, as prescribed in the Stripper Well agreement.

II. Summary and Response to Comments on Proposed Final Refund Procedures

DOE received nine comments in response to the November 12 notice, submitted by law firms, trade associations, filing services that represent successful claimants, the National Association of State Energy Officials, and a state energy office. This section of the Supplementary Information summarizes the issues raised in the comments, and gives DOE's response, as follows:

Comment: Two commenters addressed several issues concerning the calculation of the volumetric refund amount. They contend that the November 12 notice underestimates the number of dollars that should be in the numerator, and overestimates the number of gallons that should be in the denominator. They urge OHA to include in the numerator the $9.5 million currently in the Citronelle end users account, any funds returned to the reserve for claimants as a result of refund awards already made and later rescinded (“returned funds”), and all other crude oil overcharge monies held by DOE that are arguably subject to the Stripper Well agreement, in addition to the money in the reserve for claimants. They contend OHA should consider the time value of money, pointing out that the money in the reserve has now grown to $264 million, and interest will continue to accrue on those funds until the refund process is completed. They also call on OHA to determine the volume figure in the volumetric denominator more precisely, by excluding all gallons that ultimately prove to be ineligible for final refunds for any reason, including failure to seek the supplemental refunds authorized in 1995 or the final refunds authorized in this notice, and any downward adjustments in contested claims that reduce the number of gallons approved by OHA as the basis for granting refunds. These commenters argue that to account for these factors, OHA should defer the calculation of the volumetric refund amount until the final application period closes, and all claims submitted have been reviewed. In this way, the number of dollars in the numerator will be maximized to include all crude oil overcharge funds payable to claimants plus accrued interest, and the number of gallons in the denominator will be minimized to exclude all ineligible gallons. Both adjustments will increase the volumetric amount, and help to accomplish the goal of distributing the entire amount of overcharges reserved for successful crude oil refund claimants “insofar as practicable.” These commenters further contend that if the volumetric is calculated according to the proposed method, it would leave a substantial portion of the crude oil overcharges undistributed to the end user claimants for whom the funds are held by DOE, and therefore divert those funds for indirect restitution to the States and Federal government. That result, they contend, would frustrate the effectuation of the objective of DOE's Subpart V crude oil refund proceeding, and the holding of the Consolidated Edison case. The commenters maintain the more accurate calculation of the volumetric would justify the minimal delay entailed. Finally, to the extent there remain undistributed funds at the conclusion of a final refund payment to all qualified end user claimants, one commenter urges OHA to calculate a “supplemental final volumetric,” which would be used to make a closeout payment to claimants who are entitled to receive $250 or more.

Response: We believe these comments have merit, and that OHA should adopt the method they advocate for calculating the volumetric refund amount. As explained below, however, we do not plan to make the suggested closeout payment.

We agree with the commenters that the money in the Citronelle end users account (currently $9.5 million) should be included in the final distribution of crude oil overcharge funds. DOE was a party to the Citronelle settlement agreement, which directs the Department to transfer those funds to the Subpart V crude oil refund proceeding. It is already DOE's practice that “returned funds” (recovered from refund awards that were subsequently reduced for any reason) are deposited into the claimants reserve and they will be included in the final distribution. In addition to the Citronelle end users account, DOE is holding a small amount of other crude oil overcharge funds, and these moneys, which total approximately $1 million at this time, will also be included in the final distribution.

Concerning the timing of the volumetric calculation, the goal of this proceeding is to distribute the entire amount of crude oil overcharge funds held by DOE to end user claimants. By its nature, the task presents a moving target, where the amount of money in the volumetric numerator will increase as funds are added and interest accrues, and the number of gallons in the volumetric denominator will decrease as claimants fail to come forward or for any other reason fail to present an adequate application. OHA can estimate the volumetric as $0.00072 at this time, by dividing the dollars currently available for distribution, $275 million, by the approved gallons currently eligible for refunds, 382 billion. Under the most optimistic scenario, even with an electronic verification and application process, OHA will not know the value of the volumetric denominator before the 180 day application period is closed. Thus, we will delay the final volumetric calculation until the close of the application period. This will make the distribution of refunds more cost-effective, and eliminate the need for the proposed closeout payment. The only disadvantage of using a last-minute volumetric refund calculation is a delay in the disbursements of payments until the close of the application period. In the past, OHA announced the volumetric amount when opening the application period for a round of crude oil refunds and began disbursing payments immediately. The prior supplemental refund payments were viewed in the context of an ongoing process, as DOE continued to recover additional overcharges. See Crude Oil Supplemental Refund Distribution, 18 DOE ¶ 85,878 (1989); Issuance of Supplemental Refund Checks in Special Refund Proceeding Involving Crude Oil Overcharge Refunds, 60 FR 15562 (1995). This time, however, our goal is different. We are now concluding the refund process, and we fully intend to distribute all of the reserved funds to claimants “insofar as practicable.” With this goal in mind, we agree that the efficiency to be gained by calculating the volumetric after the close of the application period is worth the minimal delay. Any money remaining after the final refund payments will be divided equally between the States and the Federal government.

Comment: Several commenters addressed the proposal in the November 12 notice to pay final refunds directly to claimants that are represented by “filing services,” stating that this would constitute an unwarranted departure from OHA's longstanding practice in the Subpart V crude oil refund proceeding. In the absence of specific problems, according to the commenters, there is no reason for OHA not to continue the settled practice of honoring the contracts between filing services and their clients. If there is a history of problems with specific filing services, the commenters urged OHA to impose appropriate conditions on those filing services alone, such as requiring that a filing service post a performance bond, or establish an escrow account. These commenters maintain that filing services are necessary to an efficient refund process, and that cutting them out of the historic distribution chain at this late stage would delay rather than expedite the conclusion of the refund process. Several commenters also pointed out that some “filing services” are attorneys who are subject to the canons of ethics and regulation including disciplinary sanctions by their respective State bars. With respect to non-attorney filing services, several commenters pointed to the services filing services rendered to refund claimants, and their track record over the long history of the crude oil refund proceeding. Several commenters urged OHA to accept claim verifications from all representatives who already have powers of attorney on file.

Response: These comments raise meritorious issues. It is true, as the commenters point out, that both attorney and non-attorney filing services made it possible for many claimants to obtain refunds who would not have otherwise received them. Filing services served their clients by maintaining contact with OHA and helping to resolve questions about claimants' eligibility for refunds. On balance, OHA will again need to rely on the filing services in order to reach as many claimants as possible in the final refund distribution. The filing services will in turn have an incentive to contact their clients, verify their claims, and submit updated information to OHA.

We also agree with the commenters that there is no reason to sanction all filing services merely because OHA experienced problems with some of them during prior rounds of the refund process. We will therefore continue the practice of paying refunds to most of the filing services we paid in the last distribution, including attorneys and non-attorneys, provided that each filing service submits a current “Escrow Certification” to OHA and certifies that it has provided notice of the final refund payment to all of its clients. The Escrow Certification which OHA has previously required filing services to submit states that (1) The filing service has established an escrow account for the purpose of depositing refund payments (electronic fund transfers or checks) received on behalf of its clients, (2) it is the filing service's normal business practice to deposit all refund payments into the escrow account within two business days, (3) it is the filing service's normal business practice to disburse all refunds to clients (less commissions or fees) within 30 calendar days of receiving those funds, and (4) the filing service agrees to make records for its escrow account available to OHA on request. We will again use that form of certification. In cases where there has been a history of problems with a specific filing service, OHA may determine to pay that service's claimants directly or may require additional measures to ensure that refunds reach the claimants who are entitled to receive them. Because each filing service is different, and the contracts with their clients vary, it is impossible to structure a uniform approach, and OHA will deal with filing services individually.

Comment: Several commenters generally supported the proposals to expedite the final stages of the refund process by using electronic filings and strict time limits, noting that substantial delays have occurred in the past. They also urged DOE to make sufficient resources available so that OHA could process the applications quickly. One commenter urged OHA to consider accelerating the process, and suggested shortening the proposed 180-day filing period.

Response: While the task OHA undertook in fashioning the crude oil refund process—reaching injured claimants across the United States—has been enormous, we acknowledge that there have been substantial delays. For that reason, we are designing a process for the final refund distribution that will operate with maximum efficiency. As described in the November 12 notice, eligibility for final refunds is limited to successful claimants who received prior refunds. No new parties are permitted to apply for refunds. No changes will be made in the purchase volumes previously approved by OHA. The time for filing an application for the final refund will be strictly limited to 180 days. The choice of this time period represents a careful balancing of fairness versus expediency. We need to allow sufficient time for eligible claimants to learn the refund is available, to verify their claims, and update their information in OHA's database. In our view, 180 days is a reasonable length of time to accomplish this objective. However, we believe that a shorter time would not be fair to smaller claimants, who might not learn about the refund availability as soon as larger applicants who have corporate or government officials, lawyers, or filing services representing their interests.

Comment: One commenter, a trade association that estimates few of its members' claims would exceed $100, challenged the proposal not to send direct mail notice of the final refund to claimants who would receive less than $250. This commenter asserts that OHA “provides little justification for the $250 cut-off” in the November 12 notice, and advocates using the same $50 cut-off that OHA used for the supplemental refund authorized in 1995. See Issuance of Supplemental Refund Checks in Special Refund Proceeding Involving Crude Oil Overcharge Refunds, 60 FR 15562 (1995). The commenter argues that the marginal cost to DOE of giving notice to smaller claimants cannot be so high as to justify cutting them out of the information chain and consequently reducing the chance they will learn of the refund availability, and urges OHA to “reexamine its assumptions.”

Response: After considering this comment, we have decided to adopt a $200 cut-off level for giving direct notice to claimants eligible to receive final refunds. Using the $50 cut-off advocated by the commenter instead of the $200 cut-off level would mean mailing out notice to nearly 29,000 additional claimants, and the cumulative amount of refunds these claimants could receive represents only 1.1 percent of the total fund available. For these reasons, we believe adopting the $200 cut-off level strikes a reasonable balance that will still enable OHA to notify a large number of claimants eligible to receive virtually all of the money while avoiding an undue administrative burden. OHA's current database contains only purchase volume information for each claimant. The $200 refund amount must therefore be expressed as a gallon figure; at the estimated volumetric of $0.00072 per gallon, a refund of $200 translates to a cut-off volume of 280,000 gallons. Thus, claimants who purchased less than 280,000 gallons of refined petroleum products during the controls period will not receive direct notice of the final refund. Direct mail notice notwithstanding, all valid, timely claims will be considered.

In addition to publishing this notice in the Federal Register, OHA will publicize the commencement of the claims proceeding with a press release, and we will attempt to communicate with associations or organizations that represent entities who are likely to be claimants to alert them to the proceeding. We will not adopt a processing cut-off for small claimants, even though Section 205.286(b) of the Subpart V regulations would permit that action. Finally, we note that this commenter can obviate its specific concerns by taking responsibility for alerting the claimants it represents to the coming opportunity to obtain a final crude oil refund payment.

Comment: One commenter, a State energy office, urged OHA to eschew the proposed refund process altogether, and give all of the crude oil overcharges reserved for claimants to the States for indirect restitution. Under the terms of the Stripper Well settlement, the Petroleum Overcharge Distribution and Restitution Act of 1986 (“PODRA”), DOE's Modified Statement of Restitutionary Policy, and a long line of decisions by OHA and the Federal courts, DOE is obliged to make a final distribution of the entire amount of funds reserved for successful crude oil refund claimants “insofar as practicable.” Accordingly, we must reject that commenter's suggestion, which would contravene the legal and policy underpinnings of the crude oil refund proceeding. Policy consideration and binding precedent dictate that the specific funds at stake be used first for direct restitution to claimants. However, if there remains any unclaimed money at the end of the refund process, we will divide it equally between the States and the Federal government, for indirect restitution under the terms of the Stripper Well settlement agreement.

Comment: One commenter, an attorney who has pending lawsuits against DOE and against claimants whom he does not represent, including one or more civil actions in which he seeks a fee from the funds held for claimants by DOE to compensate him for his purported role in bringing about the final crude oil refund distribution, asserted that DOE should deduct any fee awarded to him before disbursing any refunds to claimants.

Response: Recent Federal court decisions have rejected a similar fee claim advanced by this same commenter. The United States Court of Appeals for the D.C. Circuit held that since the Federal government has not waived its sovereign immunity, it could not order DOE to pay a fee from crude oil overcharge funds in its possession to this commenter under the common fund doctrine for helping third parties recover money from a government-created escrow account held in the United States Treasury. Kalodner v. Abraham, Civil Action No. 97-2013 (RWR) (D.D.C. July 30, 2001), 3 CCH Fed. Energy Guidelines ¶ 26,739, aff'd, 310 F.3d 767 (D.C. Cir. 2002). As the Court of Appeals noted, the sine qua non of Federal sovereign immunity is the Federal government's possession of the money in question; nothing more is needed. The D.C. Circuit affirmed the District Court, whose decision also noted that the OHA refund process is a by-product of a public enforcement action undertaken by DOE under the Economic Stabilization Act of 1970 (“ESA”), and the Emergency Petroleum Allocation Act of 1973 (“EPAA”), as amended. Under those statutes, there also existed a parallel private right of action for overcharges made in violation of Federal oil price controls. It is only through a private right of action for recovery of overcharges that a plaintiff could be awarded legal fees from a private party defendant. The commenter has never represented any of the private parties from whom he now seeks a fee from the escrow account held in the Treasury for crude oil claimants, and he never filed a private overcharge action on their behalf. Furthermore, nothing in the agency's applicable Subpart V regulations, 10 CFR Part 205, Subpart V, nor in any of the many refund cases decided after the promulgation of these regulations in 1979, authorizes an attorney's fee award refund in these circumstances. Thus, there appears to be no basis whatsoever for DOE to pay a fee to this commenter, and no need to consider deducting any amount for a fee before disbursing refunds to claimants.

III. The Effect of Utility Deregulation on Eligibility To Receive Refunds

Utilities received many of the largest crude oil refunds. Although OHA received no written comments concerning the impact of changes in the utility industry that have occurred since 1987, the matter deserves special mention here. As OHA stated in the Notice Explaining Procedures for Processing Refund Applications in Crude Oil Refund Proceedings Under 10 CFR Part 205, Subpart V, 52 FR 11737 at 11742; 7 DOE (CCH) ¶ 90,512 (April 10, 1987) (the 1987 Notice), crude oil refunds to utilities are conditioned on each utility's certification that it will notify the applicable State regulatory body and pass through the entirety of the refund to its retail customers. This requirement is premised on the notion that regulated utilities were not themselves injured by crude oil overcharges, since they historically passed on these overcharges to their customers through regulatory fuel adjustment cost mechanisms in the form of higher rates for electricity. Since 1987, changes have occurred. Some States have enacted various types of deregulation schemes, which in turn led to the disintegration of many firms in the public utility industry. As a result, the same regulatory mechanisms that were previously available to effectuate restitution to overcharged utility customers may no longer be available. In such instances OHA may require a modified certification from the utility claimant. The revised certification will eliminate the reference to a governmental regulatory body while retaining the requirement that the utility pass the refund through to its retail customers on a dollar-for-dollar basis.

IV. Final Refund Procedures

Based on our discussion of the comments above, OHA will adopt the following final refund procedures. As explained in the November 12 notice, we must verify the accuracy of information in the OHA crude oil database before disbursing final refunds to individual claimants. OHA will send notice to all claimants (or their representatives of record) who purchased at least 280,000 gallons of refined petroleum products during the controls period and therefore are eligible to receive refunds exceeding $200 based on an estimated per-gallon volumetric amount of $0.00072. This will include the 34,000 largest claimants. The orders authorizing prior crude oil refund payments required claimants to notify OHA when their addresses change, and notice will be sent to the last known address in OHA's crude oil database. The notice will advise the claimant of the availability of the final crude oil refund payment, and show the information that is in the OHA database, including name, address, and a contact person. A unique PIN number will be assigned to each claimant. A claimant must use that PIN in order to verify the information in the database. The claimant must indicate whether the applicant shown in the OHA database should receive the refund, or whether the refund cannot be paid to the listed applicant for any reason, e.g., due to death, divorce, bankruptcy or dissolution of a business.

For the final crude oil refund distribution, we will not mail direct notice to claimants who purchased less than 280,000 gallons of refined petroleum products during the controls period. 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 who are eligible to receive additional refunds, as long as they are filed within the 180-day application period. DOE prefers to make payments by electronic direct deposit, and strongly encourages claimants to choose this method for their final refunds. Many checks issued to claimants during the crude oil refund process were lost, and direct deposit offers a more secure payment method than a paper check. Claimants who choose direct deposit must submit the bank name, city and State, ABA routing number, account number, and the name on the checking or savings account to receive their refund payment. If the direct deposit information is not provided, DOE will issue a check.

This information must be submitted to OHA between July 1 and December 31, 2004. It may be submitted by filling out and mailing the suggested format on the back of the notice using the enclosed postage-paid envelope, or by submitting the information via OHA's Web site at http://www.oha.doe.gov/2004supp/refunds.asp.

We ask claimants to provide their Employer Identification Number (for businesses) or Social Security Number (for individuals) because the Internal Revenue Service (IRS) requires that DOE report refund payments on IRS Form 1099-MISC. Claimants should submit this number even if they have previously provided it to our office. By law, individual claimants are not required to disclose their Social Security Numbers. However, if an individual does not report their Social Security number to us, we will direct that 31 percent of the amount of the final refund check be withheld and forwarded to the IRS as back-up withholding.

Unless we receive the information we have requested from each claimant on or before December 31, 2004, the claimant will forfeit all rights to the final crude oil refund. OHA is adopting the strict 180-day application deadline proposed in the November 12 notice. No extensions of time will be granted, and no late applications will be accepted. 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. No new applications will be accepted—the final crude oil refund payment is available only to successful claimants.

OHA establishes the following timeline for the final stages of the refund process: Mailing of written notice to all of the approximately 34,000 claimants eligible for refunds over $200 (based on a purchase volume exceeding 280,000 gallons and an estimated volumetric of $0.00072) will be completed by June 30, 2004. The period for claimants to submit crude oil refund application information (or verify the extant information in OHA's database) will run from July 1, 2004 through the December 31, 2004 deadline. OHA will issue a Federal Register notice setting forth the calculation of the final volumetric refund amount by January 31, 2005. OHA will begin paying refunds by February 1, 2005. OHA anticipates it will complete the payment of refunds by December 31, 2005. Any unclaimed funds will be divided equally between the States and the Federal government.