Department of Energy Needs To Develop Better Guidance for Settling Oil Overcharge Cases With Long-Term Payment Provisions

RCED-85-120: Published: Aug 13, 1985. Publicly Released: Sep 23, 1985.

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GAO reviewed the Department of Energy's (DOE) Economic Regulatory Administration (ERA) audits of oil companies to ensure that they comply with federal petroleum pricing regulations. When an oil company is found to have overcharged for petroleum products, DOE negotiates a settlement agreement with the company that provides for payments by the company to the government. Pursuant to a congressional request, GAO reviewed agreements that provided for long-term repayment periods to: (1) determine whether DOE had adequate justification for negotiating long-term settlements; and (2) calculate the amount of interest on settlement agreements for which DOE had only specified the total settlement amount.

GAO found that: (1) while ERA has the authority to settle oil overcharge cases, it has not issued procedures or guidelines to ensure that its regional offices adequately analyze oil companies' financial conditions before reaching settlement agreements; (2) for 8 of the 10 long-term settlement agreements reviewed, ERA had not adequately documented financial analyses used in negotiating settlement agreements; and (3) it was difficult to obtain information about the poorly documented agreements because a number of officials involved in negotiating the agreements had left ERA. In addition, GAO found that: (1) the total settlement amount for 20 settlements that did not specify interest amounts was $41.6 million and included interest charges totalling $16.8 million; and (2) by not separating interest charges from settlement amounts, DOE overstated the amounts it had accepted as resolution of the alleged pricing violations.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: On June 30, 1986, the ERA Special Counsel sent a memorandum to its headquarters and field offices containing specific guidelines on when and how to enter into settlements with long-term payment provisions. It appears that, if these guidelines are effectively implemented, the problems identified by GAO will be resolved.

    Recommendation: To provide adequate assurance that the long-term settlement agreements are equitable and that the companies are able to make these long-term payments, and to provide the opportunity to review the basis for these decisions, the Secretary of Energy should have the Administrator, ERA, develop and implement written standardized procedures or guidelines that require: (1) adequate analyses of oil companies' current and past financial condition; (2) resolution of any questions, concerns, or inconsistencies about the companies' past financial history and the owners' compensation; and (3) adequate documentation of the analyses performed and the basis for the ultimate agreements.

    Agency Affected: Department of Energy

  2. Status: Closed - Implemented

    Comments: A responsible DOE official told GAO that it has been DOE policy, although unwritten, for the past 2 years to separately state the principal and interest terms in long-term agreements, and that it has been strictly adhered to. However, to ensure that this practice continues, the ERA Special Counsel plans to document this policy.

    Recommendation: To ensure that each of the DOE agreements accurately states the terms of the settlement, the Secretary of Energy should direct the Administrator, ERA, to issue a written policy requiring that both the principal amount, which settles an oil company's alleged violations, and the interest amount and terms be specified in the settlement agreement. The Administrator should implement this policy for those cases currently being negotiated and for any future settlement negotiations.

    Agency Affected: Department of Energy


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