Energy Management:

States' Use of Oil Overcharge Funds for Legal Expenses

RCED-89-60: Published: Mar 21, 1989. Publicly Released: Apr 27, 1989.

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Pursuant to a congressional request, GAO provided information on states' payments of legal fees they incurred in connection with the Exxon, Stripper Well, and Diamond Rock oil overcharge cases.

GAO found that: (1) 49 states paid $13.1 million of the $15.4 million they incurred for such legal expenses as retaining their own law firms, consultants, and attorneys general; (2) 5 states incurred legal expenses exceeding $1 million, while 18 states incurred expenses of less than $50,000; (3) states will use Stripper Well and Diamond Shamrock oil overcharge funds to pay for $11.3 million and use state funds for the remaining expenses; (4) the Exxon decision prohibited states from using the overcharge funds for legal expenses, while the Stripper Well settlement allowed states to use up to 5 percent of the funds, and the Diamond Shamrock settlement allowed states to use all of the funds, for legal expenses incurred in other cases; (5) states collectively used 9.6 percent of Diamond Shamrock funds to pay for legal expenses, although 12 states used at least 46 percent of those funds for legal expenses; (6) the Department of Energy (DOE) has issued inconsistent guidance on the appropriate expenditure of oil overcharge funds and has not sought clarification from the courts on whether states could use funds from the other cases to pay the legal fees they incurred in the Exxon case; (7) DOE required states to report annual expenditures of Stripper Well and Diamond Shamrock funds but did not require states to identify the cases for which they incurred legal expenses; and (8) states' receipts and expenditures of future crude oil overcharge funds will be governed by the provisions of the Stripper Well settlement.

Recommendation for Executive Action

  1. Status: Closed - Not Implemented

    Comments: DOE believes that: (1) its policy on the use of Stripper Well funds is clear and no further policy statements are necessary; and (2) the Diamond Shamrock agreement contains a unique provision allowing the expenditure of funds for attorney's fees. The majority of the funds have already been obligated, making further policy development inappropriate.

    Recommendation: To resolve past inconsistencies, the Secretary of Energy should direct the Under Secretary to provide clear policy guidance to the states on the use of Stripper Well and Diamond Shamrock funds for Exxon legal expenses.

    Agency Affected: Department of Energy


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