Judges Back $2-Billion Ruling Against Exxon : Company Ordered to Refund Money to States for Overcharging Customers for Oil From Texas

A three-judge appeals panel, upholding what is believed to be the largest judgment in U.S. history against a single defendant, ruled Monday that Exxon Corp. must pay nearly $2 billion in refunds and interest for overcharging customers for oil produced from a Texas field.

The case was one of hundreds still pending from a seven-year period in which oil prices were governed by a complex system of regulations. President Reagan lifted those controls eight days after he took office in 1981, saying that the free market offered a better means of controlling oil prices and supplies.

“This is sort of the granddaddy case,” said Rayburn D. Hanzlik, who heads the Economic Regulatory Administration, the arm of the Energy Department handling cases that arise under the now-defunct regulations.

Controversy on Payment

But with a total of $8 billion expected to be awarded by the time the overcharge cases are all settled, some controversy has arisen over who should collect the funds. Because it would be difficult to locate all consumers who suffered from the higher prices in the case decided Monday, the special appeals court agreed with a lower court that the money should be distributed to state governments.

California’s share of the judgment, if upheld, would be about $180 million under a formula that divides the money according to how much energy the state used while the overcharges occurred. The states would be instructed to use the money for energy conservation projects, such as insulating homes of low-income persons.

Called ‘Unfair’

Exxon USA Executive Vice President S.J. Reso complained in a statement that the judgment was “inequitable and unfair” and added that the company is “considering our legal options, including a request for reconsideration and an appeal to the U.S. Supreme Court.”

But, Hanzlik noted, “our record with the Supreme Court is we’re batting a thousand. I’d say this is the end of this case.”

The special appeals panel, known as the Temporary Emergency Court of Appeals, upheld a 1983 lower court ruling that Exxon and its partners in the Hawkins Field near Tyler, Tex., had illegally sold their oil production as expensive “new oil” when it should have been classified as cheaper “old oil.”

Believed Largest

The world’s biggest oil company overcharged its customers by $895 million, which amounts to $1.9 billion when interest is added, the court ruled. Spokesmen for both sides said they believe it is the largest judgment against an individual defendant in U.S. legal history. Including Monday’s judgment, the government has been awarded or settled out of court for more than $5 billion stemming from illegal overcharges by oil firms.

Exxon, which owns two-thirds of the field, complained that it fell victim to regulations that were not even announced until two years after it had begun a multimillion-dollar investment in technology that increased the declining field’s output. Exxon noted, moreover, that the investment had been encouraged by the federal government as a step toward cutting the nation’s dependence on oil imports in the wake of the 1973 Arab oil embargo.

“Exxon chose to interpret the regulations one way, and we said that they did it wrong,” Hanzlik said.