States Urge Energy Officials to Scrap Oxy Settlement

California and 18 other states Wednesday urged the Department of Energy to scrap a $150-million settlement with Occidental Petroleum Corp. in a $710-million oil overcharging case, suggesting that attempts at political influence might have played a role in the reduced levy.

Critics of the proposed settlement--including the states, Chevron USA Inc. and a coalition of utilities--contended that other oil companies have had to pay far more than the 21 cents on the dollar in comparable overcharging cases. Crude oil prices were regulated from 1973 to 1981, with higher prices set for “new” oil to encourage production.

Occidental’s lawyer pointed out that the alleged overcharging was committed by Cities Service Oil & Gas Corp. before it was acquired by Occidental in 1982. He warned that if the settlement is changed, the case could be reopened and payments to states could be held up for years.

At issue is a September, 1988, decision by the Energy Department’s office of hearings and appeals, which held Cities liable for $710 million for allegedly overcharging.

But in February, the department’s economic regulatory administration announced that instead of holding Occidental responsible for $710 million, the administration had reached a proposed settlement of $150 million. Under the terms of the settlement, Occidental would make an initial payment of $40 million to the department, followed by eight annual payments of $20.6 million. With annual interest of about 10%, the payments would total $205.1 million.

Of the money to be paid by Occidental, 40% will be set aside for the federal government and a like amount would go to states that were damaged, while 20% will be earmarked for individual claimants. The states are required to use their portion for a wide range of energy-related expenditures. California’s portion is 9.1%, said James F. Flug, a Washington attorney representing California and 13 other states.

Flug said he suspected that former Energy Secretary John Herrington played an unusual personal role in arranging the settlement, citing a 1988 letter from Occidental’s chief executive, Armand Hammer.

‘Mutually Acceptable Terms’

“We suspect, but have no way of knowing, that secretary-level involvement had something to do” with achieving a settlement so favorable to Occidental, Flug told the hearing by the economic regulatory administration.

Herrington was unavailable for comment.

In the April 8, 1988, “Dear John” letter to Rep. John D. Dingell (D-Mich.), chairman of the House Energy subcommittee on investigations, Hammer said, “Secretary Herrington has indicated a willingness to work with me to try to resolve this matter on terms that will be mutually acceptable” to the department and Occidental.

Hammer added that Herrington requested that he contact Dingell “to apprise you of our position.”

Four days later, Dingell wrote Hammer, “I am not quite sure why Secretary Herrington felt it necessary that you contact me about these matters.”

Punishment Sought

In May, Dingell took a direct interest in the matter, asking Energy Secretary James D. Watkins to hold up on the Occidental settlement until “allegations of fraud are fully investigated by the department and resolved.”

Dingell added that he had asked the General Accounting Office, Congress’ auditing arm, to examine the matter for the subcommittee. The inquiry is still under way.

Philip P. Kalodner, representing the coalition of firms including Southern California Edison Co. and Pacific Gas & Electric Co., told the regulatory panel that the oil company had committed a “gross, horrendous violation,” adding that it should be punished.

He said if the panel was not willing to seek the maximum punishment, “I remain available to take over representation (of the government’s case)--without charge.”

Chandler L. Van Orman, administrator of the economic regulatory administration, said the hearing record would remain open until Oct. 12, after which the panel is expected to announce its decision whether to stand by the proposed settlement.