NEW YORK FEB. 23 -- Texaco Inc. announced an agreement today to pay $1.25 billion to the government to settle claims it overcharged customers for oil during the 1973-81 period of price controls.
The nation's third largest oil company said it would provide a first installment of $400 million when the agreement is closed and pay the remainder over the next 5 1/2 years.
"Texaco has set aside reserves for this contingency and, as a result, this settlement will have no impact on current earnings," company president James W. Kinnear said in a statement.
The oil company, based in White Plains, N.Y., is the latest in a line of companies forced to pay large sums of cash to resolve charges they violated pricing restrictions on crude oil and refined products during the period of federal price controls.
"Prior to the Texaco settlement, we have received about $6.1 billion in settlement funds," said Jack Vandenberg, a spokesman for the Department of Energy in Washington. He said the department expects to collect about $1 billion more to resolve similar claims, bringing the total to $8.2 billion.
On Dec. 15, Chandler Van Orman, who has been nominated to head the department's Economic Regulatory Administration, told the Senate Energy Committee 280 cases remained to be resolved and lawsuits had been started in all but seven.
The basic premise of the government's case has been that during the era of federal price controls, companies made illegal profits by classifying "old" oil, which was obtained from properties that were producing before 1973, as "new" oil and selling it at higher prices.
One company that previously chose not to settle was Exxon Corp.
Ordered by a federal court to repay consumers more than $2 billion for overbilling for oil from one Texas field between 1975 and 1981, Exxon unsuccessfully battled the charges all the way to the U.S. Supreme Court, which refused to hear the appeal in January 1986.
Exxon maintained it could not be held accountable for confusing federal regulations defining what was "old" oil and what was "new" oil.
Texaco shared that position, saying in its statement Tuesday that the regulations were "ambiguous and were clarified and revised several times during the period in question."
But in the end, Texaco decided the battle would not be worth the effort.Kinnear said the settlement "resolves an unusually massive, complex set of issues arising out of the more than $70 billion worth of business the company conducted in crude oil and refined products in the U.S. over this period."
Texaco said the Department of Energy estimated its claims against Texaco could have totaled $2.1 billion.Vandenberg said about 15 percent of the $1.25 billion settlement covered refined product price violations, with the money destined to go into a fund to repay injured parties.
The remaining 85 percent covers crude price violations, and a fifth of that will go into the injured party fund and the rest will be split evenly between the federal government and the states, he said.
Late last year, the Department of Energy extended the deadline for injured parties to file claims to June 30. More than 16,000 claims had been filed before the extension.
The agency said then that a claim for a million gallons of refined products overcharged would mean about $800 coming to the claimant.
Texaco officials said its settlement with the agency is subject to agreement on the terms of a final agreement, various regulatory approvals and appropriate confirmation by the U.S. Bankruptcy Court, which is overseeing Texaco's financial reorganization.
"Conclusion of these matters will free Texaco from years of additional and costly litigation -- allowing us to concentrate our efforts on making our company stronger and more productive as we emerge from Chapter 11," Kinnear said.
Texaco filed for protection from creditors under Chapter 11 of the federal bankruptcy laws last April to avoid having to post a potentially ruinous bond while appealing a $10.3 billion damage judgment held by Pennzoil Co.
Pennzoil won the judgment when a Houston jury ruled Texaco had improperly interfered with a bid by Pennzoil to acquire part of Getty Oil Co. and bought Getty itself.