Case No. RF340-00020
December 12, 1997
DECISION AND ORDER
OF THE DEPARTMENT OF ENERGY
Application for Refund
Name of Petitioner: Enron Corp./BTU Energy Corporation
Date of Filing: October 11, 1991
Case Number: RF340-20
On September 14, 1988, the Economic Regulatory Administration of the Department of Energy (DOE) filed a Petition with the Office of Hearings and Appeals (OHA) requesting that the OHA formulate and implement procedures for distributing funds obtained through a consent order with Enron Corp. (Enron). See 10 C.F.R. Part 205, Subpart V. The consent order resolved DOE allegations that Enron and all of its subsidiaries, affiliates, prior subsidiaries, predecessors and successors in interest violated the mandatory petroleum regulations in their sales of crude oil and refined petroleum products from January 1, 1973 through January 27, 1981 (the consent order period). On July 10, 1991, the OHA issued a Decision and Order setting forth final procedures for disbursing the portion of the Enron settlement fund attributable to various Enron entities' sales of NGLs and NGLPs. Enron Corp., 21 DOE ¶ 85,323 (1991) (Enron). These covered Enron entities are UPG, Inc. (UPG), Northern Propane Gas Company (Northern), and Florida Hydrocarbons Company. In accordance with the goals of 10 C.F.R. Part 205, Subpart V, Enron implements a process for refunding the consent order funds to purchasers of Enron NGLs and NGLPs who are able to demonstrate that they were injured as a result of the covered entities' alleged overcharges. This Decision and Order renders a determination upon the merits of an Application for Refund submitted on behalf of BTU Energy Corporation (BTU), a wholesale marketer that purchased Enron butane.
I. Background.
In Enron we adopted a presumption that the alleged overcharges attributable to NGLs and NGLPs had been dispersed equally in all sales of refined product made by the covered entities during the consent order period. Enron, 21 DOE at 88,959. We stated that, in the absence of a demonstration of a disproportionate overcharge, a claimant would be allocated a share of the consent order funds on
a volumetric basis. We provided that eligible claimants would receive $.00601 per gallon of covered Enron product purchased.(1)Id. We refer to the dollar amount derived by multiplying an applicant's purchase volume by the per gallon refund amount as the applicant's allocable share.
Enron generally requires a claimant to demonstrate that it was injured by Enron's alleged overcharges in order to receive a refund equal to its full allocable share. However, in Enron, we adopted several presumptions of injury that would allow certain types of claimants to receive a refund without a detailed demonstration of injury. We established that resellers, retailers and refiners seeking volumetric refunds of $10,000 or less were injured by Enron's pricing practices. Id. at 88,960. Such applicants would, therefore, only have to document their purchases of covered Enron products in order to receive a refund of their full volumetric share. Id. at 88,960.
We further established that a reseller, retailer or refiner whose volumetric share of the Enron consent order funds exceeds $10,000 may elect to receive as its refund the larger of $10,000 or 60 percent of its volumetric share up to $50,000. Id. Accordingly, a claimant in that group need only establish the volume of Enron covered products that it purchased during the refund period to receive a refund of 60 percent of its allocable share up to $50,000.
BTU has chosen not to rely upon these presumptions of injury. Instead, it seeks a full volumetric refund by submitting information aimed at showing that it was injured with respect to the product that it purchased from Enron and resold. Generally, a firm which had a long term purchasing arrangement with Enron must meet a two-step requirement to make an injury showing. First, in order to determine the degree to which market conditions forced an NGL reseller or refiner to absorb the alleged overcharges, we determine whether the firm accumulated banks of unrecovered increased product costs large enough to justify the amount of the refund claimed during the period when it purchased from Enron through the end of the banking period. Next, the firm must show that market conditions forced it to absorb the alleged overcharges. Id. at 88,960. In this regard, the OHA applies a three part competitive disadvantage analysis that has been upheld by the courts. See Behm Family Corp. v. DOE, 903 F.2d 830 (Temp. Emer. Ct. App. 1990); Atlantic Richfield Co. v. DOE, 618 F. Supp. 1199 (D. Del. 1985). Under the competitive disadvantage methodology, we infer that where the firm was required to make purchases at above average market prices, it generally indicates that the firm was unable to pass through the alleged overcharges. Conversely, we infer that purchases made at prices below the market average placed a firm at a competitive advantage and did not injure the firm.
In addition, however, a reseller or refiner which made only spot purchases of Enron product must overcome a rebuttable presumption that it was not injured as a result of its purchases. Id. at 88,961. Enron states that a claimant is a spot purchaser if it made "only sporadic purchases of significant volumes of covered Enron product." In order to receive any refund in the Enron proceeding, such a claimant must rebut the spot purchaser presumption by submitting specific and detailed evidence aimed at establishing the extent to which it was injured as a result of its spot purchases from Enron. Id., citing Sauvage Gas Company, 17 DOE ¶ 85,304 (1988)(Sauvage).
II. OHA's Notification of Presumed Non-injury to BTU.
As noted above, BTU is attempting to show that it was injured by its purchases from Enron in order to receive a full volumetric refund for the 2,887,500 gallons of butane that it claims to have purchased from Enron's subsidiary, UPG, during the refund period. BTU has submitted information aimed at establishing that it has banks of unrecovered increased product costs sufficient to support its refund claim, and that a price comparison indicates that it was placed at a competitive disadvantage when it purchased product from Enron.
The OHA reviewed the BTU submissions and, in a letter dated June 12, 1997, informed Michael O'N. Barron, BTU's representative in this proceeding, that because the firm was a probable spot market purchaser of NGL products, it would be required to submit additional information to substantiate the claim that it experienced economic injury as a result of its purchases from Enron. Specifically, we noted the following:
[Y]ou state that BTU was established in ... 1974 and operated at the wholesale marketer level of NGL distribution. You further state that [BTU] ... had no production and storage facilities, and concentrated on the purchase and sale of ... gas liquids from producers and marketers to other large wholesale marketers and producers. As indicated in your submission in RF340-82 (Vanguard Petroleum Corporation), the characteristics of sales in the producer/wholesaler market often involve large volumes and a price that is usually negotiated for each transaction. See Statement of P.E. Goth, Jr. at 2.
Accordingly, we find strong indications that ... BTU purchased Enron product primarily on the spot market. Spot purchasers are generally presumed not to have been injured by the alleged overcharges. The OHA has adopted this presumption because firms usually made spot purchases only when those transactions were beneficial to them and provided the best available terms. Thus, it is unlikely that they would have been injured on those purchases by the consent order firm's pricing practices.
There are two ways that ... BTU may respond in order to receive a refund in the Enron proceeding. The first is to demonstrate that [it] was not a spot purchaser. To do this, you should submit a detailed description of [BTU's] purchasing relationship with Enron and [BTU's] relationship with its customers, that establishes that [it was] required to make regular purchases from Enron in order to maintain supplies to established customers. Alternatively, ... BTU could show that [it was] forced by market conditions to resell the product purchased from Enron at a loss that was not subsequently recovered.
June 12, 1997 letter from Thomas L. Wieker, Deputy Director, OHA, to Michael O'N. Barron.
In addition, the letter indicated that we required more information from BTU concerning its business operations as an NGL wholesale marketer in order to evaluate the appropriateness of its injury claim. We asked BTU to provide a description of the typical manner in which it located customers and negotiated the purchase and sale of NGLs. We also advised BTU to submit some sample sales contracts or any other documents showing the nature of the agreements between BTU and its customers during the refund period. Finally, we asked BTU to identify its marketing region and describe how its purchase and sale transactions facilitated the distribution and consumption of NGLs. Id.
In a submission dated August 6, 1997, Mr. Barron responded to the OHA's June 12 request for information with a memorandum concerning the applicability of the spot purchaser presumption to BTU, the question of whether BTU maintained supplies of product for its regular customers, and BTU's absorption of Enron overcharges in its subsequent resale of Enron product (the August 6 Memorandum). On August 14, Mr. Barron submitted a letter from Jim Bailey, BTU's President, concerning the firm's business operations (the James Bailey Letter).
As discussed below, the information provided to us by BTU is insufficient to establish that the firm was injured by its purchases from Enron.
III. Analysis.
A. BTU Purchased and Sold NGLPs on the Spot Market.
In determining whether BTU's purchases from Enron were spot purchases, it is important to first understand the purpose and scope of the presumption, so that it may be correctly applied to the facts of this case. In this regard, Enron's extensive discussion of the spot purchaser presumption in the context of responding to comments on the proposed Enron implementation order provides a more detailed explanation of the meaning of the presumption, and can provide a basis for our analysis of whether the presumption is applicable to BTU's purchases and sales of Enron products.
In Enron, we concluded that the concept of spot purchaser is sufficiently well defined to allow applicants to understand the theoretical basis for the presumption.
The term spot purchase is commonly used and understood in the petroleum industry to mean a contract for the purchase and sale of petroleum products on a short term basis. Sauvage Gas Company/NGL Supply, Inc., 19 DOE ¶ 85,622 at 89,142 (1989)(Supply). The OHA has interpreted the term spot purchaser to mean any firm that purchased significant volumes of covered products from a supplier on a sporadic or isolated basis outside of a long term supply obligation.
Enron at 88,955. It is clear from this discussion that the purchaser's discretion in selecting its supplier of product is a key element underlying the presumption of non-injury.
We have consistently determined that spot purchasers tend to have considerable discretion in where and when to make purchases and therefore would not have made spot market purchases from a firm at increased prices unless they were able to pass through the full price of the purchases to their own customers. The OHA has utilized this spot purchaser presumption of non-injury in numerous special refund proceedings.
Id., citing Sauvage, 17 DOE ¶ 85,304. It should be noted that short term, discretionary sales and purchases were the rule rather than the exception in certain portions of the NGL industry, particularly in the producer and wholesale reseller markets.
Although such spot market purchases of Enron product establish a presumption of non-injury to the purchaser, such a purchaser may submit additional information concerning its business operations to rebut the presumption on a case-specific basis. As we noted in Enron,
The OHA examines the circumstances of each case to make an initial determination whether the applicant's purchases were likely to have been spot purchases. Where it appears likely that an applicant's purchases were spot purchases, the applicant is generally notified of our tentative conclusion and offered an opportunity to show either that it was not a spot purchaser or that it was injured by its spot purchases. Since this analysis focuses on the fundamental refund issue, viz., whether the applicant was injured, there is no merit to the claim that it is based on an impermissibly vague definition. ...
In Supply, ... we stated that "the determination of whether an individual's purchases from a particular supplier are spot purchases is a question of fact and therefore must be made on a case-by-case basis." Id. at 89,143.
Id. at 88,955-56. This case-by-case injury analysis is a broad one. Under this method, "we consider the circumstances under which a claimant made its purchases and any information submitted by the applicant that might aid our determination concerning whether its purchases were spot purchases." Our determination of whether a spot purchaser was injured is similarly based on a case-by-case analysis of information submitted by the claimant. Id. at 88,956- 57.
After reviewing the evidence submitted by BTU, we conclude that it has not rebutted our finding that it purchased from Enron on the spot market, nor has it made the showings of injury required of spot market purchasers. The information provided by BTU concerning its purchasing relationship with Enron and its relationship with its customers does not establish that BTU was required to make regular purchases from Enron in order to maintain supplies to established customers.
As an initial matter, we note that BTU was not formed until the Fall of 1974, and its first sale occurred in the fourth quarter of 1974. Accordingly, it is clear that BTU was not operating as a reseller during the period April 1972 through March 1973, the regulatory "base period" for purposes of the DOE allocation regulations. Consequently, BTU had no regulatory obligation to furnish any "base period" customers with a steady supply of product. Furthermore, BTU has submitted nothing to indicate that it maintained regular business relationships with its customers to the extent that BTU would have had been forced to purchase Enron products at unfavorable prices in order to maintain a steady supply of product to long-term, regular customers of BTU.
BTU's pattern of purchases from Enron indicates that BTU's purchases involved large volumes of product and were made on a sporadic, discretionary basis, rather than pursuant to long term supply contracts that would have committed BTU to a particular volume of purchase. According to the documents submitted by the firm, BTU claims to have made a total of five purchases from Enron's UPG affiliate, which occurred sporadically from the first quarter of 1976 through the third quarter of 1979. The claimed purchases, all butane, are listed (in gallons) as follows:
1976 First Quarter 472,500
1977 First Quarter 630,000
1977 Second Quarter 483,000
1978 Fourth Quarter 1,050,000
1979 Third Quarter 252,000
See Schedule A attached to BTU's October 11, 1991 submission.
As an initial matter, we find that only four of these transactions were actual purchases from UPG, based on our comparison of BTU's records with UPG sales records obtained from Enron. This comparison shows that the UPG records do not indicate that UPG sold butane to BTU in 1976. The "Butane Sales and Purchase Records" submitted by BTU indicate that the 1976 transaction with BTU involving 472,500 gallons of butane was probably an exchange of product transaction also involving Texas Petroleum Corporation. In addition, BTU does not include this transaction in the analysis of its purchase and sales costs attached as Exhibit 1 to its August 6, 1997 submission. Accordingly, we will exclude this volume and limit BTU's claim to the 2,415,000 gallons of butane documented in the UPG sales records.
On its face, the fact that BTU made only four large purchases from UPG during the consent order period, strongly suggests that BTU was a spot purchaser of Enron products. Accordingly, Enron was not a regular supplier of butane to BTU during the refund period. Nor is there any information in the record to indicate that BTU was forced to buy butane at a loss to satisfy contractual obligations to base period or regular customers. The fact that BTU's purchases were sporadic, discretionary, and significant in volume supports our finding that BTU purchased butane from Enron during this time period because it was advantageous for the firm to do so.
B. The Spot Market Presumption is Applicable to BTU.
In its filings, BTU raises several objections to our application of the spot purchaser presumption in this proceeding. In a December 16, 1992 letter, BTU notes that it previously received refunds based on a showing of injury in both the Empire Gas Corporation and ARCO Special Refund proceedings, and that a similar showing of cost banks and competitive disadvantage has been submitted in this proceeding. However, a review of these unpublished Decisions reveals that the OHA did not address the possibility that BTU was a spot purchaser of either Empire or ARCO products in these Decisions. Both these determinations to grant BTU refunds relied solely on a review of the cost banks and competitive disadvantage analysis submitted by BTU. Furthermore, we must again note that the OHA considers each Application on a case-by-case basis, applying general OHA precedent, as well as the specific standards of each proceeding, to each unique set of circumstances presented in these Applications for Refund.
BTU's August 6 Memorandum directly addresses the spot purchaser presumption of non-injury and its relation to BTU. In this memorandum, BTU asserts that OHA's application of a presumption of noninjury to spot purchasers "does not rest on any significant factual basis but rather on a few anecdotes gathered by OHA personnel." August 6 Memorandum at 4. In contrast, BTU asserts that there is a large amount of purchase and sales information available to the OHA which challenges its "current application" of the spot purchaser presumption.
The banked product cost records of a wide variety of refund applicants have been available to OHA for 14 years. These records show sizable banks of increased product costs that were not passed on.
Id. BTU contends that these banks indicate that the "so-called spot purchases" made by different types of marketers were no more or less "beneficial" than purchases made under long-term contracts or a series of regular purchases. BTU concludes that "OHA's expansion of the established spot purchaser presumption from an isolated or sporadic purchase to all short term purchases" is particularly questionable in light of this cost bank data. Id. (2)
We do not agree. As an initial matter, we reject BTU's contention that our recent determinations on spot purchaser issues constitute an expansion of the spot purchaser presumption of noninjury. As we have noted in several of these decisions, there is no rigid requirement concerning frequency of purchases that underlies the spot purchaser presumption. The determination of whether a firm incurred injury rests on our evaluation of the unique set of facts arising in each case. Enron Corporation/H. C. Oil Company, 26 DOE ¶ 85,038 at 88.092-93 (1997) (Enron/HCOC), and cases cited therein. In the present instance, BTU's total of five purchases from Enron over a three and three quarter year period certainly were isolated and sporadic. With respect to the issue of frequency, BTU could only prevail through the rejection of any reasonable application of a presumption of non-injury to spot purchasers.
Nor are we persuaded by BTU's contention that the existence of cost banks necessarily indicates that a spot purchaser was injured by overcharges. The existence of cost banks has never been sufficient to establish that a firm was injured by overcharges if other factors, such as the size and pattern of purchases, the prices paid, and the purchaser's market position, indicated that the firm's purchases were discretionary. When the first refund procedures were established in Office of Enforcement (Vickers Energy Corp.), 8 DOE ¶ 82,597 (1981)(Vickers), OHA recognized that the situation of spot market purchasers often contrasted sharply with that of other customers of a consent order firm. Vickers, 8 DOE at 85,396-97. In Supply, we found that OHA's adoption of the spot purchaser presumption rested on our observation that a firm's position in the petroleum industry often determined whether it was likely to have incurred injury as a result of its supplier's alleged regulatory violations. Steady, base period customers such as small gasoline retailers were often tied to a supplier by the federal allocation regulations, a supply contract, and state branding laws. Firms purchasing product consistently from an allocated supplier under these conditions lacked the flexibility to take advantage of lower prices by making discretionary purchases, and were much more likely to have been injured by any overcharges that occurred. In contrast, firms purchasing significant volumes of product on the spot market tended to have considerable discretion to determine whether to purchase and, if so, to select product that they were able to resell at a profit. This distinction between different kinds of purchasers, independent of the existence of cost banks, forms an important part of the basis for adopting the spot purchaser presumption of non-injury. Supply, 19 DOE at 89,141. In the present instance, the issue of whether or not BTU had banks of increased product costs is not the key determinant in our analysis of the spot purchaser presumption. Rather, we have evaluated BTU's market position and the discretionary nature of BTU's purchases in accordance with OHA precedent in this area. Enron/HCOC, 26 DOE at 88,091-94.
C. BTU's Spot Purchases from Enron Were Discretionary.
As discussed above, we find that BTU's purchases of NGLPs from Enron were isolated, sporadic, and involved large volumes of product. Under these circumstances, we believe that BTU's purchases from Enron are precisely the sort of transactions that the spot purchaser presumption was intended to cover. Accordingly, in order to qualify for a refund, BTU must rebut the presumption that it was not injured by its spot purchases of Enron products. This presumption may be rebutted by the submission of evidence sufficient to establish that: 1) the purchases were necessary to maintain supplies to its established customers; or 2) the claimant was forced by market conditions to resell the product at a loss which was not subsequently recovered. See Quaker State Oil Refining Co./Certified Gasoline Co., 14 DOE ¶ 85,465 (1986); Amtel Inc./Highway Oil, Inc., 14 DOE ¶ 85,143 (1986). These are not the only grounds for rebutting the spot purchaser presumption. Any convincing evidence establishing that a spot purchaser was in fact injured by the alleged overcharges of a consent order firm would suffice to rebut the presumption. Supply, 19 DOE at 89,141 n. 2.
In accordance with the spot purchaser analysis, our June 12, 1997 letter to BTU invited the firm to make such a showing. BTU objects to this request. It argues that OHA is holding BTU to a higher standard for proving injury, i.e. that BTU must show that it "did far more than absorb any consent order firm overcharges." August 6 Memorandum at 6. We reject this argument. As discussed above, it ignores the importance of assessing the discretionary nature of spot market purchases in determining whether BTU experienced injury. In the case of discretionary, spot market purchases of Enron product, BTU may freely determine to accept a lower margin of profit than its base period margin as opposed to simply foregoing the purchase of higher priced Enron product and seeking less expensive product elsewhere. To the extent that BTU made any profit on the sale of such product, it was not injured by Enron's pricing policies. As we noted with respect to similar purchases by another Enron refund applicant:
In exercising its discretion to purchase Enron products, Gulf Coast made a voluntary business decision that we can only presume was in the best interests of the firm. As such, we also logically presume that Gulf Coast purchased these large volumes of Enron product at times that were advantageous to Gulf Coast (i.e., when it could realize a profit from the resale of the products on the wholesale market).
Enron Corporation/Gulf Coast Petroleum, Inc., 26 DOE ¶ 85,053 at 88,153 (1997). On the other hand, if some form of business necessity, such as supplying product to regular customers, impelled BTU to purchase higher priced Enron product that was immediately available, then BTU was indeed injured by the higher price of that product, even if BTU realized some small amount of profit on its sale.
In spite of BTU's disagreement with our injury analysis, the firm does make some assertions concerning it business relationships with its customers. BTU's August 6 Memorandum contains the following description of these relationships:
The probable customers for the butane that BTU purchased from Enron were the refiners, American Petrofina, Apco, Cities Service and Hudson Refining. These customers made approximately 70 contract purchases from BTU during the period that butane and natural gasoline were price controlled and at least 12 of these contracts called for BTU to deliver butane or natural gasoline on a daily or monthly basis, e.g. "400 bbls/day" or "50,000 gls per month." BTU's records do not indicate how long these contracts extended.
August 6 Memorandum at 6. As noted above, BTU supplied the OHA with the comments of James Bailey, President of BTU, concerning the arguments and assertions made in the August 6 Memorandum. The James Bailey Letter offers the following clarification of these assertions.
The usual purchase that BTU made was made using the short-term contract for a specific number of barrels or gallons to be delivered at a specific location. These were open market purchases and were the standard industry contract of the mid- 1970s up to the present. ...
In BTU's business I would say that less than 10% of our purchases were made for a particular customer with whom we had prearranged a sale. ... It is necessary to have product in inventory at different locations and have it available when a customer calls. It simply was not possible to ask a customer to wait around until you found product from some other producer. We had too many competitors who had product in inventory and who were there to sell [to] that customer. ...
From the records that are left, it is very difficult to say definitely that the butane purchased from UPG was sold to the customers listed [in the August 6 Memorandum] .... To be accurate would require an analysis of our monthly inventories. However, it is a reasonable guess that American Petrofina, Apco and Hudson Refining were all refiners who were on our customer list and who used butane in their refining operations. These companies were regular customers and we sold them product when they needed it for their refining operations.
You will notice on my records that BTU had monthly contracts with companies like American Petrofina that called on us to deliver so many gallons per month. These contracts required us to buy butane and natural gasoline from suppliers and get it to Petrofina's refinery. It is impossible at this date to state definitely that the UPG product was bought to fulfill all or a portion of these contracts but it certainly is possible.
James Bailey Letter at 1-4.
While BTU makes some assertions concerning the use of Enron product to supply regular customers, it characterizes these assertions as "a reasonable guess" or "possible". Given the general nature of BTU's business operations, it is also quite possible that the Enron product was purchased on a discretionary basis, placed in the firm's inventory, and eventually sold to the first customer who offered an acceptable price to BTU. Certainly BTU was not a regular customer of Enron product, and had no special relationship with Enron's affiliate, UPG. James Bailey Letter at 3. Under these circumstances, BTU has not shown that a strong likelihood existed that its purchases from Enron were not discretionary in nature. Accordingly, we conclude that these purchases were spot purchases within the meaning of the spot purchaser presumption of noninjury.
As discussed above, the available evidence indicates that BTU's purchases and sales of Enron products were completely discretionary. BTU had no supply obligations that required it to purchase product for its customers, nor has BTU shown that it was required to purchase Enron product to maintain existing business relationships with regular customers. In exercising its discretion to purchase Enron products, we must conclude that BTU made a rational business decision. It must have determined that the Enron products were priced so that it would be likely to realize an acceptable amount of profit from the resale of those products on the wholesale market.
D. BTU Has Not Shown Injury from Its Spot Purchases.
As discussed above, there is no convincing evidence to indicate that BTU was required to purchase Enron product on the spot market in order to maintain existing business relationships with its regular customers. In the absence of such special circumstances, we have consistently held that a claimant seeking to demonstrate economic injury in order to overcome the spot purchaser presumption must submit evidence to establish that it was unable to recover the price it paid to the consent order firm. Standard Oil Co. (Indiana)/Cities Service Co., 12 DOE ¶ 85,114 at 88,336 (1984); Tenneco Oil Co./J.O. Cook, Inc., 9 DOE ¶ 82,580 at 85,427 (1982)(Tenneco/Cook). This position rests on our view that where a firm is exercising its discretion to purchase and sell product on the spot market, the recovery of its costs and any level of profit on the transactions are sufficient to demonstrate that the firm did not experience injury. In Tenneco/Cook, for example, Cook attempted to claim a refund for gasoline that it purchased and sold on the spot market at a low profit margin.
We brokered all of this gasoline at ½ to 1 cent above our cost. . . . We did not pick up the gasoline and sell it ourselves at retail.
Tenneco/Cook, 9 DOE at 85,427. The OHA concluded that these were "precisely the type" of transactions that are not eligible for a refund. The OHA found that Cook "suffered no injury from Tenneco's regulatory practices" because it was "able to not only pass through all of any alleged overcharges, but was able to make a profit on all of its sales of Tenneco gasoline." Id. By contrast, in Waller Petroleum Company, Inc./Wooten Oil Company, 13 DOE ¶ 85,110 (1985), the OHA found that Wooten had successfully demonstrated injury in its purchases of Waller product because it bought and sold Waller product at a loss in order to meet its obligations to its customers. Id. at 88,297.
BTU asserts that the unpredictable fluctuations in the NGLP spot market produced a constant risk that product in inventory would be sold at a loss, and that higher purchase prices clearly injured resellers.
When we purchased product from a company like UPG, our sales price was limited by our competitors and by market trends. We could offer to sell butane at any price we wanted but if we were above what was considered the market price, no one would buy from us. Consequently, our profit margin was limited and squeezed between our cost and the going market price. If UPG overcharged us and increased our cost beyond what was legal, then we very definitely suffered a loss of profit and were injured.
James Bailey Letter at 4. We do not agree. It is not sufficient for BTU to demonstrate injury by attempting to show that higher prices charged by Enron diminished the amount of profit that it realized on its sales of Enron product. We have consistently rejected the idea that a reseller making discretionary purchases on the spot market was entitled to any particular margin of profit, and that its failure to achieve that level of profit constitutes proof that it experienced economic injury as a result of the prices that it paid for product. Enron/HCOC, 26 DOE at 88,094-95, and cases cited therein. The fact that such purchases were discretionary and made within an actively fluctuating spot market strongly indicates that the spot purchaser was buying product that it believed would be profitably resold. The profit margin on such sales would fluctuate naturally depending on various factors affecting the supply and demand of product. Under these circumstances, a lower profit margin does not demonstrate that a particular reseller was injured by the price charged by a particular seller. As we stated in Tenneco/Cook, spot market purchases resulting in some level of overall profitability strongly demonstrate that the purchaser suffered no injury from the seller's regulatory pricing practices. Id., 9 DOE at 85,427.
In the present case, BTU freely chose to enter the wholesale reseller market for NGLPs in 1974 and to make four large volume purchases of Enron/UPG butane between January 1977 and August 1979. Absent convincing evidence to the contrary, this indicates to us that BTU's resales involving Enron products were generally profitable to BTU. In Exhibit 1 attached to the August 6 Memorandum, BTU compares its UPG purchase prices with specific prices in sales transactions that occurred immediately after those purchases. In some instances, BTU's sales prices were less than its purchase prices from UPG. However, this is not convincing evidence that BTU was forced to sell Enron/UPG butane at a loss. BTU states that it maintained an inventory of product at different locations in order to be competitive in the reseller market. James Bailey Letter at 3. There is no indication that the particular butane purchased from UPG was resold by BTU in the transactions documented in Exhibit 1. The locations of the product being purchased and sold is not documented, and there is no correspondence between the UPG volume purchased and the volume of the subsequent sales by BTU. Accordingly, we conclude that BTU has failed to show that it was forced by market conditions to sell product purchased from UPG at a loss which was not subsequently recovered.
In view of the circumstances set forth above, we have determined that BTU was a spot market purchaser of Enron NGLPs, and that it has not shown that it suffered injury with respect to these spot market purchases. BTU therefore has failed to rebut the spot purchaser presumption of non-injury in this proceeding. Accordingly, the BTU Application for Refund should be denied.
It Is Therefore Ordered That:
(1) The Application for Refund filed by BTU Energy Corporation (Case No. RF340-20) on October 11, 1991 is hereby denied.
(2) This is a final order of the Department of Energy.
George B. Breznay
Director
Office of Hearings and Appeals
Date: December 12, 1997
(1)1/ This amount was derived by dividing the fund received from Enron allocable to refined products ($43,200,000) by the estimated volume of refined products sold by Enron from June 13, 1973 through the date of decontrol of the relevant product (7,186,265,624). Id. at n. 8.
(2)BTU incorporates by reference the bank product cost information contained in the applications made by other wholesale marketers in other NGL refund programs. Exhibit 2 to the August 6 Memorandum contains an eleven page list of these refund applications.