Case No. RF300-16719

January 16, 1997

DECISION AND ORDER

OF THE DEPARTMENT OF ENERGY

Application for Refund

Name of Petitioner: Gulf Oil Corporation/Cabot Corporation

Date of Filing: May 9, 1991

Case Number: RF300-16719

This Decision and Order renders a determination upon the merits of an Application for Refund submitted by Cabot Corporation in the Gulf special refund proceeding, Case No. RF300-16719.

On July 25, 1985, 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 Gulf Oil Corporation (Gulf). See 10 C.F.R. Part 205, Subpart V. The consent order resolved DOE allegations that Gulf violated the mandatory petroleum regulations in its sales of crude oil and refined petroleum products from January 1, 1973 through January 27, 1981 (the consent order period). On September 8, 1987, the OHA issued a Decision and Order setting forth final procedures for disbursing the portion of the Gulf settlement fund attributable to Gulf's sales of refined petroleum products. Gulf Oil Corp., 16 DOE ¶ 85,381 (1987) (Gulf). In accordance with the goals of 10 C.F.R. Part 205, Subpart V, Gulf implements a process for refunding the consent order funds to purchasers of Gulf refined petroleum products who are able to demonstrate that they were injured as a result of Gulf's alleged overcharges.

In Gulf, we adopted a presumption that the alleged Gulf overcharges attributable to refined products had been dispersed equally in all sales of refined product made by Gulf during the consent order period. Gulf, 16 DOE at 88,736. 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 $.00064

per gallon of covered Gulf product purchased.(1)Id. at 88,739. We established that a refiner, reseller, or retailer claimant generally would be required to demonstrate that it was injured as a result of its Gulf purchases; that is, that it did not pass through to its customers Gulf's alleged overcharges. However, we established a presumption that firms claiming refunds of $5,000 or less would not be required to demonstrate that they absorbed the alleged overcharges. Id. at 88,740. We also established that end- users or ultimate consumers whose businesses are unrelated to the petroleum industry were injured by the alleged refined product overcharges. Id. Thus, end-user claimants need only document their purchase volumes of Gulf products to make a sufficient showing that they were injured by the alleged overcharges. Id.

In the Application submitted by Cabot Corporation on May 9, 1991, the company submitted only an Application form and Gulf Customer List showing that Cabot Corporation purchased 337,022 gallons of Gulf products under Gulf Customer Number 2031858-0 during the refund period. On August 29, 1991, Cabot Corporation submitted an affidavit signed by Mr. Donald Harper of Cabot Corporation. In the affidavit, Mr. Harper stated that, to the best of his knowledge and memory, Cabot Corporation purchased approximately 6,000,000 gallons of Gulf products each month for the production of carbon black. According to Mr. Harper, Cabot Corporation purchased 75,054,000 gallons in fiscal year 1979, and 69,384,000 gallons in fiscal year 1980. Based on this information, he estimated that Cabot Corporation purchased an average of 6,048,000 gallons per month from Gulf Oil Corporation during the refund period. He then used this figure to calculate a gallonage claim for Cabot Corporation from March 1973 to January 1981 of 573,846,000 gallons.

However, in reviewing the Application, the OHA determined that Cabot Corporation's Gulf purchases consisted entirely of residual fuel, which was decontrolled on June 1, 1976. 41 F.R. 13,896 (April 1, 1976). The OHA informed Cabot Corporation that the gallonage figure would require significant revision to reflect only the Gulf purchases of residual fuel made by Cabot Corporation from March 6, 1973 to June 1, 1976. Cabot Corporation was also informed that, given the size of the potential refund, we would require reasonable verification that Cabot Corporation purchased Gulf residual fuel in the claimed quantities during the refund period.

In response, Cabot Corporation submitted two contracts between Gulf Oil Corporation and Cabot Corporation for the period January 1, 1975 through December 31, 1975. One contract, between Gulf Oil Corporation and Energy Transport, Ltd. (an affiliate of Cabot Corporation) states that Energy Transport, Ltd. agreed to purchase a "Maximum of 1,800,000 bbls. (42 U.S. Gallons) and Minimum of 1,400,000 bbls. (42 U.S. Gallons) per calendar year, at buyer's option based upon market conditions.(2) Cabot Corporation also submitted a letter dated September 25, 1980, written by a representative of Gulf Oil Chemicals Company, which references "the Carbon Black Feedstock Contract of Sale between Energy Transport, Ltd. and Gulf Oil Chemicals Company which was signed by your company [Cabot Corporation] on 08/28/75 and commenced on 01/01/75.(3)The letter implies that the contractual terms to which Cabot Corporation agreed in the 1975 contract were in effect until the date of the letter, at which time, according to the letter, Gulf Oil Chemicals Company agreed that "the quantity clause of the Contract will be amended as follows: 1,400,000 barrels per year.(4)A memorandum included in the Application notes that "the amount of gallons purchased [according to the affidavit signed by Donald Harper] coincides with the terms of Gulf Oil and Energy Transport 1975 contract." (5)

If the OHA were to accept Cabot Corporation's documentation in full, it would establish the Cabot Corporation purchased between 1,800,000 barrels and 1,400,000 barrels of Gulf residual fuel each year for the time period January 1, 1975 through September 25, 1980. If we accept Cabot Corporation's contract with Gulf Oil Chemicals Company as evidence of purchases during the dates reflected in the contract, it would establish only that Cabot Corporation purchased between 1,800,000 barrels and 1,400,000 barrels of Gulf residual fuel during the 1975 calendar year.

As explained previously, residual fuel was decontrolled on June 1, 1976. For purposes of the Gulf special refund proceeding we are concerned only with Cabot Corporation's purchases of Gulf residual fuel from March 6, 1973 to June 1, 1976. While the contracts submitted by Cabot Corporation in support of its Application for Refund are helpful, the dates of the contract cover a minimum of 12 months (January 1, 1975 to December 31, 1975), or a maximum of 17 months (January 1, 1975 to June 1, 1976), of this period. However, due to Cabot Corporation's document destruction policy, the company thinks it very unlikely that it will locate contracts for 1973 or 1974.(6)We are asked to make a determination based on the information already submitted.

In cases where companies are claiming very large quantities of petroleum purchases during the refund period, the OHA requires reasonable verification, beyond the Gulf Customer List, of those purchases. In this case, we are asked to determine whether Cabot Corporation purchased an estimated 6,048,000 gallons of residual fuel each month from Gulf Oil Chemicals Corporation based on one contract, which explicitly covers only 12 months of the 39 month period during which residual fuel was a controlled petroleum product. And, even if we accept the contract terms as indicative of Cabot Corporation's residual fuel purchases from March 6, 1973 to June 1, 1976, the contract only demonstrates that Cabot Corporation purchased between 1,800,000 barrels and 1,400,000 barrels per year during that time period. That establishes only that Cabot Corporation purchased between 6,300,000 gallons per month (1,800,000 barrels x 42 gallons/barrel = 75,600,000 gallons per year; 75,600,000 gallons per year/12 months = 6,300,000 gallons per month), and or 4,900,000 gallons per month (1,400,000 barrels x 42 gallons/barrel = 58,800,000 gallons per year; 58,800,000 gallons per year/12 months = 4,900,000 gallons per month). Although the original estimate of 6,048,000 gallons per month certainly falls within this range, there is no outside verification that the figure is correct. Given the size of the potential refund, we simply cannot accept the one-year contract and affidavit of Mr. Harper, who has since left Cabot Corporation, as reasonable verification of Cabot Corporation's residual fuel purchases from March 6, 1973 to June 1, 1976.

However, we are willing to accept that the contract between Cabot Corporation and Gulf Oil Chemicals Company is most likely indicative of contracts between the two companies prior to 1975. As such, we will use the 1975 contract to determine the total number of gallons of Gulf residual fuel purchased by Cabot Corporation from March 6, 1973 to June 1, 1976. The contract states that Cabot Corporation will purchase from Gulf Oil Chemicals Company a "Maximum of 1,800,000 bbls (42 U.S. Gallons) and Minimum of 1,400,000 bbls (42 U.S. Gallons) per calendar year, at buyer's option based on market conditions." (7)Cabot Corporation has not submitted anything substantiating that it purchased more than the minimum number of barrels of residual fuel allowed per year, or 1,400,000 barrels per year. Because Cabot Corporation has verified that it purchased no less than 1,400,000 barrels per year, in order to fulfill its contractual obligation to Gulf Oil Chemicals Company, we have determined that there is sufficient documentation to grant a Gulf refund to Cabot Corporation based on that amount.

We will grant a Gulf refund to Cabot Corporation for its purchases of 191,100,000 gallons of Gulf residual fuel (1,400,000 barrels per year x 42 gallons per barrel = 58,800,000 gallons per year; 58,800,000 gallons per year/12 months = 4,900,000 gallons per month; 4,900,000 gallons per month x 39 months = 191,100,000 gallons). Cabot Corporation, deemed an end-user of petroleum products, has not demonstrated that it suffered a disproportionate overcharge as a result of Gulf's alleged over-charges. Accordingly, Cabot Corporation will receive a refund amount equal to its allocable share (the principal amount), as well as interest

accrued.(8)The total volume approved in this Decision and Order is 191,100,000 gallons of refined petroleum products, and the sum of the refund granted to Cabot Corporation is $238,875.

It Is Therefore Ordered That:

(1) The Application for Refund filed by Cabot Corporation, Case No. RF300-16719, is hereby granted as set forth in paragraph (2) below.

(2) The Director of Special Accounts and Payroll, Office of Departmental Accounting and Financial Systems Development, Office of the Controller of the Department of Energy shall take appropriate action to disburse a total of $238,875 from the DOE deposit fund escrow account maintained at the Department of the Treasury and funded by Gulf Oil Corporation, Consent Order No. RGFA00001Z, to Cabot Corporation.

(3) The Applicant filed its Application for Refund through a private filing service, Energy Refunds, Inc. In accordance with its request, the refund check should be sent to: "Cabot Corporation OR Energy Refunds, Inc., c/o Eric T. Small, Highway 80 East, 31 Small Lane, Hardin, KY 42048." The check amount should be $238,875.

(4) The determinations made in this Decision and Order are based on the presumed validity of statements and documentary material submitted by the Applicant. Any of these determinations may be revoked or modified at any time upon a determination that the factual basis underlying any Application for Refund is incorrect.

(5) This is a final Order of the Department of Energy.

George B. Breznay

Director

Office of Hearings and Appeals

Date: January 16, 1997

(1)1/ This amount was derived by dividing the fund received from Gulf allocable to refined products ($42,499,566) by the estimated volume of refined products sold by Gulf from August 1973 through the date of decontrol of the relevant product (66,387,563,569 gallons). Id.

(2)"See "Purchase and Sales Agreement for Carbon Black Feedstock between Energy Transport, Ltd. and Gulf Oil Chemicals Company," submitted by Cabot Corporation in support of its Application for Refund, Case No. RF300-16719, on December 27, 1996.

(3)" See Letter from T.J. Lelek, Sales Manager/Aromatics of Gulf Oil Chemicals Company, to Donald Harper of Cabot Corporation, submitted by Cabot Corporation in support of its Application for Refund.

(4)"Id.

(5)See Memorandum from Carol Doucette, Cabot Corporation, to Bill Lohrentz, Cabot Corporation, dated December 17, 1996, submitted by Cabot Corporation in support of its Application for Refund.

(6)See Letter from Carol Doucette, Cabot Corporation, to Shelia Crouse, Energy Refunds, Inc., dated December 17, 1996, submitted by Cabot Corporation in support of its Application for Refund.

(7)See "Purchase and Sales Agreement for Carbon Black Feedstock between Energy Transport, Ltd. and Gulf Oil Chemicals Company," submitted by Cabot Corporation in support of its Application for Refund, Case No. RF300-16719, on December 27, 1996.

(8)8/ The refund amount will be calculated by multiplying Cabot Corporation's approved gallonage by the total volumetric, which is $.00125 (principal volumetric of $.00064 + interest volumetric of $.00061 = $.00125).