Case No. RF354-00009

August 27, 1997

DECISION AND ORDER

OF THE DEPARTMENT OF ENERGY

Application for Refund

Name of Petitioner: Vessels Gas Processing Company/

Farmland Industries, Inc.

Date of Filing: July 11, 1996

Case Number: RF354-00009

On December 21, 1995, the Office of Hearings and Appeals (OHA) of the Department of Energy (DOE) issued a Decision and Order instituting special refund procedures for distribution of a fund obtained by the DOE through a Consent Order entered into with Vessels Gas Processing Company (Vessels) of Colorado.(1) See Vessels Gas Processing Company, 25 DOE ¶ 85,085 (1995)(Vessels). The Consent Order settled an enforcement proceeding initiated when the DOE’s Economic Regulatory Administration (ERA) performed an audit of Vessels’ business records. Under the terms of the Consent Order, Vessels agreed to remit $1,564,222.74 to the DOE in order to settle all claims and disputes between Vessels and DOE regarding Vessels’ compliance with DOE price regulations in sales of Natural Gas Liquids (NGLs) and Natural Gas Liquid Products (NGLPs) during the period from September 1, 1973 through December 31, 1977, at the firm’s Irondale gas plant and April 1, 1975 through December 31, 1977, at its Brighton gas plant.

This determination involves an Application for Refund in the Vessels refund proceeding filed by Farmland Industries, Inc. (Farmland), an agricultural cooperative owned by its member/customers. Farmland is one of the overcharged Vessels NGL/NGLP customers identified by the ERA audit of Vessels.

In Vessels, the DOE established procedures for the distribution of the funds held in the Vessels escrow account. Applicants for refunds from that account must certify that they purchased NGLs or NGLPs from Vessels during the audit period from one of the two Vessels gas plants. Vessels requires applicants demonstrate that they were injured by Vessels’ pricing practices in order to receive a refund. In order to establish injury an applicant must show that the Vessels overcharges were absorbed by the applicant rather than simply passed along to the applicant’s customers. However, Vessels also provides that certain claimants need not submit a detailed demonstration of injury if they fall into one of four categories of purchaser for whom a presumption of injury has been established. Of relevance to this case is the exempted category created for regulated firms and cooperatives. Claimants whose prices for goods and services are regulated by a government agency, e.g., a public utility, or by terms of a cooperative agreement, need only submit purchase volume documentation for product used by itself or, in the case of a cooperative, sold to its owner/members. Such an applicant must certify that it will pass any refund through to its customers or owner/members if its refund is greater than $10,000. The certification must be accompanied by a full explanation of how it plans to accomplish the restitution, and certify that it will notify the appropriate regulatory body or membership group of the receipt of the refund.

In order to distribute the funds in the Vessels escrow account, the OHA determined that refunds should be calculated on a volumetric basis. The volumetric methodology assigns a uniform, per-gallon refund amount to all purchases made from either gas plant during the Consent Order period which were subject to price controls. This methodology assumes that the Vessels overcharges were dispersed equally over all gallons of price controlled NGLs/NGLPs marketed by Vessels during the audit period, a reasonable assumption because DOE price regulations generally required regulated firms to account for increased product costs on a firm- wide basis when establishing product prices. The volumetric factor of $0.0261 per gallon was computed by dividing $1,564,222.74 by 59,913,647 gallons, the approximate number of gallons of price controlled NGLs and NGLPs Vessels sold to its customers during the audit period from the two gas plants ($1,564,222.74/59,913,647gallons = $0.0261 per gallon).(2) A claimant’s “allocable share” (or, “volumetric share”) is equal to $0.0261 per gallon multiplied by the combined volume of NGL and NGLP purchased by the claimant from the two gas plants during the audit period.

Farmland, an agricultural cooperative with headquarters located in Kansas City, Missouri, functions as a wholesale petroleum products purchaser on behalf of its owner/members (usually small, regional cooperatives). Under the terms established by the Vessels Decision, Farmland’s submission of purchase volume claim documentation, and owner/member restitution plan satisfies the criteria for a successful refund application. Farmland’s documented purchase volume claim is for 8,322,652 gallons of propane lifted from the Vessels gas plants during the audit period. Farmland has also indicated that over 99 percent of its propane sales were to its owner/members, thereby eliminating any concerns regarding its eligibility for a refund based upon its sales to non-members. Applying the volumetric factor to this purchase volume generates a principal Farmland refund of $217,221 ($0.0261/gallon x 8,322,652 gallons). Farmland is also entitled to accrued interest of $121,122 for a total refund of $338,343.

Although we have carefully scrutinized the Farmland refund claim and purchase volume claim documentation, the determination reached in this Decision and Order is based on the presumed validity of the presentations made in the Farmland Application for Refund. If the factual basis underlying our determination in this Decision is later shown to be inaccurate, this Office has the authority to order appropriate remedial action, including rescission or reduction of the refund ordered.

It Is Therefore Ordered That:

(1) The Application for Refund filed by Farmland Industries, Inc. (Case No. RF354-00009) is hereby granted as set forth in Paragraph (2) below.

(2) The Director of Special Accounts and Payroll, Office of the Controller, of the Department of Energy shall take appropriate action to disburse a total of $338,343 ($217,221 principal and $121,122 interest) from the DOE deposit fund escrow account maintained at the Department of the Treasury and funded by Vessels Gas Processing Company, Consent Order No. 740V01387W, to:

Farmland Industries, Inc.

OR Energy Refunds, Inc.

31 Small Lane

Hardin, Kentucky 42048

(3) The determination made in this Decision and Order is based upon the presumed validity of statements and documentary material submitted by the applicant. This determination may be revoked or modified at any time upon a determination that the factual basis underlying the applicant’s Application for Refund is incorrect.

(4) This is a final order of the Department of Energy.

George B. Breznay

Director

Office of Hearings and Appeals

Date: August 27, 1997

(1)In this proceeding “Vessels” refers to Vessels Gas Processing Company (VGPC) and Vessels Gas Processing, Limited (VGPL). In addition, “Vessels” refers to the operations of Halliburton Resource Management (HRM) at the Irondale and Brighton plants on behalf of VGPC and VGPL. Vessels operated under a contract with HRM, a division of Halliburton Company.

(2)On August 13, 1997, the DOE issued a Supplemental Decision and Order increasing the per gallon volumetric factor for the Vessels refund proceeding from $0.0185 to $0.0261. The modification was necessary because of an error OHA made in its initial calculation of the volumetric factor in Vessels. See Vessels Gas Processing Company, 26 DOE ¶ ____,(Case No. VFX-0012) (August 13, 1997).