Case No. RF339-00012
July 31, 1998
DECISION AND ORDER
OF the DEPARTMENT OF ENERGY
Application for Refund
Name of Petitioner: Good Hope Refineries/Apex Oil Company
Date of Filing: June 30, 1992
Case Number: RF339-12
On June 28, 1991, the Office of Hearings and Appeals (OHA) of the Department of Energy (DOE) issued a Supplemental Order instituting special refund procedures for the distribution of $9,000,000, plus accrued interest, which Good Hope Refineries (Good Hope) remitted to the DOE under the terms of a July 31, 1979 Consent Order (the Consent Order). See Good Hope Refineries, 21 DOE ¶ 85,309 (1991) (hereinafter Good Hope II). Good Hope's remittance of these funds resolved DOE's allegations that Good Hope had violated the Mandatory Petroleum Price and Allocation Regulations in its sales of refined petroleum products during the period August 19, 1973 through July 31, 1976 (the consent order period). In accordance with the goals of 10 C.F.R. Part 205, Subpart V, the Good Hope II determination implemented a process for refunding the consent order funds to purchasers of Good Hope refined petroleum products who demonstrate that they were injured as a result of Good Hope's alleged regulatory violations.
I. Background
Under the terms of the Consent Order with the DOE, Good Hope agreed to provide $15,000,000 in restitution through price rollbacks, reductions in banks of unrecouped costs, and direct payments to the DOE. Good Hope only tendered $1,550,000 to the DOE in restitutionary funds before it fell into arrears on its scheduled payments and filed for bankruptcy. Uncertain whether Good Hope would remit additional funds, the OHA instituted special refund procedures on July 3, 1985 to distribute the $1,550,000, plus accrued interest. See Good Hope Refineries, 13 DOE ¶ 85,105 (1985) (hereinafter Good Hope I). In the meantime, the DOE referred the enforcement of the Good Hope Consent Order to the Department of Justice. Good Hope eventually remitted an additional $9,000,000 in payments to the DOE as part of a reorganization plan that permitted the firm to emerge from bankruptcy.(1) These funds are presently available for disbursement pursuant to Subpart V in the manner set forth in Good Hope II.
We stated in Good Hope II that we will apply the same methodology in Good Hope II to calculate refunds that we did in Good Hope I. Specifically, applicants will be eligible to receive refunds calculated in two ways. Some applicants refunds may be based upon information contained in the audit file developed by the Economic Regulatory Administration (ERA) in connection with its investigation of Good Hope's pricing practices. ERAs Good Hope audit file contained a partial list of Good Hopes customers and attributed percentages of total alleged overcharges to customers on that list. This information was also included as an appendix to the Good Hope I Implementation Order. The refunds of eligible applicants whose names appear on that list and who demonstrate injury will be calculated by multiplying the amount remitted by Good Hope ($9,000,000) times the applicable percentage listed in the Appendix.
Applicants that were not listed in the Appendix may receive a refund based upon a per gallon, or volumetric, basis. Under this volumetric method, a claimant's allocable share of the consent order fund is equal to the number of gallons of covered petroleum products which it purchased from Good Hope during the refund period multiplied by the per gallon (volumetric) refund amount, which we have determined to be $0.0052.(2)
Under the procedures established in Good Hope II, a claimant is generally required to demonstrate that it was injured as a result of its Good Hope purchases; that is, that it did not pass through Good Hope's alleged overcharges to its customers. However, we presume that resellers (including retailers and refiners) seeking refunds of $10,000 or less, exclusive of interest, were injured by the alleged overcharges.(3) Consequently, such applicants are not required to submit evidence of injury beyond documentation of the volume of Good Hope refined petroleum products they purchased during the refund period. Good Hope II at 88,914-15. We also determined in Good Hope II that a medium- sized reseller claimant (including retailers and refiners) whose allocable share of the Good Hope refined product pool exceeds $10,000, exclusive of interest, may elect to receive either $10,000 or 40 percent of its allocable share, whichever is greater, up to $50,000, also exclusive of interest.
Furthermore, we adopted a presumption that firms purchasing covered Good Hope petroleum products on the spot market were not injured as a result of these purchases. Good Hope II, 21 DOE at 88,915. Spot purchasers had considerable discretion in the timing and location of their purchases and, therefore, are presumed to have made these purchases only when they could pass through the full selling price of the Good Hope petroleum products to their customers. See Murphy Oil Corp./Village Store, Inc., 20 DOE ¶ 85,713 (1990). The presumption that spot purchasers were not injured may be rebutted, however, if the spot purchaser demonstrates that (1) the purchases were made to meet the needs of base period customers, and (2) it was injured in some way by its purchases from Good Hope. Good Hope II, 21 DOE at 88,912, 88,915 n.4.
Finally, in Good Hope II, we extended the refund period three years beyond the consent order period. The refund period now encompasses the period August 19, 1973 through July 31, 1979. In contrast, the refund period in Good Hope I coincided with the period covered by the Consent Order, i.e., August 19, 1973 through July 31, 1976.
II. Analysis
This Decision and Order concerns the Application for Refund filed by Apex Oil Company (Apex), a reseller of petroleum products, that purchased covered Good Hope products during the period August 19, 1973 through July 31, 1979. In its refund application, as amended, Apex seeks a refund totaling $3,104,298, plus interest,(4) based on its purchases of (1) 5,335,417 gallons of middle distillates from Good Hope during the period August 19, 1973 through July 1976, and (2) 500,241,910 gallons of motor gasoline during the period August 1976 through July 1979.
A. Apexs Middle Distillate Purchases
The record reflects that Apex made only five purchases of middle distillates during the seventy-one month refund period. On the basis of these sporadic purchases, OHA identified Apex as a spot purchaser of middle distillates from Good Hope and so advised Apex in writing. See Letter from Thomas O. Mann, OHA Deputy Director, to William Bode, Esq., Counsel for Apex (July 11, 1994) (1994 Letter). In its 1994 Letter, OHA reminded Apex that the Good Hope II Implementation Order requires spot purchasers to submit specific and detailed evidence to rebut the spot purchaser presumption of non-injury and to establish the degree to which it was injured in its spot purchases from Good Hope. 1994 Letter at 1-2. OHA further reminded Apex that under the terms of Good Hope II, a spot purchaser applicant is required to demonstrate that it made its spot purchases from Good Hope in order to supply its base period customers regardless of the manner in which it attempts to prove injury. Id.
In response to OHAs 1994 Letter, Apex tendered two submissions, one on August 22, 1994 (Apexs 1994 Submission) and the other on November 5, 1996 (Apexs 1996 Submission). In its 1994 Submission, Apex urges us to dispense with the requirement that a spot purchaser applicant demonstrate that it purchased Good Hope product in order to supply its base period customers. Apexs 1994 Submission at 1. Apex contends that this requirement is too harsh, arguing that no spot purchaser will be eligible for a refund under these circumstances, even if it proved injury. Id. at 2. Apex then suggests that OHA recognize the important role Apex played in balancing supply and demand under the rigidity imposed by the price and allocation regulations. Id. In this regard, Apex argues that traders provided economic utility in the same way those supplying their base period customers provided a useful economic function. Id. at 3. Finally, Apex submits that requiring an applicant to show that it made purchases to supply base period customers in cases where the applicant has demonstrated injury contradicts (1) the equitable purposes of the refund proceedings and, (2) Congress mandate that OHA identify to the maximum extent possible victims of overcharges and make refund to them. Id., citing the Petroleum Overcharge Distribution and Restitution Act (PODRA), 15 U.S.C. § 4502(b).
In Apexs 1996 Submission, Apex argues that the spot purchaser presumption is simply inapplicable to it. Apexs 1996 Submission at 1. Apex contends that the assumption embedded in the spot purchaser presumption that a purchaser would not have made purchases unless it could recover the purchase price (including the overcharge) in a subsequent sale is well-founded with respect to the typical wholesaler that engages in back-to-back transactions. Id. However, Apex claims it did not engage in back-to-back transactions and therefore should not be treated like other wholesalers to whom the spot purchaser presumption of non-injury applies. Id. Apex asserts that it adopted a business strategy of buying products in anticipation that at some time in the future it could sell the products at a profit. Id. at 2. However, there was no guarantee of a profit, according to Apex. In addition, Apex claims it strived to be known as a reliable supplier of product and, to this end, developed a nationwide terminalling complex with a total capacity of millions of barrels. Id. In so doing, Apex claims that it made no opportunistic purchases from Good Hope or any other supplier. To support its assertions in this regard, Apex included a declaration by its chief executive officer and a report by a consultant on economic issues in the petroleum industry.
Finally, Apex maintains that even if the spot purchaser presumption of injury applies, it has rebutted the presumption. Apex states that in two transactions with Good Hope the firm lost money. See Apexs 1993 Supplemental Submission.
1. Apex Was a Spot Purchaser of Middle Distillates During the Period August 1973 through July 1976
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) (Sauvage/Supply). 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. See Enron Corp., 21 DOE ¶ 85,323 at 88,955 (1991). As we stated in Good Hope II, we have consistently taken the position that spot purchasers generally had considerable discretion in the timing and location of their purchases and, therefore, would not have made the purchases at increased prices unless they were able to pass through the full amount of their suppliers selling price to their downstream customers. Good Hope II, 21 DOE at 88,915, citing Vickers Energy Corporation/Hutchens Oil Co., Inc., 11 DOE ¶ 85,070 at 85,396-7 (1983).
Based on the record, there is simply no question that Apexs purchasing pattern of middle distillates from Good Hope during the relevant time period is a classic example of spot purchaser behavior. Apex purchased significant volumes of covered products, i.e., 13,308,519 gallons of middle distillates, from Good Hope in irregular transactions during the period August 1973 through July 1976. Moreover, Apex had neither any regulatory obligation to furnish any base period customers with middle distillates nor any apparent established customer base. Apex has presented no evidence to suggest it was anything but a spot purchaser.
2. The Spot Purchaser Presumption of Non-Injury Applies to Apexs Middle Distillate Purchases
As noted above, Apex submits that the spot purchaser presumption of non-injury does not apply to its Good Hope purchases because it did not know whether its purchases would be profitable or not upon resale. Apex claims that it did not engage in back-to-back purchase and sale transactions and, therefore, did not know whether a purchase would be advantageous. Apex contends that it did not have the foreseeability of profitability that is characteristic of back-to-back purchases. Rather, its buying strategy involved a great leap of faith. Declaration of P.A. Novelly at 2.
We reject Apexs contention that the spot-purchaser presumption of injury does not apply to it. We do not accept Apexs argument that the lack of a guaranteed profit rendered its purchases non- discretionary and hence outside the scope of the spot purchaser presumption. See Enron Corp./Apex Oil Company, 27 DOE ¶ ______(July 22, 1998). Apexs election to engage in speculative ventures does not place it in the same position as an entity that purchased product at any price to fulfill its obligations to base period customers. Moreover, even if we were to accept Apexs description of its marketing strategy (i.e. buying No. 2 fuel oil in summer to meet winter demand and purchasing motor gasoline a few months prior to an anticipated rise in the companys selling price) we would conclude that Apex purchased middle distillates from its suppliers when it was advantageous for the firm to so do. There is simply no evidence in the record for us to conclude that Apexs purchases from Good Hope were anything but discretionary, and that Apex entered into its purchasing arrangements with the expectation that the purchases would be profitable.
3. Apex Has Not Rebutted the Spot Purchaser Presumption of Non-Injury
In Good Hope II, OHA stated that the spot purchaser presumption of injury may be rebutted by a showing that the applicant was injured by its purchases from Good Hope and proof that the purchases from the consent order firm were made in order to supply the applicants base period customers. Good Hope II, 21 DOE at 88,912, 88,915, n.14 (emphasis added). One way an applicant may satisfy the first part of the test is by proof that it resold the Good Hope product at a loss. Id. at 88,912. Another way an applicant can demonstrate injury is by showing that it was overcharged by a specific amount, and that it absorbed the overcharge. Id.
a. Apexs Purported Losses
Apex claims that it lost money in three transactions with Good Hope, one in January 1976 and the other two in February 1976. With regard to the January 1976 transaction, Apex states that it paid Good Hope $1,107,568.37 for 3,754,469 gallons of middle distillates. Apex has submitted an invoice from Good Hope reflecting the purchase price of $1,107,568.37. Apex points to the NOPV issued to Good Hope by the ERA charging Good Hope with, inter alia, overcharging Apex by $412,992 in the January 1976 transaction as proof that it paid the specified purchase price.
To demonstrate that it absorbed the overcharges of $412,992 in question, Apex focuses on the sale of a portion of the middle distillates it purchased from Good Hope. According to Apex, in January 1976 it sold 1,558,105 gallons, or 41.5% of the 3,754,469 gallons in question, to Petroleum Heat and Power. Apex has submitted an internal Apex record showing that on January 12, 1976, it sold 37,097.73 barrels of No. 2 fuel oil(5) to Petro Heat & (illegible) under Invoice 152386. See Ex. 2 to Apexs 1993 Supplemental Submission. Apex has also submitted a profit/loss worksheet covering the month of January 1976. The worksheet shows that the product Apex sold to Petroleum Heat and Power consisted of (1) 1,558,105 gallons of middle distillates that Apex purchased from Good Hope; (2) middle distillates that Apex purchased from Tenneco; and (3) middle distillates Apex obtained from two exchanges. The worksheet breaks down the cost of the product purchased by or exchanged with Apex as follows:
Cost of 41.5% of Good Hope product:$459,640.89
Cost of Tenneco Product: $378,489.80
Value of Exchange No. 1: $102,443.86
Value of Exchange No. 2: $ 93,836.57
Freight Cost: $ 85,549.99
Total Cost of Purchases & Freight:$1,119,961.09
The worksheet shows that Petroleum Heat and Power paid Apex $1,038,927.63 for the products. According to Apex, it thus lost $81,033.46 in the transaction with Petroleum Heat and Power. Apex claims this loss entitles it to recoup a refund of $171,392 which represents 41.5% of the $412,992 alleged overcharge by Good Hope. We do not agree.
Contrary to Apexs assertions, it does not appear that Apex lost money on its purchases of middle distillates from Good Hope in January 1976. Apex failed to consider that it made a profit on the sale of the remainder of the middle distillates it purchased from Good Hope in the January 1976 transaction in question. According to the same worksheet and profit and loss statement it submitted to show its purported loss in the sale to Petroleum Heat and Power, Apex made a profit of $159,068.73 in a related January sale to Patague. See Exhibits 2 and 3 to Apexs 1993 Supplemental Submission. This is considerably larger than the purported loss Apex would have us believe it incurred in January 1976.
The above analysis indicates that any loss Apex may have incurred in its sales to Petroleum Heat and Power was more than offset by the profit in its sale of Good Hope product to Patague. Even if this were not the case, there are too many variables in the transaction with Petroleum Heat and Power for us to conclude that any losses in the January 12, 1976 transaction were necessarily tied to Good Hopes alleged overcharge. More information is needed relating to the two exchanges and the other purchase made in the transaction for us to determine whether the alleged loss was attributable to factors owing to the other purchase or exchanges. For example, Apex did not furnish us with information regarding the location at which these exchanges occurred or the location of the product it purchased from Tenneco. Since prices varied according to refining districts throughout the United States, it is important to know where the middle distillates were physically located when purchased. In sum, the current documentation is simply insufficient to sustain Apexs burden with respect to the January 1976 transaction.
As for the other transactions in which Apex claims it lost money, the ones in February 1976, Apex is unable to rely on the NOPV to demonstrate that Good Hope overcharged it in the transactions at issue. The ERA audit that resulted in the NOPV ended in January 1976. Notwithstanding this fact, Apex claims that given the nature of the charges against Good Hope in the NOPV, it is likely the Good Hope violations continued in the months following the audit. Apex therefore assumed that since the NOPV found that Good Hope overcharged its customers between $0.0878 and $.1953 per gallon in the audited transactions, it is reasonable to conclude that in its two non-audited transactions in February 1976, Apex was overcharged at least $0.0878 per gallon. Accordingly, Apex speculates that it was overcharged by $239,443 in its purchase of 2,727,144 gallons of middle distillates from Good Hope on February 27, 1976 (2,727,144 times $0.0878), and $92,205 on its purchases of 1,050,168 gallons of middle distillates from Good Hope on February 29, 1976 (1,050,168 times $0.0878). Apex next attempts to show that it absorbed the overcharge it believes it incurred in the two February 1976 transactions. According to an Apex internal document for the month in question, Apex sold the No.2 fuel oil it purchased from Good Hope in the two transactions identified above, and product it had exchanged, to Texaco. The invoice shows a loss of $65,474.21 on the sale to Texaco. Hence, Apex claims it is entitled to a refund of $331,648, the amount which it estimates it was overcharged by Good Hope in the February 27 and 29, 1976 transactions. We cannot agree.
Even if we were to accept Apexs speculation that it was overcharged by Good Hope in the two February 1976 transactions, Apex has not convinced us that it lost money in the subject transactions because of the alleged overcharges. Because Apex provided no independent documentation relating to the exchange at issue, it is difficult for us to understand completely the nature of the purchase and sale arrangement between Apex and Texaco in February 1976 or to conclude that Apex absorbed any overcharges it might have incurred in the non-audited transaction at issue. We do not know, for example, the geographic location of the middle distillates that were the subject of the exchange. Thus, we do not know what price differentials might be relevant to evaluating the financial impact upon that exchange of the sales to Texaco. All we can deduce form the information provided is that the product exchanged might be valued at $0.3284 per gallon (4,827,312 gallons less 3,777,312 gallons = 1,050,000) ($344,797.73 divided by 1,050,000 = $0.3284). It is interesting to note from these calculations that the value of the exchange, $0.3284 per gallon, is more than the per gallon amount Apex paid Good Hope in the transactions at issue, $0.30625. Thus, if Apex incurred a loss on its sale to Texaco, it might well be entirely attributable to the price it in effect paid in the exchange. In the end, we cannot find, without more evidence, that Apex suffered a loss int he transactions at issue.
b. Apex Has Not Satisfied the Second Prong of the Spot Purchaser Presumption of Non- Injury Test
As noted earlier in this Decision, Good Hope II established a two-prong test for rebutting the spot purchaser presumption of non-injury. First, an applicant can show injury by either proving that it resold its product at a loss or that Good Hope overcharged it by a specific amount and it absorbed the overcharge amount. Good Hope II, 21 DOE at 88,912. Second, the applicant must show that it made its purchases from Good Hope to supply its base period customers. Id. Since Apex failed to meet the first prong of the test, our analysis ordinarily would stop at this point. However, we will explain why Apex has not satisfied the second prong of the test and why we reject Apexs plea that we discard the second prong of the test completely.
OHAs adoption of the spot purchaser presumption rested on our observation, based on experience with the relevant markets, that a firms position in the petroleum industry often determined whether it was likely to have incurred injury as a result of its suppliers alleged regulatory violations. Steady, base period customers such as small gasoline retailers were often tied to a particular 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 sales by that historic supplier. For this reason, a showing that a firm purchased product from a consent order firm in order to fulfill its base period customers has often been considered probative on the issue of injury. 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, Sauvage/Supply, 19 DOE at 89, 141. These considerations guided us in crafting the second prong of the test.
Nonetheless, OHA has always evaluated spot purchaser refund claims and the evidence submitted to rebut the spot purchaser presumption of injury on a case-by-case basis. A showing that an applicant made purchases from a consent order firm to meet other kinds of contractual supply obligations, or to maintain a steady supply stream to regular, established customers could possibly suffice to meet the second prong of spot purchaser presumption of non-injury depending on the evidence submitted.
In the case at hand, Apex did not buy Good Hope product in order to fulfill any regulatory supply obligation, because Apex had no such obligation in the area of middle distillates. Similarly, Apex was not forced to maintain a steady supply to established customers. Apex, by its own admission, speculated in the market and did not have any contractual supply obligations except for those negotiated for a particular transaction in a particular month. Moreover, Apex did not have established customers to which it supplied a steady stream of product. In sum, Apex was not forced to purchase Good Hope products at unfavorable prices in order to satisfy regulatory or contractual obligations or otherwise maintain a steady supply of product to long-term regular customers. All these factors suggest that Apex had a choice that other firms impelled by business or regulatory necessity to purchase at high prices did not. Apex willingly entered into the transactions with Good Hope, accepting the terms, conditions, and prices of the offered by Good Hope. (6)
4. Conclusion
Based on all the foregoing, we have determined that Apex has not rebutted the spot-purchaser presumption of injury in connection with purchases of middle distillates from Good Hope during the consent order period, August 19, 1973 through July 31, 1976. Accordingly, we find that Apex is not eligible for a refund based on its purchases of 5,335,417 gallons of middle distillates.
B. Apexs Motor Gasoline Purchases
Apex also seeks a refund based upon its purchases of 500,241,901 gallons of motor gasoline from Good Hope during the post-consent order period, August 1976 through July 1979. Apex contends that it was a regular purchaser of motor gasoline from Good Hope during this period, making purchases in virtually every month during the 35-month period. Apex has elected to forego the small claims and mid-range presumptions of injury. Rather, the company attempts to demonstrate injury in order to obtain its full allocable share of the consent order fund.
1. Apexs Pro Rata Share of the Consent Order Fund
Before evaluating Apexs claim of injury, it is necessary to quantify Apexs pro rata share of the consent order fund available for distribution in Good Hope II as that amount is a factor in the competitive disadvantage calculation that follows. As an initial matter, in Good Hope II, OHA stated that during the audit of Good Hope, the ERA found that Good Hopes alleged overcharges affected some customers more than others who purchased comparable volumes. Good Hope II, 21 DOE at 88,913. In light of this record, OHA announced that refunds for the firms listed in the Appendix will equal the refund amounts calculated by the ERA. On the basis of its audit, the ERA determined that Apex had sustained 8.0581% of the alleged overcharges made by Good Hope, and listed Apexs pro rata share as such in the Appendix. OHA stated, however, that refund applicants not listed in the Appendix to the Decision may receive a refund based upon a volumetric basis. The volumetric refund amount for applicants not listed in the Appendix was computed to be $0.0052. OHA made no explicit provision in Good Hope II to award larger refunds to applicants listed in the Appendix in the event their volumetric refund is larger than their ERA-calculated pro rata share.
Apex requests that we revisit Good Hope II. See Apexs 1994 Submission at 9. Specifically, Apex asks that we depart from Good Hope II in two ways. First, Apex requests that we allow Apex a greater share of the consent order funds than the share designated in the NOPV and adopted in Good Hope II. Second, Apex requests that, in order to calculate this greater share, we recalculate the volumetric figure based on the total volume sold over the expanded refund period.
The modifications requested by Apex would not further the purpose of this proceeding, which is to make restitution to parties injured as a result of the violations covered by the consent order. The only asserted basis for the requested modifications is the expansion in Good Hope II of the refund period, an expansion requested by Apex on the ground that Good Hope likely violated the regulations after the consent order period. In Good Hope II, we accepted that argument without comment. We did not examine the basis for the argument or discuss whether refunds for purchases outside the consent order period bore a relationship to restitution of the consent order funds. If we were to revisit Good Hope II, we would be inclined to realign the refund proceeding with the consent order, rather than, as Apex requests, further depart from the consent order.
We have determined, however, not to revisit Good Hope II. Firms submitted applications based on Good Hope II, and we are nearing the end of our refund proceedings. Under these circumstances, we do not believe that modifying Good Hope II is appropriate.
Based on all the foregoing, we reaffirm the terms of the Implementation Order and will limit Apexs refund to its pro rata share of the consent order fund available in Good Hope II. It is important to understand that Apexs 8.0851% set forth in the appendix to Good Hope I was based upon all the gallons of covered products it purchased during the refund period. Apexs total claim is based on purchases of 505,577,327 gallons of middle distillates and motor gasoline. Since OHA has denied Apex a refund for its 5,335,417 gallons of middle distillates, we must reduce Apexs pro rata share of the consent order fund as follows.
Given that Apexs motor gasoline claim represents 98.94% of its total claim (500,241,910/505,577,318= .9894), its potential pro rata share of the consent order fund be will be reduced to 7.97% (98.94% of 8.0581%). Accordingly, Apexs potential pro rata share of the consent order fund attributable to its Good Hope motor gasoline purchases is $717,300 ($9,000,000 times 7.97%).
2. Apex Was a Regular Purchaser of Motor Gasoline
Next, we move to our determination of injury on the Apex purchases from Good Hope. As an initial matter, Apexs detailed monthly schedule of purchases from Good Hope shows that it was a regular purchaser of motor gasoline from Good Hope during the post-consent order period, making purchases of 500,241,910 gallons between August 1976 through January 1979. See Attachment C to Apexs 1994 Supplemental Submission. Apex therefore has established that it was a reseller of covered Good Hope products during the refund period. The focus of our analysis, next, shifts to the sufficiency of Apexs injury showing.
3. Apexs Injury Showing
In Good Hope II, OHA stated that there are two distinct elements needed to show injury: (1) the existence of banks of unrecovered increased product costs in excess of the refund sought; (2) evidence that market conditions prevented the reseller claimant from raising its prices to pass through the costs of the alleged overcharges. Good Hope II, 21 DOE at 88,912, citing Vickers, 11 DOE ¶ 85,070 at 88,105 (1983). OHA advised that the second element of the injury showing could be a demonstration that the company suffered a competitive disadvantage as a result of its purchases from Good Hope. Id. at 88,913, citing National Helium Corporation/Atlantic Richfield Company, 11 DOE ¶ 85,257 (1984), affirmed sub nom, Atlantic Richfield Company v. DOE, 618 F. Supp. 1199 (D. Del. 1985).
The competitive disadvantage test is an analytical tool designed by this office that, in the absence of direct evidence supplied by the applicant, measures the degree to which market conditions may have forced an applicant to absorb any alleged overcharges. This method of gauging injury has been upheld by the federal courts. See Behm Family Corp. v. DOE, 903 F.2d 830 (Temp. Emer. Ct. App. 1990); National Helium Co./Atlantic Richfied Co., 11 DOE ¶ 85,257 (1984), affd sub nom. Atlantic Richfield Co. v. DOE, 618 F. Supp. 1199 (D. Del. 1985).
We generally assume that market conditions forced an applicant to absorb the alleged overcharges if the prices it paid the consent order firm exceeded the average market prices as recorded by a reliable source of market information. Therefore, we require an applicant to submit information that makes these comparisons. We usually obtain our average market price information from one of two sources, either the Platts Oilgram and Oilmanac, or the EIA Energy Guides. For each month of the refund period, including those months not part of the banking period, we subtract the average market price from the applicants purchase price. The difference is then multiplied by the volume of the claimants monthly purchases from the consent order firm in order to derive an excess cost figure for the month. A monthly excess cost can be either positive or negative, depending on whether the claimant purchased either above or below the market for that month.
After this information is tabulated, three different analytical techniques are used to evaluate and understand this information. The first, gross excess cost, is the total sum by which the applicants purchases exceeded the average market prices in its market area. This is arrived at by adding all of the positive excess cost figures in the competitive disadvantage. The second is called the net excess cost. The net excess cost represents the gross excess cost minus the sum of the amounts by which its purchase costs were below market average prices. The net excess cost factor therefore provides an indication of the cumulative impact of the overcharges, balancing the adverse effect of comparatively expensive purchases against the beneficial effect of comparatively inexpensive purchases. The third prong of this test is the above market volumetric share which represents the portion of the volumetric share that is attributable to purchases made at greater than the average market prices.
Once these three factors are established, we then determine the appropriate refund to be given to the applicant. In cases where both the gross and net excess costs of the applicant are significantly greater than its allocable share, we generally award the applicant its full allocable share. In previous cases where we have awarded the applicants their full allocable share, the gross and/or net excess costs of refund applicants has been more than ten times the applicants full allocable share of the refund. In such cases, it is clear that the applicants experienced a substantial and consistent competitive disadvantage as a result of their purchases. See Enron Corp./Unocal Corp., 26 DOE ¶ 85,041 at 88,104 (1997); Atlantic Richfield Co./Coast Gas, Inc., 24 DOE ¶ 85,136 (1995) (analysis of propane and butane purchases); Total Petroleum/Mid States Petroleum, Inc., 19 DOE ¶ 85,665 (1989) (analysis of motor gasoline purchases); Conoco,Inc./Power Pak Co., Inc., 17 DOE ¶ 85,016 (1988); Marathon Petroleum Co./Acme Oil Co., 17 DOE ¶ 85,634 (1988); Mobil Oil Corp./Hughes Oil Co., 17 DOE ¶ 85,510 (1988). In cases where the gross and net excess costs are only two or three times the full allocable share, we have limited the refund to an average between a full refund or above market volumetric refund. See Enron Corp/Solar Gas, Inc., 27 DOE ¶ 85,007 at 88,051 (1989); Eason Oil Co./Koch Hydrocarbon Co., 26 DOE ¶ 85,065 at 88,188-89 (1997).
On the other hand, when an applicants gross excess cost is greater than its allocable share but its net excess cost is less than its allocable share, we have determined that although the applicant did enjoy a substantial benefit from less than market average prices, it was still competitively disadvantaged by its purchases to some degree since in the months in which it did pay more than the market average it is likely that it was not able to pass through any alleged overcharges. In those cases, we have granted the applicant its above market volumetric refund amount. See e.g., Pioneer/Warren, 14 DOE ¶ 85,164 (1984); GCO Materials/Conoco, 16 DOE ¶ 85,164 (1987). Finally, where the gross excess cost is less than the volumetric factor, we have limited the refund to the gross excess cost. See Aminoil/Walter Mornes, 18 DOE ¶ 85,564 (1989).
a. Apexs Motor Gasoline Cost Banks
The bank information submitted by Apex shows total banks of unrecouped increased product cost for its motor gasoline of $71,856,062 for the period from February 1974 (the month Apexs first sale of gasoline occurred) through April 1980, the last month in which resellers were required to maintain banks. We have thoroughly reviewed Apexs banks and find them to be sufficient to satisfy the first criterion. Specifically, at OHAs request, Apex furnished documentation explaining how it calculated its imputed May 15, 1973 margin, pursuant to 10 C.F. R. § 212.111, the New Item Rule. Verification of the imputed May 15, 1973 margin is essential to evaluating the accuracy of Apexs cost banks. Second, Apex has reduced its banks by $191,567 because it has received refunds for motor gasoline purchases in other proceedings. Thus, Apexs gasoline cost bank for the instant refund proceeding equals $71,664,495 ($71,856,062 less $191,567). This adjusted bank amount is well in excess of the $717,300 pro rata share of the consent order fund attributable to Apexs motor gasoline purchases. The firm has therefore made the essential threshold showing that cost banks existed which were sufficient to support a refund for the alleged overcharges.
However, as stated above, a showing of banked costs alone is not sufficient to establish injury. Consequently, Apex has submitted competitive disadvantage data to support the second prong of the competitive disadvantage analysis.
b. Apexs Competitive Disadvantage Analysis
In its competitive disadvantage analysis, Apex compares the difference between the weighted average prices Apex paid Good Hope and the prices listed in Platt Oilgram for gasoline in the New Orleans, Louisiana area. The analysis shows that in the vast majority of Apexs purchases of gasoline during the period in question, Apex paid significantly higher than contemporaneous market prices in the relevant geographic area. Below is a summary of the results of the competitive disadvantage analysis, which is set forth in detail in the Appendix to this Decision and Order.
(Pro rata Share of Consent Order Fund = $717,300)
GROSS EXCESS COST: $40,389,523
NET EXCESS COST:$36,821,187
ABOVE-MARKET GALLONS:302,666,389
ABOVE-MARKET VOLUME
SHARE: 60.5%
Apexs gross and net excess cost figures both far exceed the firms pro rata share of the consent order fund. These figures strongly suggest that Apex experienced a substantial competitive disadvantage as a result of all of its eligible purchases of motor gasoline from Good Hope. Therefore, we find it reasonable to grant Apex its pro rata share of the consent order fund for its purchases of Good Hope motor gasoline. The total refund granted to Apex for motor gasoline is $717,300, exclusive of interest. In addition, Apex is entitled to $403,047 in interest accrued on the Good Hope deposit escrow account. The total refund approved in this Decision and Order is $1,120,347.
It Is Therefore Ordered That:
(1) The Application for Refund filed by Apex Oil Company, on June 30, 1992, Case No. RF339- 12, is granted in part as set forth in Paragraph (2) below.
(2) The Director of Special Accounts and Payroll, Office of Departmental Accounting, Office of the Controller, of the Department of Energy shall take appropriate action to disburse $1,120,347 ($717,300 in principal and $403,047 in interest) from the DOE deposit fund escrow account maintained at the Department of Treasury and funded by Good Hope Industries, Inc., Consent Order No. 150S00154Z to:
Apex Oil Company
c/o William H. Bode, Esq.
William H. Bode & Associates
Ninth Floor
1150 Connecticut Ave., N.W.
Washington, D.C. 20036
(3) The determinations made in this Decision and Order is based upon the presumed validity of the 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 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:July 31, 1998
(1) The firm now does business as Transamerican Natural Gas Corporation.
(2) We obtained the per gallon refund figure by dividing the Good Hope consent order fund ($9,000,000) by the approximate volume of refined petroleum products sold by Good Hope during the consent order period, taking into account relevant decontrol dates for specific petroleum products (1,699,975,030) gallons).
(3) In order to be considered under the small claims injury presumption, a retailer, reseller, or refiner must have purchased less than 1,923,077 gallons of Good Hope products during the refund period or claim a refund of .1111% or less of the alleged overcharges based on information from the ERA audit file.
(4)Apex originally requested a refund of $3,326,487, plus interest, but later reduced the amount it is seeking when it responded to OHAs request for additional information regarding the claim. See Apexs Supplemental Submission dated March 11, 1993 at 1.
(5)The number 37,097.73 appears on the worksheet in question under the column labeled gallons. For the sake of analysis, we have accepted Apexs premise that the number 37,097.73 represents barrels, not gallons. Since there are 42 U.S. gallons in one barrel, 37,097.73 barrels is the equivalent of 1,558,105 gallons.
(6)In the Proposed Decision and Order that preceded the issuance of the Implementation Order in Good Hope II, OHA suggested that spot purchasers could demonstrate injury by showing (a) that they made the spot purchases in order to fulfill obligations to their base period customers; and (b) that they resold the petroleum products at a loss. Interestingly, Apex never challenged the first prong of the test in its comments. It was only after Apex had filed its refund application and OHA had informed Apex that it had not made a showing that it purchased product to supply its base period customers that Apex challenged the equity of the required showing.