Case No. RF340-00007
June 19, 1998
DECISION AND ORDER
OF THE DEPARTMENT OF ENERGY
Application for Refund
Name of Petitioner: Enron Corp./Moon Scott Joint Venture
Date of Filing: July 30, 1991
Case Number: RF340-7
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 the Moon Scott Joint Venture (the Joint Venture) for Enron product purchased by NGL Supply, Inc. (NGL Supply). NGL Supply was a reseller that purchased Enron natural gasoline, propane and butane.(1)
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.(2)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.
NGL Supply has chosen not to rely upon these presumptions of injury. Instead, it has submitted information aimed at showing that it was injured with respect to the product that it purchased from Enron and resold. Accordingly, we will consider granting the applicant a refund for its volumes of Enron purchases based on our analysis of its business operations and the information it has submitted concerning injury.
II. OHA's Notification of Presumed Non-injury to NGL Supply.
As noted above, NGL Supply is attempting to show that it was injured by its purchases from Enron in order to receive a full volumetric refund for the 59,044,326 gallons of natural gasoline, propane and butane that it claims to have purchased from Enron during the refund period. NGL Supply 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 these products from Enron.
However, a reseller or refiner who purchased Enron product on the spot market also 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 a refund, 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).
The OHA reviewed the NGL Supply submissions and, in a letter dated June 12, 1997, informed Michael O'N. Barron, NGL Supply'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 NGL Supply was established prior to 1972 and was ... a wholesale marketer. You further state that [NGL Supply] ... 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 ... NGL Supply ... 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 NGL Supply ... 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 [NGL Supply's] purchasing relationship with Enron and [NGL Supply'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, NGL Supply ... could show that [it wa]s 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 NGL Supply concerning its business operations as an NGL wholesale marketer in order to evaluate the appropriateness of its injury claim. We asked NGL Supply to provide a description of the typical manner in which it located customers and negotiated the purchase and sale of NGLs. We also advised NGL Supply to submit some sample sales contracts or any other documents showing the nature of the agreements between NGL Supply and its customers during the refund period. Finally, we asked NGL Supply 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 March 30, 1998, Mr. Barron responded to the OHA's June 1997 request for information with a memorandum concerning the nature of NGL Supply's business, NGL Supply's purchase relationship with Enron and its resale of Enron product to retail and wholesale customers, and the applicability of the spot purchaser presumption to NGL Supply. Attached to the filing are letters from NGL Supply and Enron officials, and other supporting documentation.
As discussed below, the information provided to us by NGL Supply has led us to conclude that the spot purchaser presumption should not be applied to the firm's purchases of natural gasoline and propane from Enron, but should be applied to the firm's purchase of butane from Enron.
III. The Business Operations of NGL Supply.
NGL Supply's original application identifies the firm as a reseller of NGL's to other petroleum resellers, retailers and end users. The firm's representative, Michael O'N. Barron, Esq., explained its purchases from Enron's affiliate, UPG, Inc., as follows:
UPG, Inc. was a base period supplier of natural gasoline to NGL Supply. Consequently, NGL Supply had allocated rights for the purchase of natural gasoline which it exercised in 1975 through 1979.
NGL Supply was not able to purchase additional NGLs until early 1979 when ... UPG, Inc. was required to find purchasers for the NGLs that it had been supplying to Northern Propane Company. NGL Supply then was able to purchase additional supplies of natural gasoline, butane and propane. Most, if not all of the purchases, were made at Conway, Kansas.
July 30, 1991 submission at 3. In a submission dated December 14, 1992, Mr. Barron made the following statement concerning NGL Supply's business activities during the refund period:
During controls, NGL Supply was a very active propane and NGLP wholesaler with its main offices in Tulsa, Oklahoma. Its sales were heavily concentrated (85% to 90%) in the propane market.
December 14, 1992 submission at 1. In a memorandum responding to our letter requesting additional information concerning the firm's business activities, Mr. Barron presents a description emphasizing the firm's market functions prior to the price control period, and its operations during price controls as a continuation of these activities. The following selections emphasize the firm's propane marketing activities.
In 1967 Walter Scott, Bill Moon and Lou Porter bought a small Iowa trucking business and renamed it NGL Supply. ...
They first concentrated their marketing efforts on propane retailers in the Iowa, Wisconsin and lower Michigan areas and had marketing offices serving those states. Each of these offices had full-time salesmen on the road whose duty it was to contact propane retailers and industrial accounts and sell propane. After NGL Supply moved its offices to Tulsa in 1970, it expanded its marketing efforts to Oklahoma retailers and large oil companies. ... [I]ts founders thought that there was opportunity for a small marketer who was able to compete and be willing to serve as a secondary supplier to independent retailers and to refiners.
It is clear from [the surviving sales record] that NGL Supply's effort to develop propane retail customers was successful. This record shows between 25 and 50 propane retailers as regular or occasional customers as well as sales to other marketers in railcar or tank truck volumes that indicate that the deliveries were made to company-owned retail plants or to retailers under contract to NGL Supply's customers. These summaries show 81.4 million gallons sold with 38.8 million gallons sold to retailers or delivered to retailers. ...
NGL Supply also has its sales records for 1974. They show that its sales of propane to retailers (tank truck and railcar volumes) held steady in the mid-30 million gallons and that its wholesale sales increased to about 70 million gallons.
March 30, 1998 memorandum at 1-2.
Based on the information provided by NGL Supply, we believe there is a substantial likelihood that NGL Supply was injured by its purchases of propane from Enron. Once propane from UPG, Inc. became available to NGL Supply in early 1979, NGL Supply appears to have made purchases from UPG, Inc. partly to meet allocation requirements to base period retail customers, as well as to meet the regular supply requirements of other steady retail customers. Mr. Barron describes the circumstances of these purchases as follows:
NGL Supply had many independent propane retailer customers which it supplied pursuant to annual contracts and many of these retailers were base period customers with allocation rights. The [propane] product purchased from Enron was delivered to NGL Supply in the HTI pipeline or in storage in Kansas and then was either placed in NGL Supply's storage for later shipment to these retailers or it continued in the pipeline and was delivered to these retailers immediately.
March 30, 1998 memorandum, Exhibit 9 at p. 7.
It thus appears that NGL Supply purchased Enron propane to meet the supply requirements of its regular customers, regardless of the prices being charged by Enron for that product. Since the prices that NGL Supply paid Enron for propane were not fixed, and in fact varied considerably from month to month, it is clear that NGL Supply's purchase agreements with Enron did not insulate the firm from the impact of price increases by Enron. Because at least some of the propane purchased by NGL Supply was stored and used as needed to supply regular customers, NGL Supply appears not to have engaged routinely in the type of back to back purchase and sale transactions that would tend to insure some level of profit on its resales of Enron propane. As many of its propane customers were propane retailers or end users, we also find that NGL Supply facilitated the movement of propane from Enron's gas plants to the end users of the product. For all of these reasons, we conclude that NGL Supply's purchases of propane should not be viewed as spot purchases that resulted in no injury to the firm. Accordingly, with respect to NGL Supply's propane purchases from Enron, we will proceed to evaluate NGL Supply's banks of unrecouped increased product costs and its information concerning competitive disadvantage to determine whether NGL Supply has demonstrated that the prices that it paid to Enron for propane resulted in economic injury to NGL Supply.
For similar reasons, we believe that NGL Supply's natural gasoline purchases from Enron do not fall within the spot purchaser presumption. The information presented by NGL Supply concerning its natural gasoline business may be summarized as follows. Prior to the period of price controls, NGL Supply purchased natural gasoline from Enron and other producers pursuant to long-term contracts. It sold the natural gasoline to an established group of refiner customers. The advent of price controls hurt NGL Supply's natural gasoline business, because it could no longer depend on steady sources of supply. Its natural gasoline sales volume declined sharply from mid-1973 through mid-1974, and did not return to its previous level until 1979. From 1975 through 1977 NGL Supply sold about 10 million gallons per year and during these years only bought part of its allocation from Enron. Its total natural gasoline sales increased in 1978 to 15 million gallons and then to 34 million gallons in 1979. In 1978 NGL Supply and Enron reached an agreement that NGL Supply would buy and Enron would sell to NGL Supply all of its base period allocation of natural gasoline. Almost all of the natural gasoline that it purchased from Enron in 1978 and 1979 (approximately 30 million gallons) was used to fulfill a long term agreement with MAPCO that was made sometime in 1978. Accordingly, we find that NGL Supply's natural gasoline purchases from Enron during the refund period were not discretionary back to back purchase and sale transactions that were unlikely to have resulted in real economic injury to the firm. Rather, NGL Supply appears to have continued to facilitate the movement of natural gasoline from producers to end users by supplying MAPCO and other refiners with Enron product. We therefore conclude that the presumption of non-injury for spot market purchases should not be applied to NGL Supply's natural gasoline purchases from Enron.
However, we find that the information submitted by NGL Supply indicates that its 1973 purchases of natural gasoline from Enron were fixed price purchases that did not result in injury to NGL Supply. The firm states that in April 1972 it entered into a long term contract with UPG, Inc. to purchase natural gasoline produced at Enron's Hobbs, New Mexico plant. The contract was for 1,100 barrels of natural gasoline per day at a fixed price of $.0792 per gallon. This contract ran from April 4, 1972 to March 1973 and "was apparently extended through September 1973." March 30, 1998 memorandum at 6. NGL Supply's cost comparison indicates that the firm paid a fixed price of $.0792 per gallon for all natural gasoline purchased from Enron in 1973. See December 23, 1997 submission, Amended Schedule C. It therefore appears that throughout 1973, Enron sold natural gasoline to NGL Supply at a price negotiated prior to the period of price regulations. Accordingly, we conclude that NGL Supply has demonstrated that it was not overcharged by Enron for these 1973 natural gasoline purchases, and we will therefore subtract this volume of NGL Supply's purchases from its refund claim. See Enron Corp./Unocal Corp., 26 DOE ¶ 85,041 at 88,101-02 (1997).
We have also studied the information submitted by NGL Supply concerning its agreement to supply large quantities of Enron natural gasoline to MAPCO. The available evidence in the record of this proceeding indicates that NGL Supply paid Enron's current market price when it purchased natural gasoline for resale to MAPCO. It also appears that NGL Supply's sales to MAPCO were made at competitive market prices that did not guarantee NGL Supply a particular margin of profit on the sales. See NGL Supply's May 5, 1998 submission, "May 1, 1998 letter from Walter Scott to Michael Barron"; see also NGL Supply's October 31, 1995 Submission, Attachment 5, "Summary of Product Sales and Purchases for December 1979." Accordingly, NGL Supply may have experienced economic injury with respect to these Enron purchases, and we will include these volumes in our analysis of NGL Supply's injury showing.
NGL Supply also made one purchase of 2,100,000 gallons of butane from UPG, Inc. in February 1979. Its customer was Gulf States Oil & Refining Company (Gulf States). NGL Supply was a wholesale marketer of butane prior to the period of price controls, and continued to supply based period customers with butane during the refund period. However, the particular facts of this transaction lead us to conclude that it is highly likely that it was a discretionary spot market transaction that did not facilitate the movement of Enron butane to end users of that product. In Enron Corporation/Gulf States Oil & Refining Company, 26 DOE ¶ 85,047 (1997), we denied Gulf States' claim for a refund in the Enron proceeding. In that determination, we found that Gulf States had no active refinery operations during the period November 1978 through July 1980, but was actively engaged in purchasing and reselling large quantities of Enron products during this period. Id., at 88,127. From the available evidence, we found that Gulf States made sporadic, discretionary purchases of large quantities of Enron product for resale, and that it had no base period supply obligations that required it to purchase product for its customers. We therefore concluded that Gulf States' purchases from Enron were precisely the sort of transactions that the spot purchaser presumption was intended to cover. Id., at 88,128-30. Based on these findings, we find that NGL Supply's sale of Enron product to Gulf States was most likely a discretionary purchase and sale on the spot market, and that NGL Supply was unlikely to have experienced injury as a result of that transaction. Accordingly, we will exclude NGL Supply's purchase of Enron butane from the approved gallonage of this claim.
As we indicated above, NGL Supply has shown that it was not overcharged by Enron for the 4,019,400 gallons of natural gasoline that it purchased from Enron in the period from June through September, 1973. For the reasons discussed above, we also find that it is proper to exclude the 2,100,000 gallons of Enron butane purchased by NGL Supply from the firm's refund claim. Accordingly, we will subtract a total of 6,119,400 gallons of Enron product from the firm's claim, reducing that claim to 52,924,926 gallons of Enron natural gasoline and propane. Based upon this claim, NGL Supply could receive a maximum volumetric refund of $318,079, plus a proportionate share of the interest that has accrued on the Enron escrow account. We therefore will proceed with a determination of whether NGL Supply has demonstrated that the prices that it paid to Enron for natural gasoline and propane resulted in economic injury to NGL Supply.
IV. Resellers and Refiners Must Show Injury to Receive a Refund.
A reseller or refiner whose allocable share exceeds $10,000 must demonstrate that it was injured by Enron's alleged overcharges in order to receive a refund equal to its full volumetric allocation of the consent order fund. Enron at 88,960. Generally, a firm who 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 associated with those purchases. 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.(3)
V. Analysis of NGL Supply's Injury Showing.
NGL Supply purchased large quantities of natural gasoline and lesser volumes of propane from Enron. NGL Supply has submitted data which purports to document its banks of unrecovered increased product costs for the natural gasoline and propane during the period of price controls. Under the price regulations, the calculation of cost banks is based on a firm's May 15, 1973 selling prices for its products.
According to NGL Supply, its original bank calculations have not survived a flood and several business moves, so it has submitted reconstructed bank records for the period November 1973 through January 1981 from surviving records. The firm's bank calculations were reconstructed using May 1973 profit margins for propane that were established in a Federal Energy Administration Letter of Compliance with NGL Supply dated February 28, 1994. The firm's May 1973 profit margin for natural gasoline is based on records of a contemporaneous sale of that product. See NGL Supply October 31, 1995 submission, Section 4. These calculations show the firm having positive propane and natural gasoline banks from January 1974 through January 1981. NGL Supply's propane bank rises to $38,332,861 during this period, and its natural gasoline bank rises to $6,681,457 by January 1981.
NGL Supply' bank calculations are based on the best available contemporaneous data and appear to be reasonably calculated. The firm's estimates indicate banks for propane and natural gasoline that are substantially in excess of the firm's full allocable share of the Enron consent order fund for those two products.(4) Accordingly, NGL Supply has satisfied the first part of the two- part injury requirement by demonstrating that it incurred increased costs that it was unable to pass through to its customers. See Atlantic Richfield Company/Gast Fuel and Service, Inc., 20 DOE ¶ 85,127 (1990).
In its Application for Refund, NGL Supply also has performed the three step competitive disadvantage analysis outlined above. As its source of data, the firm used the Energy Information Administration's (EIA) Monthly Petroleum Product Price Report (MPPPR). When determining competitive injury, the OHA generally relies on Platt's as the best source of regional average market price data for the purpose of determining the months in which an applicant purchased refined products at prices higher than the regional average. See Atlantic Richfield Company/Phillips Petroleum Company, 22 DOE ¶ 85,217 (1992)(ARCO/Phillips), and cases cited therein at 88,575. We believe that price information assembled on a nationwide basis (like the EIA prices) does not adequately reflect competitive conditions characterizing the regional product markets. See Atlantic Richfield Company/BTU Energy Corp., 22 DOE ¶ 85,074 at 88,231 (1992)(ARCO/BTU). Accordingly, we will substitute appropriate Platt's postings for the MPPPR data used by NGL Supply in its analysis of competitive disadvantage concerning the propane and natural gasoline that it purchased from Enron. In its March 31, 1998 submission, NGL Supply states that it purchased almost all of the Enron propane and natural gasoline in the Kansas/Oklahoma area. We will therefore use the Platt's postings for Oklahoma (Group 3) in our revised analysis of NGL Supply's Enron purchases.(5)
Because Platt's regional price postings are not available for natural gasoline, we have developed a methodology for extrapolating regional natural gasoline prices from the Platt's postings for propane, based on a finding that natural gasoline follows a regional pricing pattern similar to propane, the most widely used NGL product. Eason Oil Company/Koch Hydrocarbon Company, 26 DOE ¶ 85,065 at 88,187 (1997)(Eason/Koch); ARCO/BTU, 22 DOE at 88,231 and cases cited therein. In a May 5, 1998 filing, NGL Supply challenges our use of regional propane prices to extrapolate a regional price for natural gasoline. However, our estimation method takes the known monthly ratio between national prices for propane and natural gasoline and uses that ratio in conjunction with a regional propane price to estimate the regional price for natural gasoline. Thus, any potentially divergent pricing patterns between propane and natural gasoline will be accounted for through the use of this ratio between national propane and natural gasoline prices. Also, the impact of any regional, seasonal divergences in pricing patterns will be neutralized by our comparison of price differences over the entire refund period. We therefore conclude that regional natural gasoline prices calculated according to this methodology are reasonably accurate.
Accordingly, we have revised NGL Supply's analysis of its natural gasoline purchases. Our revised analysis extrapolates comparative regional prices for natural gasoline using the Platt's wholesale propane price postings for "Oklahoma Group 3," and available EIA nationwide data. In Eason/Koch, we used EIA prices for propane and natural gasoline to arrive at a monthly price ratio between those two products. We will use that method here. We will use this monthly ratio as a conversion factor to extrapolate a monthly regional price for natural gasoline in this case. Accordingly, in our analysis of NGL Supply's natural gasoline purchases, we have multiplied the monthly Platt's propane price by the ratio of EIA natural gasoline to propane prices for that month to arrive at an extrapolated monthly regional natural gasoline price.(6)
Our competitive disadvantage analysis, as detailed in the Appendix to this Decision and Order and summarized in Table I below, shows that NGL Supply was charged uncompetitively high prices for natural gasoline by Enron in all but one of the thirty-three months in which NGL Supply purchased natural gasoline from that firm.
TABLE I
Natural Gasoline
45,070,926 Gallons
Allocable Share for those Gallons: $270,876
Total Gross Excess Cost$8,870,137
Total Net Excess Cost$8,852,875
Above-Market Volumetric Share $263,304
Volumetric Share [97%]
While none of these figures is intended to represent an absolute measure of the injury suffered by the firm, taken together they reveal whether an applicant was placed at a competitive disadvantage by its refined petroleum product costs during the period in which it was allegedly being overcharged. NGL Supply's gross excess costs and net excess costs for natural gasoline substantially exceed the firm's full allocable share of the Enron consent order funds. Moreover, 97% of NGL Supply's purchases from Enron were made at above-market prices. Collectively, the measures used in the competitive disadvantage analysis strongly suggest that NGL Supply experienced a substantial and consistent competitive disadvantage as a result of these purchases of natural gasoline from Enron. See, e.g., Enron Corp./Odessa L.P.G. Transport, Inc., 24 DOE ¶ 85,038 at 88,106 (1994); Texaco Inc./Oakwood Oil Co., 22 DOE ¶ 85,262 (1993); Marathon Petroleum Co./Acme Oil Co., 17 DOE ¶ 85,634 (1988); Conoco Inc./Power Pak Co., 17 DOE ¶ 85,016 (1988).
With respect to propane, there is an indication that NGL Supply experienced some level of injury. However, as shown in Table II below, the level of injury demonstrated by the competitive disadvantage analysis is insufficient to qualify NGL Supply for a full volumetric refund based on its propane purchases from Enron.
TABLE II
Propane
7,854,000 Gallons
Allocable Share for those Gallons: $47,203
Total Gross Excess Cost $65,318
Total Net Excess Cost ($4,255)
Above-Market Volumetric Share $19,436
Volumetric Share [41%]
While none of these figures is intended to represent an absolute measure of the injury suffered by the firm, taken together they reveal whether an applicant was placed at a competitive disadvantage by its refined petroleum product costs during the period in which it was allegedly being overcharged. For the period as a whole, NGL Supply' net excess cost for propane is a slightly negative figure and NGL Supply' gross excess cost is 1.4 times the value of the firm's full allocable refund share of the Enron refund. In previous cases, the gross and/or net excess costs of refund applicants has frequently been more than ten times the applicants' full allocable share of the refund. In such instances, it is clear that an applicant experienced a substantial and consistent competitive disadvantage as a result of its 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).
This Office has granted only partial refunds to firms whose competitive disadvantage analyses fail to indicate a substantial and consistent competitive disadvantage. For example, in several previous instances where an applicant's net excess cost for covered product is less than 100 percent of its full volumetric refund for
that product, we have granted a refund only for the gallons of covered product that the competitive disadvantage analysis indicates were purchased by the applicant at above-market prices. See Atlantic Richfield Company/Coast Gas, Inc., 24 DOE ¶ 85,136 (1995) (analysis of natural gasoline purchases); Total Petroleum/Mid States Petroleum, Inc., 19 DOE ¶ 85,665 (1989) (analysis of No. 2 Oil purchases); Marathon Petroleum Co./Acme Oil Co., 17 DOE ¶ 85,634 (1988); Mobil Oil Corp./Perry Oil Co., 17 DOE ¶ 85,074 (1988). Also, in several instances where even the applicant's gross excess cost of covered product was less than 100 percent of the volumetric refund for its above market purchases, we have limited the applicant's refund to its gross excess cost. See Eason Oil Company/Presidio Exploration, Inc., 26 DOE ¶ 85,046 (1997) (analysis of propane purchases); Aminoil U.S.A., Inc./Mornes, Walter J., 18 DOE ¶ 85,564 at 88,924 (1989); see also Kansas-Nebraska Natural Gas Co., Inc./Cities Service Oil and Gas Corp., 14 DOE ¶ 85,231 at 88,434-35 (1986) (in a case involving a large, negative, net excess cost and a gross excess cost much smaller than the firm's allocable share, the applicant's refund was limited to 50 percent of the gallons that it purchased at above market prices multiplied by the per gallon refund rate).
As noted above, NGL Supply' competitive disadvantage analysis for propane indicates that its net excess cost is slightly negative and its gross excess cost is 1.4 times its full allocable share of the Enron Consent Order funds. These figures, although indicative of some level of injury, do not clearly establish that NGL Supply experienced the level of substantial and consistent competitive disadvantage from its purchases of Enron propane that would justify a refund based on its full volume of Enron propane purchases. Under these circumstances, we believe it is appropriate to grant NGL Supply a refund based on the volumetric refund for its above- market purchases of propane from Enron.
Based upon the foregoing competitive disadvantage analyses, and in view of our finding that the firm possessed substantial banks of unrecovered increased product costs for natural gasoline and propane during the relevant time period, we have concluded that NGL Supply is entitled to a refund equal to its maximum potential refund for its purchases of 45,070,926 gallons of natural gasoline from Enron, or $270,876. We also have determined that NGL Supply should receive a refund of $19,436 for its purchases of 3,234,000 gallons of propane from UPG at an above market cost. Accordingly, NGL Supply' principal refund in the Enron proceeding totals $290,312. In addition, NGL Supply is entitled to receive a proportionate share of the interest accrued on the consent order fund, or $214,773.(7)Therefore, NGL Supplys total refund in this proceeding is $505,085 ($290,312 principal and $214,773 interest) for the volumes of natural gasoline and propane that it purchased from Enron. As discussed in footnote one above, this refund will be awarded to the Joint Venture, which currently possesses the Enron refund rights of NGL Supply.
Accordingly, the total volume approved in this Decision and Order is 48,304,926 gallons of Enron product and the total refund, including interest, is $505,085.
Although we have examined NGL Supply's claim and supporting data, the determination reached in this Decision is based on the representations made in the application submitted by the Joint Venture. If the factual basis underlying our determination in the Decision is later shown to be inaccurate, this Office has the authority to order appropriate remedial action, including rescission or reduction of the refund.
It Is Therefore Ordered That:
(1) The Application for Refund submitted by the Moon Scott Joint Venture (Case No. RF340-7) for Enron purchases made by NGL Supply, Inc. is hereby granted as specified 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 $505,085 ($290,312 principal and $214,773 interest) from the DOE deposit fund escrow account maintained at the Department of the Treasury and funded by Enron Corporation, Consent Order No. 730V00221Z, to:
Moon Scott Joint Venture
Re: NGL Supply, Inc.
c/o Michael O'N. Barron
12417 Conway Road
St. Louis, Missouri 63141
(3) The determinations made in this Decision and Order are based on the presumed validity of the statements and documentary material submitted by the applicant. Any of those determinations may be revoked or modified at any time upon a determination that the factual bases underlying the Application for Refund are incorrect.
(4) This is a final Order of the Department of Energy.
George B. Breznay
Director
Office of Hearings and Appeals
Date: June 19, 1998
(1)The NGL Supply corporation that operated during the refund period no longer exists. In 1985, certain operating assets of that firm were transferred to a new corporation, also named NGL Supply, Inc., and the former NGL Supply was renamed NGL Investments, Inc. NGL Investments, Inc. retained NGL Supplys refund rights. See May 11, 1998 memorandum of telephone conversation between Dwight Creveling, Treasurer of the current business operating under the name NGL Supply, Inc., and Kent Woods, attorney, OHA. In December 1989, NGL Investments, Inc. was dissolved and all of its assets were assigned to the Joint Venture. See June 9, 1998 submission of Michael ON. Barron, counsel for the Joint Venture. We conclude that the information submitted indicates that the Joint Venture possesses NGL Supplys right to a refund in this proceeding. However, in order to avoid confusion, we will refer only to NGL Supply in the analysis portion of this decision.
(2)2/ 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.
(3)3/ This analysis produces three measures which the OHA uses as guidelines in determining the claimant's level of injury. The first measure, "gross excess cost," is the sum of the amounts by which an applicant's monthly purchase costs exceeded the market average. The second measure, "net excess cost," equals an applicant's gross excess cost minus the sum of the amounts by which its purchase costs were below the market average in other months. This measure provides an indication of the cumulative impact of the alleged overcharges, balancing the adverse effect of the comparatively expensive purchases against the positive effect of comparatively inexpensive purchases. The third measure, the "above-market volumetric share," is the number of gallons purchased at prices which exceed market prices multiplied by the volumetric factor. This measure is indifferent to the magnitude of the excess costs incurred, accounting only for the number of gallons of uncompetitively priced product purchased by the applicant. We consider all of these indicators of competitive disadvantage in determining whether, and to what extent, an applicant was injured by its purchases from the particular supplier, and thereby to calculate an appropriate refund amount. See Texas Oil and Gas Corp./Gulf Oil Corp., 13 DOE ¶ 85,135 (1985); see also Texaco Inc./Oakwood Oil Co., 22 DOE ¶ 85,262 (1993).
(4)Although NGL Supply may have received refunds for sales of NGLs in other DOE refund proceedings, it is unlikely that such refunds would significantly reduce the firm's substantial banks for propane and natural gasoline.
(5)5/ We note that NGL Supply has combined its natural gasoline and propane purchases into a single competitive disadvantage analysis. We believe it is appropriate to conduct separate analyses for these two products. See Eason Oil Company/Presidio Exploration, Inc., 26 DOE ¶ 85,046 at 88,120 (1997).
(6)Because there is no EIA data for natural gasoline available for April, May and June, 1975, we will use the ratio between EIA propane and natural gasoline prices in July 1975, combined with the appropriate monthly Platt's propane price, to extrapolate regional natural gasoline prices for those earlier months.
(7)7/ Interest is now being paid on Enron refunds at the rate of $0.7398 per dollar of refund.