Case No. RF354-00003
December 7, 2000
DECISION AND ORDER
OF THE DEPARTMENT OF ENERGY
Application for Refund
Name of Petitioner: Vessels Gas Processing Company/
Littleton Gas Company
Date of Filing: April 11, 1996
Case Number: RF354-00003
On December 21, 1995, the Office of Hearings and Appeals (OHA) of the Department of Energy (DOE) issued a Decision and Order under the provisions of 10 C.F.R. Part 205, Subpart V, instituting special refund procedures for the distribution of monies obtained by the DOE through a Consent Order entered into with the Vessels Gas Processing Company (Vessels).(1) See Vessels Gas Processing Company, 25 DOE ¶ 85,085 (1995)(Vessels). Under the Consent Order, Vessels paid $1,564,222.74 to the DOE in settlement of all claims and disputes concerning Vessels compliance with DOE price regulations in sales of Natural Gas Liquids (NGLs) and Natural Gas Liquid Products (NGLPs) from its Irondale, Colorado, gas plant during the period September 1, 1973, through December 31, 1977, and from its Brighton, Colorado, plant during the period April 1, 1975, through December 31, 1977.
This determination involves an Application for Refund filed in the Vessels proceeding by the Littleton Gas Company (Littleton), a reseller of propane located in Littleton, Colorado. Littleton purchased propane from Vessels during periods involved in the
Consent Order and has been identified as one of the parties overcharged in the Vessels sales transactions. (2)
I Background
Under the provisions of 10 C.F.R. Part 205, Subpart V, formal decisions are issued establishing procedures for the distribution of refunds from monies paid to the DOE under consent order settlements of alleged regulatory violations. 10 C.F.R. § 205.282. These procedures allow entities that had regulated transactions with the consent order firm to apply for a refund to remedy any injury incurred in the transactions. Under the procedures established in Vessels and other Subpart V refund proceedings involving settlements of alleged overcharges, a refund applicant must first show that it purchased regulated products from the consent order firm during the period in which the overcharges occurred, and must document the volume of those purchases. Therefore, in the Vessels proceeding an applicant must first show that it purchased NGLs or NGLPs from one or both of the Vessels gas plants during periods of time specified in the consent order, and document the volume of those purchases. Vessels, 25 DOE at 88,212. This is the threshold showing of eligibility for a refund.
Some applicants may receive a refund based solely upon documentation of purchases from the consent order firm. An end- user, for example a firm that actually consumed the products which it purchased is assumed to have experienced injury from any overcharges in the prices it paid to the consent order firm and may therefore receive a full volumetric refund (i.e., its proportionate share of the consent order funds) based solely upon documentation of its volume of purchases from the consent order firm. (3) See Vessels, 25 DOE at 88,213. A firm that purchased products for resale, however, had an opportunity to escape overcharge injury by increasing its resale prices to its customers by the amount of any increased prices which it paid. If such a firm increased its selling prices by the amount of all cost increases, then that reseller could not have been injured by any overcharges in its purchase transactions with the consent order firm, because all overcharges would have been passed on when it raised its resale prices. Since no overcharge injury could have occurred, no refund to remedy overcharges would be warranted. See 10 C.F.R. § 205.280 (Subpart V refund procedures purpose is to remedy the effect of a violation of the price control regulations.) See Tenneco Oil Co./Chevron U.S.A. Inc., 10 DOE ¶ 85,014 (1982); Vickers Energy Corp./Koch Industries, Inc., 10 DOE ¶ 85,038 (1982). Accordingly, to avoid making unwarranted refunds and improperly disbursing consent order monies, purchasers that are resellers of products from the consent order firm are required to submit actual proof of injury. (4)
In order to show that it was injured in transactions with a consent order firm in a particular month, a reseller must show that for some verifiable reason it was unable to pass on the price increases of the consent order firm. For example, it could show that competitive market forces forced it to absorb those price increases. Vessels, 25 DOE at 88,214. During the consent order period, wholesale purchaser/resellers of regulated petroleum products were required to calculate monthly maximum allowable per- gallon selling prices, and to maintain banks of increased product costs which they had been unable to recover through their own price increases. See 10 C.F.R. § 212.93. The maximum allowable per gallon selling price operated to limit a seller to its May 15, 1973 per gallon margin for a given product and class of purchaser. Thus, the May 15, 1973 margin is a historic benchmark for per gallon profitability for use during the price controls regime. To calculate the maximum allowable price that a reseller could charge for a product during a month, the reseller added (1) the per gallon purchase price, (2) any previously unrecovered (per gallon) product costs and (3) the per gallon margin of profit for May 15, 1973. (5)
Every purchaser/reseller such as Littleton was required on a monthly basis to make and maintain these calculations. DOE frequently audited these materials. These calculations produced a maximum, lawful selling price at or below which a reseller could establish its selling prices. If the marketplace permitted a firm to realize its maximum prices and thus pass on any cost increases, including overcharges, then no injury occurred in that month and no refund would be in order. (6) Data of this type is precisely the information upon which DOE relies to determine whether the reseller applicant experienced injury sufficient to justify a refund. Vessels, 25 DOE at 88,214-15.
In practice, however, the periods for which refunds are requested are relatively remote in time, and this actual, contemporaneous material is often unavailable. (7) As a result, we have allowed firms that are attempting a full showing of injury to approximate this monthly data in order to obtain a full volumetric refund. The type of material necessary for this task would include an applicants purchase and sales receipts, and volumes purchased and sold, reliable market price data for its area of operations and type of customer, and documentation of the firms May 15, 1973 margin of profit. See POSC/Delta Marina, 19 DOE ¶ 85,125 (1989). Applicants have also documented their monthly purchase and selling prices through the use of sales tax documentation provided by a state or municipality, and have reconstructed May 15, 1973 selling prices and margins of profit based upon contemporaneous documentation of their product cost, and volume of purchases and sales for that month. However, all of these methodologies require the applicant to furnish some type of reliable, factual documentation.
The Littleton Application for Refund
In its Application Littleton requests a full, volumetric refund of $242,113 in principal (9,276,376 gallons x $0.0261 per gallon).(8) This is a substantial refund and, of course, must be supported by a full demonstration of injury. In support of its application, Littleton provided various forms of documentation, including banks of unrecovered, increased product costs. This data is apparently reconstructed or approximated cost bank material, submitted because original documentation is not available.(9) This material should be based on Littletons monthly cost and volume of purchases from Vessels, monthly sales volumes and prices, accumulated banks of unrecovered increased product costs, and the firms May 15, 1973 per gallon margin of profit. However, no factual material supporting these reconstructed cost banks was provided by Littleton.
Under these circumstances and in view of the magnitude of the potential refund, we asked Littleton to provide factual support, such as documentary material establishing the firms May 15, 1973 selling prices and margin of profit. (10) In response, Littleton provided a letter dated February 18, 2000, from Mr. William J. Huston, a former operations manager of Littleton, setting forth his recollection of the firms May 15, 1973 per gallon margin of profit. The margin said to be in effect was 9.72 cents per gallon, i.e., a wholesale gross profit margin of 132 percent on product purchased for approximately 7.38 cents per gallon. In this letter which Mr. Huston swears is correct he firmly recalls the 9.72 cent margin being communicated to him by the former owner of Littleton around November 1973. In addition, Littleton enclosed a copy of a February 1972 supply contract with Amoco for propane at unspecified prices. On the contract copy is a handwritten notation (apparently in pencil on the original). In its entirety it reads as follows:
7.38
+9.72 spread
17.10
In the letter, Mr Huston asserts that the +9.72 spread notation was written by Mr. James Mulhall, owner of Littleton to indicate the amount of Littletons May 15, 1973 profit margin.
Littleton later submitted an affidavit from Mr. Huston dated July 3, 2000 in which he states:
Littleton Gas Company had a margin of $.0972 per gallon on May 15, 1973 . . . this margin was specifically recorded and written on Littleton Gas and Appliance Companys contract with Amoco by Mr. James Mullhall, the owner and President of Littleton Gas and Appliance Company. He wrote down the margin data for me at the time I took over Littleton Gas and Appliance Company on December 3, 1973. I again attach as Exhibit A hereto a copy of the Amoco contract on which Mr. Mullhall recorded for me Littleton Gas and Appliances May 15, 1973 margin.
July 3, 2000 Supplemental Declaration of William J. Huston at ¶ 2.
In other words, on December 3, 1973, before Mr. Mullhall then the owner of Littleton sold the firm, Mr. Huston avers that he had Mr. Mullhall write on the Amoco contract the figures set forth above in order to record the firms May 15, 1973 profit margin.(11)
Our sense of the matter was that in 1973, a 132 percent per gallon margin of profit for a wholesale purchaser/reseller of NGLs and NGLPs located anywhere in the nation would have been high, a judgement which Littleton disputes. We also noticed that if Mr. Hustons recollection of the May 15th margin of profit was too high by only a few cents, Littletons reconstructed banks of increased product costs would show that the firm had not been injured in its dealings with Vessels. If that were the case, no refund for Littleton would be warranted. Nevertheless, our recollections of propane price and margin data from 27 years in the past is neither more nor less reliable than that of the Littleton affiant.
In evaluating Littletons application, there are any number of difficulties with the affidavit and the notation on the Amoco contract: there is no indication as to when the notation was written, by whom or for what purpose. The notation could refer only to purchases from Amoco, not Vessels. Regardless, the whole matter rests on the undocumented recollections of Mr. Huston that are memorialized in the affidavit. The problem with relying upon affidavits is that memories fade. For example, in this case, in his first sworn declaration the February 18, 2000, letter -- Mr. Huston clearly remembers meeting with Mr. Mullhall and Mr. Mullhall writing the Littleton May 15, 1973 margin on the Amoco contract around November of 1973. In contrast, in his July 3, 2000 affidavit, Mr. Huston swears that Mr. Mullhall wrote the margin data on the Amoco contract specifically on December 3, 1973. That, in a nutshell, exemplifies the difficulty with undocumented recollections.
In the cover letter to us conveying the Huston affidavit, counsel for Littleton cites Siegel Oil Company v. Richardson, 208 F. 3d 1366 (Fed. Cir. 2000) (Richardson), for the proposition that DOE may not reject an affidavit simply because it is self-serving as is the Huston affidavit. We agree with that as far as it goes. However, the court in Richardson went on to hold that DOE could reject affidavits that lack adequate factual and quantitative support. Id. at 1374. Mr. Hustons letter of February 18, 2000, and his affidavit are inconsistent on their face and unsupported by any factual material. As a result, we reject the Houston affidavit and Littletons claim of a May 15, 1973, profit margin of 9.72 cents per gallon. Accordingly, we also reject the firms reconstructed cost banks and showing of injury which depend upon the asserted May 15, 1973 margin, and will deny the Littleton application for a full volumetric refund.
As noted, in Vessels we provided 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. In Vessels we also provided that a purchaser/reseller whose full allocable share exceeds $10,000 may receive a refund of the larger of $10,000 or 60 percent of its allocable share up to $50,000. Such claimants need only document the volume of their purchases from Vessels in order to qualify for a refund under this presumption. This presumption acknowledges that, in the case of certain claimants, the assembly and presentation of detailed injury demonstrations may prove to be an unreasonable burden or impossible, due to the passage of time and unavailability of detailed pricing data. The 60 percent presumption reflects the experience of this Office in numerous NGL refund proceedings and represents a reasonable assessment of actual injury incurred by these claimants as a result of absorbed product overcharges.
We have analyzed the Littleton submission under the criteria for a presumptive refund described above, and concluded that the firm has satisfies these criteria. Littleton has shown that it purchased 9,276,376 gallons of propane from the Vessels Irondale and Brighton gas plants during the periods specified in the Consent Order. (12) Applying the volumetric factor to these purchase volumes (9,276,376 gallons x $0.0261/gallon) produces a volumetric amount of $242,113. Under the applicable Vessels presumption, as a large reseller Littleton is entitled to receive a maximum refund of $50,000 in principal. Littleton is also entitled to receive accrued interest amounting to approximately $39,202, bringing its total refund to $89,202 ($50,000 principal plus $39,202 interest).
Although we have carefully scrutinized the Littleton refund claim and purchase volume documentation, the determination reached in this Decision and Order is based on the presumed validity of the presentations made in the Littleton Gas Company 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 on behalf of Littleton Gas Company (Case No. RF354-00003) is hereby granted in part 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 $89,202 ($50,000 principal and $39,202 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:
Littleton Gas Company
OR Bode & Beckman Client Escrow Account
1150 Connecticut Avenue, N.W.
Washington D.C. 20036
(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 applicants 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: December 07, 2000
(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 these plants under a contract with HRM, a division of Halliburton Company.
(2)During the course of a compliance audit which led to the Vessels consent order, Littleton was identified by the DOE Economic Regulatory Administration has having been overcharged in its purchases from Vessels. As a result, Littleton is eligible to seek a refund in the Vessels proceeding. However, like other purchasers of Vessels products, Littleton was in a position to pass on the overcharges to its customers in the form of higher prices. Therefore, the audit findings do not mean that Littleton was necessarily injured by its purchases and entitled to a refund. See Vessels, 25 DOE at 88,214; cf. Texaco Inc., 20 DOE ¶ 85,147 at 88,319 (1990) (no refund for Texaco applicants if submission indicates that applicant was not injured as a result of its purchases.)
(3)Because the money paid in a consent order settlement does not equal the value of the violations alleged, full refunds of the amount of the overcharges actually levied cannot be paid. Instead, the total principal amount of the consent order fund is allocated among eligible purchasers. We first divide the fund by the total number of gallons of regulated products sold. Vessels, at 88,213 n.8. The resulting figure is termed a volumetric factor. This figure is then multiplied by the total volume of the applicants purchases for which a refund is appropriate. Id. at 88,213. This is the applicants allocable share.
(4)DOE has a fiduciary obligation with respect to the consent order monies which it holds in trust, and from which refunds are paid. See Kens Professional Waterproofing, 18 DOE ¶ 85,771 at 89,258 (1989). Consequently, a showing of injury leading to a refund must be clearly documented and supported. See Energy Refunds, Inc., 15 DOE ¶ 85,285 at 88,524-5 (1987) (The OHA has the responsibility for ensuring that [oil overcharge fund] money is distributed to the proper persons. However, it is the responsibility of the refund applicants . . . to ensure that all information submitted in support of a refund claim is accurate and complete.) Without a documented demonstration of injury, DOE cannot meet its obligation to pay refunds only to remedy injury. See 10 C.F.R. § 205.280.
(5)This is a general description of the fundamental calculations prescribed under 10 C.F.R. § 212.93.
(6)Some firms, however, held their product prices down or reduced product prices for reasons other than competitive market forces. Such an action would artificially inflate a firms banks of unrecovered costs, but would mean that the firm had elected to absorb the overcharges. Cost banks accumulated in this manner would not support eligibility for a refund. In this proceeding, Mr. Huston acknowledges in his declaration dated 2/18/00, that Littleton voluntarily reduced product prices during portions of the refund period in order to increase its market share. If we were to find that an injury refund was warranted, we would have to take these strategic product price reductions into account.
(7)The maximum principal amount of the refund the applicant could have received given a fully documented, successful demonstration of injury.
(8)The maximum principal amount of the refund the applicant could have received given a fully documented, successful demonstration of injury.
(9)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 ¶ 85,052 (1997)
(10)It appears from an examination of the Littleton submissions that there are no contemporaneous records substantiating the firms purchases and sales volumes, and banks of unrecovered increased product costs during the refund period.
(11)In other cases, firms have successfully reconstructed May 15th margins using purchase and sale invoices, internal management materials maintained by their accountants, as well as local, state and/or federal sales and income tax materials. Copies of only a few ordinary purchase invoices and sales receipts for May 1973 would have allowed an approximation of Littletons May 15, 1973 prices.
(12)The affidavit also asserts that Littleton was audited by the Federal Energy Office in 1974 or 1975, and at that time the firms calculation of its May 15, 1973, selling price was approved by the auditors. We have searched diligently for any records of such an audit and believe that if they ever existed, they have been destroyed. See May 4, 2000, e-mail message acknowledging unsuccessful audit file search, from Joseph Robinson (OHA) to Anthony Wayne (OGC).
(13)Information contained in the Vessels audit file and the Vessels Implementation Proceeding case file suggests that Littletons purchase volume claim is reasonable.