Case No. RF354-00005
March 15, 2001
DECISION AND ORDER
OF THE DEPARTMENT OF ENERGY
Application for Refund
Name of Petitioner: Vessels Gas Processing Company/
Hytrans, Inc.
Date of Filing: April 11, 1996
Case Number: RF354-0005
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 Hytrans, Inc. (Hytrans), a reseller of propane, butane, and natural gasoline, located in Englewood, Colorado. Hytrans purchased NGLs and NGLPs 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)
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 product costs which it incurred. If such a firm increased its selling prices by the amount of all product 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); 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 from the consent order firm that are resellers of products 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)
For firms not in business on May 15, 1973, the DOE provided regulatory guidance known as the new item rule.(6) Hytrans, which began doing business in September 1976, was required to establish its prices by reference to product prices at the nearest comparable outlet.
Every purchaser/reseller such as Hytrans 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 product cost increases, including overcharges, then no injury occurred in that month and no refund would be in order. 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 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.
ANALYSIS
For the reasons outlined below, we have determined that Hytrans is not entitled to a refund in this proceeding. First, because a related firm has already received the maximum presumption of injury refund, we find that Hytrans is not eligible to received a refund based upon a presumption of injury.(8) Second, the firm has failed to provide any convincing, contemporaneous documentation which establishes its eligibility for a full volumetric refund based upon injury.
Common Ownership and Refund Payments
On December 7, 2000, a maximum, mid-level presumption-of-injury refund of $89,202 ($50,000 principal plus $39,202 interest) was granted to the Littleton Gas Company, a propane reseller, in the Vessels refund proceeding to Littleton Gas Company. See Vessels Gas Processing Co./Littleton Gas Co., 27 DOE ¶ 85,004 (2000) (Littleton). According to the record in that proceeding, Littleton is owned by six individuals, five of whom together own approximately 70 percent of Littleton. These same five individuals also own approximately 82 percent of Hytrans.(9) Although Hytrans and Littleton submitted separate refund applications in the Vessels proceeding, the high degree of common ownership between Hytrans and Littleton means that for the purposes of Subpart V refund proceedings the two companies are under common control and therefore are related.
In other words, any refund granted Hytrans in this proceeding must therefore be reduced by an amount equal to the total refund already granted to Littleton.(10) To grant related firms such as Littleton and Hytrans separate refunds under a presumption of injury would not be consistent with the bases for the establishment of the presumptions in Vessels and other proceedings. See, e.g., Marathon Petroleum Co./Swifty Oil Company of Florida, Inc., 15 DOE ¶ 85,347 at 88,623-24 (1987) (Swifty) (discussion of OHA rationale for combining claims of related firms for purposes of applying presumptions of injury).
The OHAs common practice has been to sum the purchase volumes claimed by related firms in separate applications in order to calculate the claimants full allocable share and to evaluate the combined refund claim. See Swifty, 15 DOE ¶ 85,347 at 88,623. Exceptions to this practice involve firms which were operationally distinct, which did not conduct the same type of business, shared no common facilities, and operated in clearly separate marketing areas. See Apco Oil Corp/G&G Oil Co., 14 DOE ¶ 85,264 at 88,497 n.3 (1986); Little America Refining Co./Westland Distributing Co., 14 DOE ¶85,237 at 88,443 (1986). Hytrans and Littleton do not satisfy these criteria. Both were NGL resellers serving overlapping geographic markets and their respective refund claims may not be evaluated without reference to one another. Because of their high degree of common ownership, the absence of any material indicating that separate firm treatment might be warranted in this case, and the fact that Littleton has already received the maximum presumption of injury refund to which any applicant is entitled, no presumption refund can be granted to Hytrans in this proceeding based upon a presumption of injury.
Analysis of the Hytrans Actual Injury Claim
In its Application Hytrans requests a full, volumetric refund of $128,825 in principal (4,935,846 gallons x $0.0261 per gallon).(11) This is a substantial refund and, of course, it must be supported by a full demonstration of injury. No presumption of injury refund can be paid to Hytrans because of the Littleton refund. Moreover, were Hytrans to demonstrate its eligibility for its full allocable share, its refund would be reduced by an amount equal to the refund already granted to Littleton.
In support of its application, Hytrans 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.(12) This material should be based on Hytrans monthly product costs 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, Hytrans provided absolutely no factual material supporting these reconstructed cost banks. As a result, we would reject this crucial aspect of Hytrans attempted showing of injury on this ground alone.
In addition, there are serious questions concerning the appropriateness of the initial selling prices established by Hytrans when it began operating. Under the regulations in effect at the time, new market entrants such as Hytrans were to establish prices by reference to those of the nearest comparable outlet. See 10 C.F.R. § 212.111(b); supra note 6. According to Hytrans, its product prices were established by Mr. Don Johnson, the firms new Vice President for Marketing, who referred to the pricing of his former employer Citgo, in the Tulsa, Oklahoma region where he worked. It is not clear that Mr. Johnsons choice of Citgos operations in Tulsa, Oklahoma, as the nearest comparable outlet for establishing prices in Colorado was correct. Instead, it appears virtually certain that there were other, more comparable resellers located closer to Hytrans Colorado market than the operations of Citgo in Tulsa, Oklahoma. Such resellers would have been more appropriate choices as comparable competitors for the purpose of establishing selling prices under the new item rule. Standing alone, the Hytrans choice for comparability purposes undermines the legitimacy of its initial and subsequent product prices, any banks of unrecovered costs that depend upon these prices, and consequently any claim of injury that is based unrecovered increased product costs. These unresolved questions, too, would form an ample basis for denial of the request for a refund based upon actual injury.
Another fatal defect in the submission is this: Hytrans initial submission states that the firms cost banks were based upon a per- gallon, profit margin of nine cents. In a supplemental submission, the firm provided a set of cost bank calculations based upon a per gallon profit margin of ten cents. Per gallon profit margins are the most basic element of any showing of injury in these refund proceedings. Having submitted two margin of profit figures and no supporting documentation for either, we find this data to be questionable, as is any cost bank data which flows from either profit margin measure. Without any explanatory material, we must reject the Hytrans injury claim on this basis.
Under these circumstances, we asked Hytrans to provide factual support, such as documentary material, for the firms May 15, 1973, selling prices and margin of profit data.(13) In response, Hytrans provided an unsupported statement from Mr. Don Johnson, dated February 9, 2000, setting forth Mr. Johnsons recollection of the Hytrans historic per gallon margin of profit. The margin said to be in effect was ten cents per gallon.
Later, Hytrans provided a Supplemental Declaration from Mr. Johnson, dated July 3, 2000 which states:
I knew that Hytrans was required under the price regulations to establish a margin for the NGLs we intended to sell. I was aware of other NGL resellers with margins in the 10 to 15 cents per gallon range, and I was determined to get Hytrans, Inc. a ten cents per gallon margin. . . . Specifically, our business plan was to buy and market propane in remote and hard to access areas in various western states, primarily in Colorado and Wyoming.
July 3, 2000 Supplemental Declaration of Don Johnson at ¶ 2.
We find the two statements of Mr. Johnson to be unreliable for purposes of demonstrating injury in this proceeding. First, the statements are unsupported by any factual material or documentation. There is some material in the record apparently concerning the profit margins of other firms, but that data is not relevant since cost-banks and an injury demonstration that flows from those cost banks must be applicant-specific. Second, while Mr. Johnson is said to have established Hytrans initial selling prices, and therefore should be in a position to know the firms margins it appears from his statement, even to an uninformed observer, that those prices were not established in conformity with applicable regulation. This results because Mr. Johnson referred to Citgo prices in Tulsa, Oklahoma, rather than those of a comparable reseller in or near Hytrans market area. Consequently, even if Mr. Johnsons February and July, 2000 recollections were documented, they would not be sufficient to affirm the legitimacy of Hytrans product prices, profit margins, or the dependent cost bank calculation and attempt to show injury.
In a cover letter to us conveying the Johnson Declaration, counsel for Hytrans cites Siegel Oil Co. 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 the Johnson Declaration appears to be. We agree with that proposition. 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. Johnsons Declaration may very well be completely accurate. However, we have no way of verifying this. The problem for Hytrans is two-fold: it has no factual or quantitative support for the initial product prices it claims, and the way in which the firm alleges it established initial product prices is inconsistent with the requirements of relevant pricing regulations. Once again, without any factual material establishing the firms product prices and margins, the claim of injury based upon the existence of unrecovered increased product costs must be rejected and we will accordingly deny the Hytrans application for a full volumetric refund.
Ordinarily, under the provisions of Vessels, we would now consider Hytrans eligibility for a mid-level, presumption of injury refund. However, as noted, Hytrans and Littleton are under common control and thus, as discussed earlier, we will consider the applications together for the purpose of applying a presumption of injury refund. Exxon Corp./Suburban Propane Gas Corp., 20 DOE ¶ 85,475 (1990); Exxon Corp./Delaware Valley Propane Co., 18 DOE ¶ 85,746 (1989); Gulf Oil Corp./Major Management Co., 18 DOE ¶ 85,303 (1988); Marine Petroleum Co. and Mars Oil Co./ Moffit Oil Co., 16 DOE ¶ 85,321 (1987). As noted, Littleton has already received the maximum injury presumption refund available to a single firm. As a result, no refund is warranted in the present proceeding on behalf of Hytrans and the Hytrans Application for Refund will be denied in full. Gulf Oil Co./Dawson and Yaeger, Inc., 19 DOE ¶ 85,784 (1989)(reducing refund by amount previously granted to affiliated firms); Murphy Oil Corp./Lakehead Serv., 19 DOE ¶ 85,663 (1989)(rescinding refund because affiliate had received its full refund amount).
It Is Therefore Ordered That:
1) The Application for Refund filed by Hytrans, Inc., Case No. RF354-0005, is hereby denied.
2) This is a final Order of the Department of Energy.
George B. Breznay
Director
Office of Hearings and Appeals
Date:March 15, 2001
(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, Hytrans was identified by the DOE Economic Regulatory Administration as having been overcharged in its purchases from Vessels. As a result, Hytrans is eligible to seek a refund in the Vessels proceeding. However, like other purchasers of Vessels products, Hytrans was in a position to pass on the overcharges to its customers in the form of higher product prices. Therefore, the audit findings do not mean that Hytrans 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, 25 DOE 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 restitutionary 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)10 C.F.R. § 212.111(b) provides that a reseller, reseller- retailer or retailer, offering a new item, shall for purposes of applying the price rule of Sec. 212.93 determine the May 15, 1973 selling price for that item as the price at which that item is priced in transactions at the nearest comparable outlet on the day when the item is first offered for sale.
(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)Firm means any association, company, corporation, estate, individual, joint-venture, partnership, or sole proprietorship or any other entity however organized including charitable, educational, or other eleemosynary institutions, and the Federal government including corporations, departments, Federal agencies, and other instrumentalities, and State and local governments. The FEA may, in regulations and forms issued in this part, treat as a firm: (1) A parent and the consolidated and unconsolidated entities (if any) which it directly or indirectly controls, (2) a parent and its consolidated entities, (3) an unconsolidated entity, or (4) any part of a firm. 10 C.F.R. § 212.31.
(10)Littleton owners, along with their respective percent ownership shares, are Phillip D. Tracy (13.5), Mrs. Thomas Vessels (28), Robert Poundstone (13.5), Everett Cummings (7), William Huston (7.2). Each of these individuals also owns approximately 16.6 percent of Hytrans, for a total ownership share of 82 percent of that firm.
(11)The apportionment among the shareholders of any refund granted under either claim is a matter to be determined by the shareholders themselves and not a concern of DOE.
(12)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)
(13)It appears from an examination of the Hytrans 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.
(14)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 Hytrans historic margin. Littleton, 27 DOE at 88,008-09.