Case No. RF340-00205

September 12, 2001

PROPOSED DECISION AND ORDER

OF THE DEPARTMENT OF ENERGY

Application for Refund

Name of Petitioner: Enron Corporation/

Vanguard Petroleum Corporation

Date of Filing: November 2, 2000

Case Number: RF340-00205

On October 12, 1999, the Office of Hearings and Appeals (OHA) issued a Decision and Order denying a refund to Vanguard Petroleum Corporation (Vanguard) in the Enron Corporation (Enron) refund proceeding. Vanguard appealed this determination and on October 27, 2000, the U.S. District Court for the Southern District of Texas remanded this matter to the OHA. Vanguard Petroleum Corp. v. U.S. Department of Energy, 3 Fed. Energy Guidelines (CCH) ¶ 26,737 (D.S.D.TX, 2000)(Vanguard v. DOE). As discussed below, this decision provides Vanguard with certain additional information deemed necessary by the District Court concerning our determination to deny Vanguard’s request for an Enron refund.

I. Background.

The details of the original Vanguard refund claim and the overall Enron refund proceeding are set forth in Enron Corp./Vanguard Petrol1eum Corp., 27 DOE ¶ 85,031 (1999)(hereinafter Enron/Vanguard) and Enron Corp., 21 DOE ¶ 85,323 (1991) (hereinafter Enron). For purposes of the instant determination, the relevant facts are as follows. In our 1999 Order, the OHA denied Vanguard’s request for a substantial refund from the Enron pool based on Vanguard’s purchases of Enron natural gas liquid products (NGLPs). In denying this refund, the OHA found as an initial matter that Vanguard was a wholesale reseller whose purchases from Enron were made on the spot market, were discretionary in nature, were generally sporadic, and were unrelated to any regulatory supply obligations to base period customers. The OHA also found that Vanguard had not shown that its Enron purchases were required to meet the demands of regular customers for a steady supply of product. Based on these characteristics, the OHA found that Vanguard fit the presumption of non-injury for resellers which purchased on the spot market, and that the firm had not made a showing of injury to overcome this presumption. The OHA therefore denied the application for refund based on Vanguard’s purchases.

The District Court granted Vanguard’s motion for summary judgment, overturning the DOE’s order and remanding the case to the OHA to further clarify its reasoning. The District Court found that the OHA’s spot purchaser presumption in Enron was rational, contrary to Vanguard’s argument. The OHA had reasoned, as it had in other cases, that spot purchasers had greater discretion in making their purchases than did other customers, who tended to be tied to a particular supplier. This presumption was based on a reasonable evaluation of the market during the Enron consent order period and was intended to make the refund process more efficient. In addition, spot purchasers are permitted to bring evidence to rebut the presumption. The District Court found that the OHA provided good reasons for applying this presumption to Vanguard, specifically, that Vanguard’s purchases were made on a sporadic and discretionary basis, Vanguard could not demonstrate any obligations to base period customers, and Vanguard could not identify any customers to which it had regularly supplied product over a period of time.

However, the District Court found fault with the way that the OHA applied the presumption. It found that the OHA gave no reason for departing in one respect from its own precedent concerning spot purchasers. It reasoned that the OHA’s analysis in determining whether to apply the spot market presumption focused on the frequency and size of the transactions the purchaser had entered into rather than on the level of the purchaser’s discretion. Although it found that the OHA was free to refine or reverse its precedent, the District Court concluded that because the OHA had not explained why it had not previously applied the reasoning used in its Vanguard determination, its decision lacked a rational basis.

In Enron/Vanguard, OHA provided many good reasons for classifying Vanguard as a spot purchaser. See Enron/Vanguard, 27 DOE at 88,211-14. It did not, however, explain why it had not applied these reasons prior to the Enron proceedings, or distinguish the transactions between Enron and its customers from the relationships at issue in prior proceedings, or describe some change in the OHA’s perception of the market for NGLPs during the consent order period that necessitated a new approach to the spot purchaser presumption. While OHA is not precluded from refining or even reversing its own precedent, the use of a fact-intensive “case by case” standard cannot excuse OHA from providing a rational explanation for applying different standards to the facts. See Atchison, 412 U.S. at 808. Absent such an explanation, OHA’s decision lacks a rational basis, and cannot be upheld.

Vanguard v. DOE, 3 Fed. Energy Guidelines at 27,667. The District Court went on to reject Vanguard’s requests that it award Vanguard the full amount of the refund, or, in the alternative, that it appoint a special master to determine the proper amount to be awarded. In rejecting these requests, the District Court observed:

As the normal course of action in cases of this nature is to remand to the administrative agency for further clarification of its reasons for departing from precedent, the additional remedies requested by Vanguard are both unnecessary and improperly intrusive upon OHA’s jurisdiction. See Atchison, 412 U.S. at 822.

Id. Accordingly, the District Court remanded this matter to the OHA “for further proceedings in accordance with this Order.” Id.

II. Analysis.

A. The Effect of the District Court’s Holding on our Previous Determination in Enron/Vanguard.

As noted above, the District Court decision does not find that the OHA made erroneous factual or legal findings in Enron/Vanguard. On the contrary, it specifically found that spot purchaser presumption adopted by the OHA in Enron was a reasonable and legal regulatory standard. Vanguard v. DOE, 3 Fed. Energy Guidelines at 27,663-64. It also states that OHA’s reasoning in Enron/Vanguard “leaves no room for an argument that the spot purchaser presumption should not apply to Vanguard, regardless of the consent order firm involved.” Id. at 27,667. Accordingly, we do not believe that it is necessary to further discuss the validity of the spot purchaser presumption or, absent new evidence, to conduct additional factual analysis regarding our prior determination that Vanguard should be classified as a spot purchaser.

The District Court is quite clear concerning what it believes to be lacking in the Enron/Vanguard decision. It finds that the OHA departed from its precedent in the Enron/Vanguard determination without providing an adequate explanation for that departure. Specifically, it finds that in making the determination regarding whether a firm was a spot purchaser, previous OHA determinations focused “on the frequency and size of transactions.” It finds that in Enron/Vanguard, the OHA focused instead on the level of the applicant’s discretion to make purchases from the consent order firm. Id. at 27,666. It cites as an example of this departure the fact that, previous to Enron/Vanguard, the OHA did not apply the spot purchaser presumption to Vanguard and granted that firm a refund in the Gulf Oil refund proceeding. Gulf Oil Corp./Vanguard Petroleum Corp., 20 DOE ¶ 85,412 (1990) (Gulf Oil/Vanguard). It states that unless the OHA provides a “rational explanation for applying different standards to the facts,” its determination in Enron/Vanguard cannot be upheld.

The remainder of this decision will address what the District Court has directed the OHA to do. The OHA acknowledges that it conducted a more thorough factual analysis of whether to apply the sopt purchaser presumption in Enron/Vanguard than in previous cases. As explained below, this advanced analysis of Vanguard’s market activities and business operations was triggered (A) by information submitted by Vanguard in its refund application, and (B) by the fact that Vanguard’s potential refund in the Enron proceeding was greatly in excess of refunds previously awarded to wholesale resellers in Gulf and other refined product refund proceedings.

B. The OHA’s Standard and Method of Analysis of Spot Purchaser Issues in Enron and Other Refund Proceedings Prior to the Vanguard Determination.

As noted above, the OHA’s determination in Enron implemented a process for refunding consent order funds obtained from Enron to purchasers of Enron natural gas liquid products (NGLPs). In accordance with the goals of 10 C.F.R. Part 205, Subpart V, this process was designed to provide refunds to purchasers who were able to demonstrate that they were injured as a result of the covered entity's alleged overcharges. As in other Subpart V refined product refund proceedings, in Enron we adopted several presumptions of injury that would allow certain types of claimants to receive a refund without submitting a detailed demonstration of injury. Such presumptions served the purpose of promoting the efficient resolution of numerous refund claims (the Enron refund proceeding had about two hundred refund claimants, and some other refined product proceedings had thousands of claimants seeking refunds). These presumptions also reduced or eliminated the administrative burden of demonstrating injury for refund claimants who were seeking relatively modest refunds. For example, in Enron, as in several other refund proceedings, we established that resellers, retailers and refiners of Enron products seeking volumetric refunds of $10,000 or less were presumed to have been injured by Enron's pricing practices. Id. at 88,960. Such applicants were required only to document their purchases of covered Enron products in order to receive a refund of their full volumetric share. Id. at 88,960.(1)We further established that a reseller, retailer or refiner whose volumetric share of the Enron consent order funds exceeded $10,000 could 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 only needed to 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.

Vanguard, along with other claimants in the Enron proceeding who sought larger refunds based on their full volumetric allocation of the consent order fund, could not rely on these presumptions of injury. As a larger claimant, it was required to submit sufficient information to demonstrate injury. The procedures in Enron outlined a two-step requirement for claimants attempting to make an injury showing. First, a claimant must show that it accumulated banks of unrecovered increased product costs large enough to justify the amount of the refund claimed during the period from either November 1973, the first month of the banking period, or the first month in which it purchased from Enron, whichever was later, through the end of the banking period. Second, it must show that market conditions forced it to absorb the alleged overcharges. Id. at 88,960.

In Enron, as in most refined product refund proceedings, the OHA also adopted the rebuttable presumption that spot purchasers, i.e., resellers or retailers that made only sporadic “spot” purchases from Enron, were not injured by their purchases from Enron. In Enron, we offered the following explanation for adopting this rebuttable presumption.

We have consistently determined that spot purchasers tend to have considerable discretion in where and when to make purchases and therefore would not have made spot market purchases from a firm at increased prices unless they were able to pass through the full price of the purchases to their own customers. The OHA has utilized this spot purchaser presumption of non-injury in numerous special refund proceedings.

Id., citing Sauvage Gas Co., 17 DOE ¶ 85,304 (1988). In Enron, we concluded that the concept of spot purchases is well understood in the petroleum industry.

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)(Supply)] The 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.

Enron at 88,955. Clearly, the purchaser's discretion in selecting its supplier of product is a key element underlying the presumption of non-injury in spot purchases. Such short term, discretionary sales and purchases, where price and terms were negotiated on a monthly or transaction basis, were the rule rather than the exception in certain portions of the NGLP industry where large volumes of product were purchased. This was particularly true in the producer and wholesale reseller markets. Although such spot market purchases of Enron product established a presumption of non- injury to the purchaser, such a purchaser could submit additional information concerning its business operations to rebut the presumption that it suffered no injury in these transactions. Enron at 88,955-56.

In the many refined product refund proceedings in which it was applied, the spot purchaser presumption of non-injury potentially applied to all claimants who were resellers and/or retailers, regardless of whether they were seeking a small or limited refund under a presumption of injury or they were seeking to demonstrate injury in order to receive a more substantial refund based on their full allocable share of the consent order fund. The OHA was therefore required to make a tentative determination as to whether or not a refund claimant was a spot purchaser in analyzing each one of the thousands of refund claims that it received from resellers and/or retailers of covered products.

Accordingly, for ease in processing, the OHA adopted a method of tentatively identifying spot purchasers in its refund proceedings that was based on information common to all refund applications, including claimants who were not attempting to prove injury. All refund applicants were required to submit a schedule of their purchases of covered products from the consent order firm. The OHA therefore looked at reseller and/or retailer refund claimants whose schedule of purchases of covered products indicated purchase patterns that were associated with the lack of a long term supply relationship between the refund claimant and the consent order firm, i.e., isolated or sporadic purchases of large volumes of product.(2) The OHA believed that this was a key indication. Where the schedule of purchases indicated fairly consistent volumes of purchases of particular products over a period of time, the OHA generally assumed that the refund applicant had an ongoing purchase relationship with the consent order firm, did not have the ability to easily change suppliers, and probably was using the products it purchased to meet the supply requirements of its own base period customers and/or its regular, current customers. Where the submitted schedule indicated that the refund claimant’s purchases from the consent order firm had been infrequent or sporadic and involving large volumes of product, this assumption was not made, and the spot purchaser presumption was invoked.

This method is illustrated by the OHA’s analysis of Vanguard’s refund claim in the Gulf Refund Proceeding. In that proceeding, Vanguard applied for a refund based on purchases of 14,280,000 gallons of butane from a Gulf subsidiary, Warren Petroleum Company (Warren). The OHA’s initial review of Vanguard’s claim indicated that it was a spot purchaser for butane. It arrived at this conclusion based solely on the frequency of Vanguard’s butane purchases from Gulf as indicated by the Vanguard schedule of purchases. Specifically, the OHA found that these large volume purchases were isolated in nature because Vanguard purchased butane only in February, March, June, and August of 1978. Gulf/Vanguard, 20 DOE ¶ 85,412 at 88,954 (1990).

The OHA notified Vanguard that it had tentatively been identified as a spot purchaser of covered product from Warren based on the “isolated nature” and “significant volume” of its purchases. Id. Vanguard responded to the OHA’s tentative finding by submitting information which indicated that in addition to the 14,280,000 gallons of butane that Vanguard acquired from Warren through cash purchases, it also acquired 31,138,290 gallons of propane, butane and natural gasoline from Warren through exchange transactions.(3)Vanguard contended that because its cash purchases of butane were part of its overall relationship with Warren, the spot purchaser presumption should not apply in this case. The OHA accepted this argument, based on the frequency and volume of Vanguard’s combined “for cash” and “exchange” acquisitions of butane from Warren.

When Vanguard’s cash purchases of butane from Warren are viewed in the context of its total purchases of butane from Warren, we find that Vanguard’s butane purchases were not isolated or sporadic. Specifically, Vanguard’s purchases of butane from Warren were fairly regular between the fourth quarter of 1977 and the fourth quarter of 1979. In addition, Vanguard’s butane purchases did not fluctuate significantly between quarters. Therefore, we have determined that Vanguard should not be treated as a spot purchaser for is cash purchases of 14,280,000 gallons of butane from Warren.

Id. at 88,955.

This method of identifying spot purchasers on the basis of frequency and size of purchases promotes administrative efficiency in processing claims and places a minimal burden on the refund claimants to provide supplemental information to support their claim. However, relying only on the purchasing patterns indicated on product purchase schedules as the means of identifying possible spot purchasers has the potential for allowing some spot purchasers to remain undetected. As noted above, a purchaser's discretion in selecting its supplier of product is a key element underlying the presumption of non-injury in spot purchases. Such discretionary sales and purchases occurred frequently in the wholesale spot market, and the purchases were not always on an isolated or sporadic basis. Wherever a wholesale purchaser of significant volumes of product negotiated price and terms on a monthly or transaction basis, and wherever the purchaser was not forced to acquire product on short notice to meet its own supply obligations, that purchaser had the discretion to pick and choose whether to buy product from a particular supplier at the offered price.

Occasionally, wholesale resellers such as Vanguard made such discretionary purchases of product from a particular supplier on a frequent or regular basis. Where the OHA relies solely on isolated or sporadic patterns of product purchases contained on product purchase schedules as a means of identifying spot purchasers, these spot purchasers are not detected. Using only that method, spot purchasers of covered product who have no supply obligations and/or ongoing supply relationships with a particular consent order firm, can nevertheless receive a refund if their purchase schedules show a fairly regular pattern of purchases from the consent order firm over a period of a year or more. Some degree of error in identifying spot purchasers can be accepted in the interest of limiting the burden on refund claimants and promoting the efficient processing of refund claims.

However, where a claim is made for a substantial amount of money, it is appropriate that the OHA give greater scrutiny to the factual basis for the claim, and thereby assure that erroneous determinations are minimized. In the Gulf proceeding, Vanguard’s refund claim resulted in the OHA approving its full volumetric allocation of the Gulf consent order funds, or $9,139 plus applicable interest. In contrast, if the OHA had granted Vanguard’s refund claim in the Enron proceeding and awarded it a full volumetric allocation of the Enron consent order funds, Vanguard would have received a refund of $370,000 plus applicable interest. This is more than forty times the refund approved in the Gulf proceeding. In view of the very substantial amount of Vanguard’s potential refund award in the Enron proceeding, we believe that the extra scrutiny afforded to Vanguard’s refund claim was warranted. It is “well within reason” for the OHA to require a refund claimant seeking a very substantial refund award to submit more information to support its claim, and for the OHA to conduct a more detailed level of analysis of that information. Gulf Oil Corp./F. O. Fletcher, Inc., 27 DOE ¶ 85,025 at 88,182 (1999) (OHA required the refund applicant to provide information showing that its reduced profit margins were related to the Gulf overcharges where this information was not requested in cases involving substantially lower refund awards).

As discussed below, in the Enron proceeding, Vanguard’s identification as a spot purchaser of Enron product resulted from a more detailed analysis of information that Vanguard had submitted in connection with its refund claim. Further information was then requested of Vanguard concerning its purchase and supply relationships with Enron and with its customers. This detailed analysis on the spot purchaser issue was entirely appropriate for a firm such as Vanguard, which was seeking a large, monetary refund. Once this analysis was developed in the Vanguard proceeding, it was applied to all other Enron refund claimants who were seeking substantial refunds.

C. The OHA’s Evaluation of Vanguard’s Refund Claim in the Enron Proceeding and Its Reasons for Invoking the Spot Purchaser Presumption.

The OHA was able to glean useful information about Vanguard’s Enron purchases in what at first seemed to be an unlikely place. Information submitted by Vanguard to document its banks of unrecovered increased product costs included work papers of Arthur Andersen & Co. (AA&C) employees who in 1979 reviewed all of Vanguard’s sales and purchase records and calculated a bank of increased product costs for Vanguard. These work papers documented the Vanguard’s purchases and sales in great detail, and permitted the OHA to conduct a detailed analysis of Vanguard’s operations in the wholesale reseller market. See Vanguard submission received by OHA on March 15, 1994. In addition, Vanguard submitted letters from petroleum industry executives who described the operation of the wholesale reseller market for NGLPs. See Vanguard submission received by the OHA on May 19, 1994. This material was submitted by Vanguard in an effort to challenge the OHA’s customary use of regional propane price postings published in Platt’s Oil Price Handbook and Oilmanac as a basis for comparison in determining whether Vanguard suffered a competitive disadvantage stemming from its Enron purchases.

The OHA analyst assigned to the Vanguard refund claim studied this material and concluded that Vanguard’s purchases of NGLPs from Enron, although numerous, appeared to exhibit the characteristics of spot purchases. In a June 4, 1996 letter from Thomas L. Wieker, Deputy Director, OHA, to Mr. Michael O’N. Barron, Vanguard’s legal representative, the OHA tentatively identified Vanguard as a spot purchaser of Enron product. In that letter, Deputy Director Wieker noted that information in Vanguard’s Application indicated that Vanguard operated at the wholesale marketer level of NGL distribution. In addition, he noted that Vanguard’s Application included a statement by Mr. P. E. Goth, Jr., which states that the characteristics of sales in the producer/wholesaler marketer market are large volumes and a price that is usually negotiated for each transaction. Statement of P. E. Goth, Jr. at 2. Mr. Wieker arrived at the following conclusions from Mr. Goth’s analysis:

Mr. Goth appears to be saying that wholesale marketers such as Vanguard purchased product primarily on the spot market. Such 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.

June 4, 1996 letter from Thomas L. Wieker, Deputy Director, OHA to Michael Barron, Counsel for Vanguard, at 1. He further stated that unless Vanguard was able to demonstrate that it was not a spot purchaser or was able to show that it was injured by its spot purchases, the OHA would be unable to grant its refund claim.

In that letter, Mr. Wieker suggested two ways that Vanguard could respond in order to receive a refund in the Enron proceeding. The first was for Vanguard to demonstrate that it was not a spot purchaser. To do this, he indicated that Vanguard should submit a detailed description of its purchasing relationship with Enron and Vanguard's relationship with its customers, that established that Vanguard was required to make regular purchases from Enron in order to maintain supplies to base period customers. Alternatively, he indicated that Vanguard could establish that it was forced by market conditions to resell the product purchased from Enron at a loss that was not subsequently recovered. These showings for refuting the spot purchase presumption of non-injury had been successfully utilized by claimants in other refined product refund proceedings. See Saber Energy, Inc./Mobil Oil Corp., 14 DOE ¶ 85,170 (1986); Waller Petroleum Company, Inc./Wooten Oil Company, 13 DOE ¶ 85,110 (1985).

In addition, Deputy Director Wieker requested that Vanguard provide more information concerning its business operations as an NGL wholesale marketer so that we could evaluate the appropriateness of Vanguard's injury claim. We asked Vanguard to provide us with a description of the typical manner in which Vanguard located customers and negotiated the purchase and sale of NGLPs. We also asked Vanguard to identify its marketing region and describe how Vanguard's purchase and sale transactions facilitated the distribution and consumption of NGLPs. June 4, 1996 letter from Deputy Director Wieker to Michael Barron at 2. This request reflected the OHA’s knowledge that some wholesale resellers took advantage of the market conditions created by petroleum product shortages and price controls to sell product back and forth to each other at a profit without ever facilitating the movement of the product towards the ultimate consumer. See Revere Petroleum Corp., 22 DOE ¶ 83,004 at 86,038-45 (1992). It is very unlikely that resellers engaging in such discretionary transactions would be able to demonstrate that they were injured by producer price violations. Enron/Vanguard, 27 DOE at 88,215.

In a submission dated December 2, 1998, Mr. Barron responded to the OHA’s tentative identification of Vanguard as a spot purchaser of Enron products and to our request for additional information regarding Vanguard’s role in the wholesale marketer industry. The submission included a memorandum from Mr. Barron regarding the spot purchaser presumption and its relation to the instant Application (the Memorandum). Attached to the Memorandum were a number of exhibits, including statements from Vanguard officials and others, additional company records, and analyses of OHA decisions involving spot purchase and cost bank issues.

The OHA reviewed this information, and in Enron/Vanguard determined that it was insufficient to establish that Vanguard was injured by its purchases from Enron. As an initial matter, we noted that Vanguard was incorporated in August 1975, and that its first sales of NGLPs took place in that month. Accordingly, it is clear that Vanguard was not operating as a reseller during the period April 1972 through March 1973, the regulatory "base period" for NGLPs for purposes of the DOE allocation regulations. Consequently, Vanguard had no regulatory obligation to furnish any "base period" customers with a steady supply of product. In addition, we found that Vanguard had not specifically identified any base of traditional customers to whom it supplied product over any regular, historic time period. We also found Vanguard had submitted no evidence establishing that it maintained regular business relationships with its customers to the extent that it was compelled to purchase Enron products at unfavorable prices in order to maintain a steady supply of product to long-term, regular customers of Vanguard. Enron/Vanguard, 27 DOE at 88,211.

On the contrary, we found that the information made available by Vanguard supported the conclusion that Vanguard’s purchases from Enron were discretionary and of the size that would indicate that Vanguard was operating in the spot market. In this regard, we found that

Vanguard's pattern of purchases from Enron, as evidenced by the records described above, indicates that Vanguard’s purchases were large and made on a sporadic, discretionary basis rather than pursuant to supply agreements that would have committed Vanguard to purchasing a particular monthly volume of propane, butane or natural gasoline from Enron. The discretionary nature of these purchases is also evidenced by the month to month variations in the prices that Vanguard paid to Enron for these products. See Vanguard’s March 2, 1992 Application for Refund (Enron purchase prices contained in Vanguard’s competitive disadvantage analyses).

Id. at 88,212. We further found that our determination that Vanguard purchased Enron product on the spot market on a discretionary basis was supported by available information concerning the Vanguard’s overall business operations during the price control period, including the descriptions of its business transactions provided by Vanguard officials and the market level at which it did business with its suppliers and customers. In particular, we noted that Vanguard acknowledged that a significant portion of Vanguard’s customers were other wholesale resellers who apparently had no retail operations. Id. Our review of the customer information submitted by Vanguard led us to the conclusion that during the refund period, Vanguard had not shown that its operations extended beyond the wholesale reseller spot market for NGLPs. We found that purchases and sales in that market are not the type that typically result in injury to the firm that may have been overcharged by Enron.

While Vanguard asserts that many of its customers were refiners, retailers and end users, we note that some reseller/retailers and some large end users, such as utilities and cooperatives, were active participants in the wholesale spot market. In fact, information submitted by Vanguard concerning its purchases and sales of Enron products identifies twenty-five companies that were Vanguard customers. Without exception, they appear to be refiners, resellers and large scale retailers of NGLPs who customarily bought and sold product on the wholesale reseller market. See Memorandum Exhibit 7. In fact, it is likely that many of these customers also sold product to Vanguard. Thus, there is no indication that, during the price control period, any NGLP customer of Vanguard was operating outside of the spot market.

Id. at 88,212-13 (footnote omitted).

Finally, we considered Vanguard’s argument that its Enron purchases were not discretionary because it was attempting to establish itself in the reseller market as a reliable source of NGLPs. Specifically, Vanguard argued that its Enron purchases “were part of a long-term business arrangement with Enron which were not discretionary because Vanguard was dependent on Enron as one of its two largest suppliers.” Id. at 88,213 quoting Vanguard’s Memorandum at 24. We found that although Vanguard maintained that it always intended to develop its business away from brokered transactions and toward steady supplier and customer relationships, there was little or no evidence that this development occurred prior to the end of the Enron refund period in January 1981. While Vanguard asserted that it eventually acquired storage and transportation facilities, and that it also invested in pipelines, oil and gas production, and natural gas liquid processing plants to become a fully integrated petroleum company, there was no evidence that any of these developments occurred during the refund period. Instead, we found that Vanguard’s transactions involving Enron product during the refund period fail to indicate that Vanguard moved product into storage or moved it to a particular location for delivery to a customer.

Vanguard acknowledges that as much as 14.85% of the propane, 36.62% of the butane, and 13.39% of the natural gasoline that it purchased from Enron were purchased in “back-to-back” transactions where the supplier and purchaser were located in advance and title to the product passed almost immediately from Enron to Vanguard’s customer. Vanguard refers to its other Enron purchases as “inventory transactions,” but that does not mean that Vanguard took physical possession of this product. At the time of purchase, this product was located in pipeline or storage facilities or in [Enron subsidiary] UPG’s Bushton, Kansas plant, and there is no indication that Vanguard’s ownership of the product in any way altered its movement or location.

Id. Accordingly, we concluded that Vanguard had not shown that it was required to make these Enron purchases to supply regular customers. We noted that while all wholesale resellers of NGLPs need sources of supply in order to operate, they are generally free to select product at the best price from a number of competing sellers. Only when a reseller must purchase a particular volume of product at a specific time in order to maintain a supply relationship with a regular customer, would it be forced to acquire overpriced product from a particular supplier. We found that there was no indication that Vanguard was ever constrained to make a particular purchase of overpriced product from Enron.

Except for 1978, when Vanguard purchased propane from Enron in all months except for June and November, the firm’s purchases of NGLPs from Enron were sporadic, and do not indicate that Vanguard purchased product from Enron on a regular basis to meet the demands of specific customers. It appears from the record that Vanguard’s frequent use of Enron as a supplier may have been more a function of convenience than necessity. In his statement, Mr. Trotter indicates that the difficulties of obtaining credit from a supplier encouraged resellers to become repeat customers.

Id. at 88,213-14.

Accordingly, we determined that all of Vanguard’s NGLP purchases from Enron were discretionary in nature, and that the decisions to make the purchases were based on Vanguard’s business judgment that it could realize an acceptable amount of profit from the resale of those products on the wholesale market. We therefore concluded that it was appropriate to invoke the spot purchaser presumption of noninjury and apply it to Vanguard with respect to these purchases. As Vanguard was unable to rebut this presumption of noninjury by showing that it was forced to resell the Enron product at a loss, we concluded that Vanguard’s refund claim should be denied. Id. at 88,214-15.

D. The OHA Properly Concluded that Vanguard was a Spot Purchaser.

As discussed above, our determination to deny Vanguard’s refund based on the spot purchaser presumption was attributable to a careful analysis of Vanguard’s regulatory obligations and reseller activities. We made that analysis in view of the extensive information provided by Vanguard in its application for refund. It was entirely appropriate for the OHA to conduct this detailed analysis in light of the very substantial amount of money that Vanguard was seeking in its refund claim. To have based our spot purchaser determination solely upon the size and frequency of Vanguard’s monthly purchases from Enron would have required us to deliberately ignore solid evidence that Vanguard’s purchases were discretionary.(4) Accordingly, we conclude that a clear and persuasive reason existed and still exists for departing from our earlier treatment of the same firm in a different proceeding.

Accordingly, based on our findings in Enron/Vanguard, and on the explanation provided in this decision, we find that Vanguard failed to meet its burden of demonstrating that it was injured in its purchases from Enron. We therefore will deny the Vanguard Application for Refund.

It Is Therefore Ordered That:

(1) The Application for Refund filed by Vanguard Petroleum Corporation (OHA Case No. RF340-82) on March 2, 1992 and remanded to the Office of Hearings and Appeals by the U.S. District Court for the Southern District of Texas on November 2, 2000 (OHA Case No. RF340-00205) is hereby denied.

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

(1)In Enron we adopted a presumption that the alleged overcharges on Enron’s NGLP sales had been dispersed equally in all sales of NGLPs 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. Id. We referred to the dollar amount derived by multiplying an applicant's purchase volume by the per gallon refund amount as the applicant's allocable share.

(2)We know of no case in which a retailer that purchased small volumes from a wholesaler ever was found to have had the market flexibility to have been considered a spot purchaser.

(3)An exchange transaction generally involves the transfer between two firms of the same volume of the same product at different locations. No cash changes hands and each party emerges from the transaction just as it entered, with the same volume of the same product - save that the product is at a new location. Id. at ftnt. 3.

(4)In our refund decisions, we have consistently determined that it is not reasonable to ignore evidence of non-injury, such as negative cost banks, in order in order to grant a firm a lesser refund under a presumption of injury for small claims. The True Companies/V-1 Oil Company, 20 DOE ¶ 85,523 at 89,206 (1990).