December 4, 2003
DECISION AND ORDER
OF THE DEPARTMENT OF ENERGY
Application for Refund
Name of Petitioner: Vessels Gas Processing Company/
California Liquid Gas Corporation
Date of Filing: April 10, 1996
Case Number: RF354-0002
On December 21, 1995, the Office of Hearings and Appeals (OHA) of the Department of Energy (DOE) issued a Decision and Order instituting special refund procedures for distribution of funds obtained by the DOE through a Consent Order entered into with Vessels Gas Processing Company (Vessels) of Colorado.(1) See Vessels Gas Processing Company, 25 DOE ¶ 85,085 (1995)(Vessels). The Consent Order settled an enforcement proceeding initiated when the DOEs Economic Regulatory Administration (ERA) performed an audit of Vessels business records. Under the terms of the Consent Order, Vessels agreed to remit $1,564,222.74 to the DOE in order to settle all claims and disputes between Vessels and DOE regarding Vessels compliance with DOE price regulations in sales of Natural Gas Liquids (NGLs) and Natural Gas Liquid Products (NGLPs) during the period from September 1, 1973 through December 31, 1977, at the firms Irondale gas plant and April 1, 1975 through December 31, 1977, at its Brighton gas plant.
This determination involves an Application for Refund in the Vessels refund proceeding filed on behalf of California Liquid Gas Corporation (CLG), a NGL retailer/reseller. CLG is one of the Vessels NGL/NGLP customers identified in the ERA audit of Vessels. The Application was filed by Amerigas Propane, L.P., the successor-by-merger to CLG.
Under the provisions of 10 C.F.R. Part 205, Subpart V, formal decisions are issued establishing procedures for the distribution of refunds from oil overcharge 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. (2) 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. (3)
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 in that month to pass on the price increases of the consent order firm. For example, it could show that competitive market pressures 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 was 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) its per gallon purchase price, (2) any previously unrecovered (per gallon) product costs and (3) the per gallon margin of profit on May 15, 1973. (4)
Every purchaser/reseller such as CLG 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. (5)
Applicants that purchased Vessels product for resale to others may elect to receive a refund under the medium-range presumption of injury. Under that presumption, a claimant may receive as its refund the larger of $10,000 or 60 percent of its allocable share up to $50,000. This option is available to purchasers of relatively large volumes of Vessels product that cannot provide sufficient documentation to demonstrate that they were injured by Vessels pricing practices or who choose not to locate and submit this information. This option involves resellers which purchased in excess of 383,142 gallons of Vessels product during the consent order period.
In order to distribute the funds in the Vessels escrow account, the OHA determined that refunds should be calculated on a volumetric basis. The volumetric methodology assigns a uniform, per- gallon refund amount to all purchases made from Vessels at either gas plant during the Consent Order period. This methodology assumes that the Vessels overcharges were dispersed equally over all gallons of price controlled NGLs/NGLPs marketed by Vessels during the audit period, a reasonable assumption because DOE price regulations generally required regulated firms to account for increased product costs on a firm-wide basis when establishing product prices. The volumetric factor of $0.0261 per gallon was computed by dividing $1,564,222.74 by 59,913,647 gallons, the approximate number of gallons of price controlled NGLs and NGLPs Vessels sold to its customers during the audit period from the two gas plants ($1,564,222.74/59,913,647gallons = $0.0261 per gallon) .(6) A claimants allocable share (or volumetric share) is therefore equal to $0.0261 per gallon multiplied by the combined volume of NGL and NGLP purchased by the claimant from the two gas plants during the audit period.
CLG, a NGL/NGLP retailer/reseller with headquarters located in Sacramento, California, has advanced a refund claim based upon its documented purchase of 6,077,827 gallons of Vessels propane lifted from the Irondale and Brighton gas plants. CLGs refund claim is accompanied by an injury analysis and cost bank data for the period covered by the Vessels consent order. If granted in whole, CLG would be awarded a principal refund amount of $158,631. As explained below, we have determined CLG has successfully demonstrated that it was injured by Vessels pricing practices and is entitled to receive the maximum volumetric refund.
Determining the extent to which CLG was injured by Vessels pricing practices was simplified in this instance by the fact that Vessels propane was priced at such a high level that its prices exceeded the average, regional propane prices for every region in the nation, for every month covered by the Vessels consent order. This is true whether we rely upon price data published by the DOE in the Energy Information Administrations Monthly Petroleum Price Reports, or if we refer to product prices published in the Platts Oil Price Handbook and Oilmanac. This means that our traditional computation of gross and net excess costs to assess the competitive impact upon CLG of product overcharges is not necessary. CLG incurred a competitive disadvantage with every gallon of Vessels propane it purchased during the consent order period, since every gallon of Vessels propane was priced in excess of all regional product price averages. For our purposes, regional average product prices serve as a proxy in Subpart V proceedings for the cost of product incurred by CLGs competitors. Since CLG purchased Vessels propane priced above its competitors product costs, it was disadvantaged by every transaction with Vessels during the consent order period.
Having established that CLG received no competitive advantage from any of its propane purchases from Vessels during the consent order period, we must determine whether CLG absorbed the propane overcharges or passed them along to its customers. This assessment requires us to examine the applicants unrecouped product cost ?bank. The cost bank provides a measure of the extent to which product overcharges were actually injurious to the applicant since product overcharges that are passed through to customers via higher sales prices do not actually injure the seller, nor do they accumulate in the sellers product cost bank. Product costs not passed along to customers accumulate in the sellers unrecouped product cost ?bank, hence the name.
According to the documentation submitted by CLG in support of its refund claim, the firm had accumulated, unrecouped product costs for propane in excess of $2.7 million at the end of the price control period, far in excess of its volumetric principal refund amount of $158,631. Considered in conjunction with the high cost of Vessels propane, banked product costs of this magnitude strongly suggest that market forces prevented the applicant from passing overcharges on to its customers.
We shall therefore grant CLG the firms full volumetric refund of $158,631 (6,077,827 gallons x $0.0261 per gallon), plus accrued interest of $128,088, for a total refund of $286,719.
Although we have carefully scrutinized the CLG refund claim and purchase volume claim documentation, the determination reached in this Decision and Order is based on the presumed validity of the presentations made in the California Liquid Gas Corp. 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 by California Liquid Gas Corporation, (Case No. RF354-0002) is hereby granted 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 $286,719 ($158,631 principal and $128,088 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. 999DOE035W, to:
Amerigas Propane L.P.
or Energy Refunds, Inc.
31 Small Lane
Hardin, KY 42048
(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 4, 2003
.
(1)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 those plants under a contract with HRM, a division of Halliburton Company.
(2)2/ Because the money paid in a consent order settlement does not equal the full value of the violations alleged, full refunds of the amount of the overcharges actually levied cannot be paid. Instead, the amount allocated among eligible purchasers is limited by the total principal amount of the consent order fund. 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.
(3)3/ DOE has a fiduciary obligation with respect to the consent order monies. 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.
(4)4/ This is a general description of the fundamental calculations prescribed under 10 C.F.R. § 212.93.
(5)5/ 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.
(6)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).