March 9, 2004

DECISION AND ORDER

OF THE DEPARTMENT OF ENERGY

Application for Refund

Name of Petitioner: Vessels Gas Processing Company/Littleton Gas Company

Date of Filing: February 5, 2004

Case Number: RF354-00011

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 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 Vessel’s 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)

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 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. Based upon the documented purchases, an applicant such as Littleton – a wholesale purchaser/reseller – may receive a refund based upon a presumption of injury.(4) See Vessels, 25 DOE at 88,214. For Littleton, the presumption refund would total $50,000 in principal. In Vessels, this type of refund may be granted to qualified applicants that request such a refund as well as to applicants that cannot document greater, injury-based refunds. For Littleton to be awarded a full volumetric refund, it would have to make a full showing of economic injury from its purchases of Vessels propane. (5) See Vessels, 25 DOE at 88,214.

Under the regulations in effect during the refund period, a reseller like Littleton was generally entitled to establish prices for the products it bought and resold that were equivalent to its cost, plus the per gallon margin of profit the firm had in effect on May 15, 1973. See 10 C.F.R. § 212.93. The marketplace permitting, these prices could be further increased to pass on increased costs incurred in prior periods but not recovered through the pricing mechanism. When prices were so restrained and a firm like Littleton could not recover increased costs, the impact of the unrecovered costs would remain with it and represent “injury.” The sum of such an injury is the accumulated “banks” of increased product costs. Thus the cost banks are vital to a showing of actual injury as a basis for a full volumetric refund. At the heart of the calculation of a bank of increased, unrecovered product costs is the margin of profit the firm realized on May 15, 1973.

In its refund application, Littleton documented purchases of 9,276,376 gallons of propane. Based upon the volumetric factor established in the proceeding, Littleton requested a full volumetric refund principal amount of $242,113 (9,276,376 gallons x $0.0261 per gallon). Littleton documented its purchases and presented material to establish "banks" of unrecovered product costs that exceeded the requested full volumetric refund.(6)

In a December 2002 Decision, OHA reviewed Littleton’s application for a full volumetric refund. Vessels Gas Processing/Littleton Gas Company, 28 DOE ¶ 85,004 (2000) (Littleton). We rejected Littleton’s profit margin figure used to determine its banks because Littleton had failed to present sufficient evidence to establish that the figure was actually its per gallon margin on May 15, 1973. Littleton, 28 DOE at 88,009. Specifically, in our December 2000 Decision, we carefully examined all of the cost bank and other documentation Littleton provided and concluded that the firm had not factually supported its May 15, 1973 margin of profit. Typically this type of information is readily available to a claimant. Littleton could provide nothing other than a penciled but unidentified notation on an Amoco supply contract and the recollections of a former employee of Littleton submitted to us in a letter. Littleton, 28 DOE at 88,008-09. The former employee subsequently executed an affidavit stating his belief that the firm's margin of profit in propane sales on May 15 was 9.72 cents per gallon, the handwritten figure noted on the Amoco contract. In our view, the evidentiary value of the 1973 notation was slim at the time it was allegedly made. Moreover, the present value of these statements was diminished by the passage of more than 27 years, and the fact that other historical recollections in the letter and affidavit were mutually inconsistent. Littleton, 28 DOE at 88,009. Because there can be no accurate calculation of a firm's banks of unrecouped increased product costs without knowing its May 15, 1973 profit margin, an essential part of the showing required in Vessels was missing. Consequently, we denied the request for a full injury-based refund and granted the firm a mid-level injury refund of $50,000. Littleton, 28 DOE at 88,009-10.

Littleton appealed our Decision to the U.S. District Court for the District of Columbia. On appeal, the District Court held that Littleton had sufficiently established its May 15, 1973 margin. See Littleton Gas Company v. Department of Energy, Civ. Act. No. 01-0342 (RMC), (December 29, 2003 memorandum Opinion). In its review, the court concluded that the documentation from the former employee of Littleton and the notation were sufficiently probative of the firm’s May 15, 1973 margin and, in essence, ordered the DOE to award Littleton its full volumetric refund. As directed by the court’s decision, we will award Littleton a refund based upon its full volumetric share of $242,113 (9,276,376 gallons x $0.0261 per gallon). (7). The total refund approved is $377,213, representing $192,113 in principal and $185,100 in interest. (8)

Although we have carefully examined Littleton's claim and supporting data, the determinations reached in this Decision are based on the representations made in the application. If the factual basis underlying any of our determinations 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 Littleton Gas Company, Case No. RF354-00011, is hereby granted as set forth in Paragraph (2) below.

(2) The Director of Special Accounts and Payroll, Office of Departmental Accounting and Financial Systems Development, Office of the Controller, of the Department of Energy shall take appropriate action to disburse $377,213 (representing $192,113 in principal and $185,100 in interest) from the DOE deposit

fund escrow account funded by Vessels Gas Processing Company maintained at the Department of the Treasury (Account No. 999DOE035W) to:

Littleton Gas Company

or William H. Bode, Esq.

Bode & Grenier, L.L.P.

1150 Connecticut Ave., N.W.

Washington, DC 20036

(3) The determinations made in this Decision and Order are based upon the presumed validity of statements and documentary material submitted by the applicant. The determinations may be revoked or modified at any time upon a finding that the factual basis underlying the 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: March 9, 2004

(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.

(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 applicant’s purchases for which a refund is appropriate. Id. at 88,213. This is the applicant’s “allocable share.” 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).

(4)In lieu of making a detailed showing of injury, a reseller claimant whose allocable share exceeds $10,000 may elect to receive a refund under the medium-range presumption of injury. Under this presumption, a claimant will receive as its refund the larger of $10,000 or 60 percent of its allocable share up to $50,000. See Vessels, 25 DOE at 88,214.

(5)In the Vessels proceeding, a reseller claimant who sought a full volumetric refund would be required to demonstrate injury by showing that it possessed a “bank” of unrecovered cost, see infra, and that at the time it purchased products from Vessels, market conditions would not permit it to pass through the additional costs associated with the alleged overcharges. See Vessels, 28 DOE at 88,214.

(6)In a prior Decision, OHA rejected Littleton profit margin figure used to determine its banks because it felt that Littleton had failed to present sufficient evidence to establish that the figure was actually its per gallon margin on May 15, 1973. See Vessels Gas Processing/Littleton Gas Company, 28 DOE ¶ 85,004 (2000) (Littleton). Subsequently on appeal, the U.S. District Court ruled that Littleton had sufficiently established its May 15, 1973 margin. See Littleton Gas Company v. Department of Energy, Civ. Act. No. 01-0342 (RMC), (December 29, 2003 memorandum Opinion).

(7)In a prior Decision, OHA rejected Littleton profit margin figure used to determine its banks because it felt that Littleton had failed to present sufficient evidence to establish that the figure was actually its per gallon margin on May 15, 1973. See Vessels Gas Processing/Littleton Gas Company, 28 DOE ¶ 85,004 (2000) (Littleton). Subsequently on appeal, the U.S. District Court ruled that Littleton had sufficiently established its May 15, 1973 margin. See Littleton Gas Company v. Department of Energy, Civ. Act. No. 01-0342 (RMC), (December 29, 2003 memorandum Opinion).

(8)In a prior Decision, OHA rejected Littleton profit margin figure used to determine its banks because it felt that Littleton had failed to present sufficient evidence to establish that the figure was actually its per gallon margin on May 15, 1973. See Vessels Gas Processing/Littleton Gas Company, 28 DOE ¶ 85,004 (2000) (Littleton). Subsequently on appeal, the U.S. District Court ruled that Littleton had sufficiently established its May 15, 1973 margin. See Littleton Gas Company v. Department of Energy, Civ. Act. No. 01-0342 (RMC), (December 29, 2003 memorandum Opinion).

(9)In a prior Decision, OHA rejected Littleton profit margin figure used to determine its banks because it felt that Littleton had failed to present sufficient evidence to establish that the figure was actually its per gallon margin on May 15, 1973. See Vessels Gas Processing/Littleton Gas Company, 28 DOE ¶ 85,004 (2000) (Littleton). Subsequently on appeal, the U.S. District Court ruled that Littleton had sufficiently established its May 15, 1973 margin. See Littleton Gas Company v. Department of Energy, Civ. Act. No. 01-0342 (RMC), (December 29, 2003 memorandum Opinion).

(10)We have subtracted the refund ($89,202 representing $50,000 principal and $39,202 interest) previously granted to Littleton in our earlier decision. See Littleton.