Case No. RF272-16333
August 3, 1998
DECISION AND ORDER
OF THE DEPARTMENT OF ENERGY
Application for Refund
Name of Applicant: Army and Air Force Exchange Service
Date of Filing: December 14, 1987
Case Number: RF272-16333
This Decision and Order will consider the Application for Refund submitted by the Army and Air Force Exchange Service (AAFES). In this Application, AAFES requests a refund from crude oil overcharge funds under the provisions of 10 C.F.R. Part 205, Subpart V. AAFES operates retail gasoline stations on Army and Air Force installations. This Application claims a refund for 2,425,812,959 gallons of motor gasoline and motor oil that AAFES sold through its retail gasoline stations during the crude oil price control period.(1) As explained below, we will deny the Application.
The Department of Energy has obtained substantial amounts of crude oil overcharge funds through consent orders with certain firms that sold crude oil during the price control period. E.g., Berry Holding Co., 16 DOE ¶ 85,405 (1987); A. Tarricone, Inc., 15 DOE ¶ 85,495 (1987); Mountain Fuel Supply Co., 14 DOE ¶ 85,475 (1986). The refund procedures that we have established for the crude oil refund proceeding specify that an applicant generally must: (1) document its purchase volumes and (2) show that it was injured by alleged crude oil overcharges. We presume an end-user applicant absorbed rather than passed on alleged crude oil overcharges, and that crude oil overcharges therefore injured such an applicant.(2) In contrast to an end-user applicant, an applicant that was a refiner, reseller, or retailer--all of whom sold or resold petroleum products made from crude oil--must submit a detailed demonstration establishing that the alleged crude oil overcharges caused it
injury. 52 Fed. Reg. 11737 (April 10, 1987), reprinted at 6 Fed. Energy Guidelines ¶ 90,512.(3)
In many refined product refund proceedings, we established presumptions of injury for certain classes of resellers and retailers. We established these presumptions because in the refined product refund proceedings we assess the impact of violations of the petroleum price and allocation regulations by a specific refiner or other supplier. If the supplier overcharged his customers, the overcharges would likely have injured the reseller or retailer by placing it at a competitive disadvantage compared to firms that purchased from other suppliers.
In contrast, we do not presume injury for a reseller or retailer applicant in the crude oil refund proceeding because the Entitlements Program eliminated any competitive disadvantage based on crude oil overcharges. The Entitlements Program tended to equalize the effects of crude oil price controls among all domestic refiners and their downstream customers during the price control period, by requiring refiners to make transfer payments among themselves through the purchase and sale of "entitlements." The payments thus spread overcharges resulting from crude oil miscertifications evenly throughout the domestic refining industry.(4) As a result of the Entitlements Program, we presume that crude oil overcharges equally affected all resellers and retailers, including AAFES.
In addition, resellers and retailers were subject to the mandatory petroleum price regulations. 10 C.F.R. Part 212, Subpart F. These regulations provided that resellers and retailers could increase their selling price by an amount that reflected all increased product costs on a dollar-for-dollar basis. 10 C.F.R. § 212.93(a)(1) Such increased product costs would have included any crude oil overcharges. Because all resellers and retailers incurred the same cost increase as a result of the crude oil overcharges, there is no reason to believe they suffered competitive disadvantage from the crude oil overcharges under the regulations. Since costs of this type incurred by all resellers and retailers rose by the same per gallon amount, their maximum lawful selling prices likewise rose and they could pass through the overcharges to their customers on a dollar-for-dollar basis. Therefore, there is no reason to presume that they suffered injury from the crude oil overcharges. 52 Fed. Reg. 13291, at 13294 (April 22, 1987); Chet's Cedarville Quiki-Stop, 17 DOE ¶ 85,081 (1988).
Rather than provide a detailed demonstration of injury, AAFES has submitted a two-part argument in support of its refund claim. We previously considered these arguments in Marine Corps Exchange 0231, 25 DOE ¶ 85,079 (1996), and found them to be without merit. We recapitulate that discussion here.
First, AAFES notes that it had an exception to the price rule that allowed it to set its retail prices at each outlet based upon a discount from the prices charged by local retail outlets. AAFES argues that by using this pricing method it was unable to pass cost increases attributable to crude oil overcharges through to its customers. We do not agree. We believe it was likely that cost increases due to crude oil overcharges were included in AAFES prices. The product cost for the local gasoline stations AAFES surveyed in determining its selling prices already included increased costs due to the crude oil overcharges. Under the price rule, firms in the petroleum industry could generally pass through their increased product costs to their customers. See 10 C.F.R. Part 212. Since AAFES pegged its prices to targets that included the full amount of the crude oil overcharges in their selling prices, there is no reason to believe that AAFES's pricing system precluded it from passing on those overcharges. See Marine Corps Exchange 0231 at 88,201.
Secondly, AAFES claims that its earnings (i.e., its profits) were decreased by these overcharges. Many factors beside crude oil overcharges, however, could have caused reduced profits. We therefore concluded in Marine Corps Exchange 0231 that a claim of reduced profitability alone is not an adequate demonstration of injury by a reseller or retailer in this proceeding. Id.; Seaway Products, 21 DOE ¶ 85,102 (1991).
As noted above, applicants in this proceeding must demonstrate that they were injured by crude oil overcharges. Because the pricing method used by AAFES allowed it to pass through cost increases resulting from the overcharges, AAFES was not injured by them. The injured persons in this case were AAFESs customers. Because we are unable to find that a refund to the AAFES gasoline stations will provide restitution to those customers, we shall deny the Application for Refund. 10 C.F.R. § 205.280.
It Is Therefore Ordered That:
(1) The Application for Refund filed by the Army and Air Force Exchange Service (Case No. RF272-16333) is hereby denied.
(2) This is a final Order of the Department of Energy.
George B. Breznay
Director
Office of Hearings and Appeals
Date:August 3, 1998
(1)1/ The crude oil price control period extended from August 19, 1973, through January 27, 1981.
(2)2/ We consider an end-user to be the ultimate consumer of petroleum products, one whose business was unrelated to the petroleum industry, and who was not subject to the price regulations of the DOE or its predecessors,
(3)3/ The definitions of "refiner," "reseller," and "retailer" are given at 10 C.F.R. § 212.31.
(4)4/ See Amber Refining, 13 DOE ¶ 85,217 (1985).