Case No. RF340-00149

August 3, 1998

DECISION AND ORDER

OF THE DEPARTMENT OF ENERGY

Application for Refund

Name of Petitioner: Enron Corp./MAPCO, Inc.

Date of Filing: May 1, 1992

Case Number: RF340-149

On September 14, 1988, the Economic Regulatory Administration of the Department of Energy (DOE) filed a Petition with the Office of Hearings and Appeals (OHA) requesting that the OHA formulate and implement procedures for distributing funds obtained through a consent order with Enron Corp. (Enron). See 10 C.F.R. Part 205, Subpart V. The consent order resolved DOE allegations that Enron and all of its subsidiaries, affiliates, prior subsidiaries, predecessors and successors in interest violated the mandatory petroleum regulations in their sales of crude oil and refined petroleum products from January 1, 1973 through January 27, 1981 (the consent order period). On July 10, 1991, the OHA issued a Decision and Order setting forth final procedures for disbursing the portion of the Enron settlement fund attributable to various Enron entities' sales of NGLs and NGLPs. Enron Corp., 21 DOE ¶ 85,323 (1991) (Enron). These covered Enron entities are UPG, Inc. (UPG), Northern Propane Gas Company (Northern), and Florida Hydrocarbons Company. In accordance with the goals of 10 C.F.R. Part 205, Subpart V, Enron implements a process for refunding the consent order funds to purchasers of Enron NGLs and NGLPs who are able to demonstrate that they were injured as a result of the covered entities' alleged overcharges. This Decision and Order renders a determination upon the merits of an Application for Refund submitted by MAPCO, Inc. (MAPCO) for Enron product purchased by two of the firm’s subsidiaries, Mapco Gas Products, Inc. (Mapco Products) and Thermogas, Inc. (Thermogas). MAPCO is a petroleum products and gas liquids producer, interstate transporter and reseller that purchased Enron propane, ethane, butane and natural gasoline.

I. Background.

In Enron we adopted a presumption that the alleged overcharges attributable to NGLs and NGLPs had been dispersed equally in all sales of refined product made by the covered entities 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.(1)Id. We refer to the dollar amount derived by multiplying an applicant's purchase volume by the per gallon refund amount as the applicant's allocable share.

Enron generally requires a claimant to demonstrate that it was injured by Enron's alleged overcharges in order to receive a refund equal to its full allocable share. However, in Enron, we adopted several presumptions of injury that would allow certain types of claimants to receive a refund without a detailed demonstration of injury. We established that resellers, retailers and refiners seeking volumetric refunds of $10,000 or less were injured by Enron's pricing practices. Id. at 88,960. Such applicants would, therefore, only have to document their purchases of covered Enron products in order to receive a refund of their full volumetric share. Id. at 88,960.

We further established that a reseller, retailer or refiner whose volumetric share of the Enron consent order funds exceeds $10,000 may 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 need only 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.

MAPCO has chosen not to rely upon these presumptions of injury. Instead, it has submitted information aimed at showing that it was injured with respect to the product that it purchased from Enron and resold. Accordingly, we will consider granting the applicant a refund for its volumes of Enron purchases based on our analysis of its business operations and the information it has submitted concerning injury.

II. OHA's Notification of Presumed Non-injury to MAPCO.

As noted above, MAPCO is attempting to show that it was injured by its purchases from Enron in order to receive a full volumetric refund for the 544,560,448 gallons of propane, ethane, butane and natural gasoline that it claims to have purchased from Enron during the refund period. MAPCO submitted information aimed at establishing that it has banks of unrecovered increased product costs sufficient to support its refund claim, and that a price comparison indicates that it was placed at a competitive disadvantage when it purchased these products from Enron.

However, a reseller or refiner who purchased Enron product on the spot market also must overcome a rebuttable presumption that it was not injured as a result of its purchases. Id. at 88,961. Enron states that a claimant is a spot purchaser if it made "only sporadic purchases of significant volumes of covered Enron product." In order to receive a refund, such a claimant must rebut the spot purchaser presumption by submitting specific and detailed evidence aimed at establishing the extent to which it was injured as a result of its spot purchases from Enron. Id., citing Sauvage Gas Company, 17 DOE ¶ 85,304 (1988)(Sauvage).

The OHA reviewed the MAPCO submissions and, in a letter dated February 18, 1997, informed Michael O'N. Barron, MAPCO's representative in this proceeding, that because the firm was a probable spot market purchaser of NGL products, it would be required to submit additional information to substantiate the claim that it experienced economic injury as a result of its purchases from Enron. Specifically, we noted that MAPCO was described as operating at the wholesale marketer level of NGL distribution.

The characteristics of sales in the producer/wholesaler market often involve large volumes and a price that is usually negotiated for each transaction. It therefore appears that [MAPCO]... may have purchased ... Enron products primarily on the spot market. Spot 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.

There are two ways in which [MAPCO] ... may respond in order to receive a refund in the Enron proceeding. The first is to demonstrate that the firm was not a spot purchaser. To do this, the firm should submit a detailed description of its purchasing relationship with Enron and its relationship with its customers, that establishes that it was required to make regular purchases from Enron in order to maintain supplies to base period customers. Alternatively, the firm could establish that it was forced by market conditions to resell the product purchased from Enron at a loss that was not subsequently recovered.

February 18, 1997 letter from Thomas L. Wieker, Deputy Director, OHA, to Michael O'N. Barron.

In addition, the letter indicated that we required more information from MAPCO concerning its business operations as an NGL wholesale marketer in order to evaluate the appropriateness of its injury claim. We asked MAPCO to provide a description of the typical manner in which it located customers and negotiated the purchase and sale of NGLs. We also advised MAPCO to submit some sample sales contracts or any other documents showing the nature of the agreements between MAPCO and its customers during the refund period. Finally, we asked MAPCO to identify its marketing region and describe how its purchase and sale transactions facilitated the distribution and consumption of NGLs. Id.

In a submission dated November 21, 1997, Mr. Barron responded to the OHA's February 1997 request for information with letters from several knowledgeable individuals concerning the nature of MAPCO's business, MAPCO's purchase relationship with Enron and its resale of Enron product to retail and wholesale customers.

As discussed below, the information provided to us by MAPCO has led us to conclude that the spot purchaser presumption should not be applied to the firm's purchases from Enron, but that the volume of MAPCO’s claim should be reduced to exclude product that may have been purchased from Enron pursuant to certain fixed price contracts or may have been purchased prior to June 13, 1973.

III. The Business Operations of MAPCO.

MAPCO's original application identifies the firm as a reseller of NGL's to other petroleum resellers, retailers and end users. The firm's representative, Michael O'N. Barron, Esq., explained its purchases from Enron as follows:

MAPCO is a petroleum products and gas liquids producer, interstate transporter and wholesale marketer. These operations are apportioned among a number of subsidiary companies which have MAPCO as a common parent. During the 1970's, the applicant produced and purchased gas liquids through Mapco Products and Thermogas. Early in the 1980s Thermogas was merged into Mapco Products.

May 1, 1992 submission at 2. In a submission dated November 21, 1997, Mr. Barron submitted letters from former MAPCO and Enron employees concerning MAPCO's business activities during the refund period and its relationship with Enron. According to Mr. Barron, these individuals agree that Enron’s sales to MAPCO were made pursuant to long-term contracts that predated the refund period and were continued under the allocation regulations. Mr. Barron stated that while the contracts themselves were destroyed years ago in accordance with MAPCO’s record retention policy, the recollections of these individuals and MAPCO’s regular pattern of purchases from Enron establish the existence of these contracts. November 21, 1997 submission at 1.

These letters also describe in some detail MAPCO’s business activities and market functions prior to the price control period, and maintain that its operations during price controls were a continuation of these activities. The following selections from these letters emphasize the firm's propane marketing activities.

In his letter, Mr. Jim Thomas identifies himself and Mr. Randy Miller (now deceased) as having handled all of the purchases, sales and exchanges of natural gas liquids for Mid-America Pipeline Company beginning in 1969 through Mr. Thomas’ departure in the mid- 1970s. He states this operation became Mapco Products in the early 1970s. He describes this business operation as follows:

In the 1960s Mid-America Pipeline Company was a common carrier operating and building a network of gas liquids pipelines that ran from the four corners area of the western United States ... to the southeast corner of New Mexico ... through West Texas ..., Missouri and Iowa through Oklahoma, Kansas, to Northern Illinois, Wisconsin and Minnesota. ...

MAPCO divided [its] different operations into divisions. The Thermogas Division operated retail marketing plants throughout the Midwest, South and Eastern United States selling propane to farmers, homeowners and businesses in areas where natural gas was not available. It also operated as a wholesale marketer to other retail marketers. This involved supplying independent retail marketers with propane which they then sold to their own farm, business and homeowner customers. This was a natural outgrowth of the pipeline and my recollection is that most of these independent retailers were located along one or another of the MAPCO or the other pipelines that were connected to it. ...

In the early 1970s MAPCO formed Mapco Products to take over the marketing of its own production and the gas liquids that it purchased. This was not a new or separate business. It was a continuation of our marketing effort with the [MAPCO] Pipeline Division. ...

Because of our gas liquids production and our pipeline, MAPCO quickly became a major force in the gas liquids industry along with Phillips, Cities Service and the other important producers and marketers. We had long-term purchase commitments from many of the major producers and, in turn, we committed MAPCO to long-term contracts with other major users and marketers.

One unique aspect of MAPCO’s business grew out of our pipeline. Many times the pipeline needed product to keep the flow of product going and Mapco Products filled the need. There were also times when the pipeline had contracted to deliver product at a specific location or the gas plants had contracted to fractionate a customer’s natural gas and for various reasons could not accomplish these obligations on time. In these situations we would sell product to the pipeline so that the customer had its product on time and at the proper location.

Another service that we performed for the pipeline and the industry was to make up any product that a marketer had overdrawn from our pipeline. Many times a marketer or its customers would overdraw and it needed to replace the product. We would sell it the product - sometimes in very small amounts but other times the volumes would be quite substantial.

November 3, 1997 letter of Mr. Jim Thomas at 1-4. With respect to MAPCO’s purchases from Enron, Mr. Thomas stated as follows:

The [propane] that MAPCO purchased at Enron’s Bushton plant and on the HTI pipeline was probably used to supply Thermogas’ retail plants or sold to Thermogas’ independent retail customers in Nebraska and Iowa. The product that shows “MAPCO“ or “Rocker B” as its point of origin was either already in or put into the MAPCO pipeline and then mixed with other purchases and MAPCO production. It would be impossible to trace.

Id., at 9. Mr. Barron also submitted a November 14, 1997 letter from Mr. Royse M. Parr, who identified himself as a lawyer in MAPCO’s legal department from 1971 through 1996. Mr. Parr performed legal duties for Thermogas and had less involvement in MAPCO’s pipeline operations. He states that the Thermogas operation consisted of 130 company-owned and operated retail propane stores in an 11-state area in the upper Midwest, Arkansas and Alabama. He states that Thermogas also supplied propane to about 25 franchised dealers operating in the same area as well as over 40 wholesale outlets and nearly 200 industrial accounts. He affirms Mr. Thomas’ statement that Enron’s Bushton plant was a key source of propane for Thermogas.

Northern’s gas plant at Bushton was at the western edge of Thermogas’ marketing area and through its HTI pipeline it was able to supply Thermogas retail plants, franchised dealers, wholesale outlets and industrial accounts along the HTI pipeline as it ran through Iowa. Northern was our most important supplier in this area and it would have been more difficult to supply Thermogas customers without access to this product.

November 14, 1997 letter of Mr. Parr at 2. Finally, Mr. Barron submitted the November 18, 1997 letter of Roger H. Helgoe, who states that he was a marketing manager for Enron in the 1970s and 1980s. His description of Enron’s business relationship with MAPCO is very similar to the descriptions of Mr. Thomas and Mr. Parr.

My memory of MAPCO’s retail operation is that many of its retail plants were within normal trucking distance of the terminals on the HTI and MAPCO pipelines. I presume that most of Northern’s product was marketed at retail through these plants.

November 18, 1997 letter of Mr. Helgoe at 2.

These individuals all agree that Enron’s sales to MAPCO were made pursuant to long-term contracts that predated the refund period and were continued under the allocation regulations. While Mr. Barron states that the contracts themselves were destroyed years ago in accordance with MAPCO’s record retention policy [November 21, 1997 submission at 1], the recollections of these individuals and MAPCO’s regular pattern of purchases from Enron convince us of the existence of these contracts.

Based on the information provided by MAPCO concerning its propane purchases from Enron, we believe that it is unlikely that MAPCO engaged in the type of transactions that give rise to the presumption of non-injury with repect to these purchases. Throughout the refund period, MAPCO appears to have made purchases from Enron partly to meet allocation requirements to base period retail customers of its Thermogas division, and to meet the regular supply requirements of other steady end-user and/or wholesaler customers. Mr. Thomas states that MAPCO committed itself to long- term contracts with other major propane users and marketers. Mr. Barron describes the circumstances of MAPCO’s Enron purchases as follows:

MAPCO had many independent propane retailer customers which it supplied pursuant to annual contracts and many of these retailers were base period customers with allocation rights. The [propane] product purchased from Enron was delivered to MAPCO in the HTI pipeline or in storage in Kansas and then was either placed in MAPCO's storage for later shipment to these retailers or it continued in the pipeline and was delivered to these retailers immediately.

March 30, 1998 memorandum, Exhibit 9 at p. 7.

It thus appears that MAPCO purchased Enron propane to meet the supply requirements of its regular customers, regardless of the prices being charged by Enron for that product. Indeed, the prices that MAPCO paid Enron for propane varied considerably from month to month throughout the refund period. A significant portion of the Enron propane appears to have been purchased by MAPCO’s Thermogas division for storage and eventual retail sale to its regular customers. Other volumes of Enron propane appear to have been purchased for the purpose of maintaining the flow of NGLs through the MAPCO pipeline. Accordingly, MAPCO appears not to have engaged routinely in the type of discretionary, back to back purchase and sale transactions that would tend to insure some level of profit on its resales of Enron propane. As many of its propane customers were propane retailers or end users, or were purchasers of product that was transported through the MAPCO pipeline system, we also find that MAPCO facilitated the movement of propane from Enron's gas plants to the end users of the product. For all of these reasons, we conclude that MAPCO's purchases of propane should not be viewed as covered by the presumption of non-injury for spot purchases. Accordingly, with respect to the propane that MAPCO purchased from Enron during the refund period, we will proceed to evaluate MAPCO's banks of unrecouped increased product costs and its information concerning competitive disadvantage to determine whether MAPCO has demonstrated that the prices that it paid to Enron for propane resulted in economic injury to MAPCO.

For similar reasons, we believe that MAPCO's natural gasoline purchases from Enron do not fall within the spot purchaser presumption. The information presented by MAPCO concerning its natural gasoline business indicates that prior to the period of price controls, MAPCO purchased that product from Enron and other producers pursuant to long-term contracts. It sold the natural gasoline to an established group of refiner customers. During the entire refund period for natural gasoline, it continued to purchase similar quantities of that product from Enron on a very regular basis, in a manner consistent with the utilization of its regulatory allocation of natural gasoline from Enron. Accordingly, we find that MAPCO's natural gasoline purchases from Enron during the refund period were not discretionary back to back purchase and sale transactions that were unlikely to have resulted in real economic injury to the firm. Moreover, MAPCO appears to have facilitated the movement of natural gasoline from producers to end users by supplying MAPCO and other refiners with Enron product. We therefore conclude that the presumption of non-injury for spot market purchases should not be applied to MAPCO's natural gasoline purchases from Enron.

However, we find that the information submitted by MAPCO indicates that its 1973 and early 1974 purchases of natural gasoline from Enron were fixed price purchases that did not result in injury to MAPCO. As noted above, the firm states generally that it entered into long term, fixed price contracts with Enron for the purchase of NGL products prior to 1973 and that these contracts continued into the refund period. The UPG price data summarized in MAPCO’s cost comparison for natural gasoline indicates that from June 1973 through January 1974, MAPCO consistently paid UPG $.08250 per gallon for natural gasoline. November 21, 1997 MAPCO submission, attachment 7. It therefore appears that throughout 1973 and in January 1974, Enron sold natural gasoline to MAPCO at a price negotiated prior to the period of price regulations. Accordingly, we conclude that information provided by MAPCO indicates that it was not overcharged by Enron for its 1973 and January 1974 natural gasoline purchases, and we will therefore subtract this volume of MAPCO's purchases from its refund claim. See Enron Corp./Unocal Corp., 26 DOE ¶ 85,041 at 88,101-02 (1997).

While MAPCO may have purchased regular quantities of butane from Enron pursuant to long term contracts prior to 1973, the information supplied by MAPCO indicates that the firm made no purchases of butane from Enron in 1973. This lack of significant 1973 butane purchases is independently confirmed by UPG sale information supplied to the DOE by Enron. It therefore appears that MAPCO did not have an ongoing contractual relationship with Enron for the purchase of butane at the beginning of the refund period, and may not have had regulatory allocation rights of supply from Enron for that product. However, it appears that MAPCO entered into a long term contract for the purchase of butane from Enron beginning in February 1974 and continuing through March 1976. Accordingly, we conclude that the presumption of non-injury for spot market purchases should not be applied to MAPCO's butane purchases from Enron during the period February 1974 through March 1976.

MAPCO also made isolated purchases of butane from Enron in August and September 1979. Specifically, it purchased 1,108,800 gallons of butane in August and 420,000 gallons of butane in September of that year. MAPCO contends that its sales records for August 1979 shows that many of its customers who purchased butane in that month are the same companies whose names appear in the sales records from September 1973 through 1979. MAPCO asserts that it was a regular supplier of butane to these firms and it believes that the purchases from Enron were made to satisfy its obligations as a supplier to these firms. We have examined these records and agree that they support the firm’s assertions concerning these purchases, as does its general function as a major pipeline transporter and supplier of NGLs. Accordingly we will not apply a presumption of non-injury to these purchases.

MAPCO also has included in its refund claim 1,076,000 gallons of ethane that Enron/UPG sales records indicate were sold to MAPCO in 1973 and 1974. For the following reasons, we conclude that these volumes should be excluded from MAPCO’s claim. MAPCO states that it “assumes” that the Enron/UPG records indicate only those gallons of ethane that MAPCO purchased from the beginning of the refund period (June 13, 1973) up to the date on which the price of ethane was decontrolled (March 31, 1974).(2) We believe that this assumption is unfounded. The Enron/UPG sales figures for 1973 commonly include product purchased in January through June 13 of that year. Nor is there any indication that the 1974 sales of ethane to MAPCO occurred before March 31 of that year. Accordingly, we conclude that MAPCO has not established a reasonable basis for its claim for volumes of ethane subject to an Enron refund (i.e., purchased from Enron from June 13, 1973 through March 31, 1974). The actual volume of ethane that the firm purchased during the refund period for that product could only be derived by some form of estimation process. Moreover, MAPCO contends that it generally purchased NGLPs from Enron pursuant to long-term contracts. During the initial period of price controls, firms like MAPCO who had on-going supply contracts with Enron often purchased product at a contract price established prior to the refund period. Such fixed price purchases did not result in injury to the purchaser. As noted above, this appears to have been the case with respect to MAPCO’s purchases of natural gasoline from Enron from June 13, 1973 through January 1974. Accordingly, we do not believe that MAPCO has established a significant likelihood that all or most of the ethane that it purchased from Enron during this June 13, 1973 through March 31, 1974 period was not at a contract price established prior to the refund period. We also note that MAPCO included these volumes of ethane in its competitive disadvantage analysis for propane, “since [ethane] is often combined with propane as part of a propane-ethane mix.” We do not believe that a combination of propane and ethane data compared to prevailing market prices for propane would yield a valid price comparison for either product. For these reasons, we have determined that these 1,076,000 gallons of ethane purchases from Enron/UPG should be excluded from MAPCO’s refund claim. We will also exclude the ethane price and volume information from our revised competitive disadvantage analysis of MAPCO’s propane purchases from Enron.

As we indicated above, MAPCO has shown that it was not overcharged by Enron for the 21,000,000 gallons of natural gasoline that it purchased from Enron in the period from June 1973 through January 1974. For the reasons discussed above, we also find that it is proper to exclude the gallons of Enron ethane purchased by MAPCO from the firm's refund claim.(3) Finally, we will reduce MAPCO’s claim of 2,783,000 gallons of propane purchased in June 1973 by forty percent or 1,113,200 gallons, because the Enron refund period does not include product purchased prior to June 13, 1973. Accordingly, we will subtract a total of 23,188,200 gallons of Enron product from the firm's claim, reducing that claim to 521,372,248 gallons of Enron propane, natural gasoline and butane. Based upon this claim, MAPCO could receive a maximum volumetric refund of $3,133,447, plus a proportionate share of the interest that has accrued on the Enron escrow account. We therefore will proceed with a determination of whether MAPCO has demonstrated that the prices that it paid to Enron for natural gasoline and propane resulted in economic injury to MAPCO.

IV. Resellers and Refiners Must Show Injury to Receive a Refund.

A reseller or refiner whose allocable share exceeds $10,000 must demonstrate that it was injured by Enron's alleged overcharges in order to receive a refund equal to its full volumetric allocation of the consent order fund. Enron at 88,960. Generally, a firm who had a long term purchasing arrangement with Enron must meet a two- step requirement to make an injury showing. First, in order to determine the degree to which market conditions forced an NGL reseller or refiner to absorb the alleged overcharges, we determine whether the firm accumulated banks of unrecovered increased product costs large enough to justify the amount of the refund claimed during the period when it purchased from Enron through the end of the banking period. Next, the firm must show that market conditions forced it to absorb the alleged overcharges. Id. at 88,960. In this regard, the OHA applies a three part competitive disadvantage analysis that has been upheld by the courts. See Behm Family Corp. v. DOE, 903 F.2d 830 (Temp. Emer. Ct. App. 1990); Atlantic Richfield Co. v. DOE, 618 F. Supp. 1199 (D. Del. 1985). Under the competitive disadvantage methodology, we infer that where the firm was required to make purchases at above average market prices, it generally indicates that the firm was unable to pass through the alleged overcharges associated with those purchases. Conversely, we infer that purchases made at prices below the market average placed a firm at a competitive advantage and did not injure the firm.(4)

V. Analysis of MAPCO's Injury Showing.

MAPCO purchased large quantities of propane and lesser volumes of natural gasoline and butane from Enron. MAPCO has submitted data which purports to document its banks of unrecovered increased product costs for these NGLPs during the period of price controls. Under the price regulations, the calculation of cost banks is based on a firm's May 15, 1973 selling prices for its products.

According to MAPCO, its original bank calculations have not survived, so it has submitted reconstructed bank records for the period November 1973 through January 1981 from surviving records. In addition, the DOE’s November 21, 1980 Consent Order with MAPCO (Case No. 740V01246) includes what the DOE determined were MAPCO banks of NGLPs as of September 30, 1980. As discussed below, we agree that the materials submitted by MAPCO, taken together, indicate that MAPCO had banks of unrecovered costs for propane, natural gasoline and butane that significantly exceed the firm’s volumetric refund in this proceeding.

In the 1980 MAPCO Consent Order, the DOE agreed that as of September 30, 1980, MAPCO had a total bank of $56,226,014.57. This bank appears to be solely for propane, since that is the only NGLP still subject to price controls in September 1980. MAPCO’s reconstructed banks indicate that as of September 30, 1980, MAPCO had combined banks (Thermogas and Mapco Products) for propane of $62,021,873, and that this bank rose slightly to $62,974,930 in January 1981. MAPCO’s reconstructed banks also indicate that at the time that natural gasoline and butane were deregulated in December 1979, the firm had a cumulative NGL bank (excluding propane) of $16,627,615.

MAPCO's reconstructed banks appear to be based on the best available contemporaneous data and appear to be reasonably calculated. A comparison of the reconstructed propane bank with the September 1980 propane bank figure from the MAPCO Consent Order indicates that MAPCO’s reconstructed banks may run about ten percent higher than the DOE audit’s findings. We therefore conclude that MAPCO’s recalculations are generally accurate and indicate banks for propane, natural gasoline and butane that are substantially in excess of the firm's full allocable share of the Enron consent order fund for those products.(5) Accordingly, MAPCO has satisfied the first part of the two-part injury requirement by demonstrating that it incurred increased costs that it was unable to pass through to its customers. See Atlantic Richfield Company/Gast Fuel and Service, Inc., 20 DOE ¶ 85,127 (1990).

In its Application for Refund, MAPCO also has performed the three step competitive disadvantage analysis outlined above. As its source of data, the firm used the Energy Information Administration's (EIA) Monthly Petroleum Product Price Report (MPPPR). When determining competitive injury, the OHA generally relies on Platt's as the best source of regional average market price data for the purpose of determining the months in which an applicant purchased refined products at prices higher than the regional average. See Atlantic Richfield Company/Phillips Petroleum Company, 22 DOE ¶ 85,217 (1992)(ARCO/Phillips), and cases cited therein at 88,575. We believe that price information assembled on a nationwide basis (like the EIA prices) does not adequately reflect competitive conditions characterizing the regional product markets. See Atlantic Richfield Company/BTU Energy Corp., 22 DOE ¶ 85,074 at 88,231 (1992)(ARCO/BTU). Accordingly, we will substitute appropriate Platt's postings for the MPPPR data used by MAPCO in its analysis of competitive disadvantage concerning the propane and natural gasoline that it purchased from Enron. Based on the firm’s description of its business operations, we believe that Platt’s postings covering the Kansas/Oklahoma area are the most appropriate to use in this analysis. As described above, MAPCO purchased most of its Enron propane from Enron’s Bushton Kansas plant to supply Thermogas retail outlets in the Midwest. In addition, Oklahoma/Kansas was an active area of operation for the MAPCO pipeline system. We will therefore use the Platt's postings for Oklahoma (Group 3) in our revised analysis of MAPCO's Enron purchases.(6)

Because Platt's regional price postings are not available for natural gasoline and butane, we have developed a methodology for extrapolating regional natural gasoline prices from the Platt's postings for propane, based on a finding that natural gasoline follows a regional pricing pattern similar to propane, the most widely used NGL product. Enron Corp./Moon Scott Joint Venture, 27 DOE ¶ 85,014 at 88,079-80 (1998)(Enron/Moon Scott); Eason Oil Company/Koch Hydrocarbon Company, 26 DOE ¶ 85,065 at 88,187 (1997)(Eason/Koch); ARCO/BTU, 22 DOE at 88,231 and cases cited therein. In a May 5, 1998 filing, MAPCO challenges our use of propane prices to extrapolate a regional price for natural gasoline and butane, noting that the price relationship between propane and these products varied dramatically during the refund period.

In the early 1970's, propane, butane and natural gasoline were very close in price but by 1979 the value of natural gasoline was probably 100% more than propane and the value of butane 50% to 75% higher. These price increases paralleled crude oil price increases more closely than any other product....

November 3, 1997 letter of Mr. Thomas at 10, attachment 2 to MAPCO’s November 21, 1997 submission.

We do not believe that these variations in relative prices create significant distortions in our calculations. Our estimation method takes the known monthly ratio between national prices for propane and natural gasoline and uses that ratio in conjunction with a regional propane price to estimate the regional price for natural gasoline. Thus, any potentially divergent pricing patterns between propane and natural gasoline will be accounted for through the use of this ratio between national propane and natural gasoline prices. Also, the impact of any regional, seasonal divergences in pricing patterns will be neutralized by our summation of price differences over the entire refund period. We therefore conclude that regional natural gasoline prices calculated according to our established methodology are reasonably accurate measures of the difference in prices over the refund period.

Accordingly, we have revised MAPCO's analysis of its propane, natural gasoline and butane purchases. Our revised analyses extrapolate comparative regional prices for natural gasoline and butane using the Platt's wholesale propane price postings for "Oklahoma Group 3," and available EIA nationwide data. In Enron/Moon Scott and Eason/Koch, we used EIA prices for propane, natural gasoline and butane to arrive at monthly price ratios between propane and the other two products. We will use that method here. We will use these monthly ratios as conversion factors to extrapolate monthly regional prices for natural gasoline and butane in this case. Accordingly, in our analysis of MAPCO's natural gasoline and butane purchases, we have multiplied the monthly Platt's propane price by the ratio of EIA natural gasoline to EIA propane or EIA butane to EIA propane prices for that month to arrive at extrapolated monthly regional prices for natural gasoline and butane.(7)

Our competitive disadvantage analysis, as detailed in the Appendix to this Decision and Order and summarized in Table I below, shows that, with respect to propane, there is an indication that MAPCO experienced some level of injury. However, the level of injury demonstrated by the competitive disadvantage analysis is insufficient to qualify MAPCO for a full volumetric refund based on its propane purchases from Enron.

TABLE I

Propane

372,731,026 Gallons

Allocable Share for those Gallons: $2,240,113

Total Gross Excess Cost$7,309,180

Total Net Excess Cost$4,907,451

Above-Market Volumetric Share$1,591,941

Volumetric Share [71%]

While none of these figures is intended to represent an absolute measure of the injury suffered by the firm, taken together they reveal whether an applicant was placed at a competitive disadvantage by its refined petroleum product costs during the period in which it was allegedly being overcharged. For the period as a whole, MAPCO's net excess cost for propane is 2.2 times the value of the firm’s full allocable refund share of the Enron refund and MAPCO's gross excess cost is 3.3 times the value of the firm's full allocable share. In previous cases, the gross and/or net excess costs of refund applicants has frequently been more than ten times the applicants' full allocable share of the refund. In such instances, it is clear that an applicant experienced a substantial and consistent competitive disadvantage as a result of its purchases. See Enron Corp./Unocal Corp., 26 DOE ¶ 85,041 at 88,104 (1997); Atlantic Richfield Co./Coast Gas, Inc., 24 DOE ¶ 85,136 (1995) (analysis of propane and butane purchases); Total Petroleum/Mid States Petroleum, Inc., 19 DOE ¶ 85,665 (1989) (analysis of motor gasoline purchases); Conoco, Inc./Power Pak Co., Inc., 17 DOE ¶ 85,016 (1988); Marathon Petroleum Co./Acme Oil Co., 17 DOE ¶ 85,634 (1988); Mobil Oil Corp./Hughes Oil Co., 17 DOE ¶ 85,510 (1988).

This Office has granted only partial refunds to firms whose competitive disadvantage analyses fail to indicate a substantial and consistent competitive disadvantage. For example, in several previous instances where an applicant's net excess cost for covered product is less than 100 percent of its allocable share for that product, we have granted a refund only for the gallons of covered product that the competitive disadvantage analysis indicates were purchased by the applicant at above-market prices. See Atlantic Richfield Company/Coast Gas, Inc., 24 DOE ¶ 85,136 (1995) (analysis of natural gasoline purchases); Total Petroleum/Mid States Petroleum, Inc., 19 DOE ¶ 85,665 (1989) (analysis of No. 2 Oil purchases); Marathon Petroleum Co./Acme Oil Co., 17 DOE ¶ 85,634 (1988); Mobil Oil Corp./Perry Oil Co., 17 DOE ¶ 85,074 (1988). Also, in several instances where even the applicant's gross excess cost of covered product was less than 100 percent of the volumetric refund for its above market purchases, we have limited the applicant's refund to its gross excess cost. See Eason Oil Company/Presidio Exploration, Inc., 26 DOE ¶ 85,046 (1997) (analysis of propane purchases); Aminoil U.S.A., Inc./Mornes, Walter J., 18 DOE ¶ 85,564 at 88,924 (1989); see also Kansas- Nebraska Natural Gas Co., Inc./Cities Service Oil and Gas Corp., 14 DOE ¶ 85,231 at 88,434-35 (1986) (in a case involving a large, negative, net excess cost and a gross excess cost much smaller than the firm's allocable share, the applicant's refund was limited to 50 percent of the gallons that it purchased at above market prices multiplied by the per gallon refund rate).

As noted above, MAPCO’s competitive disadvantage analysis for propane indicates that its net excess cost is 2.2 times its full allocable refund share and its gross excess cost is 3.3 times its full volumetric share of the Enron Consent Order funds. These figures, although indicative of some level of injury, do not clearly establish that MAPCO experienced the level of substantial and consistent competitive disadvantage from its purchases of Enron propane that would justify a refund based on its full volume of Enron propane purchases. Under these circumstances, we believe it is appropriate to grant MAPCO a refund based on approximately 85.5 percent of the gallonage of its allowable Enron propane purchases (318,806,508 gallons), the average of its total allowable Enron propane purchases (100 percent or 372,731,026 gallons) and its above market Enron propane purchases (71 percent or 264,881,989 gallons). See Eason/Koch, 26 DOE at 88,188-89. Accordingly, MAPCO will receive a refund equal to its allocable share of the Enron refund for purchases of 318,806,508 gallons of propane from Enron during the period June 13, 1973 through January 1981, or $1,916,027 (318,806,508 x $.00601 = $1,916,027), plus interest.

MAPCO’s competitive disadvantage analysis for natural gasoline indicates that it suffered a lower level of injury in its purchases of that product than in its Enron propane purchases.

TABLE II

Natural Gasoline

139,978,711 Gallons

Allocable Share for those Gallons: $841,272

Total Gross Excess Cost$6,154,150

Total Net Excess Cost $354,983

Above-Market Volumetric Share $432,093

Volumetric Share [51%]

MAPCO's gross excess costs for natural gasoline are 7.3 times its full allocable share of the Enron refund for that product. However, MAPCO’s net excess cost is only 42 percent of its full allocable share. These ratios vary far more than the respective 3.3 and 2.2 ratios attributable to MAPCO’s propane purchases from Enron. They indicate that MAPCO’s natural gasoline purchases from Enron at above market prices were offset in substantial measure by purchases of Enron natural gasoline at below market prices. As discussed above, in several previous refund applications where an applicant's net excess cost for covered product is less than 100 percent of its full volumetric refund for that product, we have granted a refund only for the gallons of covered product that the competitive disadvantage analysis indicates were purchased by the applicant at above-market prices. We believe that MAPCO’s refund should be limited in this manner, and we therefore will grant MAPCO a refund based on the 71,895,715 gallons of its Enron natural gasoline purchases for which it paid above market prices. Accordingly, MAPCO will receive a refund for purchases of 71,895,715 gallons of natural gasoline from Enron during the period February 1974 through December 1979, or $432,093 (71,895,715 x $.00601 = $432,093), plus interest.

Finally, MAPCO’s competitive disadvantage analysis for butane indicates that it suffered an even lower level of injury in its purchases of that product than in its Enron natural gasoline purchases.

TABLE III

Butane

8,662,511 Gallons

Allocable Share for those Gallons: $52,062

Total Gross Excess Cost $183,770

Total Net Excess Cost($349,763)

Above-Market Volumetric Share $9,188

Volumetric Share [18%]

While MAPCO's gross excess costs for butane are 3.5 times its full allocable share of the Enron refund for that product, its net excess cost is a substantial negative figure. Accordingly, in this instance as well we will limit MAPCO’s refund for Enron butane to the gallons of that product that the competitive disadvantage analysis indicates were purchased by MAPCO at above-market prices. We therefore will grant MAPCO a refund based on the 1,528,800 gallons of its Enron butane purchases for which it paid above market prices. Accordingly, MAPCO will receive a refund for purchases of 1,528,800 gallons of butane from Enron during the period February 1974 through September 1979, or $9,188 (1,528,800 x $.00601 = $9,188), plus interest.

Based upon the foregoing competitive disadvantage analyses, and in view of our finding that the firm possessed substantial banks of unrecovered increased product costs for NGLPs during the covered time period, we have concluded that MAPCO is entitled to a refund for purchases of 392,231,023 gallons of propane, natural gasoline and butane from Enron, or $2,357,308. In addition, MAPCO is entitled to receive a proportionate share of the interest accrued on the consent order fund, or $1,743,936.(8)Therefore, MAPCO’s total refund in this proceeding is $4,101,244 ($2,357,308 principal and $1,743,936 interest) for the volumes of propane, natural gasoline and butane that it purchased from Enron.

Accordingly, the total volume approved in this Decision and Order is 392,231,023 gallons of Enron product and the total refund, including interest, is $4,101,244.

Although we have examined MAPCO's claim and supporting data, the determination reached in this Decision is based on the representations made in the application. If the factual basis underlying our determination in the Decision is later shown to be inaccurate, this Office has the authority to order appropriate remedial action, including rescission or reduction of the refund.

It Is Therefore Ordered That:

(1) The Application for Refund submitted by MAPCO, Inc. is hereby granted as specified below.

(2) The Director of Special Accounts and Payroll, Office of the Controller, of the Department of Energy shall take appropriate action to disburse by wire transfer a total of $4,101,244 ($2,357,308 principal and $1,743,936 interest) from the DOE deposit fund escrow account maintained at the Department of the Treasury and funded by Enron Corporation, Consent Order No. 730V00221Z, to:

MAPCO, Inc.

Attn: James P. Niedermeyer, Senior Attorney

One Williams Center, Suite 4100

Tulsa, Oklahoma 74172

(3) The determinations made in this Decision and Order are based on the presumed validity of the statements and documentary material submitted by the applicant. Any of those determinations may be revoked or modified at any time upon a determination that the factual bases underlying the Application for Refund are incorrect.

(4) 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/ This amount was derived by dividing the fund received from Enron allocable to refined products ($43,200,000) by the estimated volume of refined products sold by Enron from June 13, 1973 through the date of decontrol of the relevant product (7,186,265,624). Id. at n. 8.

(2)MAPCO erroneously identifies this period as June 1, 1973 through April 30, 1974. November 21, 1997 MAPCO submission, attachment 7 at 4.

(3)Although MAPCO claims that it purchased 1,076,000 gallons of ethane from Enron, only 1,075,000 gallons of this amount were included in the firm’s combined competitive disadvantage analysis for propane and butane. See November 21, 1997 MAPCO submission, Attachment 5, p. 4. This led MAPCO to understate by 1,000 gallons the volume of propane in MAPCO’s claim. Id., Attachment 5, p. 1. Our revised analysis corrects this error.

(4)4/ This analysis produces three measures which the OHA uses as guidelines in determining the claimant's level of injury. The first measure, "gross excess cost," is the sum of the amounts by which an applicant's monthly purchase costs exceeded the market average. The second measure, "net excess cost," equals an applicant's gross excess cost minus the sum of the amounts by which its purchase costs were below the market average in other months. This measure provides an indication of the cumulative impact of the alleged overcharges, balancing the adverse effect of the comparatively expensive purchases against the positive effect of comparatively inexpensive purchases. The third measure, the "above-market volumetric share," is the number of gallons purchased at prices which exceed market prices multiplied by the volumetric factor. This measure is indifferent to the magnitude of the excess costs incurred, accounting only for the number of gallons of uncompetitively priced product purchased by the applicant. We consider all of these indicators of competitive disadvantage in determining whether, and to what extent, an applicant was injured by its purchases from the particular supplier, and thereby to calculate an appropriate refund amount. See Texas Oil and Gas Corp./Gulf Oil Corp., 13 DOE ¶ 85,135 (1985); see also Texaco Inc./Oakwood Oil Co., 22 DOE ¶ 85,262 (1993).

(5)Although MAPCO may have received refunds for sales of NGLs in other DOE refund proceedings, it is unlikely that such refunds would significantly reduce the firm's substantial banks for propane, natural gasoline and butane.

(6)6/ We note that MAPCO has combined its propane, natural gasoline and butane purchases into a single competitive disadvantage analysis. We believe it is appropriate to conduct separate analyses for these three products. See Eason Oil Company/Presidio Exploration, Inc., 26 DOE ¶ 85,046 at 88,120 (1997).

(7)Because there is no EIA data for natural gasoline available prior to July 1975, we will use the ratio between EIA propane and natural gasoline prices in July 1975, combined with the appropriate monthly Platt's propane price, to extrapolate regional natural gasoline prices for those earlier months. See Enron/Moon Scott, 27 DOE at 88,080. We are not convinced that MAPCO’s use of the MPPPR crude oil price for July 1975 as an estimating tool yields a more accurate result than our use of the EIA’s July 1975 propane price.

(8)8/ Interest is now being paid on Enron refunds at the rate of $0.7398 per dollar of refund.