Case No. RG272-00529

March 20, 1998

DECISION AND ORDER

OF THE DEPARTMENT OF ENERGY

Application for Refund

Name of Applicant: Merichem Company

Date of Filing: June 30, 1995

Case Number: RG272-529

In this Decision and Order, the Office of Hearings and Appeals (OHA) of the Department of Energy (DOE) will determine the eligibility of Merichem Company (Merichem) for a refund from the crude oil monies currently available for disbursement in a proceeding conducted pursuant to the provisions of 10 C.F.R. Part 205, Subpart V. For the reasons explained below, we are denying Merichem’s refund claim.

Pursuant to DOE policy, purchasers of refined petroleum products were permitted to apply to the OHA for a refund from crude oil overcharge funds under the OHA's jurisdiction until the filing deadline of June 30, 1995. See Statement of Modified Restitutionary Policy to be Implemented in Crude Oil Cases, 51 Fed. Reg. 27899 (August 4, 1986). We have established refund procedures for these funds which have been made available through consent orders entered into by the DOE and numerous 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).

Merichem applied for a refund based on its purchases of sodium cresylate and sodium sulfide during the crude oil price control period (August 19, 1973 through January 27, 1981). In its application, Merichem estimated that it purchased 396,240,000 gallons of sodium cresylate and 268,970,000 gallons of sodium sulfide.

The Office of Hearings and Appeals has adopted a standard for considering the products for which an applicant can claim a refund in this proceeding. In a Notice published in the Federal Register on July 10, 1992, we announced that we would accept applications based on products that were either (a) designated as covered products in regulations promulgated pursuant to the Emergency Petroleum Allocation Act of 1973 (EPAA), 15 U.S.C. §§ 751-760; (b) purchased from a crude oil refinery; or (c) originated in a crude

oil refinery and purchased from a reseller who did not substantially change the products' form.

Merichem claims that both products are eligible as non-covered products because Merichem purchased these products from a crude oil refinery. Under our standard, it is Merichem’s burden to demonstrate that it meets this standard. See Reynolds Metal Company, 24 DOE ¶ 85,071 at 88,241-42 (1994) (citing Great Lakes Carbon Corp., 22 DOE ¶ 85,248 at 88,662 (1993); Goodyear Tire & Rubber Company, 24 DOE ¶ 85,039 at 88,112 (1994) (Goodyear), partially reversed on other grounds and remanded, Goodyear Tire & Rubber Company v. DOE, 118 F.3d 1531 (Fed. Cir. 1997).

Under this prong, Merichem must show that the claimed product was created by means of the basic refining process. Allied Signal, Inc., 26 DOE ¶ 85,034 at 88,078 (1997). The refining process refers to the fractionation of crude oil. See id. Fractionation occurs during the separation of a liquid mixture into several products of shorter boiling range by vaporization through heating. This is usually done in a “bubble tower,” otherwise known as a refinery stack, in which a mixture of ascending vapor is scrubbed by a descending flow of oil. See W.L. Nelson, Petroleum Refinery Engineering 3, 434 (4th ed. 1958). Products such as gasoline and middle distillates are produced by such a refinery stack. Products created by means other than refinery processes are not eligible for a crude oil refund. See American Synthetic Rubber, 25 DOE ¶ 85,092 at 88,231 (1996); Goodyear at 88,116-17. Therefore, the questions in this case are whether sodium sulfide and sodium cresylate are created in the basic refining process.

In support of its claim, Merichem has submitted several refund period-era contracts between itself and various oil companies as well as an affidavit signed by one of its chemical engineers, Ruben Cruz. Mr. Cruz asserts that both products are refinery by-products which are “derived during catalytic cracking and other processes and are extracted from refinery products including gasolines, LPGs and other clean products.” This statement does not on its face clearly support the claim that these products were created through the refining process. Therefore, we must examine whether the processes referred to Mr. Cruz are in fact refining processes. Even though it is clearly the applicant’s burden to produce sufficient evidence to convince us that a refund is warranted, we nevertheless have undertaken our own inquiry in order to understand the nature of the products and processes at issue here. Our findings are discussed below.

Sodium Cresylate

Some of the contracts submitted by Merichem for the purchase of sodium cresylate contain descriptions of how that substance was created. For instance, the January 1, 1974 contract between Shell Oil Company (Shell) and Merichem specifies that the cresylate spent caustic solution (containing sodium cresylate) which Merichem purchased from Shell should be created “from treatment of cracked gasolines and/or light distillates.(1)Other contracts submitted describe this process similarly. Because the use of the term “treatment” is so vague, we looked to other authorities in order to better define this process. According to the Encyclopedia of Chemical Technology, Kirk-Ottmer, 2d ed. vol. 6, p. 436, organic (or cresylate) spent caustic liquor is used to wash petroleum distillates. This washing consists of bringing petroleum distillates into contact with sodium hydroxide for the purpose of removing minor impurities such as hydrogen sulfide. See also Petroleum Refinery Engineering at 301-302; Bland and Davidson, Petroleum Processing Handbook 6-14 (1967). This combination causes a chemical reaction in which the net result is the spent caustic liquor plus petroleum-based cresols. We find this chemical reaction with non-petroleum based chemicals is nothing at all like the fractionation process, which involves the heating of crude oil to produce petroleum products. This reaction is clearly not crude oil refining, and we therefore conclude that sodium cresylate is not produced in a crude oil refinery.

Sodium Sulfide

Similarly, we have examined the ways that sodium sulfide is created. Unfortunately, Merichem’s submitted descriptions of the sodium sulfide process are even more vague than the sodium cresylate descriptions. For instance, the 1974 Shell contract describes the substance purchased as “[s]ulfide spent caustic solution from refinery operations.” The 1976 Mobil Oil Corporation contract describes the process as “inorganic spent caustic solution . . . shall be produced in normal refinery treating operations consistent with standard refinery practices.” Because of the nebulousness of these descriptions, we again looked to authorities for enlightenment regarding the way this process occurs. A number of different ways to create sodium sulfide are listed in the Encyclopedia of Chemical Technology in Vol 18 at 510-12. None of the processes listed involve refining or fractionation.(2)Based on the record before us, we find that Merichem has clearly failed to meet its burden to demonstrate that the sodium sulfide it purchased was created through crude oil refining.

We note as an additional reason to deny Merichem’s claim that Merichem appears to be a reseller of crude oil products that has failed to show proof of injury from alleged crude oil overcharges. Merichem apparently changed sodium sulfide and sodium cresylate very little in selling these products to its customers. Merichem adds a comparatively small amount of oxygen and water to the sodium sulfide and sodium cresylate it purchases; out of the seven types of products sold by Merichem, five of them are 99% composed of the two products at issue in this case. See Letter from William H. Bode, Representative, Merichem, to Dawn L. Goldstein, Staff Attorney, OHA (October 8, 1997). Therefore, Merichem does not appear to have sufficiently changed the form of the products to allow us to consider Merichem to be an end-user. See Chesebrough- Pond’s USA Co, 26 DOE ¶ 85,049 at 88,136 (1997), appealed on different grounds sub nom., Consolidated Edison Co. v. Peña, No. 1:97CV02213-EGS (D.D.C. filed Sept. 25, 1997); Elf Aquitaine Asphalt, Inc., 22 DOE ¶ 85,040 (1992); Bic Corp., 21 DOE ¶ 85,219 (1991). Accordingly, we find Merichem ineligible for a refund because it resold crude oil products and has not demonstrated injury from alleged crude oil overcharges.

We wish to emphasize that we would be willing to reconsider this determination if Merichem were able to provide appropriate documentation that the two claimed products were produced through the refinery process and that it either was an end-user of these products or was a reseller who had suffered injury.

It Is Therefore Ordered That:

(1) The Application for Refund filed by Merichem Company, Case No. RG272-529, on June 30, 1995, is hereby denied.

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

George B. Breznay

Director

Office of Hearings and Appeals

Date: March 20, 1998

(1)”Merichem paid Shell based on the amount of cresylic acid, i.e, sodium cresylate, found in the spent caustic solution.

(2)The processes listed include: (i) reduction of salt cake with powdered coal or other organic matter, (ii) adding sodium sulfate to the residual liquor in the process of making pulp, (iii) reducing salt cake with hydrogen, (iv) combining hydrogen and sulfur over a solid cobalt catalyst and then absorbing them into caustic soda, (v) reacting hydrosulfide with flake caustic soda, (vi) combining methane with sulfur vapor and treating that substance with cold caustic soda, and (vii) roasting barium sulfate and treating the product with soda ash.