May 14, 2003

DECISION AND ORDER

OF THE DEPARTMENT OF ENERGY

Application for Refund

Name of Petitioner: Ameripol Synpol Corporation

Dates of Filing: July 5, 2001

Case Numbers: RC272-00414

This Decision and Order will consider the Application for Refund filed by Ameripol Synpol Corporation (ASC)(1) based upon purchases of refined petroleum products during the crude oil price control period, August 19, 1973 through January 27, 1981. ASC requests a refund from the crude oil monies currently being disbursed by the Office of Hearings and Appeals (OHA) pursuant to the OHA's authority under 10 C.F.R. Part 205, Subpart V.

I. Background

Pursuant to Department of Energy (DOE) policy, purchasers of refined petroleum products could apply to the OHA for a refund from crude oil overcharge funds collected by the DOE. Statement of Modified Restitutionary Policy in Crude Oil Cases, 51 Fed. Reg. 27899 (August 4, 1986) (the MSRP). We established refund procedures for these funds, which were made available through court approved settlements, remedial orders and consent orders entered into by the DOE and numerous firms that sold crude oil during the period of price controls. See, e.g., New York Petroleum, Inc., 18 DOE ¶ 85,435 (1988); Ernest A. Allerkamp, 17 DOE ¶ 85,079 (1988); A. Tarricone, Inc., 15 DOE ¶ 85,495 (1987). The refund procedures set forth in these cases specify that in order to receive a refund, an applicant generally must: (i) document its purchase volumes during the period of price controls; and (ii) show that it was injured by alleged crude oil overcharges.

End-users of petroleum products whose businesses are unrelated to the petroleum industry are presumed to have absorbed the crude oil overcharges and need not submit any further proof of injury to receive a refund. See, e.g., City of Columbus, 16 DOE ¶ 85,550 (1987); see also 52 Fed. Reg. 11737 at 11742 (April 10, 1987) (the April 10 Notice) and cases cited therein. The end-user presumption of injury is rebuttable, however. If an interested party submits evidence which is of

sufficient weight to rebut the end-user presumption, the applicant will be required to produce further evidence of injury. Berry Holding Co., 16 DOE ¶ 85,405 at 88,797 (1987).

In explaining the rationale for the end-user presumption, we have stated:

The end-user presumption was adopted first and foremost as an evidentiary tool so that parties injured by crude oil overcharges would have the opportunity to obtain some measure of restitution for those overcharges. As we previously noted, the DOE "has a duty to identify injured persons and, to the extent possible, to make direct refunds to them. . . ." To fulfill this Congressional mandate and assure that restitution is achieved, the OHA must take into account the complexity of oil overcharge proceedings, as well as the difficulty in actually proving injury from crude oil overcharges, caused in part by the passage of time since the period of price controls and difficulties applicants may experience in locating records and relevant market data. . . . If end-user claimants were routinely required to submit detailed evidence of injury in order to receive refunds for crude oil overcharges, a great majority of claimants would find that the refunds in question were not worth the time and cost involved in pursuing them. The result would be the complete frustration of the restitutionary purposes of these proceedings, since "virtually no end-users would receive restitution for the crude oil overcharges they experienced."

New York Petroleum, 18 DOE at 88,702 (citations omitted). See also April 10 Notice, 52 Fed. Reg. at 11741-42.

Meritorious claimants are eligible to receive refunds equal to the number of gallons of petroleum products they purchased during the period of price controls multiplied by a per-gallon or volumetric refund amount. The volumetric refund amount currently available is $0.0016 per gallon. We derived this refund amount by dividing the total crude oil refund monies currently available by the total consumption of petroleum products in the United States during the period of price controls (2,020,997,335,000 gallons).

On November 8, 2000, the OHA issued a Decision and Order on an Application for Refund filed by ASC. Ameripol Synpol Corporation, Case No. RF272-61725 (November 8, 2000). In that decision, we approved a crude oil refund based on purchases of 635,055,405 gallons of petroleum products. On December 14, 2000, we issued a supplemental order granting an additional refund to reflect the fact that the approved refund should have been based on purchases of 677,428,449 gallons. Ameripol Synpol Corporation, Case No. RA272-85 (December 14, 2000).

In January 2001, a group of utilities and manufacturers (hereinafter "U&M") brought an action against the DOE in the United States District Court for the District of Columbia, seeking to reverse and vacate our orders granting refunds to ASC. On May 16, 2001, the court granted a motion to dismiss filed by the DOE and remanded the matter to the OHA "for further proceedings in which plaintiffs' counsel may have full participation." The issues raised in those proceedings we now consider under OHA Case No. RC272-00414.

On December 16, 2002, Ameripol Synpol filed a petition for reorganization under chapter 11 of Title 11 of the United States Code (Bankruptcy Act) in the District of Delaware (Dkt. No. 02-13682 (KJC)). Any claim or obligation pursuant to this regulatory action is therefore subject to the requirements of 11 U.S.C. § 362, and should not be construed as an effort to enforce a money judgement.

II. Analysis

Of the 677,428,449 million gallons of petroleum product purchases for which a refund was granted in Case Nos. RF272-61725 and RA272-85,(2) 562,476,852 gallons were purchases of feedstock used to produce butadiene for the manufacture of synthetic rubber. These feedstocks were composed of propane, isobutane, isobutene, 1-butene, 2L-butene, 2H-butene, n-butane, pentane, and butadiene. While certain of the components of the feedstock, specifically 367,230,612 gallons(3) of 1-butene, 2L- butene, 2H-butene, and butadiene, were processed into finished butadiene, the "other components . . . would have been resold for other uses after they had been filtered out." Letter from Daniel S. Brown, Huber Lawrence & Abell, to Steven Goering, OHA (June 14, 2000) at 2.

In implementing the crude oil refund proceeding, we stated that, unlike end-users, "resellers and retailers will not be permitted to use presumptions to show they were injured in crude oil refund cases. These classes of applicants may, however, use the type of econometric evidence that was submitted to OHA in the Stripper Well proceeding to show that they were injured by crude oil overcharges." 52 Fed. Reg. 11737 at 11742 (April 10, 1987). We provided an opportunity to ASC to produce evidence proving injury,(4) but none has been submitted. Thus, ASC is not eligible for a refund to the extent the feedstock purchased and claimed in its refund application was resold.

However, ASC may be entitled to rely on the end-user presumption of injury with regard to the portion of those feedstocks, as well as the other petroleum products claimed in ASC's application, purchased for use in its non-petroleum-related business line, the manufacture of synthetic rubber. See Henry G. Meigs, 21 DOE ¶ 85,203 (1991). As to these products, we next must determine whether they are among the products the purchase of which is eligible for a refund in this proceeding. The products in question are the 1-butene, 2L-butene, 2H-butene, butadiene (components of the feedstock that were not resold), extender oil, and liquid asphalt.

The OHA has set forth the following standard regarding the eligibility for refund of products in the crude oil overcharge refund proceeding.

We will presume that a claimant incurred a crude oil overcharge in the purchase of a product during the relevant period if either that product was named as a covered product in regulations promulgated pursuant to the EPAA, or (a) was purchased from a crude oil refinery or (b) originated in a crude oil refinery and was purchased from a reseller who did not substantially change its form.

Notice of General Interest Concerning DOE's Crude Oil Overcharge Refund Program, 57 Fed. Reg. 30731 (July 10, 1992).

There is no question that extender oil and liquid asphalt are eligible for refunds in this proceeding. See, e.g., Firestone Tire & Rubber Co., 21 DOE ¶ 85,396 (1991) (extender oil); City of Provo, Case No. RG272-738 (January 20, 1998) (liquid asphalt). However, none of the components of the feedstock not resold (1-butene, 2L-butene, 2H-butene, butadiene) were named as covered products in regulations promulgated pursuant to the EPAA. And while such feedstocks may be produced from a crude oil refinery, they also may be produced from natural gas. Because they can be produced from sources other than crude oil, ASC must “establish that a product not within the definition of covered products under the EPAA was in fact produced at a crude oil refinery” before we may presume that ASC incurred crude oil overcharges in its purchases of that product.

The applicant has presented contemporaneous records documenting the purchases of the feedstocks in question. Letter from Daniel S. Brown, Huber Lawrence & Abell, to Steven Goering, OHA (June 14, 2000). For each feedstock purchase, the records list the name of a supplier. These records document purchases of 747,783,204 gallons of feedstocks from suppliers identified as “Gulf BB Feed,” “Cedar Bayou Crude,” and “Gulf Oil Crude bde.” The applicant has also produced two affidavits in support of its contention that feedstocks thus identified in the contemporaneous records were produced at a crude oil refinery. One of these affidavits, executed by an individual employed by B.F. Goodrich during the relevant period, states that those feedstocks identified as “Gulf BB Feed” were produced at facilities that were “an integral component of the Gulf oil refinery,” Affidavit of Steve G. Michalicek (July 12, 2000). The other affidavit, by an ASC Vice President of Purchasing, concerns feedstocks from suppliers identified in the contemporaneous records as “Cedar Bayou Crude” and “Gulf Oil Crude bde,” and states that these feedstocks were purchased from facilities “physically integrated with the Gulf oil refinery.” Affidavit of Leonard J. LaMagna (August 11, 2000).

U&M questions both the veracity of the affidavits and whether they are sufficient to meet the standard of eligibility set forth above. Letter from Philip P. Kalodner to Thomas O. Mann, Deputy Director, OHA (June 30, 2001). We do not accept the U&M position. First, we have no reason to question the accuracy of the affidavits submitted, nor has U&M suggested one. We therefore disagree with U&M that we are required to conduct an "investigation . . . in the form of questioning the affiants or by seeking relevant records of the alleged refiner sources," or that we must "contact and question other employees of the applicant or its predecessors, . . ." Id. Second, U&M is incorrect in asserting that the applicant must prove, by affidavit or any other form of evidence, that the product purchased "had as its source crude oil." Id. U&M overstates the applicant’s burden. Rather, the evidence presented by applicant must demonstrate that the product in question was purchased from, or originated in, a crude oil refinery. From that showing, we presume that the product has as its source crude oil and that the claimant incurred a crude oil overcharge. In this case, U&M had presented no evidence that would rebut that presumption.

We regard the affidavits produced as “probative evidence that the purchases . . . were from crude oil refineries." Goodyear Tire and Rubber Co. v. Department of Energy, 118 F.3d 1531, 1541 (Fed. Cir. (1997). Of the 747,783,204 gallons of feedstocks purchased from Gulf, the portion of those feedstocks not resold, and therefore eligible for a refund, comprise 367,230,612 gallons.(5)

III. Conclusion

For the reasons set forth above, we will rescind a portion of the refunds granted in Case Nos. RF272- 61725 and RA272-85. Specifically, only 367,230,612 gallons of the feedstock purchases claimed by ASC in its filings are eligible for a refund, not the 562,476,852 gallons upon which the original refunds were based. Thus, 195,246,240 gallons of feedstock purchases for which a refund was originally granted are in fact ineligible for a refund. We will therefore rescind a portion of those refunds equal to $312,394 (195,246,240 gallons of ineligible purchases multiplied by the volumetric amount upon which the original refunds were based, $0.0016 per gallon).

In the normal regulatory course, this order would require a refund of the $312,394 differential described above. However, the effect of 11 U.S.C. § 362 precludes the agency from enforcing such an obligation, while not mitigating the obligation itself.

It Is Therefore Ordered That:

(1) Pursuant to 11 U.S.C. § 362(b)(4), the Office of Hearings and Appeals hereby rescinds in part, as set forth above, the Decision and Orders issued in Case Nos. RF272-61725 and RA272-85.

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

George B. Breznay

Director

Office of Hearings and Appeals

Date: May 14, 2003

(1) On March 18, 2003, counsel for ASC notified the Office of Hearings and Appeals that ASC is currently under the jurisdiction of the Bankruptcy Court for the District of Delaware. Letter from Daniel S. Brown, Huber Lawrence & Abell, to Thomas O. Mann, Deputy Director, Office of Hearings and Appeals (February 25, 2003).

(2) The purchases for which ASC claims a refund were made by the Texas-U.S. Chemical Company (TUC), the Ameripol Division of the B.F. Goodrich Company, and Synpol, Inc., a subsidiary of Uniroyal, Inc. ASC has submitted documentation demonstrating that it is a successor in interest to these companies and therefore would be the proper recipient of a refund based upon their eligible purchases. U&M contends that ASC is not eligible to receive a refund for purchases made by TUC “based on a release executed by its parent company Texaco Inc.” Letter from Philip P. Kalodner to Thomas O. Mann, Deputy Director, OHA (June 30, 2001). We disagree. While U&M is correct that ASC is not entitled to a refund based on purchases by TUC's butadiene business, the applicant is entitled to a refund based on the purchases of TUC's polymer business, which was sold to Synpol, Inc., in 1979. The purchases by TUC for which we grant a refund in this decision are only those made by the company's polymer business. See enclosures to Letter from Daniel S. Brown, Huber Lawrence & Abell, to Steven Goering, OHA (June 14, 2000) (indicating that asphalt purchases by TUC were used "exclusively for a specific type of polymer" and that butadiene and extender oils were used as two separate material inputs in polymer production).

(3) See infra note 5.

(4)Letter from Thomas O. Mann, OHA, to Daniel S. Brown, Huber Lawrence & Abell (October 15, 2001).

(5)See Letter from Daniel S. Brown, Huber Lawrence & Abell, to Steven Goering, OHA (June 14, 2000) (367,230,612 gallons derived from total purchases of 1-butene, 2L-butene, 2H-butene, and butadiene from suppliers identified in contemporaneous records as “Gulf BB Feed,” “Cedar Bayou Crude,” and “Gulf Oil Crude bde.”)