Case No. RF339-00019

November 29, 1996

DEPARTMENT OF ENERGY

OFFICE OF HEARINGS AND APPEALS

Application for Refund

Petitioner: Good Hope Refineries/Commonwealth Edison Company

Date of Filing:May 16, 1994

Case Number: RF339-19

On June 28, 1991, the Office of Hearings and Appeals (OHA) of the Department of Energy (DOE) issued a Supplemental Order instituting special refund procedures for the distribution of $9,000,000, plus accrued interest, which Good Hope Refineries (Good Hope) remitted to the DOE under the terms of a July 31, 1979 Consent Order. Good Hope Refineries, 21 DOE ¶ 85,309 (1991) (hereinafter Good Hope II). Good Hope's remittence of these funds resolved DOE allegations that Good Hope had violated the Mandatory Petroleum Pricing and Allocation Regulations in its sales of refined petroleum products during the period August 19, 1973 through July 31, 1976 (the consent order period). In accordance with the goals of 10 C.F.R. Part 205, Subpart V, the Good Hope II determination implemented a process for refunding the consent order funds to purchasers of Good Hope refined petroleum products who demonstrate that they were injured as a result of Good Hope's alleged regulatory violations.

I. Background

Good Hope has previously remitted funds to the DOE in an attempt to resolve DOE allegations that it violated the Mandatory Petroleum Pricing and Allocation Regulations during the period beginning on August 19, 1973 and continuing through July 31, 1976. Under the terms of the 1979 Consent Order, Good Hope originally agreed to provide $15,000,000 in restitution through price rollbacks, reductions in banks of unrecouped costs, and direct payments to the DOE. However, after providing the DOE with $1,550,000 in restitutionary funds, Good Hope subsequently fell into arrears on its scheduled payments. Uncertain whether Good Hope would remit additional funds, the OHA instituted special refund procedures on July 3, 1985 to distribute the $1,550,000, plus accumulated interest. Good Hope Refineries, 13 DOE ¶ 85, 105 (1985) (hereinafter Good Hope I). Good Hope eventually remitted an additional $9,000,000 in payments to DOE as part of a reorganization plan that permitted it to emerge from bankruptcy. (1) These funds are now available for disbursement pursuant to Subpart V.

We will apply the same methodology used to calculate refunds in Good Hope I to Good Hope II. An applicant is eligible to receive a refund calculated in one of two ways. Some applicants' refunds may be based upon the Economic Regulatory Administration's (ERA) calculations of overcharges. ERA's Good Hope audit file contains a partial list of Good Hope's customers and attributes percentages of the total alleged overcharges to the customers. This list has been included as an appendix to the Good Hope II implementation order. Good Hope Refineries, 21 DOE ¶ 85,309 (1991). The refunds of applicants that appear on that list will be calculated by multiplying the applicable percentage appearing in that Appendix by the total amount remitted by Good Hope ($9,000,000) for distribution in the present proceeding.

Applicants that are not listed in the Appendix may receive a refund based upon a per gallon, or volumetric, basis. Under this volumetric method, a claimant's "allocable share" of the refined product portion of the consent order fund is equal to the number of gallons of covered petroleum products which it purchased from Good Hope during the Consent Order period (August 19, 1973 through July 31, 1979) multiplied by the per gallon (volumetric) refund amount, which we have determined to be $0.0052.

Under the procedures established in Good Hope II, a claimant is generally required to demonstrate that it was injured as a result of its purchases from Good Hope. However, we presumed that resellers (including retailers and refiners) seeking refunds of $10,000 or less, exclusive of interest, were injured by the alleged overcharges. (2) Consequently, such applicants are not required to submit evidence of injury beyond documentation of the volume of Good Hope refined petroleum products they purchased during the refund period. Good Hope II at 88,914-15. We have also determined that a medium-sized reseller claimant (including retailers and refiners) whose allocable share of the Good Hope refined product pool exceeds $10,000, exclusive of interest may elect to receive either $10,000 or 40% of its allocable share, whichever is greater, up to $50,000, also exclusive of interest. (3) We also adopted a presumption that firms purchasing covered Good Hope petroleum products on the spot market were not injured as a result of these purchases. Good Hope II at 88,915. Spot purchasers had considerable discretion in the timing and location of their purchases and therefore are presumed to have made these purchases only when they could pass through the full selling price of the Good Hope petroleum products to their customers. Murphy Oil Corp./Village Store, Inc., 20 DOE ¶ 85,713 (1990). The presumption that spot purchasers were not injured may be rebutted, however, if the spot purchaser demonstrates that (1) the purchases were made to meet the needs of base period customers, (2) the covered petroleum products were resold at a loss, and (3) this loss was not later recovered. Saber Energy, Inc./Mobil Oil Corp., 14 DOE ¶ 85,170 (1986).

II. Analysis

This Decision and Order concerns the Application for Refund filed by the Commonwealth Edison Company (Commonwealth), a public utility that purchased petroleum products from Triangle Refineries (Triangle). Commonwealth claims that Triangle had purchased petroleum products from Good Hope during the consent order period and has documented Commonwealth's purchases from Triangle. Commonwealth contends that since it purchased refined petroleum products from Triangle, who in turn had purchased refined petroleum products from Good Hope, it should receive a refund as an indirect purchaser.

In order to receive a refund in the Good Hope proceeding, Commonwealth must prove that purchases from Triangle originated from Good Hope. Good Hope II, 21 DOE at 88,912. Commonwealth has attempted to establish that its purchases from Triangle originated with Good Hope by: (1) contending that since the Good Hope proceeding was the only DOE refined product refund proceeding in which Triangle participated, it must have made all of its purchases of refined petroleum products from Good Hope, and (2) submitting a letter from a senior employee of Triangle's parent company, which Commonwealth claims supports its contentions.

Commonwealth's contention that Triangle's failure to participate in any other refined product refund proceeding indicates that it did not purchase from other suppliers is without merit. Our experience in administrating the DOE's refund proceedings has revealed that a significant number of injured parties that were eligible for refunds in those proceedings never filed applications. Moreover, some suppliers were never the subject of DOE enforcement proceedings, while other suppliers who were the subject of DOE enforcement proceedings were never required to submit funds for restitution. In many other cases, other forms of restitution were employed by the DOE such as price rollbacks, reductions in banks of unrecouped costs, direct payment to the United States Treasury, or direct payments to customers. We note also that Triangle may have purchased a significant portion of the refined petroleum products it resold from its parent company, Kerr-McGee. Accordingly, we find that the mere fact that Triangle did not apply for other refunds does not, in and of itself, meet Commonwealth's burden of proving that the product it purchased from Triangle originated from Good Hope.

Commonwealth has also submitted a letter from Don Hager, the Assistant Secretary and Senior Counsel for Kerr-McGee Corporation (Triangle's parent corporation). In that latter Mr. Hager states in pertinent part:

... no actual records are available whatsoever from the 1973-1976 time period; however, after numerous discussions with [Commonwealth's representative] Mr. Traci, I know of no reason to dispute the position that 75% of the fuel Triangle supplied [Commonwealth] originated with Good Hope Refineries and consider this estimate to be reasonable based on those discussions.

* * *

I cannot substantiate this response, and have made this response only for the purpose of supplying a reference point for your office to estimate a reasonable refund to [Commonwealth].

February 21, 1995 Letter from Don Hager to Stephanie Ratkin, Staff Analyst, Office of Hearings and Appeals. Mr. Hager's letter speaks for itself. Mr. Hager never claims to have personal knowledge of Triangle's purchases during the consent order period and states outright that he is unable to substantiate Commonwealth's contention. We therefore find that the Hager letter does not support Commonwealth's contentions. Moreover, even if Mr. Hager had affirmatively supported Commonwealth's contentions, his letter would have constituted uncorroborated and unsworn testimony concerning events that occurred approximately two decades ago and we would have assigned it little or no evidentiary weight.

Moreover, our review of Triangle's application for refund in the Good Hope proceeding has revealed that it was based solely upon its purchases of motor gasoline from Good Hope during the consent order period. Good Hope Refineries/Kerr-McGee Corporation, 16 DOE ¶ 85,254 at 88,492 (1987). Commonwealth's application for refund is based on its purchases of jet fuel and No. 2 diesel fuel. Commonwealth's Application for Refund at 2. Commonwealth therefore purchased different petroleum products from Triangle than Triangle purchased from Good Hope. Accordingly, Commonwealth's reliance on Triangle's application for refund, as evidence that the fuel it purchased from Triangle originated with Good Hope, is misplaced.

III. Conclusion

Commonwealth has failed to meet its burden of proving that its purchases from Triangle originated with Good Hope. Accordingly, we hereby find that the Application for Refund filed by the Commonwealth Edison Company should be denied.

It Is Therefore Ordered That:

(1) The Application for Refund filed by Commonwealth Edison Company, Case Number RF339-19, is hereby denied.

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

George B. Breznay

Director

Office of Hearings and Appeals

Date: November 29, 1996

(1) The firm now does business as Transamerican Natural Gas Corporation.

(2) In order to be considered under the small claims injury presumption, a retailer, reseller, or refiner must have purchased less than 1,923,077 gallons of Good Hope products during the refund period or claim a refund of .111% or less of the alleged overcharges based on information from the ERA audit file.

(3) Under the mid-level injury presumption, a retailer, reseller, or refiner applicant which purchased between 1,923077 gallons and 4,807,692 gallons of Good Hope products would be eligible to receive a principal (exclusive of interest) refund of $10,000. Similarly, a claimant who, according to the audit file, is eligible to receive between .1111% and .2777% of the alleged overcharges will be eligible for a principal refund of $10,000. A claimant purchasing between 4,807,692 gallons and 245,038462 gallons would be eligible for a principal refund of $50,000. Moreover, a claimant entitled to receive between .2777% and 1.3888% of the alleged overcharges would be eligible to receive a principal refund equal to 40 percent of its allocable share, and an applicant whose share according to the audit file exceeds 1.3888% would be eligible for a principal refund of $50,000.