Case No. RF300-17886

April 1, 1997

DECISION AND ORDER

OF THE DEPARTMENT OF ENERGY

Application for Refund

Name of Petitioner: Gulf Oil Corporation/United Refining Co.

Date of Filing: October 1, 1991

Case Number: RF300-17886

This Decision and Order renders a determination upon the merits of an Application for Refund submitted by United Refining Company (United) in the Gulf Oil Corporation special refund proceeding, Case No. RF300-17886.

On July 25, 1985, 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 Gulf Oil Corporation (Gulf). See 10 C.F.R. Part 205, Subpart V. The consent order resolved DOE allegations that Gulf violated the mandatory petroleum regulations in its sales of crude oil and refined petroleum products from January 1, 1973 through January 27, 1981 (the consent order period). On September 8, 1987, the OHA issued a Decision and Order setting forth final procedures for disbursing the portion of the Gulf settlement fund attributable to Gulf's sales of refined petroleum products. Gulf Oil Corp., 16 DOE ¶ 85,381 (1987) (Gulf). In accordance with the goals of 10 C.F.R. Part 205, Subpart V, Gulf implements a process for refunding the consent order funds to purchasers of Gulf refined petroleum products who are able to demonstrate that they were injured as a result of Gulf's alleged overcharges.

In Gulf, we adopted a presumption that the alleged Gulf overcharges attributable to refined products had been dispersed equally in all sales of refined product made by Gulf during the consent order period. Gulf, 16 DOE at 88,736. 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 $.00064 per gallon of covered Gulf product purchased.(1)Id. at 88,739.

We established that a refiner, reseller, or retailer claimant generally would be required to demonstrate that it was injured as a result of its Gulf purchases; that is, that it did not pass through to its customers Gulf's alleged overcharges. However, we established a presumption that firms claiming refunds of $5,000 or less would not be required to demonstrate that they absorbed the alleged overcharges. We also established a mid-range presumption of injury (the "40 percent" presumption of injury). The 40 percent presumption provides that a refiner, reseller or retailer whose claim would result in a refund greater than $5000, but not greater than $50,000 (excluding interest), can elect to receive 40 percent of its allocable share without providing a detailed demonstration of injury. Id. at 88,740.

In addition, we established a rebuttable presumption that spot purchasers of Gulf refined products were not injured by Gulf's alleged overcharges. Spot purchasers made sporadic purchases of significant volumes of Gulf product and tended to have considerable discretion regarding where and when to make such purchases. We believe that those who made spot purchases of Gulf products at increased prices would not have made those purchases unless they were able to pass through the full amount of the quoted selling price at the time of purchase to their own customers. Therefore, an applicant in the Gulf proceeding cannot receive a refund for its spot purchases of Gulf products unless it presents evidence rebutting the spot purchaser presumption and establishes the extent to which it was injured as a result of its purchases of Gulf refined products during the consent order period. The presumptions of injury described above do not apply to spot purchases of Gulf products. Id. at 88,741.

United claims it purchased 31,637,748 gallons of controlled Gulf products during the consent order period. Of these claimed gallons, 27,437,748 gallons are listed as gasoline and 4,200,000 are listed as middle distillates. According to the information submitted by United, the firm's purchases were large and fairly irregular throughout the consent order period. United purchased Gulf products in only 29 of the 90 months during which time Gulf products were controlled, with extremely large purchases of gasoline (8,975,710 gallons) and middle distillates (all 4,200,000 gallons) in June 1976. According to the submitted information, there were periods as long as 14 to 23 months during which United purchased no Gulf products at all, and only two years listed on the Application (1974 and 1976) show that United purchased Gulf products in more than six months of the calendar year.

United's purchase pattern clearly indicates that United operated as a spot purchaser during the consent order period. In the past, applicants have successfully rebutted the spot purchaser presumption described above by demonstrating that: (1) they were forced by market conditions to resell the product at a loss; and (2) the purchases were necessary to maintain supplies to base period customers. Gulf Oil Corporation/Kent Oil & Trading Co., 20 DOE ¶ 85,424 (1990); Good Hope Refineries/Tenneco Oil Co., 16 DOE ¶ 85,662 (1988); Saber Energy, Inc./Mobil Oil Corp., 14 DOE ¶ 85,170 (1986).

On December 11, 1992, the OHA sent a letter to United requesting substantiation of United's claim that it purchased 31,637,748 gallons of Gulf products during the consent order period. In that letter, we also explained the spot purchaser presumption and the information United would be required to submit to rebut the presumption on non-injury for spot purchasers. On February 5, 1993, we received a letter from United that provided substantiation of United's 1974 Gulf purchases, but did not address or attempt to rebut the spot purchaser presumption of non-injury. On May 13, 1993, an OHA employee contacted United by telephone to again request information regarding United's spot purchases. United responded to this request with a letter dated May 18, 1993. In the letter, United explained that during the consent order period the firm was often forced to shut down its refining operations for periods of 3 to 4 weeks to perform routine maintenance. During these shut downs, United purchased product from other companies, including Gulf, to supply its customers with promised amounts of refined product. United asserted that purchase decisions, including whether to purchase from Gulf or another firm, were based on three criteria: availability, delivery and price.

As discussed above, in order to rebut the spot purchaser presumption a firm must demonstrate that it was forced to make spot purchases to satisfy obligations to base period customers and that, due to market conditions, the firm was forced to sell the product at a loss. The May 18, 1993 letter from United established neither of these criteria.

Accordingly, on September 30, 1996, the OHA sent another letter to United which again explained the spot purchaser presumption of non- injury. The letter stated specifically what United was required to demonstrate in order to rebut the spot purchaser presumption: that "(1) it purchased the products on the spot market to satisfy an obligation to base period customers; (2) it resold the product at a loss; and (3) it did not pass that loss through to its other customers." (2) When we received no response from United, we sent another letter again requesting this information on January 13, 1997.

We received a letter responding to our inquiries on February 4, 1997. In the letter, United asserts that it was not a spot purchaser of Gulf products because the purchases from Gulf "were planned purchases for meeting a known refinery production short fall." (3) United again explains the maintenance schedule that required periodic shut downs of the firm's refining operations, which in turn necessitated purchases by United of Gulf products to supply its customers with promised amounts. In the letter, United does not attempt to establish either that it was forced to sell the Gulf product at a loss, or that it did not pass through that loss to its other customers.

United's simple assertion that it made large, irregular purchases of Gulf products to satisfy obligations to base period customers is wholly insufficient to rebut the spot purchaser presumption of non- injury. See Murphy Oil Corporation/Marshfield Oil Co., Inc., 20 DOE ¶ 85,403 (1990). On three separate occasions, the OHA has provided United with a detailed explanation of both the spot purchaser presumption of non-injury and the information which must be provided by United in order to rebut it. United has declined to provide the information necessary to rebut the spot-purchaser presumption. We can only assume the firm has declined to provide this information because it cannot provide this information.

Thus, we find that United has failed to rebut the presumption that it was a spot purchaser of Gulf products and, as such, that it suffered no injury due to Gulf's alleged overcharges. United is therefore ineligible to receive a portion of the Gulf consent order funds. Accordingly, the Application for Refund filed by United Refining Company is hereby denied.

It Is Therefore Ordered That:

(1) The Application for Refund filed by United Refining Company, Case No. RF300-17886, is hereby denied.

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

George B. Breznay

Director

Office of Hearings and Appeals

Date: April 1, 1997

(1)1/ This amount was derived by dividing the fund received from Gulf allocable to refined products ($42,499,566) by the estimated volume of refined products sold by Gulf from August 1973 through the date of decontrol of the relevant product (66,387,563,569 gallons). Id.

(2)See Letter from Thomas L. Wieker, OHA Deputy Director, to Marshall Staunton, General Counsel to United Refining Company, dated September 30, 1996.

(3)See Letter from Marshall Staunton to Thomas L. Wieker, dated January 30, 1997.