Case No. RF340-00109
August 14, 1997
DECISION AND ORDER
OF THE DEPARTMENT OF ENERGY
Application for Refund
Name of Petitioner: Enron Corp./Gulf Coast Petroleum, Inc.
Date of Filing: April 9, 1992
Case Number: RF340-109
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 on behalf of Gulf Coast Petroleum, Inc. (Gulf Coast), a wholesale marketer that purchased Enron propane and butane.
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.
Gulf Coast 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. 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. 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.(2)
In addition, however, a reseller or refiner who made only spot purchases of Enron product 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).
III. OHA's Notification of Presumed Non-injury to Gulf Coast.
As noted above, Gulf Coast is attempting to show that it was injured by its purchases from Enron in order to receive a full volumetric refund for the 4,593,960 gallons of product that it purchased from Enron's subsidiary, UPG, during the refund period.(3) Gulf Coast has 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 product from Enron.
The OHA reviewed the Gulf Coast submissions and, in a letter dated June 7, 1996, informed Michael O'N. Barron, Gulf Coast'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 stated that:
[Gulf Coast's] application, maintains that it operated at the wholesale marketer level of NGL distribution. As indicated in your submission in RF340-82 (Vanguard Petroleum Corporation), the characteristics of sales in the producer/wholesaler market often involve large volumes and a price that is usually negotiated for each transaction. See Statement of P.E. Goth, Jr. at 2. Moreover, we have examined the copies of Enron's Sales Confirmations concerning its sales to [Gulf Coast] that you have attached to your June 30, 1995 [Gulf Coast] submission. These confirmations indicate that Enron sold [Gulf Coast] discrete volumes of surplus product and that these individual sales were arranged through telephone conversations between Jim Hallman of [Gulf Coast] and Enron representatives.
Accordingly, we find strong indications that [Gulf Coast] 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 that your firm may respond in order to receive a refund in the Enron proceeding. The first is to demonstrate that it was not a spot purchaser. To do this, you should submit a detailed description of [Gulf Coast's] purchasing relationship with Enron and [Gulf Coast's] relationship with its own customers, that establishes that [it] was required to make regular purchases from Enron in order to maintain supplies to base period customers. Alternatively, [Gulf Coast] could establish that it was forced by market conditions to resell the product purchased from Enron at a loss that was not subsequently recovered.
June 7, 1996 letter from Thomas L. Wieker, Deputy Director, OHA, to Michael ON. Barron.
In addition, the letter indicated that we required more information from Gulf Coast concerning its business operations as an NGLP wholesale marketer in order to evaluate the appropriateness of its injury claim. We asked Gulf Coast to provide a description of the typical manner in which it located customers and negotiated the purchase and sale of NGLs. We also advised Gulf Coast to submit some sample sales contracts or any other documents showing the nature of the agreements between Gulf Coast and its customers during the refund period. Finally, we asked Gulf Coast to identify its marketing region and describe how its purchase and sale transactions facilitated the distribution and consumption of NGLPs. Id.
In a submission dated October 22, 1996, Mr. Barron responded to the assertion by the OHA that Gulf Coast was a spot purchaser of Enron products and to our request for additional information regarding Gulf Coast's role in the wholesale marketer industry. The submission includes: a memorandum from Mr. Barron regarding the spot purchaser presumption and its relation to the instant Application, a statement from the president of Gulf Coast, Mr. James W. Hallman, III, a letter from a former employee of UPG, Inc. regarding that firm's relationship to Gulf Coast, two statements from former employees of Cities Service Oil Company regarding the LPG industry in general and wholesale distributors in particular, and two reports from Dr. Peter Linneman regarding general trends in the LPG industry during the consent order period.
As discussed below, the information provided to us by Gulf Coast is insufficient to establish that the firm was injured by its purchases from Enron.
IV. Analysis.
A. Gulf Coast Purchased and Sold NGLPs on the Spot Market.
In determining whether Gulf Coast's purchases from Enron were spot purchases, it is important to first understand the purpose and scope of the presumption, so that it may be correctly applied to the facts of this case. In this regard, Enron's extensive discussion of the spot purchaser presumption in the context of responding to comments on the proposed Enron implementation order provides a more detailed explanation of the meaning of the presumption, and can provide a basis for our analysis of whether the presumption is applicable to Gulf Coast's purchases and sales of Enron products.
In Enron, we concluded that the concept of spot purchaser is sufficiently well defined to allow applicants to understand the theoretical basis for the presumption.
The term spot purchase is commonly used and understood in the petroleum industry to mean a contract for the purchase and sale of petroleum products on a short term basis. [Sauvage Gas Company/NGL Supply, Inc., 19 DOE ¶ 85,622 at 89,142 (1989)(Supply)] The OHA has interpreted the term spot purchaser to mean any firm that purchased significant volumes of covered products from a supplier on a sporadic or isolated basis outside of a long term supply obligation.
Enron at 88,955. It is clear from this discussion that the purchaser's discretion in selecting its supplier of product is a key element underlying the presumption of non-injury.
We have consistently determined that spot purchasers tend to have considerable discretion in where and when to make purchases and therefore would not have made spot market purchases from a firm at increased prices unless they were able to pass through the full price of the purchases to their own customers. The OHA has utilized this spot purchaser presumption of non-injury in numerous special refund proceedings.
Id., citing Sauvage, 17 DOE ¶ 85,304. It should be noted that short term, discretionary sales and purchases were the rule rather than the exception in certain portions of the NGL industry, particularly in the producer and wholesale reseller markets.
Although such spot market purchases of Enron product establish a presumption of non-injury to the purchaser, such a purchaser may submit additional information concerning its business operations to rebut the presumption on a case-specific basis. As we noted in Enron,
The OHA examines the circumstances of each case to make an initial determination whether the applicant's purchases were likely to have been spot purchases. Where it appears likely that an applicant's purchases were spot purchases, the applicant is generally notified of our tentative conclusion and offered an opportunity to show either that it was not a spot purchaser or that it was injured by its spot purchases. Since this analysis focuses on the fundamental refund issue, viz., whether the applicant was injured, there is no merit to the claim that it is based on an impermissibly vague definition. ...
In Supply, ... we stated that "the determination of whether an individual's purchases from a particular supplier are spot purchases is a question of fact and therefore must be made on a case-by-case basis." Id. at 89,143.
Id. at 88,955-56. This case-by-case injury analysis is a broad one. Under this method, "we consider the circumstances under which a claimant made its purchases and any information submitted by the applicant that might aid our determination concerning whether its purchases were spot purchases." Our determination of whether a spot purchaser was injured is similarly based on a case-by-case analysis of information submitted by the claimant. Id. at 88,956- 57.
After reviewing the evidence submitted by Gulf Coast, we conclude that it has not rebutted our finding that it purchased from Enron on the spot market, nor has it made the showings of injury required of spot market purchasers. The information provided by Gulf Coast concerning its purchasing relationship with Enron and its relationship with its customers does not establish that Gulf Coast was required to make regular purchases from Enron in order to maintain supplies to established customers.
As an initial matter, we note that Gulf Coast was not formed until June 1978, and its first sale did not take place until July 1978. Accordingly, it is clear that Gulf Coast was not operating as a reseller during the period April 1972 through March 1973, the regulatory "base period" for purposes of the DOE allocation regulations. Consequently, Gulf Coast had no regulatory obligation to furnish any "base period" customers with a steady supply of product. Furthermore, Gulf Coast has submitted nothing to indicate that it maintained regular business relationships with its customers to the extent that Gulf Coast would have had been forced to purchase Enron products at unfavorable prices in order to maintain a steady supply of product to long-term, regular customers of Gulf Coast.
Gulf Coast's pattern of purchases from Enron indicates that Gulf Coast's purchases were large and made on a sporadic, discretionary basis, rather than pursuant to long term supply contracts that would have committed Gulf Coast to a particular volume of purchase. According to the documents submitted by the firm, Gulf Coast made only six total purchases from Enron's UPG affiliate, of which four were butane and two were propane, over an eleven-month portion of the consent order period (between October 1978 and September 1979). The purchases are listed (in gallons) as follows:
Butane: November 1978 420,000
December 1978 1,680,000
January 1979 210,000
September 1979 630,000
Propane: October 1978 519,960
March 1979 1,134,000
On its face, the fact that Gulf Coast made only six large purchases from UPG during the consent order period, strongly suggests that Gulf Coast was a spot purchaser of Enron products. Accordingly, Enron was not a regular supplier of butane or propane to Gulf Coast during the refund period. Nor is there any information in the record to indicate that Gulf Coast was forced to buy these products at a loss to satisfy contractual obligations to base period or regular customers. The fact that Gulf Coast's purchases were sporadic, discretionary, and significant in volume supports our finding that Gulf Coast purchased butane and propane from Enron during this time period because it was advantageous for the firm to do so.
This conclusion is further reinforced by a review of the sales invoices included in the June 30, 1995 submission from Gulf Coast.(4) There are two invoices, dated November 6, 1978 and November 8, 1978, showing that Gulf Coast agreed to purchase 25,000 barrels (1,050,000 gallons) of iso butane and 30,000 barrels (1,260,000 gallons) of normal butane at that time. The first invoice, for the purchase of iso butane, lists the Term of Agreement as "Nov. 6, 1978 and terminates when above-specified volume is delivered." The second invoice, for normal butane, lists the Term of Agreement as "November 7, 1978 and terminates when above-specified volume is delivered." The total volume of Enron products ordered by Gulf Coast in this two-day period is 2,310,000 gallons. It is clear, then, that the three purchases of butane listed by Gulf Coast in its Application for Refund, dated November 1978, December 1978 and January 1979, actually arose from these two contracts (420,000 + 1,680,000 + 210,000 = 2,310,000). It seems fair to characterize these three monthly "purchases" as three separate deliveries of product purchased during one two-day period in 1978. Thus, it appears that during this two-day period, Gulf Coast exercised its business judgment to enter into purchase contracts for more than half of the total gallonage of its purchases from UPG. There is no reason to believe that these discretionary purchases were not based on the business judgment by a Gulf Coast official that the firm would be able to pass through the full price of the purchases to its customers. See Enron, 21 DOE at 88,955.
The remaining purchases of Enron products by Gulf Coast, a total of 1,653,960 gallons of propane purchased in October 1978 (519,960 gallons) and March 1979 (1,134,000 gallons), and another 630,000 gallons of butane purchased in September 1979, are so large in quantity and irregular in timing that they only support the conclusion that Gulf Coast was a spot purchaser with the discretionary purchasing power to purchase Enron products only when it was most advantageous to the firm.
Gulf Coast's October 22, 1996 submission does nothing to disprove this conclusion. Mr. Barron provides a memorandum regarding the spot purchaser presumption of non-injury and its relation to Gulf Coast. In the memorandum, Mr. Barron asserts that the OHA would be altering its long-standing precedent regarding spot purchasers if it were to classify Gulf Coast as a spot purchaser simply because it made infrequent purchases from Enron. We disagree with this assertion. As discussed above, the decision implementing this refund proceeding clearly stated that the spot purchaser
presumption of non-injury is applicable to firms who made infrequent, discretionary purchases from Enron. Id. Mr. Barron's general arguments concerning the nature of the spot purchaser presumption were considered and rejected in Enron Corporation/H.C. Oil Company, Inc., 26 DOE ¶ 85,038 at 88,091-94 (1997). They need not be addressed again here. Our application of the spot purchaser presumption with respect to Gulf Coast is a case specific analysis that follows established OHA precedent in this area. Id.
Mr. Barron also argues in the October 22, 1996 submission that the firm should not be considered a spot purchaser of Enron products because it was granted a refund in the Empire Gas Corporation Special Refund proceeding. Empire Gas Corporation/Gulf Coast Petroleum, Inc., 25 DOE ¶ 85,006 (1995). He notes that Gulf Coast's purchases from Empire were less frequent than its purchases from Enron. He also states: "OHA acknowledged that an applicant with a regular business relationship is not a spot purchaser."(5)Despite the implication of this statement, a review of the Decision reveals that the determination to grant Gulf Coast a refund in the Empire Gas proceeding relied solely upon Gulf Coast's submission of its cost banks and a competitive disadvantage analysis. The possibility that Gulf Coast was a spot purchaser of Empire products simply was not addressed in the Decision. Furthermore, we must again note that the OHA considers each Application on a case-by- case basis, applying general OHA precedent, as well as the specific standards of each proceeding, to each unique set of circumstances presented in these Applications for Refund.
Finally, Mr. Barron asserts that Gulf Coast was a regular business customer of Enron, and that its "purchases were not isolated or sporadic in the context of its position as a small regional wholesale marketer." (6) We disagree. Gulf Coast made only six total purchases from Enron throughout the refund period, all but one of which were completed within one five-month period. Furthermore, three of the claimed "purchases" were actually just deliveries of product that Gulf Coast agreed to purchase during one two-day period in 1978, and that comprised over half of Gulf Coast's total purchases of Enron products. There is simply no evidence that Gulf Coast had a "regular" business relationship with UPG, or that its few Enron purchases were not entirely discretionary. The fact that Gulf Coast "does not remember any unique or special deals that gave it any special buying opportunity" in its relationship with UPG does not mean that these were not spot purchases.(7) In exercising its discretion to purchase Enron products, Gulf Coast made a voluntary business decision that we can only presume was in the best interests of the firm. As such, we also logically presume that Gulf Coast purchased these large volumes of Enron product at times that were advantageous to Gulf Coast (i.e., when it could realize a profit from the resale of the products on the wholesale market).
The other statements included in the October 22, 1996 submission are equally unhelpful to rebut the spot purchaser presumption of non-injury. For example, in the statement from Mr. Hallman, president of Gulf Coast, he asserts that "[w]ithout our ability to purchase from UPG and our other major suppliers on a regular basis, we could not have maintained our competitive position and ability to supply LP gas in areas where our customers were located" (emphasis added).(8) Clearly, Gulf Coast's business practice of making frequent purchases of NGLs from a variety of wholesale marketers did not make it a regular customer of Enron. Similarly, a former employee of UPG states that he "considered Gulf Coast Petroleum to be a regular and important outlet to the southeastern U.S. markets during the time" (emphasis added).(9) Yet the record of Gulf Coast's purchases contradicts this assertion. The company itself lists only six total purchases from UPG, with all six occurring between October 1978 and September 1979 (and all but one between October 1978 and March 1979). Gulf Coast purchased nothing from UPG from September 1979 to the end of the consent order period (January 1981). We are not convinced that these few purchases in any way demonstrate a consistent, on-going, "regular" relationship between Gulf Coast and UPG, despite assertions to the contrary.
Finally, Mr. Barron has submitted statements from two former employees of Cities Service Oil Company and from Dr. Peter Linneman regarding the LPG industry, and the role of wholesale distributors, during the consent order period.(10) These statements are general in scope and provide no evidence that Gulf Coast, in particular, was not a spot purchaser or that it was injured by Enron's alleged price violations during the consent order period.(11) As such, they in no way assist Gulf Coast's efforts to rebut the spot purchaser presumption of non-injury in the instant Application.
While Gulf Coast purchased 4,593,960 of NGLPs from Enron, this volume of purchases does not in itself refute our preliminary finding that Gulf Coast is a spot purchaser. While some spot purchasers make only one or two purchases from a supplier, a firm that makes several spot market purchases from a particular supplier may also be a spot purchaser if other factors, such as the size and pattern of purchases, the prices paid, and the purchaser's market position, indicate that the purchases were discretionary. When the first refund procedures were established in Office of Enforcement (Vickers Energy Corp.), 8 DOE ¶ 82,597 (1981)(Vickers), OHA recognized that the situation of spot market purchasers often contrasted sharply with that of other customers of a consent order firm. Vickers, 8 DOE at 85,396-97. In Supply, we found that OHA's adoption of the spot presumption rested on our observation that a firm's position in the petroleum industry often determined whether it was likely to have incurred injury as a result of its supplier's alleged regulatory violations. As we noted above, steady, base period customers such as small gasoline retailers were often tied to a supplier by the federal allocation regulations, a supply contract, and state branding laws. Firms purchasing product consistently from an allocated supplier under these conditions lacked the flexibility to take advantage of lower prices by making discretionary purchases, and were much more likely to have been injured by any overcharges that occurred. In contrast, firms purchasing significant volumes of product on the spot market tended to have considerable discretion to determine whether to purchase and, if so, to select product that they were able to resell at a profit. This distinction between different kinds of purchasers forms an important part of the basis for adopting the spot market presumption of non-injury. Supply, 19 DOE at 89,141.
As discussed above, the available evidence indicates that Gulf Coast's purchases and sales of Enron products were completely discretionary. It had no supply obligations that required it to purchase product for its customers, nor is there any indication that it was required to purchase Enron product to maintain existing business relationships with regular customers. In exercising its discretion to purchase Enron products, we must conclude that Gulf Coast made a rational business decision. It must have determined that the Enron products were priced so that it could realize an acceptable amount of profit from the resale of those products on the wholesale market.
B. Gulf Coast Has Not Shown Injury from Its Spot Purchases.
Based on these considerations, we find that Gulf Coast's purchases of NGLPs from Enron were sporadic and discretionary, and involved large volumes of product. Under these circumstances, we believe that Gulf Coast's purchases from Enron are precisely the sort of transactions that the spot purchaser presumption was intended to cover. Accordingly, in order to qualify for a refund, Gulf Coast must rebut the presumption that it was not injured by its spot purchases of Enron products. This presumption may be rebutted by the submission of evidence sufficient to establish that: 1) the purchases were necessary to maintain supplies to base period customers; or 2) the claimant was forced by market conditions to resell the product at a loss which was not subsequently recovered. See Quaker State Oil Refining Co./Certified Gasoline Co., 14 DOE ¶ 85,465 (1986); Amtel Inc./Highway Oil, Inc., 14 DOE ¶ 85,143 (1986). These are not the only grounds for rebutting the spot purchaser presumption. Any convincing evidence establishing that a spot purchaser was in fact injured by the alleged overcharges of a consent order firm would suffice to rebut the presumption. Supply, 19 DOE at 89,141 n. 2.
As we noted above, there is no indication that Gulf Coast was required to purchase Enron product on the spot market in order to maintain existing business relationships with its regular customers. In the absence of such special circumstances, we have consistently held that a claimant seeking to demonstrate economic injury in order to overcome the spot purchaser presumption must submit evidence to establish that it was unable to recover the price it paid to the consent order firm. Standard Oil Co. (Indiana)/Cities Service Co., 12 DOE ¶ 85,114 at 88,336 (1984); Tenneco Oil Co./J.O. Cook, Inc., 9 DOE ¶ 82,580 at 85,427 (1982)(Tenneco/Cook). This position rests on our view that where a firm is exercising its discretion to purchase and sell product on the spot market, the recovery of its costs and any level of profit on the transactions are sufficient to demonstrate that the firm did not experience injury. In Tenneco/Cook, for example, Cook attempted to claim a refund for gasoline that it purchased and sold on the spot market at a low profit margin.
We brokered all of this gasoline at ½ to 1 cent above our cost. . . . We did not pick up the gasoline and sell it ourselves at retail.
Tenneco/Cook, 9 DOE at 85,427. The OHA concluded that these were "precisely the type" of transactions that are not eligible for a refund. The OHA found that Cook "suffered no injury from Tenneco's regulatory practices" because it was "able to not only pass through all of any alleged overcharges, but was able to make a profit on all of its sales of Tenneco gasoline." Id. By contrast, in Waller Petroleum Company, Inc./Wooten Oil Company, 13 DOE ¶ 85,110 (1985), the OHA found that Wooten had successfully demonstrated injury in its purchases of Waller product because it bought and sold Waller product at a loss in order to meet its obligations to its customers. Id., at 88,297.
It is not sufficient for Gulf Coast to demonstrate injury by attempting to show that higher prices charged by Enron diminished the amount of profit that Gulf Coast realized on its sales of Enron product. We have consistently rejected the idea that a reseller making discretionary purchases on the spot market was entitled to any particular margin of profit, and that its failure to achieve that level of profit constitutes proof that it experienced economic injury as a result of the prices that it paid for product. Enron Corporation/H. C. Oil Company, 26 DOE ¶ 85,038 at 88,094-95 (1997) and cases cited therein. The fact that such purchases were discretionary and made within an actively fluctuating spot market strongly indicates that the spot purchaser was buying product that it believed would be profitably resold. The profit margin on such sales would fluctuate naturally depending on various factors affecting the supply and demand of product. Under these circumstances, a lower profit margin does not demonstrate that a particular reseller was injured by the price charged by a particular seller. As we stated in Tenneco/Cook, spot market purchases resulting in some level of overall profitability strongly demonstrate that the purchaser suffered no injury from the seller's regulatory pricing practices. Id., 9 DOE at 85,427.
In the present case, Gulf Coast freely chose to enter the wholesale reseller market for NGLPs in 1978 and to purchase large volumes of Enron products from October 1978 until September 1979. This indicates to us that Gulf Coast's resales involving Enron products were generally profitable to Gulf Coast. Under these circumstances, Gulf Coast's purported banks of unrecovered increased product costs and its base margin of profit are irrelevant to a showing of injury regarding discretionary, spot market purchases.
In view of the circumstances set forth above, we have determined that Gulf Coast was a spot market purchaser of Enron NGLPs, and that it has not shown that it suffered injury with respect to these spot market purchases. Gulf Coast therefore has failed to rebut the spot purchaser presumption of non-injury in this proceeding. Accordingly, the Gulf Coast Application for Refund should be denied.
It Is Therefore Ordered That:
(1) The Application for Refund filed by Gulf Coast Petroleum, Inc. (Case No. RF340-109) on April 9, 1992 is hereby denied.
(2) This is a final order of the Department of Energy.
George B. Breznay
Director
Office of Hearings and Appeals
Date: August 14, 1997
(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)2/ 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, 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).
(3)3/ Gulf Coast states that it actually purchased a total of 17,109,797 gallons of product from UPG, which includes 12,515,837 gallons purchased on exchange. The firm is seeking a refund only for its cash purchases from UPG, or for 4,593,960 gallons.
(4)4/ See June 30, 1995 submission from Mr. Barron. Exhibit Six.
(5)5/ See October 22, 1996 submission by Mr. Barron. Exhibit 1, at 16.
(6)6/ Id.
(7)7/ Id., Exhibit 1, at 9.
(8)8/ Id., Exhibit 3, at 4.
(9)9/ Id., Exhibit 4, at 1.
(10)10/ Id., Exhibits 5-8.
(11)11/ We have analyzed the statements of Dr. Linneman submitted in conjunction with individual refund claims in the past and found them too general to help individual companies prove
injury. See Coastal Gas, Inc., 20 DOE ¶ 85,225 (1990), A-1 Oil Company, et al., 20 DOE ¶ 85,745 (1990). See also Wynn-Fowler Trading Company, Inc., RF272-67234 (October 7, 1994) (unpublished Decision and Order)(Wynn-Fowler). In Wynn-Fowler, we responded to the submission of Dr. Peter Linnemans more specific report, entitled "The Absorption of Stripper Well Exemption Over Charges in the Liquid Propane Gas Industry," with the following: "Dr. Linneman's report examines only the cost of crude oil and the margin between that cost and Wynn-Fowler's prices. It does not include, however, any data about overcharges... As Linneman's report indicates, these higher crude oil costs may well have affected Wynn-Fowler's profit margin... [we] have no reason to believe, however, that these higher prices can be attributed solely, or primarily, to overcharges." Wynn-Fowler, at 3-4. This report was also submitted in the instant Application.