Case No. RR272-00285

May 27, 1997

DECISION AND ORDER

OF THE DEPARTMENT OF ENERGY

Motion for Reconsideration

Name of Applicant:Allied Signal, Inc.

Date of Filing: March 10, 1997

Case Number: RR272-285

On July 1, 1996, the Office of Hearings and Appeals (OHA) of the Department of Energy (DOE) granted an Application for Refund for part of the volume claimed by Allied Signal, Inc. (Case No. RF272- 77990). On February 25, 1997, the DOE partially granted a Motion for Reconsideration filed by Allied Signal claiming the additional volume not granted in the original application. Allied Signal contends in this second Motion for Reconsideration that our February 25 Decision contained an arithmetic error. As explained below, Allied Signal’s contention is without merit.

In our February 25 Decision, we granted Allied Signal a refund based on its purchases of 657,694,000 gallons of cumene. Although we determined that cumene is not an eligible product in this proceeding, we found that Allied Signal incurred crude oil overcharges nonetheless. Allied Signal submitted copies of contracts with its cumene suppliers which showed that the price Allied Signal paid for cumene increased as the price of benzene increased. Because of the price escalator clause in the contracts, Allied Signal’s suppliers were able to pass through 96 percent of the crude oil overcharges presumed in benzene to Allied Signal. Therefore, Allied Signal incurred 96 percent of the overcharges associated with the benzene used to produce cumene. There are .75 gallons of benzene used to produce one gallon of cumene. Therefore, we granted Allied Signal a refund based on 473,539,680 gallons of benzene. We calculated the gallons of benzene as follows: 657,694,000 gallons of cumene times .75 equals 493,270,500 gallons of benzene; this figure times .96 for the percentage of overcharges incurred equals 473,539,680 gallons of benzene. We therefore granted a refund to Allied Signal for 473,539,680 gallons of benzene.

The issue in this Motion concerns the number of gallons of cumene that should be considered in the calculation above. Allied Signal estimated that it purchased 748,694,000 gallons of cumene during the refund period. Allied Signal stated in a letter dated December 11, 1996 that 91,000,000 gallons of cumene were resold as phenol.

The phenol sales involved price escalator clauses which passed through any overcharges to Allied Signal’s customers. Therefore, Allied Signal incurred no injury in connection with those gallons of cumene used to produce phenol. Accordingly, we subtracted these 91,000,000 gallons of cumene from Allied Signal’s cumene gallonage. Allied Signal’s revised cumene gallonage was 657,694,000 gallons (748,694,000 - 91,000,000 = 657,694,000).

In the current Motion, Allied Signal argues:

Allied Signal was able to pass through crude oil overcharges associated with 91 million gallons of cumene. ... By definition, Allied Signal could pass through only as much crude oil overcharges as it incurred. Accordingly, since OHA concluded Allied Signal only incurred overcharges on 72% of its cumene gallons, OHA should likewise have concluded that Allied Signal passed through overcharges on only 72% of the cumene gallons associated with merchant phenol sales, or 65,520,000 gallons (.72 x 91,000,000).

The effect of this error is to understate Allied Signal’s total approved gallonage claim by 25,480,000 gallons (91,000,000 - 65,520,000).

Allied Signal’s reasoning is without merit. In its purchases of cumene for the production of merchant phenol, Allied Signal did incur overcharges on only 72 percent of each cumene gallon. However, it passed through 100 percent of those overcharges to its customers. The remaining 28 percent of each cumene gallon did not carry any crude oil overcharges.

To make the calculation clearer, we will recalculate Allied Signal’s eligible benzene gallonage by subtracting the gallons of cumene Allied Signal resold at the end of the calculation. Allied Signal purchased 748,694,000 gallons of cumene. There were 561,520,500 gallons of benzene used to produce the cumene (748,694,000 gallons of cumene times .75 equals 561,520,500 gallons of benzene). Allied Signal incurred an overcharge on 539,059,680 gallons of the benzene (561,520,500 times .96 equals 539,059,680 gallons of benzene).

Now we must account for the 91,000,000 gallons of cumene Allied Signal resold. There are 68,250,000 gallons of benzene used to produce the 91,000,000 gallons of cumene in question (91,000,000 gallons of cumene times .75 equals 68,250,000 gallons of benzene). Allied Signal incurred overcharges on 65,520,000 of these benzene gallons (68,250,000 times .96 equals 65,520,000 gallons of benzene). Therefore, Allied Signal passed through overcharges on 65,520,000 gallons of benzene to its phenol customers. Allied Signal incurred overcharges on a total of 539,059,680 gallons of benzene. It recovered the overcharges on 65,520,000 gallons of benzene in it sales of phenol. Therefore, Allied Signal’s total approved gallonage claim should be 539,059,680 minus 65,520,000 equals 473,539,680 gallons of benzene. This is the same number of gallons of benzene for which Allied Signal was granted a refund in its first Motion for Reconsideration.

The following is another explanation of why our original calculation of Allied Signal’s benzene gallonage is correct. Allied Signal received a refund for the benzene gallons used in producing cumene. There are 68,250,000 gallons of benzene used to produce the 91,000,000 gallons of cumene in question. Allied Signal incurred overcharges on 96 percent (65,520,000) of these benzene gallons. Allied Signal passed these overcharges on to its phenol purchasing customers. The overcharges on the remaining four percent (2,730,000) of the benzene gallons were absorbed by Allied Signal’s cumene suppliers. The 22,750,000 gallons of cumene volume which are not benzene are comprised of other materials, such as propylene, which are not eligible for a refund in the crude oil refund proceeding. Hence, the 25,480,000 gallons for which Allied Signal is now claiming an additional refund are comprised of 2,730,000 gallons for which Allied Signal’s suppliers incurred the overcharges and 22,750,000 gallons for which there were no crude oil overcharges.

Considering the explanations above, we have concluded that Allied Signal is not eligible for any additional crude oil refund and we will deny its Motion for Reconsideration.

It Is Therefore Ordered That:

(1) The Motion for Reconsideration filed by Allied Signal, Inc., Case No. RR272-285, is hereby denied.

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

George B. Breznay

Director

Office of Hearings and Appeals

Date: May 27, 1997