Case No. RF340-00205
March 04, 2002
DECISION AND ORDER
OF THE DEPARTMENT OF ENERGY
Application for Refund
Name of Petitioner: Enron Corporation/
Vanguard Petroleum Corporation
Date of Filing: November 2, 2000
Case Number: RF340-00205
This Decision and Order considers an Application for Refund submitted by Vanguard Petroleum Corporation (Vanguard) in the Enron Corporation (Enron) refund proceeding. On October 12, 1999, the Office of Hearings and Appeals (OHA) issued a Decision and Order denying a refund to Vanguard. Vanguard appealed this determination and on October 27, 2000, the U.S. District Court for the Southern District of Texas remanded this matter to the OHA for further consideration. Vanguard Petroleum Corp. v. The Department of Energy of the United States, 3 Fed. Energy Guidelines (CCH) ¶ 26,737 (D.S.D.TX, 2000)(Vanguard v. DOE). On September 12, 2001, in response to the Courts decision the DOE issued a Proposed Decision and Order (PD&O) which tentatively determined that Vanguards application should be denied, and allowed Vanguard an opportunity to file a statement of objections to the PD&O. The PD&O is incorporated herein by reference and is attached as an appendix to this Decision and Order. Vanguard filed its objections on November 16, 2001. Comment of Vanguard Petroleum Company to Proposed Decision and Order Denying Refund [hereinafter Comments]. After considering those comments, for the reasons discussed below and in the PD&O, we have determined that Vanguards Application for Refund should be denied.
I. Background
A. The Enron/Vanguard Proceeding
The details of the original Vanguard refund claim are set forth in Enron Corp./Vanguard Petroleum Corp., 27 DOE ¶ 85,031 (1999)(hereinafter Enron/Vanguard), while the procedures established to process refund applications in the Enron refund proceeding are set forth in Enron Corp., 21 DOE ¶ 85,323 (1991) (hereinafter Enron). For purposes of the instant determination, the relevant facts are as follows. In our 1999 Order, the OHA denied Vanguards request for a substantial refund from the Enron refund pool based on Vanguards purchases of Enron natural gas liquid products (NGLPs). In denying this refund, the OHA found as an initial matter that Vanguard was a wholesale reseller whose purchases from Enron were covered by the spot market presumption of noninjury specified in Enron. The determination that the Enron spot purchaser presumption applied was based on a finding that Vanguards purchases were discretionary in nature, were generally sporadic, and were unrelated to any regulatory supply obligations it had to base period customers. The OHA also found that Vanguard had not shown that its Enron purchases were required to meet the demands of regular customers for a steady supply of product. The OHA therefore denied the Vanguard application for refund. See PD&O at 1.
B. The District Courts Determination
The Court overturned the DOEs order and remanded the case to the OHA for further clarification of its reasons for departing from precedent. In its decision, the Court found that the spot purchaser presumption of non-injury adopted by the OHA in Enron was a reasonable regulatory standard. Vanguard v. DOE, 3 Fed. Energy Guidelines at 27,663-64. The Court also found that the OHA had provided many good reasons for classifying Vanguard as a spot purchaser and that the OHA decision leaves no room for an argument that the spot purchaser presumption should not apply to Vanguard, regardless of the consent order firm involved. Id. at 27,667.
The Court, however, concluded that one aspect of OHAs classification of Vanguard as a spot purchaser in Enron required clarification. The Court stated that the classification of Vanguard as a spot purchaser constituted a departure from OHAs previous decisions and specifically from a decision in the Gulf Oil refund proceeding, Gulf Oil Corp./Vanguard Petroleum Corp., 20 DOE ¶ 85,412 (1990)(Gulf/Vanguard). In Gulf/Vanguard, the OHA had not applied the spot purchaser presumption to Vanguard. Vanguard v. DOE at 27,666-27,667. The Court stated that while OHA is not precluded from refining or even reversing its own precedent, it must explain its reasons for making such departures. Finding that the OHA had failed to adequately explain its reasons, the Court remanded this case to the OHA for further proceedings in accordance with its Order. Id. at 27,667. See PD&O at 2-3.
II. Analysis
A. The Basis for Our Tentative Denial in the PD&O of Vanguards Claim
Our 1999 determination in Enron/Vanguard to deny Vanguards refund based on the applicability of the spot purchaser presumption was attributable to a careful analysis of Vanguards regulatory obligations and activities in the wholesale reseller market. We made that analysis in view of the extensive information newly provided by Vanguard in its application for refund. Certain key pieces of information concerning Vanguards spot purchase and sale transactions with other suppliers and resellers in the wholesale market had not been provided to the DOE in the context of Vanguards earlier applications for refund. Accordingly, we concluded that a clear and persuasive reason existed for departing from our earlier treatment of the same firm in other refund proceedings. In the PD&O, we provided a detailed explanation of our analysis that lead to this conclusion.
In the PD&O, the OHA acknowledged that it conducted a more extensive and thorough factual analysis of whether to apply the spot purchaser presumption in Enron/Vanguard than in Gulf/Vanguard and other previous refund cases. The OHA explained that this more rigorous analysis of certain aspects of Vanguards claim of injury was triggered (A) by information submitted by Vanguard in its refund application, and (B) by the fact that Vanguards potential refund in the Enron proceeding was greatly in excess of refunds previously awarded to wholesale resellers in the Gulf refund proceeding and most other refined product refund proceedings. A discussion of this information is contained in the PD&O at p. 8-9.
It was entirely appropriate for the OHA to conduct a detailed analysis of the information on spot market transactions contained in Vanguards refund application. To have based our spot purchaser analysis solely upon the size and frequency of Vanguards monthly purchases from Enron would have required us to deliberately ignore solid evidence that Vanguards purchases were discretionary. In our refund decisions, the OHA has consistently determined that it is not reasonable to ignore evidence of non-injury in the record, such as negative cost banks, if this evidence would reduce the size of a firms refund under a presumption of injury for small claims (small claim refunds are typically approved under a presumption of injury without performing an analysis of injury issues). Atlantic Richfield Company, 17 DOE ¶ 85,069 at 88,154 (1988) and cases cited therein; The True Companies/V-1 Oil Company, 20 DOE ¶ 85,523 at 89,206 (1990).
The OHA analyst assigned to the Vanguard refund claim studied the information submitted by Vanguard and concluded that Vanguards purchases of NGLPs from Enron, although numerous, appeared to exhibit the characteristics of spot purchases. In a June 4, 1996 letter from Thomas L. Wieker, Deputy Director, OHA, to Mr. Michael ON. Barron, Vanguards legal representative, the OHA tentatively identified Vanguard as a spot purchaser of Enron product. Deputy Director Wieker further stated that unless Vanguard was able to demonstrate that it was not a spot purchaser or was able to show that it was injured by its spot purchases, the OHA would be unable to grant its refund claim. Vanguard was given ample time to respond to that tentative determination. In addition, Deputy Director Wieker requested that Vanguard provide more information concerning its business operations as an NGL wholesale marketer so that we could evaluate the appropriateness of Vanguard's injury claim. See PD&O at pp. 9-10. This request reflected the OHAs knowledge that some wholesale resellers took advantage of the market conditions created by petroleum product shortages and price controls to sell product back and forth to each other at a guaranteed profit. One common characteristic of these transactions was that they did not facilitate the movement of the product towards the ultimate consumer. PD&O at 10.
The OHA reviewed the information submitted by Vanguard in response to this request, and in Enron/Vanguard determined that it was insufficient to establish that Vanguard was injured by its purchases from Enron. PD&O at 11-13. As an initial matter, we noted that Vanguard had no regulatory obligation under the controls program to furnish any "base period" customers with a steady supply of product. Nor had Vanguard specifically identified any group of traditional customers to whom it supplied product over any regular, historic time period. We also found that Vanguard had submitted no evidence establishing that it maintained regular business relationships with any long-term customers such that it was compelled to purchase Enron products at unfavorable prices in order to supply them. Enron/Vanguard, 27 DOE at 88,211.
On the contrary, we found that the information made available to us by Vanguard supported the conclusion that Vanguards purchases from Enron were discretionary and of the size that would indicate that Vanguard bought that product in order to operate in the spot market. We found that large purchases and sales in that market are not the type that typically result in injury to the purchasers or sellers. Finally, we rejected as unsupported and self serving Vanguards argument that its Enron purchases were not discretionary because through them it was attempting to establish itself in the reseller market as a reliable source of NGLPs. We noted that while all wholesale resellers of NGLPs need sources of supply in order to operate, those who made large purchases on an irregular basis generally had assured sales and were not the type of purchasers that were injured by the prices charged by their suppliers. Only when a reseller had to purchase a particular volume of product at a specific time in order to maintain a supply relationship with a regular customer, would it acquire overpriced product from a particular supplier. We found that there was no indication in the record that Vanguard was ever constrained to make a particular purchase of overpriced product from Enron. PD&O at 12-13. Accordingly, the PD&O concluded that compelling evidence existed for our determination in Enron/Vanguard to invoke the spot purchaser presumption of noninjury based on the discretionary nature of Vanguards purchases from Enron rather than upon the size and frequency of those purchases. PD&O at 14. We generally agree with the Court that knowing what we now know, we should have scrutinized Vanguards earlier applications for refund more closely.
B. Vanguards Objections to the PD&O
1. Vanguards Assertion that the PD&Os Explanation is without Merit
Vanguard characterizes the PD&Os explanation for OHAs departure from precedent in applying the spot purchaser presumption of noninjury as offensive and self-serving and unsubstantiated. To Vanguard:
OHAs claim that it has identified Vanguard as a spot purchaser because an analyst on Deputy Director Thomas Wiekers staff gave greater scrutiny to its claim than other analysts on the staffs of other deputy directors gave to other applications is offensive and self-serving. It is made without any possible knowledge of the time and effort other analysts put into their work and it smacks of the puffing statements of 19th century patent medicine salesmen. If there was additional effort put into the analysis of Vanguards Enron refund application it was the effort to pound a square peg into a round hole.
Comments at 1-2. We respectfully disagree with this characterization of the PD&Os explanation. The OHA analyst who studied Vanguards application in the Enron proceeding was not more talented or diligent than other OHA employees. He simply had more information available to him than the analysts had who processed Vanguards earlier refund applications concerning the nature of Vanguards purchases and sales in the wholesale reseller market.
As an initial matter, Vanguards brief description of its business operations in its Enron refund application was more precise than the description it had submitted in other refund proceedings. Whereas in previous refined product refund proceedings such as the Gulf proceeding, Vanguard had described itself as a reseller/wholesaler, in its Enron refund application, Vanguard described itself as a wholesale marketer and specifically stated that it has never had any retail operation. Vanguards March 2, 1992 Enron refund application at 2.
Additional information came to light in the following manner. As noted in the PD&O at 9, in its Enron refund application, Vanguard sought to challenge the OHAs customary use of regional propane price postings published in Platts Oil Price Handbook and Oilmanac as a basis for comparison in determining whether Vanguard suffered a competitive disadvantage stemming from its Enron purchases. This led Vanguard to submit considerable information concerning its market operations, consisting of letters from petroleum industry executives who described the operation of the wholesale reseller market for NGLPs. See Vanguard submission received by the OHA on May 19, 1994. In particular, Vanguards May 1994 submission included a statement from P. E. Goth, Jr., who was the Manager of Phillips LP Gas (Propane) Marketing from 1973 until 1982. In his statement, Mr. Goth described the operation of the wholesale/reseller market in which Vanguard operated.
The propane market that existed in the 1970's and still exists now operates on three levels. The first is that of the producers and wholesale marketers who sell and exchange large volumes of product among themselves. The second level is that of the wholesale marketers who sell to propane retailers. The third level is that of the propane retailer to the ultimate consumer - the homeowner or farmer.
The characteristics of sales in the producer/wholesaler marketer market are large volumes and a price that is usually negotiated for each transaction. The market that exists between wholesale marketers and retailers is much more stable. Usually a retailer will have an annual contract with a wholesale marketer so that it can be assured of a supply of propane. The marketer establishes a price for the point of delivery and it was not unusual for a price to remain stable for weeks or months until a major change in the producer/wholesaler market required a change.
May 3, 1994 Statement of P. E. Goth, Jr. at 2. Vanguards Enron submission also contained work papers of Arthur Andersen & Co. (AA&C) employees who in 1979 reviewed all of Vanguards sales and purchase records and calculated, for purposes unrelated to this proceeding, a bank of increased product costs for Vanguard. These work papers documented Vanguards purchases and sales in great detail, all of which permitted the OHA analyst to conduct a detailed analysis of Vanguards market operations.
That analysis revealed a striking fact, not previously known to OHA. Most or all of Vanguards purchases and sales of NGLPs were from or to other firms operating within the wholesale reseller market. See Vanguard submission received by OHA on March 15, 1994. In his June 4, 1996 letter to Vanguards counsel, Deputy Director Wieker noted that information in Vanguards Application indicated that Vanguard operated at the wholesale marketer level of NGL distribution. He also noted that Vanguards Application included the statement by Mr. Goth that the characteristics of sales in the producer/wholesaler marketer market are large volumes and a price that is usually negotiated for each transaction. Deputy Director Wieker stated that
Mr. Goth appears to be saying that wholesale marketers such as Vanguard purchased product primarily on the spot market. Such 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.
June 4, 1996 letter from Thomas L. Wieker, Deputy Director, OHA to Michael Barron, Counsel for Vanguard, at 1. He therefore concluded that unless Vanguard was able to demonstrate that it was not a spot purchaser or was able to show that it was injured by its spot purchases, the OHA would be unable to grant its refund claim. He then invited Vanguard to submit additional information concerning its Enron purchases and its business operations in general that would indicate that it had been injured by these spot purchases. Id. at 2-3. See PD&O at 10.
Accordingly, the spot purchaser inquiry initiated by Deputy Director Wieker and his analyst concerning Vanguards Enron refund application was triggered by their analysis of Mr. Goths statements concerning wholesale marketer reselling operations. These statements combined with Vanguards description of its operations and the AA&C work papers helped the OHA to understand the transactions involved and conclude that a spot purchaser analysis was warranted. This combination of material was fresh and new to OHA. It had not been available to analysts reviewing earlier applications for refund filed by Vanguard in connection with other refined product refund proceedings before the OHA.
2. Vanguards Assertions Regarding the Refund Analysis it Received in Other OHA Refund Proceedings
In its Comments, Vanguard notes that it received three large refund awards in the Aminoil, USA (Aminoil), MAPCO, and Richardson Products refund proceedings, and that OHA did not raise the possible applicability of the spot purchaser presumption in those proceedings.(1) Comments at 1, ftnt. 1. It refers to these decisions, as it earlier referred to the OHAs decision in Gulf/Vanguard, as supporting its contention that the OHA abandoned the criteria set out in [Enron] and established by seventeen years of precedent when it invoked the spot purchaser presumption in Enron/Vanguard.
We believe that Vanguards efforts to invoke seventeen years of precedent on this issue are a mischaracterization. OHA began handling refund proceedings involving oil overcharge monies in the early 1980's. The application of the spot purchaser rule and the analysis of spot market purchases in refund proceedings evolved throughout the 1980's as well as in later cases such as Enron/Vanguard. While certain types of spot market purchasers were excluded specifically from receiving refunds in OHA refund proceedings as early as 1981 (see Office of Enforcement, ERA; In the matter of Vickers Energy Corp., 8 DOE ¶ 82,597 (1981), (Vickers), not all OHA orders implementing refund proceedings in the early and mid 1980's made specific reference to the treatment of spot market purchases. In fact, the orders implementing the refund proceedings in which Vanguard previously received substantial refunds - Richardson Products, MAPCO, and Aminoil - provide no specific guidance concerning the treatment of spot market purchases made by refund applicants. Office of Enforcement, ERA, 10 DOE ¶ 85,056 (1983) (Richardson Products refund proceeding); Peoples Energy Corp., 12 DOE ¶ 85,129 (1984) (MAPCO refund proceeding); and Aminoil, USA, Inc., 12 DOE ¶ 85,217 (1985) (Aminoil refund proceeding). In contrast, the Enron implementation order, like other later implementation orders, made explicit reference to the exclusion of spot purchases from eligibility for a refund. Enron, 21 DOE at 88,955-57. It was no doubt the case in the earlier decisions that, without such specific guidance, OHA analysts did not always identify and exclude spot purchases of product from purchases eligible for a refund.(2)
Other evidence confirms that OHAs application of a rule to spot purchasers changed over time. Some refund implementation orders issued in the early 1980's called for all spot purchasers of product to be excluded from receiving refunds, and made no provision for allowing them to overcome the presumption of noninjury by proving to the OHA that they suffered economic injury as a result of those purchases. Vickers, 8 DOE at 85,396-97; Office of Special Counsel: In the Matter of Tenneco Oil Company, 9 DOE ¶ 82,538 at 85,201-02 (1982). It is therefore untrue that Enron/Vanguard departs from a uniform application of a spot purchaser presumption of noninjury that prevailed with respect to all OHA refund decisions issued since 1981.
Moreover, in the Richardson Products, MAPCO, Aminoil and Gulf refund proceedings, Vanguard provided little information of the type that would have allowed the extensive spot purchaser analysis that the OHA performed in Enron/Vanguard. Adhering to Vanguard determinations in these proceedings therefore makes little sense. In those earlier applications, Vanguard provided no explanation concerning the nature of the purchase and sale transactions that it engaged in with Enron and other wholesale resellers. Each of those applications merely identified Vanguard as a reseller/wholesaler that began doing business in the third quarter of 1975.
That the depth of analysis was limited in those cases is illustrated by what happened to Vanguards refund application in the Gulf proceeding. Without information concerning Vanguards activities in the wholesale reseller spot market, the OHA conducted a spot purchaser analysis of Vanguards transactions based solely on the volume and frequency of Vanguards purchases from Gulf. In that proceeding, Vanguard applied for a refund based on purchases of 14,280,000 gallons of butane from a Gulf subsidiary, Warren Petroleum Company (Warren). The OHAs initial review of Vanguards claim indicated that it was a spot purchaser of butane. It arrived at this conclusion based solely on the frequency of Vanguards butane purchases from Gulf as indicated by the Vanguard schedule of purchases. Specifically, the OHA found that these large volume purchases were isolated in nature because Vanguard purchased butane only in February, March, June, and August of 1978. Gulf/Vanguard, 20 DOE ¶ 85,412 at 88,954 (1990).
The OHA notified Vanguard that it had tentatively been identified as a spot purchaser of covered product from Warren based on the isolated nature and significant volume of its purchases. Id. Vanguard responded by submitting information which indicated that in addition to the 14,280,000 gallons of butane that Vanguard acquired from Warren through cash purchases, it also acquired 31,138,290 gallons of propane, butane and natural gasoline from Warren through exchange transactions.(3)Vanguard contended that because its cash purchases of butane were part of its overall relationship with Warren, the spot purchaser presumption should not apply in this case. The OHA accepted this argument, based on the frequency and volume of Vanguards combined for cash and exchange acquisitions of butane from Warren. Id. at 88,955.
While an analysis based on frequency and volume of purchases is effective in identifying most spot purchasers, it is clearly ineffective with respect to Vanguard, which made frequent purchases and sales on the wholesale reseller spot market. The OHA now knows that frequency and volume information tells only part of the story. Vanguard ultimately was identified as a spot purchaser in the Enron refund proceeding because Vanguard had provided more detailed information in its application concerning how it functioned in the reseller market. The OHA analyst reviewing that application took the next step and determined that Vanguard appeared to have engaged in spot market purchases from Enron that did not result in injury to Vanguard.
As noted in the PD&O, it was proper for Deputy Director Wieker and his analyst to pursue this issue once it was raised by information in Vanguards refund application. PD&O at 14, n. 4, citing The True Companies/V-1 Oil Company, 20 DOE at 89,206. The PD&O also correctly states that a more detailed level of analysis by the OHA is appropriate where a claimant is seeking a very substantial refund award.(4) PD&O at 8, citing Gulf Oil Corp./F. O. Fletcher, Inc., 27 DOE ¶ 85,025 at 88,182 (1999) (when a very substantial refund is requested, a different level of scrutiny of the claim by the DOE and documentation by the applicant are well within reason); see also, Good Hope Refineries/Kent Oil & Trading Co., et al., 17 DOE ¶ 85,188 at 88,372-73 (1988) (the OHA denied the claims of two high volume spot purchasers of refined products seeking large refunds because extensive information that they submitted concerning the nature of their purchases and sales, their business reationships, and the financial effects of their purchases, failed to rebut the spot purchaser presumption of non-injury).(5) Vanguards counsel is correct in noting that there is no evidence that the analyst who worked on Vanguards Enron refund application spent more total time analyzing that application than did the analysts who processed the applications submitted by Vanguard in the Aminoil, MAPCO, and Richardson Products proceedings, where large refunds were awarded to Vanguard. This observation is irrelevant, however, because the time spent analyzing evidence can have no effect on the validity of the decision ultimately reached in a final decision signed by the OHA Director.
In any event, it is clear that, unlike the analysts involved in those earlier proceedings, the analyst in the Enron proceeding focused on the characteristics of Vanguards purchases from Enron and the nature of Vanguards business operations that were relevant to whether Vanguard fit the spot purchaser presumption of noninjury. He also looked at whether, if the spot purchaser presumption applied, Vanguard could still show that it was injured by the Enron overcharges. As discussed above, this analytical focus was proper and flowed from the submission of information by Vanguard concerning the nature of transactions in the wholesale reseller market for NGLPs. That combination of information had not been made available in its earlier refund applications.
3. Vanguards Claim that Enron/Vanguard and the PD&O Improperly Expand the Spot Purchaser Presumption of Noninjury
In its Comments, Vanguard contends that because Vanguard made frequent and regular purchases of product from Enron, the spot purchaser presumption, as set forth in Enron and applied under OHA precedent, did not apply to Vanguard. It asserts that in the Enron/Vanguard proceeding, Deputy Director Wieker invented a new test for granting refunds that he revealed in his June 4, 1996 letter to Vanguard.
. . . Deputy Director Wieker clearly indicated that he had his own test for awarding a refund in the Enron refund program. See letter of Thomas Wieker dated June 4, 1996 p. 2 and this PD&O p. 10. Vanguard and other applicants would receive refunds only if they could prove to the satisfaction of Deputy Director Wieker that they facilitated the movement of the product towards the ultimate consumer.
Wiekers economic value test obviously does not fit within the rather narrow limits of the spot purchase presumption. Hence there was a need to create the discretionary purchase as a key element. It expanded the spot purchase presumption. It permits OHA to include every short-term purchase whether isolated or part of a regular business relationship. Once expanded beyond OHA precedent, the spot purchase presumption has served as a convenient vehicle to deny refunds to unworthy applicants.
Vanguard finds this whole process improper and believes that it serves to highlight the real value of precedent. It protects the litigant from the idiosyncrasies (however well-intentioned) of the judge and assures each litigant that he will be judged like his fellows.
Comments at 2.
Vanguards claims of a failure to follow precedent are without support. In evaluating Vanguards refund application, Deputy Director Wieker did not improperly expand the spot purchaser presumption of noninjury established at the outset of the Enron Refund Proceeding by applying a new, economic value test against Vanguard. No such test exists. Contrary to Vanguards contention, Deputy Director Wiekers June 1996 letter to Vanguard does not state that Vanguards refund is contingent on the firms facilitating the movement of Enron product. A reference to facilitating the distribution and consumption of NGLs in the entire marketplace appears as part of a request for information. That request, quoted below, was aimed at clarifying where Vanguard functioned within the overlapping levels of NGLP marketing and distribution that had been described in the letter of Mr. Goth submitted by Vanguard:
In addition, we require additional information concerning the business operations of Vanguard as an NGL wholesale marketer in order to evaluate the appropriateness of Vanguards injury claim. Please provide a description of the typical manner in which Vanguard located customers and negotiated the purchase and sale of NGLs. It would be very helpful if Vanguard could submit some sample sales contracts or any other documents showing the nature of the agreements between Vanguard and its customers during the refund period. Please identify Vanguards marketing region and describe how Vanguards purchase and sale transactions facilitated the distribution and consumption of NGLs.
June 4, 1996 letter of Deputy Director Wieker at 2.
We also reject Vanguards attempts to characterize our final determination in Enron/Vanguard as establishing new economic requirements for refund applicants. In its judicial challenge to Enron/Vanguard, Vanguard argued that the spot purchaser determination should be overturned on the ground that the OHA had not applied the spot purchaser presumption of noninjury to Vanguard in a manner consistent with that presumption as it was described in the order establishing the Enron refund proceeding. The Court, however, rejected that argument and found that the OHA provided good reasons for applying this presumption to Vanguard in Enron/Vanguard. Specifically, the Court cited the OHAs findings that Vanguards purchases were made on a sporadic and discretionary basis, Vanguard could not demonstrate any obligations to base period customers, and Vanguard could not identify any customers to which it had regularly supplied product over a period of time. See Vanguard v. DOE, 3 Fed. Energy Guidelines at 27,665; PD&O at 2. Accordingly, the Court has already rejected Vanguards effort to characterize our spot purchaser analysis in Enron/Vanguard as outside of the parameters for that presumption that were established in the Enron implementation order. There is no reason to revisit that issue here.
4. Vanguards Claim that it is Arbitrary and Unreasonable to Use the Exercise of Business Judgment Outside a Long-term Agreement as a Key Element in Applying the Spot Purchaser Presumption
Vanguard asserts that the OHAs focus on the discretionary purchase as a distinguishing element in identifying spot purchasers is completely at odds with the reality of seller/purchaser relationships that existed during price controls. It cites the November 13, 2001 letter of a former Enron official, Mr. Roger Helgoe, who states that after 1974, all of Enrons customers, including Enrons base period customers, routinely exercised their discretion to buy or not buy Enron products. Vanguard therefore concludes that
The discretionary purchase, that is, a buyers exercise of business judgment to buy product outside of a long-term obligation was common to all of Enrons customers and to all purchasers throughout the NGL market. After mid-1974 Enron did not enter into any long-term contracts for the sale of its product that obligated the buyer to buy fixed volumes of Enron product at a fixed price.
. . .
In light of these facts Vanguard does not believe that OHAs continued attempt to apply the spot purchase presumption to Vanguard is rational within the meaning of the language of the District Court in Vanguard v. DOE, 3 FEG ¶ 26,737 (D.C.S.D.Tx, 2000).
Comments at 3.
We disagree. We simply are not persuaded by the letter of Mr. Helgoe or by the other arguments and opinions previously advanced by Vanguard challenging the spot market presumption of noninjury. The primary, proper focus in DOE refund proceedings is on whether the applicant experienced injury as a result of buying product from an overcharging firm. See 10 C.F.R. § 205.280. Vanguard has advanced nothing which causes us to question the reasonableness of the spot purchaser presumption of non-injury or the manner in which OHA has applied it to Vanguard in the Enron proceeding. Nor is the issue of the rationality of the spot purchaser presumption and its application to Vanguard properly before us on this judicial remand. As the Court noted with approval in its decision, the OHAs rationale for adopting the spot purchaser presumption was that spot purchasers tend to have much greater discretion than other customers in deciding where and when to make purchases, especially when compared to steady customers who tended to be tied to a supplier by federal allocation regulations, s supply contract, and state branding laws. See Vanguard v. DOE at 27,663 citing Enron/Vanguard, 27 DOE at 88,211. The Court also found that the OHAs spot purchaser presumption was based on a reasonable evaluation of the market during the Enron consent order period and was intended to make the refund process more efficient. In addition, spot purchasers are permitted to bring evidence to rebut the presumption. Vanguard v. DOE at 27,664. Accordingly, Vanguards efforts to reopen the debate on the validity of the spot purchaser presumption of noninjury must be rejected. The Courts remand order requiring an explanation from the OHA on its departure from precedent in Enron/Vanguard does not involve a requirement that the spot market presumption be justified.
As discussed in the PD&O, our determination to deny Vanguards refund based on its failure to overcome the spot purchaser presumption was attributable to a careful analysis of Vanguards regulatory obligations and reseller activities. We made that analysis on the basis of the extensive information provided by Vanguard in its application for refund. It was entirely appropriate for the OHA to conduct this detailed analysis in light of the very substantial amount of money that Vanguard was seeking in its refund claim. To have based our spot purchaser determination solely upon the size and frequency of Vanguards monthly purchases from Enron would have required us to deliberately ignore solid evidence that Vanguards purchases were discretionary and did not result in economic injury to the firm. Accordingly, we conclude that a clear and persuasive reason existed and still exists for departing from our earlier treatment of the same firm in a different proceeding or proceedings.
Based on our findings in Enron/Vanguard, and on the explanation provided in this decision and in the attached PD&O, we find that Vanguard failed to meet its burden of demonstrating that it was injured in its purchases from Enron. We therefore will deny the Vanguard Application for Refund.
It Is Therefore Ordered That:
(1) The Application for Refund filed by Vanguard Petroleum Corporation (OHA Case No. RF340-82) on March 2, 1992 and remanded to the Office of Hearings and Appeals by the U.S. District Court for the Southern District of Texas on November 2, 2000 (OHA Case No. RF340-00205) is hereby denied.
(2) This is a final order of the Department of Energy.
George B. Breznay
Director
Office of Hearings and Appeals
Date: March 3, 2002
(1)Vanguard received more than $1.2 million in refunds in these proceedings. Richardson Products/Vanguard, 14 DOE ¶ 85,230 (1986) (firm awarded $272,033 plus applicable interest); MAPCO/Vanguard, 14 DOE ¶ 85,267 (1986) (firm awarded $109,010 plus applicable interest); and Aminoil USA/Vanguard, 18 DOE ¶ 85,671 (1989) (firm awarded $909,101 plus applicable interest).
(2)For example, we have examined the following schedule of Vanguards propane purchases (in gallons) from Aminoil that it submitted in the Aminoil proceeding:
Propane Butane Natural Gasoline
1976 1Q 1,400,000
2Q 2,520,000
1977 1Q 1,050,000
3Q 210,000
1978 1Q 303,618 567,000
2Q 1,050,000 1,205,400 1,851,612
3Q 3,281,418 1,217,916 597,870
4Q 1,138,998 1,498,140
1979 1Q 15,966,316 1,092,318 1,150,156
3Q 210,000
1980 3Q 18,900,000
This schedule clearly indicates that Vanguards purchases of propane during the first quarter of 1979 and the third quarter of 1980 were by far the largest. They were clearly spot purchases, and knowing what we know now, we do not believe that Vanguard should have been granted a refund for those volumes. These larger purchase volumes during a period characterized by shortages tend to indicate that Vanguard was taking advantage of market conditions in a no-risk fashion rather than being injured by overcharges when it purchased product from Aminoil. They look like discretionary purchases on the spot market. Vanguard now asserts that its refund in the Aminoil proceeding indicates that the DOE adopted a policy of granting refunds to spot market purchasers. Vanguard is incorrect. Those spot purchases should not have been eligible for a refund in the Aminoil proceeding. (However, regardless of the ultimate outcome on Vanguards claim in the Enron proceeding, OHA has no intention to seek repayment of any portion of its refund in the Aminoil proceeding.)
(3)An exchange transaction (sometimes referred to as a back to back purchase and sale) generally involves the transfer between two firms of the same volume of the same product at different locations or at different times. No cash changes hands and each party emerges from the transaction just as it entered, with the same volume of the same product - save that the product is at a new location. Id. at nt. 3. Purchasers that are part of an exchange are not eligible for the presumption that an overcharge occurred and therefore have not generally received a refund in these Subpart V proceedings. In this proceeding, Vanguard certified that it excluded exchanges with Enron from the purchase volumes listed in its Enron refund application. In view of the findings made in Marathon Petroleum Co./Vanguard Petroleum Corp., 15 DOE ¶ 85,057 at 88,106-07 (1986), the Vanguard assertion would have to be verified before we could grant any refund to Vanguard. See also Marathon Petroleum Co./Vanguard Petroleum Corp., 15 DOE ¶ 85,196 at 88,364-65 (1986).
(4)In this regard, the PD&O specifically refers to the Vanguards application for refund in the Gulf Refund Proceeding, where the refund awarded to Vanguard ($9,139 plus applicable interest) was a tiny fraction (2.5%) of the refund requested by Vanguard in the Enron proceeding ($370,000 plus applicable interest). PD&O at 8.
(5)It should be noted that large monetary refund awards of the type received by Vanguard in the Aminoil, MAPCO, and Richardson Products refund proceedings (and sought by Vanguard in the Enron proceeding), comprise a very small percentage of all of the refund awards that the OHA has made to resellers of petroleum products. OHA data base records indicate that less than 2% of all refined product refunds granted to resellers by the OHA were for $50,000 or more.