Case No. RF340-00038

October 7, 1999

DECISION AND ORDER

OF THE DEPARTMENT OF ENERGY

Application for Refund

Name of Petitioner: Enron Corporation/

Presidio Exploration, Inc.

Date of Filing: December 19, 1991

Case Number: RF340-38

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., Northern Propane Gas Company, 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 by Presidio Exploration, Inc. (Presidio), as the successor to the refund rights of Home Petroleum Company (Home). Home was a refined petroleum and NGL products reseller that purchased butane from Enron in 1979.

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.

Presidio has chosen not to rely upon these presumptions of injury. Instead, the firm has submitted information concerning Home's business operations aimed at showing that Home suffered an injury with respect to the product that it purchased from Enron and resold to third parties. Accordingly, we will consider granting Presidio a refund for the volumetric overcharge associated with the volume of product that Home purchased from Enron.

II. Presidio's Right to Assert Home's Refund Claim

Presidio states that it purchased the assets of Home in December 1989, and that included in this sale were all of Home's rights to refunds and other intangible assets. Presidio has submitted a portion of the "General Assignment, Bill of Sale and Conveyance" between Presidio and Home which defines the assets being conveyed in the sale. The assets are specifically defined to include:

All of Assignor's [Home's] right, title and interest in and to deferred charges, advance payments, deposits, refunds, rebates, letters of credit, prepayments and prepaid items and credits of every kind and nature;

Section 1.1(o) of the Sales Agreement between Presidio and Home, attached to Presidio's December 19, 1991 submission.

In order for Presidio to be eligible to receive a refund based on purchases made by Home, we must determine that this sales agreement specifically transferred the right to a future refund from Home to Presidio. Although we have previously held that the right to a refund generally remains with the seller when company assets are sold, an exception exists where the language in the sales agreement is so inclusive that the right to a refund is transferred to the buyer. See, e.g., Gulf Oil Corp./Marine Fueling, Inc., 25 DOE ¶ 85,011 (1995); Shell Oil Co./Genetin & Walizer Shell, 21 DOE ¶ 85,278 (1991); Murphy Oil Corp./Severson Oil Co., 20 DOE ¶ 85,695 (1990).

We find that the right to a future refund based on Home's 1979 butane purchases from Enron was included in the language of the Sales Agreement between Presidio and Home. The language conveying "[a]ll ... right, title and interest in and to ... refunds ... of every kind and nature" is sufficiently broad to encompass the future refund arising in this proceeding. Accordingly, we conclude that the sales agreement divested Home of any claim to an Enron refund, and vested that claim in Presidio.

III. Homes's Business Operations and Its Showing of Injury

In Enron, we adopted a rebuttable presumption that firms that purchased Enron covered products on the spot market were not injured by Enron's alleged overcharges. A claimant is a spot purchaser if it made only sporadic purchases of significant volumes of Enron's covered products. Id. at 88,961. This presumption is based upon the general conclusion that purchasers on the spot market tend to have considerable discretion in where and when to make purchases. Therefore, a firm would not have made spot purchases of Enron product without evaluating the full financial effect of those purchases. Accordingly, we believe that a spot purchaser would not generally have made a spot purchase unless it was to its financial advantage. A spot purchaser can rebut this presumption by demonstrating that it was in fact injured by its spot purchases. See generally Sauvage Gas Co./NGL Supply, Inc., 19 DOE ¶ 85,622 (1989). In prior proceedings we have allowed applicants to rebut the spot purchaser presumption by demonstrating that: 1) they were forced to make the purchases to meet their base period supply obligations or to supply regular retail or end-user customers; or 2) they resold the product at a loss which was not subsequently recovered. E.g., Saber Energy, Inc./Mobil Oil Corp., 14 DOE ¶ 85,170 (1986).

In an October 14, 1997 letter to Mr. Michael O’N. Barron, Presidio’s legal representative, we tentatively identified Home as a spot purchaser of Enron product because, during the entire refund period, Home only purchased Enron product in the months of February, April, May, November and December, 1979. In that letter, we invited Presidio to provide more information concerning Home’s business operations as an NGL reseller marketer so that we could evaluate the appropriateness of Home’s claim that it was injured by its Enron purchases.

In a response dated October 20, 1997, Mr. Barron stated that Presidio intended to rely on assertions concerning the profitability of Home’s Enron purchases that were made in its original Application for Refund. That Application asserts that, with the exception of Home’s contemporaneous banks of unrecovered increased product costs (which include the prices that Home paid for Enron product), most of Home's business records from the 1970's were lost between 1983 and 1985. The Application therefore relies on data from these bank records and on cost of product comparisons to show that Home’s Enron purchases were unprofitable. Application for Refund at 2-3.

However, Presidio filed a similar application for refund for Home purchases of NGLs in the Eason refund proceeding. In that application, Presidio submitted actual copies of (1) records of Eason that indicated the volume and frequency of Home's purchases from that firm, and (2) monthly bank records contemporaneously compiled by Home in an effort to comply with the DOE price regulations. Our examination of those records allowed us to make the following findings concerning the nature of Home’s NGL reselling business and the nature of its business relationship with Eason, from whom it purchased 1,970,174 gallons of butane and propane:

The Eason invoices and sales summaries for Home that Presidio has submitted indicate that Home was a steady purchaser of truck-load sized lots of butane and propane from Eason. . . . . These records are sufficient for us to conclude that Home was a steady customer of Eason for both of these products. Moreover, records furnished to the DOE by Eason confirm that Home, then known as Union Petroleum Corporation, was a base period purchaser of propane and butane from Eason's Crescent, Oklahoma gas plant. As Eason's base period customer for purposes of being allocated a supply of product under the regulatory framework, Home may well have been required to depend on Eason as a supplier of propane and butane in order to meet its own allocation requirements to its regular customers, regardless of the prices being charged by Eason for those products.

The contemporaneous monthly bank records compiled by Home indicate that the firm maintained several classes of purchasers and that many of these purchasers were steady customers of Home. Many of Home's customers were small retailers, cooperatives and end-users of these products, who purchased product from Home in truck-load sized lots and apparently relied on Home as a steady source of supply. Home therefore facilitated the movement of butane and propane from Eason's Crescent gas plant to the end-users of those products.

Eason Oil Company/Presidio Exploration, Inc., 26 DOE ¶ 85,046 at 88,117 (1997) (Eason/Presidio). Accordingly, we concluded in Eason/Presidio that through its transportation and resale activities, Home performed significant economic functions associated with the operation of the NGL market. We also found that Home operated in the regulatory base period and was likely to have had customers with allocation rights that Home was required to supply with NGLPs.

Home purchased a slightly greater volume of NGLs from Enron than from Eason, but it made its purchases from Enron on a far more sporadic basis than it did from Eason. Available records supplied to the DOE by UPG indicate that Home purchased a total of 2,322,600 gallons of butane from Enron and made all of these purchases in a single year of the refund period, 1979. Home’s Enron purchases were as follows:

February 462,000 gallons

April 33,600 gallons

May 1,008,000 gallons

November 504,000 gallons

December 315,000 gallons

In its Application for Refund in this proceeding, Presidio asserts that these purchases were made from Enron so that Home could supply its base-period customers with butane. Presidio also asserts that Home purchased these volumes of butane from Enron at prices that were substantially above the average price that Home paid for butane in each of these months. We conclude that there is a substantial likelihood that Presidio’s assertion is correct that Home purchased higher priced Enron product for the purpose of meeting the supply requirements of its base-period customers. Our determination is based on the firm’s documented position as a base period supplier of NGLs to established classes of retail, end-user and refiner customers, on the relatively small size of several of Home’s Enron purchases, and on the fact that Home’s total volume of spot purchases from Enron is not substantial in comparison to Home’s overall purchases of NGLPs. Accordingly, we will not apply a presumption of non-injury to these purchases.

In past determinations in the Enron Refund Proceeding, resellers whose allocable refund share exceeds $10,000 have been required to demonstrate that they were injured by Enron's alleged overcharges in order to receive a refund equal to its full volumetric allocation of the consent order fund. Once a refund applicant has documented the volume of its Enron purchases, the procedures in Enron outline a two-step requirement for the applicant who is attempting to make an injury showing. First, a claimant must show that it accumulated banks of unrecovered increased product costs large enough to justify the amount of the refund claimed during the period from either November 1973, the first month of the banking period, or the first month in which it purchased from Enron, whichever was later, through the end of the banking period. Second, it must show that market conditions forced it to absorb the alleged overcharges. Id. at 88,960.

In the present instance, however, we do not believe that such a detailed analysis of injury would be an appropriate use of administrative resources. Presidio’s allocable share of the Enron refund, based on Home’s purchases of 2,322,600 gallons of Enron butane, totals only $13,959 plus applicable interest. That is only $3,959 more than the $10,000 limit for a principal refund available in the Enron Refund Proceeding under the small claim presumption of injury. Under these circumstances, we believe that it is proper to grant Presidio’s full refund claim based upon the likelihood, discussed above, that Home was required to purchase higher-priced Enron product in order to meet the purchase requirements of its base period customers, and thereby experienced injury from its Enron purchases.

We therefore will grant Presidio a refund based on the 2,322,600 gallons of Home’s butane purchases from Enron. Accordingly, Presidio will receive a principal refund of $13,959 (2,322,600 x $.00601 = $13,959). In addition, Presidio is entitled to receive a proportionate share of the interest accrued on the consent order fund, or $10,327.(2)Therefore, Presidio’s total refund in this proceeding is $24,286 ($13,959 principal and $10,327 interest) for the volumes of butane that Home purchased from Enron.

Accordingly, the total volume approved in this Decision and Order is 2,322,600 gallons of Enron product and the total refund, including interest, is $24,286.

Although we have examined Presidio's claim and supporting data, the determination reached in this Decision is based on the representations made in the application. If the factual basis underlying our determination in the Decision is later shown to be inaccurate, this Office has the authority to order appropriate remedial action, including rescission or reduction of the refund.

It Is Therefore Ordered That:

(1) The Application for Refund submitted by Presidio Exploration, Inc. is hereby granted as specified below.

(2) The Director of Special Accounts and Payroll, Office of the Controller, of the Department of Energy shall take appropriate action to disburse a total of $24,286 ($13,959 principal and $10,327 interest) from the DOE deposit fund escrow account maintained at the Department of the Treasury titled “Product Tracking - Claimants,” Account No. 999DOE035Z, to:

Presidio Exploration, Inc.

c/o Michael O’N. Barron

Attorney at Law

12417 Conway Road

St. Louis, Missouri 63141

(3) The determinations made in this Decision and Order are based on the presumed validity of the statements and documentary material submitted by the applicant. Any of those determinations may be revoked or modified at any time upon a determination that the factual bases underlying the Application for Refund are incorrect.

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

George B. Breznay

Director

Office of Hearings and Appeals

Date: October 7, 1999

(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/ Interest is now being paid on Enron refunds at the rate of $0.7398 per dollar of refund.