Case No. RR304-00044
May 6, 1999
DECISION AND ORDER
OF THE DEPARTMENT OF ENERGY
Motions for Reconsideration
Name of Petitioners:Atlantic Richfield Co./
Oil Transit, Inc.
Rookwood Oil Terminals
Houston Oil Co.
Date of Filing: July 30, 1992
Case Numbers: RR304-44
RR304-45
RR304-46
I. Background
On July 7, 1992, the Office of Hearings and Appeals (OHA) of the Department of Energy (DOE) issued a Decision and Order granting in part Applications for Refund filed by USA Petroleum Corporation (USA) on behalf of Oil Transit, Inc. (OT), Case No. RF304-9236, Rookwood Oil Terminals, Inc. (Rookwood), Case No. RF304-9237, and Houston Oil Company (Houston), Case No. RF304-9238. Atlantic Richfield Co./USA Petroleum Corp., 22 DOE ¶ 85,131 (1992) (USA). However, in USA, we rejected USAs request for a full volumetric refund ($979,572) for the 1,332,750,676 gallons of Atlantic Richfield Company (ARCO) motor gasoline purchased by the three firms. Instead, we granted USA a mid-level reseller presumption refund totaling $77,767 ($50,000 principal plus $27,767 interest). In rejecting USAs claim for a full volumetric refund, we held that USA had not demonstrated that its bank of unrecovered product costs was sufficient to justify a full volumetric refund.
On July 30, 1992, USA filed Motions for Reconsideration of OHAs USA Decision. In its submission, USA reasserted its claim for a full volumetric refund and presented additional evidence concerning the amount of its banks.
II. USAs Motions for Reconsideration
In the present case, USA has provided us with detailed information in an attempt to demonstrate that it is entitled to a full volumetric refund. Although DOE regulations do not explicitly provide for reconsideration of a final Decision and Order in a refund proceeding, we have decided, as a
discretionary matter, to consider the Motions filed by USA. We will therefore consider whether USA is entitled to a full volumetric refund. See Tenneco Oil Co./Kern Oil & Refining Co., 10 DOE ¶ 85,022 (1982); Tenneco Oil Co./Major Oil Co., 13 DOE ¶ 85,322 (1985).
III. Standards for the Evaluation of Refund Applications in the ARCO Proceeding
Evaluating applications in the ARCO proceeding involves both an allocation of an appropriate portion of the consent order fund to each applicant, and an evaluation of the economic harm or injury suffered by that applicant. Atlantic Richfield Co., 17 DOE ¶ 85,069 at 88,151 (1988) (ARCO). To determine the portion of the fund to be allocated to each claimant, we assume that any overcharges were distributed equally over every gallon of regulated products sold by ARCO during the refund period and allocated the consent order monies accordingly, i.e., by dividing the value of the fund by ARCOs total sales of covered products during the period. ARCO at 88,151. This calculation produces a volumetric factor of $0.000735 per gallon. When that factor is multiplied by an applicants total eligible purchases, the result is a claimants allocable (or volumetric) share of the consent order fund. Unless an applicant demonstrates that it was disproportionately affected by ARCOs alleged practices, it cannot receive a refund greater than this allocable share of the consent order period. Id.
Resellers, such as USA, whose claims exceed $5,000 in principal must also demonstrate that they were injured by ARCOs alleged overcharges to receive funds equal to their full volumetric allocation of the consent order fund.(1) The procedures in ARCO outline a two-step requirement for applicants attempting to make an injury showing. First, a claimant must show that it maintained banks large enough to justify the amount of the refund claimed. Second, it must show that market conditions forced it to absorb the alleged overcharges. Id. at 88,153.
To determine the degree to which market conditions forced an applicant to absorb the alleged overcharges, a three-part competitive disadvantage analysis is usually applied. See Atlantic Richfield Company v. Department of Energy, 618 F. Supp. 1199 (D. Del. 1985). This analysis entails an evaluation of a claimants (1) gross excess cost, i.e., the sum of the claimants purchases of refined products at prices above the regional average market price; (2) net excess cost, i.e., the difference between the value of a claimants refined product purchases made above the regional average market price and those made below; and (3) above market volumetric share which is the sum of the monthly volumes the applicant bought above regional average market price multiplied by the volumetric factor. 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 calculate an appropriate refund amount. See Texas Oil and Gas Corp./Gulf Oil Corp., 13 DOE ¶ 85,135 (1985) (Gulf).
IV. USAs Injury Claim
A. Banks of Unrecovered Product Costs
In its initial application, USA submitted purchase volume schedules for OT, Houston and Rookwood totaling 1,332,750,676 gallons of ARCO motor gasoline. USA submitted reconstructed banks of its unrecovered increased product costs for the period November 1973 through June 1976. However, USA was unable to provide data for the period July 1976 through April 1980. (2) See USA, 22 DOE at 88,373. USA calculated that its banks of unrecovered increased product costs for the period November 1973 through June 1976 amounted to $6,599,361. Id. Despite USAs bank of unrecovered increased product costs, we held that such banked costs alone were not sufficient to support a full volumetric refund, since USA may have recouped the increased product costs during the July 1976 through April 1980 period. Id.
With its Motion for Reconsideration, USA has submitted reconstructed banks of unrecovered increased product costs for the entire consent order period. For each month during the consent order period in which USA did not have actual margin data, USA used one-twelfth of the firms actual yearly margin. Then that figure was divided by the gallonage amount for that month to obtain an estimated margin for that month which was used to estimate that months unrecovered product costs. Using this estimation, USA's unrecovered increased product costs at the end of April 1980 totaled $28,819,974.
We have examined USA estimated banks of unrecovered increased product costs and the estimation method it utilized. While OHA prefers monthly data for bank calculations, we will accept calculations based on annual data where the bank is large enough and increases steadily enough to allay our fears that it could have dropped to zero. See e.g. Mobil Oil Corp./Heater Oil Corp., 17 DOE ¶ 85,049 (1988). In USAs case, the magnitude of its bank and its steadily increasing nature, lead us to accept USAs estimated bank calculation. See Appendix A. Thus, we find that USA has satisfactorily completed the first step of the injury showing by demonstrating that its costs bank is sufficiently large to accommodate its requested refund.
B. Competitive Disadvantage Analysis
The second step of the required injury demonstration is a competitive disadvantage analysis to assess the extent of USAs actual injury. USA has submitted a competitive disadvantage analysis using data from OTs purchases of ARCO motor gasoline and certain Rookwood purchases from ARCO made in Ohio. USA subsequently informed us that it did not possess the records necessary to perform a competitive disadvantage analysis for the ARCO purchases made by Houston and the remaining Rookwood purchases. In performing this analysis, USA utilized regional product price data contained in Platts Oil Handbook and Oilmanac (Platts) for Chicago and Pittsburgh since OTs purchases were made primarily in Ohio. Specifically, USA utilized the Platts Chicago/Pittsburgh low gasoline price for its competitive disadvantage analysis.(3) Based upon its competitive disadvantage analysis, USA believes that it should be granted a full volumetric share for the 1,332,750,676 gallons of ARCO products OT, Rookwood and Houston purchased.
As an initial matter, we will not approve a full volumetric refund for those gallons of ARCO products for which USA does not have data for a competitive disadvantage analysis. We have consistently held that banks alone do not provide sufficient evidence for us to approve a full volumetric share for those applicants who seek a full volumetric refund beyond a presumption level refund. See, e.g., Citronelle-Mobile Gathering, Inc., 669 F. 2d. 717, 723 (Temp. Emer. Ct. App. 1981). Consequently, we shall deny the Motion filed by USA on behalf of Houston. Further, we will deny that portion of the refund claim filed on behalf of Rookwood for which USA lacks sufficient evidence to conduct a competitive disadvantage analysis. Thus, USA will be potentially eligible for a full volumetric refund for only those purchases included in its competitive disadvantage analysis. These purchases comprise 868,770,758 gallons.(4)
Competitive disadvantage analysis compares an applicant's product costs to its competitors' product costs. For such a comparison to be meaningful the comparison must be made to competitors similar to the applicant in location and level in the petroleum distribution system. The prices listed in Platt's are the prices ("rack" or "posted") which terminals charged to smaller distributors. Thus, Platt's prices do not reflect the price that terminal operators, such as USA and its like competitors, would pay to refiners and other terminal operators to obtain petroleum products. USA asserts that the prices it and its competitors paid for such deliveries would be typically 3 cents per gallon lower than the rack prices such terminals would charge smaller distributors (and which are described in Platt's). Given this factual background, USA argues that the use of Platt's low prices is an appropriate approximation of what its terminal competitors were paying for gasoline and thus an acceptable measure for use in its competitive disadvantage analysis.
We generally utilize the average prices published in Platt's for competitive disadvantage analyses. See Gulf Oil Corporation/Thermagas, Inc., 18 DOE ¶ 85,885 at 89,448 n. 3 (1989). However, after examining all of USA submissions and considering the unique facts of this case, we believe that Platt's low price is an acceptable benchmark to use in the comparative disadvantage analysis. As described earlier, the Platt's prices typically represent the rack price which terminals would sell to firms lower in the petroleum distribution chain. For refiners and terminals which purchased in large bulk quantities, the price would be about 3 cents per gallon less than the rack price. See, e.g., U.S. Tank Car Transport Lots, Platt's Oilgram Price Service, December 3, 1976, at 5A (barge price for motor gasoline traditionally 3 cents per gallon lower than prices charged to jobbers and distributors). Significantly, an examination of USAs May 1973 records for a number of its Ohio and North Carolina facilities almost uniformly shows that the prices it paid for regular and premium motor gasoline were 2 to 3 cents below the Platt's average prices. Therefore, we believe that for firms at USA's level of distribution, use of Platt's low prices is an acceptable estimate of their terminal competitors' product costs.(5)
The results of the competitive disadvantage analyses are detailed in Appendices B1(6), B2 and B3 to this Decision and Order and are summarized below:
Measure of USAs Competitive Disadvantage
Full Volumetric Share
Gross Excess Costs
Net Excess Costs
Above Market Price Volumetric Share
Regular Gasoline
$484,701
$10,151,179
$9,157,158
$410,908
Unleaded Gasoline
$115,071
$4,579,000
$4,534,119
$110,377
Full Volumetric Share
Gross Excess Costs
Net Excess Costs
Above Market Price Volumetric Share
Premium Gasoline
$38,774
$499,168
$240,141
$14,640
The factors summarized in the table above provide evidence that USA was injured as a result of its motor gasoline purchases from ARCO. However, none of these figures is a definitive measure of the dollar value of USAs injury. See Gulf, 21 DOE at 88,374. Rather, these factors serve as indicators as to whether USA was injured to the full extent of the volumetric allocation as a result of its purchases of ARCO motor gasoline.
With regard to its purchases of regular, unleaded and premium gasoline, USA incurred substantial cost disadvantages as a result of the ARCO overcharges, as indicated by the gross excess costs factor. Specifically, USA's gross excess costs for regular, unleaded and premium gasoline were approximately 21, 40 and 13 times respectively greater than the portion of the full volumetric share attributable to its purchases of these products. Further, USAs competitive disadvantage was only minimally mitigated by occasional ARCO purchases made below the regional average as demonstrated by the net excess cost factor each product. In instances where the gross and/or net excess costs of refund applicants have been greater than 10 times the applicant's allocable share, we have found that the applicant experienced a substantial and consistent competitive disadvantage as a result of its purchases. See, e.g., Enron Corp,/Unocal Corp., 26 DOE ¶ 85,041 at 88,104 (1997); Atlantic Richfield Co./Coast Gas, Inc., 24 DOE ¶ 85,136 (1995) (analysis of propane and butane purchases); Total Petroleum/Mid States Petroleum, Inc., 19 DOE ¶ 85,665 (1989) (analysis of motor gasoline purchases). Consequently, we believe that USAs injury was of sufficient magnitude to justify a refund of the entire volumetric amount for all of the regular, unleaded and premium gasoline purchases analyzed in its competitive disadvantage analysis, 868,770,758 gallons (659,457,724 gallons regular + 156,559,168 gallons unleaded + 52,753,866 gallons premium).
In sum, we will approve a volumetric refund for USA for 868,770,758 gallons of its ARCO. The principal amount of USA's refund is $638,547 (868,770,758 gallons x $0.000735 per gallon). From USA's total refund, we shall subtract the $50,000 principal refund previously granted USA in our prior Decision. Consequently, we shall grant USA an additional refund of $588,547 plus $724,148 in accrued interest. (7) The total refund granted to USA is $1,312,695.
V. Impact of PODRA Amendments on USA's Refund Payment
The Interior and Related Agencies Appropriations Act for fiscal year 1999 amended certain provisions of the Petroleum Overcharge Distribution and Restitution Act of 1986 (PODRA). See Interior and Related Agencies Appropriation Act, 1999, Pub. L. No. 105-277, § 337, 112 Stat. 2681- 231, 2681-295 (1998). These amendments extinguished rights that refund applicants had under PODRA to refunds for overcharges incurred on the purchase of refined petroleum products. They also identified and appropriated a substantial portion of the funds being held by the DOE to pay refund claims. Congress specified that these funds were to be used to fund other DOE programs. As a result, the petroleum overcharge escrow accounts in the refined product area contain substantially less money than before. In fact, they probably do not contain sufficient funds to pay in full all pending refund claims (including those in litigation). Congress directed DOE to "assure that the amount remaining in escrow to satisfy refined petroleum product claims for direct restitution is allocated equitably among all claimants." In view of this Congressional directive and the limited amount of funds available, it is necessary at this time to prorate the funds available among the meritorious claims. Eventually, when we know the full value of all meritorious claims and the precise, total amount available for distribution, we can determine the amount that is available for distribution to each claimant. That will be sometime in the future.
We believe that it is equitable to pay the remaining small claims in full. To require small claimants to wait several more years for their refunds would constitute an inordinate burden and be inequitable. Cf. Atlantic Richfield Co./Major Oil, Inc., 26 DOE ¶ 85,068 at 88,195 (1997) ("The principal purpose of the presumptions of injury . . . is to reduce the burden on small claimants.").
USA's refund is not in this category of small claimants. Full payment of USA's refund of $1,312,695 could well have a substantial impact on the ability of this Office to make payments to other remaining claimants who are seeking large refund claims. Until these other large claims are resolved, we cannot determine whether there will be sufficient funds to provide full refund payments on all meritorious claims. We therefore will limit the current USA refund payment to fifty percent of the total approved refund (principal and interest). Once the other pending refund claims have been resolved, the remainder of the USA refund will be paid to the extent that is possible through an equitable distribution of the funds remaining in the petroleum overcharge escrow accounts. Accordingly, at this time, we will disburse to USA a total of $656,348 ($294,274 principal and $362,074 interest) from the ARCO escrow account.
It Is Therefore Ordered That:
(1) The Motions for Reconsideration filed on behalf of Oil Transit, Inc., Case No. RR304-44, and Rookwood Oil Terminals, Inc., Case No. RR304-45, on January 11, 1993, by USA Petroleum Corporation are hereby granted as set forth in Paragraph (3) below.
(2) The Motion for Reconsideration filed on behalf of Houston Oil Company, Case No. RR304-46, on January 11, 1993 by USA Petroleum Corporation is hereby denied.
(3) The Director of Special Accounts and Payroll, Office of Departmental Accounting and Financial Systems Development, Office of the Controller, of the Department of Energy shall take appropriate action to disburse from the DOE deposit fund escrow account maintained at the Department of the Treasury and funded by Atlantic Richfield Company, Consent Order No. RARH00001Z, the sum of $656,348 ($294,274 principal plus $362,074 interest) to USA Petroleum Corporation by wire transfer.
(4) For administrative purposes, the refund disbursed by this decision will be allocated by case number as follows:
Case No.
Principal
Interest
Total
RR304-44
$282,503
$347,591
$630,094
RR304-45
$11,771
$14,483
$26,254
(5) The determinations made in this Decision and Order are based on the presumed validity of statements and documentary material submitted by the applicants. These determinations may be revoked or modified at any time upon a determination that the factual bases underlying either the Applications for Refund or the Motions for Reconsideration are incorrect.
(6) This is a final Order of the Department of Energy.
George B. Breznay
Director
Office of Hearings and Appeals
Date:May 6, 1999
(1)USA received the maximum refund, $50,000, that applicants may receive without providing detailed demonstrations of injury. See ARCO at 88,151-52.
(2)In its initial applications, USA subsequently reduced its claim to only those gallons OT, Rookwood and Houston purchased during the period of November 1973 through June 1976. USA, 22 DOE at 88,372 n.4.
(3)Platt's lists low, high and lows and highs (average) gasoline prices from a particular geographic location. These prices are the prices that terminal operators would charge smaller distributors for tank car or truck transport lots of petroleum products, See, e.g., 1981 Platt's Oil Price Handbook and Oilmanac at 4.
(4)This total consists of 659,457,724 gallons of regular gasoline, 156,559,168 gallons of unleaded gasoline and 52,753,866 gallons of premium gasoline. See Appendices B1, B2 and B3.
(5)In its competitive disadvantage analysis, USA utilized Platt's Chicago prices for the period 1973 through 1978 and Platt's Pittsburgh prices for the period 1979 through 1981. USA contends that of prices reported in Platt's for the period 1979 through 1981, the Pittsburgh prices were most representative of its competitors costs. However, Platt's did not report prices for Pittsburgh for the period 1973 through 1978. USA asserts that Platt's Chicago prices are the most representative of its competitors prices for those years. We find that USAs use of the Chicago and Pittsburgh Platt's prices is reasonable given the fact that approximately 64 percent of OTs sales were made in Ohio alone and that OT and Rookwood together purchased approximately 74 percent of its product within the states of Ohio, Indiana and Illinois. See Exxon Corp./Enron Corp., 21 DOE ¶ 85,297 at 88,885- 86 (1991).
(6)In reviewing USAs submissions, we discovered an error in its competitive disadvantage analysis for its premium gasoline purchases. In this analysis, USA, for the months of 1976, mistakenly used the Platts Chicago low regular gasoline prices. We have recalculated USAs competitive disadvantage analysis for its purchases of ARCO regular, premium and unleaded motor gasoline.
(7)As discussed supra, because USA's competitive disadvantage analysis, upon which its claim is granted, contained purchases made by OT and Rookwood, we will grant USA's Motions for Reconsideration filed on behalf of OT (Case No. RR304-44) and Rookwood (Case No. RR304-45). Since none of the purchases analyzed in the competitive disadvantage originated from Houston, we will deny the USA Motion for Reconsideration filed on its behalf (Case No. RR304-46).