Implementation of Special Refund Procedures

DEPARTMENT OF ENERGY

Office of Hearings and Appeals

Implementation of Special Refund Procedures

AGENCY: Office of Hearings and Appeals, Department of Energy.

ACTION: Notice of Proposed Implementation of Special Refund Procedures.

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SUMMARY: The Office of Hearings and Appeals of the Department of Energy

announces proposed procedures for the disbursement of $1,564,222.74

(plus accrued interest) collected pursuant to a consent order with

Vessels Gas Processing Company. The funds will be distributed in

accordance with the DOE's special refund procedures, 10 CFR Part 205,

Subpart V.

DATES AND ADDRESSES: Comments must be filed in duplicate on or before

November 13, 1995 and should be addressed to: Office of Hearings and

Appeals, Department of Energy, 1000 Independence Avenue, SW.,

Washington, DC 20585. All comments should conspicuously display

reference to Case Number VEF-0007.

FOR FURTHER INFORMATION CONTACT:

Richard W. Dugan, Associate Director, Jessica Hately, Staff Analyst,

1000 Independence Avenue, SW., Washington, D.C. 20585 (202) 586-2860

(Dugan), (202) 586-4921 (Hately).

SUPPLEMENTARY INFORMATION: In accordance with Section 205.282(b) of the

procedural regulations of the Department of Energy (DOE), 10 CFR

205.282(b), notice is hereby given of the issuance of the Proposed

Decision and Order set out below. The Proposed Decision and Order sets

forth the procedures that the DOE has tentatively formulated to

distribute monies that have been collected by the DOE pursuant to a

consent order with Vessels Gas Processing Company (Vessels). The

consent order settled possible pricing violations with respect to

Vessels' sales of natural gas liquids and natural gas liquid products.

The DOE has collected $1,564,222.74 and is holding the money in an

interest-bearing escrow account pending distribution.

Applications for Refund should not be filed at this time.

Appropriate public notice will be given when the submission of claims

is authorized. Any member of the public may submit written comments

regarding the proposed refund procedures. Commenting parties are

requested to submit two copies of their comments. Comments should be

submitted within 30 days of the publication of this notice in the

Federal Register and should be sent to the address provided at the

beginning of the notice. All comments received will be available for

public inspection between the hours of 1:00 p.m. and 5:00 p.m., Monday

through Friday, except federal holidays, in the Public Reference Room

of the Office of Hearings and Appeals, located in Room 1E-234, 1000

Independence Avenue, SW., Washington, DC 20585.

Dated: September 28, 1995.

George B. Breznay,

Director, Office of Hearings and Appeals.

Proposed Decision and Order of the Department of Energy

Special Refund Procedures

Name of Firm: Vessels Gas Processing Company

Date of Filing: February 27, 1995

Case Number: VEF-0007

September 28, 1995.

In accordance with the procedural regulations of the Department

of Energy (DOE), 10 CFR Part 205, Subpart V, the Regulatory

Litigation branch of the Office of General Counsel (OGC) (formerly

the Economic Regulatory Administration (ERA)) filed a Petition for

the Implementation of Special Refund Procedures with the Office of

Hearings and Appeals (OHA) on February 27, 1995. The petition

requests that the OHA formulate and implement procedures for the

distribution of funds received pursuant to a Consent Order entered

into by the DOE and Vessels Gas Processing Company (Vessels) of

Colorado.\1\

\1\ For the sake of convenience and clarity, ``Vessels'' will

refer to Vessels Gas Processing Company (VGPC) and Vessels Gas

Process, Limited (VGPL) in this Decision and Order. In addition,

``Vessels'' will refer to the operations of Halliburton Resource

Management (HRM) at the Irondale and Brighton plants on behalf of

VGPC and VGPL. Vessels operated under a contract with HRM, a

division of Halliburton Company (Halliburton). Under that agreement,

the natural gas owned by Vessels was processed and sold at three

plants owned and operated by HRM. HRM was paid or retained a service

fee from the sales proceeds. On February 25, 1983, Vessels filed, in

conjunction with a ``Preliminary Statement of Objections'' to the

Proposed Remedial Order issued to it on November 5, 1982, a ``Motion

to Join Hallliburton Company and Hold it Jointly Liable for Any

Overcharges that are Proven.'' On May 25, 1983, the OHA gave leave

to amend the PRO to join Halliburton. Vessels Gas Processing Co., 11

DOE para.82,509 (1983).

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I. Background

Vessels was a ``refiner'' of natural gas liquids (NGLs) and

natural gas liquid products (NGLPs), which were included within the

definitions of ``covered products'' in 6 C.F.R. 150.352 and in the

price regulations promulgated pursuant to the Emergency Petroleum

Allocation Act of 1973, Pub. L. No. 93-159. Accordingly, during the

period from August 19, 1973 through January 28, 1981, Vessels was

subject to price rules set forth in 10 CFR Part 212, Subpart K, and

antecedent regulations at 6 CFR 150.1 et seq. An ERA audit of

Vessels' business records at the Irondale and Brighton locations

revealed possible pricing violations with respect to the firm's

sales of NGIs and NGLPs at the Irondale plant during the audit

period from September 1, 1973 through December 31, 1977 and at the

Brighton plant from April 1, 1975 through December 31, 1977.\2\

Subsequently, on October 7, 1986, the DOE issued a Remedial Order to

Vessels, finding that the firm had overcharged its customers and

requiring it to remit to the DOE $1,571,671.40, plus interest.

Vessels Gas Processing Co., 15 DOE para.83,002 (1986). Vessels

appealed the Remedial Order to the Federal Energy Regulatory

Commission (FERC) (Case No. R087-3-000). While the Appeal was

pending, Vessels and the DOE entered into a Consent Order on

December 17, 1987, in order to settle all claims and disputes

between Vessels and the DOE regarding the firm's compliance with

price regulations in sales of NGLs and NGLPs during the audit

period. In that Order, Vessels agreed to remit a total of

$1,500,000, plus installment interest, to the DOE for distribution

to the firm's customers. The Consent Order became final on February

16, 1988. Vessels has made payments totalling

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$1,564,222.74 to the DOE.\3\ These funds, plus accrued interest, are

presently in a DOE escrow account maintained by the Department of

the Treasury.

\2\ The discrepancy in dates between the two plants is due to

the fact that the Brighton plant was not fully operational until

April 1975.

\3\ Vessels' appeal to FERC was dismissed on February 26, 1988.

Vessels Gas Processing Co., 42 FERC para.63,023 (1988). The firm's

final payment under the Consent Order was received by the DOE on

October 12, 1994.

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II. Jurisdiction

The procedural regulations of the DOE set forth general

guidelines by which the OHA may formulate and implement a plan of

distribution for funds received as a result of an enforcement

proceeding. 10 C.F.R. Part 205, Subpart V. It is DOE policy to use

the Subpart V process to distribute such funds. For a more detailed

discussion of Subpart V and the authority of the OHA to fashion

procedures to distribute refunds obtained as a part of settlement

agreements. See Office of Enforcement, 9 DOE para.82,553 (1982);

Office of Enforcement, 9 DOE para.82,508 (1981). After reviewing the

record in the present case, we have concluded that a Subpart V

proceeding is an appropriate mechanism for distributing the Vessels

consent order fund. We therefore propose to grant OGC's petition and

assume jurisdiction over distribution of the fund.

III. Proposed Refund Procedures

A. Refund Claimants

Refund monies will be distributed to those parties which were

injured in their transactions with Vessels during the audit period

that were covered by the Consent Order.\4\ We have limited

information on Vessels' customers and the number of gallons

purchased by each customer. From company records available to this

Office, we have compiled a partial list of Vessels' customers. They

are as follows:

\4\ For the reason set forth in footnote 1 this includes firms

that purchased NGLs and NGLPs from HRM that originated with Vessels.

Since ethane, an NGLP, was decontrolled effective April 1, 1974,

Vessels' customers would not have been injured by purchases of

ethane on or after that date. They are thus not eligible for refunds

for ethane purchases made after March 31, 1974.

Farmland Industries, Inc.

Littleton Gas Co.

California Liquid Gas Co.

Hytrans, Inc.

UPG, Inc.\5\

\5\ In comments submitted in response to the Notice of the

Proposed Consent Order in the December 28, 1987 Federal Register,

Enron Corp. requested that it be specifically named as a payee in

the Consent Order. Enron contended that UPG, Inc. was the principal

customer of NGLs of Vessels, and that Enron, as UPG's successor in

interest, is therefore eligible for a refund in this proceeding. ERA

determined in its response to Enron's comments that it was OHA's

prerogative to name Enron as a payee in its Implementation Order.

The review and analysis of the written comments did not provide any

information that would support the modification or rejection of the

proposed Consent Order with Vessels and Halliburton. Therefore, the

Consent Order was issued without modification. While this Office is

aware that UPG is affiliated with Enron, we have no detailed correct

information regarding the exact nature of their corporate

relationship. Accordingly, we will not name Enron as a payee in this

Decision. However Enron is invited to submit to this Office an

Application for Refund, in which it provides substantial

documentation to support its contention that it is entitled to a

refund for UPG's purchases.

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These customers, and any additional customers, will be required

to submit a monthly schedule of the number of gallons of NGLs and

NGLPs purchased from September 1, 1973 through December 31, 1977 and

documentation that these products were purchased from either the

Irondale or Brighton plants. Indirect purchasers of Vessels'

products may be eligible for a refund if the reseller from whom they

purchased the products passed through Vessels' alleged overcharges

to its own customers. Indirect purchasers must identify the reseller

from whom they made the purchases, and establish the basis for their

belief the products originated from either the Irondale or Brighton

plant. Affiliates of Vessels will be eligible to apply for a refund

in this proceeding.\6\

\6\ As in other refund proceedings involving alleged refined

products violations, we will presume that affiliates of the Consent

Order firm were not injured by the firm's overcharges. See, e.g.,

Marathon Petroleum Co./EMRO Propane Co., 15 DOE para. 85,288 (1987).

This is because the Remedial Order firm presumably would not have

sold petroleum products to an affiliate if such a sale would have

placed the purchaser at a competitive disadvantage. See Marathon

Petroleum Co./Pilot Oil Corp., 16 DOE para. 85,611 (1987), amended

claim denied, 17 DOE para. 85,291 (1988), reconsideration denied, 20

DOE para. 85,236 (1990). Furthermore, if an affiliate of the Consent

Order firm were granted a refund, that Consent Order firm would be

indirectly compensated from a Consent Order fund remitted to settle

its own alleged violations. See, Propane Industrial, Inc. v. DOE,

985 F.2d 586 (Temp. Emer. Ct. App. 1993) (Refund to affiliate would

be ``unjust enrichment'').

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B. Calculation of Refund Amounts

We propose to use a volumetric methodology to distribute the

consent order funds to Vessels' customers. The volumetric refund

presumption assumes that the alleged overcharges by a firm were

dispersed equally over all gallons of product marketed by that firm.

In the absence of better information, this assumption is sound

because the DOE price regulations generally required a regulated

firm to account for increased costs on a firm-wide basis in

determining its prices.\7\

\7\ However this presumption is rebuttable. A claimant which

believes that it suffered a disproportionate share of the alleged

overcharges may submit evidence proving this claim in order to

receive a larger refund. See Sid Richardson Carbon and Gasoline Co./

Siouxland Propane Co., 12 DOE para. 85,054 (1984); see also Amtel,

Inc./Whitco, Inc., 19 DOE para. 85,319 (1989) (Amtel.) In computing

the appropriate refund in such a case, we will prorate the alleged

overcharge amount by the ratio of the Vessels settlement amount to

the aggregate overcharge amount determined by the Vessels Remedial

Order. See Amtel.

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Under the volumetric approach we plan to adopt, a claimant's

``allocable share'' (or ``volumetric share'') of the Vessels fund is

equal to the number of gallons of NGLs and NGLPs purchased from

Vessels from September 1, 1973 through December 31, 1977, multiplied

by a volumetric refund amount of $0.0185 per gallon.\8\

\8\ The volumetric factor was computed by dividing $1,564,222.74

by 84,689,877 (the approximate number of gallons of NGLPs Vessels

sold to its customers during the audit period). The latter figure

was obtained from records submitted to this Office by Vessels.

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Each successful claimant will also receive a pro rata share of

the interest accrued on the consent order funds between the date the

funds were placed in the Vessels escrow account and the date the

applicant's refund is disbursed.

C. Presumptions of Injury

In addition to the volumetric presumption, we propose to adopt a

number of additional presumptions regarding injury for claimants in

each category listed below. These presumptions will simplify the

refund process and will help ensure that refund claims are evaluated

in the most efficient and equitable manner possible.

A. End-Users

End-users of Vessels products, i.e., consumers, whose use of

NGLs or NGLPs was unrelated to the petroleum business, are presumed

injured and need only document their purchase volumes from Vessels

during the consent order period to be eligible to receive their full

allocable share.

b. Refiners, Resellers, and Retailers Seeking Refunds of $10,000 or

Less

Reseller claimants (including refiners and retailers), whose

allocable share is $10,000 or less, i.e., who purchased 540,540

gallons or less of Vessels's products during the consent order

period, will be presumed injured and therefore need not provide a

further demonstration of injury, besides documentation of their

purchase volumes, to receive their full allocable share. See, e.g.,

E.D.G., Inc., 17 DOE para. 85,679 (1988). We recognize that the cost

to the applicant of gathering evidence of injury to support a small

refund claim could exceed the expected refund. Consequently, without

simplified procedures, some injured parties would be denied an

opportunity to obtain a refund.

c. Medium-Range Refiner, Reseller, and Retailer Claimants

In lieu of making a detailed showing of injury (see part III D,

below), a reseller claimant whose allocable share exceeds $10,000

may elect to receive a refund under the medium-range presumption of

injury. Under this presumption, a claimant would receive as its

refund the larger of $10,000 or 60 percent of its allocable share up

to $50,000.\9\ The use of this presumption reflects our conviction

that these claimants were likely to have experienced some injury as

a result of the alleged overcharges. In other proceedings involving

NGLs and NGLPs, we have determined that a 60 percent presumption for

the medium-range purchasers of NGLs and NGLPs accurately reflected

the amount of their injury as a result of their purchases of those

products. See Sauvage Gas Co., 17 DOE para. 85,304 (1988); Suburban

Propane Gas Co., 16 DOE

[[Page 53371]]

para. 85,382 (1987). Such an applicant will be required only to provide

documentation of its purchase volumes of Vessels' products during

the consent order period in order to be eligible to receive a

medium-range refund.

\9\ That is, reseller claimants who purchased in excess of

540,540 gallons of Vessels product during the consent order period

may elect to utilize this presumption.

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d. Regulated Firms and Cooperatives

We have determined that, in order to receive a full volumetric

refund, a claimant whose prices for goods and services are regulated

by a governmental agency, e.g., a public utility, or by the terms of

a cooperative agreement, needs only to submit documentation of its

purchases of products used by itself or, in the case of a

cooperative, sold to its members. However, a regulated firm or

cooperative whose allocable share is greater than $10,000 will also

be required to certify that it will pass any refund through to its

customers or member-customers, provide us with a full explanation of

how it plans to accomplish the restitution, and certify that it will

notify the appropriate regulatory body or membership group of the

receipt of the refund.\10\

\10\ A cooperative's sales to non-members will be treated in the

same manner as sales by other resellers. See Total Petroleum/Farmers

Petroleum Cooperative, 19 DOE para. 85,215 (1989).

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e. Spot Purchasers.

As in prior Subpart V proceedings, we propose to adopt a

rebuttable presumption that a reseller that made only irregular or

sporadic, i.e., spot purchases from Vessels did not suffer injury as

a result of those purchases. Accordingly, a spot purchaser claimant

must submit specific and detailed evidence to rebut the spot

purchaser presumption and to establish the extent to which it was

injured as a result of its spot purchases from Vessels. In prior

proceedings we have stated that refunds will be approved for spot

purchasers who demonstrate that (i) they made the spot purchases for

the purpose of ensuring a supply for their base period customers

rather than in anticipation of financial advantage as a result of

those purchases, and (ii) they were forced by market conditions to

resell the product at a loss that was not subsequently recouped

through the draw down of banks. See Quaker State Oil Refining Corp./

Certified Gasoline Co., 14 DOE para. 85,465 (1986).

D. Showings of Injury

As in prior refund proceedings, claimants who are medium-range

resellers (including retailers and refiners) will be afforded the

opportunity to prove injury in order to receive a refund equal to

their full allocable share. These claimants will be required to

demonstrate that during the audit period they would have maintained

their prices for the NGLs and NGLPs purchased from Vessels at the

same level had the alleged overcharges not occurred. While there are

a variety of ways to make this showing, a reseller would generally

demonstrate that, at the time it purchased the product from Vessels,

market conditions would not permit it to pass through to its

customers the additional costs associated with the alleged

overcharges. See Atlantic Richfield Co./Odessa L.P.G. Transport, 21

DOE para. 85,384 (1991); Guld Oil Corp./Anderson & Watkins, Inc., 21

DOE para. 85,380 (1991). In addition, the reseller will be required

to show that it had a ``bank'' of unrecovered costs in order to

demonstrate that it did not recover the increased costs associated

with the alleged overcharges by increasing its own prices. The

maintenance of a bank does not, however, automatically establish

injury. See Tenneco Oil Co./Chevron U.S.A., Inc., 10 DOE para.

85,014 (1982).

IV. Conclusion

Refund applications in this proceeding should not be filed until

the issuance of a final Decision and Order. Detailed procedures for

filing applications will be provided in the final Decision and

Order. Before disposing of any of the funds received, we intend to

publicize the distribution process and to provide an opportunity for

any affected party to file a claim. In addition to publishing copies

of the proposed and final Decisions in the Federal Register, copies

will be provided to the Vessels' customers for whom we have

addresses.

Any funds that remain after all first-stage claims have been

decided will be distributed in accordance with the provisions of the

Petroleum Overcharge Distribution and Restitution Act of 1986

(PODRA), 15 U.S.C. 4501-07. PODRA requires that the Secretary of

Energy determine annually the amount of oil overcharge funds that

will not be required to refund monies to injured parties in subpart

V proceedings and make those funds available to state governments

for use in four energy conservation programs. The Secretary has

delegated these responsibilities to OHA. Any funds in the Vessels

escrow account the OHA determines will not be needed to effect

direct restitution to injured Vessels customers will be distributed

in accordance with the provisions of PODRA.

It Is Therefore Ordered That:

The refund amount remitted to the Department of Energy by

Vessels Gas Processing Company pursuant to the Consent Order

executed on December 17, 1987 will be distributed in accordance with

the forgoing Decision.

[FR Doc. 95-25324 Filed 10-12-95; 8:45 am]

BILLING CODE 6450-01-M