Implementation of Special Refund Procedures

DEPARTMENT OF ENERGY

Office of Hearings and Appeals

Implementation of Special Refund Procedures

AGENCY: Office of Hearings and Appeals, DOE.

ACTION: Notice of Implementation of Special Refund Procedures.

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

announces 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: Applications for Refund of a portion of the

consent order must be filed in duplicate on or before April 8, 1996,

and should be addressed to: Vessels Gas Processing Company Proceeding,

Department of Energy, Office of Hearings and Appeals, 1000 Independence

Ave., S.W., Washington, D.C. 20585-0107. All Applications should

conspicuously display reference to Case Number VEF-0007.

FOR FURTHER INFORMATION CONTACT: Richard W. Dugan, Associate Director,

1000 Independence Ave. S.W., Washington D.C. 20585-0107, (202) 586-

2860.

SUPPLEMENTARY INFORMATION: In accordance with the procedural

regulations of the Department of Energy, 10 CFR 205.282 (c), notice is

hereby given of the issuance of the Decision and Order set out below.

The Decision and Order relates to a consent Order entered into by the

DOE and Vessels Gas Processing Company (Vessels). The consent order

settled possible pricing violations with respect to Vessels' sales of

natural gas liquids (NGLs) and natural gas liquid products (NGLPs). The

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

interest-bearing escrow account pending distribution. On September 28,

1995, the Office of Hearings and Appeals issued a Proposed Decision and

Order which tentatively established refund procedures and solicited

comments from interested parties concerning the proper distribution of

the consent order fund. No comments were received.

As the Decision and Order indicates, Applications for Refund from

the Vessels' consent order fund may now be filed. Applications must be

filed no later than 90 days from the date of publication of this

Decision and Order. Applications will be accepted from customers who

purchased NGLs and NGLPs from Vessels during the period September 1,

1973 through December 31, 1977. The specific information required in

and Application for Refund is set forth in the Decision and Order.

Dated: December 21, 1995.

George B. Breznay,

Director, Office of Hearings and Appeals.

Special Refund Procedures

Name of Firm: Vessels Gas Processing Company

Date of Filing: February 27, 1995

Case Number: VEF-0007

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 Halliburton 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 CFR 150.352 and in the price regulations

promulgated pursuant to the Emergency Petroleum Allocation Act of 1973,

Public Law 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 NGLs 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 $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 CFR 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

[[Page 653]]

mechanism for distributing the Vessels consent order fund. We therefore

shall grant OGC's petition and assume jurisdiction over distribution of

the fund.

III. Refund Procedures

On September 28, 1995, OHA issued a Proposed Decision and Order

(PDO) establishing tentative procedures to distribute the Vessels

settlement fund. That PDO was published in the Federal Register and a

30-day period was provided for the submission of comments regarding our

proposed refund plan. See 60 Fed. Reg. 53369 (October 13, 1995). More

than 30 days have elapsed and the OHA has received no comments

concerning the proposed procedures for the distribution of the Vessels

settlement fund. Consequently, the procedures will be adopted as

proposed.

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:

Farmland Industries, Inc., Littleton Gas Co., California Liquid Gas

Co., Hytrans, Inc., UPG, Inc.\5\

\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.

\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 Vessels' NGLs, 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

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 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 ineligible 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 Consent 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 the 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 shall 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 are adopting in this proceeding, 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 NGLs and 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 are adopting a number

of 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' 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 will receive as its refund the

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

[[Page 654]]

$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 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 are adopting 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. Showing 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 generally must 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); Gulf 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).

E. Refund Application Requirements

To apply for a refund from the Vessels Consent Order fund, a

claimant should submit an Application for Refund containing all of the

following information:

(1) Identifying information including the claimant's name, current

business address, business address during the refund period, taxpayer

identification number, a statement indicating whether the claimant is

an individual, corporation, partnership, sole proprietorship, or other

business entity, the name, title, and telephone number of the person to

contact for any additional information, and the name and address of the

person who should receive any refund check.11 If the applicant

operated under more than one name or under a different name during the

price control period, the applicant should specify these names;

\11\ Under the Privacy Act of 1974, the submission of a social

security number by an individual applicant is voluntary. An

applicant that does not wish to submit a social security number must

submit an employer identification number if one exists. This

information will be used in processing refund applications, and is

requested pursuant to our authority under the Petroleum Overcharge

Distribution and Restitution Act of 1986 and the regulations

codified at 10 C.F.R. Part 205, Subpart V. The information may be

shared with other Federal agencies for statistical, auditing or

archiving purposes, and with law enforcement agencies when they are

investigating a potential violation of civil or criminal law. Unless

an applicant claims confidentiality, this information will be

available to the public in the Public Reference Room of the Office

of Hearings and Appeals.

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(2) The applicant's use of NGLs and NGLPs from Vessels: e.g.,

consumer (end-user), cooperative, or public utility;

(3) A monthly purchase schedule covering the period from September

1, 1973 through December 31, 1977. The applicant should specify the

source of this gallonage information. In calculating its purchase

volumes, an applicant should use actual records from the refund period,

if available. If these records are not available, the applicant may

submit estimates of its purchases, but the estimation method must be

reasonable, explained in detail, and supported by some documentation;

(4) If the applicant is a regulated utility or cooperative, a

certification that it will pass on the entirety of any refund received

to its customers or customer-members, will notify its state utility

commission, other regulatory agency, or membership body of the receipt

of any refund, and a brief description as to how the refund will be

passed along;

(5) A statement as to whether the applicant or a related firm has

filed, or has authorized any individual to file on its behalf, any

other application in the Vessels refund proceeding. If so, an

explanation of the circumstances of the other filing or authorization

should be submitted;

(6) If the applicant is or was in any way affiliated with Vessels,

it should explain this affiliation, including the time period in which

it was affiliated;

(7) A statement as to whether the ownership of the applicant's firm

changed during or since the refund period. If an ownership change

occurred, the applicant should list the names, addresses, and telephone

numbers of any prior or subsequent owners. The applicant should also

provide copies of any relevant Purchase and Sale Agreements, if

available. If such written documents are not available, the applicant

should submit a description of the ownership change, including the year

of the sale and the

[[Page 655]]

type of sale (e.g., sale of corporate stock, sale of company assets);

(8) A statement as to whether the applicant has ever been a party

in a DOE enforcement action or a private Section 210 action. If so, an

explanation of the case and copies of the relevant documents should

also be provided;

(9) The following statement signed by the individual applicant or a

responsible official of the firm filing the refund application: 12

\12\ We will not process applications signed by filing services

or other representatives. In addition, the statement must be dated

on or after the date of this Decision and Order. Any application

signed and dated before the date of this Decision will be summarily

dismissed.

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I swear (or affirm) that the information contained in this

application and its attachments is true and correct to the best of

my knowledge and belief. I understand that anyone who is convicted

of providing false information to the federal government may be

subject to a fine, a jail sentence, or both, pursuant to 18 U.S.C.

1001. I understand that the information contained in this

application is subject to public disclosure. I have enclosed a

duplicate of this entire application which will be placed in the OHA

Public Reference Room.

All applications should be either typed or printed and clearly

labeled ``Vessels Special Refund Proceeding, Case No. VEF-0007.'' Each

applicant must submit an original and one copy of the application. If

the applicant believes that any of the information in its application

is confidential and does not wish for this information to be publicly

disclosed, it must submit an original application, clearly designated

``confidential,'' containing the confidential information, and two

copies of the application with the confidential information deleted.

All refund applications should be postmarked no later than 90 days from

the publication of this Decision and Order in the Federal Register, and

sent to: Vessels Special Refund Proceeding, Office of Hearings and

Appeals, Department of Energy, 1000 Independence Avenue, S.W.,

Washington, D.C. 20585-0107.

In those cases where applications are filed by representatives,

e.g., filing services or attorneys, we may request information from the

representative regarding its solicitation practices and materials and

the procedures it uses. Furthermore, each representative that requests

that it be a payee of a refund check must file with the OHA if it has

not already done so a statement certifying that it maintains a separate

escrow account at a bank or other financial institution for the deposit

of all refunds received on behalf of applicants, and that its normal

business practice is to deposit all Subpart V refund checks in that

account within two business days of receipt and to disburse refunds to

applicants within 30 calendar days thereafter. Unless such

certification is received by the OHA, all refund checks approved will

be made payable solely to the applicants. Representatives who have not

previously submitted an escrow account certification form to the OHA

may obtain a copy of the appropriate form by contacting: Marcia B.

Carlson, HG-13, Chief, Docket & Publications Division, Office of

Hearings and Appeals, Department of Energy, Washington, D.C. 20585-

0107.

F. Distribution of Funds Remaining After First Stage

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:

(1) Applications for Refund from the funds remitted to the

Department of Energy by Vessels Gas Processing Company pursuant to the

Consent Order that became final on February 16, 1988 may now be filed.

(2) All Applications for Refund must be postmarked no later than 90

days after publication of this Decision and Order in the Federal

Register.

Date: December 21, 1995.

George B. Breznay,

Director, Office of Hearings and Appeals.

[FR Doc. 96-290 Filed 1-8-96; 8:45 am]

BILLING CODE 6450-01-P