ent and giving them a commensurate financial advantage.

2. DOE has further concluded that adequate showings have not been made to invoke the provisions of 18 U.S.C. 1905 with respect to Part I and items 1-12 of Part II and that DOE will disclose, in response to requests made pursuant to the Freedom of Information Act, those items. These include historical data on production of crude oil and natural gas, by field; information as to whether the respondent is or has been an operator; and the number of fields of a specified size in which the respondent operated.

The rationale for concluding that Part I and items 1-12 of Part II will be disclosed pursuant to Freedom of Information Act requests is that this information either is clearly not proprietary-such as name and address-or is information that is already publicly available in a number of states and therefore is not considered to be within the Freedom of Information Act exemption from mandatory disclosure for confidential commercial information. Specifically, the names of operators, the fields that they operate, the operator's parent company, if any, and historical data on production of crude oil and natural gas, are all matters of public record in a number of states.

[40 FR 19800, May 7, 1975]

RULING 1975-6-NATURAL GAS LIQUID PRODUCTS; PRICING PRIOR TO JANUARY 1, 1975

On December 20, 1974, DOE issued a new Subpart K to 10 CFR, Part 212, the Mandatory Petroleum Price Regulations, effective January 1, 1975. Subpart K provides regulations designed specifically to cover the pricing of natural gas liquids and natural gas liquid products (propane, butane, and natural gasoline). The pricing of these items was, until December 31, 1974, subject to Subpart E of the DOE price regulations, which applied generally to "refiners," a term defined in 10 CFR 212.31 to include a firm that "refines liquid hydrocarbons from oil and gas field gases Both refiners of crude oil and of natural gas and natural gas liquids are included within this definition. The new Subpart K was adopted to provide a set of price rules

tailored to the purpose of regulating the prices charged for liquid products produced from natural gas, since the process of extracting liquid hydrocarbon products from natural gas differs in significant respects from the process of refining such products from crude oil.

In adopting the new Subpart K regulations, the DOE intended to accomplish three basic objectives: First, to provide a specific method by which maximum lawful prices for natural gas liquid products shall be computed, including a method by which increased product costs may be passed through in prices charged for products; second, to provide a method by which those entities whose May 15, 1973 selling prices for natural gas liquid products were abnormally low could adjust their prices to reflect more closely industry-wide average prices for those products on that date; and third, to provide a method by which refiners may pass through increased non-product costs attributable to gas plant operations.

To accomplish the first of these objectives, DOE provided for the passthrough of increased product costs associated with obtaining natural gas liquids and liquid products, expressly including increased costs of natural gas shrinkage, in a manner analogous to that provided in Subpart E of the DOE regulations for the passthrough of increased product costs. The reason for implementation of this method of increased cost passthrough was, in part, to provide a specific method by which the increased costs of raw materials associated with gas processing may be recovered in the prices charged for products that is basically equivalent to the method by which the increased costs of raw materials associated with crude oil refining may be recovered in prices charged for products. For processors of natural gas, the equivalent of increased product cost is the increase in the cost of "shrinkage" which occurs in the natural gas stream as a result of the extraction of natural gas liquids. The refiner's price rules of Subpart E, which applied to prices charged for natural gas liquid products until December 31, 1974, provided for the passthrough of

increased product costs, but did not expressly indicate that sellers of natural gas liquids and liquid products could recover increased natural gas "shrinkage" costs as increased product costs, in prices charged for processed products.

To accomplish the second objective, DOE provided in Subpart K for the use of adjusted May 15, 1973 prices by those firms that had May 15, 1973 selling prices for natural gas liquid products that were below average.

To accomplish the third objective, DOE included in Subpart K a provision for the passthrough, in prices charged for processed products, of actual increases in non-product costs attributable to gas plant operations, subject to a maximum limitation of $.005 per gallon.

The changes in the regulations effected by Subpart K were prospective. The DOE has concluded, however, that the basic issues which the Subpart was intended to resolve have been in existence since the inception of DOE regulations, and that, insofar as practicable, they need to be resolved with respect to the period prior to January 1, 1975, during which Subpart E applied to the pricing of natural gas liquid products, particularly in view of the fact that DOE compliance actions, as well as private rights, remain dependent in large measure upon the application and interpretation of Subpart E to natural gas liquid product price determinations.

DOE is therefore issuing this ruling to make clear that increased costs of natural gas shrinkage could be passed through as increased product costs pursuant to the provisions of Subpart E, and, generally, to more clearly describe the application of the price rules of Subpart E in determining natural gas liquid product prices, before Subpart K became effective on January 1, 1975.

Also, since there were no provisions in Subpart E for use of adjusted May 15, 1973 prices by those firms that had lower than average prices on that date, and since the atypical pricing patterns of May 15, 1973, which are permitted to be adjusted by Subpart K, have affected firms since before the effective date of Subpart K, the DOE

is proposing, concurrently with the issuance of this ruling, a class exception to permit the adjusted May 15, 1973 prices of Subpart K to be applied retroactively. The exception proposal also contains provisions to afford passthrough of actual non-product cost increases incurred prior to January 1, 1975, subject to a specific per gallon limitation.

Facts: Firms A, B and C are "refiners," as defined in 10 CFR 212.31, which process natural gas or natural gas liquids and recover natural gas liquid products (propane, butane and natural gasoline), which they sell. During 1974, Firms A, B and C obtained natural gas or natural gas liquids for processing in their plants under three different arrangements:

(1) Firm A purchased a mixed stream of natural gas liquids at a fixed price per gallon from Firm X, a firm which had extracted the natural gas liquids from natural gas. Firm A fractionated the mixed stream of natural gas liquids and sold the resulting natural gas liquid products;

On May 15, 1973, Firm A purchased the mixed stream of natural gas liquids from Firm X at a rate of 6 cents per gallon for the propane content, 6.5 cents per gallon for the butane content, and 8.5 cents per gallon for the natural gasoline content. During November 1974, Firm A purchased the mixed stream of natural gas liquids at a lawful rate of 8 cents per gallon for the propane content, 8.5 cents per gallon for the butane content, and 10.5 cents per gallon for the natural gasoline content.

(2) Firm B purchased "wet" natural gas under a "net back" contract arrangement with Firm Y, a natural gas producer. Title to the "wet" natural gas passed to Firm B at the wellhead, and Firm B transported the gas to its gas plant, where the natural gas liquids were extracted and fractionated into natural gas liquid products. Both the natural gas liquid products and the residue gas were sold by Firm B, subject to the "net back” arrangement with Firm Y. Firms B and Y shared in the proceeds from the sale of the natural gas liquid products and from the sale of the residue gas on a percentage basis. On May 15, 1973, Firm B sold its

residue gas at a rate of 23 cents per MCF, and in November, 1974, it sold the residue gas at a rate of $1.50 per MCF; and

(3) Firm C produced and processed "wet" natural gas in its plants to extract natural gas liquids and to fractionate those liquids into natural gas liquid products. Firm C sold the natural gas liquid products and the residue gas. On May 15, 1973, Firm C sold its residue gas at a rate of 22.3 cents per million BTU's and in November, 1974 it sold the residue gas at a rate of $1.45 per million BTU's.

On May 15, 1973, Firms A, B and C all sold the natural gas liquid products from their gas plants to Firm M, a distributor and marketer of natural gas liquid products, at 7.5 cents per gallon for propane, 8 cents per gallon for butane, and 10 cents per gallon for natural gasoline.

Issue: For months prior to January 1975, how should Firms A, B and C have computed the amount of increased product costs which were available for recovery in the base prices of their natural gas liquid products pursuant to § 212.83?

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Ruling: It is an underlying principle of all of DOE pricing regulations that refiners, resellers and retailers crude oil and petroleum products be permitted to recover increases in their product costs on a dollar-for-dollar basis in the prices permitted to be charged. Section 4(b)(2)(A) of the Emergency Petroleum Allocation Act of 1973 generally provides that recovery of increased product costs be permitted on a dollar-for-dollar basis.

Thus, for example, in implementing this principle, the "base price" for products sold by a refiner under DOE's pricing regulations (and before that under the Cost of Living Council's regulations) has been defined by the following general rule:

The base price for sales of an item by a refiner is the weighted average price at which the item was lawfully priced in transactions with the class of purchaser concerned on May 15, 1973, plus increased product costs incurred between the month of measurement and the month of May 1973 and measured pursuant to the provisions of § 212.83. Section 212.83(b) of the DOE regulations (which is identical to the corre

sponding section of the predecessor CLC regulations in Title 6 of CFR) inIcludes within the definition of "increased product costs" for products refined and sold by a refiner, "the difference between the total costs of crude petroleum during the month of measurement and the total cost of crude petroleum during the month of May 1973. . . ." Methods for computing this difference and allowing it to be passed through on a dollar-for-dollar basis are described in the refiner's cost formulae contained in § 212.83(c).

Although Subpart E of Part 212 of DOE's regulations specifically address only the passthrough of the increased cost of crude petroleum and petroleum product, a comparable dollar-for-dollar passthrough of increased shrinkage costs is also permitted for the reasons stated above. A dollar-for-dollar passthrough of all increased product costs may therefore be achieved by firms A, B and C in the foregoing fact situations as follows:

Firm A. Firm A is entitled to increase its May 15, 1973 selling price for its natural gas liquid products in the month following the month of measurement to reflect increased costs of the mixed gas liquid stream which it purchased for processing during the month of measurement. Since Firm A purchases its mixed stream at a fixed price per gallon, its increased product costs under § 212.83 are equal to the difference between the per gallon cost of the mixed stream on May 15, 1973 and the per gallon cost during the month of measurement multiplied by the number of gallons purchased by Firm A during the month of measurement.

Firm B. In many instances in which natural gas is processed pursuant to "net back" arrangements, such as that between Firms B and Y, the equivalent of increased product costs incurred by crude oil refiners is the increased cost of natural gas shrinkage. That is, an increase in the amount by which the value of the unprocessed natural gas is reduced through processing. This reduction in value is often referred to as the cost of natural gas "shrinkage." The cost of such shrinkage is the reduction in sales revenues that could otherwise have been re

ceived for the natural gas pursuant to the contract under which the gas is being sold, if its volume or BTU content had not been reduced through processing to extract natural gas liquids.

Accordingly, where the natural gas sales revenues are reduced by processing, and where the selling price of the natural gas that has been processed has increased since May 15, 1973, the cost of shrinkage resulting from extraction of the liquids will also have increased. The DOE considers this increased shrinkage to be an "increased product cost" under § 212.83 and it may therefore be recovered on a dollar-for-dollar basis in Firm B's base prices for natural gas liquid products in the month following the month of measurement.

The cost of shrinkage shall be determined by comparing the value of the natural gas prior to processing with the value of the natural gas after processing. The value of the natural gas stream for this purpose shall be computed by reference to the contractual terms in effect for the sale of Firm B's "residue" natural gas during the relevant month. For example, since the sale of residue gas by Firm B was made on a volumetric basis, shrinkage costs incurred by Firm B as a result of extraction from the gas stream must be calculated on a volumetric basis. On the other hand, if Firm B sold its residue gas on a $/MMBTU basis during the relevant month, its shrinkage costs would be determined on the same basis. Any increase in the cost of shrinkage shall be determined by comparing the cost of shrinkage respecting a particular stream during the month of May, 1973, with the cost of shrinkage during the month of measurement.

Since there is no sale of the natural gas liquid products and the residue gas under the "net-back" arrangement for which a per-unit price can be determined until after the gas has been processed, the increased cost of shrinkage is calculated with respect to residue gas sold in the month of measurement and is then applied in the month following the month of measurement to the May 15, 1973 selling price of the natural gas liquid prod

ucts with the proceeds from these sales by Firm B apportioned between Firm B and Firm Y as provided by the "net-back" agreement.

Firm C. Firm C also incurs "shrinkage" costs when it removes natural gas liquids from its natural gas stream since the revenues received for its natural gas stream are thereby reduced. Firm C is therefore entitled to recover its shrinkage costs on a dollar-fordollar basis under § 212.83 in the same manner as Firm B, above.

[40 FR 23272, May 29, 1975]

RULING 1975-7-EXPORT SALES; RESCISSION

(NOTE: This Ruling rescinds, pursuant to 10 CFR 205.152, that portion of Ruling 1974-27 ("Allocation of Refiner's Increased Product Costs to Sales Volumes") which dealt with export sales. Upon further consideration of this aspect of Ruling 1974-27, DOE has determined it to be inconsistent with principles incorporated in related provisions of the DOE regulations.)

Facts: Firm A, a refiner subject to the Department of Energy (DOE) Mandatory Petroleum Price Regulations, sells most of its covered products to domestic purchasers. Some of the covered products sold by Firm A, are however, sold for export to points outside the United States.

Issue: How should Firm A allocate its increased cost of crude oil under 10 CFR 212.83(c) with respect to export sale transactions?

Ruling: Pursuant to 10 CFR 212.51 and 10 CFR 212.53, prices charged with regard to export sales of covered products are exempt from the price rules prescribed in 10 CFR, Part 212, except that revenues from such sales are taken into account for purposes of computing a firm's profit margin.

Since export sales are exempt from price controls, DOE has concluded that such sales should be accounted for by refiners in the same manner as sales of petroleum products which are not covered products, and which are therefore also sales which are exempt from price controls. This treatment affords the export sale exemption the same scope as the exemption for petroleum products which are not subject to the Emergency Petroleum Allocation Act of 1973, and is consistent

with the objectives of the export sale exemption.

Pursuant to 10 CFR 212.83, refiners are required to allocate their total increased cost of crude oil, on the basis of the volume of products sold, between covered products (i.e., products subject to DOE price controls) and other products which are refined from crude oil, but which are not covered products because they are not within the scope of the Emergency Petroleum Allocation Act of 1973.

Thus, for example, if 90 percent of the volume of products sold by a refiner consists of "covered products," 90 percent of that refiner's increased cost of crude oil may be allocated to covered products and passed through, on a dollar-for-dollar basis, in the prices charged for those products. The remaining 10 percent of that refiner's increased cost of crude oil is allocated to products which are not covered products, and cannot be passed through in prices charged for covered products.

Since there are no price regulations with respect to products refined from crude oil, but which are not covered products, the regulations do not require any calculations by refiners as to whether the increased cost of crude oil attributable to sales volumes of noncovered products are recovered in sales of those products. Similarly, the regulations afford no basis for any increased cost of crude oil attributable to non-covered products to be recovered in sales of covered products, even if those increased costs are not fully recovered in sales of non-covered products.

The purpose of the required allocation of the increased cost of crude oil between covered products and noncovered products was to insure that the amount of increased cost of crude oil permitted to be passed through, on a dollar-for-dollar basis, in prices charged in regulated sales would reflect only that portion of increased crude oil costs attributable to the volume of crude oil refined to produce the products sold in such regulated sales, and to exclude the amount of increased cost of crude oil attributable to the production of products sold in exempt sales.

Thus, although export sales may be sales of products which fall within the 10 CFR 212.31 definition of "covered product," they are nevertheless sales that are exempt from price regulations by virtue of §§ 212.51 and 212.53. Therefore, for purposes of allocating increased costs of crude oil pursuant to § 212.83, export sales volumes must be included among the sales volumes of "all products refined from crude oil other than covered products ***" in the "Va" factor of the refiner's price formulae. This insures that no more than a pro rata share of the increased cost of crude oil can be passed through in prices charged in sales which are subject to price regulations.

This result is consistent with the objectives of the export sale price exemption. Price controls were implemented to benefit United States consumers and the domestic economy. Export sales are exempt from such regulations, not only because there is no intention to benefit foreign buyers through price controls, but also to encourage that the best possible prices be obtained in such sales and thereby to assist in maintaining a favorable trade balance. Since the pro rata portion of increased crude oil costs attributable to such sales is excluded from the permissible passthrough on domestic sales, domestic consumers are not adversely affected by the export sale exemption.

It should be noted that, to the extent that Ruling 1974-27 required refiners to reduce the amount of increased cost of crude oil available for passthrough in sales of covered products when they recovered more than a pro rata volumetric share of increased cost of crude oil in export sales, the DOE has concluded that the Ruling imposed a requirement that was not consistent with the exemption afforded such export sales by §§ 212.51 and 212.53.

[40 FR 30037, July 17, 1975]

RULING 1975-8-QUALIFICATION OF CERTAIN CONSIGNEES AS WHOLESALE PURCHASER-RESELLERS; GENERAL GUIDANCE

Facts: Firm A is engaged in the business of marketing allocated products under a written consignment agree