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ing a distribution service between a supplier and the supplier's customers or functioning like an employee of the supplier) fully qualify as wholesale purchaser-resellers and are subject to the same benefits and obligations of the allocation program which apply to jobbers.

However, not all firms which deem themselves "consignees" qualify as wholesale purchaser-resellers. Whether a firm which operates pursuant to a consignment agreement qualifies as a wholesale purchaser-reseller with in the meaning of § 211.51 depends on the relationships among the consignee, the purchasers to whom the consignee transfers allocated product, and the firm which provides allocated product to the consignee.

The term "consignee" is used in at least three different situations in the petroleum industry. In only one of those situations does a firm which calls itself a consignee qualify as a wholesale purchaser-reseller. First, where the "consignee" has all the characteristics of an employee of the supplier, but is merely designated a "consignee", he is not a wholesale purchaser-reseller. Second, where the "consignee" operates as an independent contractor but only provides transportation of a supplier's product to the supplier's customers, without any control over the disposition of the product, he is similarly not a wholesale purchaser-reseller, even though he, as an independent businessman, may have a substantial investment in his trucks and terminal facilities. Third, in those situations where a firm receives product through consignment and is engaged in marketing that product to the consignee's customers, acting generally like a jobber, he will qualify as a wholesale purchaser-reseller.

A consignee which operates in the same manner as an independent jobber, and thereby qualifies as a wholesale purchaser-seller, will generally have most (but not necessarily all) of the following characteristics: (a) Appropriate facilities and equipment for the conduct of the business of selling and distributing its supplier's products; (b) responsibility, independent of its supplier, for its internal financial

management and physical and administrative operation, (c) responsibility to its supplier and others for expenses and liabilities arising from and connected with the business of transfer and sale of its supplier's products and (d) independent control over the disposition of the allocated product, including the right to enter into and ter minate relationships with customers rather than solely being restricted to distributing product to customers designated by the supplier.

According to the terms of the consignment agreement described above, Firm A retains a substantial measure of functional autonomy in distributing and selling Supplier B's products. Although Firm A must account fully to Supplier B for all products received, and such products must be sold at a price fixed by Supplier B, he is fully responsible for all aspects of conducting the business. Firm A does not merely provide a delivery service for Supplier B but solicits its own customers which purchase the products which it has on consignment from Supplier B. Supplier B provides no facilities, equipment, labor, organizational or employee benefits (such as social security contribution). Thus, Firm A fully qualifies as a wholesale purchaser-reseller.

DOE is aware that the terms of consignment agreements and practices can and do vary greatly. Accordingly, this ruling is intended to provide only general guidance for determining which consignees with factual situa tions different than Firm A qualify as wholesale purchaser-resellers. Firms which are still in doubt as to their par ticular status should file a request for interpretation with the General Counsel pursuant to § 205.80 et seq.

[40 FR 30037, July 17, 1975]

RULING 1975-9—STORAGE COSTS Facts. Firm A, a reseller and retailer of propane, purchases propane in large quantities at a location in Texas which has a large underground propane stor. age facility. The propane is stored in merchant storage at that location for several months, and is then transmitted by pipeline to a pipeline terminal

located several hundred miles from Firm A's bulk plant. Propane transmitted by pipeline is dispensed at the pipeline terminal to various parties, in addition to Firm A. Some of the propane received by Firm A at the pipeline terminal is delivered by truck from the pipeline terminal to Firm A's bulk plant, and some is delivered from the pipeline terminal directly to Firm A's large, commercial user customers. Further deliveries of propane are made by truck from Firm A's bulk plant to several of Firm A's retail outlets.

Firm A incurs storage costs for storage of the propane in Texas, a pipeline tariff for transmission of the propane to the pipeline terminal, terminalling charges for services at the pipeline terminal, including transferring the propane from the pipeline terminal to trucks at the terminal, and trucking fees for the delivery of the propane from the pipeline terminal to Firm A's bulk plant, from the pipeline terminal to certain of Firm A's customers, and from Firm A's bulk plant to Firm A's retail outlets.

Issue. Which of these transportation and/or storage charges can be included by Firm A in determining its "weighted average unit cost of a product in inventory" for purposes of determining "increased costs" pursuant to § 212.92?

1:

Ruling. As set forth in Ruling 1975

The "weighted average unit cost of a product in inventory" includes transportation costs incurred in bringing the covered product into the seller's inventory. The cost of product is, in other words, considered to be the "delivered cost" to the buyer. In many instances, the product is purchased at a "delivered price," and there is no separate transportation cost incurred. Where transportation costs are incurred separately in connection with acquiring product, however, they have historically been treated as a cost of acquiring the product. For example, refiners are expressly allowed to treat increased transportation costs associated with obtaining crude oil or covered products as increased product costs, pursuant to the definitions of "cost of crude petroleum" and "cost of petroleum product" in § 212.83(b).

Ruling 1975-1, however, did not expressly deal with charges incidental to transportation, such as storage or ter

minal charges, nor did it address the questions that arise concerning the point at which product is regarded as being in the seller's inventory, where, as here, a seller takes title to a product at an early point in the overall distribution system for the product concerned.

The purpose of this ruling is to make clear that miscellaneous charges incident to transporting product to a seller, such as storage and terminalling charges, may be treated as transportation costs, and therefore may be included as part of the weighted average unit cost of product in inventory.

This ruling also sets forth the general guideline that transportation and related costs may be included as part of the weighted average cost of product in inventory to the extent that they are incurred in bringing the product into storage at a location that constitutes a part of the buying firm's storage and distribution system. In other words, the costs associated with movement of the product through a distribution system that is used in common to distribute product to various firms operating at the same level of distribution as the buying firm may generally be treated as part of the cost of the product to the buying firm.

In the case of Firm A, therefore, application of this general principle means that the transportation and associated costs of bringing propane to Firm A's bulk plant are permitted to be treated as part of that firm's cost of product. Similarly, refiners are generally permitted to treat transportation and associated costs of bringing crude oil to their refineries as part of the cost of crude oil.

As noted in Ruling 1975-1, a firm

. is not, however, permitted to treat increased transportation costs associated with delivering the covered product to its customers as "increased costs" under § 212.92. Such costs are not related to the cost of product to [that firm], but are, rather, a cost of doing business for [that firm), which must be treated as all other non-product costs, and which may be reflected in [that firm's] selling prices only to the extent permitted by § 212.93(b).

Thus, the transportation costs of delivering propane to Firm A's customers, whether from Firm A's bulk plant,

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or from the pipeline terminal, may not be treated as part of the cost of product to Firm A.

Similarly, the cost of transporting product from Firm A's bulk plant to its retail outlets does not constitute a cost of product to Firm A, but is, rather, a general cost of doing business that is incurred by Firm A.

In summary, therefore, with respect to product sold by Firm A from its bulk plant or from its retail outlets, the cost of product may include the actual price paid for the propane, the cost of storage in Texas, the cost of pipeline transportation, the cost of pipeline terminal charges and the cost of truck transportation to Firm A's bulk plant. With respect to product delivered by Firm A directly from the pipeline terminal to its customers, the Texas storage costs, pipeline costs and pipeline terminal costs may be treated as cost of product, but no truck transportation costs may be included.

It should be noted that in some instances a firm may own or lease a transportation or distribution facility of a kind that more typically would form part of a distribution system available for use by various firms, rather than a part of the firm's own storage and distribution system. For example, a refiner may own a pipeline by which crude oil is delivered to its refinery, or a reseller may own a facility for transferring imported product from ocean vessels to trucks or railroad cars, for distribution to its bulk plants. In such cases, a firm may treat its actual increased costs of furnishing such facilities as an increased cost of product, provided, however, that such cost increases shall not exceed increases over the May 15, 1973 per unit charges made for comparable facilities or services by unaffiliated third parties. Any firm that claims such increased costs with respect to facilities or services which it furnishes will have the burden of establishing not only that it has actually incurred those increased costs, but also that those cost increases do not exceed increases in the per unit charges made for comparable facilities or services by third parties. Tariffs published by regulatory authorities may be used for measuring compliance with this requirement.

It should also be noted that, as required by Ruling 1975-1, a firm must be consistent in its accounting procedures when computing "weighted av erage unit cost" of a product in inventory pursuant to § 212.92, and to the extent that transportation and other costs associated with acquiring a product are treated as a product cost for purposes of calculating the current weighted average unit cost of product in inventory, those costs must also be included in calculating the weighted average unit cost of product in inventory on May 15, 1973.

[40 FR 40826, Sept. 4, 1975]

RULING 1975-10—TRANSPORTATION COSTS WHERE TRANSPORTATION IS PROVIDED BY THE FIRM CONCERNED

In Ruling 1975-1 (40 FR 6768, February 14, 1975), the Department of Energy set forth guidelines regarding treatment of increased transportation costs in the calculation of "increased costs" by resellers and retailers pursuant to 10 CFR 212.92. While this ruling helped to clarify the treatment of increased transportation costs where transportation is furnished by an independent carrier, it did not deal with related questions of increased costs of transportation where the product is transported by the firm concerned, rather than by an independent carrier. This ruling, therefore, is intended further to clarify the definition of "increased costs" as set forth in § 212.92.

Facts. Firm X, a reseller of a covered product, purchases the covered product from Refiner W and sells it to various firms, including Firm Y and Firm Z. Firm X uses its own vehicles to transport the covered product to its own terminal. Firm X also uses its own vehicles to transport the covered product directly from the refinery of Refiner W to Firm Y. Firm X transports the covered product from its terminal to Firm Z, also using its own vehicles. Firm X's costs incurred in connection with transporting the covered product to its terminal, to Firm Y and to Firm Z have increased.

Issue 1. May Firm X treat its increased costs incurred in connection with transporting the covered product

from Refiner W to its terminal as "increased costs" as defined in § 212.92?

Issue 2. May Firm X treat its increased costs incurred in connection with transporting the covered product from Refiner W to Firm Y or from its terminal to Firm Z as "increased costs" as defined in § 212.92?

Ruling. Firm X may, subject to certain limitations, treat its increased costs, incurred in connection with transporting the covered product to its terminal as "increased costs" pursuant to § 212.92, but may not treat as "increased costs" its increased transportation costs incurred in connection with transporting the covered product from Refiner W to Firm Y or with delivering the covered product from its terminal to Firm Z.

to § 212.92,

"increased

Pursuant costs" are defined as "the difference between the weighted average unit cost of a product in inventory and the weighted average unit cost of that product in inventory on May 15, 1973.” Thus, "increased costs" are defined to be the increased "cost[s] of a product," and such increased costs are permitted to be passed through, on a dollar-for-dollar basis, in the prices charged for the product by resellers, reseller-retailers, and retailers pursuant to § 212.93. Conversely, increased non-product costs are permitted to be reflected in the prices charged by resellers, reseller-retailers, and retailers only to the extent permitted by § 212.93(b).

Ruling 1975-1 states:

The "weighted average unit cost of a product in inventory" includes transportation costs incurred in bringing the covered product into the seller's inventory. The cost of product is, in other words, considered to be the "delivered cost" to the buyer. In many instances, the product is purchased at a "delivered price," and there is no separate transportation cost incurred. Where transportation costs are incurred separately in connection with acquiring product, however, they have historically been treated as a cost of acquiring the product.

The intent of Ruling 1975-1, therefore, is to permit resellers and retailers to treat increased transportation charges associated with bringing a covered product into inventory as "increased costs," whereas the subsequent costs of transporting the prod

uct, whether to Firm X's customers or to other selling locations of Firm X, are costs of doing business that are not associated with the cost of acquiring the product. Accordingly, Firm X may not treat increased transportation costs incurred when Firm X uses its own vehicles to deliver the covered product directly from Refiner W to Firm Y as "increased costs." The covered product is, in effect, brought into Firm X's inventory when Firm X receives the product from Refiner W. In other words, the "delivered cost" to Firm X is the cost of the product when it receives the product to be delivered to Firm Y. Consequently such increased transportation costs are considered to be a cost of doing business and must be treated as all other nonproduct costs. Similarly, the increased transportation costs incurred by Firm X in delivering the product from its terminal to Firm Z are considered to be cost of doing business rather than a cost of acquiring the product.

Pursuant to Ruling 1975-1, increased transportation costs associated with bringing a covered product into inventory are considered to be "increased costs" pursuant to § 212.92. Although Ruling 1975-1 did not deal with an example of a firm that furnished its own transportation instead of using an independent carrier, the rationale for treating the increased costs associated with bringing the product into inventory is the same in both instances, and a firm should not be disadvantaged under the DOE price regulations because it chose to use its own facilities rather than an independent carrier. Accordingly, Firm X may treat its actual increased transportation costs associated with transporting the covered product from Refiner W into its inventory as "increased costs." However, the amount of such increased transportation costs must be established by the firm concerned and may not, in any event, exceed increases in the amount being charged for comparable services by independent carriers (e.g., increases in published I.C.C. tariffs since May 15, 1973). The firm concerned has the burden of establishing not only that it has actually incurred those increased costs, but also that the increased costs it computes as attribut

able to the cost of transportation do not exceed such third-party rate increases for comparable services.

Finally, as pointed out in Ruling 1975-1,

⚫ in computing the "weighted average unit cost" a firm must be consistent in its accounting procedures. Thus, a firm which includes transportation costs associated with acquiring a covered product as a product cost when calculating its current weighted average unit cost of product in inventory must also include such costs in its calculation of the weighted average unit cost of that product in inventory on May 15, 1973. [40 FR 40826, Sept. 4, 1975; 40 FR 51414, Nov. 5, 1975]

RULING 1975-11-NEW AND HIGHER COST STORAGE TANKS; RENTALS

Facts: Firms A and Z are sellers of propane at both the wholesale and retail marketing levels. On May 15, 1973, Firm A provided 500 gallon propane storage tanks which it owned for the use of certain of its customers free of charge, on the condition that the tanks could be filled only by the owner of the tank or upon the owner's authorization. Firm Z leased 500 gallon propane storage tanks to certain of its customers at an annual rental of $25.00, also on the condition that the tanks could be filled only by the owner of the tank or upon the owner's authorization.

New 500 gallon storage tanks cost Firms A and Z $250.00 on May 15, 1973. Recently, Firms A and Z purchased several new 500 gallon storage tanks at a cost of $400.00 each. Firm A has offered to lease the new storage tanks at an annual rate of $15.00 for a 500 gallon tank. Firm Z has offered to lease the new storage tanks to its customers at an annual rate of $40.00 for a 500 gallon tank. Both firms have notified their affected customers that the new or higher rental rates are due to the higher cost of acquiring the new tanks.

Issue: May Firm A institute a rental charge for new storage tanks and may Firm Z charge a higher rental rate for new storage tanks, in light of the increased costs associated with the purchase of these tanks?

Ruling: Yes. Firms A and Z can charge new or higher rental rates than

were charged on May 15, 1973 for the lease of new storage tanks acquired at a higher cost, but only to the extent that the new or increased rental rate is justified by the higher cost actually incurred in the acquisition of the storage tank being leased. Thus, new or increased rentals may be charged only to customers leasing new tanks from Firms A and Z, and the rental rate may be increased by no more than an amount fairly reflecting the increased cost of the storage tanks since May 15, 1973. Any further increase would constitute "a means to obtain a price higher than that permitted by the regulations" within the meaning of § 210.62(c) of the DOE regulations (See DOE Ruling 1975-4).

The above result is reached by application of 10 CFR 212.31 and 10 CFR 210.62 in accordance with the analysis detailed in DOE Ruling 1975-4. That ruling, in effect, established a presumption that an increase in tank rental rates is regarded as an increase in the price of the product, and, as such, is regarded as a means to obtain a price higher than is permitted by the regulations. That presumption is, however, overcome where, as here, the storage tanks being furnished have been acquired at higher cost and the amount of new or increased rent being charged for those storage tanks is reasonably related to the increased costs of those storage tanks.

The fact that new or higher storage tank rentals may be charged by Firms A and Z only with respect to customers leasing the new, higher cost storage tank flows from the fact that the practice of furnishing existing storage facilities free of charge, or the rental rates respecting such existing storage facilities have previously been established. Once established, the rental for a previously furnished or leased storage tank is required to be maintained at or below the May 15, 1973 level.

In the case of Firms A and Z, application of this principle justifies a result different from that reached on the facts of Ruling 1975-4 due to the fact of the higher costs associated with the new tanks. Firms A and Z are subject to the requirement of 1975-4 that their charges, if any, for furnishing storage facilities that were fur

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