Propane and Heating Oil:

Federal Oversight of the Propane Education and Research Council and National Oilheat Research Alliance Should Be Strengthened

GAO-10-981T: Published: Sep 29, 2010. Publicly Released: Sep 29, 2010.

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This testimony discusses highlights of our report on the extent to which the Propane Education and Research Council (PERC) and National Oilheat Research Alliance (NORA) implement consumer education, research and development, and safety and training programs related to the use of propane and heating oil. Tens of millions of Americans rely on propane and heating oil for heat, hot water and--in the case of propane--cooking and motor fuel. Within the last 15 years, Congress authorized the creation of two national entities to undertake propane and oilheat research and development, safety and training, and consumer education programs and provided the U.S. Department of Commerce (Commerce) and the U.S. Department of Energy (DOE) with certain related authority. The Propane Education and Research Act of 1996 (the Propane Act) and the National Oilheat Research Alliance Act of 2000 (the Oilheat Act) authorized the establishment of PERC and NORA, respectively. The Oilheat Act expired on February 6, 2010, and is under consideration for reauthorization, but the Propane Act does not expire. PERC and NORA fall into a category of federally-authorized programs known as check-off programs. To fund check-off programs, a fraction of the wholesale cost of a product is set aside by the producer and deposited into a common fund to be used to benefit producers and consumers. Similar programs are in place for agriculture commodities, including, for example, milk, as well as beef, pork, and cotton, among other commodities. To fund PERC operations, each gallon of odorized propane gas sold is assessed $0.005.5 To fund NORA operations, each gallon of heating oil sold is assessed $0.002.

According to our analysis of PERC's and NORA's audited financial statements, annual reports, and other financial information they provided to us, together PERC and NORA collected $458 million in assessments through 2008, and they spent over half on consumer education programs, with far less spent on the other two priority areas of research and development and safety and training. Specifically, from 1998 to 2008, PERC collected about $350.6 million. During those years, PERC and its affiliated state propane associations spent over $318.5 million as follows: (1) $178.6 million for consumer education (50.9 percent), (2) $50.7 million for safety and training (14.5 percent), (3) $28.1 million for research and development (8 percent), (4) $20 million for industry programs (5.7 percent), (5) $12.5 million on agriculture programs (3.6 percent), (6) $5.8 million on engine fuel programs (1.7 percent), and (7) $22.7 million for general and administrative expenses (6.5 percent). The remaining balance of about $32.1 million was unspent, mostly reflecting, according to PERC, approved commitments to future spending. Consistent with its authorizing statute, PERC allocated $69.5 million (19.8 percent of its assessments) to state propane associations. According to our analysis of NORA's audited financial statements, annual reports, and other NORA information provided us, from 2001 to 2008, NORA collected over $107.4 million.9 Together, NORA and the affiliated state associations spent a total of about $101.6 million, as follows: (1) $68.4 million (63.7 percent) on consumer education programs, (2) $17.8 million (16.5 percent) on education and training, (3) $6.2 million (5.8 percent) on research and development, (4) $300,000 (0.3 percent) on oil tank training, and (5) $8.9 million (8.3 percent) on general and administration expenses, and special projects. NORA had not yet spent $5.8 million; however, according to NORA officials, approximately two thirds of the $5.8 million balance has been designated for future expenditure but has not yet been disbursed. Consistent with its authorizing statute, NORA allocated $80.4 million (74.9 percent of assessments) to state oilheat associations.

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