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Education and Research Council and National Oilheat Research Alliance 
Should Be Strengthened' which was released on September 29, 2010. 

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Before the Subcommittee on Energy, Committee on Energy and Natural 
Resources, U.S. Senate: 

United States Government Accountability Office:

For Release on Delivery: 
Expected at 10:00 a.m. EDT:
Wednesday, September 29, 2010: 

Propane And Heating Oil: 

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

Statement of Mark Gaffigan, Director:
Natural Resources and Environment: 


Mr. Chairman and Members of the Subcommittee: 

Thank you for the opportunity to discuss 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.[Footnote 1] 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)[Footnote 2] and the National 
Oilheat Research Alliance Act of 2000 (the Oilheat Act)[Footnote 3] 
authorized the establishment of PERC and NORA, respectively. The 
Oilheat Act expired on February 6, 2010, and is under consideration 
for reauthorization,[Footnote 4] 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.[Footnote 5] To fund NORA 
operations, each gallon of heating oil sold is assessed $0.002. 

In preparing this testimony, we relied on our work supporting the 
accompanying report. This report examined: (1) how PERC and NORA spent 
the assessments they have collected; (2) the extent to which PERC's 
and NORA's reported activities help to achieve the results defined in 
their strategic goals; (3) the extent to which PERC and NORA's 
activities have met key requirements; and (4) the extent to which 
PERC's and NORA's activities and spending received federal oversight. 
To do our work, we examined PERC's and NORA's spending from the first 
year of operation--1998 for PERC and 2001 for NORA--through 2008; 
performance, response to the authorizing statutes; and coordination 
with applicable federal agencies. We assessed the reliability of 
financial data from PERC and NORA by analyzing related documentation, 
examining the data to identify obvious errors or inconsistencies, and 
working with PERC and NORA officials to identify data problems and 
determined the data to be sufficiently reliable for our purposes. We 
also reviewed PERC and NORA financial statements, annual reports, 
meeting minutes, and other reports and obtained information and views 
on both PERC and NORA from a wide range of officials in DOE and the 
Departments of Commerce and Agriculture and the private sector. The 
report contains a more detailed explanation of our scope and 
methodology. Our work was conducted in accordance with generally 
accepted government auditing standards. 


PERC and NORA provide the framework for propane and oilheat producers 
and marketers to establish self-help, non-federal programs of research 
and development, training, safety, and consumer education activities. 
Both the Propane Act and the Oilheat Act outline key procedural, 
administrative, and spending requirements to administer these 
programs. To help with that administration, PERC has about 30 staff, a 
national council, and 5 advisory committees, while NORA has 2 staff, 
an executive committee, and 3 advisory committees. Both the Propane 
and Oilheat Acts specify three areas as mandatory functions and 
priorities for PERC and NORA's programs and projects, although the 
Acts do not specify a particular funding level or ranking. The three 
mandatory areas are: 

* Research and development: The Propane Act requires PERC to develop 
programs that provide for research and development of clean and 
efficient propane utilization equipment. The Oilheat Act directs 
similar oilheat-related research and development and directs NORA to 
fund projects in the demonstration stage of development. 

* Safety and training/education and training: Both the Propane Act and 
the Oilheat Act require development of programs to enhance consumer 
and employee safety and training. PERC refers to this program area as 
"safety and training," while NORA refers to it as "education and 
training." Projects that fall into this spending category include 
developing employee training materials and conducting training courses 
for industry personnel. 

* Public/consumer education: The Propane Act directs PERC to develop 
projects to inform and educate the public about safety and other 
issues associated with the use of propane. Similarly, the Oilheat Act 
directs NORA to develop programs that provide information to assist 
consumers and other persons in making evaluations and decisions 
regarding oilheat. Such activities have included the development of 
radio, television, and print advertising directed at consumers and 
industry professionals. 

While there are certain restrictions on the types of activities PERC 
and NORA can undertake, which I will discuss later, the Acts generally 
do not prohibit PERC and NORA from conducting programs or projects 
beyond these mandatory areas, and both organizations have carried out 
additional activities. PERC, for example, has spent funds on 
agriculture and engine fuel programs. In addition, to coordinate its 
activities with other parties, as required by the Propane Act, PERC 
has established an industry programs area to provide support, data, 
and other services to the propane industry and maximize its impact. 
Likewise, in 2004 and 2005, NORA funded an oil tank training and 
education program for tank installers, inspectors, and insurers to 
address concerns about storage tanks, which NORA officials stated 
spanned all three mandatory areas in the statute. 

By statute, both PERC and NORA give a portion of the assessments 
collected to state propane and oilheat associations with similar 
missions.[Footnote 6] Pursuant to the Propane Act, PERC gives 20 
percent of its assessments to state propane associations. According to 
PERC, its oversight of these funds includes a PERC council review of a 
state association's proposed use for these funds and the submission of 
periodic and final reports from the state associations. The Oilheat 
Act requires NORA to give 15 percent of its assessments each year to 
qualified state associations, which may then request to receive any 
portion of the remaining 85 percent of the assessments collected in 
their states. NORA's oversight of state expenditures is similar to 
PERC's, but state associations are required by NORA to submit 
quarterly reports on program spending. Both PERC and NORA are also 
expressly authorized by their statutes to use the assessments they 
collect to meet general and administrative expenses. 

Mr. Chairman, our report provides detailed information about our four 
findings, which are summarized in the following sections. 

PERC and NORA Spent Over Half of Their Collected Assessments on 
Consumer Education: 

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: 

* $178.6 million for consumer education (50.9 percent), 

* $50.7 million for safety and training (14.5 percent), 

* $28.1 million for research and development (8 percent), 

* $20 million for industry programs (5.7 percent), 

* $12.5 million on agriculture programs (3.6 percent), 

* $5.8 million on engine fuel programs (1.7 percent), and: 

* $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.[Footnote 7] Consistent with its authorizing statute, PERC 
allocated $69.5 million (19.8 percent of its assessments) to state 
propane associations.[Footnote 8] 

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.[Footnote 9] Together, NORA 
and the affiliated state associations spent a total of about $101.6 
million, as follows: 

* $68.4 million (63.7 percent) on consumer education programs, 

* $17.8 million (16.5 percent) on education and training, 

* $6.2 million (5.8 percent) on research and development, 

* $300,000 (0.3 percent) on oil tank training, and: 

* $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.[Footnote 

PERC and NORA Report Activities in All Program Areas, but It Was Not 
Always Clear How Those Activities Helped Achieve Strategic Goals: 

PERC's research and development and agriculture program activities 
appeared consistent with strategic goals, but it is not clear to what 
degree consumer education, safety and training, engine fuels, and 
industry activities helped achieve these goals. For example, a key 
goal of PERC's consumer education activities was to increase propane 
usage, but studies provided to GAO were inconsistent about whether 
propane usage actually increased. NORA's research and development 
activities were generally consistent with its strategic goals, but 
because NORA's strategic plan lacked goals for its consumer education, 
education and training, and oil tank program areas, GAO could not 
determine if these activities achieved desired results. 

Some PERC and NORA Activities Appear to Meet Statutory Requirements, 
but Others Raise Issues about Coverage of the Acts and Other Matters: 

Some PERC and NORA activities appeared to meet the requirements of the 
Acts. For example, as called for in the Propane Act, PERC maintains a 
21-member council; has submitted its annual draft budget to the 
Secretary of Energy each year from 2000 through 2009; and has had its 
financial records audited by a certified public accountant at least 
annually since 1998. As called for in the Oilheat Act, NORA has 
coordinated its activities with industry associations and others to 
ensure the efficient delivery of services and avoid unnecessary 
duplication; does not appear to support advertising or promotions of 
oilheat; publishes a budget and an annual report for public review and 
comment each year; and appears to make its council meetings, including 
those of its executive committee, open to the public. 

However, other activities raised issues about coverage of the Acts and 
other matters, specifically the following: 

PERC and NORA activities related to Congress and politically 
affiliated entities. The Propane Act prohibits the use of PERC 
assessment funds for certain "lobbying" activities, specifically for 
"influencing legislation or elections," except for recommending to the 
Secretary of Energy any changes in the Act or other statutes that 
would further the Act's purposes. The Oilheat Act contains similar 
provisions. However, some of PERC's and NORA's activities--
particularly communications and expenditures related to Congress or to 
politically affiliated entities--raised issues about the coverage of 
the Acts. We found, for example, that PERC paid for a grantee to 
attend activities associated with the Republican and Democratic 
national conventions, for a grantee to contribute thousands of dollars 
to several politically active organizations, and for a grantee to 
spend thousands of dollars to host Senate and House receptions. We 
also found, for example, that minutes of an August 2008 NORA executive 
committee meeting indicated that the NORA president said he was 
seeking state senators' support for NORA reauthorization, and that a 
December 2008 NORA-qualified Massachusetts state association 
newsletter indicated that the NORA president traveled to Washington to 
urge both Massachusetts senators to support NORA reauthorization. 
However, neither the Propane Act nor the Oilheat Act provides guidance 
on what constitutes "influencing legislation or elections;" there is 
little pertinent legislative history; no court has addressed what this 
language means as used in these statutes; and other federal laws 
containing similar language have been interpreted in different ways. 
As such, it is not clear whether or not the Propane Act's or the 
Oilheat Act's prohibitions cover those types of activities. Assuming 
PERC and NORA's activities were permitted, issues remain about whether 
Congress anticipated that the assessment funds would be used for these 
activities and whether they qualify as "consumer education" under the 
Acts. Issues also remain about whether Congress anticipated that such 
a high proportion of the groups' funding would go to consumer 
education activities, in comparison to the relatively little support 
given to research and development, a key area of congressional 
interest as the laws were debated prior to enactment. 

PERC funding of consumer education activities after spending 
restrictions were triggered. PERC initially designated certain 
activities as "consumer education" but, when price-based restrictions 
on consumer education programs were triggered in 2009, it redesignated 
and continued the activities as "residential and commercial" matters. 
The Propane Act specifies that if the 5-year average rolling price 
index of consumer grade propane exceeds a particular price threshold, 
PERC's activities must be restricted to research and development, 
training, and safety. Commerce notified PERC in August 2009 that this 
price composite index threshold had been exceeded. We found that, 
after the August notification, PERC approved three grants, including a 
no-cost change order to a previously approved grant. These grants 
initially had been proposed and approved as consumer education grants, 
which would be prohibited under the restriction, and amended their 
designation to a new program area called "residential and commercial" 
matters. The Propane Act does not specifically define the scope of 
activities permitted under the price restriction nor the activities 
that must cease.[Footnote 11] The resulting lack of a precise 
statutory line between permitted and prohibited activities creates 
difficulty in assessing compliance with the restriction. 

NORA monitoring of state associations. It is unclear whether NORA's 
monitoring procedures are adequate to detect non-compliance among its 
state grantees if it occurs. The Oilheat Act requires NORA to monitor 
the use of funds it provides to state associations and impose any 
terms and conditions it considers necessary to ensure compliance with 
the Act.[Footnote 12] The Oilheat Act also requires NORA to establish 
policies and procedures that conform to generally accepted accounting 
principles (GAAP) for auditing compliance with the Act. According to 
NORA's president, NORA's monitoring of state associations included, 
among other things, policies and procedures to review state grants and 
disbursements and requirements in grant agreements with the state 
associations that specify the authorized and unauthorized use of NORA 
assessment funds. However, based on our review of general ledger 
entries, financial statements, and certain other reports and 
information prepared by selected state associations, we were unable to 
determine whether spending by state associations of NORA funds met the 
requirements of the Oilheat Act. For example, based on our review of 
the general ledger expenditures entries for 2006 to 2008, we found 
that hundreds of entries indicated only that a purchase was made, with 
no details as to the type of or reason for the purchase. 

Federal Oversight of PERC and NORA Has Been Limited: 

While Commerce has issued propane and oilheat market and impact 
studies as required by the Propane and Oilheat Acts, DOE's oversight 
of PERC and NORA has been limited. The Propane Act requires Commerce 
to prepare two reports: (1) an annual analysis of changes in the price 
of propane relative to other residential energy sources; and (2) an 
analysis done at least every 2 years examining, among other things, 
whether PERC's operation has had an adverse impact on propane 
consumers and propane prices. We found that Commerce has fulfilled 
these requirements. The Oilheat Act also requires Commerce, beginning 
in 2002 and every year thereafter, to prepare an annual oilheat price 
analysis similar to its price analysis of propane. The department had 
not been fulfilling this requirement because it became aware of it 
only after meeting with us during our review; however, in April 2010, 
it issued a 2008 oilheat price analysis. DOE, on the other hand, has 
not been exercising its oversight authority for either PERC or NORA, 
and DOE officials told us that they believe that DOE has no oversight 
role regarding either one. Yet DOE is empowered to review both 
organizations' annual budgets; to recommend activities and programs it 
deems appropriate; and, in PERC's case, to require submission of 
reports on compliance, violations, and complaints regarding 
implementation of the Propane Act. Indeed, although DOE is authorized 
to be reimbursed by PERC for the department's PERC-related oversight 
costs (up to the average salary of two DOE employees), DOE told us it 
has never requested reimbursement because it has never incurred any 
oversight costs. This current lack of oversight is part of a 
longstanding pattern; in a 2003 report, we found that DOE's oversight 
of PERC was lacking and recommended that the department take 
corrective action.[Footnote 13] In its comments on our 2003 report, 
DOE stated that the Commerce Department rather than DOE had oversight 
responsibility and, therefore, DOE did not act on our recommendation. 
We found that DOE's position regarding PERC remains unchanged. 
Importantly, as neither the Propane nor the Oilheat Act contains a 
specific enforcement mechanism for any potential PERC or NORA 
violations, any oversight program implemented by a federal agency 
would be hampered. 

Conclusions and Matters for Consideration by Congress: 

In conclusion, because PERC's and NORA's authorizing statutes do not 
provide for a particular funding level for specific activities or 
indicate a ranking among the activities designated as priorities, they 
afford PERC and NORA wide latitude in deciding how and in what amounts 
they spend assessments collected. Since the legislative history of 
both statutes indicates that a need for research and development 
funding was a key factor driving the legislation, PERC's and NORA's 
decisions to spend over half of their funding on consumer education 
raises issues about whether these funds are being used as Congress 
anticipated. Furthermore, while some PERC and NORA activities appeared 
to meet statutory requirements, the lack of specificity in the 
language of the statutes raises issues about what activities are 
covered under certain provisions of the acts. While we did not 
determine, and do not express an opinion about, whether or not the 
requirements were met, these uncertainties highlight the need to 
clarify some of the statutes' definitions and requirements. 
Compounding the lack of specificity in the requirements of the 
statutes is the lack of a specific enforcement mechanism that would 
enhance compliance through proactive federal oversight. A final 
concern is the fact that, despite our 2003 recommendation that DOE 
exercise its oversight authority regarding PERC, DOE continues to 
believe it does not have an oversight role for either PERC or NORA. In 
light of the lack of any specific requirements in the statutes for 
federal agencies to conduct oversight, federal oversight is likely to 
remain very limited. 

In our report, we suggested that as Congress considers whether to 
reauthorize NORA or amend PERC's authorizing statute, it may wish to 
impose greater specificity on the requirements it has established and 
to establish mechanisms to enhance compliance with those requirements. 
Specifically, we suggested that Congress may wish to consider: 

* specifying any prioritization of activities it wants to be 
undertaken and detailing more specifically which activities are 
prohibited (such as some of those involving lobbying); 

* subjecting PERC's and NORA's activities to review, interpretation 
and approval by an independent, designated entity and specifying a 
federal oversight role by requiring DOE to monitor and oversee the 
expenditure of PERC and NORA funds; and: 

* establishing a specific enforcement mechanism, and expressly 
authorizing DOE to refer any potential violations of law to 
appropriate enforcement authorities. 

In commenting on our report, PERC interpreted certain information 
differently in several cases. PERC also believes the Propane Act 
allows it to fund all of the types of activities it has conducted 
related to Congress and politically affiliated entities but welcomes 
clarification by Congress regarding the Act's current lobbying 
restrictions. NORA did not disagree and, in some aspects, agreed with 
the report. The Department of Commerce agreed with the report's 
general findings regarding the agency's statutory obligations to 
conduct certain analyses. DOE did not comment. 

Mr. Chairman, this concludes my prepared statement. I would be happy 
to respond to any questions you or other Members of the Committee may 
have at this time. 

Contact and Acknowledgments: 

For further information about this testimony, please contact Mark E. 
Gaffigan at (202) 512-3841 or by e-mail at Ernie 
Hazera (Assistant Director), Bob Baney, Jennifer Andreone, Amanda 
Cherrin, Robert Dacey, Abe Dymond, Karen Keegan, Alison O'Neill, Kiki 
Theodoropoulos, Susan Sawtelle, and Barbara Timmerman made key 
contributions to this testimony. 

[End of section] 


[1] GAO, Propane and Heating Oil: Federal Oversight of the Propane 
Education and Research Council and the National Oilheat Research 
Alliance Should Be Strengthened, [hyperlink,], (Washington, D.C.: June 30, 

[2] Pub. L. No. 104-284, 110 Stat. 3370 (Oct. 11, 1996). 

[3] Pub. L. No. 106-469, 114 Stat. 2029 (Nov. 9, 2000). 

[4] The Congressional Budget Office, in a March 2, 2010 cost estimate, 
determined that reauthorizing NORA for one additional year would have 
no impact on the federal budget. The Budget Office also indicated that 
it believed that NORA's activities should be considered governmental 
in nature because assessments collected by NORA are compulsory and 
enforced by the federal government's sovereign authority. 

[5] As propane is naturally odorless, an odorant is added as a means 
of detecting a leak. Virtually all commercial propane is odorized. 

[6] The PERC and NORA state associations are private enterprises and 
not state government entities. 

[7] In estimating PERC's unspent balance, we found discrepancies 
between the rebate totals in their annual financial statements and 
annual reports, and a requested breakdown of cost data by program area-
-e.g., consumer education and research and development. As a result, 
the $32.1 million includes some amount representing the discrepancy 
involving these data. 

[8] According to PERC data, state propane associations spent about 
49.3 percent of the assessments PERC provided to them on consumer 
education, 38.5 percent on safety and training, 9.8 percent on 
industry programs, 0.7 percent on agriculture, 1.1 percent on research 
and development, and 0.5 percent on engine fuel work. 

[9] NORA's outside accountant informed us that, of the $107 million 
total, NORA had collected approximately $103 million and had accrued 
receivables of $4 million at the end of 2008. 

[10] According to NORA data, state associations spent about 81.4 
percent of the assessments NORA provided to them on consumer 
education, 18.0 percent on education and training, and 0.6 percent on 
research and development. 

[11] The Oilheat Act, by contrast, contains a broad definition of 
"consumer education:" "the provision of information to assist 
consumers and other persons in making evaluations and decisions 
regarding oilheat and other nonindustrial commercial or residential 
space or hot water heating fuels." 

[12] The Propane Act contains no similar explicit monitoring 
requirement for PERC. 

[13] GAO, Propane: Causes of Price Volatility, Potential Consumer 
Options, and Opportunities to Improve Consumer Information and Federal 
Oversight, [hyperlink,] 
(Washington, D.C.: June 27, 2003). 

[End of section] 

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