Check-Off Programs: Observations from the Propane and Heating Oil Programs
Released: 2015-07-10T00:00:00

Letter

Mandatory Functions and Priorities for PERC and NORA’s Programs and Projects

As discussed in our June 2010 report, both the Propane and Oilheat Acts specify three areas as mandatory functions and priorities for PERC’s and NORA’s programs and projects.follows: The three mandatory areas are as

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. According to our analysis of PERC’s audited financial statements, annual reports, and other financial information that they provided to us for our June 2010 report, of the about $350.6 million collected from assessments for 1998 to 2008, PERC and its affiliated state propane associations spent $28.1 million for research and development (8 percent). According to our analysis of NORA’s audited financial statements, annual reports, and other financial information, of the more than $107.4 million NORA collected from assessments for 2001 to 2008, NORA and the affiliated state associations spent $6.2 million (5.8 percent) on research and 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,” and 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. According to our analysis of PERC’s and NORA’s audited financial statements, annual reports, and other financial information that they provided to us for our June 2010 report, from 1998 to 2008, PERC and its affiliated state propane associations spent $50.7 million for safety and training (14.5 percent), and from 2001 to 2008, NORA and the affiliated state associations spent $17.8 million (16.5 percent) on education and training.

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. According to our analysis of PERC’s and NORA’s audited financial statements, annual reports, and other financial information that they provided to us for our June 2010 report, from 1998 through 2008, PERC spent about $178.6 million for consumer education (50.9 percent), and from 2001 through 2008, NORA spent $68.4 million for consumer education (63.7 percent).

To fund their operations, PERC and NORA assess each gallon of propane or heating oil, respectively. Specifically, to fund PERC operations, each gallon of odorized propane gas sold is assessed $0.004. To fund NORA operations, each gallon of heating oil sold is assessed $0.002.

While the Propane and Oilheat Acts contain certain restrictions on the types of activities PERC and NORA can undertake, the acts generally do not prohibit PERC and NORA from conducting programs or projects beyond these mandatory areas identified above, 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.

Certain Activities Raised Issues about Whether They Were Covered by Restrictions in the Acts

In our June 2010 report, we found that some PERC and NORA activities appeared to meet the requirements of the acts, but certain other activities, such as some activities involving Congress or politically affiliated entities, raised issues as to whether they were covered by the Propane and Oilheat Acts’ specific lobbying restrictions. Even when we assumed that these activities were permitted, issues remained about whether Congress anticipated that assessment funds would be used for these types of activities. We also found issues concerning PERC’s funding of consumer education activities after spending restrictions were triggered and NORA’s monitoring of the expenditures of its funds by state associations.

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. At the time of our June 2010 review, the Oilheat Act contained similar provisions, some of which were amended in 2014.NORA’s activities––particularly communications and expenditures related to Congress or to politically affiliated entities––raised issues as to whether they were covered under the acts’ lobbying restrictions.

However, some of PERC’s and In our June 2010 report, 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 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.

We found that neither the Propane Act nor the Oilheat Act provided guidance on what constitutes “influencing legislation or elections;” there was little pertinent legislative history; no court had addressed what this language means as used in these statutes; and other federal laws containing similar language had been interpreted in different ways. As such, it was not clear whether or not the Propane Act’s or the Oilheat Act’s prohibitions covered those types of activities. Even when we assumed PERC’s and NORA’s activities were permitted, issues remained about whether Congress anticipated that the assessment funds would be used for these activities, particularly when PERC and NORA had classified this spending as “consumer education,” one of the functions that the acts require PERC and NORA to carry out. Specifically, issues remained about whether they qualified as “consumer education” under the acts. Issues also remained about whether Congress anticipated that such a high proportion of the groups’ funding would go to consumer education activities (i.e., more than half), in comparison to the relatively little support given to research and development (i.e., 8 percent for PERC and less than 6 percent for NORA), which had been a key area of congressional interest as the laws were debated prior to enactment.

Because PERC’s and NORA’s authorizing statutes did not provide for a particular funding level for specific activities or indicate a ranking among the activities designated as priorities, they afforded PERC and NORA wide latitude in deciding how and in what amounts they spent assessments collected. Since the legislative history of both statutes indicated 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 raised issues about whether these funds were 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 raised issues about what activities were covered under certain we suggested that as provisions of the acts. In our June 2010 report,Congress considers whether to reauthorize NORA or amend PERC’s authorizing statute, it consider imposing greater specificity on the requirements it has established and to establish mechanisms to enhance compliance with those requirements. Specifically, we suggested that Congress should 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) and 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.

PERC Funding of Consumer Education Activities after Spending Restrictions Were Triggered

In our June 2010 report, we also found that 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 specified 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 PERC amended their designation to a new program area called “residential and commercial” matters. The Propane Act did not specifically define the scope of activities permitted under the price restriction or the activities that must cease. We concluded that the resulting lack of a precise statutory line between permitted and prohibited activities created difficulty in assessing compliance with the restriction.

NORA Monitoring of State Associations

In our June 2010 report, we also found issues concerning NORA’s monitoring of state oilheat associations. It was unclear during our review whether NORA’s monitoring procedures were adequate to detect noncompliance among its state grantees if it occurred. The Oilheat Act required NORA to monitor the use of funds it provides to state associations and impose any terms and conditions it considers necessary The Oilheat Act also required NORA to ensure compliance with the act.to establish policies and procedures that conform to generally accepted accounting principles (GAAP) for auditing compliance with the act. According to NORA’s President, 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 for our June 2010 report, 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. We suggested that Congress consider requiring NORA funds granted to qualified state associations be segregated in separate accounts, apart from other funds collected and used by those associations. Consistent with this suggestion, in NORA’s 2014 reauthorization, the Oilheat Act was amended so that as a condition of receiving funds from NORA, each state association is to deposit the funds in an account that is separate from other funds of the qualified state association.

Federal Oversight of PERC and NORA Has Been Limited, Unlike Federal Oversight of Agriculture Check-off Programs

In our June 2010 report, we found that the federal oversight of PERC and NORA was limited, which was in contrast to the routine federal oversight of agriculture check-off programs that had existed. DOE did not exercise its oversight authority for either PERC or NORA, and DOE officials told us that they believed that the department had no oversight role regarding either one. DOE, however, 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. We found that 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 officials told us the department never requested reimbursement because it did not incur any oversight costs. This lack of oversight is part of a long-standing pattern. For example, in a June 2003 report, we found that DOE’s oversight of PERC was lacking and recommended that the department take corrective action.Commerce rather than DOE had oversight responsibility and, therefore, DOE did not act on our recommendation. In June 2010, we found that DOE’s position regarding PERC remained unchanged.

In its response to our June 2003 report, DOE stated that Importantly, as neither the Propane nor the Oilheat Act contained a specific enforcement mechanism for any potential PERC or NORA violations, in June 2010 we concluded that any oversight program implemented by a federal agency would be hampered. As a result, in our we suggested that as Congress considers whether to June 2010 report,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 should consider establishing a specific enforcement mechanism, and expressly authorizing DOE to refer any potential violations of law to appropriate enforcement authorities. Consistent with our suggestion, when Congress reauthorized NORA in 2014, it amended the Oilheat Act to, among other things, provide that in the event of a violation of the act, the Secretary of Energy is to notify Congress of the noncompliance and provide notice of the noncompliance With respect to PERC, although Congress made on NORA’s website.technical clarifications to the Propane Act in 2014 as noted above, it did not address this suggestion we made in 2010.

As discussed earlier, Congress has authorized check-off programs for agriculture commodities, such as beef, blueberries, cotton, dairy products, eggs, peanuts, popcorn, pork, and potatoes, and USDA has mandated oversight activities over these programs. advertising campaigns, and investment plans, the AMS, among other things, ensures that the collection, accounting, auditing, and expenditure of promotion funds is consistent with the enabling legislation and department orders.

Chairman Burgess, Ranking Member Schakowsky, and Members of the Committee, this completes my prepared statement. I would be pleased to answer any questions that you may have at this time.

GAO Contact and Staff Acknowledgments

If you or your staff members have any questions about this testimony, please contact me at (202) 512-3841 or by e-mail at ruscof@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this statement. Marya Link, Alison O’Neill, Kiki Theodoropoulos, Susan Sawtelle, and Barbara Timmerman made key contributions to this testimony.

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