Federal Energy Administration's Compliance Program in the New England Area

Published by the Government Accountability Office on 1977-11-07.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                          DOCOIZET RESONE
04007 - ([31343801
(Federal Energy AdainistrationWs Compliance Program in the wee
England Area]. ESD-77-71; B-1782C5. November 7, 1977. 3 pp. +
enclosure (15 pp.).
Report to Sen. Thomas J. McIntyre, Chairman, Senate Select
Committee on Small business: Government Regulation and Small
Business Advocacy Subcommittee; by Robert P. Keller, Acting
Coaptroller General.
Issue Area: Energy: Effect of federal Financial Incentives, Tax
    Policies, and Regulatory Policies on Energy Supply (1610).
Contact: Energy and Sinerals Div.
Budqet Function: Natural Resources, Environuent, and Energy:
    Energy (305).
Orqanization Concerned: Department of Energy; Federal Energy
Congressiona; Relevance: Sena&te elect Committee on Small
    Business: Government Regulation and Small Business Advocacy
    Su bconsit tee.
Authority: Emergency Petroleum allocation Act of 1973 (87 Stat.
    627j. Federal Energy Administraticn Act of 1974 (88 Stat.
          Several compliance cases in tLe Boston Reqional Office
of the Federal Energy Admiaistration (NBA) have remai-ed open
'or periods in excess of one year. as a reslt,     the
effectiveness of the compliance program has been limited.
Similar problems appear tc exist nationvide.
Findings/Conclusions: The most significanrt factor contributing
to the delays in case resolution has been P1A's inatility to
resolve regulatory issues arising because of the complexity of
the price regulations. Until the reguletions are clarified and
written in a manner to eliminate ambiguity, ccamliance case
resolution will continue to be impeded by unresolved :egule.tory
issues. FEA's coapliance program cannct be effective until the
agency reuises its regulations so that they cat be *nforced.
Reccazendations: The Secretary of the Department of Energy
shoulV: corduct a thorough review of the petrcleua allocation
and price regulations to determine what sections need revision
to eliSinate vagueness and ambiquity; place top priority on
resolving all outstanding regulatory issues so that coamliance
cases caz be resoi.wed without further delay; at'i complete
efforts to implement the recommendations of the Task Force on
Compliance and Enforcement in order to improve case processing
procedures. (SC)
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                                                                        :i              Im;                       l'-2                        :'Ott                    .:-.it '!-. ?,1;                                            Ar                                                            L(j!
 ENCLOS:JRE                           i                              NC LS        F

 when a firrm': response to an NUFPV does not digprove the
 alleqed vi1i-ati--n 3nd FLA conclu3s  that the viclatiort,                  in
 fact, occurred'.

      E£A's copliarc. pr ct: r -,m i direc terd -cw- rci *'asur nq
  !dustry comlIJtlnce with the, Jl];cati;n and p;ic.e Fcgulatiorn;.
The. Offie of Cor.lian:ce with.in tihe Gffic     of ?.:culatorv
Proara.ms, the Office of' the Ger:era   Counsel, and the reqiota~l
office, Share the responmALilit'y for ensuring cn effective
compliarce program.

     The    fftice of Comr:lionce is reronsible for planning
and directinr    the cnompliance prorra,, including develo);ilg
compliancc volicv. providing technicai q:idance to the
regional otfice',     endi reviewing and apprcviry fotmit;l enforce-
rent ations     submitterd by the reqional eo£ices.      T'his office
aiko has the aietho.l    ty to iSS'_f formal en :orceneent ect ions..

      Th? Office oft he Gineral Cuunsel is re..)o nsible for
irtrnrrectinc r.     c-              -        t.      ..-. I.riftn
rolp]Dlnche <.uoi t?: arn conricurrinq with ail  forr.al enfor.':.-t .,t
action- cutbittvd     by the rgionail offices.

      Thr ,egiona]] offijces ,eeresponsible for conductinq
audits and iTsuir.- formal enforcement actions.     RegqiOn<l
offices must obtain the concurrence of the FLu h.eedquatters
office b+o~nre irsuing tNOP",s ir.volvineq otential violations
of $1 mill:on or more, ?Os or consent orders involving
potential violationc of $500,000 or more, and NOPVs or ROs
for which no precedent nad benr, clearly estatlished.
Precedent is est-blished by interpretatlons, rolin-s,,
clarifyinc quide-lines, or enforcement actions ureviou;sly
apcrove,. by heuclouar ter..                             i
        Histori-ill /, F1A  's corpl iancc program has benn hampperco
by :eaulatior.. w!:.cn conrtino,, qaps and arLbiquitien an]l
which revu'r&tc     nu.erou7 revis:-ns and inter-retat ion:. T'hc'e
 m:rt iquitie
            i  a r'  t   result
                           ,    in q nedi ftor rccul: tory il. terpre-
tations L-,ve resulted in unr-eeolved issues which .,ive d'.layed
the rcul.t-C ry > -'! compliance process.

        In     our
                .    M.y 197t     testlir,>n  befcre t.Y'f Subcorm,!ittee
on                   aversi-.te
                     and    'ne-l.tiqaticns.    thouse Ct ittee     *-r Inter-
st.te  fn,:    to:'eilml Cc:,:cr.,r£c,     we poir.ted ct     that the.re were
nu..erouF runrel-Civ            r.ouulatory issues.       in our Acril 1977
tr-tironv!erfore            tt, SuLcc-mrittee on Energy and Power,
ioure        czmmittee   on' Inter-trte   n'! Frorci-n   Conmerc,     we
E NC L C, UI;ME                                                                                                              EN(: I.Su RE

 ,tated that F'A officiar     I I. J  prrcvided us with .    ist   of
30) unrcsol';ed issue5.      As cf August 22, 1~77, FEA 1 sted
62 unre.olvea issucs      lch
                          w        were in'peding compl ince     case
resolJ t i n.

      At the time of'our review, several cc.!iDtince c.ser. in
FEA's Boston     eqionaldi Office were unresolvrc althouqh a
cons iderrable amoLnt of tirmehad elapsea since the cazes were
opened.    Between Sertcmnbert1974 and Decemte-r 1976, tle   Boston
k'.iornnal Office Lcqan audit work on 'U corpliance ca:ces
involv,1nq C. Ii.                   t;:.cac              enr.d Son, Con.P5any (Spraqge). Iwo                                              .:f
theSe caser; were                        ,                    1 transferred to other region. 1
ofLices.               As cf Sbep.,.erber                           6,     19n7,             five     of        the       remaining -iaqht
casei'. were ::tili                                                      and had
                                                                         aure;.lved            beern oen tfor rerlo-s
ra~nqii,  ftc?, 22 t                          3.2 1/2               :or;th~.                 A3n a- jtl on21  1,c 5e,
outstandine}              fi1,r ; r-e t!.an one year and involving                                                           thrr   fir     .
,{ir. ro   umr::        , v,.i      a,        oe          eCp-
                                                           : rcf,t-r                2],      197 6         ;s        of

Ior - pe-ic.       '      r.angin:
                                n -                r' .             '    i/,          to     40 monti..          .

           The td3.lavy.            in        rcsolving    those csre:s have bceen dtfe to
several 1nterrelatf<i                            f£c:tors.   In our opinion, th.e M.c:st
signiticant of   l{r'                              :,,          a        tc!iows:

           -- FEA'y         allocation and price                                            regulaticr.s
             are unclear. an,-:Igquous,          and in mar.v cast:r ,
             at   VaI 'anfC.:  with traditional        industry
             termiroi,,y       cd .- c-c;unrtinq      t'.actiCCet, "T'l,'
             FEA auditors hba': hF.i dl¢icultv' i.r ItCcu-
             prtin         ;', .,!
                               ar;)   :     L',t: re-ufatior;::.

                -- i:':ltor     i',su<,s r,:uirinr    leqal intu rpre-
             ttiol:ns       h-ier, not bee. prcm.ptti    r:it.c,:ed
             or rem:,iin onlr    'solved.

            -F FA  dti,          re.t         have         p'rncccvr.-rs                    to
                                                                                             oriu:v                  that
             c'!' : i        nc'         ca:ie:.          WrI-: re-vlcwc]                        ar.d pr-cc.:- .c:
             in ;. t             ~l'., ,.ar.;nfr            .

           -- Con:i:,]i-,;2rIncti',ttie.h23'e *e-erai1l: bce;c

             wtouiC        to      reeroveL :             :n:.hI                   reo:.r    futlre-.

E':CLOSU!RE                                              L:tCLG;   '.

      -- FFA has also had stat  ing prob:le.ms which have
         impacted on the above and contributec    to derais
         in case resolution.   These included insuf'icient
         staff, unfamiliarity of statL with the petroleum
         indu.try, and staff turnover.

       There were numerouus unresolved regulatory issiues cat."ing
case resolution delays in the Boston recion.     The lollowing
issiJes wcfre involved in the resolution of the five Sprague

      --tteatrent of discounts;

      --timing of recovery of increased     Droduct costs;
      --treatment of multiple inventories;

      --definition   of a firm;   an,

      --definitio:   of a product.

A briei descriptiont of each of these issues and how they
delayed the case resoluticn prccess involvinr  Sprague is
discu'ss,; bc-low.

Treatm-nrt of Discounts

       In Scptemrer 1974, based on custormers' complaints that
their di-;coonts had been reduced or eliminated, the Boston
Reqional Office beqan an audit of Sprague's sales of No. 6
fuel oil tc certain custoners.    As a result of this audit,
the region!i ot:rice conc!uzed that because Spraqu( had
(lirmi;iatcr di .:ount to certain customers who had received
t'.e: on M.y 1s, 1973, it was in violation of the FlEA price
r -aitlat on:.

       The regioncl oLf ie      baseo its    conclusion on PEA Ruling
1974-l:c which: was- isszuv     In June 197?4 by LEA's Of ' ice of
tue Cenercal Counstel to clarify the class of purchaser concept.
(FEA retQulatlons rea-,i re that purchasers te grouped into
clssiesz based oD ;arly        on the Dr ics    paio. The primary
functhicn of this conccC.* is to maintain the price ditterential
that    ,Xi:.t=r on Md/ 15.       7,b etweon
                                       e73,     .roiu s of purchasers.
'ThiJ ':Llin;    :;tatedi, in effect, tinat "cusstonary"   discounts
 .ad t.r oe continued to members of those classes of curchaser

      ENCLC SURP                                                                                    ,                                                                                            ENCL CSUR E

      iden if iej                   [i        such              customry                                      ,rri            e di £fcrerti!'                                I             ,             J-
               .'"                       di'ECoeur t                          ..;..                       !.'-
                                                                                                          . ,.                  cor.tl                          t..
                                                                                                                                                                ..           ,
      also stated that  i-A wl11 i-'nerall' retar(d anyv :;iccurt
      that wa; in effect on Miv lb, 19/3, anrd ha- n.ren in efcct
      for a per i od of x mor.ths or r:re  to tc .
      d i !c ot.+n t

                T''he  rorA-     c' f  -.  ; ud    a, r;,   n C- t' L, .:  23,   19'4,
      directing       Sprq(iue to rf ir.:: ttc,
                                             j   th       S   l nt' -nId   cotiputte
      overch:rces to         'aci, cut,-;Crer £rrn t;nt- ajt.      tthe discountn.a                                                                                                                                       =
      discontinued.                                     r.r
                                                  On Nov..e                                          5,          19-4,                  CpraYIe                      filfed                          r. apJe3i
      to the RHO which   w   denteld by !FtA.        !'cl      ;.r,                                                                                                       at.          t6.e              insistence
      of the oit ice of th     ;            Counzel 'rn
                                            Counsl                                                                                                                          ee  te
      contaiined tt    nical dcficlt:ncies,      FE-
                                                   A      i.sitri                                                                                                         an NLi';i  o
      Dece.mber                 31,        1974.                     Tilhe it                       wos not                       rc-i            ndcd                    u:ntil Mirch 2!,
      1i95.  FEA of icia!:,                                           e;:pl. in:d                                    that            th!ey             werc not                                  aware                  that
      the PO anl N(;PV weore                                          both ou'st. anding.

                  On      M!,.rch          3,              l19i$, th ' C fi      . cf t!.ef Gv n, rd     Ci:nrl                                                                                                          issUi
  P.ulinq                1)75--            tu               I, rther Cl,    i£'/  teif la.;s of purc:rer                                                                                                                concet.
                                          s r              A     -       - .x--,rt'; criteti    Ct'l :tr c eter                                                                                                    minirn r
  (th:(ose n v                            t:o        .,- i,,    ,                         "ur,' l               -        r              r;       t          r.I.-,jcu
                                                                                                                                                                   r. u r o!f                                 't
      ......_t t or                   "           ;, . .     ,,:                                         r I:            ton*rLiruL'                                                                     o
                                                                                          '                                                                 r                         .C'                          '
 lorng t'hey th:ib-     en        *                                                           ut .                  An         attotLniy
                                                                                                                               Anr           in   tne Ottice of
 the Gone ,:l     Crol,: ,'iL told                                                     tt. tht                               tti:;    'hanjr     in f !;A'n    e-)osit;                                                       <:
 result ed b.c.:.    i I    i.i h ad                                                    r.corn,                                r,L, famil       r wi 'r   t':' pratt                                                               c,'
 within thle                                                'ttrieu:.i nclut-.try.

                  Jsii q           thr crlterria  il l ulinq 1975-2, the. r..iio'n=                 Cf ti_,
  i et,? rmi r                    t
                                 t h,'    )th countr.             the tLir. had :i          t:: uoI
w,?rto ".;.,
       :¢,t       :           , ' rv". ,. uu                 i,.>; ":. l' i.  to    L,( ,   tl         ,t.
r,:.CCofl. :        ,.(flUL:rn r '     he ,Co          titiv.i
                                                          It          !..                 c    ::,,        Iv
o! H ....                 i ;..                  ,I
                                                 !         '          A:
                                                                      , .        .l ,                .-
   'c,        ']-
            .~:~       ri,; .            A:'
                                          '! i.'i
                                               .     -       tit:.. .     ,  'V?,--- *.'.,n         : -L,
Jft'tr   it     w;:;- lY.:.t .

                 Alt L.tu~. '              t:;c             .                                                                       t            ''                  .:,t :          t.'
              r.5- :li
                    I;                        .      :;r                              ,             :,     :;                           h.'-,          'r            t'                              ,

                   :.'~ t t,rt            !.;.:'}-.:''-;             :"             1 '",'
                                                                                   '¢;                   . i.            t,         ''L                     ;             r'.-         '-t                c.*
t'.           r   :'!
                   .r'          cr ;...:-            ,r,        tt            .t              ;::               '.'.t                   1'J.:    tF,
                                                                                                                                                 ~','1. C' "                     ;     C-. .L-

           ;i, ?:._ '.-U
                       ; t 7 Lit   ~      ; . s,,!                                  ' '              ,r. :t'
                                                                                                    .(N;"T           I        ' ,' ' t .',r.--                   ,         't. ! :,          cot;.

OOr."             .       '.'             .                               .                    t-         -          i..ir-               2'!         r.                                         ":;               tt
 ENCLOSUPE£                                                                                    Lr.Ci,.O.        RE

 cost r-c-overy.     In addition, durinq March 1975. F.A's enforce-
 mnent efforts were redirected to fuel oil sales to putlic
 utilities and the discount cazi     was given a lower prlority
 than the audit of th;? fir:.'s .ales of No. 6 fuel oil
 electric uti ities.

        FEA headquarters uJt'icials stated that the disrcount issue
 was clamifiel and considert-d resolved in March 1975
 . ulii'g 1975-2 was issued.   towever, the discount case ,nvo1,6 ng
 S,raquc was not r-s-olved until   Auqust 1975 when the NOPV was
 re -inded.

Timinn of        Refo,,erv                    cf
 Xncrelsed       Wrociuet Loste
         In March l975, the Bostcn Regioral Office beq.n an audit
 of SpraJque's No. 6 fuel oil sales; to a public utility
This audit, as well as .;ut~scuent audits of                     .f4rauo:'
                                                                         No. 6
 fuel oil     sales   t,  other utili    tis, wds     eart   of a nat onal
    [ffurt tc, -eview t.i.e     le;   ot  u i oil   sur-? :-rs      rt url toies.
 Bly .ay 15, 1975,, tht r.cgtnti otr;-                 ch.-ipi.t:-iJ tb-' audit
wota      n dra:ftct     an   -'V.    Howvr r, thie- Oi'V *as net i.a;Jed
 until ,ovcmLber 15.        976, about 18 monthts iater.           On.. of the
[ra jor issues delayinq the reTolution            of these cases was the
point in timr       whetn Increased product co .S          cain be rsc&.'inized
 for purposes of cal2uloting over or undt. recoupm;-nt
                                                                        of such
cost i.

        From the outset, Sprague and FEA have disaqree- over
the intt-rrretation of the reseller pric        rule invvol'inq tile
timring issue.      Accoruinq to Spraque's interpre.,tiCn, the
price rule allows a reaeller to recognize incre~scd
cost. wnien the proajct is purchased.       FEA, on the tthL..r
hind, na. ,inrintined     that increpaea costs; can be r'-ecqnized
onl)    when the product .s sold.     Under zpraqie's interpreta-
ti:on,.   o overchtorqec  have :occurrid whereis under FEA's-
interprotarion, th-' firm h--s evetch-:   rged the utility    coroany
~]but $! rillion.

       The     t'rstor:          ii-c;ion,!               ;.fficu beca.Ie     iware of   the
inte'rpet3ati-n                                                                                   firm      3
                             ot        th-.            rI;Lce   rule dur .;i. -te    i-scount          cs       i
rguestLe                     ·                     -
               clarlf;-t:,              on r.umr.rou.o occasion:7 frcm thr, ';ffice
   l .*n;-C.    'r'r.- 1 C;;.nse~l'    · ..        GLf:c   of t:l,.
                                                                G    erera    i.ounce-l
rr,''.,*i7de,] v'.;rlra1 , :!t:r            ,a:o,     lt   e=Ct::",q with th,     rfeclonal
 ..ff iCe .ta[f        or 'yiv    i4s~l,
                                     -            9'1, arid faurni..--d a wr'.';,    n
   te r-,f_-t..           .:e          the rc-.:;oA;               otf   ce   r.nJuly 17.      .I't.

    Ea,-LOUtr1                                                                                                                                                                               LNCL. o~,

    Sil',e   te.         s.ver.                                         l      ..#I-r.cr;                 haove, r en .                        I:lcid
                                                                                                                                               i                    b:etweon                        1!    '.        anrd
    Spr a:Zq     ('f r icil Is.

            As r-,f Sr-pte.-hr r 14i,    1J'      tt.         nuc        -:.            n dj                                                                                                                                   t..:.
    TA ?-        ]c-rt~rs     tf- iC'r                t F t -,    rA.                .                                                                                                                                   :-,
    iSu       hD. n t c .- ;;;.-
              tv                     &F.d
                                       :: t.- & ;. rn         i-; t/nth'     c,-= I:?..   :-r
    i~  vSe l: ~' -.o 'i.' .t   ccn--id .r,d anct ,r,-::i].:-             r

 Tr-atn'-nt of                                        M':ti                   !e Ir.ventories

                      Anothcer                        iss-5ue delavi.f- the rf'jlutl.r     n                                                                               f{
                                                                                                                                                               it                          S.<raule
case                  w'S the                         tre;!trm-nt of iTiultijj'If :,::an.t
 sold Nio. 6 fuel cil from six ter.-.inil.r                                                                                                   in     N'.w   ivllnrd .and
 ,reated e.ch
            -     L' the e ivut.torv locatl;s                                                                                                        as a se:.arate      rct
 cernttr wi h   ,'     , te-cotr-
                      at;         a1C nEc
                                  alln                                                                                                        p.,rie,^
                                                                                                                                                     CcL  .        V
                                                                                                                                                                   ve      t -                                 i

sul ur conte-it                                              or)        t:
                                                                    fuel ,vari       ed ia.3:oil
                                                                                            tprtquet             ' t.tiqUinatl.
Three termin.!-                                                .od N?. i; f l1        oil        i
                                                                                              Wll,                _ r - nt t:ufpLr
      Cr~t twe
             rtt-:it;                                                 i.i     Ifl:'.  t   f          ;1 *itk*i       1 r      ent.
                sli          ti::?0.v:~                                t: FrJ~rir~l' t- i,ld -'.ci..0 t6! ff-:':
                                                                                                            u,    :¢'it
                                                                                                                   cil with L.
                                                               :                                                                 ,
,r.; ttfI:t                                                               ? 'tr*-         ; a t;l    i                .

                     ill it.,';       .-
                                                                                       i    .      serar
                                                                                                    c      t-ly
     ,n .                                           .      n   -.,it~       it v . r             s    At the
    a i4.                     ..
                      *' ottti;       l    OGfi       * aener
                                                           of it"                I (mi,ar:
 d(Vi..-ri. t!.:
                                                                                                    c        ificidLr-
                     t,          :;'-l o:ft ic        -. t.af   t! -t     t.-,   r,--:     i,c-.j     r''-'Jir.d
price czo.r-t-!t 1u              n      b'      tbt:<-3
                                                h            n  a     i,!      e ! 1rTr.-wid- averiaot
cost fIo:r       t       ....t-riJCnt ;' inventorv.

                                       tr: ....
                                       .r                          i'          Cr                       o in.dn
                                                                                                             l "-lrtri
                                                                                                                 irCrI.d                               i       I;redu' t                          ccsts                  fror-

                                              th,, :c.:'                ,'-
                                                                        ,'             fe'a                                  .,1                           .of t!..j:t            t- :    beC.t:lic-
                             eh            -fr   -     Vt-dct~A                   it              ~-n         Y
                                                                                                                  r-rt                                                 t   '
                                                                                                                                                                                nvent t cr rx:

-   '       i, :::     -:'i:.'f        ."-           ,~,,(     t./.!,C
                                                        rr      ,      .' ,-:'t         ;TC
                                                                                            ,'-   !   . .,-;
                                                                                                           , r      [':,I        ':'   i'"'                         ;, '       ':>     F'.
                                                                                                                       .                                                                -t-;::i
                                                                                                                                                                                       '.,t        -ctrt i         n

                                                                                                         ^.                 i.                ;:; · i                      -     ,                                 i7,
            1    -i {~~-..                                                                                                                       i.t                                 ...                                       ,

                                                                                                      ,,w,(,'.l:~                             ~;,.             :';.i

          Accordirn    g to FEA of iciu,       the isjue of treatirn, products
from d tierent terminals as separate products
                                                            was resolved
wt.h ,;-cpect to Spraque in Augrust 1977, when FEA headouarter;
officials           advised the Bo:,ton HeU1ional Office to
                                                               treit% Sprageue'
  islfur                   qr3ade  s se ic-tatrt  products,
Other      i.sues

      Two other untrezolved jssues--definition
                                                        of fir:m and
product--arone as a result ot the Novemter
                                                     15, 1976, NCPV.
FfA's 3u'it of No. 6 fuel oil sales wa.
that Spraqge was the firm under investiqticon.on the basis
                                                          However,, the
NOPV wes addressed to the parent.
                                      fi ri,   Axei Johnson and Compainy,
Inc.   F.FA officials recent.ly informed
                                             us tn:    they h:ive co..si-3ered
SrDaque as the firm uncer investigation
RCJ wi!l hpe                                    andi  the  tocthcomin9j
               ddro5:.i! to So)rag-e   This isfe       .- no lonser con-
sirlree .an nutstar~ing requlatory     issue with resect         to tre
$pra 3u-e        ."a,.-.

     n'h e 1r--i   ,. aLt it or2 :-o. ucz
                                                 i   audi     Ci.5i !:..
      Sepstate criraes ot frue! oil      cons-titutei       r
                                                       :e;iFtrc          r oui                t.
Howeve:r,  In direct    contrs  t, th   :;NCP;  tated tICi, t ci.f,- rf' nt
silf ur   roe      e oot e    rate      odt:ct.
                                    pdrat(       In A't:s-t     977,                     FEA
.headuuarters uffciClals 7?viedc th,- Botecn
                                                 R¢ionl       . Lfice
to allow Sprage tu consideir sFparate suifur
separate ptOaucts.
                                                     cirt:c,_ as
                        Thus, the defiri'ion    cf e prcoduct is
no longerrn    ltrtstandinC ir.,sue wifti respect to Spri.,
Crsne eviet" and Procs.-sinri

      FEA's case reviejw procctdur,:
                                   . furthr r dleyycd th.
rersc'utlon of c.sess in the Benton Ecifona    0Lf ice.
      FtA Do1±cy requirc.. that both the
                                         llationa! Office of
Compliance and the Cffice of the Gencr:.l
                                            Couinsel revew
compl iancc caeF  in.''1cl
                    f      inj

      -- an NUPV            with a     pot,'rnti.l    violat1ion    of
           $1 noiln            or    ,'ore,

      --   ar,        I'C
                     Ca'    C, r::nr    otrCerr'hi     ch Inr.volvcs     a
           v iolattc.;        f      U-
                                  $ tU,Guu       or   mr re, and,
      -- ny cauL,     tor wtiich. nn prvrcedont                  .ashei n
        Estitt'i  h-:;:  as d( fir, ed by FFA'5                Corr.p I Ja '..
ENCLOSURE                                                                                                                    NC TOURR

In      aJds til~T,, .;11 CO:1?'w in:ce cai·':          must be      ;ieW'        L   th e
Rucional1 Coure1.              ! wvever , F:A didj not 'ave            liaC'.ua te
proce-iu:rf:    : tro ensu:re thMt: suCih           'e.-'iie-W:were tlm;] v.        Tlhe
folicwnr.: ,.;.amr!,l          i]lr':t   rat    ca:;e    r:-vl";? and    proc, *'in
pr ?! 0 ::t: .'.-:tat. oCo ',fre    L! ltii
                                         Y lt i-' 't;"}      It   ,:, :;vtr ,.?('.#
   ....     r         t, tu' 1 (       .

       - -Or};    ~:'Y?          i",, 1975. after tht   !meetingyw-t:l t.rt.
           Of     ice            of Crpl   'iance-
                                                 and thte Of ice  of the
           Ge:,eral Couins;    ,                          the regionjl ol ict  -. ;tafL
           Su!kJ1tet(a. a dreal                            NOPV fcr General C rcnsel'
           r     view.                 Work       Projrersu            rrpIport-.;         preIpD3ar.'e         by
            the r eqionai audit-or ii, Jul ', *AL Jst, and
           Sel-tor.tr       197'1   irdic.- tccr tht.      work on the
           cz-'..c haJ F',rnn -':sendcid , :ddin9     i rlr G'r   a
           r¢.,     c-f; 's revie.w of the draft NOPV'.           Ho-wcver,
           in     .e ;~'. :ibr I'i'?,    the rec a.onal office       lea:rntr'i
           that     C-r.:   -     '  r..el tYrsonr.ei ha        fi$[.1irc1:
           tne         ,ci     :.t,

          ,,.     .i         tr¢suit   t.   '1     t       Aril            5,     19   ,        --.trr      n        ffo';
             ::ff i ci1 S               f .:.. :.
                                       ot'          t!., tt;h                   Off_cc         of ComUl idt;i.
           t/tl Oi'-J(c_                of tn,--et>r.I                          Coun.;-l   ,    *,nJ  the
          reqional oft ice, FEA decided ro issue an Ns.PV
          to the    ir:ir.      ;ctwccen Airrri 7 and Jtne ,.2, 1Y 7 ,
          the drait       N(i>PV vwas in thie Cfficeu of tU" Reutional
          Counsel   for review.         The Reqiocna   Counsel told
          us that ;oL !Tmo..t of this period, h' was not
          re.viewinq the cas;e becduse of higher priority

      -- Pctwecr-n Jul- ]                         .Ind ;epter!' er 10, 19,6,    the                                    dr:'! t
         6I0)':1 ' wo. iri tht                      O!'ice (o Co,;';I iance C:,sf:
          h-oluttion f-,r i-: review.
                                  -w:;.   'The di rectaor
          ofrice told us the lengthv proc<r-.irnq t.i:uc wa-s
          due Lo a               oL c  ;backloq      a
                                               -i.;:-n     .ack            IIt;ti.                       c-ff
          Hie adldc_ that   T!ri r i t. wz o.iven to t:e                ,:;:
           ,ft. r         r io zil' ir<quir
                                        iquirI.-fr4' w.t'.:,: r: ,I'll,

       -- P' tween .efnt '!',er                          "':'rL,¢r
                                                          1)0 i:n,] jv                       9,          I76,          tihe
           ,croft N('"'  a,     h                         ,inor;vi                       v t..e
                                                                                       ,''w.,             ;f
          of th.!- ,tr-!                               tOUPrr '!  ;,i offI i:al    tld I:
          the rv iJ w ti me                            was a. ccs.:-ar y   -ecoaui, o'f thr
          C OT-) Yi  r;( !t                                 .ti.t C)...
                                                                     r'!    is;:;ufe          . .,~r
                                                                                           invo!                 t:;i

          t:nlt              to
                        bha.di ue                 rpvil.w..i.

      Both reg onal .tuid   ht.idl iJ-trters officials told us t hat
 each division   s:;tablirhthd it'    own work priorities,      and no
 one was held accountablQ; to fmeer time targets
                                                           for case

 NATIONWIDE DELAY';                 TJN CA.V'.          i .SOit;TO:N
     The deldy In r.:-.olvjinl compliance cases is
                                                      not unioue
to the Boston Retionalt Of! ice, but appears
                                                to be a nationwide
problem.  In FebLuaty 1977, FEA's Office of Compliance
piled a list of 3U ulnte..o!vvd regulatoLy issues              com-
hamperinq resolution or r..,veral cases nationwide.   which   were
                                                           'or tLhe
most part, the O£) ic.e of the General Counsel
                                                  was responsible
for taking the nf'cF§;:ria y act ion to resolve the issues.
of August 22, 197.7, there were 62 unresolved                   As
       According to Otfie' of the General Counsel
the primary rcamo.                                                officials,
                         [ui.: u.nt iniued 2xisttnce of unresolve,
issues have bce:n th.,e I.'k         sf :.taff in the Office of the
General Counse.W. ;,i( tlhet    fact that existing staff hac: heen
overburttenedl wit
                " h                   t l.s f:or dcevelopin.
                            iWt' h;l't-
Consiucntly, c.?atr ifri.                                      n ev r eil.itUrat                               s.
                                inn of exi stirn        reguiatiol:s ih.s
rcceivced a lower Pft'J it i tI .

     A recert coirulltirnt':                            rrepcrt on F'EA's regulatory progr., 1/
stated, in paer t, th
                    ti -%
           --- FLA' sreuulatory proqram has suffered from the
              dual pr)oblf:l; ,t t a nar-toerm decontrol philosophy
              at high lev(:l; ut ctaqncy manaqement and continuinq
              uncertainty ,,Ilt     t.ha,, aI!ency's continuex cexistence.
           -- The exis:ting te. 1l;it:,ry program irs a Datchwcrk
              effort that hti- vvolv'd(i from requlation;     cit; fted
              over th.e icOlM:ii .  lt
                                   o.:  Irw week.. in the crisis
              atmosph-,ro, of the 1 ' 73 oil embargo.     These reouia-
              tions whet' ,         .ft: t'!l nDf i afte!         Cost cf Living   Councl
              (CLC)     r('t!i.,t     !in:;.     ,1.i     were    driftf-d prim;arily by
              ]awy-r'.t      wtit     llit*,      t  qIr;,:;.     of the cumplexitiIe
              of   oilM i     dti:.t ty        .actiorn i n( P!ractices.

]/D.        Warin.r ,'C.,-t                                I. P:t.l,,,mr
                                                                    er,. T
                                                       ''                           PFA
                                                                                FFh'r:, ,Pe'; o!l,:?,
  PrF J¢,       P       r.
                l r'.r'ql-,          ,r,   I     r!')
                                                   ,- . _er~¢
                                                          : :;t at:  L; ..      tit     IiId }..  , r"C tj.-
  fiiL       d,
         t.l/:t          i'.t I.t' ,     i ,!. !) tt;' ,. Li e oI tte        irL:      .t ...
 .Fe.cral Fn''ri'/ Ad
                    i,:linltr.itin.ll, March                           b. 1977.

E NCLOFU R E                                                                   E :CLOSU RE

         -- A houch    sJcnid     nt Improvements have been ma'e
            duril.i the': '-,:t 18 ;, t.h,, tnle exiSr.tng regu--
            lationsL remain compl1o., Ind difficult to
            cnrfrce. The reguitticns u-uallv have been
            draf[tcd i'l.thput carefil ases.ment of their
             iu;telliqi.'ility, their ;fiioorci ability, and the
            reportirij burdienr they create for induLstry.

         -- Clarificatiu,'   ,rnd interpretation of the regulations
            have been slew, seriousl; harmnpering    timely compliance
             rnd entorce'men. cctivities.     In many cases, even
            where alternative clarifications      had been developed,
            it was difficult to obtain top management commitment
            to a single approach as the formal agency position.

       ---Reestabliv-hirnent of controls on selectd decontrolled
          products may requite substantial changes in tihe
          structurce of tne rtguletions.      Contingency plans are
          nc- d']l to co:e wil aln   mor'rt:ncv situation such as
          a Inew oil eCl:., r (oI

     An e;ar ier report hy a LPresidential task force         / paoinltie
out .i.:i.ar  prcbltmrs with F!:i's regquln tory develoF:rmnt   proceni~;.
The t;a:; force ccncc] ,dcdd, ain-on! ot,.e'r things, that unl ess
FEA's re-ul.tl-ons are :Sinplitfiec,     Lt.e periods mTade current,
and mor.e effective   sancticon; established, FEA's enforcement
effort, no matter how well structured and staffed, will fact
areat difticulty in assuring compliance wi:h the regula;.ions,
both today and in thei    evcnt of a future shortage.

       The ncst recent task force was e.Labl       jshec by the FEA
Administrator       in Mayv 1977 for the purpose of reviewina FEA's
-ompJliartce pL.qrtam and pre:;.r-.t:ir.n solutions for problems which
have j:ri:'cedcn the compliancr procer-s;.    It was headed by the
Dire~ctor otf Entorcement for tths Sccurities and Exchance
Commi:: -ion.     In it.- Jt,]: 1977 report 2/, the tasK fotce
identitijed    ·..,t al de'f-Jieqrile? in FE:A's compliance   roagranm.
Thr   te'port   str t-.d   th.tt     ti.';CoM)l. ianct       pr)toqram:

IFe-  itt o:f th!, Presidcer.t .     I                  Frrce oon Rtefor;n of rFederal
  Ener'. ,A\dmini:;trat.on Rf..itin.:,                     Iecet,-ber 10, ]976.

2/Task    Lurc;:   on' tCoi.i   i   .jnc-,   ,,n'   iLntcrrccneent,   Finai   R.Cert,
  July 13.      ;977.
ENCLOSUR!L                         :.                         CLOCISURE;

     --was not fo-used on the major refiner,, where
       resources can be best utilized;

     --lacke( qualit, personinel and proper allocatir.n
        L pretsonriel according to regional needs;

     --lackcxt a m.n hanibr. Rwhereby responsibility for
        prorem. results could be assessed;

     --lacked realistic time limits for Office of the
       General Counsel review ot cases, and

     --had personnel morale problems.

     To improve the compliance program, the task focce            resorm-
mended tlat FEA:

     --develop a system wnereby the regional or
       national office would respond to Iequest-s
       for isutle clarification on an expedited
       basis, with a specific turnaround time
       built in, and with a single person given
       the responsibility for resolving the issue;

     --use its su! oena power to obtain        information
       on an expui:cit{d hbd;is;

     -- incur{ase the nuntbei nf aualified attorneys
        and auditors In the regional offices;

     -- establish   realistic   tiwe periods   for meetit,q

     --give the Assistant General Counsel for
       Comptlince res;ponsibility [or suDervis;in        /
       all Regional Counsels. and their stal Is;

    1---(qve the Deputy AssiSttant Administrator lot
        Compliance direct line authority o:,er all
        regional compliance personnel,

    -- inteqrate attoLney£ int; the complian,:e proqram
        investitqatinns from the. initial       a;udit stagqes
       throuqtJ! the cas   reosulut. ln   proceFC. ; anal

L;Ni:LC',.LU                             ,i                                  t:NCLOSU IE

       --direct audit           effort    toward         the maior    refiners
         ana major            independent crude oil           producers and
         crude oil            resellers.


     F:TA took so.me actions tc ip,lrove i tr c:oimpliance
efforts.   The North/Pfeffer study and the Task Force on
Compliance and Enforcement were both requested by the FLA
AdminiEtrator to review the ccmpliaice proqrani.       A September
15, 1977. le'ter to the Chairman, Subcommittee on Energy
and Power, House Colmmittee on :nterstato and Foreign Commerce.
from the 'EA Administrator discussed FIUA actions taken t-'
implement the recormmendations of the "'ask Force on Compliance
and Enforcement.    The Department of Enerqy is continuing this
eff rt.   Such Ctctions included:

       --the rrcearation of deLiiled audit plans to
         i?'leirr"nt the initial stages of th.t audit:
         of the 15 l]arte:;t re. i ne:;;

       -- incre,:!se     in    the   nunibe   .    and   redep-, loymoent,   of
         audituis and attorneys in order tn begin
         accelereLL-d eudit efforts at two lgiqv

       -- deveJopment of a prcposed sta!fin'i plan con-
           Sisti-9 of attorneys, criminal investigators,
           and aulitors'to    corduct investisations
           involvinq potential willful violations of
           riLA re:oulations;

       -- increase in the ntiur.er of atto'rnyri in t?                               !-
          reriornal offices to permit their active
          participation in audits at eatli,.r st ,,e:;

       --initiation of the effort to all)c.at     personnel
         to complioinice procgrams other thtir tie reftiner
         ,jreirem based on a cost/benefit analysif.; and

       -- imnplementation of procedure:. ' such as concurrent
           review of i3ssuer t. dudit ano leqal staffs and
          weekly met-in.-   to prescribe timrilrames in order
           to expedite thl: resolutlon of rCeq-ilctc ry issues.

 ENC I.[OSlr L.                                                        ENC LOSL RE.

      Also, in February  1977, the agency implemented a priority
 system designed tu re:;olve open cases in order of their sig-
 nificance. The -yrf;tm classifies cases, depending on their
 importance, in or:e ot the four following categories.

         --Category A ivolves top priority cases in
           which tnere hI e likelihood of a criminal

         --Cateqory 3 ipvolves cases which are one year
           old and have an identif ed potential violation
           in excess of S150,UC6.   These cases are consid'ered
           of special jntor,-;# to congressional committees
           and require Extensive          inter-regional work.
       --Catt:gory C involves cases requiring nr'-,al audit
         work and, it' necessary. :,iay be conduc d on an
          intermittent basis. Audit time is pr%,qrammed
          fol these cases to ensure that they progress
          essentially o0: schedule.

       -- Category D involves cases where audit work has
          been    Su:;'Jr.dw      bfcauGe of    lack of   resources,
          hi.gher priority work, a pending regulatory
          decision, o, a pending exception and appeal
          action .

     Additionally, in April .1977, FEA established a policy
for regional offices and headquarters to follow in reporting
and resolving .isa:ta,. impedinq resolution of compliance cases.
Under this policy, th.,? ffice of Compliance Case Resolution
is responsible [ct tnt;uring   that all issues, whether dis-
closec    at the rqigional        or national    office levels, are acted
upon promptly. Thi, policy icquires the Office of Compliance
Case Resol,,tion to vrotatllish procedures to ensure that
issues; are resolved within specitied               timeframes.


     Several coulplianc: cases in the Boston Regional Office
have reirlained cr,eln for periods in excn;ss of one year. As
a result,     the eftcctlveness         of. the compliance program has
· been li,;ted.   tiotwever, we .o not believe that these problems
  are unique to the floston [-e3gional Office.  As pointed out
  in a consultant'- and two task force reports, similar
  proble.ns appear to exist nationwide.

ENC I.(:, LSkLL                                         -

      In our opi.,ion, the most significant factor contributing
to  the delays in case resolution has been FEA's inability
to resolve regulatory iseues arising because of the com-
plnexity of the price re;ullatlcns.  Until the   ?.3julations
are clarificd and written in a manner to eliminate
ambiquity, compliance case resolution will continJe to be
impeded by unresolved requ'-.tory issues.   FEA's compliance
program cannot be effective until   the agency revises its
regulationf so that they can be enforced.

      FE.LAtook some actions to alleviate the prohleNm such
as institutinr   a case prioritization systim and a policy
for repot ing i:;.sues inmrcding compliance case tesolutioon.
Also, FEA initidate. step3 to irplement the recorrmendations
of the 'iank Forc- on Cotopl iance and knforJement.     Th t
Cecpartmcnt of lr:'.: ny is continuirt; the stecs initi  t¢d tby
FI:A.    'I'le    tisk   force    recomrenJdations          addrcrs. several        [probleres
har.!tpetn.i   t!,- it fectiveneŽ s of thte comp1 i-ncc program, and
it i;>               l'tjt i-,-.:rithu Ucpart;rc.nt cf Epnergy colr.plltc its
e!of         to imi:rl:-'!.-nt thenm.     All of themse actions are a step
in the r ighlt di :,c t i;n nd can hfe              :reduce the timc, needed
to resolve future          conplianrce      cases.    However, they will not
 xpeciit.- the re .olution of tnr existing backlog of open
cane!: until the outstanding regulatory issues are resolved.

      In cieneral. we ,aree with the conclusions and recommen-
dation:. in tht, tisk force and consultant's Ctuoies. Spocific-
ally, wt rccomtv,'nd that the Secretary, the Departniment of

        -- condflcit a thorourih re'liew of the pj(xtroleum
            allucaJtio     and price irequlations to
            dt tt rn lnke whi.t s.ctfiors need revision to
           ellmimntrc        v\.)uelncl~s   and   ambiguity;

        -- place     tco!i   rr iority on     resolvinq                    ni
                                                              all outstandin
           r cq1lt)I Io l$:;u"es             that comPlii iincc         res   car
           tbf ',soivr'd without            further delay:        dnd

        -- co!p]lete efforts to implenent the recornmendations
           of th. 'iassK Forrce or Ccmnpliance and Enforcement
           in ord,'ir to imrprove case proce)rsinq procedures.