[Senate Report 104-298]
[From the U.S. Government Publishing Office]



                                                       Calendar No. 473
104th Congress                                                   Report
                                 SENATE

 2d Session                                                     104-298
_______________________________________________________________________


 
               PROPANE EDUCATION AND RESEARCH ACT OF 1996

                                _______
                                

                 June 27, 1996.--Ordered to be printed

_______________________________________________________________________


  Mr. Murkowski, from the Committee on Energy and Natural Resources, 
                        submitted the following

                              R E P O R T

                         [To accompany S. 1646]

    The Committee on Energy and Natural Resources, to which was 
referred the bill (S. 1646) to authorize and facilitate a 
program to enhance safety, training, research and development, 
and safety education in the propane gas industry for the 
benefit of propane consumers and the public, and for other 
purposes, having considered the same, reports favorably thereon 
with an amendment and recommends that the bill, as amended, do 
pass.
    The amendment is as follows:
    On page 13, line 7, insert the word ``twice'' after the 
word ``is''.

                         purpose of the measure

    The purpose of S. 1646, the Propane Education and Research 
Act (PERA), is to provide the framework for propane producers 
and marketers to establish a self-help, non-federal program of 
research and development (R&D), training, safety and consumer 
education activities.

                      summary of major provisions

    S. 1646 allows, but does not require, the propane industry 
to establish a ``check-off'' (assessment) program that would 
initially collect a maximum \1/10\ of one cent per gallon of 
odorized propane. These assessments cannot increase by more 
than \1/10\ of one cent per year, and they cannot exceed \1/2\ 
cent per gallon after five years without a special referendum.
    Should the propane industry avail itself of the opportunity 
to establish the check-off program, a Propane Education and 
Research Council (PERC) would be established to undertake R&D, 
education and safety programs using funds collected under the 
assessment program. the Council would be composed of 21 
members, including 9 representing producers, 9 representing 
retail marketers, and 3 representing the public. Both 
industrial classes must include representatives of both large 
and small companies (including agricultural cooperatives). 
Members must be drawn from geographically diverse regions of 
the country.
    There are provisions in S. 1646 to limit the administrative 
overhead of the program and to provide the federal government 
with reimbursements for the reasonable costs of program 
oversight.
    In an effort to help protect consumers against any 
potential increases in propane fuel costs resulting from the 
legislation, S. 1646 contains provisions requiring the 
Department of Commerce, using Energy Information Administration 
data, to prepare an annual analysis of changes in the price of 
propane relative to other energy sources. S. 1646 also contains 
provisions restricting PERC activities to R&D, training and 
safety in the event that the 5-year rolling price index of 
consumer grade propane exceeds the 5-year rolling average price 
composite index of the other energy sources by 10.1% of 
greater. Also, in the interest of consumer protection, there is 
a provision in S. 1646 expressly stating that PERC may take no 
action, and the ACT may not be interpreted, as establishing an 
agreement to pass along to consumers the cost of the 
assessment. Moreover, S. 1646 contains a provision requiring 
the Secretary of Commerce to prepare a report every 2 years 
examining whether operations of PERC, in conjunction with the 
cumulative effects of market changes and Federal programs, have 
had an effect on propane consumers. If the Secretary of 
Commerce determines there has been an adverse effect, the 
Secretary shall recommend changes for correcting the situation.

                          background and need

    Propane is the fourth most used fuel in America. It is used 
in 7.7 million homes in the United States for cooking, heating 
and hot water. Traditionally, propane serves markets beyond the 
reach of natural gas transmission and distribution lines. In 
addition, it is used for agricultural purposes on half of all 
U.S. farms and in a variety of recreational applications. In 
addition to its use as a fuel, propane is also used as a 
feedstock in many petrochemical applications. However, unlike 
other energy sources such as coal, natural gas, solar and wind 
energy, oil, tidal and geothermal, there is no federal R&D 
program for propane.
    To fund propane R&D, safety, training and consumer 
education, the Propane Education and Research Act provides the 
propane industry with the option of establishing a ``check-
off'' (assessment) program similar to those widely used for 
agricultural commodities such as beef, pork and cotton. In a 
check-off program, a fraction of the wholesale cost of the 
product is set aside by the product producer and deposited into 
a common fund that can be employed to the benefit of commodity 
producers and consumers. While the focus of most agricultural 
check-off programs is marketing and promotion, the emphasis of 
the propane check-off program is research and development.
    Under the provisions of S. 1646, a referendum may be held 
by the propane industry, composed of approximately 165 
producers and 5,000 retail marketers. If the industry, by a 
two-thirds margin of producers and a two-thirds margin of 
retailers (in terms of volume), vote to establish the program, 
a Propane Education and Research Council would be established 
to undertake R&D, education and safety programs using funds 
collected under the assessment program. The Council would be 
composed of 21 members representing producers, retailers, 
agricultural cooperatives, and the public. Any petition of 35% 
of producers or retailers would force an industry referendum to 
suspend or terminate the program, and the program would be 
suspended if a simple majority of producers and retailers 
combined, or a two-thirds majority of either producers or 
retailers alone voted to do so.
    S. 1646 initially limits the assessment to a maximum of \1/
10\ of one cent per gallon of odorized propane. (Because 
propane is odorless, virtually all propane sold for 
residential, farm, agricultural and commercial use is 
``odorized'' to make it easier to detect potentially explosive 
leaks. Much of the propane sold as a chemical feedstock is not 
odorized, and is not directly affected by this bill.) The 
assessment is made at the time of odorization, or when odorized 
propane is imported.
    Energy research and development activities generally 
require long lead times and a level of stable funding that are 
often beyond the reach of any one company. The widely 
distributed nature of propane marketers, which include a large 
number of very small retailers, has inhibited the creation of a 
voluntary effort to cooperate on research and development 
priorities. Fiscal realities make the creation of a new federal 
R&D program for propane highly unlikely. Indeed, industry 
witnesses at the Committee's hearing on S. 1646 did not ask for 
government grants or the creation of a government bureaucracy 
to perform propane R&D. Instead, they sought help in creating 
an organization to provide R&D, training, safety and consumer 
education that was not funded by tax dollars. S. 1646 creates 
the framework to accomplish this goal.

                          legislative history

    S. 1646 was introduced by Senator Domenici and 21 original 
cosponsors on March 27, 1996. The original cosponsors included 
Senators Ford, Dole, Lott, Heflin, Shelby, Faircloth, Simpson, 
Cochran, Inhofe, Warner, Helms, McConnell, Thurmond, Burns, 
Johnston, Bingaman, Nickles, Lugar, Kassebaum, Coats, and 
Grams. Senators Kyl, Coverdell and Pryor were added as 
cosponsors on April 15, 1996. Senator Bond was added as a 
cosponsor on April 16, 1996. Senator Bumpers and Harkin were 
added as a cosponsors on May 2, 1996. Senator Thomas was added 
as a cosponsor on May 7, 1996. Senator Gregg was added as a 
cosponsor on May 8, 1996. Senator Smith was added as a 
cosponsor on May 15, 1996. Senator Hutchison was added as a 
cosponsor on May 20, 1996.
    Executive branch comment on S. 1646 was requested on April 
4, 1996, but has not yet been received.
    A hearing on S. 1646 was held before the Energy Research 
and Development Subcommittee on April 16, 1996. At that 
hearing, the National Propane Gas Association, the Gas 
Processors Association, and Farmland Industries (a large 
farmer-owned cooperative) testified in favor of the bill. The 
Propane Consumers Coalition, (a coalition of residential, 
agricultural and industrial propane users) expressed neutrality 
on S. 1646 while noting that it had been substantially improved 
from earlier House versions by the addition of the consumer 
protection measurers in S. 1646.
    A markup was held June 19, 1996 on S. 1646, at which time 
the Committee adopted the amendment offered by Senator Domenici 
as set forth elsewhere in this report and ordered the bill 
reported with a favorable recommendation.
    A companion measure, H.R. 1514 was introduced in the House 
on April 7, 1995 by Representative Tauzin. H.R. 1514 currently 
has 222 cosponsors.
    In the 103d Congress, a similar measure was introduced in 
the House of Representatives as H.R. 3546 on November 19, 1993. 
The House Energy and Commerce Subcommittee on Energy and Power 
ordered the bill reported, but the measure was never acted on 
by the Full Committee.

            committee recommendation and tabulation of votes

    The Senate Committee on Energy and Natural Resources, in 
open business session on June 19, 1996, by majority vote of a 
quorum present recommends that the Senate pass S. 1646 if 
amended as described herein.

                          committee amendments

    Section 5(j) of S. 1646 contains a provision to ensure that 
the reasonable costs of the Department of Energy's oversight of 
PERC activities can be reimbursed from the collected 
assessments. S. 1646 as introduced limits this reimbursement to 
the average annual salary of a Department of Energy (DOE) 
employee, or $58,061 in fiscal year 1996. The Committee adopted 
an amendment proposed by Senator Domenici to insert the word 
``twice'' on page 13, line 7, the effect of which was to double 
the allowable reimbursement.
    The Committee desires that DOE provide an appropriate level 
of oversight for the propane program that industry may choose 
to undertake, and the Committee desires that DOE's legitimate 
costs be reimbursed. However, the intent of the legislation as 
introduced, and the intent of the Committee, is to ensure that 
DOE does not create a bureaucratic empire to accomplish the 
task. The figure represented by the average annual salary of a 
DOE employee multiplied by a factor of two, or $116,122 in 
fiscal year 1996, represents a funding level that is sufficient 
for DOE to perform adequate oversight.

                      section-by-section analysis

Section 1--Short title

    The intent of the section is self-explanatory.

Section 2--Findings

    The intent of the section is self-explanatory.

Section 3--Definitions

    The intent of the section is self-explanatory.

Section 4--Referenda

    Section 4 specifies the conditions that must be met by the 
industry referenda that are required to create, terminate or 
suspend the program.
    Section 4(a) specifies that a two-third majority of 
producers and retailers will be required to establish the 
Propane Research and Education Council (PERC), and that voting 
is by producers and retailers and is based on volume of propane 
sold or produced in the previous calendar year. The provisions 
in section 4(a) related to reimbursement of costs incurred for 
the conduct of the referendum, voting rights, auditing, and 
volume certification and self-explanatory.
    Section 4(b) specifies the procedures to be followed in the 
event a referendum is held to terminate or suspend the program. 
The Propane Research and Education Council may, on its own 
initiative, conduct a referendum to determine whether the 
industry favors termination or suspension of the Council. 
Alternatively, a termination or suspension referendum will be 
triggered by a petition to the Council by producers and retail 
marketers representing 35% of the volume of propane produced 
and sold, respectively, in the United States. The Council will 
be suspended or terminated if the suspension or termination is 
approved by persons representing more than one-half the total 
volume of odorized propane in the producer class and more than 
one-half of the total volume of propane in the retail marker 
class; or by persons representing more than two-thirds of the 
of the total volume of propane produced or sold in the United 
States. The provisions in section 4(b) related to the expenses 
and audit of the referendum are self-explanatory.

Section 5--Propane Education and Research Council (PERC)

    Section 5(a) specifies the procedures governing the 
selection of the Propane Education and Research Council (PERC) 
members.
    Section 5(b) specifies that PERC members shall include gas 
processors and oil refiners among producers, interstate and 
intrastate operators among retailers, large and small companies 
in both classes (including agricultural cooperatives), and 
shall represent geographically diverse regions of the country.
    Section 5(c) specifies the composition of the PERC and the 
qualifications of its members. The Council's 21 members shall 
consist of 9 producers, 9 retailers, and 3 public members. PERC 
members may not be an employee of a qualified industry 
organization or industry trade association as defined in the 
Act, nor may a Council member serve concurrently as an officer 
or the Board of Directors of same. Only one person from any 
company or its affiliate may serve on the Council.
    Section 5(d) specifies that Council members will not 
receive compensation for services or reimbursement for expenses 
with the exception that public members, upon request, be 
reimbursed for reasonable expenses related to PERC meetings.
    Section 5(e) specifies the term length of PERC members. 
Council members shall serve 3 years terms, no more than 2 
consecutive terms, and no more than 7 consecutive years for 
members filling unexpired terms. Former members may return if 
they have not served for 2 years. Initial PERC appointments 
shall be made for terms of 1, 2, and 3 years, and shall be 
staggered so 7 members are selected each year.
    Section 5(f) specifies the Council's functions; namely, to 
develop programs for safety and training, research and 
development of propane utilization equipment, public safety 
education and other issues associated with propane.
    Section 5(g) specifies that at least 5% of funds collected 
shall be used to benefit the agriculture industry, and that the 
use of those funds shall be coordinated with organizations 
representative of the agriculture industry. In addition, this 
subsection specifies that the percentage of funds used for 
projects relating to propane as an over-the-road motor fuel 
shall not exceed the percentage of the total propane market 
currently used as a motor vehicle fuel, based on a 3 year 
average.
    Section 5(h) specifies that the Council shall give priority 
to R&D, safety, education, and training in the development of 
programs and projects.
    Section 5(i) relates to administrative matters including 
the selection of a chairman and officers, the creation of 
committees, the adoption of rules and bylaws, and the 
solicitation of industry comment and recommendations.
    Section 5(j) specifies that the Council's administrative 
costs shall not exceed 10% of total funds collected in any 
fiscal year. Section 5(j) also provides for the reimbursement 
of the Secretary of Energy for Expenses related to the 
oversight of PERC activities, not to exceed an amount that is 
twice the average annual salary of DOE employees.
    Section 5(k) requires that PERC publish a budget plan for 
public review and comment. Following that public review and 
comment, the PERC shall the provide its budget to the Secretary 
and Congress. The Secretary may recommend programs or 
activities to the PERC.
    Section 5(l) outlines requirements for recordkeeping and 
public access to Council records. Section 5(l) also requires an 
audit to be conducted at least once each fiscal year, and 
specifies that copies of audits shall be made available to 
qualified industry groups, members of industry and members of 
the Council upon request. Section 5(l) also requires the 
Council to provide the Secretary of Energy with notice of 
meetings, and provides the Secretary of Energy with the 
authority to require the Council to report on its activities 
and on compliance, violations and complaints regarding the 
implementation of the Act.
    Section 5(m) specifies that PERC meetings shall be open to 
the public and shall require 30 days advance public notice. 
Section 5(m) further specifies that all the Council's meeting 
minutes shall be made readily available to the public.
    Section 5(n) requires PERC to submit an annual report of 
past and planned projects and programs, and the allocations and 
planned allocations of Council resources for each program and 
project.

Section 6--Assessments

    Section 6 provides the general authority for the Council to 
levy an assessment on odorized propane. The initial assessment 
shall be no more than one mill (\1/10\ of one cent) per gallon 
of odorized propane sold and placed into commerce. The 
assessment may not be raised by more than \1/10\ of one cent 
per year, and shall not exceed 5 mills (\1/2\ of one cent) 
after 5 years unless approved by a majority of those voting in 
a referendum in both classes.
    Section 6 also specifies that the owner of odorized propane 
at the time of odorization, or at the time of import of 
odorized propane, pays the assessment at the time propane is 
sold or placed into commerce. Exports are not assessed.
    Section 6 also provides that PERC may establish alternative 
means of collection and establish penalties for failure to pay.
    Section 6(d) specifies that the Council may only invest 
undisbursed assessments in U.S. obligations, obligations of a 
state or political subdivision, accounts or Certificates of 
Deposit in Federal Reserve Member banks, or obligations fully 
guaranteed by the United States.
    Section 6(e) specifies that PERC shall coordinate with 
State programs by joint or coordinated assessment, reduced 
assessment, or rebate. The reduction of rebate shall be no more 
than 20% of the regular assessment and shall be paid only to 
the State PERC or similar entity.

Section 7--Compliance

    Section 7 specifies that the PERC may bring a civil action 
in a United States district court to compel compliance with 
assessments levied under the Act, and that a successful action 
to compel compliance may require the defendant in such actions 
to pay the costs of the compliance action.

Section 8--Lobbying Restrictions

    Section 8 disallows the use of any funds collected by the 
Council for political activities or to influence legislation. 
However, the Council may recommend changes in the Act or other 
statutes that would further the purposes of the Act.

Section 9--Market Survey and Consumer Protection

    Section 9(a) directs the Secretary of Commerce to prepare 
an annual analysis of changes in the price of propane relative 
to other energy sources using data from the Energy Information 
Administration and other public sources. The price analysis 
shall compare indexed prices of consumer grade propane against 
the price of residential electricity, residential natural gas, 
and refiner price to end users of No. 2 fuel oil on an annual 
national average basis.
    Section 9(b) restricts PERC activities to R&D, training and 
safety programs if in any year the 5-year rolling price index 
of consumer grade propane exceeds the 5-year rolling average 
price composite index of other specified energy sources in an 
amount greater than 10.1%.

Section 10--Pricing

    The intent of the section is self-explanatory.

Section 11--Relation to other programs

    The intent of the section is self-explanatory.

Section 12--Reports

    Section 12 requires the Secretary of Commerce to prepare a 
report every 2 years examining whether operations of PERC, in 
conjunction with the cumulative effects of market changes and 
Federal programs, has had an effect on propane consumers. 
Section 12 also requires the Secretary of Commerce to consider 
whether there have been long-term and short-term effects, and 
changes in the proportion of propane demand attributable to 
various market segments. If the Secretary of Commerce 
determines there has been an adverse effect, the Secretary 
shall recommend changes for correcting the situation.

                   cost and budgetary considerations

    The following estimate of costs of this measure has been 
provided by the Congressional Budget Office.

                                     U.S. Congress,
                               Congressional Budget Office,
                                     Washington, DC, June 26, 1996.
Hon. Frank H. Murkowski,
Chairman, Committee on Energy and Natural Resources, U.S. Senate, 
        Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
reviewed S. 1646, the Propane Education and Research Act of 
1996, as ordered reported by the Senate Committee on Energy and 
Natural Resources on June 19, 1996. Based on information from 
the Natural Gas Processors Association and the National Propane 
Gas Association, we estimate that enacting this bill would have 
no net impact on the federal budget. However, enacting this 
bill would affect both direct spending and receipts; therefore, 
pay-as-you-go procedures would apply.
    The bill does not contain any intergovernmental mandates as 
defined by Public Law 104-4. The bill would impose a private-
sector mandate on owners and importers of odorized propane sold 
for commercial use.
    Bill Purpose: S. 1646 would authorize propane industry 
organizations to conduct a referendum among producers and 
retail marketers to determine if a Propane Education and 
Research Council should be established. If there is sufficient 
industry support, this Council would be established to promote 
enhanced safety, training, research and development, and safety 
education in the propane gas industry. The Council would 
initially be funded through an assessment of up to one-tenth of 
1 cent per gallon of propane sold in the retail market, and the 
assessment could subsequently be increased to as much as one-
half of 1 cent per gallon. Funds collected through this 
assessment would be available to fund the Council's programs 
without further appropriation by the Congress. The bill would 
allow the propane assessment to be changed or terminated if 
there is sufficient industry support.
    Federal Budgetary Impact: For purposes of this estimate, we 
assume that the industry would vote to establish the Propane 
Education and Research Council, and that the propane assessment 
would initially be set at one-tenth of 1 cent per gallon of 
propane sold. CBO believes that the cash flows related to the 
Propane Education and Research Council should appear on budget 
as governmental receipts and direct spending because these 
transactions would stem from exercise of the sovereign power of 
the federal government. Based on recent industry data on the 
amount of propane sold in the United States retail market 
(about 9 billion gallons annually), we estimate that this 
assessment would result in governmental receipts of at least $9 
million a year. (Receipts would be higher if and when the 
assessment is increased.) We assume the Council would expend 
whatever funds are raised each year, so that enactment of this 
bill would have no net budgetary impact.
    Mandates Statement: The bill does not contain any 
intergovernmental mandates as defined in Public Law 104-4. It 
might result in increased funding for state propane education 
and research councils because the Council could opt to transfer 
a portion of the assessments it collects to these state-level 
councils.
    This bill would impose a private-sector mandate on owners 
and importers of odorized propane sold for commercial use. The 
mandate would be imposed if the propane producers and retail 
marketers vote favorably in a referendum to establish a Propane 
Education and Research Council. Assuming the Council initially 
sets the assessment at one-tenth of 1 cent per gallon of 
propane sold, the annual direct cost of the mandate would be 
approximately $9 million, well below the annual $100 million 
threshold established by Public Law 104-4. Even if the 
assessment is subsequently increased to the maximum possible 
rate (one-half of 1 cent per gallon), the mandate cost would 
remain below the threshold.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contacts are Kim Cawley 
(for federal costs), Stephanie Weiner (for revenues), Pepper 
Santalucia (for the state and local impact), and Jean Wooster 
(for the private sector impact).
            Sincerely,
                                          June E. O'Neil, Director.

                      regulatory impact evaluation

    In compliance with paragraph 11(b) of rule XXVI of the 
Standing Rules of the Senate, the Committee makes the following 
evaluation of the regulatory impact which would be incurred in 
carrying out S. 1646.
    This bill affords the propane industry with the 
opportunity, but not the obligation, to establish a self-help, 
non-federal program of research, development,, safety, training 
and consumer education activities. Thus, the bill is not a 
regulatory measure in the sense of imposing Government 
established standards of significant economic responsibilities 
on private individuals and businesses.
    No personal information would be collecting in 
administering the program. Therefore, there would be no impact 
on personal privacy.
    Little if any additional paperwork would result from the 
enactment of S. 1646.

                        executive communications

    Executive Branch comment was requested on April 4, 1996. No 
response has been received by the Committee.

                        changes in existing law

    In compliance with paragraph 12 of rule XXVI of the 
Standing Rules of the Senate, the Committee notes that no 
changes in existing law are made by the bill S. 1646, as 
ordered reported.