Review of DOE Efforts To Enforce Crude Oil Pricing Regulations of the Emergency Petroleum Allocation Act of 1973

Gao ID: 114865 April 2, 1981

GAO reviewed the Department of Energy (DOE) audits of the 35 major refiners and the crude oil resellers from October 1977 through September 1980. The DOE Office of the Special Counsel, established in 1977 to audit the 35 major refiners, has alleged approximately $10.8 billion in violations of the crude oil pricing regulations. Because of the complexity of the audits and the fact that not all of the violations result in overcharges to customers, it was not possible to show the full impact of the alleged violations on the prices charged to the major refiners' customers. Although many of the notices of probable violations were over a year old in December 1980, proposed remedial orders against the companies have not been issued to resolve the violations. DOE should expedite its efforts to issue proposed remedial orders. DOE has acted to make its regulations complete and comprehensive. However, enormous amounts of money are involved and the oil companies have challenged DOE, which has resulted in many civil cases concerning the enforcement of DOE pricing regulations. Administrative and court litigation could take years to resolve and have implications not only for the phaseout of the DOE enforcement efforts but also for the Internal Revenue Service's (IRS) enforcement of the Crude Oil Windfall Profit Tax Act. IRS has adopted the DOE crude oil production regulations and definitions to enforce the Act; thus the legal challenges could also have a profound effect on the tax program. To minimize these enforcement problems, the Commissioner of IRS should conduct a study to determine the potential effect that successful legal challenges to the DOE regulations could have on the IRS ability to enforce the Act. GAO believes that the drastic budget cut proposed for fiscal year 1982 could seriously impair DOE ability to enforce the compliance program. The Office of Management and Budget (OMB) should assist DOE in developing a plan for the orderly resolution of the outstanding violations and litigation. OMB should submit the plan for congressional consideration during the appropriation process. GAO encourages Congress to act favorably on such a plan, assuming it is reasonable and appropriate. Although petroleum pricing has been decontrolled, GAO believes that it is critical that the DOE enforcement program remain effective so that all unresolved violations and litigation can be resolved in an orderly and fair manner.

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