The Northeast Home Heating Oil Reserve and
the National Oilheat Research Alliance
Anthony Andrews
Specialist in Energy Policy
September 19, 2013
Congressional Research Service
7-5700
www.crs.gov
R43235
The Northeast Home Heating Oil Reserve and the National Oilheat Research Alliance
Summary
During the winter of 1999-2000, the price of home heating oil virtually doubled in some
Northeastern states while storage levels of middle distillate stocks—the range of home heating oil
and diesel fuels—sharply declined. The situation attracted lawmakers’ attention and concern. Of
the U.S. households that use heating oil to heat their homes, 69% reside in the Northeast. The
Northeastern states continue to rely on heating oil as a source of home heating, but at a reduced
level of dependency compared to 2000. The Northeast demand for home heating oil has declined
by 47% since 2000, from nearly 7 billion gallons to 3.6 billion gallons in 2011. However, the
price of heating oil has increased more than 2½ times from roughly $1.50 per gallon beginning in
2000 to just over $4.00 gallon in early 2013. The price increase reflects the trend in the price of
crude oil.
Both population and housing occupancy rates ostensibly drive heating oil demand. Both increased
in the Northeast over the past decade. At the same time, improved insulation and more energy-
efficient heating systems in newly constructed homes may have offset demand. As a percent of
overall domestic demand for natural gas, the Northeast region has remained nearly steady,
varying between 20% and 22%, and recently returned to a level barely above 2001-2002 demand.
Natural gas, electricity, bottled propane, and wood can substitute for heating oil. Natural gas
demand in 2011 barely exceeded the 2000 demand. While natural gas production in the Northeast
has increased because of unconventional gas shale development, the existing pipeline distribution
system has not expanded in the New England States. Retail electricity sales have increased in
New York and Pennsylvania, the two most populous states in the Northeast, while sales in the
New England states remained nearly level. While the Energy Information Administration (EIA)
does obtain volume data on residential propane sales, it does not publish this data. However, U.S.
propane residential prices did rise from $1 per gallon in 2000 to over $2.80 per gallon in 2012.
Residential use of kerosene has also declined.
In response to the 1999-2000 heating oil price spike and supply shortage, the United States
Congress authorized the Northeast Home Heating Oil Reserve (NHHOR) in the Energy Policy
Act of 2000 (P.L. 106-469). As a two million barrel emergency stockpile of government-owned
heating oil, NHHOR was intended to meet roughly 10 days of demand by the Northeastern states
at the time it was created. Congress also authorized the National Oilheat Research Alliance
(NORA) to develop projects for the research, development, and demonstration of clean and
efficient oilheat utilization equipment; and to operate programs that enhanced consumer and
employee training.
Middle-distillate range petroleum products can serve as a heating and transportation needs. In its
13-year history, NNHOR has only released fuel for use by federal, state, and local emergency
responders during natural disasters and not for retail sales during market dislocations. While the
release demonstrated the utility of maintaining a distillate stockpile, the authorizing legislation
had only anticipated a heating oil supply shortage during market dislocation. The recent change
out of NHHOR stocks with ultra-low sulfur distillate increased its utility as a transportation fuel.
In the absence of NHHOR, residential consumers have the recourse of substituting ultra-low
sulfur diesel fuel for their heating needs.
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The Northeast Home Heating Oil Reserve and the National Oilheat Research Alliance
Contents
Background ...................................................................................................................................... 1
Northeast Heating Oil Demand and Price ................................................................................. 2
Northeast Demand for Alternative Heating Fuels ..................................................................... 5
Electricity .................................................................................................................................. 6
Northeast Population and Housing Unit Occupancy ................................................................. 7
Northeast Home Heating Oil Reserve ............................................................................................. 8
Drawdown Authority ................................................................................................................. 9
Drawdowns .............................................................................................................................. 10
Sale and Exchange for Ultra Low Sulfur Oil .................................................................... 10
Hurricane Sandy, October 2012 ........................................................................................ 10
National Oilheat Research Alliance ............................................................................................... 11
Function and Operation ........................................................................................................... 11
Funding Source ........................................................................................................................ 12
Spending Issues ....................................................................................................................... 13
Lobbying Prohibitions ............................................................................................................. 16
Conclusions .................................................................................................................................... 16
Figures
Figure 1. U.S. Total Distillate Sale/Deliveries to Northeast Residential Customers ....................... 2
Figure 2. State by State Comparison of Heating Oil Demand ......................................................... 3
Figure 3. U.S. No. 2 Heating Oil Residential Price ......................................................................... 4
Figure 4. U.S. Crude Oil Composite Acquisition Cost by Refiners................................................. 4
Figure 5. Northeast Natural Gas Transmission Pipeline Infrastructure ........................................... 5
Figure 6. Natural Gas Use by Northeast Residents .......................................................................... 6
Figure 7. Retail Electricity Sales to Residential Customers ............................................................ 7
Figure 8. Northeast Occupied Housing Units .................................................................................. 8
Figure 9. NORA Revenue by Funding Source............................................................................... 13
Figure 10. NORA Expenses and Spending .................................................................................... 15
Tables
Table 1. Northeastern States Population 2000 through 2010 ........................................................... 8
Table 2. NORA Assessment Revenue 2001-2011 .......................................................................... 12
Table 3. NORA Expenses and Spending During Assessment Authorization 2001-2011 ............... 14
Table B-1. Total Distillate Sales/Deliveries to Northeast Residential Customers ......................... 20
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Appendixes
Appendix A. Definitions of Distillate Fuel Categories .................................................................. 18
Appendix B. Northeast Fuel Oil Sales ........................................................................................... 20
Contacts
Author Contact Information........................................................................................................... 20
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The Northeast Home Heating Oil Reserve and the National Oilheat Research Alliance
Background
A number of factors may have contributed to the near doubling of heating oil prices in some
Northeastern states during the winter of 1999-2000, but the most significant may have been the
sharply lower storage levels of middle distillate stocks (the range of home heating oil and diesel
fuels) at the time. The acute conditions drew the concern of many Northeastern lawmakers
because 69% of the U.S. households that used heating oil were located in the Northeast.1 The
region continues to rely on heating oil as a source of home heating, but at a sharply reduced level.
Alternative heating fuels may be responsible for the reducing the dependency, as may
improvements in home heating and insulation. Heating oil prices continue to remain high, as do
other petroleum products and the price of crude oil, which may be discouraging use. These
factors raise the question of whether the region still depends on heating oil to the extent it did
over a decade ago, and whether Congress should continue to monitor the region’s heating oil
supply.
Heating oil (alternatively referred to as fuel oil) is a middle-distillate refined petroleum product
comparable to diesel fuel and even jet fuel (except for additives and sulfur content). The
similarity of these fuels allows one to substitute for the other under certain conditions.2 However,
taxation and air emission regulations differ based on use, and availability is seasonally dependent
and subject to price volatility.
Middle distillate intended for use as fuel oil is exempt from the $0.244 per gallon excise tax that
the Internal Revenue Service (IRS) currently imposes on highway diesel fuel.3 Other middle
distillate fuels are tax-exempt or subject to a reduced tax rate, including those used for heating,
for farming, by state or local governments or non-profit educational organizations, and by boats
engaged in fishing or transportation.
Both the Internal Revenue Service (IRS) and the Environmental Protection Agency (EPA) have
required refiners to add red dye4 to certain classes of middle distillate fuel, but for different
reasons:
• The IRS—to prevent tax evasion by using exempt high-sulfur and low-sulfur
middle-distillate for highway transportation use (a $10 per gallon penalty may
apply to red-dyed middle-distillate fuel used as on-highway transportation fuel).
• The EPA—to identify diesel fuel with high-sulfur content to ensure that it is not
used in on-highway vehicles (the introduction of ultra-low sulfur diesel (ULSD)
now reduces that possibility).5
1 “Northeast” means the nine states of Connecticut, Maine, Massachusetts, New Hampshire, New Jersey, New York,
Pennsylvania, Rhode Island, and Vermont.
2 No. 1 fuel oil, No. 2 fuel oil, and No. 3 fuel oil are variously referred to as distillate fuel oils, diesel fuel oils, light fuel
oils, gasoil, or just distillate. See Appendix A of this report for further descriptions.
3 26 U.S.C. §4081.
4 The Clean Air Act, however, does not give EPA specific authority to regulate heating oil or its sulfur content. For
these reasons, Solvent Red 164 dye is to added middle-distillate to indicate that it can only be sold as heating oil (with
at least a $0.244 per gallon discount to diesel fuel).
5 A 15 parts per million (ppm) sulfur specification, known as Ultra Low Sulfur Diesel (ULSD), was phased in for
highway diesel fuel from 2006-2010. Diesel engines equipped with advanced emission control devices (generally, 2007
and later model year engines and vehicles) must use highway ULSD fuel. Low sulfur (500 ppm) and Ultra Low Sulfur
(continued...)
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Heating oil demand is seasonal, and U.S. refineries prepare for it by switching their product slates
during late summer to begin producing and stockpiling both heating oil and winter gasoline
blends.6 During these “turnarounds,” summer gasoline typically sees a price drop, and diesel fuel
and heating oil see a price increase.
Northeast Heating Oil Demand and Price
The demand for home heating oil in the Northeast has been declining over the last decade (Figure
1). In 2000, Northeast residential customers consumed nearly 5.2 billion gallons (123.7 million
barrels). By 2011 the (latest information available), consumption declined by 43% to 2.9 billion
gallons (70.9 million barrels).
Figure 1. U.S. Total Distillate Sale/Deliveries to Northeast Residential Customers
Source: U.S. Energy Information Administration, U.S. Total Distillate Sales/Deliveries to Residential Consumers,
http://tonto.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=KD0VRSNUS1&f=A.
Notes: Connecticut, Maine, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Rhode
Island, and Vermont.
All states in the Northeast have experienced a decline in heating oil demand (Figure 2) since
2000. New York, the largest consumer of residential heating oil, dropped 52% from 1,549 million
gallons in 2000 to 739 million gallons in 2011. Rhode Island, the smallest consumer, experienced
an 8.8% drop from 118.5 million gallons in 2000 to 108.1 million gallons in 2011.
(...continued)
Diesel (ULSD) fuel will be phased in for non-road, locomotive, and marine (NRLM) engines from 2007-2014.EPA,
Diesel Fuel, http://www.epa.gov/otaq/fuels/dieselfuels/index.htm.
6 CRS Report R41478, The U.S. Oil Refining Industry: Background in Changing Markets and Fuel Policies, by
Anthony Andrews et al.
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Figure 2. State by State Comparison of Heating Oil Demand
Source: U.S. Energy Information Administration, U.S. Total Distillate Sales/Deliveries to Residential Consumers,
http://tonto.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=KD0VRSNUS1&f=A
Notes: Million Gal ons
Date
CT ME MA NH NJ NY PA RI VT
2000
621.0 305.9 899.0 201.3 449.8 1,549.2 919.5 143.4 107.8
2011
411.1 203.1 590.2 131.4 184.1 739.4 559.5 108.1 70.9
See Appendix B for more detail.
While the Northeast demand for home heating oil declined, the oil price increased from roughly
$1.50 per gallon beginning in 2000 to just over $4.00 gallon in early 2013 (Figure 3). The price
trend reflected the trend in the composite cost of crude oil acquired by U.S. refiners (Figure 4),
particularly the crude oil price spike in 2008 and the precipitous price drop that followed in 2009.
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Figure 3. U.S. No. 2 Heating Oil Residential Price
Dollars per gallon
Source: U.S. Energy Information Administration, U.S. No.2 Heating Oil Residential Price (Dollars per Gallon),
http://tonto.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=M_EPD2F_PRS_NUS_DPG&f=M.
Note: Price is in nominal dollars, not adjusted for inflation.
Figure 4. U.S. Crude Oil Composite Acquisition Cost by Refiners
Dollars per barrel
Source: U.S. Energy Information Administration, U.S. Crude Oil Composite Acquisition Cost by Refiners (Dollars per
Barrel), http://tonto.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=R0000____3&f=M.
Notes: Price is in nominal dollars, not adjusted for inflation.
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Northeast Demand for Alternative Heating Fuels
Other fuels that can substitute for heating oil include natural gas, electricity, bottled propane, and
wood. This raises the question whether residential consumers may have switched from heating oil
to other available fuels. The availability of natural gas depends on the availability of transmission
and distribution pipelines. At least 20 interstate natural gas transmission pipelines serve the
northeast region of the United States (Figure 5). 7 This pipeline system delivers natural gas to
several intrastate natural gas pipelines and at least 50 local distribution companies in the region.
In addition to the natural gas produced in the region, several long-distance natural gas
transmission pipelines supply the region from the southeast into Virginia and West Virginia, and
from the Midwest into West Virginia and Pennsylvania. Canadian imports come into the region
principally through New York, Maine, and New Hampshire. Liquefied natural gas (LNG) supplies
also enter the region through the import terminals in Boston Harbor (Massachusetts) and New
Brunswick, Canada.8 As shown in Figure 5, service to the far northeastern states is limited.
Natural gas produced from Pennsylvania’s Marcellus shale, which could serve the Northeast, did
not begin to come on line until after 2008, and the pipeline infrastructure to deliver this gas has
not expanded in the New England states.
Figure 5. Northeast Natural Gas Transmission Pipeline Infrastructure
Source: Energy Information Administration, Office of Oil & Gas, Natural Gas Division, Gas Transportation
Information System, http://www.eia.doe.gov/pub/oil_gas/natural_gas/analysis_publications/ngpipeline/
northeast.html.
Notes: Includes Connecticut, Delaware, Massachusetts, Maine, New Hampshire, New Jersey, New York,
Pennsylvania, Rhode Island, Virginia, and West Virginia.
7 U.S. Energy Information Administration, Natural Gas Pipelines in the Northeast Region, http://www.eia.doe.gov/
pub/oil_gas/natural_gas/analysis_publications/ngpipeline/northeast.html.
8 The Cove Point Terminal in Maryland is undergoing conversion to an export terminal.
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However, as a percent of overall domestic demand for natural gas, the Northeast region has
remained nearly steady, varying between 20% and 22% since 2000. After 2000, the Northeast
demand varied somewhat through 2006, and then leveled off in the years since (Figure 6) and
returned to a level barely above 2001-2002. If heating oil users were switching to an alternative
heating fuel, it was not apparent that natural gas was the choice. Residential use of kerosene also
declined.9 While the Energy Information Administration (EIA) does obtain volume data on
residential propane sales, it does not publish this data.10 Bottled gas (propane) also serves as a
heating fuel. However, the price of residential propane prices rose from $1 per gallon in 2000 to
over $2.80 per gallon in 2012, suggesting that it did not offer a more economic alternative.11
Figure 6. Natural Gas Use by Northeast Residents
Source: U.S. Energy Information Administration, Natural Gas Consumption by End Use, http://www.eia.gov/dnav/
ng/ng_cons_sum_dcu_nus_a.htm.
Notes: Connecticut, Maine, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Rhode
Island, and Vermont.
Electricity
The residential demand for electricity by Northeastern states has been rising. Consumption and
growth appeared greatest in the most region’s populous states—New York (population 19.4
million) and Pennsylvania (12.7 million). (See Figure 7.) Both states also saw dramatic declines
in natural gas demand (Figure 2) suggesting that some switching to electricity for heating may
have occurred. In contrast, New Hampshire-Rhode Island-Vermont saw minimal increase in
electricity demand, but still saw substantial drops in natural gas demand.
9 U.S. Energy Information Administration, Adjusted Sales of Kerosene by End Use, http://www.eia.gov/dnav/pet/
pet_cons_821kera_dcu_R1Y_a.htm.
10 U.S. Energy Information Administration, Short‐Term Energy Outlook Model Documentation: Regional Residential
Propane Price Model, http://www.eia.gov/forecasts/steo/documentation/propane.pdf.
11 U.S. Energy Information Administration, U.S .Propane Residential Price, http://www.eia.gov/dnav/pet/hist/
LeafHandler.ashx?n=PET&s=M_EPLLPA_PRS_NUS_DPG&f=M.
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Figure 7. Retail Electricity Sales to Residential Customers
2000-2011
Source: U.S. Energy Information Administration, State Historical Table for 2011, http://www.eia.gov/electricity/
data/state/.
Northeast Population and Housing Unit Occupancy
Ultimately, heating oil, natural gas, and electricity demands are a function of population and
housing. Statistics on the number of heating oil customers are not reported (if even collected).
However, trends in housing unit numbers and occupancy, as reported by the U.S. Census Bureau,
may serve as a proxy for customers. While population has increased, occupied housing rates
remained nearly constant. Increased population and housing occupancy rates inversely correlate
with heating oil demand, and even natural gas. Households were not turning to either as a
preferred heating fuel.
Generally, the Northeastern states experienced a 3.21% aggregate increase in population from
2000 (53.59 million) through 2010 (55.32 million).12 New York and Pennsylvania, the region’s
most populated states, experienced growth near the aggregate increase. (See Table 1.) The New
England states of Maine and New Hampshire, two of the least populous states, exceeded the
average population growth with increases of 4.19% and 6.53% respectively.
12 U.S. Census, 2000 and 2010.
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Table 1. Northeastern States Population 2000 through 2010
Million
Census CT MA ME NH NJ NY PA RI VT Total
2010
3.574 6.548 1.328 1.316 8.792 19.378 12.703 1.053 0.625 55.317
2000
3.406 6.349 1.275 1.236 8.414 18.976 12.281 1.048 0.609 53.594
%
Change 4.95 3.13 4.19 6.53 4.49 2.12 3.43 0.4 2.78 3.21
Source: U.S. Census for 2000 and 2010
In 2000, the Census Bureau reported just over 22.1 million housing units with 91.5% occupancy
(20.3 million) for the Northeast states. By 2010, housing units increased to 23.6 million with
89.7% occupancy (21.2 million). That is, the number of occupied housing units increased by
roughly 0.9 million. Furthermore, each Northeast state experienced the same state of change. (See
Figure 8.)
Figure 8. Northeast Occupied Housing Units
2000 vs. 2010
Source: U.S. Census Bureau, Housing Characteristics: 2000 (Oct. 2001), and Housing Characteristics: 2010 (Oct.
2011).
Northeast Home Heating Oil Reserve
In response to the 1999-2000 heating oil price spike and supply shortage, Congress authorized the
Secretary of Energy to establish the Northeast Home Heating Oil Reserve (NHHOR) in the
Energy Act of 2000 (P.L. 106-469). As a 2 million barrel emergency stockpile of Government-
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owned heating oil, NHHOR was intended to meet roughly 10 days of demand by the Northeastern
states at the time it was created.13 The regional reserve reached its full capacity by the middle of
October 2000 at two sites in New Haven, CT, and terminals in Woodbridge, NJ, and Providence,
RI. The NHHOR mission is to supplement commercial fuel supplies should the region either face
or experience a severe disruption to normal supplies.
The 2000 Act included established NHHOR as part of the broader Strategic Petroleum Reserve
(SPR), and the FY2001 Interior Appropriations Act (P.L. 106-291) made $8 million from the SPR
account available to maintain NHHOR.14
Drawdown Authority
The 2000 Energy Act authorized the Secretary of Energy to drawdown or sell NHHOR heating oil
when a Presidential determination is made that there is a severe energy supply interruption, either
due to a “dislocation in the heating oil market,” or a “regional supply shortage of significant
scope and duration.” The act defined a dislocation as a price differential between crude oil
(reflected in an industry daily publication such as “Platt’s Oilgram Price Report” or “Oil Daily”)
and No. 2 heating oil, as reported in the Energy Information Administration’s retail price data for
the Northeast, that
• increases by more than 60% over its five-year rolling average for the months of
mid-October through March (considered as a heating season average),
• continues for seven consecutive days, and
• continues to increase during the most recent week for which price information is
available.
The Energy Secretary can offer NHHOR oil through a competitive bid process, or exchange it
through an agreement that replaces the original volume with an added volume as repayment
premium.
The act’s language was cause for controversy. Opponents of establishing a regional oil reserve
argued that its use might be inappropriate, and the potential availability of the reserve could be a
disincentive to private suppliers to maintain their inventories at sufficient levels. The intent of
defining a dislocation was to make the threshold for use of the regional reserve high enough so
that it would not discourage oil marketers and distributors from building up heating oil stocks.
The President could also authorize a release of the NHHOR in the event that a “circumstance
exists (other than the defined dislocation) that is a regional supply shortage of significant scope
and duration, the adverse impacts of which would be “significantly” reduced by use of the
NHHOR.”
13 42 U.S.C. § 6250.
14 See CRS Report R42460, The Strategic Petroleum Reserve: Authorization, Operation, and Drawdown Policy, by
Anthony Andrews and Robert Pirog.
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Drawdowns
During mid- and late December 2000, heating oil prices breached the 60% differential. However,
this was due to a sharp decline in crude prices rather than to a rise in home heating oil prices. In
fact, home heating oil prices were drifting slightly lower during the same reporting period. While
the 60% differential was satisfied, other conditions requisite to authorizing a drawdown of the
NHHOR were not met.
A general strike in Venezuela that began in late 2002 resulted, for a time, in a loss of as much as
1.5 million barrels of daily crude supply to the United States. With refinery use lower than usual
because of less crude reaching the United States, domestic markets for home heating oil had to
rely on refined product inventories to meet demand during a particularly cold winter. Prices rose,
and there were calls for use of the NHHOR; still, the price of heating oil fell significantly short of
meeting the guidelines for a drawdown.
Neither the 2000 heating oil price spike nor the 2002 Venezuela strike led to a determination to
drawdown NHHOR.
Sale and Exchange for Ultra Low Sulfur Oil
During February 2011, DOE conducted a turnover of the 1,984,253-barrel Northeast Home
Heating Oil Reserve for the purpose of converting its high sulfur (2,000 parts per million) stocks
to cleaner burning ultra-low sulfur distillate (15 parts per million). On February 3, DOE sold
984,253 barrels stored at the Hess First Reserve Terminal in Perth Amboy, NJ. On February 10,
DOE sold 1,000,000 barrels from two storage sites in Connecticut: Hess Groton Terminal and the
Magellan New Haven Terminal. DOE received approximately $227 million from the sale and
used the receipts to the purchase ultra-low sulfur distillate during the summer 2011. (DOE would
have realized $114.40/barrel or $2.72 per gallon, compared to $2.80 per gallon wholesale price
for U.S. No. 2 Distillate.15)
Hurricane Sandy, October 2012
In late October 2012, Hurricane Sandy struck the Northeast, Mid-Atlantic, and the Great Lakes
region with devastating winds, rain, snow, and tidal surges. President Obama responded by
declaring that the storm had created a severe energy supply interruption and directed the
Department of Energy to transfer emergency fuel from the Reserve to the Department of Defense
(DOD) for its use in emergency operations and support for those in the region affected by the
storm. At the time, transportation fuel was in short supply. The Defense Logistics Agency-Energy
transferred fuel from the Hess Terminal in Groton, CT, and distributed it to state, local and federal
responders in the New York/New Jersey area. Although designated a heating fuel, it may have
served as a transportation fuel as DOD relies on diesel-fueled vehicles for logistical support.
Following a major snowstorm that hit the Northeast in November 2012 and compounded relief
efforts there, DOE received two more requests for NHHOR fuel. It was not reported whether the
fuel served heating needs or transportation needs.
15 U.S. Energy Information Administration, U.S. No. 2 Distillate Wholesale/Resale Price by All Sellers (Dollars per
Gallon), http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=EMA_EPD2_PWA_NUS_DPG&f=M.
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In total, the Reserve released over 120,000 barrels (more than 5 million gallons) of fuel to support
emergency relief efforts. Under its agreement with DOE, DOD replenished the Reserve with an
equal volume of ultra-low sulfur diesel. Hurricane Sandy and the subsequent snowstorm marked
the first time that emergency withdrawals were made from the Northeast Home Heating Oil
Reserve, although the release may have satisfied both domestic heating and transportation needs.
National Oilheat Research Alliance
Congress also authorized the National Oilheat Research Alliance (NORA) in the 2000 Energy Act
to develop projects for the research, development, and demonstration of clean and efficient
oilheat utilization equipment; and to operate programs that enhanced consumer and employee
training. NORA was a not-for-profit industry trade association of heating oil suppliers conceived
of, and chartered under, Title VII of the act. As such, it was exempt from taxation under Section
501(c) of the Internal Revenue Code of 1986. NORA fell into a category of federally authorized
programs known as check-off programs. To fund check-off programs, a fraction of the wholesale
cost of a product is set aside by the producer and deposited into a common fund to be used to
benefit producers and consumers.
Title VII included the provision in Section 713 (Sunset) that limited NORA’s authorization to four
years after establishment (February 2001). Section 302 (National Oilheat Research Alliance) of
the 2005 Energy Policy Act (P.L. 109-58) amended Title VII to extend the sunset provision to
nine years after NORA’s establishment date, effectively extending it to February 2010. NORA
actually ceased operation at the end of 2011, more than a year beyond its sunset date, while it
disbursed remaining funds. Although Title VII, Section 704 Referenda, paragraph (c)—
Termination or Suspension authorized NORA to hold a referendum to determine whether the
oilheat industry favored termination or suspension of the alliance, there is no indication of
industry interest in doing so.
Function and Operation
NORA started operation on February 6, 2001, and started collecting fees on March 1, 2001.
Marketers and suppliers in 23 states and the District of Columbia chose to participate in NORA.16
Section 706 (Functions) authorized NORA to develop programs and projects, and enter into
contracts to implement programs for
1. consumer and employee safety and training;
2. research, development, and demonstration of oilheat equipment; and
3. consumer education.
Section 706 specifically excluded advertising or promotions, and research on oilheat equipment
that had already been verified as technically feasible.
16 Connecticut, Delaware, Idaho, Indiana, Kentucky, Maine, Maryland, Massachusetts, Michigan, Nevada, New
Hampshire, New Jersey, New York, North Carolina, Ohio, Oregon, Pennsylvania, Rhode Island, South Carolina,
Vermont, Virginia, Washington, Wisconsin, and Washington, DC.
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Funding Source
To fund the projects and programs, the Title VII, Section 707 (Assessments) directed wholesalers
to collect a two-tenths cent ($0.002) per gallon assessment on No. 1 distillate and No. 2 dyed
distillate at the point of sale, to be paid to the Alliance on a quarterly basis. Table 2 summarizes
NORA’s assessed fees and other generated income during the years it operated (2001 through
2011). NORA’s total revenue (including assessments, interest, other income sources, and contract
revenue) reached nearly $125 million by the end of 2011. Fee assessments represented 97% of
total revenue collected. See Table 2.
Table 2. NORA Assessment Revenue 2001-2011
Revenue in current $
Net
Assessment
Interest
Contract
Total Revenue
Calendar Year
Revenue
Income Other
Income Revenue
and Support
2001 11,055,555 77,989
-
-
11,133,544
2002 14,637,440 86,662 19,271
-
14,743,373
2003 17,447,342 43,120 337,051
-
17,827,513
2004 15,621,740 34,518 232,818
-
15,889,076
2005 8,798,154
129,841
225,633
-
9,153,628
2006 13,330,306 325,940 158,872
-
13,815,118
2007 14,001,145 314,418 146,496
-
14,462,059
2008 12,495,762 114,408 129,882
-
12,740,052
2009 12,008,689 6,068 148,715
-
12,163,472
2010 1,953,741 1,113
348,635
153,542
2,457,031
2011 -
1,069
99,994
491,332
592,395
Total 121,349,874 1,135,146 1,847,367 644,874
124,977,261
Source: NORA Annual Reports, http://www.nora-oilheat.org/site20/index.mv?screen=budgets.
Notes: Total Revenue Support = Assessment Revenue + Interest Income + Other Income.
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Figure 9. NORA Revenue by Funding Source
Source: Compiled from Table 1. NORA Expenses and Spending during Assessment Authorization 2001-2011.
Spending Issues
Title VII Section 707 ((d) Investment of Funds) authorized NORA to invest funds collected
through assessments, and any other funds received by the Alliance, only in—
(1) Obligations of the United States or any agency of the United States;
(2) General obligations of any State or any political subdivision of a State;
(3) Interest-bearing account or certificate of deposit of a bank that is a member of the Federal
Reserve System; or
(4) Obligations fully guaranteed as to principal and interest by the United States.
By the end of 2011, NORA had spent $124.5 million (Table 3), with just $0.5 million remaining
from the $125 million collected in assessments (Table 2). NORA spent nearly 75% ($92 million)
of its assessments in the form of state grants (Figure 10). NORA’s general and administrative
expenses represented slightly more than 6% ($7.6 million) of overall spending.
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Table 3. NORA Expenses and Spending During Assessment Authorization 2001-2011
Expense in current $
Cal.
Research and
Education
State
Tank
General
Consumer
Special
Total
Year Development andTraining
Grants
Insurance
Admin.
Education
Projects
Expenses
2001 380,431
380,431
8,084,149
-
1,104,991
- -
9,950,022
2002 554,271
554,271
11,772,201
-
1,046.109
- -
13,926,852
2003 1,207,679 707,679
12,027,305
-
1,421,878
2,254,292 -
17,618,833
2004 641,000
641,000
12,951,662
150,000
1,259,044
490,496 -
16,133,202
2005 1,000,000 120,000
4,220,343
150,000
571,782
1,000,000
502,464
7,564,589
2006 637,862
662,862
11,502,559
-
520,275
1,548,000
477,682
15,349,240
2007 580,114
645,114
10,733,674
-
556,266
1,468,000
638,888
14,622,056
2008 777,114
645,114
9,123,651
-
591,931
1,110,000
476,076
12,723,866
2009 777,114
300,000
9610,877
-
607,280
910,000
361,174
12,566,445
2010 89,321
150,000
1,954,802
-
502,693
1,394
233,636
2,931,846
2011 506,553 1,077 -
-
432,539
4,267
138,184
1,082,620
Total 7,151,459
4,807,548
91,981,233
300,000 7,569,725
8,786,449
2,828,104
124,469,571
Source: NORA Annual Reports, http://www.nora-oilheat.org/site20/index.mv?screen=budgets.
Notes: NORA reported $1,905,703 in Net Assets Remaining at the end of 2008.
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Figure 10. NORA Expenses and Spending
2001 through 2011
General & Consumer
Tank Insurance
Admin.
Education
0.24%
6.13%
Special Projects
7.12%
2.29%
R & D
5.79%
Education &
Training
3.90%
State Grants
74.52%
Source: Compiled from Table 3. NORA Expenses and Spending during Assessment Authorization 2001-2011.
In its 2010 report reviewing NORA activities, the Government Accountability Office (GAO)
noted that it was not clear whether the activities that NORA reported achieved strategic goals.17
Specifically
NORA’s research and development activities were generally consistent with strategic goals,
but because NORA’s strategic plan lacked goals for its consumer education, education and
training, and oil tank programs, GAO could not determine if these activities achieved desired
results.
In considering the 18 key legislative requirements in Title VII, GAO concluded that NORA
appeared to meet the requirements and did not raise significant issues.
17 U.S. Government Accountability Office, Propane and Heating Oil: Federal Oversight of the Propane Education and
Research Council and National Oilheat Research Alliance Should be Strengthened, GAO-10-583, June 2010, pp. 49-
50.
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Lobbying Prohibitions
Title VII, Section 710 on lobbying restrictions prohibited the NORA from using section 707
assessments to influence legislation or elections. It did, however, allow NORA the exception of
using Section 707 funds to formulate and submit recommendations to the Secretary of Energy for
amending Title VII or other laws that would further the purposes of NORA.
In a September 2010 audit of NORA’s activities GAO reported that18
minutes of an August 2008, NORA executive committee meeting indicated that the NORA
president said he was seeking state senators’ support for NORA reauthorization, and that a
December 2008 NORA-qualified Massachusetts state association newsletter indicated that
the NORA president traveled to Washington to urge both Massachusetts senators to support
NORA reauthorization.
However, GAO went on to report that Title VII provides no guidance on what constitutes
“influencing legislation or elections:”
there is little pertinent legislative history; no court has addressed what this language means
as used in these statutes; and other federal laws containing similar language have been
interpreted in different ways. As such, it is not clear whether or not the Propane Act’s or the
Oilheat Act’s prohibitions cover those types of activities.
Conclusions
The Northeast’s declining heating oil demand, 47% since 2000, reflects an overall decline in
petroleum products demand nationally. In response to the 1999-2000 heating oil price spike and
supply shortage, Congress authorized a two million-barrel Northeast Home Heating Oil Reserve
(NHHOR) to meet roughly 10 days of the Northeast’s demand. At that time (2000), the Northeast
annually consumed nearly 5.2 billion gallons (123.7 million barrels). The winter heating season
typically begins October 1 and may last through May 31—some 243 days. Based on that
assumption, the rate of consumption could reach half a million barrels per day, and thus consume
the Reserve in as few as four days. Under the current consumption rate of 70.9 million barrels
annually, the Reserve could last as long as a week. Heating fuel shortages are more likely to occur
toward the end of the heating season, which lengthy or late-season cold spells may exacerbate.
During such episodes, homeowners have the recourse of purchasing diesel fuel (although at a
higher price), as do homeowners who run out of heating oil before their scheduled deliveries.
No single factor explains the Northeast’s declining demand for heating oil. Although steady price
increases appear to correlate with declining demand, consumers may have responded by using
less heating oil. It is not apparent that residential consumers switched to natural gas, bottled gas,
or kerosene. A rise in electricity sales could suggest some displacement of heating oil, but could
also correlate with increased population and new home construction. Both housing stock and
occupancy rates increased over the 2000 through 2011timeframe, suggesting an increased
18 U.S. Government Accountability Office, Propane and Heating Oil—Federal Oversight of the Propane Education and
Research Council and National Oilheat Research Alliance Should be Strengthened, GAO-10-981T, September 29,
2010, pp. 6-7, http://www.energy.senate.gov/public/index.cfm/files/serve?File_id=5e0792b7-a0b4-2908-4e0b-
1127615fddcf.
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demand for residential heating. However, more energy-efficient and better-insulated new houses
could have replaced older units. Newer, more efficient oilheat furnaces could have replaced older
units, which state grants (Table 3) may have subsidized (or aided financially distressed
homeowners with their heating oil bills).
In its 13-year history, NNHOR has only released fuel in response to distillate fuel shortages
during natural disasters, and not in response to a market dislocation. (The overall short supply of
transportation fuels and blocked roads in the regions affected by Hurricane Sandy and winter
snowstorms also prevented commercial fuel deliveries to residential heating customers.) While
the release demonstrated the utility of maintaining a distillate stockpile, the original authorizing
legislation had not anticipated that role. Critics of NNHOR might argue that while maintaining
NNHOR better prepares the Northeast for natural disasters, it shortchanges preparedness in other
regions of the United States. Supporters might counter that the Northeast lies beyond the product
pipeline system that supplies the mid-Atlantic region with fuel refined in the Gulf Coast (but for
that matter so does the West Coast and the Mid-Continent).19
NNHOR does not appear to have influenced heating oil prices the way that the threat of releasing
crude oil from the Strategic Petroleum Reserve might influence crude oil prices.20 Commodity
traders are likely to bid up heating oil futures contracts early in the season, if long-term weather
forecasts call for a colder winter. Heating oil futures contracts will also reflect crude oil price
futures. Observers may interpret these trading patterns as speculative bidding that is driving
prices higher. However, to guarantee and lock in future supplies, heating oil brokers may be
compelled to enter higher bids.
Independent retail marketers tend to respond to more local market conditions and shorter
timeframes. Price increases (or decreases) reflect the marketer’s expectation of the cost to replace
their current fuel stocks in order to stay in business. In authorizing NNHOR, policy makers
sought to avert the “price gouging” reported to occur prior to and during fuel shortages. In
defense of marketers, consumers only become aware of impending shortages through a price
signal, i.e., a price spike. No more direct signal exists to inform consumers of the need to
conserve, and nor more immediate mechanism exists to allocate at least a minimum amount of
fuel while discouraging hoarding. The reluctance to tap NNHOR may have influenced consumers
to conserve fuel as prices escalated over time (very much in line with overall energy conservation
policy). The presence of NNHOR may have instilled some confidence that a supply shortage
would be temporary. Nevertheless, NNHOR challenges the notion of an “inherently
governmental” function. As demonstrated after Hurricane Sandy, NNHOR supported federal
disaster response, and policy makers may continue to justify it on that basis but not while
shortchanging other regions. Finally, as natural gas supplies increase in the region and utilities
expand their service territories, consumers may express a preference for a lower cost, more
plentiful, cleaner source of heating.
The Northeast region’s reduced dependence on heating oil and the increased availability of
alternative heating fuels raise the question of whether DOE should continue maintaining
NHHOR, and whether Congress should continue to monitor the region’s heating oil supply.
19 See CRS Report R41478, The U.S. Oil Refining Industry: Background in Changing Markets and Fuel Policies, by
Anthony Andrews et al.
20 See CRS Report R42460, The Strategic Petroleum Reserve: Authorization, Operation, and Drawdown Policy, by
Anthony Andrews and Robert Pirog.
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Appendix A. Definitions of Distillate Fuel
Categories
Distillate Fuel Oil
A general classification for one of the petroleum fractions produced in conventional distillation
operations. It includes diesel fuels and fuel oils. Products known as No. 1, No. 2, and No. 4 diesel
fuel are used in on-highway diesel engines, such as those in trucks and automobiles, as well as
off-highway engines, such as those in railroad locomotives and agricultural machinery. Products
known as No. 1, No. 2, and No. 4 fuel oils are used primarily for space heating and electric power
generation.21
No. 2 Fuel Oil (Heating Oil)
A distillate fuel oil that has a distillation temperature of 640 degrees Fahrenheit at the 90%
recovery point and meets the specifications defined in ASTM Specification D 396. It is used in
atomizing type burners for domestic heating or for moderate capacity commercial/industrial
burner units.
No. 4 Fuel Oil
A distillate fuel oil made by blending distillate fuel oil and residual fuel oil stocks. It conforms
with ASTM Specification D 396 or Federal Specification VV-F-815C, and is used extensively in
industrial plants and in commercial burner installations that are not equipped with preheating
facilities. It also includes No. 4 diesel fuel used for low- and medium-speed diesel engines and
conforms to ASTM Specification D 975.
No. 1 Distillate
A light petroleum distillate that can be used as either a diesel fuel (see No. 1 Diesel Fuel) or a fuel
oil (see No. 1 Fuel Oil).
No. 1 Diesel Fuel: A light distillate fuel oil that has distillation temperatures of 550 degrees
Fahrenheit at the 90% point and meets the specifications defined in ASTM Specification D
975. It is used in high-speed diesel engines generally operated under frequent speed and load
changes, such as those in city buses and similar vehicles.
No. 1 Fuel Oil: A light distillate fuel oil that has distillation temperatures of 400 degrees
Fahrenheit at the 10% recovery point and 550 degrees Fahrenheit at the 90% point and meets
the specifications defined in ASTM Specification D 396. It is used primarily as fuel for
portable outdoor stoves and portable outdoor heaters.
21 Rick Wallace, Definitions of EIA Distillate Categories and Fuels Contained in the Distillate Grouping, U.S.
Department of Energy.
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No. 2 Distillate
A petroleum distillate that can be used as either a diesel fuel (see No. 2 Diesel Fuel) or a fuel oil
(see No. 2 Fuel Oil).
No. 2 Diesel Fuel: A fuel that has distillation temperatures of 500 degrees Fahrenheit at the
10% recovery point and 640 degrees Fahrenheit at the 90% recovery point and meets the
specifications defined in ASTM Specification D 975. It is used in high-speed diesel engines
that are generally operated under uniform speed and load conditions, such as those in railroad
locomotives, trucks, and automobiles.
No. 2 Diesel Fuel, High Sulfur: No. 2 diesel fuel that has a sulfur level above 500 ppm.
No. 2 Diesel Fuel, Low Sulfur: No. 2 diesel fuel that has a sulfur level between 15 ppm and
500 ppm (inclusive). It is used primarily in motor vehicle diesel engines for on-highway use.
No. 2 Diesel Fuel, Ultra Low Sulfur Diesel (ULSD): No. 2 diesel fuel that has a sulfur level
below 15 ppm. It is used primarily in motor vehicle diesel engines for on-highway use.
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Appendix B. Northeast Fuel Oil Sales
Table B-1. Total Distillate Sales/Deliveries to Northeast Residential Customers
Million Gallons
Date CT MA ME NH NJ NY PA RI VT Total
2000 621.0 899.0 305.9 201.3 449.8 1,549.2 919.5 143.4 107.8 5,196.9
2001 579.5 949.7 291.8 192.7 403.4 1,555.0 888.8 151.8 94.6 5,107.2
2002 565.7 953.2 291.5 179.9 390.9 1,420.9 885.7 144.9 91.3 4,924.2
2003 682.4 901.2 393.9 221.3 459.6 1,509.8 992.6 165.3 102.6 5,428.7
2004 713.2 810.2 414.0 223.6 415.2 1,435.6 939.7 163.1 113.0 5,227.5
2005 626.0 773.3 353.7 201.2 369.4 1,471.2 835.0 156.7 94.7 4,881.3
2006 525.8 638.0 303.0 172.8 288.7 1,092.7 689.2 117.0 86.4 3,913.6
2007 537.8 655.1 299.2 167.8 310.5 1,241.7 707.0 122.2 89.0 4,130.2
2008 541.6 677.9 257.1 169.7 342.2 1,207.8
1,138.8 122.2 80.2 4,537.5
2009 506.2 581.8 220.1 138.2 270.6 845.8 542.2 124.1 82.4 3,311.3
2010 460.9 590.2 188.9 122.8 220.3 800.1 598.3 118.5 67.7 3,167.8
2011 411.1 569.3 203.1 131.4 184.1 739.4 559.5 108.1 70.9 2,976.9
Source: U.S. Energy Information Administration, U.S. Total Distillate Sales/Deliveries to Residential
Consumers (Thousand Gal ons), http://tonto.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=KD0VRSNUS1&f=
A.
Notes: Does not include diesel fuel for on-highway use.
Author Contact Information
Anthony Andrews
Specialist in Energy Policy
aandrews@crs.loc.gov, 7-6843
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