Turning now to the general area of regulation, auditing, and enforcement, let me say that it is here that the DOE is creating the most serious problem. It is here that the greatest damage has been done to the independent sector of the petroleum business. It is there that the DOE is most flagrantly violating the mandates of Congress to strengthen the competitive viability of independent marketers.

We cannot overemphasize the malaise and discouragement of the independent sectors. This is a direct result of continued enforcement proceedings in which the DOE finds violations of the regulations where none, in fact, exist.

Let me explain that. I know, Mr. Chairman, that sitting in this committee and sitting last year on the Energy Conference Committee, it has probably been frustrating for you in many ways. On the other hand, you are dealing with a national issue of great importance

Senator DURKIN. This is a pleasure compared to natural gas.

Mr. BUCKLEY. And from time to time you see legislation that you initiate or legislation that you strongly support get enacted into law, the law of the land. And that is a very gratifying experience, I am sure. And it makes up for all the frustrations.

Well, we, in a very small way, are in business-we are in business because we like to be. We like the competitive market. We like to compete with the big boys and beat them. Our success is measured in terms of growth and it is very frustrating when big government steps in and steps on us. And we find that even though we compete in the marketplace, we can't compete with big government.

The fun goes out of the business and it is extremely discouraging and leads many, many companies to the conclusion that they ought to just get out. Let me explain: When the price regulations were first promulgated in August 1973, they were written in a manner which was extremely confusing and unnecessarily complex.

And the method mandated for establishing maximum selling prices was unrelated to general pricing methods employed in the industry. Moreover, the regulations were substantially revised six times before the close of 1973. And it was more than 1 year after initial promulgation before the agency began issuing rules clarifying their meaning.

As a result of this inconsistent and complex regulatory program, the average fuel oil and gasoline marketer did not and could not fully understand the law that governed his actions during the first year of the program. The average marketer was essentially concerned with maintaining his business, with obtaining product for his cutomers during a time of severe supply crisis.

He made an honest effort to conduct his business in compliance with regulations as a reasonable man might interpret those requirements to be. However, in its auditing of marketers' compliance with the regulations during the beginning of the program, November 1, 1973, until April 30, 1974, DOE has been ignoring the context in which the regulations were promulgated and were followed.

The Agency applies the regulations very strictly, as if they were perfectly clear at the time of promulgation and as if the marketer had full understanding of their meaning. DOE has refused to modify its review of compliance even when one good-faith error carried through the audit period resulted in a large violation, far in excess of the earn

ings of the company in question, and when it is clear that strict application of the rules will destroy the company being audited.

DOE's narrow interpretation of its regulations without reference to the objectives and purposes of their enabling legislation has resulted in the meaningless computation of numbers and their application in a manner that is disastrous to independent marketers. Many of the larger refining companies have responded by taking the Department to court and in a series of recent court decisions throughout the Nation, the DOE has been overruled and subjected to bitter criticism for its failure to follow the mandates of Congress and for its flagrant abuse of power.

Rarely have the courts been so unanimous in their condemnation of an agency of Government. Let's look at some of the judges' comments so that the committee can get a feel for what we are up against.

First, the Phillips case, U.S. District Court, Delaware, March 9, 1978. The judge ruled against the DOE on a retroactivity issue and said, in part:

** the simplicity of this explanation is appealing, but it demonstrates only the ability of the FEA lawyers after 2 years of trying to create an appearance of order and clarity in an area where the record shows nothing but confusion actually existed. The torturous path FEA has asked this court to follow in these cases represents a poor substitute for straightforward language.

Or take the Husky case, U.S. District Court, Wyoming, March 14, 1978. The judge, in finding against the Department of Energy said:

Such a result was never contemplated by Congress. The EPAA specifically mandates that the competitive viability of the small independent refiner be maintained to the maximum extent practicable. The Congress in no uncertain terms underscored that point with the enactment of the section 403 exemption. That intent has consistently been reflected in subsequent orders and decisions of the defendant. DOE appears to ignore the operating viability of this small refiner in this case alone. The defendant's conduct towards Husky in this matter can only be termed arbitrary, capricious, and discriminatory. The locking of a plaintiff into a negative profit margin on the basis of unsupported speculation relating to accounting methods and the consideration of Husky's production activities was improper, not only in the light of actual facts, but also in the light of DOE's own decisions.

Strong language.

Or take the Shell case of April 5, 1978, a little over a week ago. The temporary emergency court of appeals, in finding against DOE said: "However, the deficiencies of the rulemaking procedures in this case were more than technical. They defeated the process.

Finally, let's look at the Sohio case, U.S. district court

Senator DURKIN. Mr. Buckley, excuse me just a second. Someone reading the record later on may not be familiar with all the details of these cases. During your presentation to the extent the horror stories exist, could you elaborate on them?

Mr. BUCKLEY. All right. In the case that I was just discussing in northern Ohio on January 23, 1978, the U.S. District Court of Northern Ohio ruled on an FEA finding which alleged a $1.3 billion overcharge by a number of major oil companies.

The companies, with funds and with attorneys, challenged the DOE's interpretation. In finding against the FEA the judges had some language which I think underscores-judges often can tell it like it isunderscores our problems.

We, the independent segment of the market, can't take people to court. We don't have that kind of money or resources. But just this little paragraph, I think, says it very clearly:

The FEA's boondoggle in this case was not rooted in the agency's misinterpretation of its statutory authority. Instead, the FEA's colossal $1.3 billion blunder stems from its own failure to follow congressionally mandated procedures coupled with remarkably inept and self-contradictory regulations, a reg ulatory draftsmanship and administration of the cost recovery sequence issued during the fall of 1974 and all of 1975.

It is in that period of 1973, 1974, 1975 that there was complete confusion with no guidance for people except a good faith effort to make a try. It is that period the Government keeps going back to using 1975, 1976 and 1977 clarifications and applying them to 1973 and 1974.

Senator DURKIN. But you are not here today speaking for the majors.

Mr. BUCKLEY. No; I am not.

Senator DURKIN. You illustrate that as a problem with the regulations and the procedures, but the thrust is the independent marketers. Mr. BUCKLEY. That is correct. I just wanted to point out how the courts feel and how some of those court decisions are coming down in the last few months. Unfortunately, most independent marketers cannot afford to take the Government to court.

Instead, we try to work with the agency itself, as the history in the white paper on competitive viability demonstrates. But the bureaucracy has proven insensitive and unresponsive at best; at worst, the DOE, as the courts and the Justice Department have confirmed, is simply violating the law and ignoring the clear mandates of congressional statute.

In summary, despite the fact that supplies are ample, despite the fact that the market is highly competitive, despite the fact that prices are relatively stable, the DOE bureaucracy grinds on in its mindless way; the independent gasoline and fuel oil marketer is, more than 4 years after the embargo, subject to a myriad of interpretations, regulations, findings, forms, and audits.

There is no reason for the process; it is only hurting the consuming public and doing great damage to the independent marketers throughout the Nation. The Department has, we firmly believe, become the great enemy of small and independent business and the great destroyer of competition.

And that is why we are turning to this committee and to the Congress in this oversight committee. We believe you can and must, in the context of authorizing the expenditures for the coming year, adopt specific_amendments to deal with specific abuses we are presenting today. In its review we hope the committee will consider that the Sporkin report recommended that the DOE concentrate its enforcement efforts on the large integrated companies.

Despite that fact, the agency is continuing and initiating new audits of independent gasoline and fuel oil marketers and these audits are concentrating on sales in 1973 and 1974, more than 4 years ago.

Despite the clear direction from Congress that simple procedural safeguards ought to be established for the protection of independent marketers and a full review of remedial audits is to be provided before the FEA and FERC, DOE is attempting to circumvent and distort this mandate of requirements. It has issued its own procedural

regulations governing the review of proposed remedial orders and these rules were promulgated without first giving the public an opportunity to comment and prior to the issuance by FERC of the rules which will govern review procedures before that body.

Thus, we are being forced to bear a heavy and intolerable burden. In order to preserve our rights, we must under the new rules face two review proceedings instead of one.

In brief, the Department of Energy has been ignoring the mandates established by this committee and we believe, as independent marketers, through our own bitter experience that we cannot trust the Department of Energy. They will not deal with us in a straightforward way.

Äs outlined in the statement, the DOE has been regularly ignoring the mandates of Congress and the time has come, we think, for Congress to step in and stop funding this lawlessness on the part of the new Cabinet-level Department.

We, therefore, urgently and respectfully request your assistance in assuring, through the adoption of specific amendments to the fiscal year 1979 DOE authorization in the areas of regulation, auditing, and enforcement, that the agency take prompt and positive action to deal with the problems we are highlighting here today and to insure that the agency obeys the law.

We were asked by Mr. Dingell after hearings held on February 23, 1978, to work with his staff on some specific amendments to the law. We have done that. And in particular, among the clarifying amendments, we have asked for a 3-year statute of limitations on these auditing procedures that are already 4 years old.

This would apply only to civil action, not to criminal action. And if a company was under audit at the time, an additional 6 months would be granted to complete the audit.

We have also asked for a redraft of the Findlay amendment which this Congress has passed twice but which was taken out of the DOE authorization. The amendment gives clear direction to the DOE, to stop the retroactive application of rules to independent marketers.

I hope that we can work with the committee staff on these points. I would like now to turn to the final point, the Department of Energy's margin controls game. I would like to review for the committee. very briefly the history of the last year.

I will start by telling you about a meeting we had on February 2, 1978, when a group representing the Fuel Oil Advisory Committee that prepared the white paper which was given to DOE on December 5 asked for a meeting with Mr. O'Leary to review with him the results of that study.

We arrived with a number of congressional and Senate staff people to listen in and at the very beginning Mr. O'Leary attacked-he said our counsel had agreed to this new proposal which was just an absolute untruth. And when I challenged him on it. I told him that what bothered us was that his regulations and his agency were driving small businessmen right out of business.

He jumped on me and said, "John, that is an irresponsible statement. There is no proof of that. We may be a minor inconvenience, but we are not hurting anybody."

I said, "if you had read the white paper, Jack, you would see that that is not true." In fact, I can say from my own experience that Mr. O'Leary has a short memory indeed, because it was just a year ago, a little more than a year ago that Mr. Gorman Smith, head of compliance, came to New England and lectured the board of directors of the New England Fuel Institute and his message was very simple: "You boys keep those margins down or you are back under controls." He didn't go to the refiners. He didn't go to the wholesalers. He went to the independent retailer and said, "Boys, get those margins down or you are under controls."

And Mr. O'Leary got on the telephone and he called the independent wholesalers he called them at home in the nighttime and he said, get those margins down or you are back under controls. That is direct Government pressure and what do you do?

You get your margins down. You get them down to the point where you don't make any money at all-that's action that threatens the viability of independent marketers.

Senator DURKIN. Mr. Buckley, what was that, again? Gorman Smith and who else?

Mr. BUCKLEY. And Mr. Jack O'Leary.

Senator DURKIN. When was O'Leary-what time period are we talking about?

Mr. BUCKLEY. Late January, early February-just after he was appointed by the new administration.

Senator DURKIN. 1977?

Mr. BUCKLEY, 1977. That is correct.

Now, a minor inconvenience-what do you do when the highest ranking official in the whole Federal energy agency calls you and tells you to get those margins down? You get them down and you keep them down. We kept them down-our company did.

Our president was called at a dinner at night, in the middle of a dinner party with relatives. We kept them down for the rest of the winter and we sold more oil than we ever did before; 110 million gallons at retail and we ended up making $50,000-1100 of a penny on our sales per gallon.

That is not the way to grow. That is not the way to be a viable company. And it hurts.

OK. We thought we will sacrifice this year. We will be out from under at the end of March 1977 and get back into that competitive market where we can grow again. But

Senator DURKIN. Excuse me. Do you have any evidence for the record that there is a competitive market?

Mr. BUCKLEY. Let's put it this way: every study that I have ever seen, including one that was done by Professor Cooley from the University of South Carolina, including one that was done by Dr. Jesse Markham at Harvard University School of Business and a former adviser to the FTC, an expert in competition-those studies have shown, they are attached to the white paper, that this market is competitive.

In addition, just last week in Chicago the newest Department of Energy advisory group made up of half and half-half fuel oil dealers and half State energy officials and consumer representatives found that