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LINCOLN, Neb. (DTN) -- Attorneys general from Nebraska, Iowa and South Dakota have asked federal authorities to take a closer look at small refineries receiving exemptions from the Renewable Fuel Standard, alleging in a letter on Wednesday that small-refinery companies are gaming the system with claims of disproportionate economic hardship all while financial reports of some of those companies paint an opposing picture.

Iowa Attorney General Brenna Bird, Nebraska AG Mike Hilgers and South Dakota AG Marty Jackley, sent a letter to U.S. Environmental Protection Agency Administrator Lee Zeldin, U.S. Attorney General Pam Bondi, U.S. Department of Energy Secretary Christopher Wright and Paul Atkins, chairman of the U.S. Securities Exchange Commission.

"I encourage you to investigate the seemingly irreconcilable statements made by certain SRE applicants made to environmental regulators, financial regulators and investors," the AGs said.

In August the Trump administration released a notice of decision on 140 pending small-refinery exemption petitions from 2016 to 2024, granting both full and partial exemptions. Companies qualify for SREs if the produce no more than 75,000 barrels per day and are able to show disproportionate economic hardship in having to comply with RFS obligations.

Bird told the officials "both requirements may have been manipulated" by refining companies on their SRE applications.

"First, refineries are reducing their production to satisfy the 75,000 barrel per-day limitation," they said in the letter.

"That requirement should not be subject to manipulation and if a refinery has capacity beyond that cap, it should be ineligible for SRE consideration absent extenuating circumstances beyond the refiner's control. But in practice, several refineries receiving SREs are intentionally lowering their production rates for the specific purpose of maintaining SRE eligibility. In other words, certain refineries are producing less gasoline, diesel and jet fuel to enable them to ask for a government handout."

The AGs said the approach is "not only contrary to the spirit of the RFS and SRE programs, but it is also expressly against President Trump's clear policy of unleashing American energy. That sort of gamesmanship should not be rewarded."

And even more concerning is the seemingly misleading representations made in the context of some small refiners pleading "disproportionate economic harm."

They said the law requires a finding by EPA and an application from each refiner, that the SRE-recipient refineries "experienced disproportionate economic harm" in each applicable year as compared to larger refiners.

"Yet over that same period several SRE-receiving refiners communicated the exact opposite to the investment community and to the SEC -- that they were not only not disproportionately harmed, but that they were economically thriving, outperforming and out positioning their peers," according to the letter.

"Those representations regarding strong financial performance and competitive positioning are supported both by the SRE-applicants' conduct, by their SEC filings."

In addition, the same claims were made by the companies in their investor-relations materials.

The AGs said those materials highlighted low-cost operations and competitiveness; leading peers in capital return to investors and aggressively buying back shares; acquiring new refineries and/or investing in renewable fuel facilities; maintaining the optionality to acquire more renewable fuel blending capabilities; prioritizing niche markets and advantaged access to crude supply; harnessing stable demand for refined products from affiliated retail sites; fully retiring any historical RIN obligations; and issuing special dividends.

"Some SRE applicants even went so far as to publicly state that any future grants of SREs would amount to a welcome windfall," the AGs said in the letter.

In a Form 10-K filing to the SEC on Feb. 25, 2022, Delek stated, "If RINS costs stabilize, we are poise to take advantage of possible widening crack spreads and increased demand in 2022. If we receive (small-refinery exemptions), the benefit will be even more significant."

The AGs also pointed to an earnings call transcript from Aug. 6, 2025, from Par Pacific during which a company representative said, "In terms of sizing of the opportunity … I just want to clarify, any (small-refinery) exemptions and return of RINs would be upside to us. We have a balanced RIN asset and liability position today. We've covered our obligations going back to 2019 through 2024. So, any retroactive receipt of small-refinery exemptions would be direct cash proceeds in terms of getting RINs back and selling those at market prices.".

The AGs said the statements made in public to financial regulators and investors "appear to be inconsistent with what must be contemporaneous statements of disproportionate hardship to environmental regulators. Both strong economic results and disproportionate economic hardship cannot coexist. And to use the statute's own relative terms: Refiners cannot both outperform and out maneuver their peers yet also be disproportionately economically harmed."

The state AGs asked the officials to make sure the companies' "behavior is neither rewarded nor repeated, I ask that you to confirm cross-government that if any false and misleading statements were made that they are investigated and that any improper benefit therein described is ended. This will aid in restoring integrity to the RFS and SRE programs."

Todd Neeley can be reached at todd.neeley@dtn.com

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