Small Refiners Appeal Ruling on Waiver

Wynnewood Refining Said it Would be 'Forever Hostage' to Volatile Credits Market

Todd Neeley
By  Todd Neeley , DTN Staff Reporter
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Small refineries appealed a small-refiner exemption decision made by a federal court of appeals. (DTN file photo)

OMAHA (DTN) -- The small refiners on the losing end of a recent federal court of appeals decision on small-refinery exemptions have asked a court for a hearing before the entire court, in motions filed on Tuesday.

One press report citing unnamed sources at the end of last week indicated the Trump administration was not going to appeal a key biofuels industry ruling in the 10th Circuit Court of Appeals in Denver. The deadline to file an appeal was on Tuesday. The U.S. Department of Justice had not filed an appeal as of late Tuesday afternoon.

Without an appeal, EPA would be set to implement the Jan. 24 ruling nationwide.

When contacted by DTN, EPA and DOJ did not comment.

In a motion filed on Tuesday, Wynnewood Refining Company, LLC in Wynnewood, Oklahoma, said if EPA changes course its business will falter.

"First, this case involves questions of exceptional importance. Does the Clean Air Act require small refineries to have consistently received exemptions from the Renewable Fuel Standard in all prior years to be eligible for exemptions in future years when compliance would cause them 'disproportionate economic hardship?'" the company said in its filing.

"The panel decision -- which answers this question in the affirmative -- contradicts the language and structure of the statute. The answer to this question has real-world consequences that small refineries are already feeling. The nationwide price of RFS compliance credits tripled after the panel decision was published. For small refineries like Wynnewood, which can never achieve compliance on their own and will forever be hostage to the volatile RIN market, this ruling is a death knell."

Growth Energy Chief Executive Officer Emily Skor said in a statement the administration made the right decision. 

"The escalating crisis threatens to take a terrible toll on rural communities, where farmers and biofuel producers have been stretched beyond the breaking point," she said.

"The deep plunge in biofuel demand sparked by COVID-19 has generated a perfect storm, adding to the enormous burdens created by a foreign price war over oil, continued trade barriers, and regulatory uncertainty here at home. Those who have the resources are operating at a steep loss, and some may not survive the current downturn without decisive action."

HollyFrontier Cheyenne Refining, LLC, in Cheyenne, Wyoming; HollyFrontier Refining and Marketing, LLC; and HollyFrontier Woods Cross Refining, LLC, in Woods Cross, Utah; filed a similar motion.

Earlier this year the court ruled EPA didn't have the authority to issue exemption extensions to three companies that were not originally granted waivers.

The ruling applied to about one-third of all small refineries in the country, meaning EPA is faced with either appealing the ruling or applying it nationally. An appeal would have asked the 10th Circuit for an en banc hearing -- a hearing before all judges in the 10th Circuit.

The administration's actions have been a rollercoaster ride for ethanol and farmers, who have been battling ongoing market difficulties.

The odds of the 10th Circuit agreeing to an en banc hearing are long, as the court grants a hearing in just one-tenth of 1% of cases.

In the ruling, the court also found EPA "abused its discretion" by not explaining its conclusion that a small refinery could suffer disproportionate economic hardship while also maintaining refiners passed RFS compliance costs on to consumers at the pump.

"None of the three small refineries here consistently received an exemption in the years preceding its petition," the court said in its ruling.

The court ruling added, "The EPA exceeded its statutory authority in granting those petitions because there was nothing for the agency to 'extend.' Further, one of the EPA's reasons for granting the petitions was to address disproportionate economic hardship caused by something other than compliance with the renewable fuels mandate. That, too, was beyond the agency's statutory authority."

EPA has taken heat on how it defines "hardship" when it granted waivers. The ethanol industry and others have maintained the waivers were not designed for oil companies that report billions of dollars in profits.

EPA defines small refiners as those producing 75,000 barrels or less per day. Small refiners have successfully petitioned the agency for exemptions by arguing the costs to purchase renewable identification numbers, or RINs, are too much to handle financially.

The court remanded back to EPA waivers issued to the refiners. The Cheyenne and Woods Cross petitions were from 2017, while the Wynnewood petition was in 2018.

Congress provided a temporary exemption for small refiners that could extend beyond 2010, based on a U.S. Department of Energy study or EPA determination of disproportionate economic hardship on a case-by-case basis.

The EPA granted 85 small-refinery exemptions between 2016 and 2018, totaling more than 4 billion ethanol-equivalent gallons not blended with petroleum. The agency currently has 25 exemption requests pending for the 2019 compliance period.

EPA data shows a maximum of seven small refineries could have received continuous extension of previous waivers. However, EPA granted as many as 35 exemptions in 2017.

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Todd Neeley