Attorney: E15 Rule on Solid Ground

Ethanol Groups Predict Year-Round E15 Sales Will Lead to Long-Term Market Growth

Todd Neeley
By  Todd Neeley , DTN Staff Reporter
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The ethanol industry begins to look into the future following the approval of year-round E15 sales. (DTN photo by Chris Clayton)

OMAHA (DTN) -- Predicting how a legal case plays out can be dangerous territory, but an attorney representing ethanol interests in an expected petroleum industry challenge to EPA's final E15 rule said the agency appears to be on solid ground with the rule.

In a Renewable Fuels Association news call on Monday, Bryan Stockton, an attorney with Pillsbury Winthrop Shaw Pittman LLP in Washington, D.C., said the rule will be challenged in court. The American Petroleum Institute said publicly, in the months leading up to the EPA finalizing the rule, the industry would file a lawsuit.

As of Monday afternoon, a lawsuit had not been filed in the U.S. Court of Appeals for the District of Columbia Circuit, where a challenge would be filed. API did not respond to DTN's request for comment.

"EPA drafted the rule to withstand a challenge," Stockton told reporters. "EPA has the authority to revise its interpretations. EPA has an advantage. It just needs to be a reasonable interpretation. Courts generally defer to the agency. The changed circumstances provides a basis for a change in regulations. Here EPA determined the regulation was out of date."

In previous court cases, he said, the opposition has had a difficult time in challenging or proving harm caused by EPA rules. There has been discussion about the possibility of someone asking a court for an injunction to prevent the agency from implementing year-round E15.

"Seeking an injunction is a high bar," Stockton said.

Parties seeking injunctions have to prove they would experience "irreparable harm" if a regulation is implemented.

If an injunction is sought, Stockton said, it usually comes with a rapid briefing schedule. Any legal action could create uncertainty for retailers wanting to expand E15 offerings.

He said the change in the E15 rule was to account for regulatory and marketplace changes. The final rule determined that E15 is substantially similar to E10.

"Under the Clean Air Act, if a fuel is similar to another fuel in the market, it may be introduced into commerce," Stockton said.

E15 MARKET EXPANSION SLOW

RFA President and CEO Geoff Cooper said the industry is not under the illusion that allowing year-round E15 sales across the country will lead to instant market expansion.

Cooper said the RFA has always said the immediate impact of the final E15 rule would be somewhat modest. "What this does is break down the door to longer-term growth," he said.

Without the new rule, Cooper said, it was expected that stations across the country would sell about 400 million gallons of E15 in 2019. Now, he said, the industry can expect to sell at least 700 million gallons to 800 million gallons of E15 in 2019 -- still a small percentage of all transportation fuel sales.

"It finally gives regulatory certainty to the supply chain that it has been looking for," Cooper said, pointing to three to five years down the road when the rule will have a "big impact" on domestic demand for E15.

Steve Walk, chief operations officer at Protec Fuel, said customers at his company's 700-plus stations that offer ethanol blends in 18 states "will get what they want" as a result of the final rule.

"We've been told repeatedly they want clean fuel that's good for the car and a good value," he said. "E15 is priced equal or less compared to gasoline. We're not replacing fuel, we're just giving consumers options."

Walk said allowing year-round sales means the E15 market will continue to grow many years down the road.

"With existing stores with E15, it comes down to what consumers want and demand and make business decisions accordingly," he said.

Protec typically sees E15 account for 30% to 35% of overall regular gasoline sales. The company has some stores where E15 accounts for as much as 60% of overall regular gasoline sales.

"Now, with all (E15 sales) year-round, we'll see that go up," Walk said. "Large retailers likely are not going to put E15 in all their stores on day one but will introduce the product then eventually roll out longer-term."

Cooper said EPA's ability to complete the rule by June 1 came as a surprise.

"It was absolutely down to the wire," he said. "It was an incredibly heavy lift. I am happy to eat some crow. I didn't think EPA would finish the rule on time. It is the one time I'm really happy to be wrong. This rule is really nine years in the making. It doesn't mean the work on E15 is done."

CASE TO EXPAND E15

Also on Monday, Growth Energy and Casey's General Store announced the retailer will expand its E15 offering to more than 60 new sites this summer as a result of the agency's actions.

E15 is best known to consumers as unleaded 88, which is approved for all cars 2001 and newer.

"The summertime E15 restrictions have been a major concern for us for a long time and would typically slow down our E15 expansion," Casey's Director of Fuels Nathaniel Doddridge said in a statement. "Now that we know we can provide our guests with a consistent experience at the fuel pump year-round, we are expanding E15 at a faster pace to stay ahead of our competition."

Growth Energy CEO Emily Skor said Casey's action is just the beginning for E15 expansion.

"We are thrilled that Casey's will be rolling out E15 at dozens of new sites this summer and know from conversations with retailers all over the country that they will soon be joined by others who've been waiting for this day," she said.

E15 currently is sold at 1,807 stations in 31 states, still a small percentage of the more than 150,000 stations across the country.

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

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(BAS/AG)

Todd Neeley