Ethanol Blog

Refiner Subject of Ethanol Lawsuit Saved $33.8 Million on Exemptions

Todd Neeley
By  Todd Neeley , DTN Staff Reporter
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The price of Renewable Identification Numbers continued to fall on news the EPA is considering more small refinery waivers to the Renewable Fuel Standard. (DTN graphic)

OMAHA (DTN) -- The EPA actively is reviewing Renewable Fuel Standard waivers denied to small refiners by the Obama administration and retroactively awarding biofuels credits to companies to alleviate their 2018 obligations.

As reported by Reuters on Thursday, two refining companies including HollyFrontier and Sinclair Oil, have been granted waivers this year. The retroactive waivers result in HF saving about $33.8 million in renewable identification numbers waived from the 2015 renewable volume obligations, according to the company's latest quarterly financial report to the U.S. Securities Exchange Commission. Details were not available about Sinclair's savings.

An EPA spokesperson told DTN the agency is reviewing previous waiver denials, although ethanol and agriculture interests continue to cry foul at what they say is lost ethanol demand.

"EPAs actions are narrow in scope and consistent with direction from the 10th Circuit (Court of Appeals)," the EPA said in a statement.

"The agency has been revisiting some prior denials in light of a recent court opinion holding that EPA had been applying the hardship exemption for small refineries too narrowly. Last summer, the 10th Circuit found that EPA cannot make an exemption conditional on a refinery showing that its continued survival was at risk. EPA will continue to administer this statute attentive to all policy considerations, fulfilling the duty Congress has given the agency in light of orders and opinions from the courts."

Renewable Fuels Association President and Chief Executive Officer Bob Dinneen said the court decision "did not give EPA license to approve any and all" small refinery waiver requests.

"It merely instructed EPA to reconsider its position that economic viability was the threshold for a waiver," he said.

"EPA has been hiding behind that decision to make a wholesale change to its evaluation of small refiner exemption petitions. Quite obviously, EPA's new approach does not require that refiners make any sort of concrete demonstration that they are suffering economic hardship at the hands of the RFS. Apparently, all a refinery must do to receive an exemption these days is to ask for one."

In recent months, it has been reported that large oil companies reporting billions in profits, have applied for waivers. The Renewable Fuels Association and other biofuels and agriculture interest groups sued EPA this week, challenging the agency's granting of waivers to three refineries including two owned by HollyFrontier.

The new lawsuit, filed in the 10th Circuit Court of Appeals in Denver, said the EPA took final actions in granting waivers to refiners in Wynnewood, Oklahoma; Cheyenne, Wyoming; and Woods Cross, Utah. HollyFrontier owns the refineries in Cheyenne and Woods Cross.

According to the RFS law, RINs not retired for compliance can be carried over into the next compliance year. RINs are only good for satisfying obligations for the current compliance year or the following compliance year. So, 2015 RINs can only be used for 2015 and 2016 compliance years. The RINs then expire and cannot be used for compliance.

RIN PRICES FALL

RINs prices have plummeted in recent months as the agency's waiver actions came to light. The price of corn ethanol's 2018 D6 RIN dropped from 27 cents on Wednesday, to 20 cents on Thursday as a result of more RINs flooding the market.

As a result of a White House meeting in recent weeks, the administration dropped a proposal to cap the price of RINs.

Ethanol and agriculture groups have been outraged by EPA Administrator Scott Pruitt and his agency's actions, saying the EPA should be awarding waivers prior to the upcoming proposed RVOs for 2019. The Office of Management and Budget currently is reviewing the latest proposed volumes.

If the agency grants waivers prior to announcing the latest volumes, it is required to reallocate the biofuels volumes lost through the waivers. When EPA grants a waiver retroactively, it is not required to reallocate gallons.

"In the first quarter of 2018, the EPA allowed us to generate new 2018 vintage RINs to replace the RINs previously submitted to meet the Cheyenne (Wyoming) refinery's 2015 RVO," HollyFrontier said in its latest SEC quarterly report.

"In the first quarter of 2018, we increased our inventory of RINs and reduced our cost of products sold by $33.8 million representing the fair value of the 2018 RINs generated because of the Cheyenne refinery's exemption of its 2015 RVO."

LeAnn Johnson Koch, an attorney who represents small refiners, said in a statement to DTN the "theory of demand destruction" is wrong.

"Small refineries control very little of the blending, and downstream blenders will not miss the opportunity to reap windfall profits from blending and selling RINs because an upstream small refinery receives a hardship waiver," Koch said.

"Everyone knows that ethanol blending would occur without a mandate because ethanol is cheap and needed to boost octane. Let's get the facts right before we criticize Pruitt. Pruitt is upholding both the commitment to the volume mandates and the law -- the Clean Air Act which requires EPA to grant relief to avoid harm to small refineries."

E15 PURSUIT

The latest news comes one day before restrictions on E15 sales kick in on June 1 and last until Sept. 15. Following a recent meeting at the White House it was reported the EPA would at some point grant a waiver to allow year-round E15 sales.

"It's clear the EPA is far too busy finding secret, back-door ways to give more hand-outs to refiners when its focus should be on carrying out the president's promise to deliver year-round sales of fuels with higher blends of ethanol like E15," said Emily Skor, chief executive officer of Growth Energy.

"Consumers are paying the price for EPA's fixation on lining the pockets of refining giants. At a time when gas prices are approaching a national average of $3 per gallon -- higher than they have been in years -- drivers will not have the option to purchase a cleaner, lower cost fuel at the pump."

National Biodiesel Board Vice President of Federal Affairs Kurt Kovarik said in a statement to DTN, "Big oil bemoans the need for transparency in RIN markets out one side of their mouth while at the same time taking back-door deals worth millions of dollars in 'hardship' waiver credits."

Monte Shaw, executive director of the Iowa Renewable Fuels Association, said, "President Donald Trump has called the summertime restriction on E15 'unnecessary and ridiculous' and ordered EPA to remove it. It is unclear why it is taking EPA so long to follow through on the president's order to lift the E15 restriction."

A Renewable Fuels Association analysis said the ethanol industry has lost about 1.6 billion gallons of demand as a result of EPA waivers granted in 2016 and 2017.

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

Follow Todd Neeley on Twitter @toddneeleyDTN

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