Opposing Sides Make Their Final Cases on RFS Change

WASHINGTON, D.C. — As the public comment period on the U.S. Environmental Protection Agency's (EPA) proposed denial of a petition to change the point of obligation under the Renewable Fuel Standard (RFS) came to a close on Feb. 22, industry groups on both sides of the issue stated their cases for the last time.

Under the current structure of the RFS, merchant oil refiners are obligated to blend more renewable fuel. In 2016, a group of these refiners filed a petition that seeks to shift the obligation to entities that own gasoline before it is blended for retail sale. The EPA proposed denying this petition and announced a 60-day period during which interested parties could make comments on the proposal, as CSNews Online previously reported.

SUPPORT AGAINST THE PROPOSAL DENIAL

The Small Retailers Coalition, a group founded by Douglass Distributing Co. CEO Bill Douglass whose goal is to "even the playing field" regarding renewable identification numbers (RINs), submitted a response to the EPA asking that the agency reconsider its proposed denial.

"When EPA issued its proposed denial, it did not have the opportunity to consider any comments from 75 percent of the retail gasoline market most adversely impacted by the current point of obligation. In this action, we are providing you with a record to show that the current point of obligation is disadvantaging the vast majority of retailers in this nation and restraining fuel distribution in the country," Douglass wrote in the group's response.

"This is not hyperbole," he continued. "If the point of obligation is not moved to the position holder at the rack, the majority of small, single-owner gasoline stations in the United States will close or be bought out by mega-chains over the next 24 months."

The Small Retailers Coalition's response further states that small and medium retailers are at an unfair competitive disadvantage because the current point of obligation gives large retailers a 10-cent to 15-cent per gallon advantage over smaller suppliers, plus large retailers are able to sell RINs for a profit.

Douglass expressed his disappointment that trade associations have "refused to represent" small retailers' interests on the issue, noting that they are beholden to large retailers that pay the majority of membership dues.

"The small retailer attrition has already begun, with hundreds selling out where possible, or just closing," Douglass wrote. "It's not a question of 'if,' but a question of 'when.'"

SUPPORT IN FAVOR OF THE PROPOSED DENIAL

Other industry players reiterated their support for the EPA's proposed denial and maintaining the current point of obligation.

NATSO Inc., the national trade association representing truck stops and travel plazas, brought together a diverse group of more than 35 organizations and companies representing downstream blenders, fuel retailers, marketers and end users at the federal and state levels that support the current compliance structure. These groups speak on behalf of a majority of the fuel sector, which opposes a shift, according to NATSO.

"NATSO is heartened by the overwhelming number of stakeholders who are urging the EPA to keep the RFS compliance with refiners, importers and manufacturers," said NATSO President and CEO Lisa Mullings. "We urge the EPA not to shift compliance onto thousands of small business fuel retailers, which would inject massive disruption into fuels markets and raise fuel prices, ultimately harming the economy and hard-working Americans."

The organization stated that changing the point of obligation would undercut the RFS program's efforts to sustain the use of renewable fuels in gasoline and diesel fuel, as the current structure creates a strong incentive for blenders, retailers and marketers to integrate renewable fuels into the supply chain.

Additionally, NATSO stated that a change would add significant compliance costs and burdens to freight shippers, which would ultimately raise the cost of consumer goods through higher shipping costs.

Growth Energy, which represents producers and supporters of ethanol and is in favor of the EPA's proposed denial, released an economic analysis that identifies numerous problems associated with changing the point of obligation and predicts a "disastrous impact" if a change were to occur.

Edgeworth Economics conducted the analysis, which Growth Energy included as part of its filed comments to the EPA. Key findings include:

• Shifting the point of obligation would have no impact on the incentives to invest in biofuel infrastructure or increase blending of renewable fuels.​
• RIN values represent neither windfalls for blenders nor out-of-pocket costs for refiners, and RIN markets are, for the most part, operating efficiently and competitively.
• Changing the point of obligation would have no impact on fraud in the RIN markets.
• The petitioners' proposal would result in an increase in the number of obligated parties and an increase in the overall administrative burden of the RFS.

"Shifting the financial and administrative burden to retailers and fuel distributors would result in a logistical and regulatory nightmare. Hundreds, if not thousands, of new parties would suddenly be required to demonstrate compliance," stated Growth Energy CEO Emily Skor. "This would require new rules, new staff, new infrastructure, and years of recalibrating a program that already works; not to mention potential delays with annual renewable volume obligations. Changing the point of obligation would dramatically expand the number of new obligated parties including fuel marketers, convenience stores, truck stops, trucking companies, railroads, and even consumer service companies like FedEx and UPS."

Skor further stated: "The RFS point of obligation must be preserved to ensure that fuel retailers continue to have the incentive to make the investments necessary to deliver renewable fuels that provide consumers with better, cleaner, and more affordable choices at the pump."

CONVENIENCE STORE RETAILERS WEIGH IN

While several convenience store and gas station chains expressed support for the EPA's proposed denial, Phillips 66 stands on the other side of the issue and supports moving the point of obligation to the rack seller.

"The point of obligation as currently defined has the undue consequence of rewarding companies with a larger distribution presence when compared to those that have little or no distribution presence," wrote Lawrence M. Ziemba, executive vice president of refining for Phillips 66. "Moving the point of obligation to the rack seller will remove this inequity and more closely align with free market principals. The proposed modification to the program will reduce the number of paper RIN credits that obligated parties are required to purchase from other entities and simplify obligated volume adjustments associated with exported volumes." 

Fundamentally, Phillips 66 believes the RFS program should be either repealed or significantly reformed, according to Ziemba. 

"The statutory volumes were established based on several faulty assumptions, resulting in an unworkable program, which included forecasts of increasing gasoline demand and the development of sufficient advanced and cellulosic fuel production. Although moving the point of obligation would address some program inequities, EPA must recognize that barriers such as retail infrastructure compatibility issues, vehicle warranty concerns, and insufficient advanced biofuel technologies will continue to limit the increased use of renewable fuels," Ziemba continued. 

Holding a different opinion, convenience store and gas station chains that expressed support for the EPA's proposed denial include Marathon Petroleum Corp., Casey's General Stores Inc., Chronister Oil Co., Circle K Stores Inc., Cumberland Farms Inc., Kwik Trip Inc., Murphy USA, Pilot Travel Centers, QuikTrip Corp., RaceTrac Petroleum Inc., Sheetz Inc., Thorntons Inc., Wawa Inc., and others.

Iowa-based Casey's commissioned Northcoast Research to analyze its gasoline margins in order to address public commentary that it is making windfall RIN profits through the current RFS structure. "There is no explicit connection between Casey's motor fuel profitability and RIN values," the company concluded.

Chronister Oil, an independent fuel marketer and retailer that has 12 c-stores, also spoke out against claims that fuel retailers blend to make a profit. "We blend to reduce cost and remain competitive; the savings is passed directly to the consumer," the company said. "When one retailer changes the big price numbers in the sky, everyone changes their numbers as well. If one retailer has an advantage in price, it is leveraged to increase sales and take customers."

Chronister also noted that "there are no new customers, only someone else's," which is a fundamental reason why retailers cannot afford to leave RINs out of the fuel equation.

"The petition to move the point of obligation has the retail reality all wrong: retailers pass on savings to consumers and the current RFS structure encourages the blending and consumption of renewable fuels. It does all that, and increases the choices consumers can make at the pump," Chronister said.

Marathon Petroleum, the third largest U.S. refiner that markets products through Marathon and Speedway, argued in its letter to the EPA that neither refiners nor consumers would benefit from moving the point of obligation. A change would "lead to cases of uncertainty and error in the RIN transactions and open the door to fraudulent RIN activities," according to Marathon, and "create more than five times as many individual points of obligation than currently exist, which will further exacerbate the complexity of the program."