Delta’s refinery challenges EPA over renewable fuel targets

Source: Amanda Peterka, E&E reporter • Posted: Thursday, October 17, 2013

A refinery owned by a subsidiary of Delta Air Lines Inc. is challenging U.S. EPA’s renewable fuel mandate for this year, warning that the levels set by the agency will continue to force it to purchase costly ethanol credits.

In a lawsuit filed with the U.S. District Court for the District of Columbia, Monroe Energy LLC said it anticipates spending “tens of millions of dollars” over the next several months in acquiring the credits because it does not blend its own ethanol into gasoline. The refinery called EPA’s requirement “absurd” because it requires the nation overall to blend more ethanol than the market can handle.

“That is money Monroe will never get back, even if it ultimately prevails on the merits of this petition for review,” the company wrote in court documents last week.

Delta purchased the $150 million Pennsylvania refinery last year from Phillips 66, in an attempt to save millions of dollars a year in jet fuel costs. Under a three-year deal with the oil company, Delta agreed to exchange a large portion of non-jet-fuel products, like gasoline and diesel produced at the refinery, for jet fuel.

Though the refinery is registered as an ethanol blender with EPA, its activities are restricted to producing petroleum-based fuels. Because it does not blend its own ethanol into petroleum products, Monroe said it must purchase all its credits to show compliance with the federal ethanol mandate.

The 38-digit credits are known in the industry as renewable identification numbers, or RINs. Historically, they have cost refiners a few cents per gallon of ethanol. But prices have increased this year, peaking at more than $1.40 in July, and have since been volatile as refiners have anticipated hitting the blend wall, or the 10 percent limit to the amount of ethanol that can feasibly be blended into gasoline.

For Delta, the increase and volatility in RIN prices mean the airline faces paying more for credits this year than it did in purchasing the refinery, according to statements made by the company in second-quarter financial filings this year. The refinery said blenders have begun hoarding credits to store for potential use or sale in 2014 rather than selling those credits to refiners like itself for compliance in 2013.

The refinery filed its lawsuit against EPA on Oct. 4. It is seeking a court review of whether EPA’s renewable fuel targets for the year, which include a mandate of 13.8 billion gallons of conventional ethanol, are arbitrary and capricious under law.

In an “emergency motion” filed Thursday, the refinery called on the court to fast-track the case and issue an expedited ruling by April of next year before the June 30, 2014, deadline for refiners to show compliance with the renewable fuel standard’s 2013 requirements. It proposed a schedule that would have EPA face off with the refinery in court arguments in January.

Not granting the proposed schedule would be “particularly unfair” to refiners because EPA issued its final 2013 targets eight and a half months after its statutory deadline of Nov. 30, 2012, Monroe said

“EPA should not be permitted to violate statutory deadlines for its rulemaking, imposing retroactive obligations on parties, while also foreclosing regulated parties’ practical ability to obtain judicial review,” Monroe’s court filing last week said.

As it seeks action in court, Delta also has significantly boosted its lobbying on Capitol Hill to seek a special exemption from renewable fuel standard requirements for merchant refiners like Monroe (Greenwire, Oct. 2).

EPA, which also faces lawsuits over this year’s 16.55-billion-gallon biofuel requirement by major oil trade groups, has not yet responded to the arguments raised by Monroe. On Monday, though, the agency asked the court to give it more time to respond to the petition because the government shutdown has stripped the agency and the Department of Justice of funding and employees.

EPA also said it would be premature to speed up the case given that there will likely be more parties that challenge the 2013 RFS rule. The court last week consolidated Monroe’s case with a lawsuit filed a few days later by the American Petroleum Institute. The oil trade group has not commented on the refiner’s proposed court schedule (E&ENews PM, Oct. 8). American Fuel & Petrochemical Manufacturers also has filed a lawsuit against the agency.

Biofuel producers argue the oil industry is driving up credit prices by not making investments in infrastructure that can handle higher blends of ethanol. They also blame speculation and politics. Credit prices dropped after Congress left town for its August recess and to about 30 cents last week on news that EPA is considering significantly scaling back its targets for next year (Greenwire, Oct. 9).

The impact on refiners has been varied, according to financial filings. Some companies have reported profiting from higher RIN prices. Phillips 66, for example, said its marketing and sales margins improved in the second quarter of this year mostly because of the higher prices.