House members from Midwest request probe of ethanol credits

Source: Written by CHRISTOPHER DOERING, Gannett Washington Bureau, Des Moines Register • Posted: Thursday, October 24, 2013

WASHINGTON — A bipartisan group of House members joined the growing chorus of Washington lawmakers asking the country’s futures regulator to review allegations of manipulation in the market for special credits tied to ethanol.

The letter, signed by 13 lawmakers, asked the U.S. Commodity Futures Trading Commission to review the marketplace for potential manipulation in Renewable Identification Numbers, or RINs.

“We are asking that the CFTC use its expertise and authority in overseeing markets for commodities futures to look into what extent fraud and manipulation have played in the volatility of RIN prices,” the lawmakers said in the letter to CFTC Chairman Gary Gensler. “Recently, we have become increasingly concerned about the potential for manipulation of the market for Renewable Identification Numbers.”

The letter was signed by representatives from major ethanol-producing states including South Dakota, Illinois, Wisconsin, Minnesota and Iowa, the country’s largest ethanol producer. All four of Iowa’s representatives in the House joined the letter.

Congress created RINs, a special serial number given to batches of biofuels before they are sold to refiners and gasoline importers looking to comply with a federal mandate to use a certain amount of ethanol. Instead of blending ethanol, the refiner can choose to purchase RINs. While the credits were intended to be used by refiners and others tied to the industry, lawmakers and others have expressed concern that Wall Street investors are using them as an investment, contributing to their volatility this year.

“Some transparency, sunshine and oversight would certainly help,” said Monte Shaw, executive director of the Iowa Renewable Fuels Association. “The RIN market should be about compliance, not speculation.”

Prices for the credit have been volatile this year as more ethanol is required to be blended into the country’s motor fuel supply. RIN prices started the year at a few cents, before spiking to more than $1.40 in July. They’ve since plunged to around 30 cents as the Environmental Protection Agency, which oversees the country’s fuel blending requirements, has indicated it will lower ethanol blending levels in 2014. The EPA is expected to release its 2014 blending level proposal in the next few weeks.

The letter sent to the CFTC was the latest push by lawmakers to get the futures regulator to look into the RIN market. Last month, Sen. Debbie Stabenow, D-Mich., who chairs the Senate Agriculture Committee, said a review of the unregulated market was necessary to preserve its “integrity.”

A CFTC spokesman did not respond to a request for comment. Last month, Bart Chilton, a Democratic commissioner at the agency, said the CFTC was reviewing the recent volatility in the RIN market, though he cautioned that the regulator has not launched an investigation.

Ethanol has become a lucrative business for many of the country’s biggest producers of the corn-based fuel. A recent study from researchers at South Dakota State University found the total economic activity generated by the ethanol industry in the state was $3.8 billion in 2012. That figure includes everything from the ethanol plant to the trucking company used to haul the corn to be processed, and the spending by the truck driver of his paycheck.

Nearly 2,000 people were employed in the ethanol industry in South Dakota in 2012, up from 473 in 2004. SDSU researchers also calculated that land prices may be as much as $740 per acre more for parcels located within 50 miles of an ethanol plant.