House members seek probe of alleged credit market manipulation

Source: Amanda Peterka, E&E reporter • Posted: Wednesday, October 23, 2013

A bipartisan group of 13 House members asked regulators today to investigate the alleged manipulation of the market for ethanol credits.

In a letter to the Commodity Futures Trading Commission, the lawmakers said price volatility experienced this year in the market used by refiners to meet renewable fuel obligations may be due to trading outside normal supply-and-demand forces. Prices for a credit rose from a few cents at the beginning of the year to $1.44 in July and are back down in the 30-cent range.

The credits — which are represented by unique 38-digit serial renewable identification numbers (RINs) — were meant to be traded in the fuel supply chain and not as commodities through financial markets.

“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 told CFTC Chairman Gary Gensler, “as well as the potential for price influence through trading outside the originally intended RIN market framework.

The lawmakers urged CFTC to coordinate with U.S. EPA on monitoring the largely opaque credit market.

Signing the letter were Iowa Reps. Dave Loebsack (D), Bruce Braley (D), Tom Latham (R) and Steve King (R), as well as Reps. Collin Peterson (D-Minn.), Cheri Bustos (D-Ill.), Tim Walz (D-Minn.), Rick Nolan (D-Minn.), Kristi Noem (R-S.D.), Aaron Schock (R-Ill.), Jan Schakowsky (D-Ill.), Mark Pocan (D-Wis.) and William Enyart (D-Ill.).

The House members join Sens. Chuck Grassley (R-Iowa) and Debbie Stabenow (D-Mich.) in calling for a CFTC investigation of possible manipulation of the RIN market. The senators in September wrote individual letters to CFTC as RIN prices hovered around 70 cents; prices are currently at an eight-month low on news that EPA may scale back federal ethanol requirements for next year.

The oil industry says the volatility signals that refiners are anticipating the renewable fuel standard pushing them over the blend wall, or 10 percent saturation of the gasoline market with ethanol. Industry groups warn that some refiners are paying millions of dollars more than they expected this year in purchasing credits to comply with the renewable fuel standard.

Ethanol producers, though, say that refiners have created the blend wall themselves by refusing to blend more ethanol into gasoline; EPA allows up to 15 percent ethanol to be used in passenger vehicles with model years 2001 and newer.

The lawmakers today reiterated their overall support for the renewable fuel standard.

“We believe the RFS is legislatively sound serving as an effective policy for reducing foreign oil use, creating jobs and economic activity, and spurring innovation,” they wrote, “and want to ensure the market is not being exploited just as we do with all energy markets.”