Virginia Tech takes second round of Challenge X

By | August 01, 2006
  • WARNING: Resizehelper couldn't find requeted file: /datadrive/websites/ethanolproducer.com/app/webroot/uploads/posts/magazine/557-1292253887.jpg
An investigation into the possibility of E85 price fixing in Minnesota—the state with the most retail gas stations selling E85 in the United States—came up empty-handed. The Minnesota Attorney General's Office (AGO) in May released the conclusions of a six-month review of E85 pricing throughout 2005. It concluded that there wasn't enough evidence to show there was price fixing, according to the AGO report.

Ralph Groschen, a renewable fuels senior marketing specialist for the Minnesota Department of Agriculture, said he was slightly worried when Attorney General Mike Hatch announced the investigation. In the end, however, Groschen was glad Hatch's office went through with the study, and also relieved with what conclusion was reached. He had heard people talking about ethanol causing the price of gas to rise, a logic he just doesn't understand. "If people would stop and think a little bit, they would realize ethanol and biodiesel, if anything, are solutions to the problem," he said.

The investigation began after "consumers and small E85 wholesalers raised questions about why E85 prices had risen so sharply," the report said. Consumers reported that E85 prices were the same or up to 10 cents per gallon more expensive. The inquiries led the AGO to believe that there was a "popular belief" that E85 prices should track corn prices, the report said.

During the investigation, more than two dozen ethanol and E85 producers, marketers, wholesalers, retailers and fuel terminals were issued Civil Investigative Demands. From March through September 2005, the AGO looked into how ethanol and E85 was marketed, distributed and priced during that time period, the report said. "Based on the data provided, it appears that the price of E85 and ethanol have little correlation with the price of corn," according to the report. "Rather, it appears that ethanol and E85 prices tend to parallel changes in regular gas prices."

E85 prices are influenced by gas prices because ethanol is a competitor of gasoline. Retailers may change E85 prices when gas prices change, or "consciously parallel" gas prices, the report said.

High prices or simulations pricing isn't enough to show illegal price-fixing practices under the antirust laws, the AGO concluded. The information provided to the AGO didn't substantiate an agreement among competitors to fix prices or show that any single company has a large enough market share to act as a monopoly.

It's not hard to see how petroleum, which holds the major market share, would have a heavy impact on the minor components, like ethanol, Groschen said. The same goes for biodiesel prices, which follow diesel prices. "There doesn't seem to be much mystery there," he said.

The data showed that ethanol prices are affected by supply and demand factors, the report said. Demand for ethanol comes, in part, from the fact that certain states, including Minnesota, require all or most gasoline to contain ethanol, the report said. A bigger factor, however, is that the rapid increase in the use of ethanol as an oxygenate causes ethanol supplies to be taken from Midwestern states to fill the need in places like Texas and the East Coast.

To that, Groschen added that the petroleum industry brought that shortage on itself. "To blame ethanol is the problem blaming the solution," he said.

Ben Brown, chief executive officer of Heartland Corn Products, a 35 MMgy ethanol plant in Winthrop, Minn., said the production facility provided documents to the AGO for its investigation, as requested. However, he said he didn't pay much attention to the investigation or its conclusions. Hatch is running for Minnesota governor, and Brown viewed the study as a way for the candidate to garner publicity, he said.