Regulation Meets Its Match

From his office in Urbandale, Iowa, just outside of Des Moines, RINAlliance Vice President Jeff Hove forecasts stable renewable identification number (RIN) prices through the rest of 2014. “The extended RVO (renewable volume obligations) deadline for 2013, the great unknown for the 2014 RVOs and delays in the biodiesel blenders credit appear to have everyone very comfortable,” Hove tells EPM. “If, however, we continue to see the ethanol/gasoline price inversions, we may see more clear gasoline being marketed than in previous years. This may create a need for D6 (conventional) ethanol RINs to jump somewhat so that unbranded supply gets blended.” This, Hove says, may be more of a logistical rail situation rather than an RVO issue.

Hove knows the federal system of regulation and how rules, policies and laws impact industry. After graduating from the University of Wisconsin’s Stevens Point College of Natural Resources with a degree in hydrogeology and contaminant transport, he worked for firms serving various major federal government departments and private companies requiring environmental assessments and cleanups. The work provided a solid foundation and understanding of state and federal Clean Air Act and Clean Water Act laws. Moreover, Hove gained intimate knowledge of the machine that is federal regulation.

In 2005, Hove joined the Petroleum Marketers and Convenience Stores of Iowa and became immersed in the marketers’ day-to-day regulatory struggles. “Once the renewable fuel standard (RFS) was implemented in 2007, we saw a need for our marketers to continue blending under some very onerous and complex rules,” Hove says. “For this, we designed the RINAlliance program to provide turnkey compliance solutions for our blenders and marketers. The program quickly grew outside of Iowa and is currently nationwide.” Following the formidable RIN fraud episodes in the biodiesel industry, RINAlliance partnered with EcoEngineers to keep the biodiesel program moving forward.

On your website, it appears that most of your renewable fuel customers are biodiesel-related. Why doesn’t RINAlliance have more ethanol customers, and what is the company doing to increase its market share in the ethanol space?

RINAlliance does not directly serve the renewable fuel production industry. The 2 million RINs managed in our system per day are equally split, 50/50, between ethanol and biodiesel, and they are brought into our program via our blenders. 

We have had a significant focus on biodiesel since the major fraud instances, and we believe that many of our clients enjoy blending with biodiesel.  With that said, the issue of noncompliant RINs virtually shut down that part of the RFS. Our goal was to work with legitimate biodiesel producers so that our blenders could continue buying product from those facilities and to keep the biodiesel industry moving forward. We established biodiesel facility vetting protocols that were favorable to our key RIN buyers—these later morphed into U.S. EPA’s Quality Assurance Plan rules to a great extent—and we were subsequently able to continue marketing our biodiesel RINs.

What are the biggest challenges to the RIN market and compliance today, and how does RINAlliance ease customers’ minds with respect to these challenges?

Competition within the marketing industry is always a challenge. More often than not, renewable fuels with RINs can keep costs down, which means the marketer can be more competitive. We are seeing the value of the RIN getting worked into pricing at the pump across the country. Our system was designed to generate profits while making RFS compliance quick and easy. Both are needed if we truly want to incentivize renewable fuel blending in the U.S. We have a fantastic staff capable of tackling any RFS, EMTS [EPA Moderated Transaction System] and CDX [Central Data Exchange] question. We also have in-depth knowledge of IRS, fuel quality, and equipment compatibility issues that plague our industry.

Our program responds to market conditions very quickly. Whether we are taking steps to avoid fraudulent and/or noncompliant RINs—blocking more than 35 RIN generators—or monetizing the RIN expeditiously, we see those industry needs and we fill the gaps. Any size blender can cost-effectively blend and manage RINs in our program. We have companies that handle less than 50,000 gallons per year and others that are well over 300 MMgy. We are able to monetize all RINs within seven days under our RIN sale contracts. This means that even our smallest blenders can see the benefit of RINs quickly, and at top-tier pricing.

How many obligated party and renewable fuel customers does RINAlliance have, and what services does RINAlliance make available to each type of client?

RINAlliance has almost 200 blenders and only a handful of obligated parties. The obligated parties in our group mainly consist of refined fuel importers—diesel from Canada—and even they are primarily marketers that are blending renewable fuels. We provide 100 percent of EPA compliance reporting and attest engagements for all of our clients. We trade RINs on behalf of any blender that wishes to take advantage of our RIN sale contracts. This is not a requirement for membership but approximately 95 percent of our clients use our RIN sale contract to monetize their RINs. RINAlliance only markets RINs that have been separated within our system of record. We view our program as a service to strict obligated parties as well. As a RIN aggregator of scrutinized RINs, we are capable of marketing RINs via one company as opposed to hundreds.

What are some of the more common, major red flags that you encounter in RIN compliance/reporting, and how do you address those with your clients or prospective customers?

Nonmarketable RINs are a common issue. Our clients stay in close contact with our office to determine which producers are generating marketable RINs versus those that have not yet enlisted a QAP (quality assurance) program or are otherwise nonmarketable. We review all of the RINs coming into our program and place blocks on those that have less than top-tier market value.

Another red flag is transaction timing. Suppliers often desire immediate RIN transfer confirmation. The transaction must be completed within five business days.  Timely confirmation is necessary but the buyer must weigh this out against other internal practices. If, for instance, the buyer wishes to complete fuel quality testing on the renewable fuel prior to accepting the RINs, then the transaction may have to be reissued following confirmation testing. We suggest that such protocols be spelled out in any supply agreement. If the product does not meet ASTM standards, then the RIN is invalid and the product must be shipped back to the supplier.

Also, EMTS is time-consuming and cumbersome. Our clients do not complete transactions within the EMTS program but rather their secure RINAlliance account. They are able to confirm more than 100 transactions with one click or integrate our system with their back-office system. It is also difficult to discern which producer’s RINs you’re getting in EMTS. Our program solicits the necessary reports for quick viewing of RIN generators. We track 100 percent of buy, sell, separate and retire transactions within our system of record and store data on back-up servers for multiple years. Our program has exportable reports that can be queried by supplier, RIN generator, date, fuel type, year and more. RINAlliance also tracks wet volumes with RINs, which assists in managing compliance ratios and maximizing RIN profits. 

We do not assume that EPA data is always correct. We have had situations where EPA generated quarterly reports that were incorrect due to EMTS glitches. At the end of each quarter, we compare our system data against the reports generated by the EPA.

Like any other industry, staffing turnover is inevitable. When a company loses a key RIN manager or compliance person, mistakes happen and it is very easy to fall out of compliance. RINAlliance creates a stable system staffed by professionals that are keenly aware of what our blenders must be doing daily, quarterly and annually. The loss of an employee may result in failure to submit quarterly reports and/or annual attest engagements. We work with you on getting your company back on track and moving forward. Nobody likes the thought of accidently stepping out of line and ending up with an EPA or IRS full-blown audit—but it does happen.

For clients doing large-volume, downstream transactions with attached and unattached RINs, we provide a data field duplicate check against their entire history of transactions. Allowing our clients the ability to perform duplicate transaction checks prior to an EMTS submission creates a higher level of due diligence, ultimately decreasing failed transactions that must be redone ASAP. We are an EMTS on steroids and reduce internal labor costs by 75 percent.

Interview by RON KOTRBA