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E15 Gaining Momentum but Challenges Remain Ahead


Within the context of biofuel policy, Iowa is often referred to as the “tip-of-the-spear.” The assumption behind that belief is that of all places, Iowa, with its endless fertile crop land and support for the farmers who cultivate it, is the perfect place to serve as a launching point for home-grown products like ethanol and biodiesel. After all, these value-added products support the agriculture industry which makes up the fabric of Iowa’s economy.

While Iowan’s support ethanol, it’s a bit of a fallacy that the citizens of Iowa choose to purchase ethanol-blended gasoline more than citizens of other states. National estimates show that 90-95 percent of all gasoline consumed in the United States contains some percentage of ethanol, predominately 10 percent. By comparison, according to Iowa Department of Revenue data, ethanol-blended gasoline make up 86.2 percent of the gasoline consumed in the state.

 Calendar Year  Ethanol-Blended Gasoline Market Share
 2013  82.2%
 2014  85.8%
 2015  85.9%
 2016  86.2%

Where Iowa differentiates itself from other pro-ethanol states is the unwavering support of our elected officials on both the state and federal level for pro-ethanol policy. The bi-partisan political backing fosters numerous federal and state incentive programs, funneling millions of dollars into the petroleum marketing and biofuels industries.

Locally, E15 has grown to the point where it is now being offered at approximately 230 sites statewide. Comparing Iowa Department of Revenue and Iowa Department of Natural Resources data, E15 is now being offered at approximately 11 percent of the state’s retail motor fuel sites and more sites are coming online weekly as the end of construction season rapidly approaches.

Iowa has invested millions of its taxpayer dollars to position E15 as the primary street grade for gasoline in Iowa and the state is finally starting to see a return on its investment. The primary drivers of E15 growth in the state are the Renewable Fuel Infrastructure Grant Program and the state’s tax credit program for E15. E15 enjoys a lucrative, fully refundable state income tax credit which reimburses retailers 3 cpg for every gallon sold between September 16 and May 31, and 10 cpg from June 1 to September 15. Is it a coincidence that E15 pricing has appeared to settle 10 cpg below E10?

Commitments to market E15 in Iowa by Kum & Go, Kwik Star, and Casey’s have ramped up the growth of E15. Thus, more independent retail marketers have begun to explore their ability to jump into the E15 game. With the state subsidizing a gallon of E15 by as much as 10 cpg, Iowa retailers are being forced to assess their options to market E15 or risk being unable to match their competitor’s lowest priced street grade gasoline. In 2016, 7M gallons of E15 were marketed statewide, and with the rapid growth in the number of retail outlets offering E15, it will be interesting to see how consumers have responded to the availability of the product when the 2017 retail motor fuel gallons’ report is released in April of 2018.

The national growth of E15 has been slower than it has been in Iowa but the pair have common forces driving investment. Growth Energy’s “Prime the Pump” program is an ethanol industry supported program targeting regional retail chains with market influence. It offers capital investment dollars for the upgrade of retail infrastructure. In return, the ethanol industry receives a commitment to market E15. To date, Prime the Pump recipients include Kwik Trip (Kwik Star), Casey’s, Family Express, Kum & Go, MAPCO, Minnoco, Murphy USA, Protec Fuels, QuikTrip, RaceTrac, Sheetz, and Thornton’s.

Additionally, industry is beginning to see the United States Department of Agriculture Biofuel Infrastructure Partnership (USDA BIP) grant program bear its fruit. In 2015 and 2016, the USDA BIP program made $100M dollars available to the states for the implementation of state grant programs to support the upgrade of the retail infrastructure necessary to accommodate the sale of E15 and E85.

The following table summarizes some of the infrastructure money transferred to certain states through the USDA BIP program. Each state listed was required to provide matching funds.

 State  Federal Funds  Stations  Pumps  Tanks
Florida $15.9M 130 892 70
Illinois $11.9M 65 428 54
Indiana $895,000 110 110 0
Iowa $5M 100 187 25
Minnesota  $8M 165  620 92
Missouri $2.8M 166 171 41
Nebraska $2.2M 32 80 20
Wisconsin  $3.7M 100 120 100

*With the exception of Iowa, the data in this table reflects the USDA’s initial grant award to states but does not reflect the actual projects completed to date.

Nationally, E15 is being marketed at approximately 900 sites in 28 states and growing by the day as the result of the Prime the Pump program and the completion of USDA BIP projects. The ethanol industry estimates that the number of retail motor fuel outlets offering E15 will rise to nearly 2,000 by the summer of 2018. EPA requires marketers offering E15 into commerce to register with the agency. To date, 191 entities nationwide have completed that registration process.

Challenge Number 1:  Equipment Compatibility and Financial Responsibility

In conversations with PMCI members about E15, discussion migrates toward two topics:  infrastructure and summertime Reid Vapor Pressure (RVP) restrictions. Let’s tackle infrastructure first. The starting point for owners and operators assessing their UST system for compatibility is 40 CFR 280.32(a), which states that owners and operators must use an UST system made of or lined with materials that are compatible with the substance stored in the UST system. For newly manufactured UST equipment, the requirement in 280.32 is no challenge at all. Equipment manufacturers and independent testing laboratories have adjusted in response to the national policies supporting ethanol and the growing demand by retailers for equipment that is compatible with higher blends of ethanol. Almost all UST equipment manufactured today is listed by an independent testing agency as compatible with up to 25 percent ethanol.

The challenge in meeting the standard set by 280.32, that the system be made of or lined with materials that are compatible with the substance stored, arises in equipment manufactured at a time when no consideration was given to the marketing of higher blends of ethanol. Simply put, there was no reason for equipment manufacturers to engineer and test equipment with E15 or E85 in mind. Compounding the issue is the raw cost of replacing an UST system. Depending on the size of a retail location, an owner operator can easily spend $400,000 to $500,000 on replacing their existing UST system. That type of price tag makes for an extremely difficult decision for an owner operator to make to accommodate a product which has yet to prove that it is being demanded by the public. It’s also the primary reason why we see so many UST systems in the state of Iowa approaching the 25- or 30-year mark. Owner operators need an extended useful life of their system to recoup their investment.

The reason EPA’s compatibility requirement is so important is that it is tied directly to an owner operator’s greatest liability, the petroleum products they store underground. As a result, EPA also requires that owners meet and maintain financial responsibility requirements as defined in 40 CFR Part 280.93. Financial responsibility within the UST arena, really equates to UST pollution liability coverage, and for most Iowa owner operators that means obtaining a policy through a private insurance carrier like Petroleum Marketers Management Insurance Company (PMMIC). Private insurance policies require the insured to maintain their system in accordance with all applicable state and federal requirements.

So how does an owner operator with an existing UST system make the transition to E15 while satisfying EPA’s compatibility requirement and the requirements of their financial responsibility provider? The good news is that a pathway exists. The bad news is, that particular pathway has proven difficult to complete.

The first step in analyzing your existing UST system’s compatibility with higher ethanol blends is identifying the individual components of your system. Iowa DNR requires owner operators and Iowa licensed installers to evaluate and sign off on the compatibility of a system prior to converting an existing system to higher blends of ethanol. The following components are required to be assessed on Iowa DNR equipment compatibility checklist:  Auto Shutoff; Sub Pump, O-rings, Gaskets, Tanks Sump, ATG Probe, Float/Sensor, Ball Float, Sump Sensor, Piping, Thread Sealant, Adhesive, Flex Connectors, Line Leak Detectors, Pipe Sealant, Seals, Suction Pump, Hoses, Nozzle, Swivel, Break-Away, Filter, Meter, Pipe, Flex Connector, Sump, Emergency Valve, Sensor, and Check Valve. Identifying these components has proven to be very difficult for owner operators. In many cases, these components can’t be identified through a physical inspection and the original paperwork associated with the system is no longer available.

If the checklist can be completed and if an Iowa licensed installer will sign-off on it, owner operators are required to submit the checklist to Iowa DNR and their insurance provider 30 days prior to introducing higher blends of ethanol into the UST system. Sometime in 2018, the implementation of EPA’s 2015 revisions to its UST regulations will also require the compatibility checklist to be supported by a written statement of compatibility from the components manufacturer. The Petroleum Equipment Institute hosts a library on its website which contains affirmative statements of compatibility from various equipment manufacturers supplying UST equipment to the industry.

Challenge Number 2:  EPA Summer Volatility Restrictions on Gasoline – Reid Vapor Pressure

Reid Vapor Pressure is a standard measure of fuel volatility at 100˚F. EPA regulates the vapor pressure of gasoline sold at retail locations during the summer ozone season (June 1 – September 15) to reduce the evaporative emissions from gasoline that contribute to ground-level ozone and diminish the effects of ozone-related health problems. When ethanol is added to gasoline, it increases the RVP of the blended gallon.

Within EPA regulations, Iowa is considered a conventional gasoline area where the RVP of gasoline during the summer ozone season is limited to 9.0psi. EPA now considers the definition of gasoline to encompass E0-E15. The one exception to the 9.0psi summertime RVP limit on gasoline is for blends containing between 9-10 percent ethanol. Gasoline-ethanol blends fitting within this range are afforded a 1psi summer ozone season RVP waiver. This waiver is critical because the addition of 10 percent ethanol to a gallon of gasoline raises the RVP of the blended gallon by 1psi. The RVP of gasoline supplied to Iowa during the summer ozone season by refiners is 9.0psi, which allows refiners to accommodate the addition of 10 percent ethanol at pipeline terminals. E10 makes up 85 percent of the gasoline consumed in the state and refiners create and supply gasoline based on this demand.

 Area Type  Gasoline Blend  RVP Maximum
9.0 PSI Conventional Gasoline Area
Where a 1psi Waiver for E9-E10 Applies
E0-E8; E11-E15 

The summer ozone season restriction on E15 has proven to be a major obstacle for retailers in their consideration to offer E15. With Iowa lacking any supply of a lower RVP gasoline suitable for blending E15 at or under the 9.0psi limit, most retailers are unwilling to break the law or change their product slate to accommodate what the law dictates to be a nine-month fuel.

However, other retailers have made the choice to ignore the law and continue offering E15 during EPA’s summer ozone season. Presumably, these retailers perceive that the benefit of offering E15 during the summer ozone season outweighs any risk. For Iowa retailers, the reward for offering E15 during EPA’s summer ozone season is Iowa’s lucrative 10 cpg state tax credit paid out on each gallon sold.

Iowa retailers choosing to offer E15 during the summer ozone season are choosing to replace EPA’s mandatory E15 label with a label notifying their customers that the gasoline is for use in flex-fuel vehicles only. A common question posed by PMCI members is whether that practice is legal.

Here is EPA’s position as stated in its pre-publication version of its Renewable Enhancement and Growth Support Rule:

“As a result of the difficulty blenders face in locating sub-RVP blendstocks for use in making E15 that is compliant with the gasoline RVP requirements in areas where the 1 psi waiver for E10 applies, the EPA received requests for clarification about whether relabeling E15 as for use only in FFVs would exempt E15 from gasoline RVP requirements from June 1 through September 15. All gasoline, including E15, is subject to all of the requirements applicable to gasoline because of its formulation, not because of its end use. These requirements cannot be circumvented by relabeling. Allowing a fuel to be exempted from fuel quality requirements simply based on a statement of its intended use would undermine the EPA’s ability to assure compliance with fuel quality requirements. In situations where E15 blenders could not locate sub-RVP blendstocks to facilitate compliance with the applicable gasoline RVP requirements, they could adjust the ethanol blend ratio to produce an EFF blend such as E20 from June 1 through September 15.”

Despite the clarity provided by EPA in its response above, the field enforcement of their position to date has not matched their publicly-stated position. EPA’s lack of enforcement is not the result of not knowing or a lack of enforceable data. In EPA’s approval of the ethanol industry’s application to register E15 as a motor fuel, EPA created a national gasoline testing survey program. That program is administered by the Reformulated Gasoline Survey Association and the testing data, including RVP testing, is made available to the EPA. The reason why EPA is not enforcing its own regulation remains a mystery but it is fostering unfair marketplace competition between those choosing to abide by the law and those willing to take on the risk of breaking it.

Locally, the Iowa Department of Agriculture and Land Stewardship’s Weights and Measures Bureau is tasked with the oversight of fuel marketing in the state. As retailers continued to offer E15 during the summer ozone season, PMCI requested that the Bureau incorporate RVP testing into the state’s gasoline testing program.

The following chart reflects the results available to date:

Date Iowa City  Posted Ethanol
 Reid Vapor
Pressure (psi)
June 22, 2017 Fort Dodge 15% 9.82psi
June 22, 2017  Fort Dodge 15% 9.80psi
June 22, 2017   Fort Dodge 15% 9.79psi
July 5, 2017   Sioux City 15% 9.43psi
July 11, 2017 Clear Lake 15% 9.78psi
July 11, 2017  Waterloo 15% 9.73psi
July 12, 2017  Ankeny 15% 9.83psi
July 20, 2017 Clear Lake 15% 9.70psi
July 26, 2017 Spencer 15% 9.65psi
 August 2, 2017 Burlington 15% 9.85psi

As the chart depicts, every location offering E15 is doing so in violation of the EPA’s summer ozone season RVP restrictions. The Iowa Weights and Measures Bureau, under the leadership of Secretary of Agriculture Bill Northey, has stated that they believe that the regulation of gasoline RVP falls outside of their regulatory purview. For the record, the regulation is stated clearly in the National Institute for Standards and Technology Handbook 130, which is adopted by Iowa and enforced by Iowa Weights and Measures regulators. This approach by Iowa Department of Agriculture leadership is disappointing. Weights and Measures officials are tasked with promoting fairness and equity in the marketplace and selective enforcement of regulations falls woefully short of that directive.

The bottom line for Iowa retailers is that currently neither the state nor federal agency with oversight of the RVP requirements on gasoline have yet to take enforcement action against anyone violating the law. Retailers entertaining the risk of marketing E15 during the summer ozone season need to be aware of the penalties available to EPA under the Clean Air Act (CAA). The penalty framework available to EPA includes fines of $37,500 per day, per violation, for as long as the violation occurs. Finally, the law also gives authority to EPA to levy an unjust enrichment penalty on entities violating CAA. The unjust enrichment penalty associated with summer sales of E15 would include profits made from knowingly selling E15 in a manner prohibited by the law, and it likely calls into question the $.10cpg subsidy paid by the state’s taxpayers to E15 gallons marketed during the summer months. One question for the state of Iowa to consider is whether their subsidization of a product that they know is being sold in violation of federal law calls into question the state’s liability under the law.

Unfortunately for petroleum marketers, there are no clear answers when it comes to the questions being asked about marketing E15. Elected officials, state and federal agency leaders, and the regulatory bodies they oversee have all punted when it comes to enforcing or addressing the legal requirements marketers face with E15. Perhaps Congress will address the lack of an RVP waiver for E15 in the coming year, and we can all turn our attention toward the infrastructure challenges that the downstream petroleum industry faces with higher blends of ethanol. Irrespective of the actions of those elected officials, preserving a free market approach should be their utmost priority. Selective enforcement based on potential political fallout clearly misses that mark. This continued unequal enforcement will only serve to create an unfair playing field for business owners.

Fuel Federal

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