September 12, 2017 9:45 AM, EDT

Small Retailers Sue EPA over Renewable Fuel Standard

A national trade group of 200 small, independent petroleum retailers and convenience store owners has filed a federal lawsuit asking a court to require the Environmental Protection Agency to change its regulation that currently identifies refiners and importers as the entities responsible for blending gasoline and diesel fuel with renewable fuel.

The Small Retailers Coalition previously has unsuccessfully tried to convince the EPA and Congress to move the longtime so-called “point of obligation” requirement downstream from refiners and importers as the parties responsible for meeting EPA’s renewable fuel standard.

“Unless the point of obligation is changed or the final rule is remanded or enjoined by this court, Small Retailers Coalition members will be forced to cease operations or sell their businesses to nonobligated large retailers who receive a financial advantage,” said the lawsuit filed Aug. 28 in federal district court in Utah.

The Renewable Fuel Standard, intended to move the United States toward greater energy independence and security and increase production of clean renewable fuels, has been in effect since 2006. The EPA implements the renewable fuel standard in a manner that makes all U.S. refiners and importers responsible for ensuring that certain levels of renewable fuels are blended into gasoline and diesel, even if they do not have blending capabilities.

Under the RFS program, every gallon of renewable fuel produced or imported into the United States is assigned a unique Renewable Identification Number, or RIN, which remains attached to the renewable fuel until it is blended into motor vehicle fuel.

The lawsuit is the most recent step in a multiyear battle that we have been having.

Natso's David Fialkov

The small retailers said that because the RINs can become commodities — and not just tracking numbers — the RINs can generate enormous windfall profits for a “very few large entities,” according to the lawsuit.

EPA uses RINs to track renewable transportation fuels to monitor compliance with the RFS. The RIN system allows EPA to monitor compliance with the RFS, but any entity blending renewable fuels may sell RINs to one another. For example, if one refiner already has fulfilled its annual RFS requirement, but continues to buy and blend renewable fuels, it would accrue excess RINs. That refiner can then sell the excess RINs to another refiner that has not blended or purchased sufficient renewable fuels to meet its RFS requirement. RIN prices, like stocks, are determined by market factors.

But despite the small retailers’ efforts, the White House had indicated that President Trump has no intention of changing the RFS program to make “rack sellers” the obligated parties, according to published reports.

“The lawsuit is the most recent step in a multiyear battle that we have been having,” said David Fialkov, vice president of government relations for the National Association of Truck Stop Operators, a group that has opposed changing the point of obligation. “They began with a legislative push. When that didn’t look like it was going anywhere, they shifted to a regulatory push with EPA. Now, being out of branches of government to try and influence, they have filed a lawsuit in an effort of what I call, ‘desperation.’ ”

The Small Retailers Coalition did not respond to a request for comment. However, the group’s lawsuit claims the current point of obligation requirement has created a multibillion-dollar government subsidy for large retailers who control the vast majority of blending terminals across the country.

“Big corporate retail chains largely control these terminals and can decide who gets positions at the rack,” the lawsuit said. “As a result, large retail conglomerates are able to purchase gasoline unobligated and then blend it with ethanol or biofuels at the rack.”

The lawsuit further claimed, “EPA’s continuing failure to address the point of obligation’s significant impact on small retailers in a regulatory flexibility analysis threatens the viability of SRC members’ businesses and all small petroleum retailers throughout the United States.”

But Fialkov said that the small retailers are mistaken in thinking that changing the point of obligation would beef up their bottom lines.

“Generally, larger, more sophisticated companies are more efficient that smaller, independent companies,” he said.

In written comments on EPA’s proposed RFS for 2018, Diane McCarthy, CEO of Douglass Distributing Retail Co., a member of the small retailers, said the current point of obligation is “threatening the viability of thousands of small and medium-sized retailers all across the country.”

“The RFS is putting me out of business,” McCarthy wrote. “The reason that I cannot compete fairly in the current market is because the current point of obligation is removed from the rack, the bulk terminal or truck loading terminal where entities control whether gasoline is blended.”