## ![](media/image1.png){width="1.929861111111111in" height="1.0409722222222222in"}

August 19, 2003

Air Docket

Environmental Protection Agency

Mail code 6102T

1200 Pennsylvania Ave, NW

Washington, DC 20460

nrt4@epa.gov

Attn: Docket ID ;No. A-2001-28

> **Subject: Control of Emissions of Air Pollution From Nonroad Diesel
> Engines and Fuel: Proposed Rule**

**Reference:** [Federal]{.underline} [Register]{.underline}, Vol. 68,
No. 100, May 23, 2003, pages 28327-28603.

Dear Administrator,

CHS Inc, previously Cenex Harvest States (CHS) Cooperatives, is pleased
to provide the following comments on nonroad diesel fuel. We have
welcomed the interest EPA has had in learning about the impact diesel
rules will have on the farmer/refiner co-op system. We are most
appreciative of the EPA staff in Michigan for their hard work in trying
to better understand the tremendous impact this rule will have on
agriculture.

**[[Purpose:]{.underline}]{.smallcaps}** To explain our positions on
several issues concerning the proposed rule for offroad diesel fuels.

**[[Recommendation]{.underline}:]{.smallcaps}** **Because most of the
industry will probably convert all of its diesel to 15 ppm by 2006,
particular attention, analyses, examples and explanation should be given
in an [interim rule]{.underline} to that refiner group especially on
dyeing, setting a baseline, and credit generation.**

**[[Description of the Company:]{.underline}]{.smallcaps}** On June 1,
1998 Cenex, Inc. and Harvest States merged and formed Cenex Harvest
States Cooperatives. Cenex Harvest States is a producer-to-market
cooperative system owned by 325,000 farmers, ranchers and their local
cooperatives in 28 states from the Great Lakes to the Pacific Northwest,
and from the Canadian border into Texas. On August 5, 2003, our name
changed to CHS Inc (CHS).

CHS owns and operates a refinery in Laurel, Montana (capacity: 59,000
barrels per day) and also owns 74.5 percent of the National Cooperative
Refinery Association refinery in McPherson, Kansas (capacity: 77,400
barrels per day). [^1] It owns and operates 1,200 miles of crude and
product pipelines, eight terminals and nearly 1,200 retail petroleum
outlets. There are 1,047 local co-ops that make up CHS; over 70% of them
operate service stations and 89% have tankage and make bulk deliveries
to farmers.[^2]

In September 1998, three refiner co-ops, Cenex Harvest States
Cooperatives, National Cooperative Refiners Association, and Farmland
Industries joined together in a petroleum marketing venture,
CountryENERGY, LLC. Through CountryENERGY, these three refiner co-ops
sell fuels to half the farmers in the United States, over 900,000 of the
1.8 million. Under a cooperative system, these farmers own the
refineries, local co-ops and their own farms. These farmers get a return
on the earnings from their local co-op in the form of patronage.
Unfortunately, patronage can be reduced if co-op earnings are low or
capital expenditures are high. Because farmers own the co-op system,
they must pay for the capital expenditures associated with any and all
requirements this rule will put on them, their local co-ops and the
refiner co-ops. Not only would their patronage be reduced but as a
customer of the higher priced fuels they also would pay the increased
costs of each gallon of diesel fuel purchased.

Farmers and ranchers are heavily dependent on diesel fuel. In FY99, the
three refiner co-ops produced 1.35 billion gallons of distillates and
CountryENERGY sold 1.09 billion gallons of that production.
CountryENERGY bought the rest needed for farmers from other refiners and
sold a total 1.56 billion gallons to co-ops as dyed (908 million
gallons) and undyed (652 million). Some of that 652 million undyed fuel
was dyed and resold by co-ops, for which we do not have data. However,
according to USDA's 1993 data, 80% of the diesel fuel sold to local
co-ops was used in farm production activities.[^3] These amounts were
sold to about half the farmers in the United States but we have no data
on the remaining 50%.

###### [Rule Overview]{.underline}

**Overview** EPA is proposing to reduce sulfur levels in nonroad diesel
fuel by 99 percent to 15 parts per million (ppm). It will bring nonroad
diesel to the same 15 ppm cap for sulfur that will be required for
offroad diesel fuel, starting in 2006. Two of the four principles EPA is
holding to in developing and eventually finalizing this rule is,

> "Third, the implementation of low sulfur requirements for nonroad
> diesel fuel must in no way interfere with the implementation and
> expected benefits of introducing ultralow sulfur fuel in the highway
> market, as required by the 2007 highway diesel program.
>
> Lastly, the program must provide sufficient lead time to allow
> \[for\]... the expansion of ultralow sulfur fuel production to the
> nonroad market."

**Nonroad, Locomotive, and Marine Diesel Fuel Quality Standards.** EPA
is proposing different sequences for nonroad vehicles compared to marine
and locomotive.

\(1\) For marine and locomotive, EPA is proposing they meet a 500 ppm
maximum beginning June 1, 2007. This level would not be decreased
further by this rule.

\(2\) For nonroad vehicles, EPA is proposing they meet a 500 ppm maximum
beginning June 1, 2007 and then a 15 ppm standard by June 1, 2010.

**[[CHS Comments]{.underline}]{.smallcaps}**

**[Page numbers]{.underline}**

**28400 "IV. Our Proposed Program for Controlling Nonroad, Locomotive
and Marine Diesel fuel Sulfur."**

28400\. **Looking back as well as forward.** We hope fuel additives
exist that will compensate for the loss of sulfur in older engines. EPA
has spent considerable effort to plan for the availability of 15 ppm
fuel and new technology by 2010. But are current vehicles with existing
technology ready to handle the 15 ppm in 2006 or even 2004? Many
refiners that have to or are going to comply with the offroad diesel
standards are going to covert their entire diesel production to 15 ppm
and not separate out separate streams of offroad and onroad diesels.
**We need assurances that the drastic sulfur reduction for offroad
vehicles will not negatively impact older engines, especially
agricultural engines.**

28403 **Cetane Index or Aromatics Standard**. The decision not to change
aromatics and cetane in this rule is welcomed. EPA currently requires
that onroad diesel fuel meet a minimum cetane index level of 40 or, as
an alternative contain no more than 35 volume percent aromatics. **EPA's
proposal to extend this cetane index to offroad diesel is appreciated.**

28403-04 **Background (Diesel dyeing)** Allowing some dyeing flexibility
may help many. The issue of dyeing diesel for offroad purposes is
compounded by two 500 ppm fuels that will exist simultaneously for
several years. Currently offroad diesel is dyed. Once dyed it cannot be
used in onroad vehicles. However, due to the interconnectedness on
timing between the offroad and onroad diesel rules, there is a period
where 500 ppm diesel exists for both on and off road use. This would be
costly where two separate systems of 500 ppm tankage would have to be
carried. Add to that the issue of dyeing one of those fuels and the
system gets confusing especially for enforcement. **So we welcome EPA's
proposal that offroad diesel dyeing at the refinery gate be made
[voluntary]{.underline} effective June 2, 2006.**

28405 Marking home heating oil with different dye color is helpful.
Similar dyeing confusion results from the interconnectedness of the two
500 ppm diesel rules as it relates to home heating oil. Thus EPA 's
proposal to **dye home heating oil with solvent yellow 124 makes
sense.**

28407 **Setting the Non-Highway Distillate Baseline.** EPA may want to
relook setting baselines as it relates to dyeing issues. EPA proposes to
determine the non-highway baseline percentage for each refinery by
averaging the volume of dyed diesel fuel and heating oil (number 1 and
2, excluding jet fuel and exported fuel) that it produced or imported
annually over the three year period from January 1, 2003 through
December 31, 2005 and dividing that volume by the average of all diesel
fuel and heating oil (number 1 and 2, excluding jet fuel and exported
fuel) it produced or imported annually over the same period (and then
multiply by 100).

This may [not]{.underline} work if refiners would have the option of
dyeing at the gate or not \[28404\], especially if the refiner only
makes 15 ppm diesel---on and offroad. In fact, does not the formula for
setting a baseline using dyed fuel at the gate negate the
[voluntary]{.underline} aspect of the dyeing? If the refiner allows the
fuel to be dyed later, say at a co-op, how can he be sure to count it or
not for the baseline? **Allowing voluntary dyeing at the refinery, but
then saying that it is dyed fuel [at the gate]{.underline} that must be
used in setting baselines, may need further analysis.**

28407 Another issue here is the limitation of refiners from selling
credits outside credit trading areas (CTA). This may be detrimental to
many small and single refinery refiners. **We see the need to establish
a procedure to allow small refiners in particularly to petition EPA for
permission to sell credits outside their PADDs and/or CTAs**. Too rigid
a program does not give EPA the needed flexibility to 'nurture' along
the national desulfurization effort while protecting fuel supplies;
simultaneously helping small refiners manage their costs of compliance
to remain economically viable.

28417 **Large Refiner Purchasing a Small Refinery.** EPA's thoughts to
make the small refiner merger/acquisition rules different between the
offroad and onroad diesel rules is confusing and literally "changing the
rules in the middle of the game." EPA proposes that in a case like this
when a large refiner purchases a small refinery \-- the refiner would be
given 24 additional months in which to comply. Although not entirely
clear in the regulation, it appears the 24 month delay may go to the
large refiner. Some might see this as a delay tactic. **Anyway we do not
agree that the 24 months should be given to the large refiner for any of
its refineries. We also do not believe a 24 month extension should be
automatically given to the acquired small refinery.**

Should the large refiner get a delay or only the small refinery facility
itself? If the large refiner gets to delay more facilities than the
newly acquired small refinery, we think this is unfair. In addition,
there is the issue of scale and permitting this for any large refiner.
Should our million (+) barrel largest refiners with several large
refineries be given 24 more months in which to comply because they
bought one small refinery of 5,000 barrels? It would be more reasonable
to give the small refinery some more flexibility.

28418 **Small Refiner Losing Its Small Refiner Status**. EPA mistakenly
left out a criteria that would change the "small" status of a refinery
should a small refinery be acquired. EPA is now trying to decide whether
to keep its requirement that the small refinery, when acquired, loses
its 'small' status, and with it some EPA flexibilities; or whether more
time should be given to the small refinery to comply. EPA explains and
addresses its omission on the criteria used to determine when a small
refiner would lose its small refiner status, should it merge, acquire or
be acquired and in doing so exceeds the small refiner criteria. The
criteria set to be called 'small' is 155,000 bpd and less than 1,500
employees in the company. The criterion of 155,000 bpd to determine the
status loss was inadvertently omitted by mistake. So EPA seeks comments
whether to keep the two criteria.

**We would agree in keeping the two criteria** (although prefer that the
1,500 employee criteria be based on those in the refining operations and
not company wide.). The omission of the 155,000 bpd criterion was
obviously an administrative oversight. But it was also found by us and
became the topic of several phone calls with EPA's Michigan office to
insure it was a mistake. Why these discussion in 2002 and 2003 were held
was that CHS was in acquisition discussions with another refinery and
based on the explanation of the EPA Michigan office that both criterion
were still in place and required and that the omission was a mistake, we
stopped merger negotiations. **So for us this is an issue of fairness
and the original requirement that the small refinery lose its 'small'
status upon merger/acquisition should be kept.**

As to EPA's second proposal to give 24 more months to any two small
refiners that merge and lose their small status \-- this may be more
difficult to address. We are concerned about EPA's criteria to pick
which small refineries may get the 24 months extension.

We believe, **any small refinery that did not apply originally for EPA
'small refiner' status and be granted so by EPA, as a minimum**,
**should not be permitted to be given 24 more months.** By not asking
for 'small' it already had determined it could comply and would be able
to finance the compliance or was planning to go to offroad market.

For those that did seek the small status, their situation would need
further breakdown; \-- if they are (1) merging, (2) acquiring or (3)
being acquired.

(1) If any number of small refineries merges, and they exceed either
    criterion, they should not all be given 24 months.

(2) As to the issue if a small refiner acquires/purchases a small
    refiner/refinery should it be given 24 more months, we believe the
    answer should be "no." If a small refiner has enough money to
    purchase another refinery it had the money to make the upgrades. If
    it did not, it should not be taking on more financial burden.

(3) As to a small refinery being acquired by a small refinery, only an
    EPA designated "small" refinery being acquired by a small refiner
    should be considered for extra compliance time.

**In all cases EPA should require a justification, treat it with the
same due diligence as a hardship case and treat each merger/acquisition
on its merits. Extensions should not automatically be 24 months.**

Lastly, we are concerned about enforcement issues as it relates to fuel
delivery trucks. Trucks that carry and discharge all of the 500 ppm
diesel, then refills with 15ppm, are most likely to experience some 15
ppm contamination. Any requirement that truck tanks be "cleaned" is
impractical, burdensome, and too costly. EPA should study this issue and
establish acceptable 'contamination'/adulteration standards.

Thank you

Should you have any questions please contact me at 1745 Jefferson Davis
Highway, Suite 412, Arlington, VA 22202; 703-413-9620;
rlooney@cenexharveststates.com. Thank you for your consideration.

Sincerely,

Robert J Looney

[^1]: The Energy Information Administration mistakenly groups Farmland,
    NCRA and the Cenex Laurel, MT refinery all under Cenex Harvest
    States Coop. "Petroleum Supply Annual 1999", EIA, undated, Volume 1,
    page 28.

[^2]: "Local Petroleum Operations," RBS Research Report 149, USDA,
    September 1996, pages iii, 4, and 5.

[^3]: "Petroleum Cooperatives, 1995," RBCDS Research Report 143, USDA,
    July 1995, table 3, page 4.