**Statement of Jonathon Lehman**

**VeraSun Energy**

**For**

**United States Senate Energy Committee's Energy Subcommittee**

**Hearing on Renewable Fuels Infrastructure**

**July 31, 2007**

Good afternoon, Mr. Chairman and Members of the Subcommittee. My name is
Jonathon Lehman, and I am testifying today on behalf of VeraSun Energy.

VeraSun Energy is one of the nation's leading producers of renewable
fuels. The company has three operating ethanol production facilities
located in Aurora, SD, Fort Dodge, IA, and Charles City, IA. Two
facilities are currently under construction in Hartley, IA, and Welcome,
MN, and an additional plant is under development in Reynolds, IN.
VeraSun is in the process of acquiring another three biorefineries
currently under construction in Albion, NE, Bloomingburg, OH and Linden,
IN. Upon completion of the new facilities and those being acquired,
VeraSun will have an annual production capacity of approximately one
billion gallons by the end of 2008. The Company also has plans to
extract oil from dried distillers grains, a co-product of the ethanol
process, for use in biodiesel production.

Additionally, the Company markets E85, a blend of 85 percent ethanol and
15 percent gasoline for use in Flexible Fuel Vehicles (FFVs), directly
to fuel retailers under the brand VE85(TM). VeraSun's branded E85 is now
available at more than 90 retail locations including the first E85
fueling location in the District of Columbia.

**[Demand from E85 needed to foster drive to cellulosic
ethanol]{.underline}**

I want to thank members of the Committee for your continued efforts to
promote increasing usage of renewable fuels. VeraSun appreciates the
committee's leadership in developing the Senate passed Renewable Fuels,
Consumer Protection, and Energy Efficiency Act of 2007, which calls for
the expansion of the Renewable Fuels Standard to 36 billion gallons by
2022 including a significant call for ethanol production from cellulosic
sources.

We believe that this is a very achievable goal, but one that will
require widespread adoption of E85 usage. Because of the successful
growth of the ethanol industry, some reports indicate that we will meet
the demand of the current 10 percent blend market with corn-based
ethanol within the next three to four years. When all of the ethanol
plants currently under construction are completed, the U.S. will produce
nearly 13 billion gallons per year, up from five billion gallons per
year last year.

We believe the market must see a path toward E85 in order for cellulous
ethanol to evolve. Without E85 demand, the market may not support the
early stage development that is necessary to unlock the potential that
cellulosic ethanol holds.

Simply put, the Federal Government must now focus efforts on growing
ethanol demand beyond the 10% blend market. A strong commitment to E85
will ensure a market for cellulosic ethanol production in the United
States.

**[Building an E85 Marketplace]{.underline}**

As one of the largest biofuels producers, we assume a large
responsibility to insure that market development occurs. VeraSun has
pursued an aggressive strategy in cooperation with GM and Ford to
increase the availability of E85. Today only 1,251 of the nearly 180,000
(or 6/10 of 1%) retail gasoline stations in the United States offer E85.
We must do better.

In early 2005, VeraSun launched the nation's first branded E85, VeraSun
E85 or VE85 for short. We began the program in May 2005 with the
conversion of 35 pumps at seven stations in Sioux Falls, South Dakota.
At the same time, we launched a marketing program to raise awareness to
the benefits of flexible fuel vehicle (FFV) ownership and E85 use, and
enlisted the support of General Motors to assist with the rollout of the
program. As a result of the program, local E85 awareness increased, E85
fuel sales rose, and the demand for flexible fuel vehicles increased in
the local market.

In early 2006, we replicated this effort in conjunction with GM to bring
VE85 to Chicago and Minneapolis. In June 2006, we worked with Ford to
create an E85 corridor from Chicago to St. Louis. In July 2006, we
announced with GM at the Major League Baseball All-star Game the first
retail availability of VE85^TM^ in Pittsburgh. Just last month, we
announced with GM the first public E85 refueling station in the District
of Columbia. All told, VeraSun's branded E85 is available at more than
90 retail locations across eight states and the District of Columbia and
we have more on the way. We plan to continue to work to expand the
number of fueling stations offering VE85 from coast to coast.

From this experience, we have gained significant insight on what is
necessary to develop E85 in the United States. In order to see a robust
E85 market in the United States, VeraSun believes the Federal Government
must address the following items.

1\. Improve E85 economics through the creation of an E85 Blenders
Credit;

2\. Create an auto incentive for the production of advanced FFVs; and

3\. Address terminal infrastructure issues.

As VeraSun works to expand the number of fueling stations offering VE85,
one of the most significant issues we face is blender economics. Allow
me to explain; FFV's are currently not designed to take advantage of
E85's high octane. As a result, FFV owners receive fewer miles per
gallon running on E85 than on conventional gasoline. This direct impact
on consumers requires that E85 be sold at a discount to gasoline for it
to be competitive in the marketplace. This has led to fewer gallons of
E85 being produced.

For fuel retail owners to install E85 infrastructure, they must have
confidence that E85 will be priced appropriately and that there will be
sufficient consumer demand.

To improve E85 economics and spur rapid expansion of E85 pumps, Congress
should create a blenders credit for ethanol blended into E85 within the
existing VEETC system. This credit would compensate for the discount
resulting from the loss in miles per gallon efficiency. Establishing
this incentive will lead to additional E85 production and will help
ensure that E85 is priced properly at the pump for consumers. This will
help make a fuel retailers decision to offer E85 much easier.

In addition to increasing the supply of E85, we must also increase the
number of FFVs on the road. Today, less than three percent of the
vehicles on the road are E85 compatible. Without a significant ramp up
in the production of FFVs, E85 use will remain relatively small. To this
point, we very much appreciate GM, Ford, and DaimlerChrysler's
commitment to increasing production of E85 and biodiesel capable
vehicles to 50% by 2012. This is a significant step forward. But this
commitment by the automakers is conditional on having sufficient E85
refueling infrastructure to meet this demand. Therefore, it is paramount
that we act now to rapidly build out E85 refueling capabilities.

We also believe the automakers must work to improve FFV technologies to
better take advantage of E85's high octane. To spur the production of
more fuel-efficient FFVs, Congress should provide incentives for
automakers that produce FFVs with E85 fuel economy comparable to
conventional vehicles. Additionally, Congress should provide a consumer
tax credit for the purchase of these more fuel efficient FFVs.

Further, our experience over the last two years with our VE85 initiative
indicates that more must be done to help retailers offer E85. Beyond
addressing E85 blending economics, there are several achievable hurdles
that must be addressed including retrofitting terminal infrastructure to
better handle E85, UL pump certification, and ASTM fuel specifications
for E85.

Currently, many terminals are not set up to quickly dispense E85. These
terminals were designed to quickly fill trucks with E10, not E85. As a
result, what is a twenty-minute fill time for E10 turns in to a two-hour
fill time for E85 because of the plumbing configuration of the terminal.
Terminals won't allow this as it backs up their entire operation, which
is already busy. We are currently trucking in E85 from Ohio to our
Washington D.C. station because the Manassas terminal needs to be
retrofitted. In many cases, this can be done for a cost of fifty to one
hundred thousand dollars. The federal government should provide these
terminal owners with assistance in converting terminals to offer E85.
This could be achieved by making terminal owners eligible for the E85
infrastructure tax incentive.

Additionally, it is critical that UL certify both E85 conversion kits
and new pumps quickly. The fire marshals we have dealt with support E85,
but they must make sure of the safety of the equipment. The lack of
proper UL certification required us to spend 30 days working with a very
supportive D.C. Fire Marshal to get approval for the first pump in the
District of Columbia. UL certification will significantly streamline
that process.

Finally, if we want to have an immediate impact on air quality and open
up major markets for renewable fuels we need to have ASTM create a
separate E85 fuel specification for conventional markets; which have
conventional unleaded available for blending E85; and reformulated
gasoline markets, which have RBOB available for blending with ethanol to
make E85. Without it our nation's cities that endure the poorest air
quality will have a hard time developing a meaningful E85 footprint.

**[Conclusion]{.underline}**

Clearly, the ethanol industry is a success story. We're exceeding the
levels of the current Renewable Fuels Standard, we're shipping ethanol
to major U.S. markets in Unit Trains, and we're ready to help our nation
start to turn off the valve of foreign oil. Further, cellulosic ethanol
holds great promise to expand ethanol production from coast to coast.
Given all of this, it is critical that we take the steps necessary to
create nationwide demand for E85. E85 infrastructure is the linchpin to
this effort.

For the first time in the last 100 years we are ready to decrease our
dependence on foreign oil, reduce greenhouse gases, and create economic
development in America. We look forward to working with you to chart the
course for years to come. Thank you.