# ~ VALERO

Via Federal Express No. 7747-5828-9186
EPA Docket Center U.S. Environmental Protection Agency 1200 Pennsylvania Ave., NW Mail code 28221 T Washington, DC 20460 Attn: Docket ID No. EPA- HQ-OAR-20 15-0 I I I October 16, 20 I5 

### Richard 

### J. Walsh Senior Vice President and Deputy General Counsel litigation and Regulatory Law

RE: Supplement to Valero Comments on Proposed Renewable Fuel Standards for 2014, 2015 and 2016 and Biomass-Based Diesel Volume On July 27, 2015, Valero submitted comments on the Proposed Renewable Fuel Standards ("RFS ") for 2014, 2015 and 2016 urging EPA to revise the RFS to move the point of obligation to the owner of the fuel at the wholesale rack. When EPA considered revising the structure of the RFS in 20 I0, EPA argued that at that time "a change in the designation of obligated parties would result in a significant change in the number ofobligated parties and the movement of RJNs , changes that could disrupt the operation of the RFS program during the transition from RFS I to RFS2. " To address this concern in support of the submitted comments, Valero completed analysis regarding the administrative burden that might result from a change in the point of obligation. As described below, Valero's analysis finds that the change will result in no additional administrative burden because the change will not increase the number of obligated parties under the RFS. An analysis of information available in the Oil Price Information Service ("OPIS") and EPA's list of RFS registered parties shows that the number of directly obligated parties is expected to decrease if the point of obligation is moved to the wholesale rack. As background, Valero summarizes the comment submitted in July as follows: The current problems with the RFS , as outlined below, can largely be resolved by shifting the RFS compliance obligation to the owner of the fuel immediately prior to blending at the rack, ensuring that all parties would have an equal incentive to maximize the generation of additional RINs. The infrastructure that is needed to increase market penetration of renewable fuels is downstream of refiners

. As long as those downstream of refmers do not have compliance obligations, there will be few market opportunities for investments in downstream infrastructure. By moving the obligation closest to the place where blending occurs and where renewable fuel is purchased and delivered, EPA would incent blenders to maximize blending and marketing of renewable fuel. No party would have a surplus of RfNs by virtue of their downstream position alone, while all parties would be equally obligated and, most importantly, fully incented to push renewable fuels into the market. Valero's comments explain that the action to correct the flaw in the RFS system is simple and will not create unreasonable additional administrative burden on regulated parties: The regulatory change necessary to correct the flaw is simple. To move the point of obligation to the rack is a straightforward edit to the definition of obligated party. The change places insignificant additional administrative burden on regulated parties. Further, even if some degree of additional administrative effort is involved in moving the obligation to blenders, it is not reasonable to compromise a program design that will more effectively achieve the goals ofthe statute for the sake ofadministrative convenience. One Valero Way • San Antonio , Texas 78249-1616 Pos t Office Box 696000 • San Antonio, Texas 78269-6000 • Teleph o n e (21 0) 345-2604 • Facsimile (21 0) 370-4685 ri cha rd. wa lsh@valero .comEPA Docket Center U.S

. Environmental Protection Agency October 16, 2015 Page 2 

### Analysis ofPotential Administrative Burden Based on Increase in Number of Obligated Parties As a follow-up to the comments submitted in July, Valero completed analysis of the potential additional administrative burden that might be imposed on regulated parties by the recommended change in the point of obligation. Valero offers the results ofthis analysis for EPA consideration in the development ofthe final rule. Valero recognizes that this information is being submitted after the close of the comment period for the proposed rule. However, in light of the enormous benefits associated with a rule change, it is important for EPA to recognize the change will not create additional administrative burden for the agency nor industry. The information provided herein is information that EPA can obtain on its own and the analysis is well within EPA's ability to undertake for evaluating options to resolve the RFS structural flaws. Nonetheless, Valero offers the information to provide EPA support for making the appropriate changes to ensure the success ofthe RFS program. The purpose of the analysis was to quantiry the number of obligated parties under a revised RFS by identirying the entities that post wholesale rack prices for gasoline and diesel fuels at all terminals in the United States. In meetings with Valero, EPA indicated that there are approximately 

### 200 obligated parties and raised d a concern that moving the point of obligation to the owner of the hydrocarbon immediately prior to sale at the wholesale rack may significantly increase the number of obligated parties. Utilizing wholesale rack pricing data gathered from OPIS, Valero identified potential obligated parties by reviewing the entities who supply gasoline and diesel fuel for sale at wholesale rack terminals as reported in the OPIS Wholesale Rack Pricing Report. The analysis quantified the number of unique " Parties" posting wholesale rack prices at all US terminals and then cross-referenced the parties with EPA's most recent Title 

### 40 CFR Part 80 registration. The wholesale rack data set included all published finished product price information by posting party for both Branded and Unbranded products, excluding Avgas, Jet Fuel, and LPG's. The analysis consolidated posted products by product group and product type. The Product Groups included; " Gas or Diesel" and " Alternative Fuels "

. The product group "Gas or Diesel " included all gasoline's 

### (EO to 

### E 15) and all diesel fuels (Motor Vehiclt:, Non-road, Locomotive, or Marine (MV-NRLM)), including all blends containing biomass based diesel ' s (BO to 898). As the purpose ofthe analysis was to quantiry the number of obligated parties under a revised RFS, whereby the obligated party would be the owner of the hydrocarbon immediately prior to sale at the wholesale rack, the entities posting products for sale within the product group " Gas or Diesel" were considered obligated parties for this analysis. 

### Finding: Rule Revision Will Reduce Number of Obligated Parties Based on the analysis ofthe OPIS data, Valero found 107 posting entities; 100 were registered with EPA under the RFS. For 7, direct registration was not found, however they might be exempt, registered under a parent company, or could potentially be RFS non-compliant. (See Appendix) This number is significantly fewer than the number assumed by EPA in its prior discussions

. Thus , the analysis indicates that placing the compliance obligation on the owner of the gasoline or diesel fuel immediately before sale at the rack will result in fewer obligated parties than the current RFS structure. ..;;:. Est of Current Obligated Party EPA Registration Status Obligated Parties* at the Rack** Fawrable .a. (per EPA (per OPIS rack Variance II meetings) posting detail) EPA Registered 200 100 (100) EPA Registration Unknown


### - 7 7 Grand Total**~** 200**~ ·~·**  

### 107 (93) 

### * Number ofcurre ntly Obliga ted Parties as r eferenced during m eetings with EPA **Obligated Part y count based on the numbe r of pa rties posting rack prices for all fini shed Gas and Diesel products as published b y OPIS

- Finished Gas and Diesel products = Gasoline (includes E0-15) , Diesel (includes all MY-NRLM and 80-98)

- Excluded materials = E 85 , E thanol, and 8iodiesel (899 and 8100) Data Source: OPI S

- All Published Terminal s, All Published Finished Product Po sting (excluding A vgas, JetF uel , and LPG)EPA Docket Center U.S. Environmental Protection Agency October 16, 20 15 Page 3 Due to the smaller than anticipated number of unique parties identified in the Rack Posting Analysis, Valero contacted OPIS to confirm the results. OPIS provided a list of 123 "Active Rack Suppliers" posting gas and diesel prices. OPIS refers to any entity posting a rack price as a " rack supplier. " After accounting for duplications created by suppliers posting both branded and unbranded prices, OPIS indicated the count ofunique supplier's was approximately II0. When looking at the number of directly obligated parties resulting from moving the point of obligation to the owner of the hydrocarbon immediately prior to sale at the wholesale rack, both the posted price analysis and OPIS supplier validation methodologies yielded similar results and both reflected a significant decrease in the number of directly obligated parties. 

### Finding: RIN-Long Obligated Parties are Not Offering E85 The analysis yielded additional information regarding obligated parties under the current RFS that supports Valero ' s comments submitted to EPA in July. Valero's comments, and the comments of others, describe the fact that RIN-Iong obligated parties do not have any incentive to provide E85. The analysis of the OPIS data confirms that RJNIong obligated parties are not pricing E85. The data described in the table below identifies the number ofterminals at which each company posts E85 prices. EPA already knows that the companies shown below with branded sales that are greater than 70% of their refinery production are also companies that are RJN-long.
Branded Gasoline Sa l es as Percent of Refinery Production by Company* and Terminal Count by Company Posting E85 Prices*
> 100% "@ 100% T ..8 90% .J. 1! 

# a 8 0% _,_ 

# .. c "tl 

### , "8 .t**~** :!! 50% '**~** '5 ;11. :; 30 % • "' 

# .. ;iii



# .. 

# .. .., 1 0 %**~** 

## .,**~** 0%

. .; BP PROD U CTS > 100%

SH

ELL OIL COMPANY > 100%
52.

53% 52 %

CHEV RON EXX ON MOBIL CIT GO MARATHON T ESO RO PHILLIP S66 VALE RO U.S.A. INC. CORPORATION PETROLEUM PETROLEUM CORP ORATION COMPANY ENERGY ' 60 ;i; II: 0 50-**~** "I: 

## ... 40 

# j
Ill ·r 3o ... 

# 1 "' 20**~ ~** **~** 10 '5

0 § Q u

NORTH AMERICA C ORPORATION COMP ANY LP CORPORATI ON CJ a ran ded Gas Sa le s illS% of R ef Prod uction• D EBS- Te rm in al C o unt P o sti ng E SS Prices • • •lu ndberg le tt er, Vo l u m e XLII Numbe r 1 5Augu st 18 , 201 5

.. OPISWholessale R a ck Pricing( 5e ptember3, 2 01 5) This finding confirms that the current point ofobligation of the RFS does not incent RJN-Iong obligated parties to invest in infrastructure to blend additional biofuels , particularly those which would break the E 10 blendwall. As can be seen above, the high RJN prices in 2013 , 2014, and 2015 did not caused RIN-long obligated parties to offer E85. Further, most RIN-long obligated parties benefit from disproportional obligations under the RFS current point of obligation

. In the short term, these parties have no need to make investments to meet increasing RVOs and they enjoy windfall profits from selling high priced RINs to structurally short parties. In the long term, this dysfunction in the RFS creates instability and risk to RFS program and results in failure of program to achieve its goals. The ultimate collapse ofthe RFS program will benefit RIN-long parties, particularly if it occurs after reducing competition in the market from RJN-short parties

.EPA Docket Center U.S. Environmental Protection Agency October 16, 20 15 Page4 Conclusion The two findings from the analysis are important for EPA ' s consideration of how to remove the constraints on the RFS program. Contrary to EPA's assumptions in 2010, changing the point of obligation to the owner of the hydrocarbon immediately prior to sale at the wholesale rack will not increase the number of obligated parties

. Thus, EPA's concern about the additional administrative burden is unfounded; there will be no additional administrative burden on the agency nor parties that are not already participating in the RFS program. Not only will a correction to the regulatory structural flaw allow better market penetration of renewable fuels by ensuring that all relevant parties have the incentive to push renewable fuels to the market, a correction is necessary to provide stability in the RFS program and to prevent the ultimate collapse ofthe RFS program. The findings support Valero ' s comments submitted in July. We urge EPA to consider these findings as further support for those comments
.

cc: Benjamin Hengst Julia McAllister Janet McCabe Chris Grundler Gina McCarthyEPA Docket Center U.S. Environmental Protection Agency October 16, 20 15 Page 5 

### Appendix: EPA Registration Unknown- Detail by Product Type

• 9 parties who posted a rack price could not be directly linked to an existing EPA registration • 7 parties posted Gas, Diesel, or both • 2 parties posted Ethanol, Biodiesel, or both • Registration Unknown indicates no direct link to an EPA Company Name and EPA ID Number • Parties may operate outside ofthe programs implementationjurisdiction (i.e. AK), are currently violating the regulations (i.e. posting ethanol with RINs), or are likely registered under parent company
Reglsl!:atlonStatus**EPA** Company Name

____________ _**Registration** lklknown H 9987 • ACORN(UNKNOWN EPA 10-820 posting. Fountain. CO)

'3 9989- DANSKWLS(UNKNOWN EPA 10 • IA.SD& 820 posting· B Paso, TX) 1 ::;:1 9991
- DI:ADRIVER{UNKNOWN EPA 10· ULSD& HSOposting ·Bangor , ME) 1 ::.1 9992-**~TOERTH(UNKNOWN** EPA 10- Bio posti ng ONLY· 31ocations in GA)**~1 9993-**  PERTOLUBE (UNKNOWN EPA 10. HSO pos ling • Philadelphia, PA) 1 :;:19994
- PFI {UNKNOWN EPA 10 ·Gas & Diesel posting· Albany, NY) : ::.1 9995
- PIASA (UNKNOWN EPA 10- Bhanol w/ RINs posting. Columbia , MO) =1 9996
- USA (UNKNOWN EPAID- Gas & Ciesel posting Anchorage, AK) E19997
- WESTMORE(UNKNOWN EPA 10-IA.SD osting • Mt Vernon. NY) Product Type

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