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 I 5 

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 I 0, EPA argued that at that time "a change in the 

designation of obligated parties would result in a significant change in the number of obligated 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 of the statute for the sake of administrative convenience. 

One Valero Way • San Antonio, Texas 78249-1616 

Post Office Box 696000 • San Antonio, Texas 78269-6000 • Telephone (21 0) 345-2604 • Facsimile (21 0) 370-4685 

richard.walsh@valero.com 
EPA 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 of this analysis for EPA consideration in the development of the 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 of the 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 of the 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 of currently Obligated Parties as referenced during meetings with EPA 

**Obligated Party count based on the number of parties posting rack prices for all finished Gas and Diesel products as published by OPIS 

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

- Excluded materials = E85, Ethanol, and 8iodiesel (899 and 8100) 

Data Source: OPIS - All Published Terminals, All Published Finished Product Posting (excluding Avgas, JetFuel, 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 of unique supplier's was approximately II 0. 

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 of terminals 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 Sales 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 

.. 

.. .., 10 % ~ 

., 

~ 0% . 

.; BP PRODUCTS 

> 100% 

SHELL OIL 

COMPANY 

>100% 

52. 

53% 52% 

CHEVRON EXXON MOBIL CITGO MARATHON TESORO PHILLIPS66 VALERO 

U.S.A. INC. CORPORATION PETROLEUM PETROLEUM CORPORATION COMPANY ENERGY 

' 60 

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0 50-

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... 40 j 

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1 

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10 '5 

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NORTH 

AMERICA CORPORATION COMPANY LP CORPORATION 

CJ a randed Gas Sales illS% of Ref Production• D EBS- Te rminal Count Posting ESS Prices• • 

•lundberg lett er, Volu me XLII Number 15August 18, 2015 .. OPISWholessale Rack Pricing( 5eptember3, 2015) 

This finding confirms that the current point of obligation 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 of the 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 of the 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 McCarthy 
EPA 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 of the programs implementation jurisdiction (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 posting 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 ... _ 

B GAS OSL 

I 

3 

ETH BIO 

3