COMMITTEE ON ARMED SERVICES SUBCOMMITTEE: INTELLIGENCE, EMERGING THREATS

$l CAPABILITIES 

## Congre gg

## of the Elniteb btatet ^ou g e of Repregentatibeg BILL SHUSTER 9TH DISTRICT, PENNSVLVANIA COMMITTEE ON TRANSPORTATION ANDINFRASTRUCTURE

CHAIRMAN



### WnlJington, W 20515-3809

December 19, 2013 Gina McCarthy Administrator Environmental Protection Agency 1200 Pennsylvania Ave, NW Washington, DC 20460 Dear Administrator McCarthy; Enclosed is a letter from Sheetz, Inc., headquartered in Altoona, Pennsylvania, which is in my congressional district. The letter raises concerns regarding the proposed RFS2 standards. Their concerns echo my own, specifically regarding the `blend wall' issue. I ask that you take their comments into consideration and respond to them in a timely manner. I also request you send a copy of your response to my congressional office. Thank you for -your attention to this matter.

Sincerely, 

# 6k%.,

Bill Shuster Member of Congress

2209 RAVBURN HOUSE OFFICE BUILDING 310 PENN STREET 827 Water STREET 100 LINCOLN wAV EAST WASHINGTON,DC 20515-3809 SUITE 200 SUiTE 3 $UITE B

(2021225-2431 HOLLIDAVSBURG, PA 16648 INDiANA, PA 15701 CHAMBERSBURG,PA 17201 FAx:(202)225-2486 (8001854-3035 (724) 463-0516 (717)264-8308 (814)696-6318 FAx:(724)463-0518 FAx:(717)264-0269 FAx:(814)696-6726

www.shuster.house.gov www.facebook,com/rep.sh uster www.twitter.com/repbi I Ishuster www.youtube.com/repshuster

## I 5^^^^^?

December 18, 2013

Ms. Gina McCarthy, Administrator U.S. Environmental Protection Agency 1200 Pennsylvania Avenue, N.W. Washington, DC 20460 RE: Propased RFS2 Standards Dear Ms. McCarthy: We are submitting our comments regarding the EPA's proposed volume requirements and associated percentage standards that would apply under the RFS2 program for calendar year 2014 for cellulosic biofuel, biomass-based diesel, advanced biofuel, and totai renewable fuel. In light of cumnt gasoline demand, the original 2014 RFS requlrements would present some major problems for obligated parties. However, we feel that the proposed 2014 changes are a dramatic over correction to the situation. The proposal doesn't adjust the course of the RFS, it actually reverses it. If these changes are approved, it would represent a huge step backward and would not be in line with the intended purpose of the law. These proposed changes essentially render the RFS meaningless. It would seem that the major driver for the EPA's proposed changes is the "blend wall" argument. While the blend wall is a reality, the RFS was always going to hit that barrier at some point. Granted, the "blend wall" was hit sooner than expected because of the declining gasoline demand in the U.S., but gasoline demand has been trending down since 2007. Furthennore, the RFS requirements always envisioned exceeding the EIO blend wall. Actually, the RFS was working perfectly as it was intended. The mechanism for instituting and regulating change is the RIN value. With RIN prices soaring earlier this summer, there was plenty of action, most of it focused on incneased lobbying and threats from refiners of exporting gasoline rather than directed toward real change for achieving the goal. The "blend wall" is not an immovable object like it sounds. It can be raised by increasing the use of higher ethanol blends such as E15 or E85. Today, E10 is highest allowable ethanol blend accepted by all auto manufacturers in a non Flex Fuel Vehicles (FFV). The EPA granted two partial waivers allowing for the use of E15 in vehicles newer than 2001. However, the auto manufacturers have stated that owners will void their warranty if they use ethanol blends greater than E10. In addition to the issues confronting the retailer with trying to market an E15, the potential liabilities eliminate any consideration for doing so. This leaves E85 as the only viable means for raising the "blend wall". So the answer is simple and clear, more E85 needs to be sold. The question is, how does that happen?

a: 6700 Sixth Avenue Altoona, Pennsylvania 16602 Tt 814.946.3611 F= 814.946.4376
www.SHEETZ.coMDecember 18, 2013

Page 2 of 2

E85 sales comprise only .01% of total gasoline sales. There are several reasons for the anemic sales. There is the laek of E85 infrastructure, low FFV population, poor FFV owner awareness, and the overall pricing of E85. Only 2338 locations in the U.S. sell E85 out of approximately 155,065 gas stations, or 1.5°/a. Currently, there are only about 14 million FFV's on the road. 75% of E85 owners are unaware that they have a FFV or what that even means. The only way to stimulate E85 sales growth is to price it competitively versus EIO gasoline whilc still providing a reasonable retail margin to justify the necessary investment. Ethanol has less energy content than gasoline. So, E85 has about a 23% lower BTU value than E10. Accordingly, the retailer needs to discount the E85 price to compensate the consumer for the reduced fuel effieiency in order to make it an economieally attractive alternative. Also, a discount is necessary to overcome the inconvenience of having to refuel more. Studies suggest that a 20% discount is required to create optimal sales. Therefore, the ethanol blending economics have to support investment and the pricing strategy. The total incentive for blending ethanol needs to approximately $1.501ga1. RIN values are a part of the blend economics. Our analysis shows that RIN values need to be greater than 75 cents per RIN to be able to drive the sales of E85. Furthennore, RIN values need to be sustained and less volatile to instill market confidence so that retailers feel comfortable making investments in E85 infrastructure and pricing strategies. Companies need some assurance that they will be able to recoup their costs and make a profit. This makes the setting of the RVO's critical. Case in point, Sheetz currently operates 464 stores in 6 states. We only have 7 stores that sell E85. However, for the last couple of years we have pre-piped 160 stores for E85. When RiNs were at 75 cents, we were looking to convert some of these stores to E85. However, with RINs currently worth around 25-30 cents, we no longer have an interest in conversion since the economics are no longer favorable. This highlights the problem of RIN values not being above 75 cents on a consistence basis; the interest in converting stores to E85 simply cannot be sustained. We believe that the RVO's need to be set above the "blend wall" in order to drive change. Since the levels are so sensitive to gasoline demand, we think the RVO's need to be determined quarterly, with a lag, in order to accurately set the correct levels. This will take the guess work out of it and send a clear message to the market. We would very mueh like the opportunity to discuss this topic with you in person. Sin rely, i=

^^.

Michael E re^ Exeeutive V.P. of Petroleum Supply