Hearing March 19, 2013 Washington, DC

1-800-FOR-DEPO Alderson Reporting Company 1 1UNITED STATES ENVIRONMENTAL PROTECTION AGENCY 2 3 4PUBLIC HEARING FOR RFS 5RENEWABLE IDENTIFICATION NUMBER (RIN) 6 QUALITY ASSURANCE PROGRAM 7 8 9 10 United States Environmental Protection Agency 1201 11Constitution Avenue, N.W. 12Room 1153 13 Washington, D.C. 20006 14 15 16 17 18 March 19, 2013 19 10:00 a.m. 20 21 22Hearing March 19, 2013 Washington, DC

1-800-FOR-DEPO Alderson Reporting Company 2 1PARTICIPANTS 2 3 Hearing Board: 4JOHN WEIHRAUCH, Center Director, Fuels Compliance 5 Center, Compliance Division, Environmental Protection 6 Agency 7PAUL ARGYROPOULOS, Senior Policy Advisor for EPA's 8 Office of Transportation and Air Quality 9 LINDSAY FITZGERALD, OTAQ's Fuels Compliance Center 10 MINDY KAIRIS, Office of General Counsel, 11 Environmental Protection Agency 12 13 Public Witnesses: 14JOE JOBE, NBB 15GARY HAER, NBB 16 JENNIFER CASE, New Leaf Biofuel, LLC 17RON MARR, Minnesota Soybean Processors 18 SUSAN OLSON, Genscape 19 KARYN JOINES, EcoEngineers 20 RAMON BENAVIDES, Global Renewable Strategies 21JOHN SHIDELER, Futurepast, Inc. 22TIM HOGAN, AFPMHearing March 19, 2013 Washington, DC

1-800-FOR-DEPO Alderson Reporting Company 3 1Public Witnesses (continued) 2PATRICK KELLY, API 3 GEOFF COOPER, RFA 4JEFF HOVE, Iowa Petroleum Marketers 5MICHAEL WHITNEY, Musket Corporation 6 DAVID E. BENNETT, RIN Attest and Advisory 7 Services 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22Hearing March 19, 2013 Washington, DC

1-800-FOR-DEPO Alderson Reporting Company 4 1P R O C E E D I N G S 2[10:00 a.m.] 3 MR. WEIHRAUCH: My name is John Weihrauch. I'm 4 the center director of the Fuels Compliance Center in 5 the Compliance Division within EPA's Office of 6 Transportation and Air Quality. 7Today we are hearing testimony on the Notice of 8 Proposed Rulemaking for the RFS Renewable 9 Identification Number Quality Assurance Program. The 10 NPRM was signed by the Administrator January 31st, 11 2013, and it was published in the Federal Register 12 February 21st, 2013. 13 Under the Renewable Fuel Standard Program, 14producers and importers of renewable fuel generate 15 renewable identification numbers, RINs, that are used 16 by the petroleum refiners and importers to demonstrate 17 compliance with their renewable fuel volume 18 obligations. Cases of fraudulently generated RINs, 19 however, have led to inefficiency and reduced overall 20 liquidity in the RIN market. The proposed additional 21 regulatory provisions would promote greater liquidity 22 in the RIN market in a way that assures reasonableHearing March 19, 2013 Washington, DC

1-800-FOR-DEPO Alderson Reporting Company 5 1 oversight of RIN generation and assures use of the 2 required renewable fuel volumes. 3 Today we are hearing testimony on a voluntary 4 Quality Assurance Program and related provisions 5 intended to meet these goals. The proposed program 6 also includes elements designed to make it possible to 7 verify the validity of RINs for the 2013 compliance 8 year. Also proposed are a number of new regulatory 9 provisions to ensure that RINs are retired for exported 10 renewable fuel and to address RINs that become invalid 11 downstream of a renewable fuel producer. 12In addition to today's hearing, there is 13 opportunity to send written comments. The written 14 comment period closes April 18th, 2013. This date 15 represents exactly 30 days following today's hearing. 16 On the panel with me today are Paul Argyropoulos, 17 senior policy advisor for EPA's Office of 18 Transportation and Air Quality, Lindsay Fitzgerald from 19 OTAQ's Fuels Compliance Center, and Mindy Kairis from 20 EPA's Office of General Counsel. 21Now, let me go over how we will hold the hearing. 22We are conducting this hearing in accordance withHearing March 19, 2013 Washington, DC

1-800-FOR-DEPO Alderson Reporting Company 6 1 Section 307(d)(5) of the amended Clean Air Act, which 2 requires EPA to provide interested persons an 3 opportunity for oral presentation in addition to 4 written submissions. The official record of this 5 hearing will be kept open for 30 days to provide for 6 submission of rebuttal and supplemental testimony. The 7 hearing will be conducted informally, and formal rules 8 of evidence will not apply. 9 I will be serving as the presiding officer of 10 today's hearing, and as such, I am authorized to strike 11 statements from the record which are deemed irrelevant 12 or needlessly repetitious, and to enforce reasonable 13 time limits on the duration of the statement of any 14 witness. 15We request that each witness keep their verbal 16 testimony to no more than 10 minutes. An agenda for 17 today's hearing, including a list of witnesses that 18 pre-notified EPA of their intent to testify, and the 19 order of their testimony, is available at the reception 20 table. 21Witnesses must state their name and affiliation 22 prior to making their statement. When each witness hasHearing March 19, 2013 Washington, DC

1-800-FOR-DEPO Alderson Reporting Company 7 1 finished their presentation, the government panel will 2 have an opportunity to ask questions related to the 3 testimony. Witnesses are reminded that any false 4 statements or false responses to questions may be a 5 violation of the law. 6 If any member of the audience that wishes to 7 testify and has not already signed up, please submit 8 your name at the reception table. We will accommodate 9 everyone who wants to testify. Everyone attending 10 should sign the register whether or not you testify. 11Thank you. With that, I will call the first 12 witness. 13 The first witness is Joe Jobe from NBB. 14MR. JOBE: Thank you. Good morning. My name is 15 Joe Jobe. I'm the CEO of the National Biodiesel Board. 16 We're the U.S. trade association representing the 17 biodiesel industry. We have more than 250 companies 18 and thousands of employees in the industry. 19 I want to thank you for the opportunity to speak 20 today on the issues related to the Quality Assurance 21 Plans and the proposed rule for the Renewable Fuel 22 Standard.Hearing March 19, 2013 Washington, DC

1-800-FOR-DEPO Alderson Reporting Company 8 1First, I want to take a moment to -- I know you 2 don't get this a lot, but I want to take a moment to 3 commend your work. I really appreciate the hard work 4 and dedication of OTAQ, your director, Chris Grundler, 5 and your entire team in Washington, D.C. and Ann Arbor. 6 I know that there's been no shortage of regulatory 7 issues that you folks have had to deal with, certainly 8 some startup challenges during the implementation of 9 the RFS, many of which we're hopefully going to try to 10 address here with this hearing. 11But your team has really demonstrated a commitment 12 to the success of the RFS: hard work, transparency, 13 most of all, a solutions-oriented approach, and we want 14 to thank you for that. 15Last year, the RFS delivered more than 14 billion 16 gallons of renewable fuels into the United States' fuel 17 pool. In 2010 under the RFS Program delivered -- since 18 2010 delivered more than two and a half billion gallons 19 of advanced biofuels, which we think is a notable 20 accomplishment. 21Despite the startup challenges, we believe the 22 biggest obstacles are behind us, and the RFS is onHearing March 19, 2013 Washington, DC

1-800-FOR-DEPO Alderson Reporting Company 9 1 track to become a very successful energy policy in the 2 U.S. It's already accomplishing what Congress 3 intended. It has significantly reduced our dependence 4 on imported petroleum, diversified our transportation 5 energy supply, improved our energy security, and 6 reduced carbon emissions and other pollution. It's 7 added thousands of manufacturing jobs. It's helping 8 revitalize the agricultural sector, and is helping to 9 lead a rural renaissance. 10 The program is working. It's fueling innovation 11 as our industry and other advanced biofuel industries 12 are developing better systems, technologies, speed 13 stocks, and economics that will continue this success. 14NBB is pleased to be represented here today. 15 You'll hear from Gary Haer, our chairman, from REG, 16 Jennifer Case with New Leaf Biofuels, a small biodiesel 17 plant in California, and Ron Marr from Minnesota Soy 18 Processors in Minnesota. All three are members of our 19 governing board and also participate in NBB's RIN 20 Integrity Task Force, which you will recall was 21 organized a year ago back in February of 2012. 22There's a great deal of cover under the proposedHearing March 19, 2013 Washington, DC

1-800-FOR-DEPO Alderson Reporting Company 10 1 rule, and I anticipate that each of us will be covering 2 different aspects of the proposal. 3 The RFS is still a relatively new program, and 4 strong enforcement will create disincentives for 5 criminals to try to manipulate the system. In many 6 ways, 2011 was effectively the first year of the 7 program as it began to draw biofuels into the 8 marketplace. RIN markets began to mature and began 9 responding to market signals. 10 Also in 2011, the program was rocked by three 11 cases of fraud, as you know, resulting in EPA 12 enforcement actions. Today we know one of those 13 criminal actions where a Baltimore man was given a 12- 14year prison sentence, and the other two are proceeding 15 toward just resolutions as well. 16 The three known fraud cases took place in 2009, 17 2010, and 2011. The EPA's enforcement actions first 18 became public in late 2011. Prior to that, there was 19 little due diligence being done by parties in the 20 program. Now in 2013, most obligated parties have 21 taken robust steps to eliminate invalid RINs from their 22 compliance reports. They've been inspecting andHearing March 19, 2013 Washington, DC

1-800-FOR-DEPO Alderson Reporting Company 11 1 requiring audits of the biofuel producers from which 2 they purchased biodiesel and RINs. 3 In essence, the Wild West of buying and selling 4 RINs between market participants that have no previous 5 business relationship has ended, and everyone knows 6 that if the deal sounds too good to be true, it 7 probably is. 8 I want to highlight for a moment the work NBB has 9 done to create its RIN Integrity Task Force. When we 10 created it, it was comprised of biodiesel producers, 11 petroleum companies, and independent third party 12 blenders and marketers. As the group did its work, it 13 gave regular updates to and took input from staff 14members from the EPA. At its core, the task force 15 assisted in moving all industry partners down the path 16 of focusing on industry solutions to addressing RIN 17 fraud. 18 The task force was the first to outline the steps 19 of an industry audit where the task force agreed to the 20 appropriate elements of the RIN audit. We're pleased 21 the EPA largely included in its proposed rule similar 22 elements of what has become known as the QualityHearing March 19, 2013 Washington, DC

1-800-FOR-DEPO Alderson Reporting Company 12 1Assurance Plan or QAPs. 2The biodiesel industry took unprecedented and 3 aggressive measures to address RIN fraud head on. RIN 4 fraud is not a victimless crime. Obligated parties and 5 other petroleum companies, it costs them millions of 6 dollars. But it also squeezed RIN liquidity out of the 7 RIN markets, and this dramatically harms small- and 8 medium-sized biodiesel producers, as well as brokers 9 and traders. It threatened to harm the reputation of 10 the biodiesel industry and the RFS Program in general. 11I'm proud to represent the many hardworking and 12 highly professional people in our industry. And it's 13 unfortunate that a few criminals were able to cast a 14 cloud over the whole industry. 15I have previous personal experience in combatting 16 fraud that provided insights to our RIN integrity 17 efforts last year. Prior to working for NBB, I was a 18 fraud investigator for the Missouri Attorney General's 19 Office in the Medicaid Fraud Unit. We prosecuted 20 doctors, psychiatrists, nursing home administrators, 21 counselors, home health workers, dentists, and others. 22These were people who worked in some of the mostHearing March 19, 2013 Washington, DC

1-800-FOR-DEPO Alderson Reporting Company 13 1 respected professions in our society, yet there were 2 still the few desperate people who chose to commit 3 fraud. 4Most of the bad actors fit into a similar profile. 5They tended to not have histories of other types of 6 criminal activity, and they tended to be going through 7 personal financial stress. Most rationalized their 8 behavior because they felt that they were being 9 underpaid for their services, or their crime seemed 10 victimless, or more like fudging or cheating rather 11 than stealing. 12Our task force identified the most likely scenario 13 for future fraud. Future fraud is likely to be less 14 egregious and sensational than the cases that we've 15 seen. If fraud occurs, it is more likely to come from 16 once legitimate biofuel producers who are going out of 17 business and commit fraud in a final desperate act. I 18 believe this profile should instruct our future RIN 19 integrity measures to make it very difficult for this 20 scenario to occur. 21It's important that health care workers who commit 22 fraud not be allowed to harm the integrity of theHearing March 19, 2013 Washington, DC

1-800-FOR-DEPO Alderson Reporting Company 14 1 country's entire health care system. Likewise, RFS 2 opponents have used the sensationalism of the main 3 fraud cases to argue that the RFS is broken. The 4people who argue this are pursuing a policy of 5 appeasement. Rather than going after the criminals, 6 they're assailing the underlying policy that the 7 criminals attacked. This approach must be rejected. 8 We are committed to making this valuable and 9 important policy, the RFS, work, and to make the 10 criminals pay, not the other way around. 11I'd like to outline briefly our general points of 12 view on the proposed rule, starting from the issues 13 raised in the last few pages of the proposal. Those 14 issues are as follows: export and exporter provisions, 15 downstream invalidation issues, treatment of 16 confidential business information, modifications to 17 sell and buy provisions for assigned RINs. 18 We generally agree with EPA's approach on these 19 issues. We will propose some modifications in our 20 written comments, but again, we applaud the EPA for 21 clarifying the rule and specifically defining a number 22 of gray areas under the current rule.Hearing March 19, 2013 Washington, DC

1-800-FOR-DEPO Alderson Reporting Company 15 1There are four other issues that we comment on at 2 length in writing, but I will touch on them here. They 3 include specifics of the QAP-A and QAP-B Programs, 4 general discussion on the affirmative defense, RIN 5 replacement, auditor requirements. Let me highlight 6 just two in this group. 7First, affirmative defense. Petroleum industry 8 trade groups who we had been working with last year 9 came to us last year and told us that they would like 10 to pursue an affirmative defense against notices of 11 violations and related fines and penalties. They 12 explained that they were willing to do robust due 13 diligence to avoid purchasing invalid RINs, but that 14 they should be able to demonstrate their level of due 15 diligence as a defense against receiving fines if they 16 did end up invalid RINs despite their best efforts. 17This seemed like a reasonable request, and NBB was 18 the first and perhaps the only trade group to publicly 19 support the petroleum industry in pursuing a transition 20 from a strict liability system to an affirmative 21 defense system. Even though we knew that the outcome 22 would likely shift more of the due diligence cost fromHearing March 19, 2013 Washington, DC

1-800-FOR-DEPO Alderson Reporting Company 16 1 the petroleum industry to our industry, we believed it 2 was important to support fair and reasonable requests 3 of other stakeholders as a show of good faith, and for 4 the overall success of the program. 5We have worked with the petroleum industry and 6 other stakeholders to find workable solutions to 7 successfully make this transition. Based on your 8 proposed rule, we believe the outcome of this process 9 will indeed result in a shift of more of the compliance 10 cost to our industry, and we accept that. However, we 11 remain committed to the principles that all 12 stakeholders in the program must be accountable for due 13 diligence, and that obligations under the program are 14 not diluted. 15MR. WEIHRAUCH: Wrap it up. 16 MR. JOBE: All right. So I will submit the rest 17 of my verbal and written comments to you. But I will 18 just conclude by saying that our industry has spent a 19 great deal of time with the EPA discussing points of 20 concern and communicating the ramifications related to 21 this proposed rule. We believe the Agency has done an 22 excellent administering a policy that is new andHearing March 19, 2013 Washington, DC

1-800-FOR-DEPO Alderson Reporting Company 17 1 complex, but is also essential if we are to meet our 2 national energy goals. We remain committed to working 3 with you and other parties to further the success of 4 this program. 5Thank you very much for the opportunity to testify 6 here today. 7MR. WEIHRAUCH: Thank you, Mr. Jobe. 8 Any questions from the panel? 9 [No response.] 10 Okay. The next witness is Gary Haer from NBB. 11MR. HAER: Good morning. On behalf of the 12 National Biodiesel Board and REG, I'm grateful for the 13 opportunity to testify today regarding the RFS proposed 14 rule on renewable identification numbers, otherwise 15 known as RINs, and the Quality Assurance Programs, or 16 QAPs. 17I'm Gary Haer, vice president of Sales and 18 Marketing with Renewable Energy Group, a leading U.S. 19 biodiesel producer headquartered in Ames, Iowa. Our 20 company has produced -- has biodiesel production 21 facilities in Minnesota, Texas, Iowa, and Illinois, and 22 we have purchased or constructed in our updatingHearing March 19, 2013 Washington, DC

1-800-FOR-DEPO Alderson Reporting Company 18 1 biodiesel facilities in Georgia, Louisiana, New Mexico, 2 and Kansas. 3 Our focus is in converting natural fats, oils, and 4 greases into advanced biofuels, and currently I have 5 the opportunity to serve as chairman of the National 6 Biodiesel Board. 7First, before I discuss the proposed rule, let me 8 tell you just a little bit about Renewable Energy Group 9 and the domestic biodiesel industry. Renewable Energy 10 Group currently has seven biodiesel plants with over 11 200 million gallons of production capability. Our 12 company started producing biodiesel at a small plant in 13 1996 in Iowa. We have grown with the industry. We 14 have evolved our technology. 15Today we are producing biodiesel from feed stock 16 such as soybean oil, used cooking oil, animal fats, 17 beef, pork, and poultry, and inedible corn oil that 18 comes from the ethanol industry. 19 Like many of my colleague producers in the 20 industry, we use a diversity of feed stocks. Our 21 industry and my colleagues need certainty in the 22 system, and the renewable fuel standard has been anHearing March 19, 2013 Washington, DC

1-800-FOR-DEPO Alderson Reporting Company 19 1 important driver for our industry. And we stand ready 2 to produce the fuels needed under the renewable fuel 3 program. 4We all know the history of how we arrived at this 5 point, the RIN issue. And last March as chairman of 6 the NBB, I invited David Blatnik from Marathon 7 Petroleum to join me in co-chairing NBB's RIN Integrity 8 Task Force. He agreed, and together we led a team 9 through hours, weeks, and months of meetings with the 10 goal of working together to resolve RIN fraud related 11 issues. As you know, resolving this issue is 12 difficult, and one size fits all approach does not fit 13 all of the affected parties. 14One basic principle that we all agreed upon was 15 that obligated parties should be given an affirmative 16 defense when subject to notices of violation or NOVs. 17 And we agreed to the basic element of the audit plan 18 for auditors. 19 I'm pleased to say that we actually agreed on more 20 than we disagreed, and we are pleased to present our 21 recommendations here. We know and understand that 22 creating a regulatory fix to these issues has not beenHearing March 19, 2013 Washington, DC

1-800-FOR-DEPO Alderson Reporting Company 20 1 easy, and we recognize that EPA has done a great deal 2 of work in a seemingly short timeframe. In that light, 3 we have a number of comments to the proposed rule, most 4 of which we will supply as part of our industry's 5 written comments. Today I'll highlight a few of the 6 main issues we've identified as necessary to create and 7 improved regulatory structure to the RFS. 8 First, and this is important not only to the 9 biodiesel industry, but to all sectors of the fuels and 10 biofuels marketplace. All sectors of the RFS Program 11 lack one major component that can assist everyone in 12 doing a better job of self-policing fraudulent 13 activity. That component is information. 14Nearly every participant in the RFS Program, 15 either required or voluntary, would be better able to 16 determine the validity of RINs generated, assigned, or 17 retired if all participants had access to more 18 information on a consistent basis. Let me explain. 19 Today EPA publishes monthly RIN generation 20 information. The information is useful, but the 21 industry needs more information to gain better 22 perspectives on what is really happening in theHearing March 19, 2013 Washington, DC

1-800-FOR-DEPO Alderson Reporting Company 21 1marketplace. For example, let's look at some basic 2 economic principles. In order for the biofuels sector 3 and the companies that use our products to better 4 understand what is happening within the fuels 5marketplace, it's useful to match up information from 6 the supply side with information from the demand side. 7On the supply side, publicizing information on the 8 volume of biofuels together with corresponding RINs 9 being generated and separated on a consistent basis 10 each month would provide the entire system with a 11 critical piece for determining market economics. In 12 our view, this information should be made available on 13 the same day of each month, every month, and be made 14 available on a regional basis rather than a plant by 15 plant basis consistent with the petroleum 16 administration for defense districts, or PADDs. 17Additionally on the demand side, information on 18 the volume of biofuels together with the actual number 19 of RINs assigned and retired on a monthly basis, those 20 RINs that are being used or set aside to be used by 21 obligated parties for compliance should also be made 22 available on the same day of each month every month,Hearing March 19, 2013 Washington, DC

1-800-FOR-DEPO Alderson Reporting Company 22 1 and be made available on the same regional basis 2 consistent with the same PADD system. Making this 3 information available to all would give the marketplace 4 dramatically more useful information to determine 5 whether monthly production and consumption is in line 6 with what is possible, and, more importantly, what is 7 likely from each PADD. 8 If there are anomalies in the information, the 9 marketplace will readily identify it as a red flag. 10 Also this will likely reduce speculation as to whether 11 there are too many or too few RINs available. We will 12 describe more specifically our thoughts in our written 13 comments, but we encourage you to begin thinking about 14 this issue of transparency as you finalize this rule. 15Secondly, you asked whether biofuel facilities 16 should continue to be able to separate RINs. Our 17 industry has met a number of times to discuss the 18 proposed rule, and I have yet to hear from a biodiesel 19 company whose interested in limiting its ability to 20 separate RINs. 21The biodiesel marketplace is not as mature as 22 other biofuels markets, and many of the gallons we sellHearing March 19, 2013 Washington, DC

1-800-FOR-DEPO Alderson Reporting Company 23 1 are to discretionary blenders who are not obligated to 2 use renewable fuels under the RFS. Many biodiesel 3 producers have never sold a gallon directly to an 4 obligated party. If we can't separate monetized RINs, 5many biodiesel producers will simply go out of business 6 unless there are dramatic changes to the program. 7In many cases, the value of the RIN provides 8 bodies of producers with its only opportunity to create 9 a margin. If obligated parties were required to use 10 gallons, in other words, buy gallons directly from 11 biodiesel producers to stay in compliance with the 12 program, then perhaps we could think about changing the 13 separation rules. I don't expect that as a workable 14 option for the obligated parties, which means we need 15 to continue to separate RINs at the producer level. 16 The third issue we have spent a great deal of time 17 discussing with both the EPA and obligated parties is 18 whether it is necessary to keep the program whole after 19 invalid RINs have been discovered. In other words, we 20 are analyzing whether the EPA should give obligated 21 parties the option of not having to fully comply with 22 their annual RFS requirement.Hearing March 19, 2013 Washington, DC

1-800-FOR-DEPO Alderson Reporting Company 24 1Under the proposed rule under both QAP-A and B 2 scenario, obligated parties are relieved of their 3 obligation to fully comply with the program. The 4 biodiesel industry has great concern with this 5 approach. 6 First, Congress requires specific volumes pursuant 7 to rules promulgated by the EPA on the volume of 8 biofuel to be used by obligated parties each year. 9 After the final rule is published each year, the 10 statute and regulation outline the process to lower or 11 change the volume of biofuels to be consumed each year. 12We support the current program where the volumes 13 required are used each year. Our industry has 14 discussed allowing obligated parties to not be 15 penalized or fined if a pre-determined small amount of 16 invalid RINs are used in compliance in any given year, 17 but only so long as those RINs are made up for in later 18 years, which would slightly modify EPA's proposal under 19 QAP-B. 20 Under EPA's proposed QAP-A Program, the Agency 21 does not require obligated parties to replace RINs if 22 they use a RINs and those RINs are later deemedHearing March 19, 2013 Washington, DC

1-800-FOR-DEPO Alderson Reporting Company 25 1 invalid. We understand the program and why EPA 2 proposed the A program as it did, but we're concerned 3 about the possible long-term reduction of the RFS if 4 for some reason the number of invalid RINs in any given 5 year is dramatically greater than two percent. 6 We'll comment further on this as part of the 7 proposed rule, but at the least, we encourage EPA to 8 retain its ability to require annual volumes in the 9 event the QAP-A system allows a greater number of 10 invalid RINs into the system. For example, we 11 generally support the two percent risk threshold 12 assessed to auditors, but we would suggest considering 13 a ceiling to the A RIN program as well where if an 14 auditor has allowed more than 2.5 percent of the RINs 15 to be invalid in any given year, any RINs above the 2.5 16 percent would need to be replaced by obligated parties 17 who use those invalid RINs for compliance. 18 Generally, we think there is to be some incentive 19 for both obligated parties and auditors to be well 20 below the two percent mark. We're still discussing 21 this point and working towards a consensus position, 22 but we wanted to give you some additional ideas toHearing March 19, 2013 Washington, DC

1-800-FOR-DEPO Alderson Reporting Company 26 1 think about. 2In closing, the biodiesel industry has been 3 responsible and cooperative in its approach to working 4 with both obligated parties and the EPA on the RIN 5 related issues. We believe we, together with the 6 obligated parties, have already installed many of the 7 safeguards necessary to have an industry free of 8 invalid RINs. 9 As you know, our industry has spent a great deal 10 of time with your team discussing these points of 11 concern and communicating to you the ramifications 12 related to the proposed rule. We certainly respect 13 your work product, and we'll continue to work with you 14 on implementing this program as a final rule over the 15 next few months. 16 Again, I'd like to thank you for the opportunity 17 to testify here today, and I'd be happy to answer any 18 questions. 19 MR. WEIHRAUCH: Any questions from the panel? 20 [No response.] 21MR. WEIHRAUCH: Thank you, Mr. Haer. 22MR. HAER: Thank you.Hearing March 19, 2013 Washington, DC

1-800-FOR-DEPO Alderson Reporting Company 27 1MR. WEIHRAUCH: The next witness is Jennifer Case. 2MS. CASE: Good morning. On behalf of New Leaf 3 Biofuel and as a member of the governing board of the 4National Biodiesel Board, I appreciate the opportunity 5 to testify today regarding the RFS proposed rule on 6 renewable identification numbers and Quality Assurance 7 Programs. 8 I am Jennifer Case, chief executive officer of New 9 Leaf Biofuel. First, let me tell you a little bit 10 about our company. 11New Leaf Biofuel is the epitome of a small family12 owned business. My husband and I and several of our 13 friends and family members pooled our resources to 14 start the company in 2006, and now we employ 33 15 hardworking individuals. We pride ourselves on our 16 mission that is focused on utilizing a former waste 17 stream, used cooking oil, and converting it into a 18 domestically produced, sustainable alternative to 19 diesel fuel. Our high quality biofuel not only offsets 20 the petroleum use in our area, thereby reducing diesel 21 toxic emission and improving air quality, but it also 22 enhances the performance and life of diesel enginesHearing March 19, 2013 Washington, DC

1-800-FOR-DEPO Alderson Reporting Company 28 1 while supporting the local economy. 2We are San Diego's foremost recycler of fats, 3 oils, and greases from the area's nearly 1,000 4 restaurant partners, which prevents such materials from 5 entering the municipal sewer system and ultimately the 6 ocean. We can produce approximately five million 7 gallons of biodiesel each year, which equates to 8 approximately seven and half million RINs. 9 Although New Leaf's owners and friends are 10 impressed by how far we have come, in the grand scheme 11 of things, New Leaf is a very small player in the vast 12 renewable market. For this hearing, it's important to 13 note that New Leaf is a very small fish in this pond. 14 We are here today to try to find a solution to the 15 unfortunate loss of integrity in the RIN market, 16 something that has affected the entire renewable fuels 17market, bit which has had a particularly devastating 18 effect on the small biodiesel producers, like New Leaf. 19 Prior to November of 2011, New Leaf biofuel RINs 20 were just as valid and as valuable as any biodiesel RIN 21 in the marketplace. The RIN value provided a much22 needed boost to a volatile and often unprofitableHearing March 19, 2013 Washington, DC

1-800-FOR-DEPO Alderson Reporting Company 29 1market. In 2011, the Baltimore fraud case nearly 2 bankrupted small biodiesel companies like mine because 3 our RINs, which have always been validly and honorably 4 generated, were suddenly frozen and could not be traded 5 in commerce. It was not because of anything that New 6 Leaf did wrong, but merely because a bad actor, a 7 criminal, created false RINs and sold them into the 8 marketplace for millions of dollars. 9 Today and as recently as yesterday, and nearly 10 every day throughout the past 18 months, my RINs have 11 been sold at a discount to the biodiesel RINs generated 12 by larger companies, even though my company has been 13 audited by third party auditors on at least five 14 different occasions during the last 12 months. 15In July of last year, I testified before the 16 United States House of Representatives Committee on 17 Energy and Commerce and on EPA's efforts to ensure 18 market integrity in the Renewable Fuels Program. I 19 said it in July and I'll say it again, our industry 20 appreciates the work that EPA has done to resolve the 21 issues surrounding RIN fraud. The issues are difficult 22 with few good options. I applaud the steps you haveHearing March 19, 2013 Washington, DC

1-800-FOR-DEPO Alderson Reporting Company 30 1 taken, together with the U.S. Department of Justice, in 2 bringing to conclusion the first criminal fraud case in 3 Baltimore, Maryland. That case has haunted me and my 4 company for the past 18 months. 5It is an interesting marketplace. I hear other 6 larger producers talk about the existence of a cleared 7 list or a blocked list which can make or break you in 8 the RIN trading market. Despite New Leaf's continued 9 efforts on the RIN integrity front, I have yet to see 10 either list. While all this blocking and clearing is 11 going on, it is nearly impossible for New Leaf Biofuel 12 to break through the noise to the point where our RINs 13 are valued fairly. 14Here's the point I am making. Throughout the last 15 18 months, I have done nothing but continue with best 16 business practices for my industry, to no avail. The 17market continues to discount my RINs because of the 18 fraud that was committed by a bad actor and because I 19 am a small and mostly unknown company. 20 We appreciate the work of the EPA in proposing 21 this rule. We all know you have worked countless hours 22 and have listened to many points of view. As a smallHearing March 19, 2013 Washington, DC

1-800-FOR-DEPO Alderson Reporting Company 31 1 biodiesel plant, my company is still evaluating the 2 rule with the hopes of accurately evaluating the best 3 option for us. 4Here's what I can tell you today about choices 5 between the status quo, QAP-A, and QAP-B. If I want my 6 RINs to be valued in the marketplace and freely traded 7 without reservation, then my only choice is to pay for 8 A RIN. My issue is that an A process will likely be 9 more expensive, possibly prohibitively expensive, for 10 my small company. The reason is the two percent risk 11 factor and the five-year life cycle of the RIN. 12The EPA could make at least three program choices 13 to the A RIN to decrease my cost. Number one, EPA 14 could lower the risk factor of the range to the range 15 of .5 to one percent, and perhaps base the percentage 16 on the true risk of the quality of the individual audit 17 firm rather than estimate all A auditors at two 18 percent. We think it will become clear that not all A19 approved audit teams are created equally. Some will be 20 better than others. 21Number two, EPA should limit the five-year 22 invalidity claim on the same superior class of A RINsHearing March 19, 2013 Washington, DC

1-800-FOR-DEPO Alderson Reporting Company 32 1 to perhaps two years, which would reduce the cost of 2 the A RIN. And number three, EPA should require a 3 level of true independence for the auditor so that the 4 EPA obligated parties, and other biofuel producers, and 5 the entire buying, selling, and trading chain have 6 confidence in the audit team. 7The second major issue EPA needs to understand is 8 that the cost of compliance for small producers will be 9 greater than all other biofuel producers, and that 10 although the EPA calls the program voluntary, for small 11 producers it is not voluntary. It seems odd, unfair, 12 and perhaps punitive that the smallest of all the fuel 13 companies are saddled with the highest required 14 compliance costs. Under the current scenario, my 15 choices are to purchase a QAP or go out of business, 16 which is not voluntary. 17However, EPA can assist small producers with this 18 program. I recommend that the EPA take steps to 19 require obligated parties to annually submit 15 percent 20 of all of its advanced RINs for compliance purposes to 21 come from A RINs. My logic is as follows. Compliance 22 for obligated parties is not voluntary in that they areHearing March 19, 2013 Washington, DC

1-800-FOR-DEPO Alderson Reporting Company 33 1 required to submit RINs for compliance purposes. 2 Additionally, it is likely that most obligated parties 3 will hold some A RINs for compliance purposes, but some 4 will hold more than others. 5However, if EPA requires all obligated parties to 6 hold the exact same minimum number of A RINs, then all 7 obligated parties will have, at a minimum, the same 8 compliance costs for those A RINs. The remainder of 9 the program, the remaining 85 percent of RINs, can come 10 from either A RINs, B RINs, or status quo RINs. 11To require obligated parties to submit 15 percent 12 of all RINs for compliance to come from A vintage RINs 13 serves a number of public policy goals and purposes. A 14 RINs are of the best vintage, or at least are the most 15 likely to be valid RINs because they have gone through 16 the QAP-A audit program. Therefore, requiring a 17minimum number of A RINs, 15 percent, will decrease the 18 opportunity for fraud and invalidity. 19 A RINs have the ability to be freely traded 20 between all parties and will likely become the most 21 liquid of all RINs, which makes the program more 22 efficient, which means that at least 15 percent of theHearing March 19, 2013 Washington, DC

1-800-FOR-DEPO Alderson Reporting Company 34 1 program will efficiently trade RINs. 2A RINs will eliminate notice of violation for 3 obligated parties, which by definition will decrease 4 compliance costs for obligated parties. A RINs 5 automatically carry an affirmative defense for 6 obligated parties, which is what obligated parties have 7 stated they want, on every RINs submitted for 8 compliance. 9 The cost of compliance for small biodiesel 10 producers as it stands under the proposed rule will 11 likely be the highest of all biofuel producers in the 12 system. The 15 percent minimum A RIN compliance 13 requirement will spread compliance costs more evenly 14 through the entire system. Keeping small producers as 15 part of the RFS Program will be beneficial to obligated 16 parties and consumers as it will continue to encourage 17 competition between producers and the biofuel sector. 18 As I prepare to close my testimony, I know that I 19 have some unique, although I would say, specifically 20 viable and achievable approach to improving the 21 proposed rule in ways that would benefit nearly 80 or 22 so small biodiesel producers. My business, myHearing March 19, 2013 Washington, DC

1-800-FOR-DEPO Alderson Reporting Company 35 1 biodiesel company, is my life and the lifeline to my 33 2 employees. I urge you to consider businesses like ours 3 as you craft the final rule. 4Let's review the RFS. Its purpose is because 5 Congress and administrations of both parties want this 6 country to use more domestic renewable fuels, gallon 7 for gallon, BTU for BTU, energy balance for energy 8 balance, and with the added benefit of reducing gas 9 emissions by more than 50 percent when compared to the 10 diesel fuel it replaces. Biodiesel is the single best 11 transportation fuel produced on a commercial scale in 12 this country. 13 In fact, to better understand the value of 14 biodiesel as a replacement to diesel fuel, keep in mind 15 that the EPA has stated that, "Tailpipe emissions from 16 traditional diesel, particularly from trucking fleets, 17 school buses, and other vehicles, are a significant 18 health and air quality concern." 19 In an update to its National Scale Air Toxic 20 Assessment, EPA cited diesel exhaust emissions as one 21 of the Nation's most dangerous pollutants, saying it is 22 among the substances that may pose the greatest risk toHearing March 19, 2013 Washington, DC

1-800-FOR-DEPO Alderson Reporting Company 36 1 the U.S. population. Thousands of trucks and buses hit 2 the road every day burning traditional diesel fuel. 3 Substituting higher amounts of biodiesel for 4 traditional diesel is the simplest, most effective way 5 to immediately improve emissions. 6 The bottom line is this: if we use more biodiesel 7 and less diesel fuel, then our economy, our energy 8 security, and our environment win. In fact, from 2005 9 to 2012, the U.S. biodiesel industry reduced greenhouse 10 gas emissions by 74.3 billion pounds. That is the 11 equivalent of removing 5.4 million vehicles from 12 America's roadways. Small biodiesel producers are part 13 of this great story, and this Nation will be stronger 14 if we continue to produce biodiesel as part of this 15 program 16 In closing, the biodiesel industry has worked 17 closely with both the EPA and obligated parties 18 throughout this process. I compliment the work that 19 you have completed on the proposed rule. You have 20 prepared a sound plan for RIN verification. However, I 21 think we all can continue to work together to make the 22 rule better and more inclusive of small biodieselHearing March 19, 2013 Washington, DC

1-800-FOR-DEPO Alderson Reporting Company 37 1 producers. 2Thank you again for the opportunity to testify 3 here today. I would be happy to take any questions. 4MR. WEIHRAUCH: Does the panel have any questions? 5MR. ARGYROPOULOS: Thank you for your testimony. 6 I just had a question. You indicated that you were 7 selling the RINs at a discount. Can you give me an 8 average of what the discount might be? 9 MS. CASE: Sure. It's typically around 10 to 12 10 percent from the market value as listed on some of the 11 trading websites, like OPIS. 12MR. ARGYROPOULOS: Okay, thank you. That's all I 13 have. 14MR. WEIHRAUCH: Any other questions? 15[No response.] 16 MR. WEIHRAUCH: Thank you, Ms. Case. 17The next witness is Ron Marr. 18 MR. MARR: Good morning. I'm Ron Marr from the 19 Minnesota Soybean Processors. We're located in the 20 little town of Brewster, Minnesota with a population of 21 about 500 people. We employ 80 in our biodiesel 22 refining -- or our soybean complex and biodieselHearing March 19, 2013 Washington, DC

1-800-FOR-DEPO Alderson Reporting Company 38 1 refining operations. We're a value added cooperative 2 formed in the early 2000s. We went into biodiesel in 3 2005. We have an investment of roughly $100 million 4 between the soybean processing plant and the biodiesel 5 refinery. About 20 full-time jobs, fully benefitted 6 jobs, come out of the biodiesel refinery. 7My comments today are going to be brief and 8 directed specifically to the area we really feel 9 there's some urgency to look at. But before I really 10 get going, I'd like to thank you for the opportunity to 11 come to D.C. and testify in front of you. This has 12 been a very workable operation between our industry and 13 your Agency, and we appreciate that. 14My comments today are from the Minnesota Soy 15 Processors, and while I sit on the NBB board, they do 16 dovetail somewhat to NBB's position. But they're 17 specifically from the Minnesota soy people. 18 We have really deep concerns about the integrity 19 of the RFS Program resting on the way the auditor is 20 defined today. We believe the auditor is going to be 21 the future of the RFS Program. If that auditor is not 22 completely independent, we believe there is a newHearing March 19, 2013 Washington, DC

1-800-FOR-DEPO Alderson Reporting Company 39 1 avenue for fraud being opened up unwillingly. We have 2 extreme concerns about the independence of this 3 auditor. 4And we're seeing this in the last few weeks with 5 essentially bombardment of marketing opportunities from 6 various consulting companies offering their services 7 anywhere from RIN separation, RIN accounting, whatever, 8 engineering pathways, to, yes, we will also certify 9 your RIN and make it more valuable. Inherently, 10 there's a conflict of interest whenever we get someone 11 certifying a RIN and also trading that RIN, regardless 12 of where it comes. That RIN may be traded two years 13 from now. We have no knowledge of how that financial 14 interest is intertwined amongst these companies. 15For the Agency, the sole purpose of the RFS is 16 resting on this one person, the auditor, from this time 17 forward. We have that concern that threatens the 18 actual financial investment of this company. And 19 that's why our board of directors has strong concerns 20 that these auditors be truly third party. Inherit in 21 the definition of an auditor is independence. 22We aren't questioning the current veracity of theHearing March 19, 2013 Washington, DC

1-800-FOR-DEPO Alderson Reporting Company 40 1 auditors, but we think that the Agency needs to look 2 backwards and forwards, both retroactively and 3 prospectively, at the marketing agreements or other 4 ties that auditors or these companies may have to 5 assure our industry and your Agency that there is 6 independence, that they are acting in the interest both 7 of the producer, the obligated party, and the Agency. 8 Separately, you asked again about should producers 9 be able to separate RINs. We feel strongly that 10 biodiesel producers should be able to separate RINs. 11 Since 2005, we have extremely limited gallonage that we 12 have produced that's gone directly to obligated 13 parties. It's gone to very small blenders, jobbers, 14 wholesale jobber. Sometimes it's sold RIN-less. We 15 have to reassign RINs, and I'll touch on that in a 16 minute. 17And if you think it through, if you reduce the 18 number of people that are separating RINs, that 19 universe of RINs separation, you've also limited the 20 scope of auditing and your oversight. You've been able 21 to focus instead of on -- excuse me -- 3,000 people, 22 300 people.Hearing March 19, 2013 Washington, DC

1-800-FOR-DEPO Alderson Reporting Company 41 1On a separate thing, and we'll make this in our 2 written comments, we would ask the Agency to re-look at 3 the ability to assign RINs. Currently we can assign 4 from 0 to 2.5 RINs. With biodiesel generating 1.5 5 RINs, and I have a customer wanting to buy RIN-less, I 6 have a real accounting nightmare in trying to assign. 7 It's not a gallon for gallon match. A 7,000 gallon 8 semi-load generates 10,500 RINs. On the next marketer, 9 I have to find a marketer who wants not only 7,000 10 gallons, he wants 14,000 RINs, the 10,000 -- excuse me, 11 the 10,000 we generate plus 7,000, which leaves you 12 with a balance and that you have to go out and find 13 another marketer. 14Making that issue more complex is we generate our 15 RINs load by load. Instead of a batch, we generate 16 load by load. Every load is a batch. Now we have an 17 inventory issued at the end of each quarter where I can 18 carry no more RINs into the next quarter than I have 19 inventory on hand. I have zero inventory, and I have 20 unassigned RINs sitting in my bank account in EPA. So 21 at the end of each quarter in my process, I get into a 22 fire sale on RINs to move them if I can't find aHearing March 19, 2013 Washington, DC

1-800-FOR-DEPO Alderson Reporting Company 42 1 willing buyer. 2We wish that they would request that the Agency 3 look at that and give a 90-day rolling window, a 4 lifespan on a RIN instead of looking for a producer to 5 prevent hoarding, to say we have to move that RIN 6 within 90 days of creation instead of quarter by 7 quarter. 8 That concludes my comments. Again, I'd like to 9 thank the Agency for the ability to testify, and 10 strongly encourage you to take a look at the 11 independence of the auditor. Again, that's a 12 fundamental bedrock issue that this program is going to 13 be based on, and it's critical that we assure all 14parties that they're truly independent. 15If you have questions, I'd be glad to try and 16 answer them. 17MR. WEIHRAUCH: Any questions from the panel? 18 [No response.] 19 MR. WEIHRAUCH: Thank you, Mr. Marr. 20 MR. MARR: Thank you. 21MR. WEIHRAUCH: The next witness is Susan Olson. 22MS. OLSON: Is this okay? Great, great. GoodHearing March 19, 2013 Washington, DC

1-800-FOR-DEPO Alderson Reporting Company 43 1morning to the panel, and I wanted to thank you for the 2 opportunity today to make remarks about the Notice of 3 Proposed Rulemaking concerning QAP and RIN integrity. 4My name is Susan Olson. I'm the vice president of 5 Ag and Biofuels at Genscape. To briefly introduce my 6 company, Genscape is the world leader in providing real 7 time information to energies, commodities, businesses. 8 We work to create more transparent and efficient 9 markets through providing better information. We are 10 privately held by the Daily Mail and General Trust out 11 of London, a $2.5 billion information company. Our 12 headquarters are in Louisville, Kentucky, and we employ 13 about 190 people among our five international offices. 14Genscape was pre-registered by the EPA as a QAP-A 15 and QAP-B service provider on February 22nd, 2013. 16 That's the same day that Rodney Haley was sentenced to 17more than 12 years in prison for RIN fraud. RIN 18 integrity is a serious business, and Genscape is here 19 today to make remarks on the EPA's thoughtful solution. 20 As a stakeholder in the QAP process, my comments 21 today will focus on the following topics: a brief 22 history and motivation for Genscape service offeringsHearing March 19, 2013 Washington, DC

1-800-FOR-DEPO Alderson Reporting Company 44 1 to the market, evidence of adoption of QAP in the 2 interim period, support of the proposed rules 3 flexibility, strength of A RINs and an assurance cost 4 to offset model, and the proposed rule as a foundation 5 for market progress. 6 To provide some history, Genscape's motivation to 7 enter into the renewable fuels information space in 8 2011 was to improve the transparency and liquidity of 9 the renewable fuels marketplaces, including the market 10 for RINs, by providing better information to market 11 participants. Part of Genscape's movement in the 12 renewable fuels was motivated to serve a need for the 13 46 obligated parties who are Genscape clients. 14The first step in engendering transparency and 15 liquidity was to solve the problem of RIN integrity, 16 which has been facilitated formally by the EPA's Notice 17 of Proposed Rulemaking. Genscape launched the RIN 18 Integrity Network in June 2012 as a trademark product 19 to communicate the integrity of renewable fuel 20 producers to the marketplace. Since its inception, 21 Genscape has provided services to about 30 renewable 22 fuel producers and the number is steadily growing.Hearing March 19, 2013 Washington, DC

1-800-FOR-DEPO Alderson Reporting Company 45 1The growth of Genscape's product participation is 2 evidence of adoption of the interim period that was 3 instigated by the EPA in the proposed rule. Another 4 notable sign of success of the interim adoption is that 5 in the weeks since the proposed rulemaking, market 6 participants have indicated that contract structures 7 are starting to include QAP as a criterion for RIN 8 purchases. 9 Murex has committed to offering QAP-A RINs to its 10 counterparties. The adoption of QAP ahead of the final 11 rule is a sign of a well-crafted rule that the industry 12 has weighed in on ahead of the proposal. 13 Other feedback that Genscape has gleaned from 14 industry stakeholders is that multiple elements of 15 flexibility of the proposed rule are being valued and 16 exercised. The first valuable element of flexibility 17 is that industry stakeholders can decide what type of 18 QAP is appropriate for risk management. The option of 19 choosing status quo, QAP-B, or QAP-A, allows risk 20 associated with RINs to be decided in the court of 21 business. 22A second favorable element of the flexibility isHearing March 19, 2013 Washington, DC

1-800-FOR-DEPO Alderson Reporting Company 46 1 that the QAP provider has the option to meet the 2 requirements of QAP-B with different approaches. This 3 serves the market well by engendering competitive 4pricing for QAP-B. It also invokes business creativity 5 -- excuse me. It also invokes business creativity to 6 drive down cost. For QAP-A and B, Genscape has created 7 an ongoing monitoring program based on technology that 8 intends to progressively reduce the time and cost of 9 implementation. 10 To emphasize the importance of maintaining this 11 flexibility in the final rule, using technology 12 Genscape has driven down the costs of ongoing 13 monitoring and is now able to offer additional services 14 to our clients for the same pricing structure. 15 Attestations, quarterly reporting, and engineering 16 reviews are now all part of Genscape QAP packages. 17 Genscape strongly supports extending provisions in the 18 rule to use technology wherever it can supplant more 19 costly site visits to save the industry time and money. 20 The third element of flexibility is that the QAP 21 provider can offer different types of QAP-B products to 22more precisely meet risk management style of obligatedHearing March 19, 2013 Washington, DC

1-800-FOR-DEPO Alderson Reporting Company 47 1 parties, and to address different perceived risks for 2 different types of producers. Genscape has taken 3 advantage of the flexibility of the rule and offers two 4 types of QAP-B products, one with ongoing monitoring 5 and another with quarterly auditing. 6 This brings up a question and segues to another 7 remark. Why would someone choose ongoing monitoring 8 for QAP-B? The answer is that ongoing monitoring on a 9 day-to-day basis is superior to quarterly audits, and 10 it reduces the exposure to invalid RIN risk by up to 11 100 days. If a quarterly audit finds that RINs were 12 invalid in the past, it creates the same headaches of 13 chasing invalid RINs back through counterparties, as 14 does the status quo. 15Much can change within 100 days. A producer could 16 sock away invalid RINs and close its doors in that 17 period. Imagine 100 days of fraudulent RINs from a 100 18 million gallon facility at today's RIN prices. Ongoing 19 monitoring eliminates that risk. We have also shown 20 that ongoing monitoring is more cost effective than 21 auditing completed four times a year. So the question 22 now becomes, why wouldn't someone choose ongoingHearing March 19, 2013 Washington, DC

1-800-FOR-DEPO Alderson Reporting Company 48 1monitoring for QAP-B? 2Genscape believes that the monitoring solution is 3 paramount to countering fraud and continuing to reduce 4 the cost of implementation of QAP through technology. 5 Rather than relying on the RIN generator to produce all 6 the information to judge its integrity, Genscape does 7 it independently through monitoring. This is an 8 important point. 9 Fraud started when RIN generators submitted 10 fraudulent information to the EPA. Fraud can continue 11 to happen, and it seems very likely that it will when 12 information from biofuels producers is not 13 independently verified. 14A final strength of ongoing monitoring for QAP-B 15 is to offer renewable fuel producers the flexibility to 16 choose pre-generation, whether or not they want RINs to 17 be A RINs or B RINs. By satisfying all QAP-A 18 requirements with ongoing monitoring, Genscape designed 19 a method for producers to choose when they need A RINs 20 on a batch-by-batch basis. In a changing market, this 21 flexibility offers a producer the opportunity to 22 explore market economics and the needs of variousHearing March 19, 2013 Washington, DC

1-800-FOR-DEPO Alderson Reporting Company 49 1 counterparties for QAP while being prepared for 2 immediate action. 3 With all these benefits of ongoing monitoring, 4 which offers overall favorable economics and value to 5 auditing, Genscape still offers an auditing solution 6 for those who want it. Adoption of new technologies 7 and proving the benefits of those technologies take 8 time, and we believe in providing an array of solutions 9 to the RIN stakeholders that serve the industry. 10 I will now turn my remarks to the strength of the 11A RIN designed by the EPA and the associated costs to 12 the marketplace. 13 Genscape believes that with the model proposed in 14 the rule that A RINs can offer benefits and that the 15 assurance costs of these benefits can be offset by cost 16 savings to the industry. 17Based on a discussion with an obligated party, the 18 cost of fraud perpetrated by clean green absolute fuels 19 and green diesel costs obligated parties about $200 20 million to clean up the mess left behind the 140 21million invalid RINs. Most of this cost was incurred 22 in calendar year 2012.Hearing March 19, 2013 Washington, DC

1-800-FOR-DEPO Alderson Reporting Company 50 1The cost was about a $1.40 per invalid RIN. Minus 2 the 10 cent per RIN from the NOV settlements, this cost 3 translates to $1.30 in the RIN in the QAP era. These 4 costs don't include impact to brand or damage to a 5 party's capability to sell RINs in the marketplace. 6 Based on other conversation, some obligated 7 parties tend to overbuy RINs to be safe when February 8 comes and there are doubts about the integrity of 9 certain RINs that they hold. Rough numbers are around 10 five percent over buying. For 2012, that would amount 11 to about $35 million spent by the industry or about two 12 cents per RIN. 13 Another cost to consider is the opportunity cost 14 lost by spending valuable resources from obligated 15 parties and renewable fuels producers on compliance. 16 One obligated party recently said in a conversation 17 that they doubled their compliance resources last year. 18 QAP RINs solved these costs and freed up resources for 19 growth, strategy, and technological advancement. 20 The cost of RIN discounting imposed on all but the 21 largest producers was prevalent in 2012. The better 22 tier two producers got about a two cent discount, whileHearing March 19, 2013 Washington, DC

1-800-FOR-DEPO Alderson Reporting Company 51 1 the bottom ranks could expect a five to six cent 2 discount. Other producers showed us evidence of 10 3 cent or even 15 cent discounts for RINs, while others 4 could not sell at all. 5In summary, cost of over buying RINs, two cents 6 per RIN. Cost of reduced price RINs, five cents per 7 RIN. Cost of fraud, $1.30 per RIN. Cost of QAP-A 8 RINs, priceless. 9 Market indications are that QAP-A RINs will sell 10 at parity to what are known as tier one RINs in the 11marketplace today. The cost of assuring a QAP-A RIN is 12 somewhere around two percent of the price of the RIN, 13 or about two cents at today's prices. Any one of the 14 cost reduction factors mentioned completely offsets the 15 assurance costs of the QAP-A RIN. 16 A RINs make straight economic sense for any 17 producer taking a discount for RINs, and any obligated 18 party spending money on invalid or on an over buying 19 strategy, not to mention the opportunity costs gained 20 to keep the industry innovated. 21To meet the strength and security of the A RIN, 22 the EPA has stressed the importance of sound financialHearing March 19, 2013 Washington, DC

1-800-FOR-DEPO Alderson Reporting Company 52 1 planning for QAP-A service providers. Genscape 2 strongly supports the careful evaluation and approval 3 of a financially robust replacement mechanism both by 4 the EPA and all industry stakeholders. 5Important factors to consider when selecting a QAP 6 for A RINs are, is company financial backing strong 7 enough to support all fuels? Is the soundness, 8 sureness, and clarity of the replacement mechanism 9 apparent? Does the trajectory of the business line up 10 to be around in five years and to be relevant to the 11 industry beyond QAP? 12My remarks now turn to how to QAP sets the stage 13 for market efficiency. The QAP program outlined by the 14 EPA sets the course for the growth and maturity of 15 renewable fuels and RINs trading. 16 Three steps to building a better, higher 17 functioning RINs market are integrity, transparency, 18 and efficiency. The RINs and renewable fuels market 19 need price transparency and better, more timely, more 20 granular information on fundamentals. Genscape is 21 growing to provide these information services and 22 capabilities to the marketplace, and is following itsHearing March 19, 2013 Washington, DC

1-800-FOR-DEPO Alderson Reporting Company 53 1 originally intended course. 2Genscape has already moved forward to create the 3 framework for electronic RINs trading with inter-day 4price transparency with its partnership with 5 Progressive Fuels Limited. With the opportunity for 6 fraud minimized with growing QAP adoption, the RINs 7market is positioned to operate a higher level. 8 In summary, early indications are that the QAP is 9 taking hold in the interim period. The elements of 10 flexibility offered by the proposed rule allow risk to 11 be managed by business and enable quality assurance 12 providers to design products to meet market needs. 13 The use of technology is one method by which 14 Genscape has taken advantage of that flexibility to 15 drive down cost of truly independent QAP. A RINs offer 16 a mechanism for price parity for which the assurance 17 costs can be offset by a reduction in compliance costs 18 and discounts in the RINs markets today. And Genscape 19 supports the EPA's careful evaluation of the strength 20 of the financial and business model proposed in the 21 rule for A RIN providers. 22In closing, we are encouraged by the timelineHearing March 19, 2013 Washington, DC

1-800-FOR-DEPO Alderson Reporting Company 54 1 perceived by the EPA to produce a Notice of Proposed 2 Rulemaking to present a clear framework to solve the 3 fraud that has been plaguing the renewable fuels 4 industry. The EPA's inclusion and level of involvement 5 of the industry as a whole in the formative and 6 progressive stages of this rule is laudable. 7We believe that this involvement created a 8 thoughtful proposed rule that will weather the test of 9 time and sets the stage for a better renewable fuels 10 future. 11Thank you, and I'd be glad to take any questions. 12MR. WEIHRAUCH: Any questions from the panel? 13 MR. ARGYROPOULOS: Thank you very much for your 14 testimony. 15I just had kind of two related questions. 16 MS. OLSON: Oh, okay. 17MR. ARGYROPOULOS: One was you had indicated in 18 the beginning that you had had some benefit to be able 19 to reduce the price or the cost of that. 20 MS. OLSON: That's correct. 21MR. ARGYROPOULOS: Okay. And then you said that 22 you were able to add some additional provisions in toHearing March 19, 2013 Washington, DC

1-800-FOR-DEPO Alderson Reporting Company 55 1 your services. 2MS. OLSON: Right. 3 MR. ARGYROPOULOS: So how -- well, I guess I could 4 ask the question about what the reduction was. But 5more importantly, I was wondering how closely aligned 6 is that with one of the options in the existing 7 proposals? Is it greater in scope or is it completely 8 aligned in scope? 9 MS. OLSON: Could you explain the second part of 10 your question? I think I understand the first part. 11MR. ARGYROPOULOS: Yes. So we have requirements 12 for option A and option B. 13 MS. OLSON: Oh, yes. 14MR. ARGYROPOULOS: So are the provisions and 15 services that you're providing exactly aligned with 16 that, or are they greater in scope? Are you taking 17 additional provisions for assurances? 18 MS. OLSON: Certainly. Certainly. I think to 19 talk a little bit about the first part of your 20 question, which is to the cost reduction, you know, 21 we've been working -- you know, we've had a product 22 active in the marketplace since 2012. And, you know,Hearing March 19, 2013 Washington, DC

1-800-FOR-DEPO Alderson Reporting Company 56 1 as we implement monitoring technologies at these 2 facilities, they get better and better. And we are 3 able to narrow down even new technologies that reduce 4 cost. And we've been able to do that. We've actually 5 been able to replace one particular sensing element 6 with another sensing element that does the same job for 7much less cost. And so, you know, as we've been 8 developing this program, that's how we've saved money 9 in that way. 10 Our QAP program does go -- have a provision to go 11 above and beyond the auditing requirements and to use 12 ongoing monitoring. And part of the reason why we 13 offer that, there's actually two reasons. The first 14 reason is it allows us to offer the flexibility for 15 someone to choose a B RIN or an A RIN because we use 16 the same ongoing monitoring procedures for that part of 17 QAP-B as QAP-A, and, therefore, meet all the 18 requirements for QAP-A. 19 The second reason is that we are driving to a 20 system by using technology that we believe is just as 21 cost effective now and will be more cost effective than 22 auditing in the future. And I think that we'll be ableHearing March 19, 2013 Washington, DC

1-800-FOR-DEPO Alderson Reporting Company 57 1 to provide some written comments that elaborate more on 2 that. But that's the second part of that. 3 MR. ARGYROPOULOS: Thank you, Ms. Olson. 4MS. OLSON: Thank you. 5MR. WEIHRAUCH: The next witness, Karyn Jones. 6 MS. JONES: Good morning. Thank you for the 7 opportunity to speak today. My name is Karyn Jones, 8 and I am the quality assurance program manager at 9 EcoEngineers. And I have been managing and operating 10 the EcoEngineers QAP program for the past year, and I 11 was the primary author of the QAP-A and QAP-B proposals 12 that we submitted to the EPA, and for which we have 13 been pre-approved. And I have personally conducted 14 over 15 biodiesel site audits across the country in the 15 last year. 16 I'm here today representing not only EcoEngineers, 17 but also over 35 small to medium producers that are 18 currently part of our existing quality assurance 19 program. And EcoEngineers is also an active member of 20 the NBB organization. 21At EcoEngineers, we're all about people-driven 22 solutions. When the RIN fraud occurred in 2011, weHearing March 19, 2013 Washington, DC

1-800-FOR-DEPO Alderson Reporting Company 58 1 collaborated with producers, with blenders, with 2 obligated parties, to create a solution to spur RIN 3 market liquidity. The solution was the EcoEngineers 4 Quality Assurance Program. It began in January 2012. 5Now, 2012 was a difficult year for many small 6 biodiesel producers especially, but due to our efforts 7 to provide a high quality oversight program, our 8 producers were able to sell their RINs and their fuel 9 downstream, and no invalid RINs have entered the market 10 under our watch. 11We are experienced. We are tested. We are also 12 very sensitive to the unnecessary cost and compliance 13 burdens that are shouldered by producers, especially 14 small producers. The NPRM is designed to level the 15 playing field for everyone, large and small. Producers 16 should be getting fair market price for their RINs. 17Today I'm commenting on several aspects of the 18 NPRM which EcoEngineers has identified as being either 19 redundant, costly, or constrictive for producers. 20 EcoEngineers will be formally submitting our written 21 comments to the EPA prior to the deadline. This is not 22 a comprehensive list I'm going to talk about today, butHearing March 19, 2013 Washington, DC

1-800-FOR-DEPO Alderson Reporting Company 59 1 just a couple of points that I want to make. 2My first comment is regarding site audit 3 frequency. Currently the NPRM states that site audit 4 should occur quarterly for both the QAP-A and QAP-B. 5 We believe that this frequency should be changed to 6 annually or bi-annually because of the unnecessary 7 compliance and cost reasons. 8 First of all, the equipment and production process 9 does not change on a regular basis at a renewable fuel 10 producer's facility if the process does change and 11 engineering review update is provided at that time. So 12 we believe that just visiting the site quarterly to 13 confirm that equipment is there is redundant. 14We also believe that if a QAP auditor is reviewing 15 input and output supporting documentation, if they're 16 contracting -- contacting suppliers and end users on a 17 regular basis, and they're performing a max balance for 18 either A or B, there should be sufficient supporting 19 information to prove that the facility is actually 20 producing biofuel, and that just to go to the site 21 quarterly to confirm tank volumes would be redundant. 22It's also costly for the producer to send anHearing March 19, 2013 Washington, DC

1-800-FOR-DEPO Alderson Reporting Company 60 1 auditor to the site quarterly. Again, small producers 2 have a decreasing, you know, amount of money that 3 they're making from their RINs. Everybody wants their 4piece of the pie, so definitely reducing the frequency 5 of the site audit would decrease the cost borne on 6 small producers. 7So again, we're advocating for annual or bi8 annual. This is consistent with the EcoEngineers' 9 existing program that we've been operating for the last 10 year. And we believe this is sufficient to be able to 11 determine that, yes, a facility exists, yes, they're 12 producing the renewable fuels that they say they are, 13 and, yes, the volumes are consistent with what they are 14 reporting. 15That leads me to my next point regarding that QAP16 A audits should be conducted by a third party auditor 17 that is a professional engineer. We believe site 18 auditors should be independent, they should be deemed 19 competent by a QAP provider, and they should operate 20 under the supervision of a professional engineer. But 21 we do not believe that they have to be an actual 22 professional engineer themselves.Hearing March 19, 2013 Washington, DC

1-800-FOR-DEPO Alderson Reporting Company 61 1Again, I've conducted audits myself. Onsite 2 audits are very different from the engineering review 3 site visit process. When you go to a site, it's not 4 just about verifying production process and equipment 5 installed. There's a lot of nuance that goes on, a lot 6 of questions that are asked about suppliers, about end 7 users, invoicing systems, contracts. This requires a 8 varied skill set and one that a professional engineer 9 may not have. 10 We believe it's more efficient to have one highly 11 competent site auditor that is able to conduct the desk 12 audit and the onsite audit portions because reviewing 13 the documentation prior to a site visit raises red 14 flags, gives you guidance on what questions to ask and 15 what parts of the process to look for when you're 16 actually on the site. Also again, it is very costly to 17 hire a professional engineer, especially if the site 18 audits are quarterly. 19 That brings me to questions of auditor competency, 20 any minimal qualifications that an auditor should 21 possess. We believe that QAP providers should be able 22 to manage their own risk and who they hire to performHearing March 19, 2013 Washington, DC

1-800-FOR-DEPO Alderson Reporting Company 62 1 either the ongoing monitoring as far as auditing or the 2 onsite visits. There is a lot of risk that QAP 3 providers take on, especially for QAP-A RINs. Not only 4 do they have to replace invalid RINs, but that would 5 severely hurt their reputation. 6 That brings me to any conflicts of interest for 7 the third parties. First of all, we believe that the 8 auditor should not act a RIN marketer or a broker of a 9 RIN. We feel that is a conflict of interest. However, 10 we do feel that an auditor who has conducted an 11 engineering review or a test engagement should not be 12 excluded from implementing a quality assurance program 13 for a facility. Again, engineering review and a test 14 engagement process is very different from an ongoing 15monitoring auditing process. 16 Also if you have different entities within one 17 organization performing, you know, those different 18 tasks, there should be a sufficient level of oversight 19 so that one person isn't performing all of the 20 reporting. 21And finally, we believe that the auditor should 22 act as an agent with a renewable fuel producer andHearing March 19, 2013 Washington, DC

1-800-FOR-DEPO Alderson Reporting Company 63 1 associate with them through EMTS. This is a key part 2 of the EcoEngineers' program we associated with all of 3 our renewable fuel producers. This provides great 4 oversight. We're able to monitor the RIN generation 5 and the transactions as they happen. We're able to 6 catch problems. We're able to put RINs on hold if we 7 have any questions and prevent them from going 8 downstream into the market. 9 We're also able to perform all of the corrective 10 action measures for a renewable fuel producer and make 11 sure that the corrective action is happening. So we 12 believe that being an agent is key. 13 My final comment here today is about the producer 14 separation. We strongly recommend continuing to allow 15 producers to separate RINs. First of all, if a 16 producer is under a quality assurance program, all of 17 their separation is being monitored on an ongoing basis 18 or a quarterly basis. So, you know, the idea that RIN 19 fraud is going to happen from producer-separated RINs 20 isn't going to happen anymore. 21A lot of our members, clients, currently operate 22 under this business model, small producers, and thisHearing March 19, 2013 Washington, DC

1-800-FOR-DEPO Alderson Reporting Company 64 1 would decrease the profitability of these operations 2 and availability of biofuels on a local level. A lot 3 of our clients are farmers that produce biofuel they 4put in their tractor, or they are entrepreneurs who own 5 perhaps a trucking fleet, and they produce biodiesel 6 and put it in their trucking fleet. This is key to 7 their operation and key at keeping biofuels at a local 8 level again. 9 So, I strongly encourage the EPA to take a closer 10 look at the proposed rules and to be sensitive to 11 finding efficiencies and keeping costs down for 12 producers. I think by working together collaboratively 13 with all parties at the table, we can create regulation 14 which ends occurrences of RIN fraud and promotes 15 biofuel production. 16 So, thank you. I'll take any questions that you 17 have. 18 MR. WEIHRAUCH: Any questions from the panel? 19 [No response.] 20 MR. WEIHRAUCH: Thank you, Ms. Jones. 21The next witness, Ramon Benavides. 22MR. BENAVIDES: Thank you for the opportunity toHearing March 19, 2013 Washington, DC

1-800-FOR-DEPO Alderson Reporting Company 65 1 speak today. My name is Ramon Benavides. I'm the 2 chief executive officer for Global Renewable Strategies 3 and Consulting. I also am a -- the original or one of 4 the original six founders for Genex Energy Group, a 5 biodiesel production facility in Washington State, and 6 to have been a member of the National Biodiesel Board, 7 served as a governing board director for the Biodiesel 8 Board. And I'm happy to elaborate on a couple of 9 points for today. 10 Global will be submitting a detailed written 11 document for review for the Agency. Every time you ask 12 the question "we," we're going to answer with "we." So 13 we're going to be very supportive in this. 14The QAP program, overall we concur with everything 15 that's in the program. We have one little twist here 16 that we thought you guys as the Agency had proposed as 17 the RIN bank concept that we're going to actually add 18 some other additional comments, too. But in concept, 19 the RIN mechanism, when we talk about the cost of 20 compliance and the impact, one of the things that we 21 looked at the analysis is that we did not -- we feel 22 the categorization of income or loss of revenue orHearing March 19, 2013 Washington, DC

1-800-FOR-DEPO Alderson Reporting Company 66 1 potential loss of RIN value was not calculated in the 2 impact analysis for the cost of compliance. So we're 3 going to provide some data based upon that and we'll 4 submit that information. 5It's important for us to understand that component 6 so we can determine what the actual cost is going to 7 be, the impact of the industry. And just with the 8 calculations that we were just doing here just a second 9 ago, on the ethanol side alone for a QAP program at a 10 two percent value of the RIN, there would be an over 11 $300 million annual cost impact just on that side 12 alone. So again, we'll give you some strong data for 13 that component. 14The RIN bank, going back to that concept, there 15might be the possibility where the industry might be 16 able to collaborate as a whole regardless of the status 17 of party or the components of a party by just saying 18 that for every RIN generated, there will be a two 19 percent sweep, if you will, on the RIN that will go 20 into "a Fed RIN bank" that will be held by the Agency 21 itself. And anybody that wants to have an affirmative 22 defense would meet the requirements that you've alreadyHearing March 19, 2013 Washington, DC

1-800-FOR-DEPO Alderson Reporting Company 67 1 proposed in there. And then if there was going to be 2 an authorization or a release of a RIN, it would have 3 to -- the entity that was responsible for promoting 4 that, whether it's an obligated party, or a blender, or 5marketer, or whatever, they would have the ability to 6 pull that RIN once it met the requirements of the due 7 diligence set forth in your standard. So we'll provide 8 some detailed information on that. 9 The second component is that in your NPRM, you are 10 addressing an issue with regard non-industry renewable 11 diesel and a new definition for diesel, and we applaud 12 that effort. We think that there needs to be some 13 clarity with regard to the different types of renewable 14 fuels that are there. And any time that we have an 15 opportunity or the Agency has an opportunity to use an 16 incorporated reference for a standard, we concur with 17 that. 18 I would like to say, though, I think your 19 definition is limited, and the reason being is that 20 you're focused on the number one, number two diesel 21 aspect, and, in fact, when we looked at the RVO 22 components of the rule, the RVO component for diesel isHearing March 19, 2013 Washington, DC

1-800-FOR-DEPO Alderson Reporting Company 68 1motor vehicle, non-locomotive marine fuel. And in 2 doing that, we've invoked 80.2, and so as a result of 3 that, the definition that you're proposing might be in 4 direct conflict with 80.2. And I think that there 5 needs to be a review there as well to ensure that we're 6 covering the NVRM category. 7The third aspect we have is with regard to export, 8 and again, my comments are very brief here. But the 9 export provisions of the retirement for RINs for 10 export, when we reviewed a -- the process through 11 decision matrix mapping, we believe that the current 12 policy you have in place is appropriate, RIN retirement 13 for exported fuel. And we also understand that there's 14 been multiple discussions and applications throughout 15 the industry for the last seven years without a lot of 16 clarification from the Agency. 17As a result of that, when we looked at the 18 specific definition of blended and then blended with 19 gasoline or diesel, we invoked the definitions 20 themselves so the categories of fuel come forward. We 21 believe that that was appropriate because those 22 categories of fuel actually invoked an RVO. And so theHearing March 19, 2013 Washington, DC

1-800-FOR-DEPO Alderson Reporting Company 69 1 heating oil category and the jet fuel category are not 2 RVO fuels by the current regulation. 3 So the thought process here is that if we're going 4 to retire RINs for fuel that relieves the country, we 5 should look at that and say limit it to whatever the 6 RVO fuel is. So we either invoke RVO on heating oil 7 and jet fuel for the obligated parties, or we exempt 8 the application for jet fuel and heating oil under the 9 export provision, one of the two. 10 As a result of this, though, the assessments that 11 we've been doing informally and global, by the way, 12 since its inception last year, operates under the 13 premise of operational compliance. And so with our 14 clients, we operate on an operational compliance basis 15 daily so the transactions, everything is monitored to 16 ensure that we're not in violation of the rule. 17And as a result of that, we've done a substantial 18 amount of fuel last year, over 400,000 barrels of fuel 19 that have gone in commerce throughout the entire 20 domestic, international, wherever. And the numbers 21 that the Trade Commission issues for exports of 22 biodiesel, specifically on biodiesel, we don't believeHearing March 19, 2013 Washington, DC

1-800-FOR-DEPO Alderson Reporting Company 70 1 are accurate, but the best that we have right now. And 2 as a result of that, on a per gallon basis, the export 3 value, the free alongside shipboard value, fast value, 4 that's used for trade data, indicates that the 5 biodiesel industry for its exports is over a $500 6 million a year trade deficit revenue. 7And so another component of the proposed rule here 8 today is that we believe that that significant impact 9 has not been assessed appropriately with the proposal. 10 And we're going to ask for an impact analysis with 11 regard to that because we do believe that we've 12 exceeded the $100 million threshold of rulemaking for 13 an impact to export. 14Just yesterday, trying to get some real good data 15 here, we came across an article that was issued by the 16 Oil Change International organization. And the reason 17 for this is because when we look at the future of oil, 18 whether it's a petroleum derived fuel or renewable 19 fuel, and we look at either the blend walls or the 20 issue of refiners not having to be able to meet 21 capacity, fuel for the vehicles diminishing, the demand 22 for gasoline, we're going to be looking at diminishingHearing March 19, 2013 Washington, DC

1-800-FOR-DEPO Alderson Reporting Company 71 1 values. And as a result of that, the export market is 2 going to be a huge market. Fuel is fungible. EPA 3 knows that, and we know that. 4So Keystone refineries, "Keystone XL refineries 5 are already exporting 60 percent of the gasoline that 6 is being produced out of the Gulf Coast." Sixty 7 percent. What does that mean to us today? On a 8 gasoline perspective, that is four billion gallons 9 annually from just one region in the United States that 10 is being exported. 11If the requirement for ethanol blend is to be at 12 10 percent and fuel is fungible, there is going to be a 13 10 percent impact to the ethanol industry one way or 14 another. So, we're going to, again, put together great 15 data hopefully for you that will address the issues of 16 the export, and hopefully we can be able to determine 17 whether or not the fungibility of the RIN actually 18 meets the requirements of the rule. 19 We also looked at both the EPAT of 2005 and also 20 looked at the IESA to determine whether or not the 21 intent of the rule is what it is. We're going to ask 22 the question. The question is, how are we defining theHearing March 19, 2013 Washington, DC

1-800-FOR-DEPO Alderson Reporting Company 72 1 phrase "into commerce into the United States," because 2 commerce itself is a very broad term, and we think that 3 with collaboration with the FTC that the Agency would 4 be able to come to a better understanding of commerce, 5 and which we believe is the activities of all sales, of 6 all exports, of all imports, of all everything to where 7 we might be able to expand the range and scope of the 8 RFS under the tenants of commerce as defined in both 9 public laws. 10 That's all I have for you for today for comment. 11 If there's any questions, I would greatly entertain 12 those. 13 MR. WEIHRAUCH: Any questions from the panel? 14MR. ARGYROPOULOS: Just to clarify, so you're 15 going to be submitting comments about how to deal with 16 the RVO issues from heating oil and jet fuel 17 differently. 18 MR. BENAVIDES: Right. We're going to propose 19 what -- yes. If we're retiring RINs for one aspect, 20 then we should be looking at how we cannot use the RIN 21 for another component without having to diminish, 22 because our thought process is that when a RIN is takenHearing March 19, 2013 Washington, DC

1-800-FOR-DEPO Alderson Reporting Company 73 1 away for an export, it actually goes against the 2 production number against the number of volume 3 produced. 4So we have an issue. We have an issue of RINs, 5 which is a separate issue, and then we have the issue 6 of the physical gallon. The physical gallon is being 7 dispensed. The question is, are we shooting ourselves 8 in the foot by saying that the RIN can't be used in 9 compliance because we are using the RIN for compliance? 10 And even in the rule that you propose, an example 11 would be the NRLM that is blended with the renewable 12 fuel that is -- then that fuel is further blended for 13 an ECM marine fuel. So the first activity was a 14 qualified transportation event. The second -- the 15 final use, though, was not a qualified -- well, and the 16 renewable fuel sector would not be a qualified use, but 17 for the subpart (i), it would be a qualified use for 18 ECM marine fuel. 19 So I really am encouraged by that interpretation 20 that the EPA has because, again, it goes to the 21 fungibility of a fuel. And so I think that that's 22 going to be an important aspect that we'll beHearing March 19, 2013 Washington, DC

1-800-FOR-DEPO Alderson Reporting Company 74 1 commenting on. 2MR. ARGYROPOULOS: Okay, thank you. 3 MR. BENAVIDES: Yeah. Also just before I close, 4 there is one more thing. You asked earlier about the 5 disparity in RIN pricing. I do have a client that 6 sells physical fuel directly to a refinery, 10 miles 7 away from their facility, that sells their RIN because 8 of the RIN fraud at a discount 60 percent. 9 MR. ARGYROPOULOS: Sixty? 10 MR. BENAVIDES: Six-zero below the market. Thank 11 you. 12MR. WEIHRAUCH: Thank you, Mr. Benavides. 13 The next witness, John Shideler. 14MR. SHIDELER: Thank you very much. My name is 15 John Shideler, and I'm president of Futurepast, a 16 consulting, training, and audit firm. 17EPA is in, my view, on the right track with the 18 Quality Assurance Program. RIN fraud is criminal 19 behavior that claims as its victims law-abiding 20 companies that play by the rules. RIN fraud can not 21 only inflict financial losses on obligated parties, but 22 it also distorts markets that are designed to achieveHearing March 19, 2013 Washington, DC

1-800-FOR-DEPO Alderson Reporting Company 75 1 environmental benefits mandated in the Clean Air Act, 2 thus impacting indirectly all citizens of the United 3 States. 4From its offices in Arlington, Virginia and 5 Spokane, Washington, Futurepast provides consulting, 6 training, and audit services in environmental and 7 safety management systems, in greenhouse gas 8 management, and biofuels. We hold individual auditor 9 certifications in environmental management systems, 10 greenhouse gas verification, and auditing of 11 sustainable biofuels. 12We are also active in the development of 13 international ISO standards. I serve as chair of ISO 14 Technical Committee 207, Subcommittee 4, on 15 environmental performance evaluation. Previously I 16 participated in the writing of three greenhouse gas 17 standards. Later in my remarks, I will make reference 18 to one of these, ISO 14064, Part 3, a standard that 19 defines a process for verification. 20 I would like to focus today on four topics: who 21 should qualify as a third party audit firm for RIN 22 quality assurance programs, how EPA should performHearing March 19, 2013 Washington, DC

1-800-FOR-DEPO Alderson Reporting Company 76 1 oversight of third party audit firms who perform QAP 2 audits, the use of voluntary consensus standards, and 3 whether a RIN replacement mechanism under option A is 4 necessary. 5Who should qualify as third party audit firms? 6 Futurepast believes that EPA should define more 7 strictly the requirements for independence of third 8 party audit firms. Specifically, we believe that 9 individuals and companies that have had previous or 10 ongoing consulting relationships with a biofuel 11 producer should be precluded from offering third party 12 verification services. 13 The California Air Resources Board provides a 14 useful benchmark for defining conflicts of interest. 15 Its regulation that governs third party greenhouse gas 16 verification lists 19 activities that automatically 17 disqualify an audit firm from providing verification 18 services. These activities if provided during the past 19 five years constitute a high conflict of interest, and 20 preclude the third party audit firm from performing 21 audit services. 22Prohibited activities include consulting to theHearing March 19, 2013 Washington, DC

1-800-FOR-DEPO Alderson Reporting Company 77 1 regulated party on the design of their greenhouse gas 2 inventory or project; providing systems for monitoring 3 greenhouse gas emissions or emission reductions; 4 owning, buying, selling, trading, or retiring share, 5 stocks, or emission reduction credits that are owned by 6 the reporting organization; brokering in, advising on, 7 or assisting in any way with carbon greenhouse gas 8 related markets; bookkeeping or other services related 9 to account records or financial statements; appraisal 10 and valuation services; fairness opinions and 11 contribution in-kind reports related to transactions; 12 providing internal audits; acting as a broker-dealer, 13 promoter, or underwriter on behalf of a reporting 14 entity; and any legal services. 15I refer you to Section 95133(b) of California's 16 mandatory reporting regulation for the full list of 17 activities that constitute a high conflict of interest. 18 I have not translated these GHC-specific services into 19 their renewable fuel standard equivalents, but I expect 20 to do so in the full set of written comments that 21 Futurepast will submit prior to the April 18th 22 submission deadline.Hearing March 19, 2013 Washington, DC

1-800-FOR-DEPO Alderson Reporting Company 78 1How third party audit firms should be monitored. 2 Futurepast believes that EPA has an important role to 3 play in overseeing the credentialing and monitoring of 4 third party audit firms. Specifically, EPA should 5 define rules to ensure the impartiality of third party 6 audit firms, and should selectively monitor their work 7 as a means of assuring that QAPs are audited 8 comprehensively and effectively. 9 A model for direct oversight of third party audit 10 firms is provided, again, by the California Air 11 Resources Board. ARB requires prospective audit firms 12 to complete an application, demonstrate the 13 availability of competent personnel, maintain errors 14 and omissions insurance policies, and submit to 15 periodic oversight audits where a staff member of ARB 16 joins the audit team for an onsite verification audit, 17 and reviews the resulting audit conclusions and 18 documentation. This practice provides assurance to the 19 regulatory body that its audit mechanism is functioning 20 as intended and is fully effective. 21The use of voluntary consensus standards. In the 22 NPRM, EPA states that this proposed rulemaking does notHearing March 19, 2013 Washington, DC

1-800-FOR-DEPO Alderson Reporting Company 79 1 involve technical standards. Therefore, EPA is not 2 considering the use of any voluntary consensus 3 standard. Futurepast respectfully disagrees. We 4 believe that EPA should consider at least one voluntary 5 consensus standard in this regulatory activity. The 6 standard is ISO 14064, Part 3, greenhouse gases 7 specification with guidance for the validation and 8 verification of greenhouse gas assertions. 9 Although ISO 14064, Part 3, was written 10 specifically with greenhouse gas assertions in mind, it 11 is applicable to other forms of assurance engagements. 12Indeed it has been used as the basis for performing 13 energy performance audits under the Superior Energy 14 Performance Program that has been developed with the 15 participation of U.S. Department of Energy. 16 ISO 14064, Part 3, defines a standard approach for 17 performing assurance engagements. Its specifies the 18 verification process that includes agreement on the 19 level of assurance, objective, scope, criteria, and 20 materiality, development of a verification approach 21 that includes a sampling plan and a verification plan, 22 assessment of the adequacy and effectiveness ofHearing March 19, 2013 Washington, DC

1-800-FOR-DEPO Alderson Reporting Company 80 1 information systems and controls, assessment of data 2 and information, assessment of conformity with 3 requirements, evaluation of the accuracy of the 4 organization's assertion that it has reported or 5 performed as intended, and assurance of a verification 6 statement. 7ISO 14064, Part 3, is based upon four important 8 principles of verification: independence, ethical 9 conduct, fair presentation of information and 10 conclusions, and due professional care. 11Consideration of the process by which quality 12 assurance plans are assessed is important to the 13 effectiveness of the Voluntary Verification Program. 14As currently written, the proposed rule provides -- 15 excuse me -- provides clear guidance on what the 16 verifier is required to do, but does not specify how 17 the verifier is expected to do it. Incorporating by 18 reference ISO 14064, Part 3, in the final rule would 19 provide specific guidance to third party auditors on 20 how verification activities should be conducted, and 21 would provide EPA with a basis for judging whether the 22 third party audit firms that it approves are operatingHearing March 19, 2013 Washington, DC

1-800-FOR-DEPO Alderson Reporting Company 81 1 their audit programs in a sound, professional manner. 2Without reference to a framework approach to 3 verification provided by ISO 14064, Part 3, or, in 4 fact, by any other standard, third party audit firms 5 could fulfill the requirements of 40 C.F.R. 80.1472 6 through any means they choose 7Whether a RIN replacement mechanism under option A 8 is necessary. Finally, I would like to offer some 9 comments on EPA's proposal to require third party audit 10 firms to establish a RIN replacement mechanism under 11 option A. 12In general, Futurepast does not support the 13 imposition of a replacement mechanism on audit firms. 14 Futurepast believes that EPA should focus instead on 15 the approval and oversight of the third party audit 16 firms that it qualifies and approves, and on the 17 integrity of the process to verify the required 18 elements in the quality assurance program. We consider 19 the replacement mechanism to place an undue financial 20 burden on audits, a burden that will be passed onto 21 biofuel producers through higher audit fees. 22Futurepast acknowledges the apparent appeal of aHearing March 19, 2013 Washington, DC

1-800-FOR-DEPO Alderson Reporting Company 82 1 RIN replacement mechanism. However, we do not support 2 this approach to accountability for the following 3 reasons: 4The RIN replacement mechanism imposes high costs 5 on third party auditors who are not already 6 participants in the RIN markets or who are not 7 subsidized by profits from commodity trading or 8 provision of other financial or accounting services 9 that may, in fact, constitute a conflict of interest 10 under normal standards for assessing independence and 11 impartiality. The cost burden of a RIN replacement 12mechanism will disproportionately disadvantage small13 and medium-sized audit firms. 14The RIN replacement mechanism displays a complete 15 lack of trust that the Quality Assurance Program can 16 prevent RIN fraud from occurring in the first place. 17 Futurepast rejects this notion. We believe that 18 competent third party auditors who contract with 19 biofuel producers to provide quality assurance audits 20 and who perform the required activities specified in 21 the proposed rule in accordance with a valid 22 verification methodology, will prevent RIN fraud at itsHearing March 19, 2013 Washington, DC

1-800-FOR-DEPO Alderson Reporting Company 83 1 source. 2It is our opinion that the RIN replacement 3 mechanism's justification is based on the lack of 4 confidence in the audit process. Our recommended 5 changes to the proposed regulation address this concern 6 by specifying a robust oversight process and by 7 requiring the use of internationally-accepted 8 approaches to verification. 9 We thank you for your attention and ask that you 10 give consideration to the full presentation of our 11 written comments, which we intend to submit prior to 12 the April 18th deadline. 13 Thank you. 14MR. WEIHRAUCH: Thank you. Any questions from the 15 panel? 16 [No response.] 17MR. WEIHRAUCH: Thank you, Mr. Shideler. 18 MR. SHIDELER: Thank you. 19 MR. WEIHRAUCH: Our next witness, Mr. Dayne 20 Delahoussaye. I believe he's not here. 21We'll go to Tim Hogan. 22MR. HOGAN: Good morning. My name is Tim HoganHearing March 19, 2013 Washington, DC

1-800-FOR-DEPO Alderson Reporting Company 84 1 and I am director of Motor Fuels for the American Fuel 2 and Petrochemical Manufacturers in Washington, D.C. 3 Our members produce virtually all of the Nation's 4 transportation fuels and are obligated parties under 5 the RFS. 6 MR. WEIHRAUCH: Excuse me, Mr. Hogan. Move the 7microphone -- 8 MR. ARGYROPOULOS: Move the mike up just a little. 9 MR. WEIHRAUCH: Thank you. 10 MR. HOGAN: While there are numerous problems 11 associated with mandating renewable fuels under the 12 RFS, the purpose of today's hearing is narrowly focused 13 upon measures to reduce the likelihood of fraudulently 14 generated RINs. AFPM understands the need for a 15 feasible, workable RFS rule, and the rampant fraud in 16 the biodiesel industry stands as one of the many -- 17 several obstacles to accomplishing this goal. 18 AFPM supports the efforts of the Administration to 19 improve the integrity of the Renewable Fuel Standard 20 Program. We are disappointed that EPA chose to punish 21 refiners who were the victims of fraud committed by 22 biodiesel producers. The discovery of more than 140Hearing March 19, 2013 Washington, DC

1-800-FOR-DEPO Alderson Reporting Company 85 1million fraudulent biodiesel RINs led AFPM to reach out 2 to EPA, renewable fuel producers, and petroleum 3 marketers in an effort to address this problem. 4Aside from the unfairness of penalizing individual 5 refiners that purchased RINs from EPA-registered 6 biodiesel producers through the EPA EMTS exchange, the 7 biodiesel fraud has created a RIN liquidity problem for 8 many small biofuel producers. Our group quickly 9 realized that providing an alternative to the strict 10 liability buyer beware program that was built upon the 11 concept of creating an affirmative defense around some 12 level of prescribed due diligence would help restore 13 RIN liquidity. 14Now more than a year later, the publication of the 15 proposed rule on QAPs represents a big step towards 16 implementing a solution. We applaud EPA for 17 recognizing the need to come up with an affirmative 18 defense to buyer beware liability. However, we're 19 concerned that the proposal goes too far in its 20 burdensome due diligence requirements, which we will 21 discuss in more detail. 22AFPM supports many aspects of the proposal,Hearing March 19, 2013 Washington, DC

1-800-FOR-DEPO Alderson Reporting Company 86 1 including the voluntary nature. Participants have the 2 option to use the validation program as needed. As a 3 consequence, there will be validated and not validated 4 RINs in the marketplace. The promulgation of 5 performance standards that can be implemented by 6 independent EPA-approved auditors, and the availability 7 of an affirmative defense that is tied to validator 8 RINs, provided that the obligated party did not cause 9 the RINs to become invalid. 10 While we remain generally supportive of the 11 regulatory solution, we have specific concerns with how 12 it is to be implemented. First and foremost, we 13 believe that EPA has lost sight of the goal of the 14proposed rule. Rather than put in place the due 15 diligence program that is cost effective and reduces 16 the risk that biofuel producers will generate 17 fraudulent RINs, the Agency has pivoted to create a 18 third party enforcement branch that is responsible for 19 ensuring total compliance with each regulatory 20 requirement under the RFS. This mission creed has the 21 potential to result in an expensive program that is 22 underutilized and fails to solve the RIN liquidityHearing March 19, 2013 Washington, DC

1-800-FOR-DEPO Alderson Reporting Company 87 1 problem. 2Today I would like to discuss four issues in 3 greater detail: data collection elements for QAPs, the 4 need to communicate validated RINs to obligated 5 parties, an interim enforcement solution for RINs 6 generated prior to defective data rule, and 7 notification of invalid RINs. 8 In reading the proposed rule, it became apparent 9 that EPA is attempting to create a third party audit of 10 each regulatory requirement governing the generation 11 and transfer of RINs. This would result in due 12 diligence requirements that go far beyond what is 13 necessary to reduce the risk of fraudulently-generated 14 RINs, and could increase the cost of the QAP, resulting 15 in low participation and a failed effort to restore RIN 16 liquidity. 17The due diligence activities identified in the 18 proposed QAP include far too many data elements that 19 provide little or no additional risk reduction. For 20 example, a quarterly requirement to review an annual 21 report provides no incremental risk reduction and 22 simply adds costs.Hearing March 19, 2013 Washington, DC

1-800-FOR-DEPO Alderson Reporting Company 88 1The requirement to count the number of employees 2 also provides very little, if any, incremental risk 3 reduction. Rather than review each data element in the 4proposed QAP program, we think it makes sense to 5 discuss what is needed to reduce, but not completely 6 eliminate, the risk of fraudulently-generated RINs. 7First, a credible auto program would be built 8 around the biofuel producer site visit to verify the 9 existence and operability of the equipment onsite, and 10 gaining an understanding of the equipment capacity and 11 level of energy consumption that corresponds to various 12 production levels. An unscheduled follow-up visit 13 should be required annually. The requirement to notify 14 the QAP provider of any facility modification should 15 also be included. 16 Second, there needs to be an audit component that 17 examines fee stock receipts. These receipts are 18 necessary to verify the amount of biodiesel produced 19 and ensure that the RIN code matches the type of 20 biofuel that is produced. We note there is no need to 21 audit each fee stock receipt, but rather a 22 statistically significant sample of fee stock receiptsHearing March 19, 2013 Washington, DC

1-800-FOR-DEPO Alderson Reporting Company 89 1 should be audited. 2Third, an audit of monthly utility bills would 3 enable a comparison of the energy consumed with the 4 amount of biofuel produced during this -- that month. 5 It could be evaluated against the facility's energy 6 requirements for various production levels as 7 determined during the initial site visit. 8 Fourth, bills of lading for transporting the 9 finished fuel from the production site should be 10 reviewed and compared to the fee stock receipts. While 11 all bills of lading should be provided through the 12 third party auditor, only a statistically significant 13 number of bills of lading should be verified. In 14 implementing the QAP, there was a need to distinguish 15 between data collection and verification. Spot checks 16 have been the basis of attest engagements since 1995. 17 Random statistical sampling has been a primary feature 18 of the RFG Survey Association. EPA should make clear 19 that audit requirements should be based on an analysis 20 of a statistically significant representative sample 21 for relevant data elements. 22To ensure that the benefits of the RIN validationHearing March 19, 2013 Washington, DC

1-800-FOR-DEPO Alderson Reporting Company 90 1 translate into actual RIN liquidity, it is critical to 2 revise the EMTS to reflect a validation status of RINs. 3 The EMTS provision should be implemented expeditiously 4 and no later than the effective date of the final rule. 5There is, however, a need for an interim 6 communication system. To the extent that EPA envisions 7 some type of validation program existing between now 8 and the effective date of the final rule, some type of 9 electronic bulletin board is necessary to communicate 10 RIN validation status to obligated parties. We suggest 11 that EPA work with approved auditors to implement a 12 web-based interim communication tool that provides 13 obligated parties with the information needed to 14 facilitate their purchase of validated RINs prior to 15 appropriate changes in the EMTS. 16 While we continue to question the fairness and 17 constitutionality of EPA's decision to hold obligated 18 parties responsible for invalid RINs that were 19 fraudulently sold by biodiesel producers, and are aware 20 of no other government program that penalizes the 21 victims of fraud in this manner, we appreciate the 22 efforts taken by OECA to mitigate the harm caused byHearing March 19, 2013 Washington, DC

1-800-FOR-DEPO Alderson Reporting Company 91 1 this policy decision. 2Specifically, we support EPA's second interim 3 enforcement response policy. We note, however, that 4 the policy for 2012 RINs is limited to biomass-based 5 diesel, and would request that the same treatment be 6 applied to other RINs that may be invalid. 7With respect to 2013 RINs, while our policy 8 extends to all types of verified RINs, obligated 9 parties have no way to determine which RINs are 10 verified under QAP meeting the requirements of the 11 proposed rule. We, therefore, suggest that the Interim 12 Enforcement Response Policy be revised to provide the 13 same level of treatment for all RINs generated in 2013 14prior to the effective date of the final rule, and that 15modifications are made in the EMTS to facilitate the 16 use of validated RINs. 17The proposed rule would require an obligated party 18 to report the discovery of an invalidated RIN to the 19 Agency within the next business day. This is 20 impractical and should be extended to five to seven 21 business days in order to allow time for a thorough 22 investigation to confirm the invalidity and to notifyHearing March 19, 2013 Washington, DC

1-800-FOR-DEPO Alderson Reporting Company 92 1 company management. 2While the AFPM has concerns with the status and 3 workability of the RFS as a program generally, the RIN 4 system and EMTS must work for our members to know that 5 they will be able to comply with the RFS without being 6 punished for beings the victims of fraud. We reiterate 7 our appreciation of the Agency staff for recognizing 8 the need to address rampant fraud in the biodiesel 9 industry and their willingness to impose a regulatory 10 solution. 11Regardless of one's position on the RFS, there is 12 widespread agreement that the current system needs to 13 be fixed to avoid the perpetuation of fraud and 14 increased costs to consumers. An efficient and cost15 effectiveness -- cost-effective solution that avoids 16 unnecessary complexity is needed. High cost and 17 complexity could jeopardize the goal of ensuring RIN 18 liquidity. 19 We generally support the concept of providing 20 affirmative defense to liability where an appropriate 21 amount of due diligence has been performed. We have 22 serious concerns as to EPA's perspective on whatHearing March 19, 2013 Washington, DC

1-800-FOR-DEPO Alderson Reporting Company 93 1 constitutes adequate due diligence, and believe that 2 both QAPs go well beyond what is necessary to reduce 3 the risk of fraudulently produced RINs. 4We also ask EPA to give serious thought to the 5means to efficiently communicate whether a particular 6 RIN has been validated prior to revisions of the EMTS, 7 and ask that work on the EMTS proceed so that the 8 system will be ready on or before the effective date of 9 the final rule. We ask EPA to extend the terms of the 10 Interim Enforcement Policy to all RINs generated prior 11 to the effective date of the final rule. 12Finally, we note that each of the three publicized 13 biodiesel RIN fraud cases occurred because only a 14 single part was involved in the transaction. The 15 person producing the fuel was allowed to separate and 16 sell RINs that were not attached to wet gallons. Only 17 biodiesel producers have this loophole in the 18 regulations, and closing this loophole is the single 19 most important way to address the rampant fraud in the 20 biodiesel industry. We note that a representative from 21API will address this issue in greater detail this 22morning.Hearing March 19, 2013 Washington, DC

1-800-FOR-DEPO Alderson Reporting Company 94 1Thank you for the opportunity to testify. I would 2 be happy to answer any questions. 3 MR. WEIHRAUCH: Any questions from the panel? 4[No response.] 5MR. WEIHRAUCH: Thank you, Mr. Hogan. 6 Patrick Kelly, the next witness. 7MR. KELLY: Good morning, and thank you for 8 providing the opportunity for API to testify at today's 9 hearing on the proposed rulemaking to establish quality 10 assurance plans for RINs generated under the Renewable 11 Fuels Standard. 12API is the national trade association representing 13 all segments of the U.S. oil and natural gas industry. 14 Our refiner members are the obligated parties under the 15 RFS, and many were directly impacted by the instances 16 of RIN fraud experienced in the last year. API 17 supports an EPA-approved RIN Quality Assurance Plan 18 that provides an affirmative defense, but we have some 19 concerns with the current proposal. 20 Our overarching concern is the impact of RIN fraud 21 on the liquidity of the RIN marketplace. The final 22 rule should not include unnecessary elements thatHearing March 19, 2013 Washington, DC

1-800-FOR-DEPO Alderson Reporting Company 95 1 increase the complexity and cost, potentially impede 2market adoption of the programs, and that do not 3 further reduce the risk for invalid RINs. Companies 4 should be able to assert an affirmative defense without 5 onerous limitations, like the 24-hour notification 6 window or other red tape restrictions. We remain 7 concerned with the level of detail and cost and the 8 market's willingness to adopt the programs, which is 9 needed to ensure RIN liquidity. API will be submitting 10 written comments in greater detail on the issues I will 11 address today. 12MR. WEIHRAUCH: For the record, can you state your 13 name and affiliation? 14MR. KELLY: I am Patrick Kelly with the American 15 Petroleum Institute. 16 MR. WEIHRAUCH: Thank you. 17MR. KELLY: Thank you, John. 18 EPA asserts in the proposal that the requirement 19 to replace RINs is needed to ensure that the national 20 annual RFS volumes are met. Yet the fact remains it is 21 not possible to go back in time and induce additional 22 biofuel production. EPA continues to insist upon theHearing March 19, 2013 Washington, DC

1-800-FOR-DEPO Alderson Reporting Company 96 1 replacement of RINs, and EPA correctly puts the 2 obligation for RIN replacement on the generator of 3 invalid RINs. 4QAP-A and QAP-B place the ultimate obligation to 5 replace RINs on the QAP provider and on the obligated 6 party, respectively. Both QAPs are expected to 7 significantly reduce the risk for invalid RINs, and the 8 more stringent requirements under QAP-A do not appear 9 to materially increase the assurance of a RINs validity 10 beyond what is provided in QAP-B. That said, if EPA 11 continues to insist upon RIN replacement, it is 12 appropriate that -- to put QAP providers in the line of 13 parties obligated to replace the invalid RINs. 14Any replacement of RINs by obligated parties 15 should be subject to the proposed two percent limited 16 exception. EPA should apply this two percent exception 17 to all years starting in 2013, rather than just the 18 first two years as proposed. The variability inherent 19 in the EIA outlook and the RFS will continue as long as 20 the RFS program does. 21API supports the broad scope EPA has taken in 22 applying this program to all RIN types, including theHearing March 19, 2013 Washington, DC

1-800-FOR-DEPO Alderson Reporting Company 97 1 D6 ethanol RINs. We agree that the program should be 2 applicable to biofuel imports and allow foreign RIN 3 generators to participate, but note that EMTS should be 4 changed to show which RINs are associated with a 5 foreign producer. 6 As for exports, it is not appropriate that 7 companies with an RVO solely based on their biofuel 8 exports should be afforded the deficit carryover 9 provision allowed to the RFS obligated parties. And 10 API supports more frequent demonstrations from biofuel 11 exporters that their compliance obligations will be 12met. 13 As proposed, EPA would require some tracking of 14 RINs through the system to ensure proper RIN 15 separation. RIN separation violations are RFS 16 violations, but they should not affect the validity of 17 the RIN. The program should ensure that RINs are 18 validly generated, and the tracking of RINs to ensure 19 proper separation should be out of the scope of this 20 program. 21API opposes the PTD, the product transfer document 22 requirement, to identify the name and blend of allHearing March 19, 2013 Washington, DC

1-800-FOR-DEPO Alderson Reporting Company 98 1 components in a product containing renewable fuel. 2 This would effectively require segregation of B0 and up 3 to B5 blends of biodiesel or renewable diesel 4 throughout the distribution system, and limit refiners' 5 ability to use these low-level blends of biomass-based 6 diesel fuel. 7API believes that RIN generators should not be 8 allowed to separate RINs. This RFS provision is 9 allowed in the isolated cases where neat biodiesel is 10 used in transportation. In the marketplace, this 11 scenario is rare, yet the separation provision is 12 widely exercised. 13 API opposed allowing biofuel producers to separate 14 RINs in the RFS1 and RFS2 regulatory proposals. 15 Eliminating this provision would have prevented the 16 fraud experienced thus far and would go a long way 17 toward preventing future instances of RIN fraud. RIN 18 separation by the producer should only be permitted 19 when a biodiesel producer is also an obligated party, 20 and even then only up to that company's RVO obligation. 21In closing, we commend EPA for developing this 22 proposal. We support the general framework and theHearing March 19, 2013 Washington, DC

1-800-FOR-DEPO Alderson Reporting Company 99 1 program -- of the program and the affirmative defense 2 to help improve RIN liquidity for the benefit of all 3 participants in the RFS program. 4I appreciate this opportunity to speak to you here 5 today, and I'm happy to answer any questions that you 6 may have. 7MR. WEIHRAUCH: Any questions from the panel? 8 [No response.] 9 MR. WEIHRAUCH: Thank you, Mr. Kelly. 10 MR. KELLY: Thank you very much. 11MR. WEIHRAUCH: The next witness, Geoff Cooper. 12MR. COOPER: Good morning. My name is Geoff 13 Cooper, and I am here today representing the Renewable 14 Fuels Association, or RFA. Founded in 1981, RFA is the 15 leading national trade association for America's fuel 16 ethanol industry. We appreciate the opportunity to 17 share some initial comments with EPA on the Agency's 18 proposed rule establishing a Quality Assurance Program 19 for RINs under the Renewable Fuels Standard Program. 20 As you probably know, RFA strongly supports the 21 RFS and believes the program is working as intended. 22 However, we are concerned that the proposal we'reHearing March 19, 2013 Washington, DC

1-800-FOR-DEPO Alderson Reporting Company 100 1 discussing here this morning could add unnecessary 2 costs and administrative burden to our members' 3 operations without necessarily providing additional 4 regulatory or societal benefit. 5As we have expressed to EPA in past discussions on 6 this topic, we believe the Agency's QAP proposal paints 7 with too broad a brush and fails to adequately account 8 for important distinctions among various renewable 9 fuels in RIN D-Code types. We agree with EPA that the 10 existing buyer beware approach has been extremely 11 effective and efficient for grain ethanol producers and 12 their obligated counterparties since the inception of 13 the RFS Program. 14In the 31 months since the RFS 2 regulation s took 15 effect, 34.4 billion conventional renewable fuel RINs, 16 D-6 RINs, have been generated. And to our knowledge, 17 not a single one of those D-6 RINs has been alleged or 18 found to be fraudulent by EPA. That is a stellar track 19 record by any account. 20 So this record of excellence is not simply due to 21 the fact that D-6 RINs have historically held very 22 little value on the secondary market. Certainly theHearing March 19, 2013 Washington, DC

1-800-FOR-DEPO Alderson Reporting Company 101 1 low value, you know, typically two, three cents over 2 the past couple of years, has been a factor, but the 3 total lack of fraud in the trade of D-6 RINs can also 4 be explained by the fact that in nearly all 5 circumstances, these RINs are ultimately separated from 6 wet gallons of renewable fuel by the obligated party at 7 the point of blending. They are generally not 8 separated by the ethanol producer or marketer upstream. 9 So, therefore, there can be no question that the RIN 10 represents a physical gallon of renewable fuel 11 production. 12Further, ethanol producers, and marketers, and 13 their counterparties have invested substantial 14 resources since the inception of the RFS to develop in15 house controls intended to ensure that RINs are validly 16 generated. The majority of the companies and 17 facilities represented by RFA have been in operation at 18 least four or five years, many much longer than that. 19 They have a well-established history of compliance. 20 They have submitted multiple attest engagements, 21multiple third party engineering reviews, and they are 22 proven facilities with robust controls in place toHearing March 19, 2013 Washington, DC

1-800-FOR-DEPO Alderson Reporting Company 102 1 ensure high quality product and valid generation of 2 RINs. 3 So recognizing this track record and the low risk 4profile posed for certain RIN types, EPA proposed to 5make the QAP program voluntary in nature, stating, 6 "Whether or not through purchase and retired RINs 7 verified by an EPA-approved QAP is a choice each 8 obligated party would make on its own." We are greatly 9 concerned, however, that the intended voluntary aspect 10 of the program will be effectively nullified in short 11 order. It seems inevitable that obligated parties will 12make it a matter of policy to transact only RINs for 13 which an affirmative defense is available. And as the 14proposal is currently structured, the affirmative 15 defense is only available to RINs that are subjected to 16 the option A or option B QAP programs. 17Because renewable fuel producers will incur most 18 of the costs associated with a QAP program, and because 19 it seems unlikely to us that QAP RINs, D-6 RINs, that 20 have been through this program will demand a higher 21 value in the market on an ongoing basis, we believe 22 there is strong incentive for obligated parties toHearing March 19, 2013 Washington, DC

1-800-FOR-DEPO Alderson Reporting Company 103 1 require all RINs, regardless of D-Code type to go 2 through a QAP. So in short, we believe QAP will become 3 the de facto standard, even though it's intended to be 4 a voluntary program. 5And EPA itself I think has acknowledged this in 6 the proposal stating, "We expect that most RINs 7 purchased and used for compliance purposes will be QAP 8 verified, even though the program is voluntary, because 9 most obligated parties would prefer not to take on the 10 risk of using an unverified RIN." And indeed, several 11 of our member producers have indicated that some 12 obligated parties are already signaling to them that 13 they will only purchase D-6 RINs that have been 14 subjected to an EPA-approved QAP. 15So in this way -- it's a little ironic -- this 16 program that was intended to improve liquidity in the 17 relatively smaller D-4 biodiesel RIN pool may actually, 18 you know, end up reducing liquidity in the D-6 RIN pool 19 for renewable fuel producers who may not initially 20 choose to participate in a QAP program. 21So because participation in a QAP program 22 ultimately seems inevitable and really involuntary forHearing March 19, 2013 Washington, DC

1-800-FOR-DEPO Alderson Reporting Company 104 1 grain producers, grain ethanol producers, are seeking 2 solutions that offer the lowest possible cost to the 3 supply chain, but still achieve a level of rigor 4 sufficient for an affirmative defense. So, therefore, 5 we are strongly urging EPA to consider an additional 6 QAP option -- call it option C perhaps -- that would be 7 available to renewable fuel producers and importers who 8 have a history of compliance and have already submitted 9 at least one successful attest engagement to EPA. 10 This additional QAP option could have the same 11 feed stock, same production, same RIN generation, and 12 RIN separation monitoring requirements as option A in 13 the current proposal. The key difference between 14 option A and what we're suggesting this morning would 15 be who qualifies as an auditor. In the additional 16 option, we suggest that any regulated party designated 17 by a producer or importer, including the individual 18 producer or importer himself, that submits an EPA19 approved QAP plan, and that has submitted successful 20 attest engagements and has a history of compliance, 21 could administer their own QAP. 22The Professional Auditor Standards, the errors andHearing March 19, 2013 Washington, DC

1-800-FOR-DEPO Alderson Reporting Company 105 1 omissions insurance, the registration requirements and 2 notification identification, record keeping 3 requirements, everything else you require of the 4 auditor in the proposal would still apply under this 5 additional option we're suggesting. 6 Because the majority of the costs associated with 7 the QAP-A or QAP-B is tied to the third party audit 8 expenses, we believe this additional option would 9 substantially lower the cost burden for our member 10 companies while delivering the same level of benefit to 11 the RFS Program. Our written comments contain more 12 specific details and recommendations on the elements of 13 the suggested additional option, as well as a detailed 14 discussion of how invalid RIN replacement would be 15 treated under this additional option we're suggesting 16 today. And essentially, it would -- you know, invalid 17 RIN replacement under this option would be highly 18 similar what you're proposing for option B. 19 So one other issue we wanted to raise is in regard 20 to the proposed alternative reporting method for sell 21 and buy transactions and recording the title transfer 22 date in EMTS.Hearing March 19, 2013 Washington, DC

1-800-FOR-DEPO Alderson Reporting Company 106 1First, we appreciate the Agency's responsiveness 2 to stakeholder concerns on this issue. As you know, we 3 brought this issue to the Agency together with the 4 obligated parties, and appreciate the Agency's openness 5 to finding a mutual solution. However, the proposal 6 seems to indicate that the new alternative reporting 7 date would only apply for assigned RINs when, in fact, 8 the same flexibility should be afforded for separated 9 RINs that are transferring with renewable fuel. So we 10 would encourage EPA to revisit that provision to ensure 11 that the language properly reflects the intent. 12Our written comments will also address several 13 other aspects of the proposal for which EPA is 14 explicitly seeking comment, including export and 15 exporter RVO provisions, treatment of confidential 16 business information, and other issues. 17Thank you. 18 MR. WEIHRAUCH: Any questions from the panel? 19 [No response.] 20 MR. WEIHRAUCH: Thank you, Mr. Cooper. 21Just a reminder to people in the audience, I have 22 one name on my list for walk-in testimony. If there'sHearing March 19, 2013 Washington, DC

1-800-FOR-DEPO Alderson Reporting Company 107 1 anybody that has not signed up that would like to 2 testify, please sign up at the reception table. 3 Our last scheduled witness, Mr. Jeff Hove. 4MR. HOVE: Good afternoon. My name is Jeff Hove. 5I'm with Petroleum Markets and Convenience Stores of 6 Iowa, representing the 2,000 business locations in 7 Iowa, petroleum marketers, many of which choose to 8 blend renewable fuels. During this NPRM, I'll also be 9 coordinating and representing our parent organization, 10 PMAA, which represents over 8,000 petroleum marketers 11 nationwide. 12A lot of positive things have been said here. I 13 think this is probably the first rulemaking I've been 14 involved in where everybody seems to be in apparent 15 agreement. They all seem to appreciate EPA's quick 16 response to this problem. We all understand that we 17 need a quality assurance program. 18 And, you know, I'd just like to go over a little 19 bit about what we've done over the past couple of 20 years, and then slip into a couple of key comments that 21 we have. 22PMCI has a long history of developing complianceHearing March 19, 2013 Washington, DC

1-800-FOR-DEPO Alderson Reporting Company 108 1 tools whether under the ULSD rules or RFS. We began 2 creating software compliance systems and other quality 3 assurance programs for our marketers back in 2004, 2005 4 under the ULSD rules. 5So when the RFS came up in 2007, we developed a 6 program for all of our petroleum marketers that wanted 7 to continue blending, which is RIN Alliance. And under 8 that program, we do all of the quarterly reporting and 9 annual test engagements. And in the process of that, 10 we take all of our blenders and we give them an 11 opportunity to aggregate and pool together RINs in a 12 cooperative nature, and then we move those RINs onto 13 the obligated parties. So compliance first and 14 foremost, and then an avenue for those RINs to make 15 themselves available to the obligated parties secondly. 16 So we're very much compliance-oriented. 17Again, we also appreciate the speed at which these 18 rules are moving forward. However, it wasn't quite 19 fast enough for us, and I'll explain that. We were put 20 in a position where we were holding millions of RINs 21 from multiple small producers, medium producers, and we 22 just flat out could not sell them. They ended up on aHearing March 19, 2013 Washington, DC

1-800-FOR-DEPO Alderson Reporting Company 109 1 deny list. And so what we did, we took it up ourselves 2 to sit down with refiners and with renewable fuel 3 producers to determine exactly what would be necessary 4 to move these RINs forward with a certain amount of 5 comfort. Obviously the answer to that was a lot of 6 transparency and a lot of third party involvement. 7So I'm happy to say that in -- you know, coming 8 out of these meetings, we were able to develop a solid 9 program for qualifying even the smallest of producers. 10 And these small producers are really important to our 11 group. We've got a lot of niche in regional markets 12 across the country where the petroleum pipeline is not 13 involved. So we're doing blending outside of the 14 terminal in a lot of instances. And so these 15 relationships are very important tour blenders. We 16 need to be able to access biodiesel, and now as we move 17 into advanced renewable fuels, we're seeing the same 18 pathway. We need to be able to access those gallons, 19 and I think even the RFS -- I mean, we all understand 20 that those gallons from small and medium producers are 21 very important in order for us to have the volume 22 needed to achieve the RFS goals.Hearing March 19, 2013 Washington, DC

1-800-FOR-DEPO Alderson Reporting Company 110 1So we sat down with engineering firms and their 2 refiners and producers, and we came up with a program 3 that was acceptable to a couple of key refiners that we 4 were working with and we had a longstanding history 5 with. And the end result of those meetings and those 6 steps we took for due diligence and quality assurance 7 has allowed us -- in December of 2012, we were able to 8 sell on contract our entire volume of 2013 RINs. So 9 it's basically an example of something working. 10 And those RINs were generated by small, medium, 11 and very large producers again. Those that fell into a 12 gray area or a black area that we couldn't move at all, 13 we sat down with the refiner, we worked on what quality 14 control steps we could put into place. And we did 15 that, and we did it to the point where they were 16 comfortable enough to say, yes, we are willing to buy 17 those RINs, and we are willing to pay market value, so 18 not a lesser value. All of our RINs that come through 19 our system are at a tier one level, so standard market 20 level and based upon an index, whether that be Platts 21 or OPIS or any other index out there. So we've been 22 able to -- we've been successful in doing that.Hearing March 19, 2013 Washington, DC

1-800-FOR-DEPO Alderson Reporting Company 111 1So it's really a pretty good story and one that we 2 were really forced to do. I mean, we had to get out in 3 front. We had to make sure that we could continue 4 blending with these smaller producers that we had 5 longstanding relationships with. So it was very 6 productive and very successful. 7I apologize. I spent so much time listening to 8 everybody else's comments -- there were some really 9 good comments -- that mine are basically redundant. 10 But I'm going to go ahead and go through about five 11 high points right now, and then we'll also be 12 submitting some written comments prior to the deadline 13 on behalf of our State trade association and our 14 national association. 15PMCI believes that RIN auditor qualifications 16 should include acting as the agent. One thing that we 17 built into our model that did work is this concept that 18 the auditor has immediate access through EMTS. EMTS is 19 a very good system. It's got a lot of information in 20 it. And if we can have daily review of that 21 information from RIN generations, to transactions 22 downstream, to RIN separations, we're very comfortableHearing March 19, 2013 Washington, DC

1-800-FOR-DEPO Alderson Reporting Company 112 1 with it because it gives us a whole other level of 2 transparency. So we do believe that the RIN auditor 3 should be an agent acting as an agent for the renewable 4 fuel producer, and in so, accessing data from EMTS on a 5 daily basis. 6 In relationship to that, if EPA decides to allow 7 producers to continue separating RINs, we believe that 8 that should only occur when that producer has adopted a 9 QAP program. Outside of a QAP program, we do not 10 believe a renewable fuel producer should be allowed to 11 separate RINs. 12And a lot of comments were made in regards to the 13 site visits under 8014.72, and we also believe that 14 that is slightly redundant, and it's not cost effective 15 for the program. We think that's going to put a huge 16 burden on industry, and we're going to see those costs 17 trickle down throughout the chain of the RIN. We 18 believe that if the RIN auditor is working within EMTS 19 in accessing that data, that onsite visits are a moot 20 point. 21We agree with EPA's suggestion on product transfer 22 documentation. We believe that any level of renewableHearing March 19, 2013 Washington, DC

1-800-FOR-DEPO Alderson Reporting Company 113 1 fuels and gasoline or diesel should be clearly stated 2 on a product transfer document above the retail sale. 3 Currently OTC allows us to sell, for example, B5 or 4 less without labeling the dispenser or noticing the end 5 user if it's a farm customer or whomever. And that 6 would also go along with FTC's ruling on B5 or less. 7The product transfer document requirement goes a 8 long way to support what I think EPA's suggestion on 9 exported gallons to giving notice to anybody who's 10 exporting out of the country so that we know that those 11 RINs will be retired against exporter's RVO. We 12 believe that those RINs should be separated and retired 13 immediately upon export is our position, and not on a 14 quarterly and certainly not on an annual basis. We 15 believe that that process or that allowance in the past 16 has greatly skewed the RIN market. 17Those are all my comments. I think everybody else 18 did a fantastic job, and I really do appreciate what 19 you guys have done during this rulemaking and how fast 20 you've done it. 21Any questions? 22MR. WEIHRAUCH: Any questions from the panel?Hearing March 19, 2013 Washington, DC

1-800-FOR-DEPO Alderson Reporting Company 114 1[No response.] 2MR. HOVE: Thank you very much. 3 MR. WEIHRAUCH: Thank you, Mr. Hove. 4Okay. I now have two names that have signed as 5 walk-in testifiers. First, Michael Whitney. If 6 anybody would like to testify that has not signed up, 7 please go out to the reception table. 8 MR. WHITNEY: Well, good afternoon. I want to 9 thank the EPA for holding this hearing and inviting us 10 to walk up and testify, and applaud them for their hard 11 work on this program. It was a very thoughtful and 12 very well-detailed proposal that was laid out that 13 handled a lot of nuance in a very nuanced market. 14My name is Michael Whitney. I work with Musket 15 Corporation. Musket Corporation is an affiliate 16 company of the Love's Travel Stops and Country Stores. 17Love's was established in 1964 and today owns over 300 18 travel centers and convenience stores in 39 States. 19 We're diesel players. We sell diesel to truckers. 20 That's what we do. And as part of our ongoing 21 commitment to provide affordable fuel to our customers, 22 we use biodiesel to provide competitively priced fuelHearing March 19, 2013 Washington, DC

1-800-FOR-DEPO Alderson Reporting Company 115 1 because biodiesel, when you take into account the value 2 of the RIN, it's cheaper than diesel fuel. That's why 3 we're very interested in what's going on here with the 4 QAP and the QAP process, and the things that have 5 happened in the past in regard to RIN fraud. 6 One of our primary functions at Musket is to 7manage the fuel supply for Love's. In doing so, over 8 the past three years and since the inception of the RFS 9 in 2007, Musket has completed over 120 blending 10 projects in 28 States, and we've put together a network 11 of over 25 rail sites to deliver this product to our 12 customers through our retail outlets. 13 We are committed to the renewable fuels standards, 14 and, therefore, we believe the integrity of the RINs is 15 essential to upholding the purpose of the Energy 16 Independence and Security Act. Furthermore, our 17 highest priority here is to meet every need of our 18 customers by providing unsurpassed fuel quality at 19 competitive prices. 20 Affordable biodiesel blends are essential, as is 21 disclosing biodiesel fuel content so that our customers 22 know exactly what they're getting from us. We believeHearing March 19, 2013 Washington, DC

1-800-FOR-DEPO Alderson Reporting Company 116 1 product disclosure engenders confidence, and confidence 2 leads to continued market growth for biodiesel. 3 We sit at a very interesting point, a fulcrum, if 4you will, in this market. We are both the buyers of 5 the biodiesel from the producers, we also are the party 6 that's upstream separating RINs for the obligated 7 parties. So we see both sides of this equation like 8 many in this room do not. We've often been looked to 9 to make parties whole, as we have a large balance 10 sheet. If RINs are deemed to be fraudulent for 11 whatever reason, the obligated parties are looking to 12 us to make them whole, as they should in a commercial 13 transaction. 14Simply put, the RIN is the currency of biodiesel, 15 and when there's fraud in that marketplace and there 16 aren't simple, robust rules to ensure its validity, it 17 damages the system, and it cheats the legitimate 18 players in the marketplace who have invested like 19 Love's and Musket have to try to bring this fuel and 20 put it into the transportation supply. 21There are a couple of key elements of the proposed 22 rule for the RFS Quality Assurance Program that we'reHearing March 19, 2013 Washington, DC

1-800-FOR-DEPO Alderson Reporting Company 117 1 very supportive of. In particular, we commend the 2 Agency for its proposal in Section 7, additional 3 changes related to the definition and treatment of 4 invalid RINs. I'm sure many in this room have heard me 5 go on about strip and ship and the problem with exports 6 in this market. We continue to see this as a problem 7 in the market, and we're very glad to see that the EPA 8 has further reiterated that RINs are to be retired upon 9 exports of renewable fuels. 10 As stated in our congressional testimony, we 11 believe many parties have exploited the lack of 12 specificity at 40 C.F.R. Section 80.1430 in regard to 13 heating oil blended with biodiesel, and having exported 14 a significant amount without declaring an RVO and 15 subsequently retiring those RINs. 16 It's really a double whammy for us. We have to 17 buy this product, and we have to sell RINs to monetize 18 that value to create affordable fuel for our customers. 19 It bids up the price of the product. It drives down 20 the RIN value. And that’s why we're so concerned about 21 it. 22It also has led to further depressed marketHearing March 19, 2013 Washington, DC

1-800-FOR-DEPO Alderson Reporting Company 118 1 activity as we saw in Q3 and Q4 of last year. We saw 2 so many RINs allegedly created, but yet we didn't see 3 obligations being brought back to the market. And when 4 we got into Q3 and Q4 of last year, blending was 5 unprofitable even though producers were making tons and 6 tons of gallons. We could not profitably blend 7 biodiesel into the fourth quarter of last year. 8 Further, we'd like to see greater product disclosure, 9 and we are very happy to see that as part of the rules. 10 As part of our commitment to our customers and 11 their needs to know to know what it is in their fuel, 12 we believe it is essential that there is full product 13 transfer document disclosure of biodiesel content. It 14 creates a couple of problems for us. One is on the 15 export side. Because ASTM B975 specification allows up 16 to five percent biodiesel, people can put up to five 17 percent biodiesel into the fuel and export it, and the 18 exporter may or may not know that he has biodiesel in 19 it, and may be unwittingly taking on RVO. What we 20 really believe happens is that they know it's in there, 21 and they willingly export it even though they know it's 22 in there, and they fail to take on their RVO and buyHearing March 19, 2013 Washington, DC

1-800-FOR-DEPO Alderson Reporting Company 119 1 back the RINs, thus leaving the RIN market in a damaged 2 state. 3 Further, we believe it creates structural problems 4 in the RFS because it creates an artificial blend wall. 5When we do not know what fuel we're getting to start 6 with, we have to assume there's five percent in it; 7 therefore, we can blend less, and therefore make fewer 8 RINs available to the obligated parties. 9 To improve disclosure, we support proposed 10 requirements to extend existing product transfer 11 document rules at 40 C.F.R. Section 80.1453 to all fuel 12 blends, and that the product transfer documents should 13 evidence, among other things, either the volume in 14 gallons or percentage of biomass-based diesel or 15 biodiesel that is contained in the blended product. 16 We want to thank EPA for having us here, and I'm 17 happy to answer any questions you might have. 18 MR. WEIHRAUCH: Any questions from the panel? 19 [No response.] 20 MR. WEIHRAUCH: Thank you, Mr. Whitney. 21The final name I have is David Bennett. And if 22 there's anybody in the audience that would like toHearing March 19, 2013 Washington, DC

1-800-FOR-DEPO Alderson Reporting Company 120 1 provide testimony, please sign up at the reception 2 table. 3 MR. BENNET: Good afternoon. My name is David 4 Bennett, and I am a principal at RIN Trust. We are a 5 company that has pre-registered as a QAP-A and B 6 provider. I also am the owner of RIN Attest and 7 Advisory Services, a firm that has been providing 8 attestations for renewable fuel companies since the 9 beginning of the Renewable Fuels Program in 2007. 10 I want to thank the panel and also the 11 participants for allowing me the opportunity to speak. 12I was particularly inspired by some of the 13 comments that were made today, and I would like to 14 expand on some of those, particularly those made by 15 Jennifer Case and Ron Marr regarding independence and 16 the definition of an auditor. 17As a certified public accountant who performs 18 attestations, I know that -- I think we all know that 19 the attestation is an after the fact process. That is 20 something that occurs up to 17 months after the first 21 transaction which is being attested to. I am also a 22 certified fraud examiner, and so I look at issues asHearing March 19, 2013 Washington, DC

1-800-FOR-DEPO Alderson Reporting Company 121 1much from a business perspective as from a regulatory 2 perspective. I see QAP as the Sarbanes-Oxley of the 3 biofuel industry. 4The definition of an auditor per Section 1471 of 5 the ruling or pre-ruling of an auditor is someone who 6 is independent, a third party, and a professional 7 engineer. What it does not take into account is a 8 specific type of professional engineer. And the 9 example that I'll draw from that is a tax attorney is 10 an attorney, but a tax attorney may not necessarily be 11 qualified to defend a client at trial in a courtroom. 12As such, I think that it is important that we not 13 overlook the qualifications and the contributions that 14 can be made by both a CPA and the certified fraud 15 examiner of the fraud industry. 16 Ironically, just two weeks ago I received a call 17 out of the blue from a gentleman who writes for a fraud 18 magazine, who has gotten wind of the fraud that's 19 occurring in the RIN industry, and asked me to assist 20 him in writing an article from the CFE perspective. I 21 think this is a huge step forward because the issues 22 are now stepping outside of the industry, and beingHearing March 19, 2013 Washington, DC

1-800-FOR-DEPO Alderson Reporting Company 122 1 looked at from an overall business perspective. 2To further my point, the attestation requires 3 preparation by a CPA. Therefore, it would seem logical 4 that the QAP should also have a CPA involved to some 5 degree, not to the exclusion of the professional 6 engineer or to the exclusion of a certified fraud 7 examiner, but just to some degree. 8 If we look at an auditor in the public accounting 9 field, an auditor is an expert in auditing procedures, 10 and an auditor does whatever it takes to combine that 11 expertise with the business activities of its client. 12 The point is that the definition of an auditor under 13 QAP does not have to be limited to just an engineer. 14While we believe that QAP is a step in the right 15 direction, it will -- it has the ability to detect 16 fraud. It has the ability to deter fraud, but it is 17 not necessarily able to prevent fraud from occurring, 18 and, having listened to all the speakers, just to 19 reiterate, the financial impact that these companies 20 have already experienced and the financial impact that 21 they will continue to experience under a final rule QAP 22 program.Hearing March 19, 2013 Washington, DC

1-800-FOR-DEPO Alderson Reporting Company 123 1Thank you very much, and I'll take questions. 2MR. WEIHRAUCH: Thank you. No questions? 3 [No response.] 4MR. WEIHRAUCH: Thank you, Mr. Bennett. 5MR. BENNETT: Thank you. 6 MR. WEIHRAUCH: Lindsay, do you want to check and 7 see if there's anybody signed? Yeah, and if anybody 8 wants to provide any additional testimony, we're going 9 to check once with the reception desk out there. 10 MS. FITZGERALD: No one else. 11MR. WEIHRAUCH: Okay. That appears to conclude 12 our witnesses and testimony, so I will adjourn this 13 hearing. Thank you all for coming. 14[Whereupon, at 12:24 p.m., the hearing was 15 adjourned.] 16 17 18 19 20 21 22