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1 UNITED STATES ENVIRONMENTAL PROTECTION AGENCY 

2 

3 

4 PUBLIC HEARING FOR RFS 

5 RENEWABLE IDENTIFICATION NUMBER (RIN) 

6 QUALITY ASSURANCE PROGRAM 

7 

8 

9 

10 United States Environmental Protection Agency 1201 

11 Constitution Avenue, N.W. 

12 Room 1153 

13 Washington, D.C. 20006 

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15 

16 

17 

18 March 19, 2013 

19 10:00 a.m. 

20 

21 

22 
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1 PARTICIPANTS 

2 

3 Hearing Board: 

4 JOHN WEIHRAUCH, Center Director, Fuels Compliance 

5 Center, Compliance Division, Environmental Protection 

6 Agency 

7 PAUL 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: 

14 JOE JOBE, NBB 

15 GARY HAER, NBB 

16 JENNIFER CASE, New Leaf Biofuel, LLC 

17 RON MARR, Minnesota Soybean Processors 

18 SUSAN OLSON, Genscape 

19 KARYN JOINES, EcoEngineers 

20 RAMON BENAVIDES, Global Renewable Strategies 

21 JOHN SHIDELER, Futurepast, Inc. 

22 TIM HOGAN, AFPM 
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1 Public Witnesses (continued) 

2 PATRICK KELLY, API 

3 GEOFF COOPER, RFA 

4 JEFF HOVE, Iowa Petroleum Marketers 

5 MICHAEL WHITNEY, Musket Corporation 

6 DAVID E. BENNETT, RIN Attest and Advisory 

7 Services 

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16 

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18 

19 

20 

21 

22 
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1 P 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. 

7 Today 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, 

14 producers 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 reasonable 
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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. 

12 In 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. 

21 Now, let me go over how we will hold the hearing. 

22 We are conducting this hearing in accordance with 
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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. 

15 We 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. 

21 Witnesses must state their name and affiliation 

22 prior to making their statement. When each witness has 
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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. 

11 Thank you. With that, I will call the first 

12 witness. 

13 The first witness is Joe Jobe from NBB. 

14 MR. 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. 
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1 First, 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. 

11 But 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. 

15 Last 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. 

21 Despite the startup challenges, we believe the 

22 biggest obstacles are behind us, and the RFS is on 
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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. 

14 NBB 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. 

22 There's a great deal of cover under the proposed 
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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-

14 year 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 and 
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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 

14 members 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 Quality 
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1 Assurance Plan or QAPs. 

2 The 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. 

11 I'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. 

15 I 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. 

22 These were people who worked in some of the most 
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1 respected professions in our society, yet there were 

2 still the few desperate people who chose to commit 

3 fraud. 

4 Most of the bad actors fit into a similar profile. 

5 They 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. 

12 Our 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. 

21 It's important that health care workers who commit 

22 fraud not be allowed to harm the integrity of the 
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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 

4 people 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. 

11 I'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. 
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1 There 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. 

7 First, 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. 

17 This 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 from 
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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. 

5 We 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. 

15 MR. 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 and 
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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. 

5 Thank you very much for the opportunity to testify 

6 here today. 

7 MR. WEIHRAUCH: Thank you, Mr. Jobe. 

8 Any questions from the panel? 

9 [No response.] 

10 Okay. The next witness is Gary Haer from NBB. 

11 MR. 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. 

17 I'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 updating 
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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. 

7 First, 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. 

15 Today 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 an 
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1 important driver for our industry. And we stand ready 

2 to produce the fuels needed under the renewable fuel 

3 program. 

4 We 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. 

14 One 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 been 
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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. 

14 Nearly 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 the 
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1 marketplace. 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 

5 marketplace, it's useful to match up information from 

6 the supply side with information from the demand side. 

7 On 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. 

17 Additionally 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, 
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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. 

15 Secondly, 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. 

21 The biodiesel marketplace is not as mature as 

22 other biofuels markets, and many of the gallons we sell 
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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, 

5 many biodiesel producers will simply go out of business 

6 unless there are dramatic changes to the program. 

7 In 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. 
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1 Under 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. 

12 We 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 deemed 
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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 to 
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1 think about. 

2 In 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.] 

21 MR. WEIHRAUCH: Thank you, Mr. Haer. 

22 MR. HAER: Thank you. 
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1 MR. WEIHRAUCH: The next witness is Jennifer Case. 

2 MS. CASE: Good morning. On behalf of New Leaf 

3 Biofuel and as a member of the governing board of the 

4 National 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. 

11 New 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 engines 
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1 while supporting the local economy. 

2 We 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 

17 market, 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 unprofitable 
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1 market. 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. 

15 In 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 have 
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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. 

5 It 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. 

14 Here'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 

17 market 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 small 
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1 biodiesel plant, my company is still evaluating the 

2 rule with the hopes of accurately evaluating the best 

3 option for us. 

4 Here'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. 

12 The 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. 

21 Number two, EPA should limit the five-year 

22 invalidity claim on the same superior class of A RINs 
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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. 

7 The 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. 

17 However, 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 are 
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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. 

5 However, 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. 

11 To 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 

17 minimum 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 the 
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1 program will efficiently trade RINs. 

2 A 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, my 
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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. 

4 Let'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 to 
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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 biodiesel 
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1 producers. 

2 Thank you again for the opportunity to testify 

3 here today. I would be happy to take any questions. 

4 MR. WEIHRAUCH: Does the panel have any questions? 

5 MR. 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. 

12 MR. ARGYROPOULOS: Okay, thank you. That's all I 

13 have. 

14 MR. WEIHRAUCH: Any other questions? 

15 [No response.] 

16 MR. WEIHRAUCH: Thank you, Ms. Case. 

17 The 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 biodiesel 
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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. 

7 My 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. 

14 My 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 new 
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1 avenue for fraud being opened up unwillingly. We have 

2 extreme concerns about the independence of this 

3 auditor. 

4 And 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. 

15 For 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. 

22 We aren't questioning the current veracity of the 
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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. 

17 And 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. 
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1 On 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. 

14 Making 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 a 
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1 willing buyer. 

2 We 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 

14 parties that they're truly independent. 

15 If you have questions, I'd be glad to try and 

16 answer them. 

17 MR. WEIHRAUCH: Any questions from the panel? 

18 [No response.] 

19 MR. WEIHRAUCH: Thank you, Mr. Marr. 

20 MR. MARR: Thank you. 

21 MR. WEIHRAUCH: The next witness is Susan Olson. 

22 MS. OLSON: Is this okay? Great, great. Good 
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1 morning 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. 

4 My 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. 

14 Genscape 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 

17 more 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 offerings 
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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. 

14 The 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. 
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1 The 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. 

22 A second favorable element of the flexibility is 
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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 

4 pricing 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 

22 more precisely meet risk management style of obligated 
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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. 

15 Much 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 ongoing 
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1 monitoring for QAP-B? 

2 Genscape 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. 

14 A 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 various 
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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 

11 A 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. 

17 Based 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 

21 million invalid RINs. Most of this cost was incurred 

22 in calendar year 2012. 
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1 The 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, while 
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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. 

5 In 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 

11 marketplace 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. 

21 To meet the strength and security of the A RIN, 

22 the EPA has stressed the importance of sound financial 
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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. 

5 Important 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? 

12 My 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 its 
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1 originally intended course. 

2 Genscape has already moved forward to create the 

3 framework for electronic RINs trading with inter-day 

4 price transparency with its partnership with 

5 Progressive Fuels Limited. With the opportunity for 

6 fraud minimized with growing QAP adoption, the RINs 

7 market 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. 

22 In closing, we are encouraged by the timeline 
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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. 

7 We 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. 

11 Thank you, and I'd be glad to take any questions. 

12 MR. WEIHRAUCH: Any questions from the panel? 

13 MR. ARGYROPOULOS: Thank you very much for your 

14 testimony. 

15 I just had kind of two related questions. 

16 MS. OLSON: Oh, okay. 

17 MR. 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. 

21 MR. ARGYROPOULOS: Okay. And then you said that 

22 you were able to add some additional provisions in to 
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1 your services. 

2 MS. OLSON: Right. 

3 MR. ARGYROPOULOS: So how -- well, I guess I could 

4 ask the question about what the reduction was. But 

5 more 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. 

11 MR. ARGYROPOULOS: Yes. So we have requirements 

12 for option A and option B. 

13 MS. OLSON: Oh, yes. 

14 MR. 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, 
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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 

7 much 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 able 
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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. 

4 MS. OLSON: Thank you. 

5 MR. 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. 

21 At EcoEngineers, we're all about people-driven 

22 solutions. When the RIN fraud occurred in 2011, we 
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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. 

5 Now, 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. 

11 We 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. 

17 Today 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, but 
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1 just a couple of points that I want to make. 

2 My 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. 

14 We 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. 

22 It's also costly for the producer to send an 
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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 

4 piece of the pie, so definitely reducing the frequency 

5 of the site audit would decrease the cost borne on 

6 small producers. 

7 So 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. 

15 That 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. 
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1 Again, 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 perform 
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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 

15 monitoring 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. 

21 And finally, we believe that the auditor should 

22 act as an agent with a renewable fuel producer and 
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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. 

21 A lot of our members, clients, currently operate 

22 under this business model, small producers, and this 
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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 

4 put 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. 

21 The next witness, Ramon Benavides. 

22 MR. BENAVIDES: Thank you for the opportunity to 
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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. 

14 The 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 or 
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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. 

5 It'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. 

14 The RIN bank, going back to that concept, there 

15 might 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 already 
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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 

5 marketer, 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 is 
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1 motor 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. 

7 The 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. 

17 As 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 the 
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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. 

17 And 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 believe 
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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. 

7 And 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. 

14 Just 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 diminishing 
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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. 

4 So 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. 

11 If 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 the 
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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? 

14 MR. 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 taken 
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1 away for an export, it actually goes against the 

2 production number against the number of volume 

3 produced. 

4 So 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 be 
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1 commenting on. 

2 MR. 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. 

12 MR. WEIHRAUCH: Thank you, Mr. Benavides. 

13 The next witness, John Shideler. 

14 MR. SHIDELER: Thank you very much. My name is 

15 John Shideler, and I'm president of Futurepast, a 

16 consulting, training, and audit firm. 

17 EPA 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 achieve 
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1 environmental benefits mandated in the Clean Air Act, 

2 thus impacting indirectly all citizens of the United 

3 States. 

4 From 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. 

12 We 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 perform 
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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. 

5 Who 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. 

22 Prohibited activities include consulting to the 
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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. 

15 I 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. 
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1 How 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. 

21 The use of voluntary consensus standards. In the 

22 NPRM, EPA states that this proposed rulemaking does not 
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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. 

12 Indeed 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 of 
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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. 

7 ISO 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. 

11 Consideration of the process by which quality 

12 assurance plans are assessed is important to the 

13 effectiveness of the Voluntary Verification Program. 

14 As 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 operating 
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1 their audit programs in a sound, professional manner. 

2 Without 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 

7 Whether 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. 

12 In 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. 

22 Futurepast acknowledges the apparent appeal of a 
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1 RIN replacement mechanism. However, we do not support 

2 this approach to accountability for the following 

3 reasons: 

4 The 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 

12 mechanism will disproportionately disadvantage small13 and medium-sized audit firms. 

14 The 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 its 
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1 source. 

2 It 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. 

14 MR. WEIHRAUCH: Thank you. Any questions from the 

15 panel? 

16 [No response.] 

17 MR. 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. 

21 We'll go to Tim Hogan. 

22 MR. HOGAN: Good morning. My name is Tim Hogan 
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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 

7 microphone -- 

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 140 
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1 million 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. 

4 Aside 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. 

14 Now 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. 

22 AFPM supports many aspects of the proposal, 
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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 

14 proposed 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 liquidity 
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1 problem. 

2 Today 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. 

17 The 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. 
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1 The 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 

4 proposed 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. 

7 First, 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 receipts 
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1 should be audited. 

2 Third, 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. 

22 To ensure that the benefits of the RIN validation 
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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. 

5 There 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 by 
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1 this policy decision. 

2 Specifically, 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. 

7 With 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 

14 prior to the effective date of the final rule, and that 

15 modifications are made in the EMTS to facilitate the 

16 use of validated RINs. 

17 The 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 notify 
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1 company management. 

2 While 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. 

11 Regardless 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 what 
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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. 

4 We also ask EPA to give serious thought to the 

5 means 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. 

12 Finally, 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 

21 API will address this issue in greater detail this 

22 morning. 
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1 Thank 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.] 

5 MR. WEIHRAUCH: Thank you, Mr. Hogan. 

6 Patrick Kelly, the next witness. 

7 MR. 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. 

12 API 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 that 
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1 increase the complexity and cost, potentially impede 

2 market 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. 

12 MR. WEIHRAUCH: For the record, can you state your 

13 name and affiliation? 

14 MR. KELLY: I am Patrick Kelly with the American 

15 Petroleum Institute. 

16 MR. WEIHRAUCH: Thank you. 

17 MR. 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 the 
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1 replacement of RINs, and EPA correctly puts the 

2 obligation for RIN replacement on the generator of 

3 invalid RINs. 

4 QAP-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. 

14 Any 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. 

21 API supports the broad scope EPA has taken in 

22 applying this program to all RIN types, including the 
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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 

12 met. 

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. 

21 API opposes the PTD, the product transfer document 

22 requirement, to identify the name and blend of all 
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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. 

7 API 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. 

21 In closing, we commend EPA for developing this 

22 proposal. We support the general framework and the 
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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. 

4 I appreciate this opportunity to speak to you here 

5 today, and I'm happy to answer any questions that you 

6 may have. 

7 MR. WEIHRAUCH: Any questions from the panel? 

8 [No response.] 

9 MR. WEIHRAUCH: Thank you, Mr. Kelly. 

10 MR. KELLY: Thank you very much. 

11 MR. WEIHRAUCH: The next witness, Geoff Cooper. 

12 MR. 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're 
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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. 

5 As 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. 

14 In 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 the 
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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. 

12 Further, 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, 

21 multiple third party engineering reviews, and they are 

22 proven facilities with robust controls in place to 
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1 ensure high quality product and valid generation of 

2 RINs. 

3 So recognizing this track record and the low risk 

4 profile posed for certain RIN types, EPA proposed to 

5 make 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 

12 make it a matter of policy to transact only RINs for 

13 which an affirmative defense is available. And as the 

14 proposal 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. 

17 Because 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 to 
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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. 

5 And 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. 

15 So 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. 

21 So because participation in a QAP program 

22 ultimately seems inevitable and really involuntary for 
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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. 

22 The Professional Auditor Standards, the errors and 
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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. 
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1 First, 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. 

12 Our 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. 

17 Thank you. 

18 MR. WEIHRAUCH: Any questions from the panel? 

19 [No response.] 

20 MR. WEIHRAUCH: Thank you, Mr. Cooper. 

21 Just a reminder to people in the audience, I have 

22 one name on my list for walk-in testimony. If there's 
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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. 

4 MR. HOVE: Good afternoon. My name is Jeff Hove. 

5 I'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. 

12 A 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. 

22 PMCI has a long history of developing compliance 
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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. 

5 So 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. 

17 Again, 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 a 
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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. 

7 So 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. 
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1 So 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. 
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1 So 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. 

7 I 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. 

15 PMCI 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 comfortable 
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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. 

12 And 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. 

21 We agree with EPA's suggestion on product transfer 

22 documentation. We believe that any level of renewable 
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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. 

7 The 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. 

17 Those 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. 

21 Any questions? 

22 MR. WEIHRAUCH: Any questions from the panel? 
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1 [No response.] 

2 MR. HOVE: Thank you very much. 

3 MR. WEIHRAUCH: Thank you, Mr. Hove. 

4 Okay. 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. 

14 My 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. 

17 Love'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 fuel 
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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 

7 manage 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 believe 
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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 

4 you 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. 

14 Simply 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. 

21 There are a couple of key elements of the proposed 

22 rule for the RFS Quality Assurance Program that we're 
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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. 

22 It also has led to further depressed market 
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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 buy 
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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. 

5 When 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. 

21 The final name I have is David Bennett. And if 

22 there's anybody in the audience that would like to 
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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. 

12 I 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. 

17 As 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 as 
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1 much from a business perspective as from a regulatory 

2 perspective. I see QAP as the Sarbanes-Oxley of the 

3 biofuel industry. 

4 The 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. 

12 As 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 being 
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1 looked at from an overall business perspective. 

2 To 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. 

14 While 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. 
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1 Thank you very much, and I'll take questions. 

2 MR. WEIHRAUCH: Thank you. No questions? 

3 [No response.] 

4 MR. WEIHRAUCH: Thank you, Mr. Bennett. 

5 MR. 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. 

11 MR. 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.] 

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