Market Overview

U.S. Court of Appeals Rules in Ergon - West Virginia's Favor in RFS Claim Against EPA

Share:

Ergon - West Virginia, Inc., Wrongfully Denied Small Refinery
Hardship Relief

The United States Court of Appeals for the 4th Circuit has vacated and
remanded the United States Environmental Protection Agency's (EPA)
denial of a 2016 petition for small refinery hardship filed by Ergon -
West Virginia, Inc., (EWV) under the Renewable Fuel Standard (RFS).

EWV operates a small refinery (23,500 barrels per day) in Newell, West
Virginia that primarily produces highly refined paraffinic specialty
products and fuels from local Appalachian grade crude.

"We are pleased to see the 4th Circuit Court ruling which recognizes the
significant and disproportionate hardship that RFS places on small
refineries," commented Kris Patrick, President of EWV. "A 2011 study by
the Department of Energy (DOE) predicted that this disproportionate
economic hardship would occur, and this is precisely what we have
witnessed at EWV. Like other small refineries, we operate in rural
geographic areas, supplying critical fuel supplies and supporting the
local economies with jobs and tax revenue. It is vital that Congress,
the EPA, and the DOE continue to protect the important role of small
refineries in the U.S. economy."

Congress created the RFS as part of the 2005 Energy Policy Act in an
effort to reduce greenhouse gas emissions and expand the nation's
renewable fuels sector. Their understanding of the detrimental impact
the program could have on small refineries prompted Congress to direct
the EPA to grant waivers from the mandate to small refineries that would
suffer a "disproportionate economic hardship" in complying with the
program.

Small refineries are defined as those processing less than 75,000
barrels per day of crude oil. Unlike large integrated refiners which
primarily produce gasoline, many small refineries produce diesel fuel in
higher proportions. All refiners are required to purchase renewable
identification numbers (RINS), which the EPA describes as "credits used
for compliance and the ‘currency' of the RFS program." This mandate has
resulted in an artificial, government-created market for blend
requirements beyond what the market will accept, primarily due to
diesel-to-gasoline production ratio or "diesel disparity."
Fundamentally, this program unfairly disadvantages small refineries,
particularly those with higher than average production of diesel.

During the Obama administration, the EPA abandoned the original intent
of Congress when establishing small refinery hardship waiver requests by
interpreting that the hardship exemption must pose a threat to a
refinery's survival as an ongoing operation. In EWV's case, costs
directly attributable to the RFS were the refinery's third highest
operating expense in 2016, following raw materials and labor.

"In addition to two small refineries, Ergon also operates an ethanol
production facility which provides us with a unique vantage point
regarding RFS," Patrick explained. "The argument touted by ethanol
advocates of demand destruction as a result of hardship waivers is
simply not based in logic or facts."

"EWV blends 10% ethanol with 99% of the gasoline it produces and will
continue to do so, even without a mandate," added Kirk Latson, Ergon's
Senior Vice President of Fuels Marketing. "However, EWV cannot pass
through its RIN costs and the detrimental impact imposed by the RFS on
EWV's high diesel production is unacceptable and counter to the intent
of the RFS program."

EWV has made significant investments in environmentally friendly
processes and technologies over the past three decades. "We are a
family-owned business, and our focus is on sustainability and future
generations," said Patrick. "Ergon strives to be a strong employer and
good steward of the environment, making positive contributions to the
communities in which we serve. Today's decision will allow Ergon to
continue to invest in our operations and our employees."

About Ergon - West Virginia, Inc.

Ergon - West Virginia, Inc., owns and operates a specialty paraffinic
refinery in Newell, West Virginia, with a crude oil capacity of 23,500
barrels per day. Products include paraffinic base oils, paraffinic
bright stocks, waxes, petrolatum, petroleum resins, E10 gasoline and
ultra low sulfur diesel.

View Comments and Join the Discussion!