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

Fri., Jul 20, 2018 | Ergon

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

Newell, WV— 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.

For Ergon - West Virginia, Inc.
Kathy Potts
Director of Marketing Communications