OMAHA (DTN) -- The EPA was set to reallocate gallons lost in the Renewable Fuel Standard to small-refinery waivers, but that proposal was pulled within days after a series of meetings and phone calls that then EPA Administrator Scott Pruitt had with lawmakers from oil states and RFS stakeholders.

As part of the rulemaking process on the latest proposed RFS volumes, which are slated for a public hearing on July 18, the agency on Wednesday posted a number of documents to regulations.gov showing the interagency process that took place prior to the proposal's release. That interagency review includes USDA, EPA and the Office of Management and Budget.

In addition, after Pruitt resigned earlier this week, the EPA posted an updated Pruitt calendar (https://www.epa.gov/…) that includes his schedule in the days ahead of the release of the proposed volumes on June 26.

EPA estimates it waived about 2.25 billion gallons of biofuels for 2016 and 2017. The ethanol and agriculture industries have pressed the agency to reallocate those lost gallons to other refiners. In the weeks leading up to the release of the RFS volumes proposal, Pruitt told two different groups of agriculture and ethanol organizations two different stories when asked about the agency's ability to reallocate RFS gallons.

During a visit to East Kansas Agri-Energy's ethanol plant in Garnett, Kansas, on June 12, Pruitt said the agency could reallocate gallons. The next day in South Dakota, Pruitt told an ag group, "Counsel worries reallocating lost RINs (renewable identification numbers) retroactively isn't legal."

REALLOCATION PROPOSED

According to a June 19 interagency review document, the EPA proposed raising the total overall percentage of renewable fuels in the gasoline pool from 10.88% to 11.76% -- just days after Pruitt's visits to Midwest states that also included a stop in Nebraska. That bump in renewable fuel percentages was expected to make up at least some gallons lost to waivers. The proposed bump in percentages came one day after a morning meeting Pruitt had with U.S. Secretary of Agriculture Sonny Perdue in Washington, D.C.

In a June 20 interagency review document, EPA personnel appeared to indicate it was legal to reallocate gallons to larger refiners.

"EPA's proposed approach implements CAA section 211(o)(3)(B)(i), which states that EPA 'shall determine and publish...the renewable fuel obligation that ensures that the requirements of [the RFS program in CAA section 211(o)(2)] are met.' Projecting the total exempted volume based on the most recent exemption data is an appropriate way to address this effect and facilitate the satisfaction of the RFS program requirements in CAA section 211(o)(2).

"...This approach is consistent with the text of our regulations, which accounts for the 'amount of gasoline' and 'amount of diesel projected to be produced by exempt small refineries' in 2019," the document stated.

Geoff Cooper, executive vice president of the Renewable Fuels Association, said the document seems to contradict Pruitt's concerns about the legality of reallocation.

"EPA was saying that it believes the law compels them to account for small-refiner exemptions prospectively," Cooper said. "In other words, EPA was saying the best way to observe the spirit and intent of the law is to account for expected exemptions and reallocate those volumes to larger refiners."

PRUITT CALLS

Also on June 20, Pruitt's calendar shows he had phone calls with RFS opponents Sen. Ted Cruz, R-Texas, and Sen. Pat Toomey, R-Pa. Both have called for RFS reform, claiming the RIN system was hurting small refiners. Cruz advocated for a cap on RIN prices. Along with Sens. Charles Grassley, R-Iowa, and Joni Ernst, R-Iowa, Cruz and Toomey met a handful of times at the White House to discuss the RFS in the past year.

On the evening of June 21 and the morning of June 22, Pruitt's calendar shows he had phone calls with RFS stakeholders.

Then, according to a June 22 draft of the RFS proposal, documents posted to regulations.gov show the percentage of renewable fuels dropped back to 10.88% from 11.76% -- within two days of the calls with Cruz and Toomey and RFS stakeholders.

Interagency review documents also show that a recommendation to restore a 500-million-gallon RFS shortfall in the latest volume proposal was not adopted by the agency. In a 2016 ruling in favor of biofuels interests, the U.S. Circuit Court of Appeals for the District of Columbia Circuit had ordered EPA to restore that shortfall.

On Thursday, the EPA indicated in a letter to Grassley that it intends to continue in the same direction with the small-refinery waiver program.

"We appreciate that the SREs granted over the past several months have been the focus of many stakeholders' attention," new EPA Assistant Administrator William L. Wehrum said in the letter, "but we are required by statute to implement these provisions and we will continue to manage the program consistent with the law."

Wehrum told Grassley the agency granted 19 or 20 petitions received in 2016, 29 of 33 in 2017 and "have not yet received any petitions for the 2018 compliance year."

Frank Maisano, senior principal at Washington, D.C.-based communications firm Bracewell, LLP, and a representative for refining interests, said the documents show USDA has limited involvement in the interagency review.

"The real story is that USDA, engaging in no critical analysis of their own, simply adopts the position of ethanol special interests despite potential impacts on consumers, small businesses, and others," Maisano said. "Still, no evidence of demand destruction and no legal authority for making retroactive reallocations. Simply because ethanol shills at USDA place comments in interagency comments on a program over which they have no jurisdiction does not compel the expert agency to follow them down the rabbit hole."

Read the EPA documents here: https://www.regulations.gov/…

Todd Neeley can be reached at todd.neeley@dtn.com

Follow me on Twitter @toddneeleyDTN

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