Valero’s Klesse: Washington is Aware that RFS ‘Needs to be Fixed’

Valero’s Klesse: Washington is Aware that RFS ‘Needs to be Fixed’

Valero Energy CEO Bill Klesse said Tuesday that  Washington lawmakers, the White House and the Environmental Protection Agency  are all aware of refiners’  concerns regarding the Renewable Fuel Standard (RFS),  including the impending “blend wall” and the impact of volatile  Renewable Identification Number (RIN) prices on refined product prices.

“They all realize that the RFS is broken and needs  to be fixed . . .  but I am not going to say that anything is going to be  solved here in the short run,”  Klesse said during an earnings conference call with  analysts.

Klesse said that he was in Washington, D.C., last week.  He and representatives from other refining companies met with members of  Congress and others to express the industry’s concerns about RFS. Klesse said  his understanding is that congressional hearings on RFS are scheduled to be  held this summer.

“Theoretically, you don’t hit the blend wall this  year anyway, so this is more of a precursor of things to come. You do hit the  blend wall next year,” Klesse said. “There is a realization that E15  [gasoline blended with 15% ethanol] is not the solution.”

Klesse said that when the EPA tested E15, they only  tested emissions systems.   He noted that the American Petroleum Institute (API) ran  tests and that out of the three major carburetor fuel pumps in cars today, one  of them failed 11 out of 12 times. Also, Klesse said, AAA has noted that  warranties for the vast majority of cars do not cover the use of gasoline with  higher ethanol content.

Klesse said the EPA is aware of those issues.

“They’re aware that car manufacturers have not  changed their warranties, and they’re aware of this fuel pump issue,”  Klesse said.

Klesse appeared to hold out hope that some of the  concerns of refiners will eventually be addressed.

“It’s like all things in life. The squeaky wheel  gets the grease, and when something starts squeaking – whether its high RIN  prices, high gasoline prices, high something – there’ll be a lot more  attention,” Klesse said.

Valero expects to pay $500 million to $750 million for  RINs this year.

Valero execs said during today’s conference call that the  company adjusted its product yields in the first quarter in an effort to curb  its exposure to RIN costs. For example, the company produced more jet fuel,  which is not subject to federal mandates for renewable fuel blending.

**Ethanol Production**

Valero reported today that its ethanol segment achieved  operating income of $14 million in first quarter 2013 versus $9 million in  first quarter 2012. The increase was due to a higher gross margin per gallon of  production, which was somewhat offset by lower production volumes. As gross  margins improved in the first quarter of 2013, Valero restarted its three  ethanol plants that had been temporarily shut down. All 10 ethanol plants in  Valero’s system are currently operating near capacity.

For the second quarter, Valero expects total throughput  volumes at its ethanol facilities of 3.4 million gal/day and average operating  expenses of 37cts/gal, including 3cts/gal for noncash costs such as  depreciation and amortization.

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