EPA, DOJ Settle With NGL Over Alleged Renewable Fuel Credit Scheme

The U.S. Environmental Protection Agency (EPA) and Department of Justice (DOJ) have announced a settlement with NGL Crude Logistics LLC that requires the company to retire 36 million renewable fuel credits and pay a $25 million civil penalty under the settlement to resolve violations of the Renewable Fuel Standard (RFS) program. The cost of the Renewable Identification Number (RIN) retirement is approximately $10 million.

The DOJ and EPA alleged that NGL entered into a series of transactions with Western Dubuque Biodiesel LLC in 2011 that resulted in the generation of an extra set of renewable fuel credits for approximately 24 million gallons of biodiesel. NGL’s scheme generated approximately 36 million additional credits, known as RINs, which are created when a company produces qualifying renewable fuel that can be traded or sold to refineries and importers to use for compliance with renewable fuel production requirements.

On July 3, 2018, the United States District Court for the Northern District of Iowa found NGL liable for (1) failing to retire RINs when it designated and sold biodiesel to Western Dubuque as “feedstock” for the production of biodiesel, (2) causing Western Dubuque to generate invalid RINs and commit other prohibited acts under the RFS program, and (3) transferring approximately 36 million invalid RINs to other entities.

“A strong enforcement program is essential to maintaining the integrity of the RIN market,” says Susan Bodine, assistant administrator of the EPA’s Office of Enforcement and Compliance Assurance. “Through this settlement, EPA and DOJ are holding NGL accountable for its violations of the RFS program.”

“The Renewable Fuel Standards program is important to Iowa’s agricultural community,” adds Peter Deegan, U.S. attorney for the Northern District of Iowa. “Our office is committed to protecting the integrity of the Renewable Fuel Standards program and ensuring a level playing field for Iowa businesses.”

The EPA says it discovered the violations through a tip from RFS program participants, an inspection and an extensive investigation into the NGL transactions.

The EPA is responsible for developing and implementing regulations to ensure that transportation fuel sold in the U.S. contains a minimum volume of renewable fuel. The RFS program was created under the Energy Policy Act of 2005 and expanded under the Energy Independence and Security Act of 2007.

NGL is a midstream energy provider headquartered in Tulsa, Okla., that transports crude oil and markets and supplies refined products, natural gas liquids and other products. NGL was known as Gavilon LLC at the time of the violations.

In response, NGL says it believes the terms of the settlement – memorialized in a consent decree – protect NGL’s business interests. According to the company, the alleged violations occurred at a time when NGL did not own Gavilon and when Gavilon was under different management. NGL purchased Gavilon from Gavilon Energy Intermediate LLC in December 2013, some two years after the alleged conduct and at a time when Gavilon Intermediate was owned by Ospraie Management LLC, General Atlantic LLC and Soros Fund Management LLC. NGL was not involved in any way in the alleged violations, the company claims.

In determining to settle the EPA action, NGL considered, among other factors, the ongoing expense and operational impacts to NGL of continuing to defend the lawsuit, as well as the uncertainty associated with the outcomes of litigation. NGL believes that the consent decree is in NGL’s best interest, as it will end a long and expensive regulatory dispute; it prevents the continued expenditure of legal costs; and it works to protect the best interest of NGL’s investors and its employees and their families.

The proposed settlement, lodged on Sept. 27 in the U.S. District Court for the Northern District of Iowa, is subject to a 30-day public comment period and final court approval. More information on the settlement can be found here.

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