The WSJ’s Kim Strassel has a piece today exploring the special favoritism behind the EPA’s decision last week to exempt 1 (of 143) refinery from the EPA’s ethanol-blending mandate. All refineries are harmed financially by the EPA’s mandate that refineries blend into their fuel mix a certain amount of ethanol. “Small refineries” (as defined by the EPA as those whose average dialy capacity is below 155,000 barrels of crude oil) are particularly harmed. Alon Energy USA’s Krotz Springs (Louisiana) refinery is certainly not the only small refinery, yet it was the only refinery to get a pass on the ethanol-blending requirement. Some may aver that one exemption is better than no exemptions, so no need to raise a fuss. But, regardless of the decision, the public deserve to know why the nation’s most heavy-handed regulatory body does the things it does. The EPA is anything but transparent and hasn’t stated its reasons for the exemption, but today’s WSJ piece uncovers what appears to be a typical case of Washington energy cronyism:
So what’s so special about Alon? If nothing else, it appears to understand how Washington works. Lobbying disclosure records show Alon paid $60,000 in the second quarter of 2013 to the Manatt, Phelps & Phillips firm. This was the same quarter when Alon filed for its exemption. The records show that Manatt lobbied in the House and in the Senate for Alon on the sole issue of “renewable fuel standards.” Alon didn’t report any appreciable lobbying expenses for the year preceding the quarter. The records also did not turn up similar lobbying efforts by other refineries applying for an exemption.
Republican Sen. David Vitter’s office acknowledged on Tuesday that he had joined other Louisiana politicians in sending a letter to President Obama supporting the Krotz Springs exemption. Sen. Vitter’s co-signers were Democratic Sen. Mary Landrieu, and Republican Reps. Charles Boustany and Rodney Alexander. Mr. Vitter’s spokesman said the office had not been approached by other refineries for support, and noted that the senator has been pushing to waive the 2014 ethanol mandate for every refinery.
Ms. Landrieu’s office would not answer inquiries about whether the senator had further involvement in the exemption. This is worth knowing, given that Ms. Landrieu’s tough re-election next year will help determine whether Democrats hold the Senate. The Obama administration has an interest in helping her out.
Industry analysts meanwhile note that Alon has a financial tie up with J. Aron, the commodities-trading arm of Goldman Sachs. That bank has more than a few of its ex-executives in key Obama administration positions, and it has retained ex-Obama officials like former White House counsel Gregory Craig to do work for it.
“There’s no question [Krotz Springs] is a disadvantaged refinery,” Tom Kloza, chief oil analyst at Gasbuddy.com, tells me. “But there are other merchant refineries that are disadvantaged. And within the industry there is a healthy sense of cynicism about this [exemption], given the Goldman Sachs-J.Aron relationship.”
In response to queries, an Alon spokesman said the company did not think it “appropriate to respond to any questions on the status of the application or the exemption process.” The EPA did not respond to inquiries about why Alon received the exemption. The EPA had previously told me that its “case by case” decisions on exemptions are based on “metrics” and Energy Department “recommendations.”
Maybe so. Perhaps Krotz Springs is facing a financial challenge that dwarfs that of other small refineries. Perhaps the EPA conducted a careful analysis, devoid of political pressure
The problem is we don’t know. The EPA, citing confidentiality restrictions, won’t explain the process. We are to trust that it did the right thing. Yet this is the same Obama administration that has spent years doling out billions in grants and loans to politically connected energy companies and junking federal rules to help favored players. Why trust the EPA now?
With federal mandates growing to crushing sizes, agencies like the EPA increasingly hold discretionary powers that can mean life or death for companies. The public deserves to know how and why that power is being exercised.