RINSTAR studies validity of RINs

By Anduin Kirkbride McElroy | May 09, 2008
Web exclusive posted May 14, 2008 at 2:48 p.m. CST

The Clean Fuels Clearinghouse, which operates the RINSTAR Renewable Fuels Registry, is conducting a study to find out what percentage of renewable identification numbers (RINs) transacted on the registry between April 8 and June 10 are valid. Clean Fuels Clearinghouse President Clayton McMartin announced the study during a webinar on RIN validation his company hosted May 13.

RINs are mechanisms the U.S. EPA created to ensure compliance with the first renewable fuel standard. A RIN is a unique, 38-digit serial number assigned by producers and importers to each gallon or batch of renewable fuel produced. The number remains attached to the fuel until it's blended into gasoline and diesel. An obligated party acquires RINs by blending renewable fuel or purchasing RINs to satisfy blending requirement.

Within the 38 numbers of a RIN are sections that identify the year produced, the company and facility that produced the fuel, the nature of the fuel and how many gallon-RINs the number represents. Because the numbers are so many, the system is considered complex; and because the RINs can change hands several times, there are opportunities for an error.

The purpose of the RINSTAR registry is to validate and certify that each RIN has the correct numbers and is not a duplicate of another. It does so by comparing it against the regulations and against all of the RINs that have been transacted within RINSTAR. From Sept. 1, 2007, when the renewable fuels standard (RFS) went into effect, and May 13, the registry had processed the sale of 130,000 RINs - which represent over 2 billion gallon-RINs.

"Our initial emphasis was to keep bad RINs out of the registry," McMartin said. "Once we got our feet under us, we started capturing the invalid RINs and the types of failures. On April 8, we started categorizing types of invalid RINs. Since then, we had 14,154 individual RIN purchases that were off-system RINs—not within the RINSTAR system. That's 150 million gallon-RINs purchased."

RINSTAR's study is an internal survey of all transactions made on the registry. Fifty-nine companies are members of the registry, which interact with over 400 other companies. Over the course of the nine-week study, there will be approximately 75,600 transactions made, given the current daily average of approximately 1,200 transactions. "The study will serve to provide statistical relevant insight into the RFS program," McMartin said.

In preliminary results from the RIN validation study, McMartin said the daily average of off-system RIN errors is between 4 percent and 5 percent. He admitted that the study is limited to RINSTAR member companies and their suppliers. "I think actual failure rates outside of RINSTAR could be double," he said, estimating as much as an 8 percent failure rate across the entire supply chain. At this rate, he said the financial impact from lost product value and administrative costs could total over $70 million at the 2008 RFS level of 9 billion gallons per year. Final results from the study will be compiled and available for purchase in mid-June.

According to McMartin, typical failure types are incorrect identification numbers, duplicate RINs, two companies with a title to the same RIN, too many or too few numbers within the actual RIN and failure to split the RIN with sub-batches. Some of these errors are simple typos or administrative errors, while others are a result of late transfers or bookkeeping errors.

RINSTAR recently introduced a certification program for RINs. It gives a silver star certification to RINs that have been validated against the regulations and against the RINSTAR universe. RINs receive a gold star certification if they have a complete history of title, meaning that all transactions took place among RINSTAR members. This represents the highest level of confidence.

Attest engagement deadline

McMartin noted that May activity on the registry has been "through the roof" because May 31 is the submission deadline for attest engagements by all parties that owned or generated RINs in 2007. According to the EPA, obligated parties and exporters of renewable fuel do not need to submit 2007 attest reports until May 31, 2009. However, obligated parties and exporters that also generated RINs in 2007 must submit an attest engagement report under 40 CFR §80.1164(b) (1), (2) and (3) by May 31, 2008. The requirements for attest engagements are in 40 CFR §80.1164. For more information visit the EPA's attest engagement page at www.epa.gov/otaq/regs/fuels/attestengage.htm.

Attest engagement reports must be signed off by an independent certified public accountant or a certified internal auditor. During the webinar, Dave Bennet, a certified public accountant for RIN Attest and Advisory Services, offered key points of consideration for RFS attestation. He said it is important to have a thorough understanding of the regulations as it applies to each specific company. "A lot of companies don't know if they're obligated parties," he said, adding that as an example obligated parties must be registered as such and use different reporting systems. Using a reliable system and processes and properly documentation is key, Bennet said. Finally, he suggested that obligated parties consider filing the attest engagement reports this year, even though they're not required to, as a mid-period review of activity.

A poll taken of the approximately 150 webinar participants showed that only 1 percent had completed the attestation, while 48 percent had not even started. George Lawrence, who does EPA enforcement, told the participants that the EPA would start reviewing the reports June 2. "The EPA reviews them and if there are issues, we contact the company," he said. "If everything has been done appropriately, no news is good news."

RIN World Summit

RINSTAR will host the RIN World Summit October 16-17 in Dallas, Texas. The conference will include representatives from every link in the supply chain, McMartin said.