Special Report: Refiner Valero's Secret Campaign against U.S. Biofuels Mandates

by Chris Prentice (Reuters) ... As part of an extensive behind-the-scenes lobbying campaign, Valero played a key role in bringing these people and groups together around a policy proposal that could save the refiner hundreds of millions of dollars each year in regulatory costs, according to two former Valero executives with knowledge of the firms' lobbying strategy.

Valero is a big loser under current regulations, which require refiners to either blend biofuels into their gasoline and diesel or buy government-issued credits from firms that do such mixing. After selling off much of its ethanol-blending operations in cash-raising deals in 2006 and 2013, Valero was forced to spend $750 million last year alone buying the credits, according to Valero's securities filings.

The policy overhaul favored by Valero would free refiners from the obligation to blend biofuels or buy credits, shifting that burden to firms further down the supply chain toward retailers.

Such a change would amount to a multi-billion-dollar transfer of wealth to Valero. It would also benefit Icahn's refining company, CVR Energy (CVI.N), and a handful of other refiners that lack blending operations.

But its more extensive and less visible lobbying through proxies served a purpose – to create a perception of broader support for a change that would primarily benefit Valero and a small number of other refiners.

When (Carl) Icahn wrote the EPA in August of 2016 to push for the policy change - arguing current rules create a "rigged market" - representatives from Valero helped him craft the letter, the executive said.

The White House has said there is no conflict of interest between Icahn's refining business and his biofuels policy advocacy because he was not paid as a presidential advisor.

By 2015, Valero CEO Joseph Gorder was convinced that lobbying the EPA to change regulations was a better strategy than operating blending facilities, one of the former Valero executives told Reuters.

In 2015, Valero's external lobbying firm - Bracewell LLP, a Houston-based law and government relations outfit - hired Ron Minsk, a former advisor to President Barack Obama on energy and the environment, as a consultant.

Bracewell never announced the high-profile hire, made months after Minsk left the White House, and Minsk never registered as a lobbyist, according to U.S. Congressional disclosures.

In February 2016, Minsk testified before Congress as an expert on biofuels regulation, citing his experience as an Obama advisor and arguing in favor of a shift in the point of obligation for blending.

Minsk did not disclose his relationship with Valero in his written testimony but acknowledged it when a lawmaker pressed him about industry ties.

The refiner helped one of its retailers, Bill Douglass, launch a grassroots organization of small gas station owners that would argue biofuels mandates hurt their mom-and-pop businesses.

Douglass said he contacted all of his fuel suppliers for help in starting the organization, but only Valero provided assistance, giving him a list of its retailers to recruit.

Bracewell helped connect the fledgling Small Retailers Coalition with a website developer, the firm said. The site is devoted largely to arguing for the same regulatory changes Valero supports.

The refiner, however, did end up joining the Washington-based Renewable Fuels Association (RFA), among the most prominent biofuels producer groups and a powerful lobbying force.

The RFA had previously criticized proposals to shift the biofuels blending point of obligation, arguing it would discourage production of blends with higher ethanol content and complicate enforcement.

The RFA, however, ultimately did agree to drop its opposition to the policy change sought by Valero – a clear victory for the refiner.

Catanzaro (Trump's top aide on domestic energy policy, Michael Catanzaro, a former energy industry lobbyist) is advising (the Trump Administration) on the same issues that were recently the focus of his lobbying for clients such as Koch Industries - a diversified conglomerate with major energy assets - and groups including the American Fuel and Petrochemical Manufacturers, which petitioned the EPA for the biofuels change last year. READ MORE