TM&C/KPMG RFG/ANTI-DUMPING WORKSHOP QUESTIONS AND COMMENTS FOR PANEL DISCUSSION Session I Regulatory Update 1. Has EPA given any consideration to allowing a grace period to refiners whose baselines are not approved until late in 1995 in situations where the approved baseline is more stringent than the baseline submitted by the company? For example, could 1995 compliance be based on the submitted baseline? 2. We understand that an NPRM has been prepared which proposes changes in the JP-4 adjustment to 1990 baselines and a special provision for baselines with very low sulfur contents. Please discuss the content and status of this NPRM. Once the NPRM is signed, what happens next and when might we expect a Final Rule? 3. Is there any mechanism for a refiner to modify its 1990 baseline after it has already been approved? If so, how should petitions for baseline adjustments in the future be processed? 4. We understand that some consideration has been given to revising the summer/winter definition for baseline or compliance purposes. Please comment. 5. Our 1990 gasoline baseline has not yet been approved, even though questions were submitted to us in a letter to which we responded several months ago. We have been told that approval is pending a technical amendment to the JP-4 to gasoline ratio required to qualify for a JP-4 adjustment. Can we assume that resolution of the petition for a JP-4 adjustment is the only matter to be resolved before our baseline is approved? 6. How will the EPA assess fines or penalties for non-compliance with anti-dumping or RFG regulations? Will consideration be given to factors beyond the company's control? Has anyone experienced situations that might cause compliance challenges? 7. Is there any consideration by the EPA to no longer apply the blendstock tracking and accounting requirement to importers? 8. What is the mechanism that the EPA uses for answering the Q&As? What groups at the agency review the answers? Is there a centralized approval authority that reviews all answers for consistency? Has the EPA considered having an industry advisory board to comment on the agency's answers, either to concur or to discuss limitations of the agency's answer? What recourse does the industry or an individual company have if there is disagreement with the agency over an interpretation of the regulations? 9. Comment The implementation of this program has shown the complexity of these regulations. The EPA has been asked (and has answered) a wide range of questions that deal with the specifics of producing gasoline. Much of the confusion and many of the clarifications deal with conventional gasoline. We believe all interests would be best served if the regulations (or the implementation of the regulations), especially as they deal with conventional gasoline, were simplified. The downstream segment of the petroleum industry is largely staffed by principled individuals interested in complying with the spirit of the regulations in a cost-effective manner. We believe the regulations and the subsequent interpretation of the regulations through the Q&A process have become overly complex in a misguided effort to eliminate highly unlikely scenarios that might include some immaterial increase in emissions. Those who choose to cheat will always find a way to do so. An attempt to close every conceivable loophole will limit the flexibility of well-meaning companies to respond efficiently and maintain the viability of our industry. It is vital to all of us that these regulations not be allowed to limit the creativity of our industry and the efficiency of the market place. Session II Impact of Gasoline Regulations on Refinery Operations 1. General 1.1 To what extent have your gasoline blending operations been modified to comply with the new gasoline regulations? 1.2 Does your company plan to aggregate multi-refinery baselines? If so, what were the major factors that led to your decision? 1.3 Is your company considering early use of the complex model? What are the major considerations? 1.4 The Q&As are guidance information that do not have the same force of law as the actual regulations. If the Q&A states a change in the regulations that has not yet been promulgated, how have the companies dealt with this? For example, some of the information and specific language originally required on PTDs is no longer needed per the EPA's Q&As. Have the companies modified the PTDs to reflect the allowed changes? 1.5 How do you handle a purchased blendstock when it has been included in the supplier's anti-dumping calculations? Specifically, how do you account for the components you add to make a finished product in calculating your exhaust benzene and your volume (assuming the supplier has included their barrels in its own calculations and you cannot include the purchased barrels in your anti-dumping calculations)? 1.6 We produced several batches of RFG in November and December 1994 for shipment to counties in western Pennsylvania and New York that were then designated RFG opt-in areas. Effective 1/1/95, these counties opted out of the RFG program. Do we have any reporting, attestation or other compliance requirements for this material? 2. Batch Designations and PTDs 2.1 What problems are refiners having in filling out the EPA provided batch reports? Can refiners supply added information with the batch reports to explain any exceptional circumstances? How should the additional information be provided; i.e., as an attachment to each batch report? as a general exceptions report? How should the information be supplied if the batch reports are filed electronically? 2.2 Conventional gasoline is blended into two 80,000 barrel tanks. It is sampled and tested in the tank in which it was blended. It is then pumped to barges and to another 25,000 barrel tank for truck rack sales. Product transfer documentation is available for each transfer out of the blending tanks. The sum of these transfers and barge sales is the batch size. Is this OK or does the 25,000 barrel sales tank need to be tested? 2.3 How can industry/EPA produce a better understanding of the Product Transfer Document "Concept" (its ultimate goal and how best to comply with the goal/concept)? 2.4 What are the challenges in record keeping for i) a refiner; ii) an importer; iii) an oxygenate blender; iv) a terminal? What are the reporting challenges? 3. Oxygenate Blending 3.1 How are you handling batch reports for oxygenates blended at the refinery? Please discuss frequency of reports and method of determining emissions contribution. 3.2 If a refiner blends oxygenate at the refinery into conventional gasoline either into trucks or into tankage, can the refiner treat the oxygenate addition the same as any other blendstock addition, i.e.: a) Can the refiner opt to sample and test the oxygenate either on each batch of oxygenate received or on a monthly oxygenate composite? Would this eliminate the need for the refiner to retest the finished gasoline after oxygenate addition? b) If the oxygenate is ethanol, can the refiner assume the properties and only test for ethanol purity on either a batch-by-batch basis or on a monthly composite? c) Can the refiner add the oxygenate to purchased gasoline and include the impact of the oxygenate in its compliance calculations? 4. RBOB 4.1 RBOB volume for compliance calculations include RBOB volume plus the volume of oxygenate to be added. Does this allow for inclusion of non-oxygenate components such as denaturant present in the oxygenate blendstock that will ultimately be blended? If not, where is this non-oxygenate component accounted for? 4.2 A refinery that produces RBOB is required to prepare hand blends containing the specified type and amount of oxygenate. For generic RBOBs, this is 2.0 wt. % oxygen per 80.69(a)(8)(iii). How exact must the hand blend be at hitting 2.0 wt. %? 5. Sampling and Testing 5.1 How many refiners are sampling by the EPA preferred method of a "running" sample? How many refiners have a written agreement with EPA for alternate sampling methods? 5.2 We believe that several of the test methods prescribed by the EPA are not the best test methods available. Please ask the panel to comment specifically on the use of the FIA and GC/MS methods for olefins and aromatics and EPA to comment on the possibility of changes in the required test methods prior to 1997. 5.3 What method is your company using to determine the aromatics content of gasoline production? For those using the FIA, please describe the program you are using to correlate these results with the EPA GC/MS procedure. Typical relationship of results? 5.4 How is the independent sampling and testing requirement working? What are the problems and/or efficiencies? 5.5 What has your experience been between independent laboratory test results and your own laboratory test results? 5.6 In baseline preparation, compositing of samples had to be by grade. Is there a requirement to composite conventional gasoline samples by grade for compliance determination? 6. Controls and Administration 6.1 What measures are being taken at your refineries to monitor and control compliance with RFG and conventional gasoline specifications? Please include comments about the use of in-house or purchased software packages, interaction between compliance monitoring programs and refinery LP planning programs and how compliance with the new gasoline specifications might affect turnaround planning. 7. In-Line Blenders 7.1 Has anyone petitioned for certification of their in-line blender? Has anyone received certification of their in-line blender? If so, please describe the major features of their program including the provisions for sampling and testing and overall QA/QC. 8. Other Issues 8.1 In a refiner's complex model compliance with the anti-dumping baseline, will the EPA give any consideration or relief if the refiner finds itself producing a higher percentage of "winter" gasoline (due to market demand) and thus has higher overall annual baseline values for exhaust benzene, NOx, etc. 8.2 What is an estimate of the amount ($ value) of i) Benzene credits and ii) oxygen credits? How will they be traded? Session III Impact of Gasoline Regulations on Downstream Operations 1. Documentation 1.1 Are product transfer documents handled any differently for transfers between affiliated companies compared to third parties? For example, are PTDs necessary when transfers are made to proprietary pipelines? 1.2 What documentation does your company require of customers purchasing potential gasoline blendstocks for uses other than gasoline blending? With what frequency is this required? 2. Oxygenate Blending 2.1 Do you plan to incorporate oxygenate blended downstream of the refinery into your refinery compliance calculations? What is your understanding on the limitations for doing this? 2.2 How do you calculate the impact of ethanol blended into finished gasoline downstream of the refinery using the complex model? 2.3 Please describe the QA program your company has implemented for downstream oxygenate blending. 2.4 What constitutes sufficient evidence ("physical inspection") that the refiner or importer added oxygenate to its gasoline downstream of the affected facility? 2.5 Can a terminal operator that adds only oxygenate to conventional gasoline opt to register as a refiner, comply with the anti-dumping regulations as a refiner and, therefore, treat oxygenate additions the same as any other refiner? 2.6 Assume a refiner wholly owns both a refinery and a terminal that blends oxygenate into CG. Also, assume the terminal is registered as a refinery. Can the refiner aggregate the terminal and refinery for compliance calculations? 2.7 How can a refiner who produces a subgrade gasoline (CBOB) for ethanol blending in its own terminal obtain credit for the oxygenate in its refinery gasoline pool when the subgrade is shipped via common carrier pipeline? 2.8 Can a refinery obtain credit for the oxygenate in the refinery pool if the CBOB is shipped as a fungible batch, if the refiner can demonstrate through sampling and testing that the gasoline delivered to the terminal is essentially the same as the gasoline shipped from the refinery? 2.9 Does the substantially similar maximum limitation of 2.7 wt. % oxygen apply at the retail level for CG or winter RFG; i.e., does a retail location have to concern itself with the 2.7 wt. % limit in the winter if it switches from ether-RFG to 10 LV% ethanol- RFG? Also, is there any limitation to applying the 0.2 wt. % oxygen enforcement tolerance over and above the 2.9 wt. % oxygen limit? 3. Importer/Export Issues 3.1 What procedures are being followed for testing imported RFG? Please comment specifically on what can be done to minimize demurrage while the quality of the imported RFG is being verified. 3.2 Explain the compliance baseline for an importer and refiner that did not import gasoline in 1990. 3.3 The May 9 Q&A included a question related to documentation for export gasoline. The response suggested a PTD is necessary for exports. We assume this refers to the bill of lading or existing documentation. The response also states the refiner must include the export gasoline in its compliance calculations if the gasoline is re-imported to the U. S. How would a refiner know about the re-importation? 3.4 What record keeping and testing does an import refinery need to conduct over and above normal refinery compliance if the refinery imports GTAB into refinery blend tanks? 4. Pipeline Operations 4.1 What changes have pipeline operators made in how they handle pipeline interface and off-specification products as a result of the new RFG/anti-dumping regulations? 4.2 What plans do refiners have for shipping a fungible RBOB? It is our understanding that almost all RBOB being shipped is done so on a segregated and proprietary basis. 4.3 Would the panel elaborate on what degree of documentation is necessary to demonstrate that the proper EPA protocol was followed during a tank service change. Please mention any specifics that would relate to pipeline terminals that have a high frequency of service changes. 4.4 What facilities do common carrier pipelines have for shipment and/or delivery of fungible MTBE? What is the approximate activity (barrels per month) of fungible MTBE in these pipelines? 5. Other Issues 5.1 What provisions are there for re-blending RFG downstream of the refinery for use in a different volatility region? Can this butane be included in refinery compliance calculations? 5.2 What steps are being taken at truck racks to assure that conventional gasoline is not lifted for delivery to an RFG area? 5.3 Regulatory test methods prescribed by EPA are not applicable to certain blendstocks that may be used at blender-refiners or terminals (i.e., butane, ethanol, toluene, etc.). Will other test methods suffice for these situations? 5.4 Aggregation of terminal blending operations with refineries are reasonably straight forward with the simple model. However, when using the complex model, the EPA has established specific language in the preamble and at 80.101(g)(3) that would seem to limit the aggregation opportunity between these facilities even if operated and owned by the same refiner. How can this be reconciled? 5.5 EPA field analyses are critical in that a field result outside the enforcement tolerance will result in an immediate company response of a "stop delivery" or "lock down" order and corrective actions taken. Dynamics of the system and associated penalties leave no alternative. Thus, are the portable instruments used by EPA field inspectors involved in any quality assurance and correlation testing programs? What is their accuracy? Session IV RFG Compliance Surveys 1. What factors did your company consider in deciding to comply with RFG standards on an average or per-gallon basis? 2. Will results of the compliance surveys in individual areas be published? If so, when will they be published? Where? 3. Is EPA conducting its own RFG compliance survey? If so, how will the results of the EPA survey be used? What is the scope of the EPA survey versus the industry survey? 4. How are the RFG surveys going? What are the trends or problems emerging? Session V Presumptive Liability and Defense 1. Describe the downstream defensive testing programs used by the companies. What test methods are being used? How are those methods correlated with the EPA's required test methods? Session VI Agreed-Upon Procedures/Attestations 1. General 1.1 There are elements of the attestation procedures identified in the regulation that do not fit within normal refinery and/or terminaling operations (i.e., on-line blending of conventional gasoline). Are there approved variations to the attestation procedures? If the answer is yes, will they be published? 1.2 If some procedures are not required in an attestation due to the specific operations of the facility, how should the omission of certain procedures be handled in the report? Does this require specific EPA approval? 1.3 May a company submit an attest engagement report covering the first quarter of 1995 so that the EPA may comment on its completeness and adequacy under the requirements for the annual attestation? 1.4 What are the correct submission dates for conventional and reformulated gasoline attestations? 1.5 When will the more detailed attest procedures be available from the EPA? 1.6 Will the EPA require any documentation from the attestor in addition to the one page agreed-upon procedures attestation report regarding the tests conducted, samples selected and methods used to perform the attestation? 1.7 The attestation report states, "These agreed-upon procedures are substantially less in scope than an examination. . . Had we performed additional procedures . . . other matters might have come to our attention that would have been reported to you." If an internal control auditing has performed other procedures as a part of its normal auditing practices and knows of other irregularities, is it required to indicate those irregularities on the attest engagement even though they may have been discovered through procedures beyond those required in the agreed attestation engagement? Does AT-100.64 of the Statements on Standards for Attestation Engagements regarding reservations about the engagement require us to reveal any problems that we uncover during our internal control review? 1.8 Has the EPA set any materiality thresholds as required under AT100.31 and AT100.50 of the Statements on Standards for Attestation Engagement? What materiality thresholds should we use as a percentage of the total volume at the refineries and terminals or the number of noncompliance batches or tests? Can the sample sizes be increased to determine if an exception was an isolated incident that upon further examination would not be material enough for qualifying the attestation? 1.9 80.125(c) and (d) allows company internal auditors to assist external auditors in performing the attest engagement. Internal auditors may perform the attestation without external auditors if they are certified internal auditors. May an internal auditor perform the attest engagement under the direction of a certified internal auditor without the engagement of an external auditor? Would it make a difference if the internal auditor in this case was a CPA? 2. Inventory Reconciliation and Tender Lists 2.1 80.128(b) required the attestation auditor to obtain a gasoline reconciliation analysis from the refinery for RFG, RBOB, conventional gasoline and non-finished gasoline petroleum products. What is the gasoline reconciliation analysis? What type of information should the analysis contain? How does it differ from the refiner's perpetual inventory records? Can the auditor merely review the perpetual inventory records to ensure all batches are properly accounted for? 2.2 What period should the list of tenders required in 80.128(c) cover? 2.3 How should 1994 production and sales of gasoline (non-RFG) be handled in the inventory reconciliation analysis and list of tenders for the 1995 covered year attestation? 2.4 Are inventory reconciliations required for conventional gasoline volumes produced by blending of buffers in pipelines or blending of butane at pipeline terminals? 2.5 Where refiners are in-line blending with no intermediate tankage (CG or RFG), what would the inventory reconciliation analysis include? 2.6 In the case where the shipped volume reported to EPA is not the same volume that appears on the product transfer document, can the volume shipped be verified in some other way? If the shipped volume reported to EPA is tied back to the calculations used to determine this volume and are verified to be correct, would this eliminate the requirement to tie back to an inventory reconciliation? 2.7 Where a refinery has an associated truck rack, is the "tender" for attestation purposes [80.128(d) and (g)] the transfer from the refinery to the truck rack or from the truck rack to the truck? Is the refinery required to issue a PTD to the truck rack for transfers of RFG or CG? If the answer is no, then must the attestor perform the procedure required in 80.128(g)(1) where s/he is required to use the PTD? 3. RFG/RBOB/CG 3.1 Can 80.126(f), related to computerized in-line blending, be applied to conventional gasoline? Would this eliminate the requirement to tie back to an inventory reconciliation? 3.2 80.129(b) procedure: Obtain a material balance analysis summarizing receipts of RBOB (pipeline tickets) and oxygenate to the blender (bills of lading), and the deliveries of RFG from the blender. What type of information should the material balance analysis contain? 3.3 80.129(b)(3): Agree the analysis, where applicable, to the EPA reports. What parts of the material balance analysis report are applicable? 4. Downstream Oxygenate 4.1 What procedures must the attestor perform when the refiner or importer adds oxygenate at a facility downstream of the refinery or import facility? 4.2 Are sampling and testing and the attestation procedures required under 80.128(g)(3)(v) if the refiner owns or operates the terminal where the oxygenate is blended, even if that occurred via splash blending? Is a contract required? Is a physical inspection required? 5. Blendstocks 5.1 Under 80.128(i), how is this test different from the test described under 80.128(h)? 5.2 If the review of blendstocks described in 80.128(h) is not required, is an inventory reconciliation of blendstocks and a listing of blendstocks required as described in 80.128(b) and (c)? 5.3 Are blendstock tracking requirements applicable in the covered year in which they are triggered or does this requirement become effective in the subsequent year? 5.4 What are "other non-finished petroleum products" referred to under the tracking requirements in 80.128(h)? Similarly, what are the "non-finished-gasoline" blendstocks referenced in 80.128(b) and (h)(1)(iii)? Session VII Future of RFG Questions will be taken from the floor only. Session VIII Wrap-Up/General Q&A 1. Is your company planning on filing batch reports electronically? When will the EPA be able to receive EDI? 2. How many people in your company are involved in compliance activities for these new regulations? 3. Section 80.104(a)(2)(v) requires refiners and importers of conventional gasoline to maintain records reflecting the designation of gasoline as either summer or winter. What is required to meet this requirement for conventional gasoline?