Standoff at Pump Over New Fuel: Ethanol Lobby vs. Station Owners

Published in WSJ

The U.S. ethanol industry's latest push to expand is off to a slow start, with many gas-station owners wary about a new gasoline blend containing 15% ethanol.

Since the blend known as E15 first hit the market for regular cars in July, eight fuel stations in Kansas and Iowa have started to sell it, according to the Renewable Fuels Association, an ethanol trade group. The group says regulators in three other states—Nebraska, South Dakota, and Illinois—have cleared it for sale and expects stations there to offer the fuel soon.

But concerns over storing the fuel and burning it in older vehicles have stalled its adoption. Most stations are in "sit back and wait" mode, in the words of R.J. Rymas, director of fuels for Rockford, Ill.-based gas-station owner Road Ranger LLC.

"Right now I don't think it opens up that large of a market share," said Mr. Rymas, whose company has 80 gas-station locations in six states. "I have not seen anybody in any market that I operate in that is planning on doing it."

Wide adoption of E15 would swell the market for fuel ethanol, a necessary expansion if the U.S. is to meet federal mandates for blending increasing amounts of ethanol in gasoline. Gasoline sold in the U.S. today typically contains about 10% ethanol made from corn, and the ethanol industry has waged a yearslong battle to get federal regulators to certify E15.

Mr. Rymas said most of his underground storage tanks aren't certified to hold fuel with more than 10% ethanol, meaning it would take an investment of tens of thousands of dollars to replace them with tanks that can store E15.

Bill Walljasper, chief financial officer of Casey's General Stores Inc. which has 1,700 locations, had a different concern: The Environmental Protection Agency has only approved E15 for vehicles with a model year of 2001 and later. "All of a sudden now you are putting a product in the ground that may or may not work in some of your consumers' vehicles," he said. Casey's has no immediate plans to offer the fuel, he said.

Auto makers have said they don't recommend using E15 even in post-2001 models, although General Motors Co. and Ford Motor Co. say E15 is safe for their 2013 fleets. According to the EPA, E15 may be more corrosive than other fuels and emits a hotter exhaust, which could cause leaks or increased wear in vehicles that weren't designed to handle it.

The push-and-pull over E15 is part of a wider debate over using corn-based ethanol as motor fuel, a discussion that attracted renewed focus this summer when a drought drove up corn prices to record levels, pinching livestock producers that use corn in feed. Several states in August asked the EPA to waive the federal mandate that calls for using increasing amounts of ethanol in gasoline.

The ethanol industry is counting on E15 to expand its market share and is aggressively marketing the fuel. It says E15 will be attractive to gasoline retailers because it is expected to be cheaper for consumers than 10% ethanol blends if oil prices are high. Ethanol producers and corn growers are sponsoring an "American Ethanol" Nascar race car, and the racing circuit has made E15 the standard fuel for all its stock cars.

Scott Zaremba, whose Zarco 66 stations in Kansas were the first in the country to sell E15, said the biggest benefit of offering more than one gasoline blend is that his prices are less tied to the "take it or leave it" prices of oil refiners. "We have a little bit more control over our destiny," he said.

The industry is holding information sessions for gas-station owners and pushing to make it easier for them to offer the fuel. The latest hang-up: The EPA said in August it would require some stations that want to sell E15 to make customers purchasing a typical, 10% ethanol blend buy at least four gallons of that fuel at the pump.

The EPA said the policy applied only to pumps that are dispensing E15 and 10% ethanol blends from the same hose—a situation that could lead consumers to unknowingly buy E15, since some fuel remains in the hose after each use. The minimum purchase of E10, to dilute any lingering E15 from a previous customer at that pump, protects older cars and small engines such as those in lawn mowers and motorcycles.

Robert White, director of market development for the Renewable Fuels Association, said one Midwestern retailer who was going to offer E15 at 12 gas stations recently changed his mind. The owner "point-blank said, 'We aren't going to offer it until the minimum volume transaction is reduced or ultimately eliminated,' " Mr. White said. He said the industry is testing gas pumps and hopes to prove the minimum can be lowered.

Rep. Jim Sensenbrenner, a Wisconsin Republican and critic of E15, said the four-gallon issue shows that EPA's policy of approving E15 only for some engines is "completely unworkable."

"Just having a sticker on the side of the gas pump ain't going to cut it," he said.

But Mr. Zaremba, the Kansas gas-station owner, disagreed, saying the share of his customers who buy less than four gallons of any fuel is "so minute that it isn't even worth discussing."