Building New EPA Compliance Software

organization
Capabilities
Timing

2008 - 2010

When new EPA regulations demanded heavy reporting requirements with stiff financial penalties, I led an effort to revamp an energy company’s processes and build a new software solution. Along the way, I helped create an unexpected revenue stream.

Situation


In 2008, an EPA mandate required every gallon of gas sold in the US to include a minimum blend of 10% ethanol. To regulate this behavior, new laws were created that required every gallon of ethanol to have a unique 36-digit number called a renewable identification number (RIN). RINs had to be transferred each time ownership of the ethanol fuel changed, and oil companies (the end customer) had to report this number to prove compliance.

At the end of each year, an audit looked at production records, financial records, and RIN records for all parties involved. A significant penalty was levied for those out of compliance. Aventine was the largest distributor of ethanol in the country and needed to produce and manage millions of RINs each year.

Actions

I conducted analysis to understand regulatory changes and its impact on Aventine’s business.

  1. I analyzed regulatory changes, which involved attending Washington policy forums, studying a 1,000+ page regulation, and building a network with other companies facing the same challenges.
  2. I evaluated existing business and financial processes and technologies, identifying necessary adjustments. To do so, I conducted interviews to make and evaluate as-is processes and technologies. These interviews were expansive, including parties from across the value chain:
    • Supplier interviews – with suppliers (Alliance ethanol plants) who sold more than 1M gallons per month to us for distribution.
    • Internal interviews – with employees in various roles throughout the company (finance, sales, logistics, manufacturing).
    • Customer interviews – with customers (oil companies) to understand their new processes, technologies, and any new requirements.
  3. I documented requirements from government agencies based on early research and continued conversations.
  4. With the interview findings in hand, I crafted a set of business and technology requirements.
  • Initially, the rules and expectations provided by the government were ambiguous. Companies had to make decisions about technology investments based on regulations that could be interpreted in many ways.
  • No system or tool existed that could dynamically create, track, and release RINs. Initially, RIN management was done manually, requiring significant labor and oversight.
  • The chain of transfer for ethanol gallons from origin to delivery was often complex and long, involving many parties. This made tracking down RIN errors challenging.
  • When gallons of ethanol are inventoried and sold, they are often mixed with other gallons. This creates complex combinations of RINs that need to be transferred.
  • Crafting requirements for a regulation whose final requirements were unknown and in flux required making a lot of smart assumptions using the best information available.
  • Because the EPA standard was new, other parties in the supply chain had not figured out their own processes and were not always able to provide clear answers.
  • Each supplier and customer had a different way of managing the change and used different tools.

I reviewed and evaluated RIN management software options.

I reviewed and evaluated all technology options and determined that building custom software was our best option.

  1. I developed scoring criteria based on business and technical requirements
  2. I evaluated multiple RIN management software options using a Pugh matrix
  3. I conducted a NPV analysis on the top 3 options. Simulated different scenarios and production volumes.
  4. I provided analysis and recommendations to C-level executives. Ultimately, building an in-house software from the ground up and integrating with existing software was our best option.

Example of NPV Analysis Note: fictitious data used in examples to preserve confidentiality

 

 Scenario1: Annual production: 200MMGY

 http://www.marketwith.me/mstiffanybritt/wp-content/uploads/sites/5/2019/01/rin5.png http://www.marketwith.me/mstiffanybritt/wp-content/uploads/sites/5/2019/01/rin4.png 

 

Scenario 2: Annual production: 400MMGY 

http://www.marketwith.me/mstiffanybritt/wp-content/uploads/sites/5/2019/01/rin3.png http://www.marketwith.me/mstiffanybritt/wp-content/uploads/sites/5/2019/01/rin2.png 

 

Summary

 http://www.marketwith.me/mstiffanybritt/wp-content/uploads/sites/5/2019/01/Rin1.png

I designed the ideal RIN management technology system . Worked with business and technology teams to develop and deploy it.

  1. I designed the custom RIN management system. To do this, I:
    1. Created description of actors that would interact with the system.
    2. Conducted task analysis, outlining tasks and use cases that the tool need to support.
    3. Created wireframes of the applications desired interface.
    4. Developed rough wireflows, which demonstrated the happy path for how users would flow through the system
  2. I worked with IT teams to develop, test, and deploy system. This involved:
    1. Developing functional, technical, and data requirements
    2. Developing project plan and resource plan for implementation
    3. Working alongside development teams as the system was being built and tested.
  3. I worked with other internal teams to integrate with existing systems.
    1. Finance team: Integration with Oracle
    2. Logistics team: Integration with existing tools
  4. I provided training and education to team members before, during, and after the new system was deployed.

I identified opportunity to sell RINs at a premium, achieving incremental profits

  • Through my extensive study of the new government policy and conversations with policymakers, I discovered that excess RINs could be traded on the open market independent of ethanol for a profit.
  • Armed with this information, I worked with sales and marketing teams to determine to how to sell RINS and create revenue stream. Specifically, I:
    • I worked teams craft a model for evaluating the profitability of RIN sales.
    • Developed a process to manage independent RIN sales.
    • Worked with IT to make system modifications to support the new process.

Results


  • The company stayed in compliance and avoided heavy penalties that many other companies incurred. Note: this company had the most robust distribution network in comparison to others, with many more opportunities for error.
  • One of the first companies to openly trade “unattached” RINS on the open market for profit. This opened up a new revenue line, bringing in additional cash at a time when it was needed the most.

organization

Capabilities

Timing

2008 - 2010

SITUATION

ACTION

RESULTS

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