Building New EPA Compliance Processes and Software at Aventine

organization
Capabilities
Timing

Situation

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. I also helped create an unexpected revenue stream along the way. 

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, was called a renewable identification number (RIN).
  • RINS to be transferred each time ownership of the ethanol fuel changed.
  • Oil companies (the end customer) to report this this number to prove that they are in compliance.

At the end of each year, all parties involved would undergo an audit which looked at production records, financial records, and RIN records. A significant penalty was levied for those out-of-compliance.

The company I worked for was the largest distributor of ethanol in the country– and would need to produce and manage millions of RINS each year. 

Action

  • Conducted extensive external analysis understand regulatory changes and it’s impact. This included attending Washington policy forums, studying the  1,000+ page regulation, and building a network with other companies facing a similar challenge.   
  • Served as internal consultant and SME for the new regulation, providing strategic direction executives and education & training to the rest of the company. 
  • Evaluated existing business and financial processes and technologies to identify necessary adjustments. 
  • Reviewed and evaluated RIN management software and determined that building a tool in-house was our best option.
  • Designed the ideal RIN management technology system and worked with IT and Finance department to develop RIN system and integrate it with Oracle, our financial management system.
  • Identified opportunity to sell RINs at a premium, achieving incremental profits

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.

Additional Details

1: Conducted extensive external analysis understand regulatory changes and its impact. This included attending Washington policy forums, studying the  1,000+ page regulation, and building a network with other companies facing a similar challenge.

DETAILS

  • Studied 1,000+ page government regulation (EPA RFS Standard)
  • Visited Washington DC to get first-hand information from policy makers and establish business relationships
  • Connected with others within the industry to understand how they were approaching the challenge

KEY CHALLENGES

  • Initially, rules and expectations provided by the government were ambiguous. Company needed to make decisions about technology investments based on regulations that could be interpreted in many ways.
  • No system or tool existed that would 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.
  • Gallons of ethanol are often mixed with other gallons when inventoried and when sold. This created complex combinations of RINS that needed to be transferred.

 

2: Served as internal consultant and SME for the new regulation. Provided strategic direction executives and education. Provided training to the rest of the company.

3: Evaluated existing business and financial processes and technologies to identify necessary adjustments.

  • Conducted interviews to make and evaluate as-is processes and technologies
  • Interviews were expansive, including parties from across the value chain:
    • Supplier interviews –Suppliers (Alliance ethanol plants) who sold more than 1M gallons per month to us for distribution
    • Internal interviews – Employees in various roles throughout the company (finance, sales, logistics, manufacturing)
    • Customer interviews – Customers (oil companies) to understand their new processes, technologies, and any new requirements
  • Documented requirements from government agencies based on early research and continued conversations.
  • With interview findings in hand, I crafted a set of business and technology requirements

CHALLENGES:

  • Crafting requirements for an regulation whose final requirements were unknown and in flux. I had to make a lot of smart assumptions using the best of the information that I had.
  • 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 were using different tools.

4: Reviewed and evaluated all technology options and determined that building custom software was our best option. 

  • Developed scoring criteria based on business and technical requirements
  • Evaluated multiple RIN management software options using a Pugh matrix
  • Conducted a NPV analysis on the top 3 options. Simulated different scenarios and production volumes.
  • 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.

NPV Analysis for 3 options

 

Scenario1: Annual production: 200MMGY
 

Scenario 2: Annual production: 400MMGY
 

Summary
 

 

5: Designed the custom RIN management technology system. Worked with technology teams to develop, test, and deploy it. Work with Finance department integrate it with Oracle (financial management system) and test new process.

 

  • Created description of actors that would interact with the system.
  • Conducted task analysis, outlining tasks and use cases that the tool need to support.
  • Developed more detailed business and technical requirements that could easily be understood by technical teams.
  • Created wireframes of the applications desired interface.
  • Developed rough wireflows, which demonstrated the happy path for how users would flow through the system
  • Worked with IT teams to develop, test, and deploy system.
  • Worked with other internal teams to integrate with existing systems.
    • Finance team: Integration with Oracle
    • Logistics team: Integration with existing tools
    • Other considerations: dashboards, automated reporting, and notifications for all actors across the value chain

6: 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 an 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.

organization

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SITUATION

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