Global Fuel Recovery
Come January, International Maritime Organization regulations require oceangoing vessels to use bunker fuel with 86 percent less sulfur, moving from 3.5 to 0.5 percent. The new IMO 2020 requirement is expected to increase diesel demand by 1.2 million barrels per day, says Michael Smith, co-founder of Global Fuel Recovery. It will also push used motor oil prices down, forcing many reclaimers to raise their prices. Smith has been in the reclamation business for more than 20 years and, fortunately for generators and buyers, his three-year-old startup is ready and well-positioned for this market shift. With strategic partner Modern Fuels, GFR is managing feedstock for a 17 MMgy used oil refinery in Houston to re-refine used motor and high-sulfur bunker oils into IMO 2020 fuel by mid-next year.

Through its cloud-based, outward-facing software developed by business partner and co-founder Barry Lile, GFR is an asset-light company giving small- and medium-sized collection companies the ability to link together and obtain national contracts for used motor oil, yellow grease, off-spec biodiesel, crude glycerin and more. “Most software that companies use faces them, but ours faces the customer and their needs,” Smith says. “It covers everything—billing, transportation, regulatory compliance, how much oil is taken out and where, and how much is paid. It tracks the transaction the whole way.”

GFR is bringing technology to bear on an old problem. “The way many collection companies are doing things is super antiquated,” Smith says. “Our customers go into our software, set up their account, and we match them with the right aggregator. Everything’s right there. It’s all automated.” GFR’s software eliminates selling, general and administrative (SG&A) costs.

“On the biodiesel side,” Smith says, “we can schedule trucks based on contracts months out and reshuffle as markets change, giving plants the ability to see what the supply line will look like.” GFR’s software will be fully accessible on Android and Apple smartphones in December. “It’s very customer-friendly and easy to get service,” Smith says, whether for the aggregator or buyer. 

GFR is more than a reclamation broker with unique software. “We’re a facilitator,” Smith says. “If a company has yellow grease and wants to sell to biodiesel producers and then buy biodiesel back from them to run in their trucks and close the loop, we can do that. We bring these types of creative solutions to the market. We’re able to cut out a lot of fat and bring really high values to people generating yellow grease, while giving small- and medium-sized collection companies software and new customers.”

Feedstock quality analysis is one of GFR’s new endeavors. “Soon we can identify, whether for a biodiesel or re-refining plant, what feedstocks work best for them based on price, recovered material and recovery rate,” Smith says. “The price they’re currently paying for material can be way off, depending on the amount of recovery they get out of it. We can help make these important decisions.”

Modes of commerce have shifted and GFR, which Smith expects to grow 10-fold in five years, is a catalyst for efficiency and change. “The same old sales channels aren’t efficient anymore,” he says. “Our software drives efficiencies and looks for excess capacities. We bring liquidity to the fuel markets. We help our customers make a profit—and a difference. If they can’t make a profit, then they can’t make a difference.” 

Special Report
In August, three industry veterans—Joe Jobe, former CEO of the National Biodiesel Board and founder of Rock House Advisors; Manning Feraci, former NBB vice president of federal affairs and founder of Playmaker Strategies; and Larry Schafer, former NBB consultant and principal at Playmaker Strategies—released their comprehensive policy and market report, “Biodiesel and Renewable Diesel Policy, Regulatory and Market Perspectives.” The report is the result of the trio’s 60 years of combined experience in the field, much of which was earned as a team helping steer and develop legislation and regulations that, more than a decade later, remain the industry’s cornerstone policies.

“The report is comprehensive by design,” Feraci says. “It serves as a detailed, one-stop shop to gain a good grasp and perspective on policies that make or break projects.” Jobe points out growing corporate interest in sustainability. “Today, almost every Fortune 500 company has a chief sustainability officer,” he says. High concentrations of carbon emissions come from transportation, and political will for electrification is growing. But electrifying the heavy-duty sector will not come quickly. “Biomass-based diesel is the anchor solution,” Jobe says.

Demand for information in this report comes from Wall Street investors, hedge fund interest and private equity funds, but also from those already invested in the space—biodiesel firms that are growing or have new board members lacking industry knowledge. “If you’re in this industry, then it’s important to understand all the interactions of the different products and policies,” Jobe says.

Biofuels investments span from Wall Street to Main Street and include companies looking to buy assets or create new ones. “Companies making investment decisions need to understand the policy, analyze risk and evaluate the market today and five to 10 years out,” Schafer says. “This is an important step in determining whether there is good investment opportunity. Our report helps people get up to speed to determine whether they should enter this space.”

In biodiesel’s early days, plants made biodiesel and glycerin. Today, “products” such as D4 RINs, LCFS credits, Illinois sales tax credits and the federal tax credit, to name a few, must be managed and marketed independently. “The interplay between all those things matters a lot,” Jobe says. “There’s tremendous complexity that is difficult to grasp, so when you try to put together how biodiesel, renewable diesel and coprocessed renewable diesel compete with one another inside the policy framework, it is quite the spiderweb.”

The report was created as a candid, informational piece—not an instrument of advocacy. “We approached it from the perspective of, if we were an investment group, what would we like to know?” Jobe says. “This includes key strengths, weaknesses, red flags and pitfalls to be aware of for those who intend to deploy their or their strategic partners’ resources.” 

The document provides in-depth analysis on federal policies, including RFS legislation and implementation, RINs, court decisions and their impacts, the reset provision, the blenders tax credit and other incentives, trade, and more; state policies and incentives; and markets dynamics, the competitive environment, and economics. For more information on obtaining the report, visit rockhouse.us/doc.

Avalara
Federal excise taxes on fuels may not change very often, but in more than 12,000 state, county, city and local special jurisdictions, excise taxes are in constant flux. For a company to operate as a fuel wholesaler or distributor across multiple jurisdictions without a tax partner such as Avalara by its side could cost precious time, resources and money. How does Avalara stay on top of all the changes in excise taxes across so many jurisdictions? “We have an army of people,” says John Beaty, general manager for Avalara’s excise business unit. This army of tax specialists is deployed throughout North America. “We added Mexico this year,” Beaty says.

Beaty has worked in oil and gas for the better part of 25 years and saw the need for good tax solutions. With biofuels such as ethanol and biodiesel playing a much bigger role in the fuels market over the past decade, this need has become even greater. “The rules to determine which taxes apply and the complexity in calculating them accurately deviate a great deal,” Beaty says. “The rules can be different based on the state, and the excise taxes can apply either above, at or below the rack. So, when you add in blending, there could be a third party involved, which adds to the complexity.

Standard sales and use taxes are rather straightforward. The rate is based on physical location, typically at the point of sale. This is not hard to calculate, and most don’t need help with this. But excise tax is based on the volumetric ratio of the product, and the blend of biofuel could be a very different calculation, as sometimes biofuel is taxed at a different rate than petroleum fuel. On top of that, they may have an environmental fee, which we lump in as a tax, but there’s still a loading fee that must be calculated in as well.”

To grasp just how complex all this can be, Beaty says for every rule, there’s an exception, and for every exception, there’s another rule. “Having a consistent, accurate solution to calculate and maintain the content of these rules and rates takes the burden off organizations so they don’t have to constantly monitor websites and rule changes,” he says.

Avalara’s traditional core products are Avalara AvaTax Excise, which is the company’s “calculator engine” that determines excise tax; and Avalara Returns Excise, which generates signature-ready returns. Both are designed for energy suppliers, distributors, retailers and traders. But a new product Beaty is excited about is Avalara’s general ledger reconciliation. “We look at reconciliation like trying to find a needle in a stack of needles,” Beaty says. “With our new solution, we highlight where the needles are.”

The purpose of Avalara’s new product is to reconcile what a client reported to the state with what they posted in their general ledger, which Beaty says is an incredible efficiency tool and cost savings for companies. “In every company, the tax manager is inundated with day-to-day work,” he says.

“Between troubleshooting, research and special projects, there’s no time to reconcile what’s been reported vs. what’s been posted. It’s a very labor-intensive process. You want to make sure what you reported is what’s posted in the accounting system. The traditional way to do this is to run a report, take the listings, and pick and look through them all with a ruler. By the end of the day, you want to go mad.” 

Beaty says a transaction may be posted as one financial amount in one volume on the company’s accounting ledger, but on the report submitted to the state it may be broken out in four different ways. “You want to reconcile this because the state will audit, and if what’s posted in the ledger is different than what’s been reported to the state, then you can get a penalty and interest finding,” he says. “We’ve created a function to electronically generate a report to highlight what’s been posted in the general ledger. We’re super excited about it, and all our clients are as well.” Beaty says Avalara’s general ledger reconciliation solution is currently in beta testing and it plans to roll the product out by the end of the year.

The generic perception around tax is that it is an unavoidable cost of doing business. A few simple calculations—how hard can it be? “In reality it’s not standard calculations across the board,” Beaty says. “Rules can greatly differentiate outcomes. If you take a more proactive or strategic approach, you can optimize your margins by getting taxes correct. There’s a great business value proposition case to be made.”

Beaty says companies can do their own taxes and, maybe—just maybe—they’ll get them right. “Or, if they underpay, then they face penalties and interest findings,” he says. “If they overpay—and the overpayment is actually identified—then it can take six to nine months to recoup that money. There’s a weighted cost to capital when it goes out the door, particularly when it didn’t have to go out in the first place.” He says partnering with Avalara is a strategic business decision to optimize tax determination, preparation and reconciliation. “In the fuels business, pennies on the gallon mean everything,” he says. “Any efficiency can direct bottom line improvements to the general ledger.”