Genscape's ability to verify RINs under RFS may be revoked

On Jan. 4, the U.S. EPA issued a notice of intent to revoke Genscape’s ability to verify renewable identification numbers (RINs) as a third-party auditor under the renewable fuel standard (RFS) Quality Assurance Program. The agency said it is taking this action to hold Genscape accountable for failing to meet all elements of its approved Quality Assurance Plan, and for verifying millions of RINs that were fraudulently generated by two companies, Gen-X Energy Group Inc. and Southern Resources and Commodities LLC.

From March 2013 to March 2014, at least 60 million RINs were generated based on fuel that was never produced or simply reprocessed at the Gen-X or SRC facilities, according to the U.S. Department of Justice. Several individuals were prosecuted and sentenced for the crimes.

Susan Olson, Genscape’s managing director of agriculture and biofuels, said in late 2013 Genscape identified certain inconsistencies in SRC’s operations. Genscape investigated those concerns, she said, and subsequently issued a notice of potentially invalid RINs (PIR). As part of the PIR notice, Genscape turned over the complete results of its investigation to the EPA and cooperated with the agency. She said Genscape also assisted the justice department in grand jury investigations that followed as the government ultimately unraveled the full scope of the sophisticated conspiracy perpetrated by the principals of Gen-X, SRAC, and several other individuals and shell companies. 

EPA stated it is aggressively pursuing bad actors in the RFS program to maintain a level playing field for firms that play by the rules. Genscape has 60 days to submit written comments to EPA in response to this notice. The EPA will review and consider these comments before taking final action concerning the proposed revocation of Genscape’s ability to verify RINs under the RFS. EPA is also requiring Genscape to retire valid RINs within 60 days to replace the approximately 68 million invalid A-RINs they verified, which were then used for compliance.

Olson said Genscape stands by its QAP service, “which combines best practices of paper-based audits with real-time operational monitoring via remote, independent sensing. Genscape firmly believes that purely paper-based audits would have failed to detect the anomalies that formed the basis for its PIR notice of SRC. The role Genscape played in detecting and exposing Gen-X and SRAC’s complex fraud operation reflects the unique advantages of Genscape’s QAP program with verification via remote operational sensing, client-provided information, and on-site interactions. The unraveling of a major, complex fraud scheme where QAP was in play demonstrates the success of the QAP program.”

Until EPA issues its final decision on the matter, Genscape can still verify RINs under its QAP Q. In addition, EPA stated it has only identified RINs generated by Gen-X and SRC as invalid and the agency has not issued a notice of violation identifying other Genscape-verified RINs as invalid. 

If EPA revokes Genscape’s registration, renewable fuel producers using Genscape as their QAP provider will no longer be able to generate Q-RINs unless they switch to a different QAP provider.

The invalid RINs that Genscape approved are A-RINs, according to EPA, which were verified under EPA’s interim QAP program. Obligated parties do not have to replace invalid A-RINs if they meet the affirmative defense requirements. An obligated party holding invalid A-RINs can still transfer the RIN or retire it for compliance purposes as they meet the affirmative defense criteria.

To replace the invalid RINs in the market, Genscape must obtain 68 million valid RINs and retire them. Genscape is obligated to do this because both Gen-X and SRC failed to replace the RINs. 

Olson said Genscape strongly disagrees with EPA’s conclusion that Genscape failed to fully implement its approved QAP program. “Genscape believes that holding the company fully accountable for the crimes committed by Gen-X and SRC by requiring the replacement of nearly 68 million RINs would far exceed the magnitude of the conduct alleged in the notice, which Genscape disputes,” she said.