Interview with Mike Jerke, general manager at Chippewa Valley Ethanol Company

Q. Please tell us a bit about why Chippewa Valley Ethanol Company (CVEC) was established and its history over the years. What makes CVEC unique?

A. Chippewa Valley Ethanol Company (CVEC) began as a dream between two Benson, Minnesota men more than two decades ago. John Carruth, a local farmer, and Ray Millet, the local electric cooperative manager. The two wanted to make the most of the area’s corn production while also stabilizing electricity rates. Their answer was Chippewa Valley Agrafuels Cooperative (CVAC), a group of more than 650 shareholders that included producers, elevators, and local investors.

CVAC became the general partner of the ethanol partnership (CVEC) and construction on the facility began in June 1995. The first bushel of corn was ground on April 26, 1996 marking the start of full operations at CVEC.

Originally conceived as a 15 million gallon per year facility, CVEC currently produces nearly 50 million gallons per year. It is still a small-town Minnesota company but has grown to 975 cooperative members; the majority of which live within a 50 mile radius of the plant.

CVEC has grown and diversified into direct selling of E85, industrial ethanol production, and beverage (vodka) production. We count our culture of innovation as a significant strength that has led to solid returns for our member/owners.

In addition to our local efforts, we are member/owners of Renewable Products Marketing Group (RPMG) which is one of the premier ethanol and co-products marketing firms in North America. Located in Shakopee, Minnesota, RPMG is producer owned and focused on providing value back to its members.

Finally, we have ownership interest in four other ethanol facilities and continue to see strategic investments in production as a long term benefit to our shareholders.

Q. What has CVEC's impact been on the local economy and surrounding communities?

A. The direct effect our Company has had on the surrounding economy can be measured by the cash distributions that have been sent out thru the years. Since inception, CVEC has returned over $93 million to our members. Additionally, the Company employs 50 people and like other ethanol facilities utilizes numerous local businesses for services such as trucking, millwright, electrical work, miscellaneous business functions, and so forth.

Q. What do you see as the biggest threats to the ethanol industry in Minnesota in the short-term and in the long-term?

A. The biggest threat to the ethanol industry in Minnesota is complacency. Ethanol has revitalized our rural communities and provides a clean cost competitive alternative to air-polluting petroleum. We cannot lose sight of that or take it for granted. Unsubsidized ethanol is competing against petroleum, a product that recently ‘celebrated’ 100 years of taxpayer support. Oil subsidies continue to cost the taxpayer $4-5 billion every year.

It is certainly important that we continue to look for renewable alternative sources to replace our dependence on fossil fuels but we need to remember that the only viable solution currently is ethanol. Big Oil will use every opportunity to lull the American public into thinking there is no energy problem. If we are complacent, our neighbors and many allies will only hear the Big Oil message.

Q. What are your feelings on the role of the Minnesota state government and its policies affecting local ethanol producers? Are there policy changes you'd like to see that would greatly impact the Minnesota ethanol industry?

A. Minnesota needs to remember how to be a leader. In 2003, the State led the nation with the embracing of 10% ethanol in every gallon of gasoline. As an early adopter of E85, Minnesota boasts the highest number of retail stations providing E85 in the nation. Currently, the State Legislators are considering bill language to set aggressive targets for even more use of alternative transportation fuel. While all of that is good, as a State we have yet to aggressively roll out E15 as an option to the consumer. As the most vigorously tested fuel in history, there are no more federal barriers to E15 use in vehicles model year 2001 and newer. Yet in Minnesota, the State that led the way with higher ethanol blends, we do not yet see a collective effort to encourage and support the deployment of E15.

State government needs to focus itself on the collective good E15 represents and move the ball. We do not need to reinvent the wheel. What was once done with E85 can be replicated with E15. Let’s be a leader again. Or at the very least, try to catch up with Iowa.

Interview with Dana Persson, CEO/General Manager of Central MN Ethanol Co-op.

Q. What do you view as the most important things you can do as a general manager to ensure the continued success of Central MN Ethanol Co-op (CMEC) facility?

A. A challenge for the ethanol industry, like many other industries, is managing our margins. As a plant, we have little control over the price that we receive for the products we produce (ethanol, DDGS and corn oil) as the prices are dictated by the markets.  The same is true for what we pay for our major inputs (corn and natural gas).  As a team we work to properly manage the commodity risk that is inherent in the business and ensure that we are operating the plant at its optimal performance and peak efficiency.  We have made significant improvements in operational efficiencies in  the last couple of years  and we will continue to do so into the future.

Q. How long have you personally worked in the ethanol industry and what was your path to your current position?

A. I started my career in the Grain and Farm Supply business managing locally owned cooperatives.  In the middle 1990's I helped develop  a "greenfield" fully integrated poultry operation selling egg products to companies in the food manufacturing and food service industry. We sold the company in 2009.  I have been with CMEC and I have worked in the ethanol industry for the last two years.

Q. Please share the impact that you feel CMEC has on the local economy and surrounding communities?

A. We feel that employing local people is an important part of keeping a community vibrant. CMEC currently has 29 full time employees and 2 part time employees. CMEC supports many other local businesses in the area by purchasing goods and services from these companies. In addition, CMEC also provides benefits to the local agricultural industry as we provide a consistently competitive market for corn. CMEC's presence has improved our local corn basis and saves agricultural producers the expense of transporting their product greater distances.

Having been in the grain business for over 30 years, I have witnessed the effects of a weak agricultural economy firsthand and its direct impact on families, communities and the country at large.  It was not that many years ago that farmers consistently sold their grain for a price that was well below what it cost the farmer to produce it.  The result of this deficit was larger payments through government farm programs. More recently because of improved corn prices, government payments to farmers have decreased.

In my experience, rural areas have exported a lot of "brain power" from our local communities as our kids lost hope in careers in agriculture and sought their fortunes from non-ag industries. We hope that the impact of ethanol on the agricultural community provides the opportunity for young people to return to rural communities for jobs and possibly the opportunity to return to the family farm.

Q. What would you like consumers to know about your plant and the products produced by the plant?

A. In my opinion, one of the best kept secrets about the ethanol industry is the positive impact we have on the livestock industry. In addition to ethanol, one of the co-products from our ethanol production process is Dried Distillers Grains (DDGs) which are sold to livestock producers for feed. We sell this very high quality feed (protein content of 27-30% and fat content of 6-9%) at a discount to raw corn values. This allows livestock producers to displace higher cost ingredients and thereby reduce their overall feed costs substantially.

Q. Where are the biggest opportunities for ethanol in the next 10 years in your opinion?

A. Ethanol is extremely important since it is as an economical source of octane in fuels and an oxygenate replacement for MTBE. MTBE is fossil fuel derived and was banned because of its adverse health effects and pervasiveness in the environment. Future engines will require higher levels of octane to achieve better performance and economy required to meet new federal standards and ethanol can satisfy the requirements of those new engines.

Interview with Tom Hanson, Vice President of Operations (left), and Dean Reder, Chief Financial Officer (right).

Q. Please tell us a bit about the history of Guardian Energy since opening in 2009 and how it operates today?

Reder: The Janesville, MN, ICM/Fagen 100 million gallons per year facility was one of the final designed and constructed facilities by US BioEnergy before their merger with Verasun. It was nearly complete when Verasun’s bankruptcy liquidation occurred. The facility was purchased in September 2009 by six farmer-owned ethanol companies that had worked together to form and develop Renewable Products Marketing Group (“RPMG”) based in Shakopee Minnesota. The plant quickly filled positions and started operations in November 2009.

The Company enjoys leadership from its ownership group that have been pioneers and leaders for the ethanol industry:

KAAPA Ethanol, LLC - Minden, NE

Heartland Corn Products - Winthrop, MN

Al-Corn Clean Fuel Cooperative - Claremont, MN

Chippewa Valley Ethanol Company - Benson, MN

Golden Grain Energy, LLC - Mason City, IA

Q. Where specifically has Guardian Energy made the most significant improvements in production efficiencies since the facility opened?

Hanson: Guardian Energy has converted the process to a zero liquid (water) discharge.  One of the first production facilities to do so.  Occasionally, the plant will utilize excess run-off rain water in its production to further reduce well water usage.  The use of  strong conservation and environmentally focused processes, and the facility’s  state of the art water treatment  system, have enabled the plant to generate each gallon of ethanol with less than 2 gallons of water.

Q. What do you view as the three most important things you can do to ensure the continued success of Guardian Energy?

Reder: We must stay focused on:
1.    Maximizing efforts on the things we can control and hire good people to manage the areas that are out of our control
2.    Continuously improving yield & efficiency while not cutting corners on safety
3.    Enhancing shareholder value
These focal points align and interconnect in many areas. 
We don’t control or exercise significant influence over the corn or ethanol markets.  We can strive to develop good relationships with local farmers and elevators to make us the preferred place for them to sell their corn.  We have state of the art grain receiving equipment to minimize “waiting times” and added 1 million bushels of grain storage to reduce the days that “we’re full”. 

The empowered maintenance team and diligent preventative maintenance programs have enabled us to become a reliable source of ethanol for RPMG to market our products to customers that have come to rely on us as a source for them in tightening ethanol supply markets.  Beyond the normal planned shutdown days (5-10) for cleaning and inspection the facility has had relatively few unplanned shut-downs.  By doing these things we believe we receive fairly priced corn and receive the best price available on our ethanol.

Emphasizing yield improvement and energy usage reductions with a strong group of laboratory and production managers will continue to separate the leaders from the followers.  We may not see ethanol demand exceed production capacity in the next few years resulting in thin margins. When margins are thin the only way to make a profit is maximize yield and energy efficiencies.

Realizing that our ownership group and their group of farmer-owners took a risk to purchase and operate our facility, we understand that we need to operate in a manner that will maximize returns to those owners in the current, near term and long term. Shareholder value over the long term should be maximized by making good economic decisions and treating farmers, employees, vendors, railroads, policy makers and advocates fairly and with the respect expected in rural communities. Earning and maintaining that respect will result in  continued success at Guardian Energy.

Q. Consumers have been hearing about E15. How do you feel E15 impacts Minnesota and the fuel consumers in the state?

Reder: We believe E-15 will reduce the price at the pump for fuel consumers without impacting gas mileage.  Over the last few years the price of ethanol has been considerably less than gas and has provided an octane boost when blended with gasoline. By blending an additional 5% of less expensive, high quality fuel, retail competition should pass on some of that savings to the end users. Burning more ethanol and less petroleum should improve air quality especially in the Twin Cities and surrounding communities. As E-15 gains market share, the increased demand will be met by Minnesota ethanol producers. That spurred activity should maintain the value that local farmers receive for their corn which historically has been reinvested in local economies.

Q. What would you like consumers to know about your plant, your employees, and the products produced by the plant?

Hanson: Guardian Energy employees are very proud to be a positive influence for their community bringing value to rural Minnesota. We take pride in processing corn from local farmers to provide  a clean renewable fuel, corn oil used as an animal feed additive and biodiesel feedstock and a value added feed for livestock and poultry called Dried Distillers Grains.
The Guardian team is very involved in the community and  and the team understands the importance of the benefits they provide for their neighbors since the materials and services needed for the ethanol facility are sourced from their neighbors.
Guardian Energy is focused on continually improving and utilizing new methods and new technologies that result in more efficient and more environmental friendly ways to produce a renewable liquid fuel.

Q. Where are the biggest opportunities for ethanol in the next 10 years in your opinion?

Reder: We believe there is an opportunity for growth of higher ethanol fuel blends within the United States in the next 10 years. Once the oil industry supported 10% blend wall is penetrated (torn down), E-15 will become common place.  As US fuel economy standards increase, there is additional opportunity for higher octane fuels (E-20 or E-30) to run higher compression engines that auto manufacturers are indicating will be required to meet those standards.

We believe that new markets will develop for using the recently available in bulk scale commodities that are produced in the ethanol production process (distiller grains and corn oil).  Often referred to as co-products, the distiller grains are primarily sold to beef and dairy cattle, swine and poultry markets as feed and the corn oil is used in poultry diets as well as a feed stock for bio-diesel production.  We believe that additional “green products” will be developed from further refining these valuable co-products.

Q. What do you see as the biggest threats to the ethanol industry in Minnesota in the short term (next year) and in the long term?

Reder: The potential reversal of federal legislation originally designed to improve energy independence, clean the air and produce domestic jobs would threaten our industry. Ethanol is a less expensive, cleaner burning, higher octane fuel than petroleum based fuel. However, without certain protections, the oil industry has the resources to halt any further market penetration by renewable fuels and or exercising influence to regain 100% of the liquid fuel market in the United States.   Failure of any state to adopt or promote federal renewable programs, like the EPA’s 2011 approval of the use of E-15 blends, adds another threat level to producers in those regions.

By Tim Rudnicki, Esq.

Every runner has a set of tactics (or survival skills) they use to propel themselves across the
finish line. For me, when I’m running a marathon, one of my tactics is to keep looking forward.
The aim is to get far away from the starting line by putting my energy and focus on moving
toward and crossing the finish line up ahead. Many of us think the U.S. EPA should do the same
with respect to the Renewable Fuel Standard - Keep Looking Forward!

We are half way into the biofuel marathon and the U.S. EPA has proposed that we slow down
and then go backwards. What do I mean by this? Just as we are making progress in moving
toward the use of more biofuels (E85 for Flex Fuel Vehicles and E15 for all 2001 and newer
vehicles) the EPA has proposed a substantial reduction in the amount of biofuel to be used by
consumers in 2014.

The Renewable Fuel Standard (RFS), however, is a law that is intended to be a paced and ramped
up implementation of biofuel usage through the year 2022. Specifically, for 2014, Congress
directed that at least 18.15 billion gallons of biofuels (14.4 billion gallons from renewable fuel
such as ethanol) be used in the United States. That is a very clear mile post that has been known
by the petroleum industry, biofuel producers and the EPA for at least seven years!

The petroleum industry likes to say they can’t comply with the law because the amount of
gasoline being consumed is going down. Basic math and, according to the Energy Information
Administration, the total actual and projected fuel consumption in the United States tells us
otherwise. Just because the petroleum industry is comfortable with the E10 status quo, this is no
time for the EPA to look backwards, retreat and accept defeat. In fact, under the law, the Agency
has a clear duty to keep looking forward and to push even harder to reach the 2014 biofuel mile
post as well as the next one.

How can one conclude the EPA has a duty to “push” for the use of more biofuels? The law
explicitly requires the EPA to “ensure that transportation fuel sold or introduced into commerce
in the United States (except in noncontiguous States or territories), on an annual average basis,
contains at least the applicable volume of renewable fuel, advanced biofuel, cellulosic biofuel,
and biomass-based diesel, determined in accordance with” the Energy Independence and Security
Act of 2007. In other words, it is not an option for the EPA to capitulate to the petroleum
industry by reducing the amount of biofuel to be used in 2014. Instead, the EPA should accept
the renewable volume requirements in law and take proactive steps to ensure consumers have
greater access to more biofuels as intended by Congress.

Minnesota biofuel producers are doing their part to comply with the RFS, so to should the
petroleum industry and the EPA. Biofuel producers in Minnesota have made, and continue to
make, significant investments in their operations to meet the RFS requirements. This translates
into more clean, renewable biofuels that can and should be made available to consumers through
the petroleum infrastructure.

Any retreat the EPA makes from the gallon volume requirements of the black letter law will have
adverse environmental and economic impacts. Biofuels have lower carbon footprints compared
to petroleum gasoline. If the EPA proposal to reduce the amount of biofuels for 2014 moves
forward, more gasoline will be used instead of biofuels. The unintended consequence will be a
boost in greenhouse gas emissions. This situation is especially troubling as more highly carbon
intensive tar sands from the boreal forest in Alberta are used for fuel in the United States.
Biofuels also save consumers money at the pump. The Center for Agricultural and Rural
Development found biofuels, in the Midwest, held down the price of gasoline by approximately
$1.69 per gallon. If the EPA fails to comply with the law and slows down the pace of biofuel
usage, environmental and consumer benefits will be lost.

Will the EPA and White House listen to your voice? Thanks to many of you, thousands of
messages in support of biofuels and the RFS were sent to the Minnesota Congressional
Delegation, U.S. EPA and the White House. If the EPA heard you, the Agency will continue to
keep looking forward and implement the RFS as signed into law. With the EPA implementation
of the RFS as written, the economic, consumer and environmental benefits will move us, as a
Nation, closer to the next renewable fuel mile post. This will put us, as a Nation, well on the
path toward winning the biofuel marathon and a better environmental quality.

As always, I look forward to your This email address is being protected from spambots. You need JavaScript enabled to view it..