Proposal would give tax break to Utah refiners slow to make cleaner fuel

(Trent Nelson | Tribune file photo) Utah Gov. Gary Herbert tops off the tank of his state-issued SUV at the opening of a new Speedway convenience store and gas station that will sell lower-sulfur “Tier 3” gasoline, in Salt Lake City on Monday Nov. 25, 2019.

The arrival of cleaner Tier 3 fuels has brought much rejoicing to Utah, with one lawmaker launching a website to guide drivers to the less-polluting gas and the governor acting as a half-joking brand ambassador for Speedway stations.

While it’s true that a majority of refineries supplying Utah are providing the cleaner gasoline touted by state leaders, a couple are still lagging behind. And now, one of these slower-moving refineries is lobbying the state Legislature for access to sales tax exemptions that would otherwise go to Tier 3 producers alone.

Big West, a refinery owned by the same parent company as the Maverik gas station chain, is behind the push to extend the tax benefit currently due to sunset in July 2021 for companies that haven’t begun producing the cleaner gasoline.

Environmental groups are blasting the prolonged tax perks as a corporate handout, essentially rewarding refineries despite their sluggishness on a changeover that could slash tailpipe emissions along the polluted Wasatch Front.

“Burning fossil fuel continues to worsen Utah’s air, and the Tier 3 tax exemption was set in place to make it easier to improve the state’s air quality at a low cost to companies’ bottom line,” Carly Ferro, interim director of the Utah Sierra Club, said Wednesday in a prepared statement. “It is shameful that some refiners are now asking Utah policymakers to change a tax incentive, offering benefits to few and levying an unfair and unhealthy burden on the many.”

The tax exemption change appears in legislation made public Wednesday by Sen. Ralph Okerlund, who says it’s a way of aiding local refineries as they make the costly switch to Tier 3 fuel.

“It’s a huge investment,” Okerlund, R-Monroe, said earlier this week. “And the smaller [refineries] are having a hard time being able to make the bottom lines work."

The state in 2017 approved the original sales tax exemption that applied to refineries buying equipment, machinery, supplies, chemicals, replacement parts and more. The benefit was meant to give these refineries a financial boost as they moved toward Tier 3 and, after July 2021, as a reward to producers that met the goal of lower-sulfur gasoline.

Tribune file photo Tesoro is Utah’s largest refinery and, like Holly’s oil-processing plant in in Woods Cross.

Crystal Maggelet, president and CEO of FJ Management, which owns Big West, told Senate Democrats earlier this week that it would cost her company $130 million to begin making the cleaner fuel — and her smaller refinery previously determined it couldn’t absorb the cost at that time.

“Very difficult for a small single refinery to do that,” she told Senate Democrats, according to a recording of the caucus meeting provided to The Salt Lake Tribune.

Maggelet also argued that Tier 3 won’t yield a significant air quality payoff until more new cars are on the road. The cleaner fuel can reduce pollution by 80% in new Tier 3 cars, but it has less of an impact in older vehicles.

While the 2017 exemptions nudged larger refineries toward the less-polluting fuel, it didn’t give the necessary boost to Big West, she said.

“The amount of credit that they would be giving us is so small, it didn’t really move the needle on that," she said in an interview following her presentation to Democratic lawmakers.

Okerlund wants to extend the tax exemption to refineries that aren’t yet making Tier 3 but can demonstrate “satisfactory progress” toward producing it by 2025.

That will give Big West enough time to convert to the cleaner fuel, Maggelet said.

She told Senate Democrats that her company has not yet benefited from the Tier 3 tax benefits that the state has offered over the last few years. However, Sen. Luz Escamilla notes that the state did not require companies to be accountable for how much of the exemption they received or how they used it.

The senator said she’s been hearing mixed messages about whether Big West has already been reaping tax benefits related to the Tier 3 push and has been unable to procure information settling these lingering questions.

“I’ve been seeking this for the past two weeks,” Escamilla, D-Salt Lake City, said. “Part of my frustration is not with the refiners only. It’s the entire system.”

Three of Utah’s five refineries — Marathon, Chevron and Silver Eagle — now produce Tier 3 gasoline, while Big West and HollyFrontier do not. But Escamilla said the state’s recent victory lap on Tier 3 might have misled Utahns into thinking that all refineries are onboard and that the cleaner fuels are more broadly available.

In November, Gov. Gary Herbert was so enthused about the appearance of Tier 3 at Speedway gas stations that he turned into something of a salesman for the chain.

“Look for a Speedway near you,” the governor said into TV cameras at the grand opening of one of the convenience stores, encouraging people to buy a Krispy Kreme doughnut or hot dog while they fueled up.

Similarly, back in 2017 when the state approved the tax exemptions, ″there was a lot of media, there were a lot of press conferences, there was a lot of hugging and kissing," said Escamilla, who co-chairs the Legislature’s Clean Air Caucus.

“Fast forward to 2020, and now we’re hearing, ‘Oh, by the way, nothing has moved for some of [the refineries],’” she said. “So the policy question is to me an issue of accountability and transparency and how do we now mitigate the fact that the public has been under a totally different perception of reality."

Escamilla has drafted a proposal that would extend the tax exemption but would impose a reporting requirement for the refineries that take advantage of the benefit. Moreover, if the refiner fails to achieve Tier 3 status by July 1, 2022, it would have to pay the back taxes plus an additional penalty.

Her plan, she said, is to suggest this language as a substitute for Okerlund’s bill, SB239, which cleared a Senate committee Thursday 8-0 on its way to the chamber floor for a vote.

For its part, HollyFrontier is still reviewing the proposed extension of tax benefits. The company acknowledges it has already availed itself of the sales tax exemptions created by the 2017 bill.

“HollyFrontier Woods Cross cares about the environment and communities in which we work and live,” company spokeswoman Cindy Gubler said in a prepared statement. “To that end, we are evaluating opportunities to produce Tier 3 fuels at the refinery that can be used to fuel vehicles along the Wasatch Front.”

HEAL Utah, an environmental advocacy organization, says the passage of Okerlund’s proposal would be an illustration that lawmakers prioritize industry over residents.

“While the laggards in the industry might be trying to buy more time," said Dr. Scott Williams, HEAL Utah’s executive director, “the citizens of Utah don’t have any time to spare to breathe cleaner air.”

Tribune reporter Zoi Walker contributed to this report.

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