What do the new regulations entail?
Dreiblatt—The US Environmental Protection Agency’s Ultra Low Sulfur Diesel (ULSD) program mandates a 15ppm sulfur content as of June 1st 2006. Limits on particulate matter will be introduced next year.
How does the EPA do this?
Dreiblatt—The EPA adopts a ‘custodial approach’. Fuel custodians must indicate the sulfur content of their fuel. Enforcement is through spot checks carried out by the EPA.
Do they have enough resources for this?
Dreiblatt—No, there are very few EPA checkers compared with the custodians. But that’s the point of the IT based compliance program. Each fuel transaction is accompanied by a Product Transfer Document (PTD) with a designated recipient and trace of provenance. A PTD is issued every time fuel changes hands. The information goes to the EPA and is stored for five years. While the PTD could be a paper document, the number of transactions and the reporting requirement mean that it has to be digital.
What’s on the PTD?
Dreiblatt—The PTD has information on transactions, volumes and dates. Specific codes identify all custody holders and the originating and destination facilities involved in the transfer. The truck volume report is submitted electronically to EPA’s database. And here the volumes must tally. If I send you 1,000 barrels, you must report reception of same. A discrepancy equates to a violation and is detected within minutes.
What happens if there is a violation?
Dreiblatt—Everybody upstream of the violation is considered in violation—another reason why robust systems are required to prevent mistakes. In a sense, the EPA considers you ‘guilty until proven innocent’.
What are the IT controls used here?
Dreiblatt—Companies can validate the PTD by checking against other reports (such as pricing). Companies can build in system-based controls that recognize and flag violating situations. But note that today, there is no third party software to do this, although there are some products under development. Such tools exist for reformulated gasoline (RFG) reporting. But the reality is that today ULSD is far too reliant on manual checks. Folks are walking on eggshells now that the regulations are live.
What is BearingPoint’s offering in this space?
Dreiblatt—Pre the go live of the new regulations we found that readiness was uneven. We spent a lot of time checking reporting and tracking systems and enhancing the IT. We also work with software vendors to install and configure their systems.
What packages are used?
Dreiblatt—We do a lot of business process mapping. But this is not off the shelf stuff. The more so because the new regulations allow for sulfur credit trading.
Like carbon trading?
It’s the same idea although this is not done through an exchange. Companies who produce fuel that beats the new spec can sell sulfur credits to third parties. The idea is to encourage companies to make a serious effort to be cleaner. All this of course puts a greater burden of reporting to the EPA—certain language needs to be added to contracts and other reports are involved.
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