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No illegal E85 prices found by attorney general

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Red Wing, 55066
Red Wing Minnesota 2760 North Service Drive / P.O. Box 15 55066

ST. PAUL -- The ethanol industry appears to be abiding by the law of supply and demand, not breaking state law when E85 prices rise, the Minnesota Attorney General says.

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An eight-month investigation produced no proof of illegal pricing of ethanol-based E85 fuel.

"I don't believe there is price fixing," Minnesota Attorney General Mike Hatch said Wednesday. "What I see is the law of supply and demand."

Producers, distributors and retailers can charge whatever they want for E85 or other products, as long as they don't conspire with others to set the price, Hatch said. After serving subpoenas and conducting other forms of investigation, Hatch said, no conspiracy was found.

Hatch began looking into the situation after receiving complains following Hurricane Katrina forcing up gasoline prices. Callers noticed that E85 prices rose at about the same rate as gasoline. That did not make sense the callers since Katrina crippled Gulf Coast oil production, but 85 percent of E85 comes from corn, not oil.

Assistant Attorney General Julie Aoki, who headed the investigation, said demand for ethanol is rising in many areas, especially the East Coast and Texas, as an gasoline additive to reduce air pollution. That helps drive up ethanol prices, she added.

E85 prices at the pumps have varied across Minnesota. In many places, E85 costs 20 cents to 30 cents less per gallon, Aoki said. A Benson, Minn., ethanol plant requires its customers to sell E85 for less than other stations to promote the relatively new fuel.

E85 is sold at about 200 pumps in Minnesota, by far the most of any state. While it produces less energy, and thus fewer miles per gallon, proponents say it is burns cleaner and reduces dependence upon foreign oil.

The fuel uses up to 85 percent ethanol, with the rest normal gasoline. In cold weather, especially, the percentage of ethanol is reduced so cars start better.

Car makers say customers should use E85 only in vehicles designed for the fuel. Otherwise, alcohol in the fuel may cause corrosion.

In Minnesota, and most of the United States, ethanol is made from corn. In Brazil and other countries sugar is used, as are other organic materials.

Sixteen plants now operate in Minnesota, with at least two more on the way. Last year, they produced more than 550 million gallons. A third of that is shipped to other states.

Calls seeking reaction from several ethanol industry leaders to Hatch's report were not returned.

"There is a lot of demand for ethanol," Hatch said. "I don't think anyone expected this demand." Hatch admitted it would be hard for a politician running for governor -- like him -- to criticize the state's ethanol industry. "Ethanol is in the category of apple pie."

Don Davis can be reached at ddavis@forumcomm.com.

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