One month ago, flex fuel vehicle drivers near Alexandria, Minnesota had a real nice treat: E85 and other ethanol blends were discounted, making these fuels even less expensive compared to regular unleaded gasoline. Typically, drivers may see a 40-60 cent per gallon difference in price between E85 and regular. However, at the end of July, on a day when unleaded was priced $2.79 at the Alexandria Cenex, a gallon of E85 at that station cost only $0.85! This special event was thanks to two organizations: the Douglas County Corn and Soybean Growers as well as DENCO II, an ethanol plant based near the Alexandria area. Staff from both organizations were out at the pumps talking to flex fuel vehicle drivers about the fuel options their vehicles can use.
While this huge discount on E85 was a one-day-only event, DENCO II has long been working with retailers in their community to offer better E85 pricing through their Retailer Direct E85 Program. DENCO II is one of just a handful of ethanol producers in Minnesota who sells E85 directly to retailers.
Normally, a retail station will buy their fuel from a place called the “rack,” or terminal. They get it delivered to their station adding in freight and taxes to the price. They’ll also price in a margin so that it is competitive in the area. DENCO II is kind of like a terminal for E85 because retail stations can go directly to DENCO II to buy E85. One main difference is that DENCO II prices E85 cheaper than a terminal would.
There are two prices that retailers can usually get fuel: the spot price or a contract price. Spot prices will change frequently with the commodity (oil) price, and a contract price is fixed. Through DENCO II’s Retailer Direct E85 Program, the contract price for retailers to buy E85 is a fixed discount to what the stations are paying for gasoline.
Carson, Commodities Risk Manager at DENCO II stated, “We price our E85 at a discount to western Minnesota gasoline prices, which results in a consistent savings or bargain for E85 consumers in our area. One of the benefits of this structure is the retailer doesn’t have to think much about the E85 pricing and in turn, consistent pricing allows them to move more volume of the cleaner-burning fuel.” Likewise, it is also helpful for the consumer because they see a steady and bigger spread in the price between E85 and regular. Fuel that is priced right sells faster, and in higher volume, which makes contract prices work for everyone.
“Since inception of the Retailer Direct E85 Program in 2012, we have sold more than 7 million gallons of E85 directly to retailers in our local market,” Carson shared. “Conservatively estimating 15 miles per gallon, that adds up to more than 100 million miles driven on our E85. If you do the math—including taking fuel economy into consideration—the cost per mile savings has added up huge over time. Recently, we hit a pretty big milestone for this program: area E85 consumers have saved over $1,000,000 on their collective fuel bills even after taking into consideration the fuel mileage drop off of using E85.” Ultimately, these are savings that go back into the local economies in Alexandria and surrounding places like Morris, Starbuck, Wheaton, Donnelly, and other west central Minnesota towns that have E85 stations.
At 30 million gallons of ethanol produced per year, DENCO II is a smaller plant than many others in the state, yet they have a big impact on the local economy in western Minnesota.