The ethanol price component is calculated by subtracting the average ND wholesale ethanol price for the quarter, in dollars per gallon, from the baseline price of $1.30 per gallon, and then multiplying the result by the number of gallons produced during the quarter and an incentive factor of 0.2. For example, if a facility produced 12,500,000 gallons during a quarter when ethanol prices averaged $1.10 per gallon, the ethanol portion of the incentive for that quarter would be calculated as follows:
(1.30 - 1.10) x 12,500,000 x 0.2 = $500,000
Similarly, the corn price component is calculated by subtracting the $1.80 per bushel baseline cost from the average North Dakota corn price for the quarter and multiplying the result by the number of gallons produced during the quarter and an incentive factor of 0.1. Continuing with the example above, if corn prices averaged $1.60 per bushel, the corn portion of the incentive for that quarter would be calculated as follows:
(1.60 - 1.80) x 12,500,000 x 0.1 = ($250,000)
Note that in the ethanol component the actual is subtracted from the baseline, while in the corn component the baseline is subtracted from the actual. The reason for this is that the incentive is designed to increase when ethanol prices decline and/or when corn prices rise. Also note that either component may calculate out to be positive or negative, depending upon prevailing market prices.
The net incentive is simply the sum of the two components, as shown below for this example:
$500,000 + ($250,000) = $250,000
The incentive available to each eligible producer in any year is capped at $1.6 million, and payouts can only be made to the extent that money is available in the incentive fund. Also, no producer may receive in excess of $10 million in incentive payments over the life of their production facility or for longer than ten years.