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Commonly Used Defined Terms

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_______________________

FORM 10-Q

Quarterly Report Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

For the Quarterly Period Ended September 30, ~~2019~~2020

Commission File Number 001-37469

Green Plains PARTNERS LP
‎

(Exact name of registrant as specified in its charter)


Delaware	47-3822258
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

1811 Aksarben Drive, Omaha, NE 68106	(402) 884-8700
(Address of principal executive offices, including zip code)	(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Units, Representing Limited Partner Interests	GPP	The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

x Yes ¨ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

x Yes o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large Accelerated Filer o	Accelerated Filer x
Non-Accelerated Filer ¨
Smaller Reporting Company o	Emerging Growth Company x

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

o Yes x No

The registrant had ~~23,160,551~~23,208,171 common units outstanding as of November ~~4, 2019.~~2, 2020.
‎

Table of Contents

TABLE OF CONTENTS



		Page
PART I – FINANCIAL INFORMATION
Commonly Used Defined Terms		3

Item 1.	Financial Statements	4

	Consolidated Balance Sheets	4

	Consolidated Statements of Operations	5

	Consolidated Statements of Cash Flows	6

	Notes to Consolidated Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2523

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	33

Item 4.	Controls and Procedures	3433

PART II – OTHER INFORMATION

Item 1.	Legal Proceedings	3534

Item 1A.	Risk Factors	3534

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	36

Item 3.	Defaults Upon Senior Securities	36

Item 4.	Mine Safety Disclosures	36

Item 5.	Other Information	36

Item 6.	Exhibits	37

Signatures.		38

‎

Table of Contents

Commonly Used Defined Terms

The abbreviations, acronyms and industry terminology used in this quarterly report are defined as follows:

Green Plains Partners LP, Subsidiaries, and Partners:

z
Green Plains Operating Company	Green Plains Operating Company LLC
Green Plains Partners; the partnership	Green Plains Partners LP and its subsidiaries
NLR	NLR Energy Logistics LLC

Green Plains Inc. and Subsidiaries:


Green Plains; the parent or sponsor	Green Plains Inc. and its subsidiaries
Green Plains Holdings, the general partner	Green Plains Holdings LLC
Green Plains Trade	Green Plains Trade Group LLC

Other Defined Terms:

~~2018~~2019 annual report	The partnership’s annual report on Form 10-K for the year ended December 31, ~~2018,~~2019, filed February 20, ~~2019~~2020
ARO	Asset retirement obligation
ASC	Accounting Standards Codification
Bgy	Billion gallons per year
CAFE	Corporate Average Fuel Economy
CAMEX	Brazil Chamber of Foreign Trade
Conflicts committee	The partnership’s committee responsible for reviewing situations involving certain transactions with affiliates or other potential conflicts of interest
COVID-19	Coronavirus Disease 2019
D.C.	District of Columbia
DOE	Department of Energy
E10	Gasoline blended with up to 10% ethanol by volume
E15	Gasoline blended with up to 15% ethanol by volume
E85	Gasoline blended with up to 85% ethanol by volume
EBITDA	Earnings before interest, taxes, depreciation and amortization
EIA	U.S. Energy Information Administration
EPA	U.S. Environmental Protection Agency
Exchange Act	Securities Exchange Act of 1934, as amended
FASB	Financial Accounting Standards Board
GAAP	U.S. Generally Accepted Accounting Principles
GATT	General Agreement on Tariffs and Trade
LIBOR	London Interbank Offered Rate
LTIP	Green Plains Partners LP 2015 Long-Term Incentive Plan
Mmg	Million gallons
MTBE	Methyl tertiary-butyl ether
~~MVCs~~	~~Minimum volume commitments~~
~~NMTC~~	~~New Market Tax Credits~~
Partnership agreement	First Amended and Restated Agreement of Limited Partnership of Green Plains Partners LP, dated as of July 1, 2015, between Green Plains Holdings LLC and Green Plains Inc.
PCAOB	Public Company Accounting Oversight Board
RFS II	Renewable Fuels Standard II
RIN	Renewable identification number
RVO	Renewable volume obligation
SEC	Securities and Exchange Commission
SRE	Small refinery exemption
USDA	U.S. Department of Agriculture
WTO	World Trade Organization

‎

Table of Contents

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

GREEN PLAINS PARTNERS LP

CONSOLIDATED BALANCE SHEETS

(in thousands, except unit amounts)



		September 30,		December 31,
		2019		2018			September 30, 2020		December 31, 2019
		(unaudited)					(unaudited)
ASSETS	ASSETS					ASSETS
Current assets
Cash and cash equivalents		$	990	$	569		$	75	$	261
Accounts receivable			697		1,460			156		985
Accounts receivable from affiliates			17,312		13,897			16,616		15,666
Note receivable			498		-
Prepaid expenses and other			721		690			1,098		517
Total current assets			20,218		16,616			17,945		17,429

Property and equipment, net of accumulated depreciation and amortization of $31,116 and $28,265, respectively			38,052		40,911
Property and equipment, net of accumulated depreciation and amortization of $34,751 and $31,976, respectively								35,186		37,355
Operating lease right-of-use assets			38,447		-			36,330		35,456
Goodwill			10,598		10,598			10,598		10,598
Investment in equity method investee			4,178		3,648			3,817		4,329
Note receivable			7,602		8,100
Other assets			663		1,271			15		486
Total assets		$	119,758	$	81,144		$	103,891	$	105,653

LIABILITIES AND PARTNERS' DEFICIT	LIABILITIES AND PARTNERS' DEFICIT					LIABILITIES AND PARTNERS' DEFICIT
Current liabilities
Accounts payable		$	6,707	$	2,501		$	4,512	$	5,050
Accounts payable to affiliates			400		676			383		543
Accrued and other liabilities			5,179		4,337			3,759		4,461
Asset retirement obligations			210		674			932		565
Operating lease current liabilities			13,043		-			11,360		13,093
Current maturities of long-term debt			132,498		-			34,035		132,100
Total current liabilities			158,037		8,188			54,981		155,812

Long-term debt			7,564		142,025			81,356		-
Deferred lease liability			-		843
Asset retirement obligations			2,913		2,542			2,770		2,500
Operating lease long-term liabilities			26,182		-			26,384		23,088
Total liabilities			194,696		153,598			165,491		181,400

Commitments and contingencies (Note 9)
Commitments and contingencies (Note 10)

Partners' deficit
Common unitholders - public (11,574,003 and 11,551,147 units issued and outstanding, respectively)			114,335		115,352
Common unitholders - public (11,621,623 and 11,574,003 units issued and outstanding, respectively)								121,087		114,006
Common unitholders - Green Plains (11,586,548 units issued and outstanding)			(187,894)		(186,635)			(181,470)		(188,304)
General partner interests			(1,379)		(1,171)			(1,217)		(1,449)
Total partners' deficit			(74,938)		(72,454)			(61,600)		(75,747)
Total liabilities and partners' deficit		$	119,758	$	81,144		$	103,891	$	105,653

See accompanying notes to the consolidated financial statements.
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GREEN PLAINS PARTNERS LP

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited and in thousands, except per unit amounts)



	Three Months Ended ‎September 30,				Nine Months Ended ‎September 30,				Three Months Ended ‎September 30,				Nine Months Ended ‎September 30,
	2019		2018		2019		2018		2020		2019		2020		2019
Revenues
Affiliate	$	18,836	$	24,472	$	56,751	$	72,949	$	20,347	$	18,836	$	58,327	$	56,751
Non-affiliate		1,318		1,298		5,315		4,546		1,035		1,318		3,707		5,315
Total revenues		20,154		25,770		62,066		77,495		21,382		20,154		62,034		62,066
Operating expenses
Operations and maintenance (excluding depreciation and amortization reflected below)		6,216		7,283		19,314		23,586		6,647		6,216		19,410		19,314
General and administrative		949		1,109		3,054		3,689		1,116		949		3,038		3,054
Depreciation and amortization		991		1,120		2,747		3,406		940		991		2,867		2,747
Total operating expenses		8,156		9,512		25,115		30,681		8,703		8,156		25,315		25,115
Operating income		11,998		16,258		36,951		46,814		12,679		11,998		36,719		36,951
Other income (expense)
Interest income		21		21		61		61		-		21		-		61
Interest expense		(2,103)		(1,871)		(6,324)		(5,253)		(2,498)		(2,103)		(6,182)		(6,324)
Other		88		-		15		75		-		88		-		15
Total other expense		(1,994)		(1,850)		(6,248)		(5,117)		(2,498)		(1,994)		(6,182)		(6,248)
Income before income taxes and income (loss) from equity method investee		10,004		14,408		30,703		41,697
Income before income taxes and income from equity method investee										10,181		10,004		30,537		30,703
Income tax expense		(45)		(5)		(144)		(70)		(30)		(45)		(166)		(144)
Income (loss) from equity method investee		173		48		530		(82)
Income from equity method investee										155		173		488		530
Net income	$	10,132	$	14,451	$	31,089	$	41,545	$	10,306	$	10,132	$	30,859	$	31,089

Net income attributable to partners' ownership interests:
General partner	$	203	$	289	$	621	$	831	$	206	$	203	$	617	$	621
Limited partners - common unitholders		9,929		10,726		30,468		24,015		10,100		9,929		30,242		30,468
Limited partners - subordinated unitholders		-		3,436		-		16,699

Earnings per limited partner unit (basic and diluted):
Common units	$	0.43	$	0.44	$	1.32	$	1.28	$	0.44	$	0.43	$	1.31	$	1.32
Subordinated units	$	-	$	0.46	$	-	$	1.28

Weighted average limited partner units outstanding (basic and diluted):
Common units		23,138		24,403		23,125		18,780		23,161		23,138		23,145		23,125
Subordinated units		-		7,427		-		13,038

See accompanying notes to the consolidated financial statements.

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GREEN PLAINS PARTNERS LP

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited and in thousands)



	Nine Months Ended ‎September 30,				Nine Months Ended ‎September 30,
	2019		2018		2020		2019
Cash flows from operating activities:
Net income	$	31,089	$	41,545	$	30,859	$	31,089
Adjustments to reconcile net income to net cash ‎provided by operating activities:
Depreciation and amortization		2,747		3,406		2,867		2,747
Accretion		178		4		195		178
Amortization of debt issuance costs		610		453		1,125		610
Gain on the disposal of assets		(14)		-		-		(14)
Unit-based compensation		239		196		239		239
(Income) loss from equity method investee		(530)		82
Income from equity method investee						(488)		(530)
Distribution from equity method investee						1,000		-
Other		(19)		36		75		(19)
Changes in operating assets and liabilities:
Accounts receivable		763		1,908		829		763
Accounts receivable from affiliates		(3,415)		(508)		(950)		(3,415)
Prepaid expenses and other assets		(31)		319		(581)		(31)
Accounts payable and accrued liabilities		4,882		(1,417)		(1,435)		4,882
Accounts payable to affiliates		(276)		1,899		(160)		(276)
Operating lease liabilities and right-of-use assets		(97)		-		689		(97)
Other		33		34		13		33
Net cash provided by operating activities		36,159		47,957		34,277		36,159

Cash flows from investing activities:
Purchases of property and equipment		(62)		(1,233)		(117)		(62)
Proceeds from the disposal of property and equipment		136		11		-		136
Contributions to equity method investees		-		(1,425)
Net cash provided by (used in) investing activities		74		(2,647)		(117)		74

Cash flows from financing activities:
Payments of distributions		(33,818)		(46,302)		(16,958)		(33,818)
Proceeds from revolving credit facility		65,100		58,700		43,100		65,100
Payments on revolving credit facility		(67,100)		(57,600)		(47,500)		(67,100)
Proceeds from issuance of long-term debt						3,000		-
Principal payments on long-term debt						(12,500)		-
Payments of loan fees		-		(185)		(3,495)		-
Other		6		7		7		6
Net cash used in financing activities		(35,812)		(45,380)		(34,346)		(35,812)

Net change in cash and cash equivalents		421		(70)		(186)		421
Cash and cash equivalents, beginning of period		569		502		261		569
Cash and cash equivalents, end of period	$	990	$	432	$	75	$	990

Supplemental disclosures of cash flow
Cash paid for income taxes	$	203	$	124	$	96	$	203
Cash paid for interest	$	5,700	$	4,799	$	4,780	$	5,700
Capital expenditures in accounts payable	$	116	$	35	$	-	$	116

See accompanying notes to the consolidated financial statements.

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GREEN PLAINS PARTNERS LP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1. BASIS OF PRESENTATION, DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT

ACCOUNTING POLICIES

Organization

References to “the partnership” in the consolidated financial statements and notes to the consolidated financial statements refer to Green Plains Partners LP and its subsidiaries.

Green Plains Holdings LLC, a wholly owned subsidiary of Green Plains Inc., serves as the general partner of the partnership. References to (i) “the general partner” and “Green Plains Holdings” refer to Green Plains Holdings LLC; (ii) “the parent,” “the sponsor” and “Green Plains” refer to Green Plains Inc.; and (iii) “Green Plains Trade” refers to Green Plains Trade Group LLC, a wholly owned subsidiary of Green Plains.

Consolidated Financial Statements

The consolidated financial statements include the accounts of the partnership and its controlled subsidiaries. All significant intercompany balances and transactions are eliminated on a consolidated basis for reporting purposes. Results for the interim periods presented are not necessarily indicative of the expected results for the entire year.

The accompanying unaudited consolidated financial statements are prepared in accordance with GAAP for interim financial information and instructions to Form 10-Q and Article 10 of Regulation S-X. Because they do not include all of the information and footnotes required by GAAP, the consolidated financial statements should be read in conjunction with the partnership’s ~~2018~~2019 annual report on Form 10-K for the year ended December 31, ~~2018,~~2019, as filed with the SEC on February 20, ~~2019.~~2020.

The partnership accounts for its interest in joint ventures using the equity method of accounting, with its investment recorded at the acquisition cost plus the partnership’s share of equity in undistributed earnings ~~or losses~~ and reduced by the partnership’s share of equity in undistributed losses and distributions received.

~~Reclassifications~~

~~Certain prior year amounts were reclassified to conform to the current year presentation. These reclassifications did not affect total revenues, costs and expenses, net income, or partners’ deficit.~~

Use of Estimates in the Preparation of Consolidated Financial Statements

Preparation of the consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and revenues and expenses during the reporting period. The partnership bases its estimates on historical experience and assumptions it believes are proper and reasonable under the circumstances. The partnership regularly evaluates the appropriateness of these estimates and assumptions. Actual results could differ from those estimates. Key accounting policies, including, but not limited to, those related to revenue recognition, depreciation of property and equipment, asset retirement obligations, operating leases, and impairment of long-lived assets and goodwill, are impacted significantly by judgments, assumptions and estimates used to prepare the consolidated financial statements.

~~Table of Contents~~

Description of Business

The partnership provides fuel storage and transportation services by owning, operating, developing and acquiring ethanol and fuel storage ~~tanks,~~ terminals, transportation assets and other related assets and businesses. The partnership is its parent’s primary downstream logistics provider to support the parent’s approximately 1.1 bgy ethanol marketing and distribution business since the partnership’s assets are the principal method of storing and delivering the ethanol its parent produces. The ethanol produced by the parent is predominantly fuel grade, made principally from starch extracted from corn, and is primarily used for blending with gasoline. Ethanol currently comprises approximately 10% of the U.S. gasoline market and is an economical source of octane and oxygenates for blending into the fuel supply. The partnership does not take ownership of, or receive any payments based on the value of the ethanol, other fuels or products it handles. As a result, the partnership does not have any direct exposure to fluctuations in commodity prices.

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Revenue Recognition

The partnership recognizes revenue when obligations under the terms of a contract with a customer are satisfied. Generally, this occurs with the completion of services or the transfer of control of products to the customer or another specified third party. Operating lease revenue related to minimum volume commitments is recognized on a straight-line basis over the term of the lease. Under the terms of the storage and throughput agreement with Green Plains Trade, to the extent shortfalls associated with minimum volume commitments in the previous four quarters continue to exist, volumes in excess of the minimum volume commitment are applied to those shortfalls. Remaining excess volumes generating operating lease revenue are recognized as incurred.

The partnership generates a substantial portion of its revenues under fee-based commercial agreements with Green Plains Trade. Please refer to Note 2 - Revenue to the consolidated financial statements for further details.

Operations and Maintenance Expenses

The partnership’s operations and maintenance expenses consist primarily of lease expenses related to the transportation assets, labor expenses, outside contractor expenses, insurance premiums, repairs and maintenance expenses, and utility costs. These expenses also include fees for certain management, maintenance and operational services to support the storage and terminal facilities, trucks, and leased railcar fleet allocated by Green Plains under the operational services and secondment agreement.

Concentrations of Credit Risk

In the normal course of business, the partnership is exposed to credit risk resulting from the possibility a loss may occur due to failure of another party to perform according to the terms of their contract. The partnership provides fuel storage and transportation services for various parties with a significant portion of its revenues earned from Green Plains Trade. The partnership continually monitors its credit risk exposure and concentrations. Please refer to Note 2 – Revenue and Note 1011 – Related Party Transactions to the consolidated financial statements for additional information.

Segment Reporting

The partnership accounts for segment reporting in accordance with ASC 280, Segment Reporting, which establishes standards for entities reporting information about the operating segments and geographic areas in which they operate. Management evaluated how its chief operating decision maker has organized the partnership for purposes of making operating decisions and assessing performance, and concluded it has 1 reportable segment.

Asset Retirement Obligations

The partnership records an ARO for the fair value of the estimated costs to retire a tangible long-lived asset in the period incurred if it can be reasonably estimated, which is subsequently adjusted for accretion expense. Corresponding asset retirement costs are capitalized as a long-lived asset and depreciated on a straight-line basis over the asset’s remaining useful life. The expected present value technique used to calculate the fair value of the AROs includes assumptions about costs, settlement dates, interest accretion, and inflation. Changes in assumptions, such as the amount or timing of estimated cash flows, could increase or decrease the AROs. The partnership’s AROs are based on legal obligations to perform remedial activity related to land, machinery and equipment when certain operating leases expire.Please refer to Note 5 – Asset Retirement Obligations to the consolidated financial statements for additional information.

Recent Accounting Pronouncements

In March 2020, the FASB issued amended guidance in ASC 848, Reference Rate Reform Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional expedients and exceptions to U.S. GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burden related to the expected market transition from LIBOR and other interbank offered rates to alternative reference rates. The expedients and exceptions provided by the amended guidance do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for hedging relationships existing as of December 31, 2022, that an entity has elected certain optional expedients for and that are retained through the end of the hedging relationship. The guidance is effective upon issuance and to be applied prospectively from any date beginning March 12, 2020 through December 31, 2022. The amended guidance is not expected to have a material impact on the partnership’s consolidated financial statements.

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~~Recent Accounting Pronouncements~~

~~On January 1, 2019, the partnership adopted the amended guidance in ASC 842,~~ ~~Leases. Please refer to~~ ~~Note 9 – Commitments and Contingencies~~ ~~to the consolidated financial statements for further details.~~

2. REVENUE

Revenue Recognition

Revenue by Source

The following table disaggregates our revenue by major source ~~for the three and nine months ended September 30, 2019 and 2018~~ (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended ‎September 30,				Nine Months Ended ‎September 30,
	2019		2018		2019		2018		2020		2019		2020		2019
Revenues
Service revenues
Terminal services	$	2,150	$	2,132	$	7,045	$	6,912	$	2,047	$	2,150	$	6,147	$	7,045
Trucking and other		1,171		1,419		3,188		3,722		1,162		1,171		3,420		3,188
Railcar transportation services		-		29		-		82
Total service revenues		3,321		3,580		10,233		10,716		3,209		3,321		9,567		10,233
Leasing revenues ⁽¹⁾
Storage and throughput services		11,785		15,748		35,355		45,965		12,520		11,785		36,090		35,355
Railcar transportation services		5,005		6,127		16,129		19,698		5,538		5,005		16,036		16,129
Terminal services		43		315		349		1,116		115		43		341		349
Total leasing revenues		16,833		22,190		51,833		66,779		18,173		16,833		52,467		51,833
Total revenues	$	20,154	$	25,770	$	62,066	$	77,495	$	21,382	$	20,154	$	62,034	$	62,066

(1) Leasing revenues do not represent revenues recognized from contracts with customers under ASC 606, Revenue from Contracts with Customers, and are accounted for under ASC 842, Leases~~for 2019 and ASC 840, Leases~~ ~~for 2018.~~.

Terminal Services Revenue

The partnership provides terminal services and logistics solutions to Green Plains Trade, and other customers, through its fuel terminal facilities under various terminal service agreements, some of which have minimum volume commitments. Revenue generated by these terminals is disaggregated between service revenue and leasing ~~revenue in accordance with the new revenue standard.~~revenue. If Green Plains, or other customers, fail to meet their minimum volume commitments during the applicable term, a deficiency payment equal to the deficient volume multiplied by the applicable fee will be charged. Deficiency payments related to the partnership’s terminal services revenue may not be utilized as credits toward future volumes. At terminals where customers have shared use of terminal and tank storage assets, revenue is generated from contracts with customers and accounted for as service revenue. This service revenue is recognized at the point in time when product is withdrawn from tank storage.

At terminals where a customer is predominantly provided exclusive use of the terminal or tank storage assets, the partnership is considered a lessor as part of an operating lease agreement. Revenue is recognized over the term of the lease based on the minimum volume commitment or total actual throughput if in excess of the minimum volume commitment.

Trucking and Other Revenue

The partnership transports ethanol, natural gasoline, other refined fuels and feedstocks by truck from identified receipt points to various delivery points. Trucking revenue is recognized over time based on the percentage of total miles traveled, which is on average less than 100 miles.

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Railcar Transportation Services Revenue

Under the rail transportation services agreement, Green Plains Trade is obligated to use the partnership to transport ethanol and other fuels from receipt points identified by Green Plains Trade to nominated delivery points. Green Plains Trade is required to pay the partnership fees for the minimum railcar volumetric capacity provided, regardless of utilization of that capacity. However, Green Plains Trade is not charged for railcar volumetric capacity that is not available for use due to inspections, upgrades or routine repairs and maintenance. Revenue associated with the rail transportation services fee is considered leasing revenue and is recognized over the term of the lease based on the actual average daily railcar volumetric capacity provided. The partnership may also charge Green Plains Trade a related services fee for logistical operations management of railcar volumetric capacity utilized by Green Plains Trade which is not provided by the partnership. Revenue associated with the related services fee is also considered leasing revenue and recognized over the term of the lease based on the average volumetric capacity for which services are provided.

Storage and Throughput Revenue

The partnership generates leasing revenue from its storage and throughput agreement with Green Plains Trade based on contractual rates charged for the handling, storage and throughput of ethanol. Under this agreement, Green Plains Trade is required to pay the partnership a fee for a minimum volume commitment regardless of the actual volume delivered. If Green Plains Trade fails to meet its minimum volume commitment during any quarter, the partnership will charge Green Plains Trade a deficiency payment equal to the deficient volume multiplied by the applicable fee. The deficiency payment may be applied as a credit toward volumes delivered by Green Plains Trade in excess of the minimum volume commitment during the following four quarters, after which time any unused credits will expire. Revenue is recognized over the term of the lease based on the minimum volume commitment or total actual throughput if in excess of the minimum volume ~~commitment.~~commitment and no deficiency related credits are available for use.

Payment Terms

The partnership has standard payment terms, which vary depending on the nature of the services provided, with the majority of terms falling within 10 to 30 days after transfer of control or completion of services. Contracts generally do not include a significant financing component in instances where the timing of revenue recognition differs from the timing of invoicing.

Major Customers

Revenue from Green Plains Trade Group was $20.3 million and $58.3 million for the three and nine months ended September 30, 2020, respectively, and $18.8 million and $56.8 million for the three and nine months ended September 30, 2019, respectively, ~~and $24.5 million and $72.9 million for the three and nine months ended September 30, 2018, respectively,~~ which exceeds 10% of the ~~partnership's~~partnership’s total revenue.

Contract Liabilities

The partnership records unearned revenue when consideration is received, or such consideration is unconditionally due, from a customer prior to transferring goods or services to the customer under the terms of service and lease agreements. Unearned revenue from service agreements, which represents a contract liability, is recorded for fees that have been charged to the customer prior to the completion of performance obligations, and is generally recognized in the subsequent quarter.

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The following table reflects the changes in our unearned revenue from service agreements, which is recorded in accrued and other liabilities on the consolidated balance sheets, for the three and nine months ended September 30, ~~2019~~2020 (in thousands):


	Amount
Balance at January 1, ~~2019~~2020	$	~~248~~230
Revenue recognized included in beginning balance		~~(248)~~(230)
Net additions		~~101~~225
Balance at March 31, ~~2019~~2020		~~101~~225
Revenue recognized included in beginning balance		~~(101)~~(225)
Net additions		~~116~~251
Balance at June 30, ~~2019~~2020		~~116~~251
Revenue recognized included in beginning balance		~~(116)~~(251)
Net additions		~~175~~166
Balance at September 30, ~~2019~~2020	$	~~175~~166

The partnership expects to recognize all of the unearned revenue associated with service agreements from contracts with customers as of September 30, ~~2019,~~2020, in the subsequent quarter when the product is withdrawn from tank storage.

3.3. GOODWILL

The partnership currently has 1 reporting unit, BlendStar, to which goodwill is assigned. During the first half of 2020, a decline in the partnership’s stock price resulted in a decrease in the partnership’s market capitalization. As such, the partnership determined a triggering event had occurred that required an interim impairment assessment for its Blendstar reporting unit for both the three months ended March 31, 2020 as well as the three months ended June 30, 2020. Significant assumptions inherent in the valuation methodologies for goodwill impairment testing were employed and include, but are not limited to, market capitalization, prospective financial information, growth rates, discount rates, inflationary factors, and cost of capital. Based on the partnership’s quantitative evaluation, it was determined that the fair value of the Blendstar reporting unit exceeded its carrying value, and the partnership concluded that the goodwill assigned to the Blendstar reporting unit was not impaired, but could be at risk of future impairment. During the three months ended September 30, 2020, the partnership did not identify any triggering events, and as such, 0 impairment assessment was deemed necessary.

4. DEBT

~~Revolving~~ Credit Facility

Green Plains Operating Company has a ~~$200.0 million revolving~~ credit facility to fund working capital, ~~acquisitions, distributions,~~ capital expenditures and other general partnership purposes. The credit facility ~~matures~~was amended on ~~July 1,~~June 4, 2020, decreasing the total amount available from $200.0 million to $135.0 million. The amended credit facility includes a $130.0 million term loan and as a ~~result, was reclassified to current maturities of long-term debt~~$5.0 million revolving credit facility maturing on December 31, 2021. The partnership made $12.5 million in principal payments on the term loan during the three and nine months ended September 30, ~~2019.~~2020. Monthly principal payments of $2.5 million are required October 15, 2020 through April 15, 2021, with a step up to monthly payments of $3.2 million beginning May 15, 2021 through maturity.

In certain situations the partnership is required to make prepayments on the outstanding principal balance on the credit facility. If at any time subsequent to July 15, 2020, the partnership’s cash balance exceeds $2.5 million for more than 5 consecutive business days, prepayments of outstanding principal are required in an amount equal to the excess cash. The partnership is also required to prepay outstanding principal on the credit facility with 100% of net cash proceeds from any asset disposition or recovery event. Any prepayments on the term loan are applied to the remaining principal balance in inverse order of maturity, including the final payment. As of September 30, 2020, 0 prepayments on the term loan were required or paid.

The term loan balance, and any advances on the revolver, are subject to a floating interest rate based on a 1.00% Libor floor plus 4.50% to 5.25% dependent upon the preceding fiscal quarter’s consolidated leverage ratio. The unused portion of the revolver is subject to a commitment fee of 0.50%. The credit facility ~~can be increased by an additional $20.0 million without~~also allows for swing line loans subject to the ~~consent of the lenders. Advances under the credit facility,~~revolver availability. Swing line loans are subject to a floating interest rate based on the ~~preceding fiscal quarter’s consolidated leverage ratio at a base rate~~Prime Rate plus ~~1.25%~~3.50% to ~~2.00% or LIBOR plus 2.25% to 3.00%. The unused portion of the credit facility is also subject to a commitment fee of 0.35% to 0.50%, depending on~~4.25% dependent upon the preceding fiscal quarter’s consolidated leverage ratio.

The revolving credit facility is available for revolving loans, including sublimits of $30.0 million for swing line loans and $30.0 million for letters of credit. The revolving credit facility is guaranteed by the partnership, each of its existing subsidiaries, and any potential future domestic subsidiaries. As of September 30, ~~2019,~~2020, the ~~revolving credit facility~~term loan had a balance of $117.5 million and an ~~average~~ interest rate of ~~5.04%~~6.00%, and there was a swing line loan outstanding of $0.7 million at an interest rate of 7.25%.

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The partnership’s obligations under the credit facility are secured by a first priority lien on (i) the ~~capital stock~~equity interests of the partnership’s present and future subsidiaries, (ii) all of the partnership’s present and future personal property, such as investment property, general intangibles and contract rights, including rights under any agreements with Green Plains Trade, ~~and~~ (iii) all proceeds and products of the equity interests of the partnership’s present and future subsidiaries and its personal property and (iv) substantially all of the partnership’s real property and material leases of real property. The terms impose affirmative and negative covenants, including restrictions on the partnership’s ability to incur additional debt, acquire and sell assets, create liens, invest capital, pay distributions and materially amend the partnership’s commercial agreements with Green Plains Trade. The credit facility also requires the partnership to maintain a maximum consolidated ~~net~~ leverage ratio, as of the end of any fiscal quarter, of no more than ~~3.50x~~3.00x that decreases 0.25x each quarter to 1.50x by December 31, 2021, and a minimum consolidated ~~interest~~debt service coverage ratio of ~~no less than 2.75x,~~1.10x, each of which is calculated on a pro forma basis with respect to acquisitions and divestitures occurring during the applicable period. The consolidated leverage ratio is calculated by dividing total funded indebtedness ~~minus the lesser of cash in excess of $5.0 million or $30.0 million~~ by the sum of the four preceding fiscal quarters’ consolidated EBITDA. The consolidated ~~interest~~debt service coverage ratio is calculated by ~~dividing~~taking the sum of the four preceding fiscal quarters’ consolidated EBITDA minus income taxes and consolidated capital expenditures for such period divided by the sum of the four preceding fiscal quarters’ consolidated interest ~~charges.~~charges plus consolidated scheduled funded debt payments for such period.

Under the amended terms of the credit facility, the partnership may make quarterly distribution payments in an aggregate amount not to exceed $0.12 per outstanding unit, so long as (i) no default has occurred and is continuing, or would result from payment of the distribution, and (ii) the partnership and its subsidiaries are in compliance with its financial covenants and remain in compliance after payment of the distribution.

The partnership had ~~$132.0~~$118.2 million and ~~$134.0~~$132.1 million of borrowings outstanding under the ~~revolving~~ credit facility as of September 30, ~~2019,~~2020, and December 31, ~~2018~~2019, respectively.

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~~Qualified Low Income Community Investment Notes~~

In June 2013, Birmingham BioEnergy, a subsidiary of BlendStar, was a recipient of qualified low income community investment notes in conjunction with NMTC financing related to the Birmingham, Alabama terminal. Promissory notes payable totaling $10.0 million and a note receivable of $8.1 million were issued in connection with this transaction. The notes payable bear an interest rate of 1.0% per year and require quarterly interest only payments through December 31, 2019. ~~Beginning in March 2020, the promissory notes payable and note receivable each require quarterly principal and interest payments. As of September 30, 2019,~~addition, the partnership had ~~a balance of $0.5~~$2.8 million ~~in both short term notes receivable and current maturities of long term debt as it relates to these future receipts and payments. BlendStar retains the right to~~ ~~call the $8.1 million~~ note receivable in June 2020, which would be correspondingly offset by forgiveness of the $8.1 million note payable. The promissory notes payable and note receivable will be fully amortized upon maturity in September 2031.

~~Income tax credits were generated for the lender, which the partnership has guaranteed over their statutory life~~ ~~of seven years~~ ~~in the event the credits are recaptured or reduced. At the time of the transaction, the income tax credits were valued at~~ ~~$5.0 million. The partnership has not established a liability in connection with the guarantee because it believes the likelihood of recapture or reduction is remote.~~

The investors of the NMTC financing paid $1.9 million to Birmingham BioEnergy in the form of a promissory note and are entitled to all of the NMTC tax benefits derived from the Birmingham facility. This transaction includes a put/call provision under which BlendStar can cause the $1.9 million to be forgiven. The partnershipaccounted for the $1.9 million as a grant received and reflected a reduction in the carrying value of the property and equipment at Birmingham BioEnergy, which is recognized in earnings as a decrease in depreciation expense over the useful life of the property and equipment.

~~The partnership had $38 thousand and $75 thousand~~ of debt issuance costs recorded as a direct reduction of the carrying value of the partnership’s long-term debt as of September 30, ~~2019,~~2020. The partnership believes the carrying amount of its debt approximated fair value at both September 30, 2020 and December 31, ~~2018, respectively.~~2019.

Covenant Compliance

The partnership, including all of its subsidiaries, was in compliance with its debt covenants as of September 30, ~~2019.~~2020.

~~4. DISPOSITIONS~~5. ASSET RETIREMENT OBLIGATIONS

On November 15, 2018, Green Plains closed on the sale of three of its ethanol plants located in Bluffton, Indiana, Lakota, Iowa, and Riga, Michigan to Valero Renewable Fuels Company, LLC (“Valero”). Correspondingly, the partnership’s storage assets located adjacent to such plants were sold to Green Plains for $120.9 million. As consideration,Under various lease agreements, the partnership ~~received from its parent 8.7 million Green Plains units~~has AROs when certain machinery and ~~a portion of~~equipment are disposed or operating leases expire. During the ~~general partner interest equating to 0.2 million equivalent limited partner units to maintain the general partner’s 2% interest. These units were retired upon receipt. In addition,~~nine months ended September 30, 2020, the partnership ~~also received cash consideration~~reassessed the estimated cost of ~~$2.7 million from Valero for the assignment of certain~~AROs related to its railcar operating leases. ~~This transaction was accounted for~~The reassessment resulted in a change in estimated costs that has been reflected as ~~a transfer between entities under common control~~an increase of $0.3 million to the ARO liabilities and ~~was approved by~~corresponding assets on the ~~conflicts committee.~~consolidated balance sheet as of September 30, 2020.

The following ~~is a summary of assets~~table summarizes the change in the liability for the AROs during the three and ~~liabilities disposed of~~nine months ended September 30, 2020 (in thousands):

Total consideration received
$
120,900
Identifiable assets and liabilities disposed of:
Property and equipment, net
4,192
Asset retirement obligations
(425)
Total identifiable net assets
3,767
Units retired:
Common units - Green Plains
118,482
General partners interest
2,418
Total units retired
120,900
Partners' deficit effect
$
(3,767)


	Amount
Balance at January 1, 2020	$	3,065
Additional asset retirement obligations incurred		67
Liabilities settled		(44)
Accretion expense		62
Change in estimate		323
Balance at March 31, 2020		3,473
Additional asset retirement obligations incurred		81
Liabilities settled		(9)
Accretion expense		65
Balance at June 30, 2020		3,610
Additional asset retirement obligations incurred		110
Liabilities settled		(86)
Accretion expense		68
Balance at September 30, 2020	$	3,702

In conjunction with the disposition, the partnership amended the 1) omnibus agreement, 2) operational services agreement, 3) ethanol storage and throughput agreement, and 4) rail transportation services agreement. Please refer to

~~Note 10 – Related Party Transactions~~

~~to the consolidated financial statements for additional information.~~

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5.6. UNIT-BASED COMPENSATION

The partnership has a long-term incentive plan (LTIP) intended to promote the interests of the partnership, its general partner and affiliates by providing unit-based incentive compensation awards to employees, consultants and directors to encourage superior performance. The LTIP reserves 2,500,000 common limited partner units for issuance in the form of options, restricted units, phantom units, distribution equivalent rights, substitute awards, unit appreciation rights, unit awards, profit interest units or other unit-based awards. The partnership measures unit-based compensation at fair value on the grant date, with no adjustments for estimated forfeitures. The partnership records noncash compensation expense related to the awards over the requisite service period on a straight-line basis.

The non-vested unit-based activity for the nine months ended September 30, ~~2019,~~2020, is as follows:


	Non-Vested Units		Weighted-Average Grant-Date Fair Value	Weighted-Average Remaining Vesting Term ‎(in years)	Non-Vested Units		Weighted-Average Grant-Date Fair Value	Weighted-Average Remaining Vesting Term ‎(in years)
Non-vested at December 31, 2018	18,582	$	16.96
Non-vested at December 31, 2019					22,856	$	14.00
Granted	22,856		14.00		47,620		6.72
Vested	(18,582)		16.96		(22,856)		14.00
Non-vested at September 30, 2019	22,856	$	14.00	0.8
Non-vested at September 30, 2020					47,620	$	6.72	0.8

Compensation costs related to the unit-based awards of $81 thousand and $239 thousand were recognized during both the three and nine months ended September 30, ~~2019, respectively. Compensation costs related to the unit-based awards of $76 thousand~~2020 and ~~$196 thousand were recognized during the three and nine months ended September 30, 2018,~~2019, respectively. As of September 30, ~~2019,~~2020, there was $239 thousand of unrecognized compensation costs from unit-based compensation awards.

6.7. PARTNERS’ DEFICIT

Changes in partners’ deficit are as follows (in thousands):


	Limited Partners								Limited Partners
	Common Units- ‎Public		Common Units- ‎Green Plains		General Partner			Total	Common Units- ‎Public		Common Units- ‎Green Plains		General Partner			Total
Balance, December 31, 2018	$	115,352	$	(186,635)	$	(1,171)	$	(72,454)
Balance, December 31, 2019									$	114,006	$	(188,304)	$	(1,449)	$	(75,747)
Quarterly cash distributions to unitholders ($0.475 per unit)		(5,487)		(5,504)		(278)		(11,269)		(5,498)		(5,504)		(278)		(11,280)
Net income		5,014		5,029		205		10,248		5,078		5,084		207		10,369
Unit-based compensation, including general partner net contributions		79		-		-		79		79		-		-		79
Balance, March 31, 2019		114,958		(187,110)		(1,244)		(73,396)
Quarterly cash distributions to unitholders ($0.475 per unit)		(5,487)		(5,504)		(278)		(11,269)
Balance, March 31, 2020										113,665		(188,724)		(1,520)		(76,579)
Quarterly cash distributions to unitholders ($0.12 per unit)										(1,389)		(1,390)		(57)		(2,836)
Net income		5,240		5,256		213		10,709		4,987		4,993		204		10,184
Unit-based compensation, including general partner net contributions		79		-		-		79		79		-		-		79
Balance, June 30, 2019		114,790		(187,358)		(1,309)		(73,877)
Quarterly cash distributions to unitholders ($0.475 per unit)		(5,497)		(5,504)		(279)		(11,280)
Balance, June 30, 2020										117,342		(185,121)		(1,373)		(69,152)
Quarterly cash distributions to unitholders ($0.12 per unit)										(1,394)		(1,391)		(57)		(2,842)
Net income		4,961		4,968		203		10,132		5,058		5,042		206		10,306
Unit-based compensation, including general partner net contributions		81		-		6		87		81		-		7		88
Balance, September 30, 2019	$	114,335	$	(187,894)	$	(1,379)	$	(74,938)
Balance, September 30, 2020									$	121,087	$	(181,470)	$	(1,217)	$	(61,600)

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	Limited Partners										Limited Partners
	Common Units- ‎Public		Common Units- ‎Green Plains		Subordinated Units- ‎Green Plains		General Partner			Total	Common Units- ‎Public		Common Units- ‎Green Plains		General Partner			Total
Balance, December 31, 2017	$	115,747	$	(38,505)	$	(139,376)	$	(712)	$	(62,846)
Quarterly cash distributions to unitholders ($0.470 per unit)		(5,420)		(2,063)		(7,468)		(355)		(15,306)
Net income		4,751		1,808		6,546		267		13,372
Unit-based compensation, including general partner net contributions		60		-		-		-		60
Balance, March 31, 2018		115,138		(38,760)		(140,298)		(800)		(64,720)
Balance, December 31, 2018											$	115,352	$	(186,635)	$	(1,171)	$	(72,454)
Quarterly cash distributions to unitholders ($0.475 per unit)		(5,478)		(2,085)		(7,548)		(383)		(15,494)		(5,487)		(5,504)		(278)		(11,269)
Net income		4,874		1,856		6,717		275		13,722		5,014		5,029		205		10,248
Unit-based compensation, including general partner net contributions		60		-		-		-		60		79		-		-		79
Balance, June 30, 2018		114,594		(38,989)		(141,129)		(908)		(66,432)
Balance, March 31, 2019												114,958		(187,110)		(1,244)		(73,396)
Quarterly cash distributions to unitholders ($0.475 per unit)		(5,487)		(2,085)		(7,547)		(383)		(15,502)		(5,487)		(5,504)		(278)		(11,269)
Net income		5,141		5,585		3,436		289		14,451		5,240		5,256		213		10,709
Unit-based compensation, including general partner net contributions		76		-		-		7		83		79		-		-		79
Conversion of subordinated units		-		(145,240)		145,240		-		-
Balance, September 30, 2018	$	114,324	$	(180,729)	$	-	$	(995)	$	(67,400)
Balance, June 30, 2019												114,790		(187,358)		(1,309)		(73,877)
Quarterly cash distributions to unitholders ($0.475 per unit)												(5,497)		(5,504)		(279)		(11,280)
Net income												4,961		4,968		203		10,132
Unit-based compensation, including general partner net contributions												81		-		6		87
Balance, September 30, 2019											$	114,335	$	(187,894)	$	(1,379)	$	(74,938)

A roll forward of the number of common limited partner units outstanding is as follows:

Common Units-
Common Units-
Public
Green Plains
Total
Units, December 31, 2018
11,551,147
11,586,548
23,137,695
Units issued under the LTIP
22,856
-
22,856
Units, September 30, 2019
11,574,003
11,586,548
23,160,551


	Common Units-	Common Units-
	Public	Green Plains	Total
Units, December 31, 2019	11,574,003	11,586,548	23,160,551
Units issued under the LTIP	47,620	-	47,620
Units, September 30, 2020	11,621,623	11,586,548	23,208,171

~~Subordinated Unit Conversion~~

The requirements under the partnership agreement for the conversion of all of the outstanding subordinated units into common units were satisfied upon the payment of the distribution with respect to the quarter ended June 30, 2018. Accordingly, the subordination period ended on August 13, 2018, the first business day after the date of the distribution payment, and all of the 15,889,642 outstanding subordinated units were converted into common units on a one-for-one basis. The conversion of the subordinated units did not impact the amount of cash distributions paid or the total number of outstanding units.

Issuance of Additional Securities

The partnership agreement authorizes the partnership to issue unlimited additional partnership interests on the terms and conditions determined by the general partner without unitholder approval.

Cash Distribution Policy

Quarterly distributions are made from available cash within 45 days after the end of each calendar ~~quarter.~~quarter, assuming the partnership has available cash, up to an aggregate amount not to exceed $0.12 per outstanding unit, subject to the terms of the credit agreement which matures December 31, 2021. Available cash generally means all cash and cash equivalents on hand at the end of that quarter less cash reserves established by the general partner, including those for future capital expenditures, future acquisitions and anticipated future debt service requirements, plus all or any portion of the cash on hand resulting from working capital borrowings made subsequent to the end of that quarter.

The general partner also holds incentive distribution rights that entitles it to receive increasing percentages, up to 48%, of available cash distributed from operating surplus, as defined in the partnership agreement, in excess of $0.46 per unit per quarter. The maximum distribution of 48% does not include any distributions the general partner or its affiliates may receive on its general partner interest or common ~~units, or subordinated~~ units.

On February 7, 2020, the partnership distributed $11.3 million to unitholders of record as of January 31, 2020, related to the quarterly cash distribution of $0.475 per unit that was declared on January 16, 2020, for the quarter ended December 31, 2019.

On May 8, 2020, the partnership distributed $2.8 million to unitholders of record as of May 1, 2020, related to the quarterly cash distribution of $0.12 per unit that was declared on April 16, 2020, for the quarter ended March 31, 2020.

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On ~~February 8, 2019,~~August 7, 2020, the partnership distributed ~~$11.3~~$2.8 million to unitholders of record as of ~~February 1, 2019,~~July 31, 2020, related to the quarterly cash distribution of ~~$0.475 per unit~~ ~~that was declared on January 17, 2019, for the quarter ended December 31, 2018.~~

On May 10, 2019, the partnership distributed $11.3 million to unitholders of record as of May 3, 2019, related to the quarterly cash distribution of $0.475 per unit that was declared on April 18, 2019, for the quarter ended March 31, 2019.

~~On August 9, 2019, the partnership distributed $11.3 million to unitholders of record as of August 2, 2019, related to the quarterly cash distribution of $0.475~~ $0.12 per unit that was declared on July ~~18, 2019,~~16, 2020, for the quarter ended June 30, ~~2019.~~2020.

On October ~~17, 2019,~~15, 2020, the board of directors of the general partner declared a quarterly cash distribution of ~~$0.475~~$0.12 per unit, or approximately ~~$11.3~~$2.8 million, for the quarter ended September 30, ~~2019.~~2020. The distribution is payable on November ~~8, 2019,~~13, 2020, to unitholders of record at the close of business on November ~~1, 2019.~~6, 2020.

The total cash distributions declared for the three and nine months ended September 30, ~~2019~~2020 and ~~2018,~~2019, are as follows (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018		2020		2019		2020		2019
General partner distributions	$	226	$	310	$	677	$	930	$	57	$	226	$	171	$	677
Incentive distributions		53		73		159		219		-		53		-		159
Total distributions to general partner		279		383		836		1,149		57		279		171		836

Limited partner common units - public		5,497		5,487		16,481		16,452		1,400		5,497		4,177		16,481
Limited partner common units - Green Plains		5,504		9,633		16,512		13,803		1,391		5,504		4,172		16,512
Limited partner subordinated units - Green Plains		-		-		-		15,095
Total distributions to limited partners		11,001		15,120		32,993		45,350		2,791		11,001		8,349		32,993
Total distributions declared	$	11,280	$	15,503	$	33,829	$	46,499	$	2,848	$	11,280	$	8,520	$	33,829

8. EARNINGS PER UNIT

The partnership computes earnings per unit using the two-class method. Earnings per unit applicable to common units ~~and to subordinated units prior to the expiration of the subordination period,~~ is calculated by dividing the respective limited partners’ interest in net income by the weighted average number of common ~~and subordinated~~ units outstanding during the period, adjusted for the dilutive effect of any outstanding dilutive securities. Diluted earnings per limited partner unit was the same as basic earnings per limited partner unit as there were 0 potentially dilutive common ~~or subordinated~~ units outstanding as of September 30, ~~2019.~~2020. The following tables show the calculation of earnings per limited partner unit – basic and diluted (in thousands, except for per unit data):


	Three Months Ended ‎September 30, 2019						Three Months Ended September 30, 2020
	Limited Partner ‎ Common Units		General Partner		Total		Limited Partner Common Units		General Partner		Total
Net income:
Distributions declared	$	11,001	$	279	$	11,280	$	2,791	$	57	$	2,848
Earnings less than distributions		(1,072)		(76)		(1,148)
Earnings in excess of distributions								7,309		149		7,458
Total net income	$	9,929	$	203	$	10,132	$	10,100	$	206	$	10,306

Weighted-average units outstanding - basic and diluted		23,138						23,161

Earnings per limited partner unit - basic and diluted	$	0.43					$	0.44


	Nine Months Ended September 30, 2020
	Limited Partner Common Units		General Partner		Total
Net income:
Distributions declared	$	8,349	$	171	$	8,520
Earnings in excess of distributions		21,893		446		22,339
Total net income	$	30,242	$	617	$	30,859

Weighted-average units outstanding - basic and diluted		23,145

Earnings per limited partner unit - basic and diluted	$	1.31

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	Nine Months Ended September 30, 2019						Three Months Ended September 30, 2019
	Limited Partner Common Units		General Partner		Total		Limited Partner Common Units		General Partner		Total
Net income:
Distributions declared	$	32,993	$	836	$	33,829	$	11,001	$	279	$	11,280
Earnings less than distributions		(2,525)		(215)		(2,740)		(1,072)		(76)		(1,148)
Total net income	$	30,468	$	621	$	31,089	$	9,929	$	203	$	10,132

Weighted-average units outstanding - basic and diluted		23,125						23,138

Earnings per limited partner unit - basic and diluted	$	1.32					$	0.43

Three Months Ended
‎September 30, 2018
Limited Partner
‎ Common Units
Limited Partner
‎ Subordinated Units ⁽¹⁾
General Partner
Total
Net income:
Distributions declared
$
15,120
$
-
$
383
$
15,503
Earnings (less than) in excess of distributions
(4,394)
3,436
(94)
(1,052)
Total net income
$
10,726
$
3,436
$
289
$
14,451
Weighted-average units outstanding - basic and diluted
24,403
7,427
Earnings per limited partner unit - basic and diluted
$
0.44
$
0.46


	Nine Months Ended ‎September 30, 2018								Nine Months Ended September 30, 2019
	Limited Partner ‎ Common Units		Limited Partner ‎ Subordinated Units ⁽¹⁾		General Partner		Total		Limited Partner Common Units		General Partner		Total
Net income:
Distributions declared	$	30,255	$	15,095	$	1,149	$	46,499	$	32,993	$	836	$	33,829
Earnings (less than) in excess of distributions		(6,240)		1,604		(318)		(4,954)
Earnings less than distributions										(2,525)		(215)		(2,740)
Total net income	$	24,015	$	16,699	$	831	$	41,545	$	30,468	$	621	$	31,089

Weighted-average units outstanding - basic and diluted		18,780		13,038						23,125

Earnings per limited partner unit - basic and diluted	$	1.28	$	1.28					$	1.32

~~(1) The subordinated units converted to common units on a one-for-one basis in August 2018 (see~~ ~~Note 6 – Partners’ Deficit).~~

9. INCOME TAXES

The partnership is a limited partnership, which is not subject to federal income taxes. The general partner and the unitholders are responsible for paying federal and state income taxes on their share of the partnership’s taxable income. However, the partnership owns a subsidiary that is taxed as a corporation for federal and state income tax purposes. In addition, the partnership is subject to state income taxes in certain states. As a result, the financial statements reflect a provision or benefit for such income taxes.

The partnership recognizes uncertainties in income taxes based upon the technical merits of the position, and measures the maximum benefit and degree of likelihood to determine the tax liability in the financial statements.

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9.10. COMMITMENTS AND CONTINGENCIES

~~Adoption of ASC 842~~

~~On January 1, 2019, the partnership adopted the amended guidance in ASC 842,~~ ~~Leases~~, and all related amendments (“new lease standard”) and applied it to all leases using the optional transition method which requires the amended guidance to be applied at the date of adoption. The standard does not require the guidance to be applied to the earliest comparative period presented in the financial statements. As such, comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. The new lease standard had a material impact on the partnership’s consolidated balance sheets, increasing total assets and total liabilities by $39.7 million upon adoption. It did not have a material impact on the consolidated statement of operations for the nine months ended September 30, 2019.

~~The impact on the consolidated balance sheet as of December 31, 2018 for the adoption of the new lease standard was as follows (in thousands):~~

Balance at December 31, 2018
Adjustments Due to ASC 842
Balance at January 1, 2019
(audited)
Balance sheet
Assets
Operating lease right-of-use assets
$
-
$
39,685
$
39,685
Liabilities
Operating lease current liabilities
-
13,534
13,534
Deferred lease liabilities
843
(843)
-
Operating lease long-term liabilities
-
26,994
26,994

The partnership’s leases do not specify an implicit interest rate. Therefore, the incremental borrowing rate was used based on information available at commencement date to determine the present value of future payments.

~~Practical Expedients~~

Under the new lease standard, companies may elect various practical expedients upon adoption. The partnership elected the package of practical expedients related to transition, which states that an entity need not reassess initial direct costs for existing leases, the lease classification for any expired or existing leases, and whether any expired or existing contracts are or contain leases.

The partnership elected to utilize a portfolio approach for lease classification, which allows for an entity to group together leases with similar characteristics provided that its application does not create a material difference when compared to accounting for the leases at a contract level. For the partnership’s railcar leases, the partnership elected to combine the railcars within each contract rider and account for each contract rider as an individual lease.

The partnership also elected the practical expedient for lessees to include both the lease and non-lease components as a single component and account for them as a lease. Certain of the partnership’s railcar agreements provide for maintenance costs to be the responsibility of the partnership as incurred or charged by the lessor. This maintenance cost is a non-lease component that the partnership elected to combine with the monthly rental payment and account for the total cost as operating lease expense. In addition, the partnership has a land lease that contains a non-lease component for the handling and unloading services the landlord provides. The partnership elected to combine the cost of services with the land lease cost and account for the total as operating lease expense.

The lessor practical expedient to combine both the lease and non-lease components and account for them as a lease was applied by class of underlying asset. The storage and throughput agreement consists of lease costs paid by Green Plains Trade for the rental of the terminal facilities as well as non-lease costs for the throughput services provided by the partnership. For this agreement, the partnership elected to combine the facility rental revenue and the service revenue and account for the total as leasing revenue. The railcar transportation services agreement consists of lease costs paid by Green Plains Trade for the use of the partnership’s railcar assets as well as non-lease costs for logistical operations management and other services. For this agreement, the partnership elected to combine the railcar rental revenue and the service revenue and account for the total as leasing revenue.

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A lessee may elect not to apply the recognition requirements in the new lease standard for short-term leases. Instead, the lease payments may be recognized into profit or loss on a straight-line basis over the lease term. The partnership has elected to use this short-term lease exemption, and therefore will not record a lease liability or right-of-use asset for leases with a term of one year or less. The partnership had 0 short-term lease expense for the three and nine months ended September 30, 2019.

Operating Lease Expense

The partnership leases certain facilities, parcels of land, and railcars with remaining terms ranging from less than one year to approximately ~~12.1~~11.1 years, including renewal options reasonably certain to be exercised for the land and facility leases. Railcar agreement renewals are not considered reasonably certain to be exercised as they are typically ~~renew with significantly different~~subject to significant market dynamics which impact the underlying ~~terms.~~terms of the agreements.

The partnership may sublease certain of its railcars to third parties on a short-term basis. These subleases are classified as operating leases, with the associated sublease revenue recognized on a straight-line basis over the lease term.

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The components of lease expense for the three and nine months ended September 30, 2020 and 2019, are as follows (in thousands):


					Three Months Ended ‎September 30,				Nine Months Ended ‎September 30,
	Three Months Ended ‎September 30, 2019		Nine Months Ended ‎September 30, 2019		2020		2019		2020		2019
Lease expense
Operating lease expense	$	3,618	$	11,903
Variable lease benefit ⁽¹⁾		(90)		(239)
Operating lease expense⁽¹⁾					$	4,277	$	3,618	$	11,970	$	11,903
Variable lease benefit ⁽²⁾						(196)		(90)		(221)		(239)
Total lease expense	$	3,528	$	11,664	$	4,081	$	3,528	$	11,749	$	11,664

(1) Amount includes an additional $0.2 million of accelerated lease expense due to the early termination of leased railcar assets for the three and nine months ended September 30, 2020.

(2) Represents railcar lease abatements provided by the lessor when railcars are out of service during periods of maintenance or upgrade, offset by amounts incurred in excess of the minimum payments required for the handling and unloading of railcars for a certain ~~land lease, offset by railcar lease abatements provided by the lessor when railcars are out of service during periods of maintenance or upgrade.~~lease.

Supplemental cash flow information related to operating leases isfor the three and nine months ended September 30, 2020 and 2019, are as follows (in thousands):


					Three Months Ended ‎September 30,				Nine Months Ended ‎September 30,
	Three Months Ended ‎September 30, 2019		Nine Months Ended ‎September 30, 2019		2020		2019		2020		2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	3,502	$	11,988	$	3,918	$	3,502	$	11,279	$	11,988

Right-of-use assets obtained in exchange for lease obligations:
Operating leases		4,427		10,634		6,310		4,427		11,504		10,634

Right-of-use assets and lease obligations derecognized due to lease modifications:
Operating leases		1,405		1,405		7		1,405		7		1,405

Supplemental balance sheet information related to operating leases is as follows:


	~~September 30, 2019~~
~~Weighted average remaining lease term~~		~~4.4 years~~

~~Weighted average discount rate~~		~~5.19%~~

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Aggregate minimum lease payments under the operating lease agreements for the remainder of ~~2019~~2020 and in future years are as follows (in thousands):



Year Ending December 31,	Amount		Amount
2019	$	3,751
2020		14,300	$	4,272
2021		8,758		11,297
2022		7,209		9,763
2023		3,972		6,593
2024				4,768
Thereafter		6,089		5,277
Total	$	44,079	$	41,970
Less: Present value discount		(4,854)		(4,226)
Operating lease liabilities	$	39,225	$	37,744

~~Aggregate minimum~~The partnership has additional railcar operating leases that will commence in the fourth quarter of 2020 and the first half of 2021 to replace expiring leases, with undiscounted future lease payments ~~remaining under~~of approximately $24.5 million and lease terms of five to six years. These amounts are not included in the ~~operating lease agreements as of December 31, 2018 are as follows (in thousands):~~tables above.

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Year Ending December 31,
Amount
2019
$
14,180
2020
11,843
2021
6,842
2022
4,758
2023
1,164
Thereafter
4,028
Total
$
42,815

Lease Revenue

The components of lease revenue are as follows (in thousands):


					Three Months Ended ‎September 30,				Nine Months Ended ‎September 30,
	Three Months Ended ‎September 30, 2019		Nine Months Ended ‎September 30, 2019		2020		2019		2020		2019
Lease revenue
Operating lease revenue	$	16,981	$	51,751	$	17,613	$	16,981	$	51,744	$	51,751
Variable lease revenue ⁽¹⁾		(259)		(457)		544		(259)		571		(457)
Sublease revenue		111		539		16		111		152		539
Total lease revenue	$	16,833	$	51,833	$	18,173	$	16,833	$	52,467	$	51,833

(1) Represents amounts charged to Green Plains Trade under the storage and throughput agreement in excess of the initial rate of $0.05 per gallon, amounts delivered by Green Plains Trade and other customers in excess of various minimum volume commitments, ~~as well as~~and the difference between the contracted railcar volumetric capacity and the actual amount provided to Green Plains Trade during the period.

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In accordance with the amended storage and throughput agreement, Green Plains Trade is obligated to deliver a minimum volume of 235.7 mmg per calendar quarter to the partnership’s storage facilities and pay $0.05 per gallon on all volume it throughputs associated with the ~~agreement. While this~~ agreement ~~contains a provision stating that the rate could potentially increase above the $0.05~~through June 30, 2020, and $0.05312 per gallon ~~on the sixth anniversary of the effective date, the potential increase would be based on a percentage change in the Bureau of Labor Producer Price Index, which cannot be predicted at this time.~~subsequent to June 30, 2020. The remaining lease term for this agreement is ~~approximately 8.8~~7.8 years, with automatic one year renewal periods, infor which either party has the right to terminate the contract. Due to the unilateral right to termination during the renewal period, the lease contract would no longer contain enforceable rights or obligations. Therefore, the lease term does not include the successive one year renewal periods. Anticipated minimum operating lease revenue under this agreement assuming a consistent rate of ~~$0.05~~$0.05312 per gallon for the remainder of ~~2019~~2020 and in future years is as follows (in thousands):



Year Ending December 31,	Amount		Amount
2019	$	11,785
2020		47,140	$	12,520
2021		47,140		50,082
2022		47,140		50,082
2023		47,140		50,082
2024				50,082
Thereafter		212,130		175,284
Total	$	412,475	$	388,132

In accordance with the amended rail transportation services agreement with Green Plains Trade, Green Plains Trade is required to pay the rail transportation services fee for railcar volumetric capacity provided by the partnership. The remaining lease term for this agreement is ~~approximately 5.8~~4.8 years, with automatic one year renewal periods, infor which either party has the right to terminate the contract. Due to the unilateral right to termination during the renewal period, the lease contract would no longer contain enforceable rights or obligations. Therefore, the lease term does not include the successive one year renewal periods. Under the terms of the agreement, Green Plains Trade is not required to pay for volumetric capacity that is not available due to inspections, upgrades, or routine repairs and maintenance. As a result, the actual volumetric capacity billed may be reduced based on the amount of volumetric capacity available for use during any applicable period. Anticipated minimum operating lease revenue under this agreement for the remainder of ~~2019~~2020 and in future years is as follows (in thousands):


Year Ending December 31,	Amount		Amount
2019	$	5,179
2020		19,919	$	6,058
2021		12,460		18,054
2022		10,078		15,858
2023		4,409		10,126
2024				7,589
Thereafter		1,862		4,199
Total	$	53,907	$	61,884

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The partnership provides terminal services and logistics solutions to certain customers under various terminal service agreements, some of which have minimum volume commitments. At terminals where a customer is predominantly provided exclusive use of the terminal or tank storage assets, the partnership is considered a lessor as part of an operating lease agreement. Revenue is recognized over the term of the lease based on the minimum volume commitment, or total actual throughput if in excess of the minimum volume commitment. The partnership currently has one such agreement, with a remaining lease ~~terms for these agreements range from less than one year to approximately 5.9~~term of 4.9 years, ~~some of~~ which ~~contain~~includes renewal options reasonably certain to be exercised. Minimum operating lease revenue for ~~these terminals~~this terminal for the remainder of ~~2019~~2020 and in future years is as follows (in thousands):


Year Ending December 31,	Amount		Amount
2019	$	49
2020		74	$	18
2021		74		74
2022		74		74
2023		74		74
2024				74
Thereafter		123		49
Total	$	468	$	363

~~Table of Contents~~

Other Commitments and Contingencies

The partnership has agreements for contracted services with certain vendors that require the partnership to pay minimum monthly amounts, which expire on various dates. These agreements do not contain an identified asset and therefore are not considered operating leases. The partnership satisfied the minimum commitments under these agreements during the three and nine months ended September 30, ~~2019~~2020 and ~~2018.~~2019. Aggregate minimum payments under these agreements for the remainder of ~~2019~~2020 and in future years are as follows (in thousands):



Year Ending December 31,	Amount		Amount
2019	$	168
2020		153	$	168
2021		157		141
2022		156		157
2023		-		-
2024				-
Thereafter		-		-
Total	$	634	$	466

Legal

The partnership may be involved in litigation that arises during the ordinary course of business. Currently, the partnership is not a party to any material litigation.

~~10.~~11. RELATED PARTY TRANSACTIONS

The partnership engages in various related party transactions with Green Plains and subsidiaries of Green Plains. Green Plains provides a variety of shared services to the partnership, including general management, accounting and finance, payroll and human resources, information technology, legal, communications and treasury activities. These costs are proportionally allocated by Green Plains to its subsidiaries based on common financial metrics management believes are reasonable. The partnership recorded expenses related to these shared services of $0.8 million and $2.5 million for the three and nine months ended September 30, 2020, respectively, and $0.8 million and $2.6 million for the three and nine months ended September 30, 2019, ~~respectively, and $1.1 million and $3.5 million for the three and nine months ended September 30, 2018,~~ respectively. In addition, the partnership reimburses Green Plains for wages and benefit costs of employees directly performing services on its behalf. Green Plains may also pay certain direct costs on behalf of the partnership, which are reimbursed by the partnership. The partnership believes the consolidated financial statements reflect all material costs of doing business related to its operations, including expenses incurred by other entities on its behalf.

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Omnibus Agreement

The partnership has entered into an omnibus agreement, as amended, with Green Plains and its affiliates which, among other terms and conditions, addresses the partnership’s obligation to reimburse Green Plains for direct or allocated costs and expenses incurred by Green Plains for general and administrative services; the prohibition of Green Plains and its subsidiaries from owning, operating or investing in any business that owns or operates fuel terminals or fuel transportation assets; the partnership’s right of first offer to acquire assets if Green Plains decides to sell them; a nontransferable, nonexclusive, royalty-free license to use the Green Plains trademark and name; the allocation of taxes among the parent, the partnership and its affiliates and the parent’s preparation and filing of tax returns; and an indemnity by Green Plains for certain environmental and other liabilities.

If Green Plains or its affiliates cease to control the general partner, then either Green Plains or the partnership may terminate the omnibus agreement, provided that (i) the indemnification obligations of the parties survive according to their respective terms; and (ii) Green Plains’ obligation to reimburse the partnership for operational failures survives according to its terms.

~~Table of Contents~~

Operating Services and Secondment Agreement

The general partner has entered into an operational services and secondment agreement, as amended, with Green Plains. Under the terms of the agreement, Green Plains seconds employees to the general partner to provide management, maintenance and operational functions for the partnership, including regulatory matters, health, environment, safety and security programs, operational services, emergency response, employee training, finance and administration, human resources, business operations and planning. The seconded personnel are under the direct management and supervision of the general partner who reimburses the parent for the cost of the seconded employees, including wages and benefits. If a seconded employee does not devote 100% of his or her time providing services to the general partner, the general partner reimburses the parent for a prorated portion of the employee’s overall wages and benefits based on the percentage of time the employee spent working for the general partner.

Under the operational services and secondment agreement, Green Plains will indemnify the partnership from any claims, losses or liabilities incurred by the partnership, including third-party claims, arising from their performance of the operational services secondment agreement; provided, however, that Green Plains will not be obligated to indemnify the partnership for any claims, losses or liabilities arising out of the partnership’s gross negligence, willful misconduct or bad faith with respect to any services provided under the operational services and secondment agreement.

Commercial Agreements

The partnership has various fee-based commercial agreements with Green Plains Trade, including:

~~10-year storage~~Storage and throughput agreement, expiring on June 30, 2028;

~~10-year rail~~Rail transportation services agreement, expiring on June 30, 2025;

~~1-year trucking~~Trucking transportation agreement, expiring on May 31, ~~2020;~~2021;

Terminal services agreement for the Birmingham, Alabama unit train terminal, ~~originally~~ expiring on ~~December 31, 2019, extended to~~ December 31, 2022; and

Various other terminal services agreements for other fuel terminal facilities, each with Green Plains Trade.

The storage and throughput, rail transportation services, and trucking transportation agreements have various automatic renewal terms if not cancelled by either party within specified timeframes. Please refer to Item 15 – Exhibits, Financial Statement Schedule in our ~~2018~~2019 annual report for further details.

The storage and throughput agreement and terminal services agreements are supported by minimum volume commitments. The rail transportation services agreement is supported by minimum take-or-pay volumetric capacity commitments.

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Under the storage and throughput agreement, as amended, Green Plains Trade is obligated to deliver a minimum volume of 235.7 mmg of product per calendar quarter to the partnership’s storage facilities and pay $0.05 per gallon on all volume it ~~throughputs.~~throughputs through June 30, 2020, and $0.05312 per gallon subsequent to June 30, 2020. If Green Plains Trade fails to meet its minimum volume commitment during any quarter, Green Plains Trade will pay the partnership a deficiency payment equal to the deficient volume multiplied by the applicable fee. The deficiency payment may be applied as a credit toward payments due on future volumes delivered by Green Plains Trade in excess of the minimum volume commitment during the following four quarters, after which time this option will expire.

For the three months ended September 30, ~~2019,~~2020, the partnership charged Green Plains Trade ~~exceeded its~~$2.4 million related to the minimum volume commitment ~~and received~~deficiency for the quarter, resulting in a credit ~~of $159 thousand related~~ to ~~prior deficiency payments charged by the partnership.~~be applied against excess volumes in future periods. The cumulative minimum volume deficiency credits available to Green Plains Trade as of September 30, ~~2019~~2020 totaled ~~$7.4~~$6.7 million. ~~These~~If these credits ~~expire, if~~are unused ~~as follows:~~

~~$2.9~~by Green Plains Trade, $4.3 million ~~expiring on December 31, 2019;~~

~~$4.0 million, expiring on March 31, 2020; and~~

~~$0.5 million, expiring~~will expire on June 30, ~~2020.~~2021 and $2.4 million will expire on September 30, 2021.

~~The above~~These credits have been ~~previously~~ recognized asin revenue by the partnership, and as such, future volumes throughput by Green Plains Trade in excess of the quarterly minimum volume commitment, up to the amount of these credits, will not be recognized in revenue in future ~~periods.~~

~~Table of Contents~~

periods prior to expiration.

Under the rail transportation services agreement, Green Plains Trade is obligated to use the partnership to transport ethanol and other fuels from receipt points identified by Green Plains Trade to nominated delivery points. During the three and nine months ended September 30, 2020, the average daily railcar volumetric capacity provided by the partnership was 81.5 mmg and 80.4 mmg, respectively, and the associated monthly fee was approximately $0.0226 and $0.0220 per gallon, respectively. During the three and nine months ended September 30, 2019, the average daily railcar volumetric capacity provided by the partnership was 77.0 mmg and 80.5 mmg, respectively, and the associated monthly fee was approximately $0.0212 and $0.0215 per gallon, respectively. During the three and nine months ended September 30, 2018, the average daily railcar volumetric capacity provided by the partnership was 98.2 mmg and 98.6 mmg, respectively, and the associated monthly fee was approximately $0.0209 and $0.0223 per gallon, respectively. The partnership’s leased railcar fleet consisted of approximately ~~2,690~~2,820 and ~~3,500~~2,690 railcars as of September 30, ~~2019~~2020 and ~~2018,~~2019, respectively.

Green Plains Trade is also obligated to use the partnership for logistical operations management and other services related to average daily railcar volumetric capacity provided by Green Plains Trade, which was approximately ~~3.1~~0.7 mmg and 2.0 mmg for ~~both~~ the three and nine months ended September 30, ~~2019.~~2020, respectively. Green Plains Trade is obligated to pay a monthly fee of approximately $0.0013 per gallon for these services. In addition, Green Plains Trade reimburses the partnership for costs related to: (1) railcar switching and unloading fees; (2) increased costs related to changes in law or governmental regulation related to the specification, operation or maintenance of railcars; (3) demurrage charges, except when the charges are due to the partnership’s gross negligence or willful misconduct; and (4) fees related to rail transportation services under transportation contracts with third-party common carriers. As needed, Green Plains Trade contracts with the partnership for additional railcar volumetric capacity during the normal course of business at comparable margins.

Under the trucking transportation agreement, Green Plains Trade pays the partnership to transport ethanol and other fuels by truck from identified receipt points to various delivery points. Green Plains Trade is obligated to pay a monthly trucking transportation services fee equal to the aggregate volume transported in a calendar month by the partnership’s trucks, multiplied by the applicable rate for each truck lane. A truck lane is defined as a specific and routine route of travel between a point of origin and point of destination. Rates for each truck lane are negotiated based on product, location, mileage and other factors. Green Plains Trade reimburses the partnership for costs related to: (1) truck switching and unloading fees; (2) increased costs related to changes in law or governmental regulation related to the specification, operation and maintenance of trucks; and (3) fees related to trucking transportation services under transportation contracts with third-party common carriers.

Under the existing Birmingham terminal services agreement, effective through December 31, ~~2019,~~2022, Green Plains Trade is obligated to throughput a minimum volume commitment of approximately ~~2.8~~8.3 mmg per month and pay associated throughput fees, as well as fees for ancillary services. Effective January 1, 2020, the minimum volume commitment will increase to 8.3 mmg per month. This increase in volume will be equally offset by a reduction in volume associated with the termination of a third party customer throughput agreement on December 31, 2019.

The partnership recorded revenues from Green Plains Trade under the storage and throughput agreement and rail transportation services agreement of $18.1 million and $52.0 million for the three and nine months ended September 30, 2020 and $16.6 million and $50.9 million for the three and nine months ended September 30, 2019, ~~respectively, and $21.9 million and $65.7 million for the three and nine months ended September 30, 2018,~~ respectively. The partnership recorded revenues from Green Plains Trade and other Green Plains subsidiaries related to trucking and terminal services of $2.2 million and $6.3 million for the three and nine months ended September 30, 2020 and $2.2 million and $5.8 million for the nine months ended September 30, 2019, ~~respectively, and $2.6 million and $7.2 million for the three and nine months ended September 30, 2018,~~ respectively.

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Cash Distributions

The partnership distributed ~~$5.7~~$1.5 million and ~~$17.3~~$8.7 million to Green Plains related to the quarterly cash distribution paid for the three and nine months ended September 30, ~~2019,~~2020, respectively, and ~~$10.0~~$5.7 million and ~~$29.9~~$17.3 million for the three and nine months ended September 30, ~~2018,~~2019, respectively.

Equity Method Investment

The partnership ~~entered into~~received a ~~project management agreement with~~distribution from NLR ~~Energy Logistics LLC, effective June 23, 2017,~~ in ~~which NLR provided~~ the ~~partnership a fixed monthly fee to coordinate and manage the development, design, and construction~~amount of the Little Rock, Arkansas unit train terminal. Construction of the terminal was completed during the first quarter of 2018. The partnership recognized 0 income during the three months ended September 30, 2018, and $75 thousand of other income$1.0 million during the nine months ended September 30, ~~2018, for these services. There was 0 income recognized for these services during the three and nine months ended September 30, 2019.~~2020. In addition, the partnership ~~recorded a~~had an outstanding receivable of ~~$51~~$25 thousand and $23 thousand due from NLR for various reimbursable expenses ~~to be reimbursed by NLR~~ as of September 30, ~~2019.~~

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~~Other Related Party Revenues~~2020 and ~~Expenses~~December 31, 2019, respectively.

The partnership incurs expenses charged by a subsidiary of the parent for cleaning of its storage tanks. The partnership incurred tank cleaning expense of $12 thousand and $22 thousand for the three and nine months ended September 30, 2018. There were 0 tank cleaning expenses incurred for the three and nine months ended September 30, 2019.

~~11.~~12. EQUITY METHOD INVESTMENT

NLR Energy Logistics LLC

The partnership and Delek Renewables LLC have a 50/50 joint venture, NLR Energy Logistics LLC, which operates a unit train terminal in the Little Rock, Arkansas area with capacity to unload 110-car unit trains and provide approximately 100,000 barrels of storage. ~~Operations commenced at the beginning of the second quarter of 2018, and the first unit train was received in July 2018.~~ As of September 30, ~~2019,~~2020, the ~~partnership's~~partnership’s investment balance in the joint venture was ~~$4.2~~$3.8 million.

The partnership does not consolidate any part of the assets or liabilities or operating results of its equity method investee. The partnership’s share of net income or loss in the investee increases or decreases, as applicable, the carrying value of the investment. With respect to NLR, the partnership determined that this entity does not represent a variable interest entity and consolidation is not required. In addition, although the partnership has the ability to exercise significant influence over the joint venture through board representation and voting rights, all significant decisions require the consent of the other investor without regard to economic interest.

~~Summarized Financial Information~~

The partnership reports its proportional share of equity method investee income (loss) on a one month lag in the consolidated statements of operations. The following table presents combined summarized statement of operations data of our equity method investee for the three and nine months ended August 31, 2019 and 2018 (amounts represent 100% of investee financial information in thousands, unaudited):

Three Months Ended August 31,
Nine Months Ended
‎August 31,
2019
2018
2019
2018
Total revenues
$
589
$
365
$
1,994
$
365
Total operating expenses
243
269
934
529
Net income (loss)
$
346
$
96
$
1,060
$
(164)

‎

2422

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis provides information we believe is relevant to understand our consolidated financial condition and results of operations. This discussion should be read in conjunction with our unaudited consolidated financial statements and accompanying notes contained in this report together with our ~~2018~~2019 annual report. The results of operations for the three and nine months ended September 30, ~~2019,~~2020, are not necessarily indicative of the results we expect for the full year.

Cautionary Information Regarding Forward-Looking Statements

Forward-looking statements are made in accordance with safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are based on current expectations that involve a number of risks and uncertainties and do not relate strictly to historical or current facts, but rather to plans and objectives for future operations. These statements may be identified by words such as “anticipate,” “believe,” “continue,” “estimate,” “expect,” “intend,” “outlook,” “plan,” “predict,” “may,” “could,” “should,” “will” and similar expressions, as well as statements regarding future operating or financial performance or guidance, business strategy, environment, key trends and benefits of actual or planned acquisitions.

Factors that could cause actual results to differ from those expressed or implied in the forward-looking statements include those discussed in Part I, Item 1A, “Risk Factors,” of our ~~2018~~2019 annual report and in Part II, Item 1A, “Risk Factors,” in this report, or incorporated by reference. Specifically, we may experience fluctuations in future operating results due to disruption caused by health epidemics, such as the COVID-19 outbreak; changes in general economic, market or business conditions; foreign imports of ethanol; fluctuations in demand for ethanol and other fuels; risks of accidents or other unscheduled shutdowns affecting our assets, including mechanical breakdown of equipment or infrastructure; risks associated with changes to federal policy or regulation; ability to comply with changing government usage mandates and regulations affecting the ethanol industry; price, availability and acceptance of alternative fuels and alternative fuel vehicles, and laws mandating such fuels or vehicles; changes in operational costs at our facilities and for our railcars; failure to realize the benefits projected for capital projects; competition; inability to successfully implement growth strategies; the supply of corn and other feedstocks; unusual or severe weather conditions and natural disasters; ability and willingness of parties with whom we have material relationships, including Green Plains Trade, to fulfill their obligations; labor and material shortages; changes in the availability of unsecured credit and changes affecting the credit markets in general; risks related to acquisition and disposition activities; and other risk factors detailed in our reports filed with the SEC.

We believe our expectations regarding future events are based on reasonable assumptions. However, these assumptions may not be accurate or account for all risks and uncertainties. Consequently, forward-looking statements are not guaranteed. Actual results may vary materially from those expressed or implied in our forward-looking statements. In addition, we are not obligated nor do we intend to update our forward-looking statements as a result of new information unless it is required by applicable securities laws. We caution investors not to place undue reliance on forward-looking statements, which represent management’s views as of the date of this report or documents incorporated by reference.

Overview

Green Plains Partners provides fuel storage and transportation services by owning, operating, developing and acquiring ethanol and fuel storage ~~tanks,~~facilities, terminals, transportation assets and other related assets and businesses. We are Green Plains’ primary downstream logistics provider and generate a substantial portion of our revenues under fee-based commercial agreements with Green Plains Trade for receiving, storing, transferring and transporting ethanol and other fuels, which are supported by minimum volume or take-or-pay capacity commitments.

Recent Developments

~~Rejection~~Impact of ~~Offer – JGP Energy Partners~~COVID-19 and Decline in Oil Demand

~~On October 28, 2019, upon recommendation~~The COVID-19 pandemic and related economic repercussions have created significant volatility, uncertainty, and turmoil in the energy industry. The situation surrounding COVID-19 continues to evolve rapidly and the ultimate duration and impact of the ~~conflicts committee, we rejected our parent’s right of first offer related~~outbreak remains highly uncertain and subject to ~~the potential purchase of the Green Plains interest in the JGP Energy Partners’ Beaumont, Texas terminal.~~change.

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We continue to closely monitor the impact of COVID-19 on all aspects of our business, including how it will impact our employees, customers, vendors, and business partners. For the three and nine months ended September 30, 2020, there has been no adverse effect due to COVID-19 on our ability to maintain operations, including our financial reporting systems, our internal controls over financial reporting or our disclosure controls and procedures. In addition, to date we have not incurred any material COVID-19 related contingencies. Although we did not incur significant disruptions, we are unable to predict the impact that COVID-19 will have on our future financial position and operating results, or that of our parent from which we obtain a significant portion of our revenues, due to numerous uncertainties.

For further information regarding the impact of COVID-19 and the decline in oil demand on the partnership, please see Industry Factors Affecting our Results of Operations as well as Part II, Item 1A, “Risk Factors,” in this report, which is incorporated herein by reference.

Results of Operations

During the third quarter of ~~2019,~~2020, our parent continued to experience a weak ethanol margin environment. Our parent’s operating strategy, including the operating cost savings initiative, is to increase utilization rates and efficiency while reducing operating expenses to achieve improved margins in the current environment. Capacity utilization increased fromenvironment, maintaining an average utilization rate of ~~80.0%~~approximately 66.8% of ~~capacity in the second quarter to 84.2~~capacity. Ethanol throughput was ~~% of capacity in the third quarter. Ethanol production was 238.5~~189.6 mmg, ~~for the third quarter of 2019,~~ compared with the contracted minimum volume commitment of 235.7 mmg per quarter. As a result, the partnership charged Green Plains Trade ~~received~~$2.4 million related to the minimum volume commitment deficiency for the quarter, resulting in a credit ~~of $159 thousand related~~ to ~~prior deficiency payments we charged to them.~~be applied against excess volumes in future periods. The cumulative minimum volume deficiency credits available to Green Plains Trade as of September 30, ~~2019~~2020 totaled ~~$7.4~~$6.7 million. ~~These~~If these credits ~~expire, if~~are unused ~~as follows:~~

~~$2.9~~by Green Plains Trade, $4.3 million ~~expiring on December 31, 2019;~~

~~$4.0 million, expiring on March 31, 2020; and~~

~~$0.5 million, expiring~~will expire on June 30, ~~2020.~~2021 and $2.4 million will expire on September 30, 2021.

WeThese credits have ~~previously~~been recognized in revenue by the ~~above credits as revenue,~~partnership, and as such, future volumes throughput by Green Plains Trade in excess of the quarterly minimum volume commitment, up to the amount of these credits, will not be recognized in revenue in future ~~periods.~~periods prior to expiration.

Our parent’s operating strategy is to reduce operating expenses, energy usage, and water consumption while running at higher utilization rates in order to achieve improved margins. However, in the current environment, our parent may exercise operational discretion that results in reductions in production. Additionally, our parent may experience lower run rates due to the construction of various projects as well as delays in receiving the necessary permits required to operate our facilities. It is possible that production could be below minimum volume commitments in the future, depending on various factors that drive each bio-refineries variable contribution margin, including future driving and gasoline demand for the industry. At the same time, our parent is also focused on the deployment of high protein technology at each of its facilities, which could lead to our parent having more consistent margins and operating throughput rates over time.

Adjusted EBITDA and Distributable Cash Flow

Adjusted EBITDA is defined as earnings before interest expense, income tax expense, depreciation and amortization excluding the amortization of right-of-use assets, ~~and debt issuance costs,~~ plus adjustments for transaction costs related to acquisitions or financing transactions, ~~minimum volume commitment deficiency payments,~~ unit-based compensation expense, net gains or losses on asset sales, and our proportional share of EBITDA adjustments of our equity method investee.

Distributable cash flow is defined as adjusted EBITDA less interest paid or payable, income taxes paid or payable, maintenance capital expenditures, which are defined under our partnership agreement as cash expenditures (including expenditures for the construction or development of new capital assets or the replacement, improvement or expansion of existing capital assets) made to maintain our operating capacity or operating income, and our proportional share of distributable cash flow adjustments of our equity method investee.

Adjusted EBITDA and distributable cash flow are supplemental financial measures that we use to assess our financial performance. We believe their presentation provides useful information to investors in assessing our financial condition and results of operations. However, these presentations are not made in accordance with GAAP. The GAAP measure most directly comparable to adjusted EBITDA and distributable cash flow is net income. Since adjusted EBITDA and distributable cash flow may be defined differently by other companies in our industry, our definitions of adjusted EBITDA and distributable cash flow may not be comparable to similarly titled measures of other companies, diminishing their utility. Adjusted EBITDA and distributable cash flow should not be considered in isolation or as alternatives to net income or any other measure of financial performance presented in accordance with GAAP to analyze our financial performance and operating results.

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The following table presents reconciliations of net income to adjusted EBITDA and to distributable cash flow, for the three and nine months ended September 30, ~~2019~~2020 and ~~2018~~2019 (unaudited, dollars in thousands):


	Three Months Ended ‎September 30,				Nine Months Ended ‎September 30,				Three Months Ended ‎September 30,				Nine Months Ended ‎September 30,
	2019		2018		2019		2018		2020		2019		2020		2019
Reconciliations to Non-GAAP Financial Measures:
Net income	$	10,132	$	14,451	$	31,089	$	41,545	$	10,306	$	10,132	$	30,859	$	31,089
Interest expense		2,103		1,871		6,324		5,253		2,498		2,103		6,182		6,324
Income tax expense		45		5		144		70		30		45		166		144
Depreciation and amortization		991		1,120		2,747		3,406		940		991		2,867		2,747
MVC adjustments⁽¹⁾		-		(747)		-		-
Transaction costs		-		6		-		288
Unit-based compensation expense		81		76		239		196		81		81		239		239
Gain on the disposal of assets		(87)		-		(14)		-		-		(87)		-		(14)
Proportional share of EBITDA adjustments of equity method investee ⁽²⁾		44		45		153		45
Proportional share of EBITDA adjustments of equity method investee ⁽¹⁾										43		44		137		153
Adjusted EBITDA		13,309		16,827		40,682		50,803		13,898		13,309		40,450		40,682
Interest paid or payable		(2,103)		(1,871)		(6,324)		(5,253)		(2,498)		(2,103)		(6,182)		(6,324)
Income taxes paid or payable		(45)		(4)		(141)		(68)		(30)		(45)		(91)		(141)
Maintenance capital expenditures		(62)		(35)		(62)		(50)		(62)		(62)		(116)		(62)
Distributable cash flow	$	11,099	$	14,917	$	34,155	$	45,432
Distributable cash flow ⁽²⁾									$	11,308	$	11,099	$	34,061	$	34,155

Distributions declared⁽³⁾	$	11,280	$	15,503	$	33,829	$	46,499	$	2,848	$	11,280	$	8,520	$	33,829

Coverage ratio		0.98x		0.96x		1.01x		0.98x		3.97x		0.98x		4.00x		1.01x

(1) ~~Adjustments related to the storage and throughput quarterly minimum volume commitments.~~

~~(2)~~ Represents our proportional share of depreciation and amortization of our equity method investee.

(2) Distributable cash flow does not include adjustments for the required principal payments on the term loan of $12.5 million for the three and nine months ended September 30, 2020.

(3) Distributions declared for the applicable period and paid in the subsequent quarter.

Selected Financial Information and Operating Data

The following discussion reflects the results of the partnership for the three and nine months ended September 30, ~~2019~~2020 and ~~2018.~~2019.

Selected financial information for the three and nine months ended September 30, ~~2019~~2020 and ~~2018,~~2019, is as follows (unaudited, in thousands):


	Three Months Ended ‎September 30,						Nine Months Ended ‎September 30,						Three Months Ended ‎September 30,						Nine Months Ended ‎September 30,
	2019		2018		% Var.		2019		2018		% Var.		2020		2019		% Var.		2020		2019		% Var.
Revenues
Storage and throughput services	$	11,785	$	15,748	(25.2)	%	$	35,355	$	45,965	(23.1)	%	$	12,520	$	11,785	6.2	%	$	36,090	$	35,355	2.1	%
Railcar transportation services		5,005		6,156	(18.7)			16,129		19,780	(18.5)			5,538		5,005	10.6			16,036		16,129	(0.6)
Terminal services		2,193		2,447	(10.4)			7,394		8,028	(7.9)			2,162		2,193	(1.4)			6,488		7,394	(12.3)
Trucking and other		1,171		1,419	(17.5)			3,188		3,722	(14.3)			1,162		1,171	(0.8)			3,420		3,188	7.3
Total revenues		20,154		25,770	(21.8)			62,066		77,495	(19.9)			21,382		20,154	6.1			62,034		62,066	(0.1)
Operating expenses
Operations and maintenance (excluding depreciation and amortization reflected below)		6,216		7,283	(14.7)			19,314		23,586	(18.1)			6,647		6,216	6.9			19,410		19,314	0.5
General and administrative		949		1,109	(14.4)			3,054		3,689	(17.2)			1,116		949	17.6			3,038		3,054	(0.5)
Depreciation and amortization		991		1,120	(11.5)			2,747		3,406	(19.3)			940		991	(5.1)			2,867		2,747	4.4
Total operating expenses		8,156		9,512	(14.3)			25,115		30,681	(18.1)			8,703		8,156	6.7			25,315		25,115	0.8
Operating income	$	11,998	$	16,258	(26.2)	%	$	36,951	$	46,814	(21.1)	%	$	12,679	$	11,998	5.7	%	$	36,719	$	36,951	(0.6)	%

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Selected operating data for the three and nine months ended September 30, ~~2019~~2020 and ~~2018,~~2019, is as follows (unaudited):



	Three Months Ended ‎September 30,				Nine Months Ended ‎September 30,				Three Months Ended ‎September 30,				Nine Months Ended ‎September 30,
	2019	2018	% Var.		2019	2018	% Var.		2020	2019	% Var.		2020	2019	% Var.
Product volumes (mmg)
Storage and throughput services	238.9	314.1	(23.9)	%	619.7	926.7	(33.1)	%	189.6	238.9	(20.6)	%	581.3	619.7	(6.2)	%

Terminal services:
Affiliate	31.8	35.2	(9.7)		86.4	101.3	(14.7)		24.5	31.8	(23.0)		79.3	86.4	(8.2)
Non-affiliate	26.3	28.1	(6.4)		79.1	90.7	(12.8)		27.7	26.3	5.3		78.3	79.1	(1.0)
	58.1	63.3	(8.2)		165.5	192.0	(13.8)		52.2	58.1	(10.2)		157.6	165.5	(4.8)

Railcar capacity billed (daily avg.)	77.0	98.2	(21.6)		80.5	98.6	(18.4)		81.5	77.0	5.8		80.4	80.5	(0.1)

Three Months Ended September 30, ~~2019,~~2020, Compared with the Three Months Ended September 30, ~~2018~~2019

Consolidated revenues ~~decreased $5.6~~increased $1.2 million for the three months ended September 30, ~~2019,~~2020, compared with the same period for ~~2018.~~2019. Storage and throughput services revenue ~~decreased $4.0~~increased $0.7 million due to an increase in the rate per gallon charged to Green Plains Trade beginning on July 1, 2020. Railcar transportation services revenue increased $0.5 million primarily due to ~~a decrease~~an increase in throughput volumes as a result of our parent’s sale of the Bluffton, Indiana, Lakota, Iowa, and Riga, Michigan ethanol plants in the fourth quarter of 2018. Revenues generated from rail transportation services decreased $1.1 million primarily due to the reduction inaverage volumetric capacity provided ~~as a result of~~and the assignment of railcar operating leases to Valero in the fourth quarter of 2018. Terminal services revenue decreased $0.3 million as a result of reduced throughput volume by Green Plains Trade, and third parties, at our terminals. Trucking and other revenue decreased $0.2 million primarily due to a reduction in volumes transported for Green Plains Trade, partially offset by an increase in volumes transported for third party customers.average capacity fee charged.

Operations and maintenance expenses ~~decreased $1.1~~increased $0.4 million for the three months ended September 30, ~~2019,~~2020, compared with the same period for ~~2018,~~2019, primarily due to ~~lower~~an increase in railcar lease expense. This increase was due to the acceleration of operating lease expense ~~as a result~~caused by the early termination of ~~the assignment of~~leased railcar ~~leases to Valero in the fourth quarter of 2018,~~assets as well as ~~a reduction~~an increase in ~~unloading fees at our terminals.~~the average railcar lease rates.

General and administrative expenses ~~decreased~~increased $0.2 million for the three months ended September 30, ~~2019,~~2020, compared with the same period for ~~2018,~~2019, primarily due to ~~a reduction in~~increased expenses ~~allocated by our parent under the secondment agreement.~~for insurance and property taxes.

Distributable cash flow ~~decreased $3.8~~increased $0.2 million for the three months ended September 30, ~~2019,~~2020, compared with the same period for ~~2018,~~2019, primarily due to ~~lower net~~an increase in income ~~as a result of the sale of our parent’s Bluffton, Indiana, Lakota, Iowa, and Riga, Michigan ethanol plants in the fourth quarter of 2018.~~from operations.

Nine Months Ended September 30, ~~2019,~~2020, Compared with the Nine Months Ended September 30, ~~2018~~2019

Consolidated revenues for the nine months ended September 30, 2020, were comparable to the same period for 2019. Storage and throughput services revenue increased $0.7 million due to an increase in the rate per gallon charged to Green Plains Trade beginning on July 1, 2020. Trucking and other revenue increased $0.2 million due to an increase in volumes transported for Green Plains Trade. Terminal services revenue decreased ~~$15.4~~$0.9 million primarily as a result of a decrease in fees associated with minimum volume commitments. Revenues generated from railcar transportation services decreased $0.1 million primarily due to lower sublease revenue, partially offset by an increase in the average capacity fee charged.

Operations and maintenance expenses increased $0.1 million for the nine months ended September 30, ~~2019,~~2020, compared with the same period for ~~2018. Storage and throughput revenue decreased $10.6 million~~2019, primarily due to a decrease in throughput volumes as a result of our parent’s sale of the Bluffton, Indiana, Lakota, Iowa, and Riga, Michigan ethanol plants in the fourth quarter of 2018, and lower utilization rates across the remaining platform. Revenues generated from rail transportation services decreased $3.7 million primarily due to the reduction in volumetric capacity provided as a result of the assignment of railcar operating leases to Valero in the fourth quarter of 2018. Terminal services revenue decreased $0.6 million as a result of reduced throughput volume by Green Plains Trade, and third parties, at our terminals. Trucking and other revenue decreased $0.5 million primarily due to a reduction in volumes transported for Green Plains Trade, partially offset by an increase in ~~volumes transported for third party customers.~~

~~Operations~~repair and maintenance expenses decreased $4.3 million for the nine months ended September 30, 2019, compared with the same period for 2018, primarily due to lower railcar lease expense as a result of the assignment of railcar leases to Valero in the fourth quarter of 2018, as well as a reduction in unloading fees, wages, and repair and maintenance expenses.

General and administrative expenses decreased $0.6 million for the nine months ended September 30, 2019, compared with the same period for 2018, primarily due to a reduction in accounting and transaction fees, as well as expenses allocated by our parent under the secondment ~~agreement.~~agreement, partially offset by a decrease in unloading fees.

General and administrative expenses for the nine months ended September 30, 2020, were comparable to the same period for 2019.

Distributable cash flow decreased $0.1 million for the nine months ended September 30, 2020, compared with the same period for 2019, primarily due to a decrease in income from operations.

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Depreciation and amortization expenses decreased $0.7 million for the nine months ended September 30, 2019, compared with the same period for 2018, due to a decrease in depreciation of $0.5 million as a result of the sale of storage assets adjacent to the Bluffton, Indiana, Lakota, Iowa, and Riga, Michigan ethanol plants in the fourth quarter of 2018, as well as a $0.2 million decrease in amortization associated with railcar asset retirement obligations.

Distributable cash flow decreased $11.3 million for the nine months ended September 30, 2019, compared with the same period for 2018 primarily due to lower net income as a result of the sale of our parent’s Bluffton, Indiana, Lakota, Iowa, and Riga, Michigan ethanol plants in the fourth quarter of 2018. In addition, interest expense increased by $1.1 million primarily due to higher average interest rates.

Industry Factors Affecting our Results of Operations

U.S. Ethanol Supply and Demand

According to the EIA, domestic ethanol production averaged ~~1.02~~0.92 million barrels per day during the third quarter of ~~2019,~~2020, which was 4%10% lower than the ~~1.06~~1.02 million barrels per day for the ~~third~~same quarter of last year. Refiner and blender input volume ~~increased 1%~~decreased 10% to ~~941 thousand~~0.85 million barrels per day for the third quarter of ~~2019,~~2020, compared with ~~932 thousand~~0.94 million barrels per day for the same quarter last year. Gasoline demand for the third quarter of ~~2019 increased slightly by 7 thousand~~2020 decreased 0.87 million barrels per day, or ~~0.1%~~9% compared to the same quarter last year. U.S. domestic ethanol ending stocks decreased by approximately ~~0.2~~3.5 million barrels, or 1%15%, to ~~23.2~~19.7 million barrels for the third quarter of ~~2019.~~2020. At the end of May 2019, the EPA finalized ~~regulatory changes to apply~~regulations applying the 1one pound per square inch Reid Vapor Pressure (RVP) waiver, ~~that currently applies~~which applied to E10 during ~~the~~ summer months, ~~so that it applies~~to apply to E15 as well. This ~~removes~~removed a significant barrier to wider sales of E15 in the summer months, thus expanding the market for ethanol in transportation fuel. As of September 30, ~~2019,~~2020, according to Prime the Pump, there were approximately ~~1,970~~2,250 retail stations selling E15 in 30 states, up from ~~1,700~~2,080 at the beginning of the year, a~~ccording~~as well as 203 pipeline terminal locations now offering E15 to ~~Growth Energy.~~wholesale customers.

Global Ethanol Supply and Demand

According to the USDA Foreign Agriculture Service, domestic ethanol exports through August 31, ~~2019~~2020 were approximately 0.9 bgy, down 10% from 1.00 ~~bg, down 13% from 1.15 bg~~bgy for the same period of ~~2018.~~2019. Canada moved ahead of Brazil ~~remained~~as the largest export destination for U.S. ethanol, which accounted for ~~25%~~22% of domestic ethanol export volume despite the 20% tariff on U.S. ethanol imports in excess of 150 million liters, or 39.6 million gallons per quarter, imposed in September 2017 by Brazil’s Chamber of Foreign Trade, or CAMEX. In a resolution published August 31, 2019,volume. Brazil, raised the annual import quota to 750 million liters, or 198 million gallons per year from the expiring 600 million-liter limit. The final resolution awaits approval of the Brazilian government. In addition, Canada, India, and South Korea ~~and the Philippines~~ accounted for ~~21%~~20%, ~~13%, 6%~~16%, and 5%8%, respectively, of U.S. ethanol exports.

On April 1, 2018, China announced it would add an additional 15% tariff to the existing 30% tariff it had earlier imposed on ethanol imports from the United States and Brazil. China later raised the tariff further to 70% as the trade war escalated. ~~There continues to be negotiations between~~In January 2020, China and the ~~U.S. and China with no certainty of when~~United States struck a “Phase I” trade agreement, ~~may be reached.~~which included commitments on agricultural commodity purchases. Ethanol, corn, and distillers grains were included as potential purchases in the agreement. China has been purchasing large quantities of corn, which has raised domestic prices of this feedstock for our parent’s ethanol production process. China has started purchasing more distillers grains than last year, and in October 2020, it was announced that China had purchased a shipment of U.S. ethanol for the first time since March 2018.

The cost to produce the equivalent amount of starch found in sugar from $3.50-per-bushel corn is 7 cents per pound. The average price of sugar ~~remained at~~was approximately 1312.4 cents per pound during the third quarter of ~~2019.~~2020. We currently estimate that net ethanol exports will ~~reach between~~range from 1.2 billion to 1.4 billion gallons ~~and 1.5 billion gallons~~ in ~~2019~~2020, excluding any significant exports to China, based on historical demand from a variety of countries and certain countries who seek to improve their air quality and eliminate MTBE from their own fuel supplies.

Legislation and Regulation

We are sensitive to government programs and policies that affect the supply and demand for ethanol and other fuels, which in turn may impact the volume of ethanol and other fuels we handle. Various bills and amendments have been ~~discussed~~proposed in the House and Senate which would eliminate the RFS II entirely, eliminate the corn based ethanol portion of the mandate, orand make it more difficult to sell fuel blends with higher levels of ethanol. ~~However, we~~We believe it is unlikely that any of these bills ~~would~~will become law in ~~a divided~~the current Congress. In addition, the manner in which the EPA administers the RFS II and related regulations can have a significant impact on the actual amount of ethanol blended into the domestic fuel supply.

~~Table of Contents~~

Federal mandates and state-level clean fuel programs supporting the use of renewable fuels are a significant driver of ethanol demand in the U.S. Ethanol policies are influenced by concerns for the environment, diversifying our fuel supply, and reducing the country’s dependence on foreign oil. Consumer acceptance of flex-fuel vehicles and higher ethanol blends of ethanol in non-flex-fuel vehicles may be necessary before ethanol can achieve further growth in U.S. market share. In addition, expansion of clean fuel programs in other states, or a national low carbon fuel standard could increase the demand for ethanol, depending on how it is structured.

Table of Contents

Congress first enacted ~~Corporate Average Fuel Economy (CAFE)~~CAFE in 1975 to reduce energy consumption by increasing the fuel economy of cars and light trucks. ~~It provides~~Flexible-fuel vehicles (FFVs), which are designed to run on a ~~54% efficiency bonus~~mixture of fuels, including higher blends of ethanol such as E85, receive preferential treatment in the form of CAFE credits. There are approximately 21 million FFVs on the road in the U.S. today, 16 million of which are light duty trucks. FFV credits have been decreasing since 2014 and will be completely phased out in 2020. Absent CAFE preferences, auto manufacturers may not be willing to build flexible-fuel vehicles, which ~~can operate on ethanol blends up~~has the potential to ~~E85.~~slow the growth of E85 markets. However, California’s Low Carbon Fuel Standard program (LCFS) has driven growth in E85 usage, and other state/regional LCFS programs have the potential to do the same.

~~Another important factor is a waiver in the Clean Air Act, known as the~~The One-Pound Waiver ~~which allows E10~~that was extended in May 2019 to allow E15 to be sold year-round ~~even though it exceeds the Reid Vapor Pressure limitation of nine pounds per square inch. At the end of May 2019, the EPA finalized a rule which extended the One-Pound Waiver~~ to ~~E15 expanding it beyond flex-fuel~~all vehicles ~~during the June 1 to September 15 summer driving season. This rule~~model year 2001 and newer is being challenged in an action filed in Federal District Court for the DCD.C. Circuit. However, the One-Pound Waiver isremains in effect, and ~~for the first time ever~~ E15 ~~was legally~~is sold ~~to all vehicles model~~ year ~~2001 and newer during the 2019 summer driving season.~~round in a number of states.

The RFS II has been a driving factor in the growth of ethanol usage in the United States. When the RFS II was ~~passed~~established in ~~2007 and rulemaking finalized in October~~ 2010, the required volume of ~~conventional renewable fuel~~“conventional” or corn-based ethanol to be blended with gasoline was to increase each year until it reached 15.0 billion gallons in ~~2015. In November 2018,~~2015, which left the EPA to address existing limitations in both supply (ethanol production) and demand (usage of ethanol blends in older vehicles). On December 19, 2019, the EPA announced ~~it would maintain~~ the ~~15.0 billion gallon mandate~~final 2020 RVO for conventional ethanol, which met the 15.0-billion-gallon congressional target. The EPA has not yet released a draft RVO rule for the 2021 volumes. They typically do so in ~~2019. On~~June or July, ~~5, 2019,~~and aim to finalize the ~~EPA released their annual proposal~~rule by November 30 each year. It is unclear when they will release the RVO for RFS volumes, which included 15.0 billion gallons for conventional renewable fuel in 2020. On October 15, 2019, the EPA issued a supplemental proposal for RFS volumes, seeking additional comment on projecting the volume of fuels to be exempted by small refinery exemptions and including those volumes in the annual calculation. These proposals are expected to be finalized by the end of the year.2021, if at all.

The EPA has the authority to waive the ~~mandates~~biofuel mandate, in whole or in part, if there is inadequate domestic renewable fuel supply or the requirement severely harms the domestic economy or environment. According to the RFS II, if mandatory renewable fuel volumes are reduced by at least 20% for two consecutive years, the EPA is required to modify, or reset, statutory volumes through ~~2022.~~2022 – the year through which the statutorily prescribed volumes run. While conventional ethanol maintained 15 billion gallons, 2019 was the second consecutive year that the total proposed ~~RVOs were~~RVO was more than 20% below the statutory volumes levels. Thus, the EPA ~~Administrator has directed his staff~~was expected to initiate a reset rulemaking, ~~wherein the EPA will~~and modify statutory volumes through 2022, and do so based on the same factors ~~used~~they are to ~~set~~use in setting the RVOs post-2022. These factors include environmental impact, domestic energy security, expected production, infrastructure impact, consumer costs, job creation, price of agricultural commodities, food prices, and rural economic development. However, on December 19, 2019, the EPA announced it would not be moving forward with a reset rulemaking in 2020. It is unclear when or if they will propose a reset rulemaking.

The EPA assigns individual refiners, blenders, and importers the volume of renewable fuels they are obligated to use based on their percentage of total domestic transportation fuel sales. Obligated parties use RINs to show compliance with ~~RFS-mandated~~the RFS II mandated volumes. Ethanol producers assign RINs to renewable fuels and the RINs are detached when the renewable fuel is blended with transportation fuel domestically. Market participants can trade the detached RINs in the open market. The market price of detached RINs affects the price of ethanol in certain markets and ~~influences the~~can influence purchasing decisions by obligated parties.

The EPA can, in consultation with the Department of Energy, waive the obligation for individual refineries that are suffering “disproportionate economic hardship” due to compliance with the RFS. To qualify, the refineries must have total throughput of under 75,000 barrels per day and state their case for an exemption in an applicationOn April 15, 2020, five governors sent a letter to the EPA ~~for each~~requesting a general waiver from the RFS due to the drop in demand caused by COVID-19 travel restrictions. They contend that the compliance ~~year.~~costs – i.e. cost to purchase RINs – is onerous and could put some refineries out of business. The EPA has 90 days to respond, and as of this filing had indicated only that they are “watching the situation closely, and reviewing the governors’ letter.”

The EPA waived the obligation for 19 of 20 applicants for compliance year 2016, totaling 790 million gallons of renewable fuels. They also waived the obligation for 35 of 37 applicants for compliance year 2017, totaling 1.82 billion gallons of renewable fuels. They waived the obligation for 31 of 42 applicants for compliance year 2018, totaling 1.43 billion gallons of renewable fuels. These waivers effectively reduced the annual RVO by that amount, sinceOn October 21, 2020, fifteen Senate Republicans sent a letter to the EPA requesting a general waiver from the RFS to reduce the 2021 RVO, which has not ~~accounted~~yet been proposed, citing the reduced demand for fuels due to COVID-19. The letter also asked that the ~~lost~~500 million gallon court-ordered remand be ignored, and that any gallons ~~by reallocating them to other~~previously exempted through small refineries exemptions not be reallocated among obligated parties.

Under the RFS II, a small refinery is defined as one that processes fewer than 75,000 barrels of petroleum per day. Small refineries can petition the EPA for a SRE which, if approved, waives their portion of the annual RVO requirements. The ~~resulting surplus~~EPA, through consultation with the DOE and the USDA, can grant them a full or partial waiver, or deny it outright within 90 days of ~~RINs~~submittal. The EPA granted significantly more of these waivers for 2016, 2017 and 2018 than they had in the ~~market brought values down significantly to under $0.20. Since higher~~past, totaling 790 mmg of waived requirements for the 2016 compliance year, 1.82 billion gallons for 2017 and 1.43 billion gallons for 2018. In doing so, the EPA effectively reduced the RFS II mandated volumes for those compliance years by those amounts respectively, and as a result, RIN values ~~help to make higher blends~~declined significantly.

Table of ethanol more cost competitive at the pump, lower RIN values could hinder or at least slow retailer and consumer adoption of E15 and other higher blends of ethanol. It is reasonable to assume there will be 30-40 waiver applications submitted for compliance year 2019, which, if handled as in years past, could represent approximately 1.5 to 2 billion gallons of renewable fuels.Contents

Biofuels groups ~~and biofuels opposition groups each~~ have filed ~~lawsuits related to RFS II. In addition to the E15 litigation discussed previously, biofuels groups have filed~~a lawsuit in the ~~U.S. Federal District~~ Court of Appeals for the D.C. Circuit, challenging the 2019 RVO rule over the EPA’s failure to address small refinery exemptions in the rulemaking. ~~Biofuel opposition~~This was the first RFS II rulemaking since the expanded use of the exemptions came to light; however, the EPA had declined to cap the number of waivers it grants, and until late 2019, had declined to alter how it accounts for the retroactive waivers in its annual volume calculations. The EPA has a statutory mandate to ensure the volume requirements are met, which are achieved by setting the percentage standards for obligated parties. The EPA’s recent approach accomplished the opposite. Even if all the obligated parties complied with their respective percentage obligations for 2019, the nation’s overall supply of renewable fuel would not meet the total volume requirements set by the EPA. This undermines Congressional intent to increase the consumption of renewable fuels in the domestic transportation fuel supply. Biofuels groups have ~~filed also~~argued the EPA must therefore adjust its percentage standard calculations to make up for past retroactive waivers and adjust the standards to account for any waivers it reasonably expects to grant in the ~~DC Circuit, with such action consolidated with similar cases, to review the EPA’s 2018 RVO~~future.

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~~rulemaking. Biofuel groups have filed an action in~~In a supplemental rulemaking to the ~~DC Circuit to compel~~2020 RVO rule, the EPA ~~to produce information under~~changed their approach, and for the ~~Freedom of Information Act related~~first time accounted for the gallons that they anticipate they will be waiving from the blending requirements due to small refinery exemptions. ~~Certain biofuel groups have further filed suit~~To accomplish this, they are adding in the ~~Tenth Circuit Court~~trailing three year average of ~~Appeals challenging~~gallons the DOE recommended be waived, in effect raising the blending volumes across the board in anticipation of waiving the obligations in whole or in part for certain refineries that qualify for the exemptions. Though the EPA has often disregarded the recommendations of the DOE in years past, they stated in the rule their intent to adhere to these recommendations going forward, including granting partial waivers rather than an all or nothing approach. The EPA will be adjudicating the 2020 compliance year small refinery ~~exemptions. Numerous other suits on related RFS II matters are also pending, namely involving RVOs and small refinery exemptions.~~exemption applications in early 2021, but have indicated they will adhere to the DOE recommendations for the 2019 compliance year applications as well, which should be adjudicated in 2020.

On January 24, 2020, the U.S. Court of Appeals for the 10th Circuit ruled on RFA et. al. vs. EPA in favor of biofuels interests, overturning EPA’s granting of refinery exemptions to three refineries on two separate grounds. The Court agreed that, under the Clean Air Act, refineries are eligible for SREs for a given RVO year only if such exemptions are extensions of exemptions granted in previous RVO years. In this case, the three refineries at issue did not qualify for SREs in the year prior to the year that EPA granted them. They were thus ineligible for additional SRE relief because there were no immediately prior SREs to extend. In addition, the Court agreed that the disproportionate economic hardship prong of SRE eligibility should be determined solely by reference to whether compliance with the RFS II creates such hardship, not whether compliance plus other issues create disproportionate economic hardship. The Court thus vacated EPA's grant of SREs for certain years and remanded the grants back to EPA. The refiners appealed for a rehearing which was denied. Two of the refiners appealed the decision to the U.S. Supreme Court. If the decision against the EPA is upheld by the Supreme Court, it is uncertain how the EPA will propose to remedy the situation.

In light of the 10th Circuit ruling, a number of refineries have applied for “gap year” SREs in an effort to establish a continuous string of relief and to ensure they are able to qualify for SREs going forward. A total of 64 gap year requests were filed with the EPA and reviewed by the DOE. On September 14, 2020 the EPA announced that they were denying 54 of the gap year requests that had been scored and returned by the DOE, regardless of how they had been scored. We believe that they will apply the same standard and deny the remaining ten gap year requests. Without a string of continuous SRE approvals, almost every small refinery would no longer be able to apply for hardship relief in this manner, unless the Supreme Court takes up and overturns the 10th Circuit ruling, which we believe is unlikely.

In October 4, 2019, the White House ~~announced that they would start accounting for gallons lost~~directed the USDA and EPA to ~~refinery exemptions in annual RVO rulemakings, beginning~~move forward with ~~a supplemental rule~~rulemaking to ~~the 2020 RVO which is due~~expand access to be finalized before the end of 2019. They propose to add into the formula for the RVO a rolling average of the past three years’ waived gallons, so when additional waivers are granted, the total volume of renewable fuels required remains largely intact. This directive will also eliminate barriers to adoption of E15 and higher blends ~~including~~of biofuels. This includes funding for infrastructure, labeling changes and allowing E15 to be sold through E10 infrastructure. The USDA rolled out the Higher Blend Infrastructure Incentive Program in the summer of 2020, providing competitive grants to fuel terminals and retailers for installing equipment for dispensing higher blends of ethanol and biodiesel. The EPA has indicated it could soon move forward with notice of proposed rulemaking on E15 labeling reforms. On September 12, 2020, President Trump announced his support for amending federal regulations to allow for E15 to be sold through E10 pumps, however federal agencies have yet to take formal action on this directive.

In 2017, the D.C. Circuit ruled in favor of biofuel groups against the EPA related to its decision to lower the 2016 volume requirements by 500 ~~million gallons.~~mmg. As a result, the Court remanded to the EPA to make up for the 500 ~~million gallons.~~mmg. Despite this, in the proposed 2020 RVO rulemaking released in July 2019, the EPA stated it does not intend to make up the 500 ~~million gallons~~mmg as the court directed, citing potential burden on obligated parties. ItThe EPA had indicated that it plans to address this court ordered remand in conjunction with the 2021 RVO rulemaking, however that rulemaking has been delayed indefinitely for political reasons.

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To respond to the COVID-19 health crisis and attempt to offset the subsequent economic damage, Congress passed multiple relief measures, most notably the Coronavirus Aid, Relief and Economic Security Act (CARES Act) in March 2020, which created and funded multiple programs that have impacted or could impact our industry. The USDA was given additional resources for the Commodity Credit Corporation (CCC) and they are using those funds to provide direct payments to farmers, including corn farmers from whom we purchase most of our feedstock for ethanol production. Similar to the trade aid payments made by the USDA over the past two years, this cash injection for farmers could cause them to delay marketing decisions and increase the price we have to pay to purchase corn. The USDA did not include any CCC program funds for supporting ethanol plants as of this filing.

The CARES Act provided for the Small Business Administration (SBA) to assist companies with fewer than 500 employees, and for some North American Industry Classification System (NAICS) codes, 1,000 employees, and keep them from laying off workers. The Paycheck Protection Program (PPP) was created and made payments to many farmers and ethanol plants with fewer than 1,000 employees. This could create a competitive imbalance in the marketplace, and for farmers, like the CCC funds, incentivize them to delay marketing corn. The PPP had its authorization increased by $321 billion in April.

The CARES Act also directed the Treasury Department to create programs to support medium-sized businesses, with fewer than 10,000 employees. The “Main Street” programs provide low interest loans to qualifying companies, though we do not qualify according to the most recent guidance from the Treasury Department.

Industrial grade ethanol is ~~anticipated that additional litigation~~the primary ingredient in hand sanitizer. The CARES Act provided a tax exclusion on the shipment of un-denatured ethanol for use in manufacturing hand sanitizer. The FDA has provided expanded guidance to allow for more denaturants to be used in ethanol intended for hand sanitizer production, and has expanded the grades of ethanol allowed for the duration of the public health crisis which on July 25, 2020 was extended another 90 days by the U.S. Secretary of Health and Human Services. We believe it is likely the public health crisis declaration will ~~ensue from this matter.~~be extended again.

Government actions abroad can significantly impact the demand for U.S. ethanol. In September 2017, China’s National Development and Reform Commission, the National Energy ~~Board~~Agency and 15 other state departments issued a joint plan to expand the use and production of biofuels containing up to 10% ethanol by 2020. China, the number three importer of U.S. ethanol in 2016, imported negligible volumes during ~~fiscal year~~ 2018 and 2019 due to a 30% tariff on U.S. ethanol, which increased to 70% in early 2018. There is no assurance that China’s joint plan to expand blending to 10% will be carried to fruition, nor that it will lead to increased imports of U.S. ethanol in the near term. ~~Our parent’s exports also face tariffs, rate quotas, countervailing duties,~~Ethanol is included as an agricultural commodity under the “Phase I” agreement with China, wherein they are to purchase upwards of $40 billion in agricultural commodities from the U.S. in both 2020 and ~~other hurdles~~2021. To date in ~~Brazil, the European Union, India, Peru, and elsewhere, which limits the ability to compete in some markets.~~2020, there have been no meaningful purchases of U.S. ethanol by China.

In Brazil, the Secretary of Foreign Trade issued an official written resolution, imposing a 20% tariff rate quota on U.S. ethanol imports in excess of 150 million liters, or 39.6 ~~million gallons~~mmg per quarter in September 2017. The initial ruling was valid for two years; however, it was extended at the end of August 2019 for an additional year. On an annual basis, Brazil will now allow into the country 750 million duty free liters distributed on a quarterly basis as follows: September to November 100 million liters, December to February 100 million liters, March to May 275 million liters and June to August 275 million liters. After briefly expiring on September 1, 2020, the tariff rate quota was extended for 90 days on September 14, 2020.

Our parent’s exports also face tariffs, rate quotas, countervailing duties, and other hurdles in the European Union, India, Peru, Columbia and elsewhere, which limits the ability to compete in some markets. Some countries are using the COVID-19 crisis as justification for raising duties on imports of U.S. ethanol, or blocking our imports entirely.

In June 2017, the Energy Regulatory Commission of Mexico (CRE) approved the use of 10% ethanol blends, which was challenged by ~~ten~~multiple lawsuits, of which ~~five cases~~several were dismissed. The ~~five~~ remaining four cases follow one of two tracks: 1) to determine the constitutionality of the CRE regulation, or 2) to determine the benefits, or lack thereof, of introducing E10 to Mexico. An injunction was granted in October 2017, preventing the blending and selling of E10, but was overturned by a higher court in June 2018 making it legal to blend and sell E10 by PEMEX throughout Mexico except for its three largest metropolitan areas. On January 15, 2020, the Mexican Supreme Court ruled that the expedited process for the CRE regulation was unconstitutional, and that after a 180 day period the maximum ethanol blend allowed in the country would revert to 5.8%. There is an effort underway to go through the full regulatory process to allow for 10% blends countrywide, including in the three major metropolitan areas. The 180 day window was extended due to COVID-19, and the new deadline is March 26, 2021. U.S. ethanol exports to Mexico totaled ~~29.4~~31.2 mmg in ~~2018.~~2019.

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On January 29, 2020, President Trump signed into law the updated North American Free Trade Agreement, known as the United States Mexico Canada Agreement or USMCA. The pact maintains the duty free access of U.S. agricultural commodities, including ethanol, into Canada and Mexico. The USMCA went into effect on July 1, 2020.

Colombia banned imports of U.S. fuel ethanol for two months, and on June 30, 2020, extended the ban one additional month. The Columbian President ordered this emergency decree citing COVID-19 as the rationale. This action is WTO compliant under Article 20 of the GATT. In 2019, the U.S. shipped Columbia 80.2 mmg of ethanol.

Liquidity and Capital Resources

Our principal sources of liquidity include cash generated from operating activities and borrowings under our ~~revolving~~amended credit facility. We consider opportunities to repay ~~redeem, repurchase~~ or refinance our debt, depending on market conditions, as part of our normal course of doing business. Our ability to meet our debt service obligations and other capital requirements depends on our future operating performance, which is subject to general economic, financial, business, competitive, legislative, regulatory and other conditions, many of which are beyond our control. We expect operating cash flows will be sufficient to meet our liquidity needs, and plan to ~~fund future expansion capital expenditures primarily from external sources, including borrowings under our revolving credit facility~~utilize a combination of operating cash, refinancing and ~~issuances of~~other strategic actions to repay debt ~~and equity securities. We expect these sources will be adequate for both our short-term and long-term liquidity needs.~~obligations as they come due.

At September 30, ~~2019,~~2020, we had ~~$1.0~~$0.1 million of cash and cash equivalents and ~~$68.0~~$4.3 million available under the revolving portion of our ~~revolving~~amended credit facility.

Net cash provided by operating activities was $34.3 million for the nine months ended September 30, 2020, compared with $36.2 million for the nine months ended September 30, ~~2019, compared with $48.0 million for the nine months ended September 30, 2018.~~2019. The decrease in cash flows from operating activities resulted primarily from ~~a decrease~~an increase in net ~~income of $10.5 million as a result of~~working capital, partially offset by the ~~sale of the storage assets and the assignment of railcar operating leases associated with the Bluffton, Indiana, Lakota, Iowa, and Riga, Michigan ethanol plants in the fourth quarter of 2018.~~distribution received from NLR. Net cash ~~provided by~~used in investing activities was $0.1 million for the nine months ended September 30, ~~2019,~~2020, compared with ~~$2.6 million of~~net cash ~~used in~~provided by investing activities of $0.1 million for the nine months ended September 30, ~~2018,~~2019, due to higher capital expenditures in the current year. Net cash used in financing activities was $34.3 million for the nine months ended September 30, 2020, compared with $35.8 million for the nine months ended September 30, 2019. This decrease was primarily due to the decrease in our quarterly distributions paid, partially offset by principal payments on our term loan and the payment of loan fees associated with amending our credit facility during the second quarter of 2020.

We incurred capital expenditures of $0.1 million for the nine months ended September 30, 2020. We do not anticipate significant capital spending for the remainder of 2020.

During the nine months ended September 30, 2020 we received a distribution of $1.0 million from our NLR joint venture. We did not make any equity method investee contributions during this period and we do not anticipate making significant equity contributions to NLR for the remainder of 2020. We expect to receive future distributions from NLR as excess cash becomes available.

Credit Facility

Green Plains Operating Company has a credit facility to fund working capital, capital expenditures and other general partnership purposes. The credit facility was amended on June 4, 2020, decreasing the total amount available from $200.0 million to $135.0 million. The amended credit facility includes a $130.0 million term loan and a $5.0 million revolving credit facility, maturing on December 31, 2021. Principal payments of $12.5 million were made on the term loan during the three and nine months ended September 30, 2020. Monthly principal payments of $2.5 million are required October 15, 2020 through April 15, 2021, with a step up to monthly payments of $3.2 million beginning May 15, 2021 through maturity. As of September 30, 2020, the term loan had a balance of $117.5 million and an interest rate of 6.00%, and there was a swing line loan outstanding of $0.7 million at an interest rate of 7.25%.

In certain situations we are required to make prepayments on the outstanding principal balance on the credit facility. If at any time subsequent to July 15, 2020, our cash balance exceeds $2.5 million for more than five consecutive business days, prepayments of outstanding principal are required in an amount equal to the excess cash. We are also required to prepay outstanding principal on the credit facility with 100% of net cash proceeds from any asset disposition or recovery event. Any prepayments on the term loan are applied to the remaining principal balance in inverse order of maturity, including the final payment. As of September 30, 2020, no prepayments on the term loan were required or paid.

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the expansion of our truck and tanker fleet and equity method investee contributions made to NLR. Net cash used in financing activities was $35.8 million for the nine months ended September 30, 2019, compared with $45.4 million for the nine months ended September 30, 2018. The decrease in cash used in financing activities was due to a $12.5 million reduction in cash distributions as a result of the retirement of units in the fourth quarter of 2018 and a $0.2 million decrease in loan fee payments, offset by a $3.1 million decrease in net borrowings.

~~We incurred capital expenditures of $0.2 million for the nine months ended September 30, 2019. We do not anticipate significant capital spending for the remainder of 2019.~~

We did not make any equity method investee contributions related to the NLR joint venture for the nine months ended September 30, 2019, and we do not anticipate making significant equity contributions to NLR for the remainder of 2019.

~~Revolving Credit Facility~~

Green Plains Operating Company has a $200.0 million secured revolving credit facility, which matures on July 1, 2020, to fund working capital, acquisitions, distributions, capital expenditures and other general partnership purposes. We intend to renew the revolving credit facility or replace it with another line of credit on or before the expiration date. The facility can be increased by up to $20.0 million without the consent of the lenders. At September 30, 2019, the outstanding principal balance was $132.0 million with an average interest rate of 5.04%.

We use LIBOR as a reference rate for our ~~revolving~~ credit facility. LIBOR is set to be phased out at the end of 2021. It is unclear if LIBOR will cease to exist at that time or if new methods of calculating LIBOR will be established such that it continues to exist after 2021. We ~~will~~may need to ~~renegotiate~~amend our credit facility to determine the interest rate to replace LIBOR with the new standard that is established. The potential effect of any such event on interest expense cannot yet be determined.

For more information related to our debt, see Note 34 – Debt to the consolidated financial statements in this report.

Distributions to Unitholders

On February ~~8, 2019,~~7, 2020, the partnership distributed $11.3 million to unitholders of record as of ~~February 1, 2019,~~January 31, 2020, related to the quarterly cash distribution of $0.475 per unit that was declared on January ~~17, 2019,~~16, 2020, for the quarter ended December 31, ~~2018.~~2019.

On May ~~10, 2019,~~8, 2020, the partnership distributed ~~$11.3~~$2.8 million to unitholders of record as of May 1, 2020, related to the quarterly cash distribution of $0.12 per unit that was declared on April 16, 2020 for the quarter ended March 31, 2020.

On August 7, 2020, the partnership distributed $2.8 million to unitholders of record as of ~~May 3, 2019,~~July 31, 2020, related to the quarterly cash distribution of ~~$0.475 per unit that was declared on April 18, 2019, for the quarter ended March 31, 2019.~~

~~On August 9, 2019, the partnership distributed $11.3 million to unitholders of record as of August 2, 2019, related to the quarterly cash distribution of $0.475~~$0.12 per unit that was declared on July ~~18, 2019,~~16, 2020, for the quarter ended June 30, ~~2019.~~2020.

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Contractual Obligations

Our contractual obligations as of September 30, ~~2019,~~2020, were as follows (in thousands):



	Payments Due By Period										Payments Due By Period
Contractual Obligations	Total		Less Than ‎1 Year		1-3 Years		3-5 Years		More Than ‎5 Years		Total		Less Than ‎1 Year		1-3 Years		3-5 Years		More Than ‎5 Years
Long-term debt obligations⁽¹⁾	$	140,100	$	132,498	$	1,346	$	1,373	$	4,883	$	118,200	$	34,035	$	84,165	$	-	$	-
Interest and fees on debt obligations ⁽²⁾		5,873		5,344		173		140		216		8,008		6,523		1,485		-		-
Operating leases ⁽³⁾		44,079		14,436		17,553		7,445		4,645		41,970		12,617		17,474		8,300		3,579
Service agreements ⁽⁴⁾		634		321		313		-		-		466		309		157		-		-
Other ⁽⁵⁾		4,305		210		1,513		1,286		1,296		4,953		1,082		1,952		604		1,315
Total contractual obligations	$	194,991	$	152,809	$	20,898	$	10,244	$	11,040	$	173,597	$	54,566	$	105,233	$	8,904	$	4,894

(1) Includes the current portion of long-term debt and excludes the effect of any debt discounts.

(2) Interest amounts are calculated ~~over~~based on the terms of the loans using current interest rates, assuming scheduled principal and interest amounts are paid pursuant to the ~~debt agreements.~~credit agreement. Includes administrative and/or commitment fees on debt obligations.

(3) Operating lease costs are primarily for property and railcar ~~leases.~~leases and exclude leases not yet commenced with undiscounted future lease payments of approximately $24.5 million.

(4) Service agreements are primarily related to minimum commitments on railcar unloading contracts at our fuel terminals.

(5) Includes asset retirement obligations to return property and equipment to its original condition at the termination of lease agreements.

Critical Accounting Policies and Estimates

Key accounting policies, including those relating to ~~depreciation of property and equipment,~~revenue recognition, leases, asset retirement obligations, and impairment of long-lived assets and goodwill are impacted significantly by judgments, assumptions and estimates used to prepare our consolidated financial statements. Information about our critical accounting policies and estimates is included in our ~~2018~~2019 annual report.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Market risk is the risk of loss arising from adverse changes in market rates and prices. At this time, we conduct all of our business in U.S. dollars and are not exposed to foreign currency risk.

Interest Rate Risk

We are exposed to interest rate risk through our ~~revolving~~ credit facility, which bears interest at variable rates. At September 30, ~~2019,~~2020, we had ~~$132.0~~$118.2 million outstanding under ~~our revolving~~the credit facility. A 10% change in interest rates would affect our interest expense by approximately ~~$665 thousand~~$0.7 million per year, assuming no changes in the amount outstanding or other ~~variables under our revolving credit facility.~~variables.

Other details about our outstanding debt are discussed in the notes to the consolidated financial statements included in this report and in our ~~2018~~2019 annual report.

Commodity Price Risk

We do not have any direct exposure to risks associated with fluctuating commodity prices because we do not own the ethanol and other fuels that are stored at our facilities or transported by our railcars and trucks.

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Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures designed to ensure information that must be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, as appropriate, to allow timely decisions regarding required financial disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. Management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Under the supervision and participation of our chief executive officer and chief financial officer, management carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, ~~2019,~~2020, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act and concluded that our disclosure controls and procedures were effective.

Changes in Internal Control over Financial Reporting

Management is responsible for establishing and maintaining effective internal control over financial reporting to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of our consolidated financial statements for external purposes in accordance with U.S. generally accepted accounting principles. There were no changes in our internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Emerging Growth Company Status

As an emerging growth company, we ~~are~~were not required to provide an auditor’s attestation report on the effectiveness of our system of internal control over financial reporting, adopt new or revised financial accounting standards until they apply to private companies, comply with any new requirements adopted by the PCAOB to rotate audit firms or supplement the auditor’s report with additional information about the audit and financial statements of the issuer, or disclose the same level of information about executive compensation required of larger public companies.

We ~~have~~ elected to take advantage of these provisions except for the exemption that ~~allows~~allowed us to extend the transition period for compliance with new or revised financial accounting standards. ~~This election is irrevocable.~~

Effective December 31, 2020, we will no longer be an emerging growth company and will be required to provide an independent auditor’s attestation report on the effectiveness of our system of control over financial reporting as of December 31, 2020. In addition, management will continue to be required to report on the design and operating effectiveness of our internal control over financial reporting as of December 31, 2020, based on the Internal Control – Integrated Framework (2013) issued by the Committee on Sponsoring Organizations of the Treadway Commission.
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PART II – OTHER INFORMATION

Item 1. Legal Proceedings.

We may be involved in litigation that arises during the ordinary course of business. We are not, however, involved in any material litigation at this time.

Item 1A. Risk Factors.

Investors should carefully consider the discussion of risks and the other information in our ~~2018~~ annual report on Form 10-K for the year ended December 31, 2019, in Part I, Item 1A, “Risk Factors,” and the discussion of risks and other information in Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” under “Cautionary Information Regarding Forward-Looking Statements” of this report. Although we have attempted to discuss key factors, our investors need to be aware that other risks may prove to be important in the future. New risks may emerge at any time and we cannot predict such risks or estimate the extent to which they may affect our financial performance. The following risk ~~factor supplements~~factors supplement and/or ~~updates~~update risk factors previously disclosed and should be considered in conjunction with the other information included in, or incorporated by reference in, this quarterly report on Form 10-Q.

Our business continues to be adversely impacted by the COVID-19 outbreak.

The ~~interest rates under~~outbreak of the coronavirus, or COVID-19, which has been declared by the World Health Organization to be a pandemic, has spread across the globe and continues to impact worldwide economic activity. COVID-19 poses a risk on all aspects of our ~~revolving~~business, including how it will impact our employees, customers, vendors, and business partners. We are unable to predict the impact that COVID-19 will have on our future financial position and operating results, or that of our parent from which we obtain a significant portion of our revenues, due to numerous uncertainties. These uncertainties include, but are not limited to:

the severity of the virus;

the duration of the outbreak;

federal, state or local governmental regulations or other actions which could include limitations on our operations;

the effect on customer demand resulting in a decline in the demand for our parent’s products;

impacts on our supply chain and potential limitations of supply of our parent’s feedstocks;

interruptions of our distribution systems and delays in the delivery of product;

the health of our workforce, and our ability to meet staffing needs which is vital to our operations; and

volatility in the credit ~~facility~~and financial markets.

The COVID-19 pandemic and related economic repercussions have created significant volatility, uncertainty, and turmoil in the energy industry. We are unable to predict the overall impact these events will have on our future financial position and operations, including those of our parent.

We continue to actively manage our response in collaboration with customers, government officials, team members and business partners and assessing potential impacts to our future financial position and operating results, as well as adverse developments in our business. It is not possible for us to predict whether there will be additional government-mandated shelter-in-place and similar government orders that could affect our business, how long the existing orders will remain in place, and how these measures will impact our operations or those of our parent.

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Future demand for ethanol is uncertain and changes in federal mandates, public perception, consumer acceptance and overall consumer demand for transportation fuel could affect demand.

While many trade groups, academics and government agencies support ethanol as a fuel additive that promotes a cleaner environment, others claim ethanol production consumes considerably more energy, emits more greenhouse gases than other fuels and depletes water resources. While we do not agree, some studies suggest ethanol produced from corn is less efficient than ethanol produced from switch grass or wheat grain. Others claim corn-based ethanol negatively impacts consumers by causing the prices of meat and other food derived from corn-consuming livestock to increase. Ethanol critics also contend the industry redirects corn supplies from international food markets to domestic fuel markets, and contributes to land use change domestically and abroad.

There are limited markets for ethanol beyond the federal mandates. We believe further consumer acceptance of E15 and E85 fuels may be necessary before ethanol can achieve significant market share growth. Discretionary and E85 blending are important secondary markets. Discretionary blending is often determined by the price of ethanol relative to gasoline, and availability to consumers. When discretionary blending is financially unattractive, the demand for ethanol may be reduced.

Demand for ethanol is also affected by overall demand for transportation fuel, which is affected by cost, number of miles traveled and vehicle fuel economy. Miles traveled typically increases during the spring and summer months related to vacation travel, followed closely behind the fall season due to holiday travel. Global events, such as COVID-19, have greatly decreased miles traveled and in turn, the demand for ethanol. Consumer demand for gasoline may be impacted by emerging transportation trends, such as electric vehicles or ride sharing. Additionally, factors such as over-supply of ethanol, which has been the ~~phase-out~~case for some time, could continue to negatively impact our parent’s business. Reduced demand for ethanol may depress the value of ~~LIBOR.~~

~~LIBOR is the basic rate of interest widely used as a reference for setting the interest rates on loans globally. We use LIBOR as a reference rate for~~ our ~~revolving credit facility. In 2017, the United Kingdom’s Financial Conduct Authority, which regulates LIBOR, announced that it intends~~parent’s products, erode its margins, and reduce our parent’s, and consequently our, ability to ~~phase out LIBOR by the end of 2021. It is unclear if LIBOR will cease to exist at that time~~generate revenue or if new methods of calculating LIBOR will be established such that it continues to exist after 2021. The U.S. Federal Reserve, in conjunction with the Alternative Reference Rates Committee, a steering committee comprised of large U.S. financial institutions, is considering replacing U.S. dollar LIBOR with a new index, the Secured Overnight Financing Rate (“SOFR”), calculated using short-term repurchase agreements backed by Treasury securities. We are evaluating the potential impact of the eventual replacement of the LIBOR benchmark interest rate, however, we are not able to predict whether LIBOR will cease to be available after 2021, whether SOFR will become a widely accepted benchmark in place of LIBOR, or what the impact of such a possible transition to SOFR may be on our business, financial condition, and results of operations.operate profitably.

Our ~~revolving credit facility includes restrictions~~insurance policies do not cover all losses, costs or liabilities that ~~may limit our ability to finance future operations, meet our capital needs or expand our business. In addition, our~~ ~~revolving credit facility matures on July 1, 2020 and~~ we may ~~not be able~~experience, and insurance companies that currently insure companies in the energy industry may cease to ~~renew, extend~~do so or ~~replace the expiring~~ ~~facility. If we fail to comply with covenants in our~~ ~~revolving credit facility or if the facility is terminated, we may be required to repay our indebtedness thereunder, which may have an adverse effect on our liquidity.~~substantially increase premiums.

We are ~~dependent upon~~insured under the ~~earnings~~property, liability and business interruption policies of our parent, subject to the deductibles and limits under those policies. Our parent has acquired insurance that we and our parent believe to be adequate to prevent loss from material foreseeable risks. However, events may occur for which no insurance is available or for which insurance is not available on terms that are acceptable to our parent. Loss from an event, such as, but not limited to war, riots, pandemics, terrorism or other risks, may not be insured and such a loss may have a material adverse effect on our and our parent’s operations, cash ~~flow generated by~~flows and financial position.

Certain of our ~~operations in order~~parent’s ethanol production plants and our related storage tanks, as well as certain of our fuel terminal facilities, are located within recognized seismic and flood zones. We believe that the design of these facilities has been modified to fortify them to meet structural requirements for those regions of the country. Our parent has also obtained additional insurance coverage specific to earthquake and flood risks for the applicable plants and fuel terminals. However, there is no assurance that any such facility would remain in operation if a seismic or flood event were to occur.

Additionally, our ~~debt service obligations~~ability to obtain and maintain adequate insurance may be adversely affected by conditions in the insurance market over which we have no control. In addition, if we experience insurable events, our annual premiums could increase further or insurance may not be available at all. If significant changes in the number or financial solvency of insurance underwriters for the ethanol industry occur, we may be unable to ~~allow us~~obtain and maintain adequate insurance at a reasonable cost. We cannot assure our unitholders that we will be able to ~~pay~~renew our insurance coverage on acceptable terms, if at all, or that we will be able to arrange for adequate alternative coverage in the event of non-renewal. The occurrence of an event that is not fully covered by insurance, the failure by one or more insurers to honor its commitments for an insured event or the loss of insurance coverage could have a material adverse effect on our financial condition, results of operations, cash flows and ability to make distributions to our unitholders. The operating and financial restrictions and covenants in our revolving credit facility or in any future financing agreements could restrict our ability to finance future operations or capital needs or to expand or pursue our business activities, which may, in turn, limit our ability to pay cash distributions to our unitholders. For example, our revolving credit facility restricts our ability to, among other things:

~~make certain cash distributions;~~

~~incur certain indebtedness;~~

~~create certain liens;~~

~~make certain investments;~~

~~merge or sell certain of our assets; and~~

~~expand the nature of our business.~~

~~Furthermore, our revolving credit facility contains covenants requiring us to maintain certain financial ratios.~~
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The provisions of our revolving credit facility may affect our ability to obtain future financing and pursue attractive business opportunities and our flexibility in planning for, and reacting to, changes in business conditions. In addition, a failure to comply with the provisions of our revolving credit facility could result in an event of default that could enable our lenders, subject to the terms and conditions of our revolving credit facility, to declare the outstanding principal of that debt, together with accrued interest, to be immediately due and payable and/or to proceed against the collateral granted to them to secure such debt. If there is a default or event of default under our debt the payment of our debt is accelerated, defaults under our other debt instruments, if any, may be triggered, and our assets may be insufficient to repay such debt in full. Therefore, the holders of our units could experience a partial or total loss of their investment.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.
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Item 6. Exhibits.




Exhibit No.	Description of Exhibit
31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101	The following information from Green Plains Partners LP Quarterly Report on Form 10-Q for the quarterly period ended September 30, ~~2019,~~2020, formatted in Inline Extensible Business Reporting Language (iXBRL): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statements of Cash Flows, and (v) the Notes to Consolidated Financial Statements
104	The cover page from Green Plains Partners LP Quarterly Report on Form 10-Q for the quarterly period ended September 30, ~~2019,~~2020, formatted in iXBRL.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


		GREEN PLAINS PARTNERS LP
		(Registrant)

	By:	Green Plains Holdings LLC, its general partner

Date: November ~~7, 2019~~6, 2020	By:	/s/ Todd A. Becker
		Todd A. Becker
		President and Chief Executive Officer
		(Principal Executive Officer)

Date: November ~~7, 2019~~6, 2020	By:	/s/ G. Patrich Simpkins Jr.
		G. Patrich Simpkins Jr.
		Chief Financial Officer
		(Principal Financial Officer)


Total consideration received	$	120,900
Identifiable assets and liabilities disposed of:
Property and equipment, net		4,192
Asset retirement obligations		(425)
Total identifiable net assets		3,767
Units retired:
Common units - Green Plains		118,482
General partners interest		2,418
Total units retired		120,900
Partners' deficit effect	$	(3,767)


	Three Months Ended ‎September 30, 2018
	Limited Partner ‎ Common Units		Limited Partner ‎ Subordinated Units ⁽¹⁾		General Partner		Total
Net income:
Distributions declared	$	15,120	$	-	$	383	$	15,503
Earnings (less than) in excess of distributions		(4,394)		3,436		(94)		(1,052)
Total net income	$	10,726	$	3,436	$	289	$	14,451

Weighted-average units outstanding - basic and diluted		24,403		7,427

Earnings per limited partner unit - basic and diluted	$	0.44	$	0.46


	Balance at December 31, 2018		Adjustments Due to ASC 842		Balance at January 1, 2019
	(audited)
Balance sheet
Assets
Operating lease right-of-use assets	$	-	$	39,685	$	39,685

Liabilities
Operating lease current liabilities		-		13,534		13,534
Deferred lease liabilities		843		(843)		-
Operating lease long-term liabilities		-		26,994		26,994


	Three Months Ended August 31,				Nine Months Ended ‎August 31,
	2019		2018		2019		2018
Total revenues	$	589	$	365	$	1,994	$	365
Total operating expenses		243		269		934		529
Net income (loss)	$	346	$	96	$	1,060	$	(164)

September 30, 2020

December 31, 2019

Weighted average remaining lease term

Weighted average discount rate