HUDSON - E85 is cheaper than gasoline, but it's not necessarily a bargain.

Due to a change in the Iowa tax code that took effect Thursday, the difference in price may shrink even more. The E85 promotion income tax credit was reduced from 25 cents to 20 cents per gallon, and at least one energy expert said it's the customer that will probably pay the price.

East Central Iowa Cooperative in Hudson - the metro area's only E85 retailer - sold the fuel for $1.45 per gallon Dec. 30 compared to $1.63 for gas with a 10 percent ethanol blend.

Area retailers say E85 - 85 percent ethanol and 15 percent gasoline - sales are already slumping as motorists realize buying it is a losing proposition at this time. Since gas mileage is reduced using E85 for most flex-fuel vehicles, which can burn any combination of ethanol from 0 percent to 85 percent, the fuel needs to be about 40 cents to about 55 cents cheaper than gas at current prices to make it cost effective.

A 15-cent difference might seem like a good deal, but motorists are finding out otherwise. Terry Grant, the co-op's energy manager, said E85 sales have dropped from 7,000 gallons per month earlier last year to 5,000 gallons per month recently.

"It's (E85) kind of spendy compared to unleaded … you can see it in our sales," Grant said.

With wholesale ethanol selling for about $1.40 per gallon, Grant said he's selling E85 as cheap as he can. The tax change could reduce the price difference even more.

Still, Grant said the co-op will continue to sell the corn-based fuel to support its customers and agriculture.

"We'll have to adjust (our price)," Grant said. "We're going to offer E85 … no matter what. We put it in as a service to the community, not to get rich."

There's more than 100 E85 retailers in Iowa, according to the Iowa Renewable Fuels Association. Kwik Star in Parkersburg is one of the latest to sell the fuel.

Company officials previously said it's not cost effective to add E85 pumps to existing outlets, but decided to offer the fuel when the company rebuilt its store destroyed by last year's deadly tornado.

An employee who wished not to be named said E85 sales aren't exactly brisk. A company spokesman was unavailable for comment.

"When there was a huge difference in price, it was selling good. Now, not so much," the Kwik Star worker said.

Some customers will blend E85 and gasoline to save money and increase mileage, the employee said.

The Iowa Renewable Fuels Association said E85 typically reduces gas mileage by 5 percent to 15 percent. According to fuel mileage comparisons provided by the government - www.fueleconomy.gov. - mileage reductions are typically in the 20 percent to more than 30 percent range.

Regardless of the mileage differences, gas experts said E85 was a real bargain for most of 2008 when gas cost $2.50 per gallon and higher. E85 buyers typically saved 30 cents to 60 cents per gallon or more, which made up for the mileage hit for most vehicles, and then some.

"Not long ago, E85 was very cost effective," said Jessica Zops, a marketing and communications specialist with the Iowa Office of Energy Independence.

E85 sales soared as a result. The Iowa Department of Revenue said 2.2 million gallons of E85 was sold during the second quarter of 2008 compared to 1.3 million gallons in the first quarter.

The Iowa Renewable Fuels Association said ethanol - both E10 and E85 - saved Iowans more than $13 million in September alone.

Monte Shaw, the association's executive director, said buying E85 probably doesn't pencil out financially for most people at this time. But he said there's more than money involved.

"There's not doubt the cost-per-mile basis (of E85 currently) is not where we want it to be," Shaw said. "But you have to think, where do you want to buy your fuel from? Iran or Venezuela or from Iowa."

Grant believes E85 sales will rebound again when gas prices go up. Until then, he said there's still a good core of consumers that will purchase the fuel despite the price.

"People use E85 think about the green aspect," Grant said, noting it's better for the environment. "That's why most are still sticking with it."

Contact Matthew Wilde at (319) 291-1579 or matt.wilde@wcfcourier.com.

E85 Test Drive

While E85 - 85 percent ethanol and 15 percent gasoline - is still cheaper than gasoline, it's not the bargain it once was. The Courier examined fuel mileage of four 2009 flex-fuel vehicles to see how much of a price difference per gallon was needed between E85 and gasoline to drive 100 highway miles for the same cost.

Fuel price at East Central Iowa Cooperative in Hudson, the only E85 location in the metro area, on Dec. 30: $1.63 gasoline (10 percent ethanol) and $1.45 E85.

Chevy Impala:

29 mpg highway (gas)

22 mpg highway (E85)

Divide the total cost of the gas trip by E85 gallons used to find out how much E85 needs to be per gallon to price competitive: $5.54 divided by 4.5 gallons equals $1.23.

E85 needs to be 22 cents cheaper to break even.

Ford F-150 4x4:

18 mpg highway (gas)

13 mpg highway (E85)

E85 needs to be 29 cents cheaper to break even.

Chrysler Town and Country:

24 mpg highway (gas)

16 mpg highway (E85)

E85 needs to be 35 cents cheaper to break even.

Toyota Sequoia:

18 mpg highway (gas)

12 mpg highway (E85)

E85 needs to be 37 cents cheaper to break even.

Source: www.fueleconomy.gov