U.S. refiner PES pins bankruptcy plan hopes on biofuel costs
(Adds comment from Philadelphia Energy Solutions)
By Jarrett Renshaw
NEW YORK, Jan 22 (Reuters) - Philadelphia Energy Solutions,
owner of the largest U.S. East Coast refinery, said on Monday
its plan to get out of bankruptcy hinges on whether it can shed
existing biofuel costs under the country's renewable fuel laws.
The plan revives a debate between U.S. refiners and ethanol
producers over the nation's renewables policy, and could spur
actions from other struggling refiners should the U.S.
Environmental Protection Administration allow PES to reduce its
The Trump Administration could also wade deeper into the
fray should the Pennsylvania refinery, which has some 1,100
workers, face closure.
PES told its employees on Sunday it would file for Chapter
11 bankruptcy, pinning its financial difficulties on renewable
fuel laws, Reuters reported. In its bankruptcy filing on Monday,
the company said it does not have enough cash to comply with the
laws for 2016 and 2017.
But PES has also seen its debt grow after its backers took
out a $550 million loan used largely for dividend-style payouts
to investors along with capital improvements to the plant. The
company also invested in a new rail terminal to help take
advantage of discounted crude out of the Bakken oil play in
PES said its biofuels obligation for 2016 and 2017 totals
about $185 million. The company also plans to sell $150 million
worth of credits to help emerge from bankruptcy.
Regulatory liabilities are hard to shed through bankruptcy.
However, the government has provided relief in past cases,
particularly when there is a political dimension, experts have
The U.S. Renewable Fuel Standard (RFS) is a Bush-era law
that requires refiners to blend biofuels like ethanol into their
fuels or buy credits from those who do. Those credits used to
trade at a nominal price of just a few cents, but have soared in
Stephen Lubben, a professor at Seton Hall Law School, said
other struggling refiners may also attempt to offload these
obligations if the PES bankruptcy gives the refiner relief.
"The EPA will look closely to make sure this is not a sham
to leave them holding the bag," said Lubben. He said a debtor
that cannot comply with such rules usually has to liquidate. “If
you want to restructure, the business coming out the other side
has to comply.”
The plan would be in jeopardy if the bankruptcy court forces
the company to comply with its existing RFS obligations, PES
Critics of renewable fuel laws have argued the company's
woes are due to a flawed RFS program, while supporters have said
the refiner's troubles stem largely from a lack of access to
relatively cheap crude supplies.
"PES could have made investments in blending more renewable
fuels. It chose a different course, slavishly pursuing a change
in the law that fit its flawed business model," said Renewable
Fuels Association President and Chief Executive Bob Dinneen.
PES said in an emailed statement on Monday they are "ready,
willing and able to compete with all refiners and renewable fuel
producers on a level playing that has not been distorted by a
regulation purporting to subsidize 'renewable' fuels that
neither promote energy security nor provide environmental
In its note to employees on Sunday, PES said the cost of
RINs in 2017 alone was $218 million, more than every cost
besides crude oil.
The United Steelworkers union, which represents more than
600 jobs at the refinery, also called for changes in the
biofuels obligation on Monday, saying "urgent and immediate"
action is needed.
In 2017, refiners including Valero Energy Corp and
CVR Refining, through the latter's majority owner Carl
Icahn, tried to get the Trump administration to shift the cost
obligation for the credits down the supply chain.
That effort failed after lobbyists representing ethanol
The bankruptcy comes six years after private equity firm
Carlyle Group LP and Energy Transfer Partners’
Sunoco Inc rescued PES from financial distress, in a deal
supported by tax breaks and grants.
The White House and EPA did not respond to request for
(Reporting By Jarrett Renshaw, additional reporting by Tom
Hals; Editing by Meredith Mazzilli)
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