Feb. 1, 2018
By Joelle Simonpietri
On Jan 21st 2018, Carlyle-backed Philadelphia Energy Solutions (PES), the largest refinery complex on the U.S. east coast at 335,000 barrels per day, filed for Chapter 11 bankruptcy, blaming Renewable Fuel Standard (RFS) compliance costs. In the week since the filing, the Washington Examiner reports several other small refiners have piled on, asking the Environmental Protection Agency to waive the Renewable Volume Obligations under the RFS.
The governors of Pennsylvania and Delaware weighed in as well, writing letters to the EPA requesting to have the refineries in their states receive hardship exemptions from RFS obligations
“The whole reason we’re filing for Chapter 11 is that this is a massive expense,” said CEO Gregory Gatta in telephone interview with Bloomberg on Jan 22nd. He went on to state that in 2017, meeting the amended federal Renewable Fuel Standard (RFS2) regulatory burden cost Philadelphia Energy Solutions more than twice as much as payroll and about 1.5 times more than its average annual capital expenditures. Since 2012 the refinery has accrued $832 million in credits.
Under terms of the filing in Delaware late Sunday reported by Bloomberg, PES seeks to sell off assets while leaving behind $300 million to $350 million worth of the compliance liabilities, effectively erasing the RFS2 liabilities.
The Blame Game
Union leaders piled on to the EPA and RFS blame wagon, despite PES’s announcement that the refineries will keep operating and none of the 1,100 employees would lose their jobs. In a letter last week to the EPA, Pipefitters union boss Mark McManus echoed Philadelphia Energy’s statements, opining that the Chapter 11 bankruptcy filing is proof of the harmful effects of the RFS on the smaller classes of refiners and the need for EPA Administrator Scott Pruitt to address the concern soon.
None of the union statements appear to touch on the large debt load carried by the company since the launch of the leveraged buyout/joint venture in 2012, or the original market reasons why the Philadelphia refineries were shuttered in the first place and needed rescuing in 2012. In an interview on Fox News on Tuesday, EPA Administrator Scott Pruitt agreed that the RFS needs to be reformed and updated. “As you know the RFS statute is something that impacts our economy, sometimes in a very difficult way and [the PES bankruptcy] is an example of that,” Pruitt said.
Opinion pages in the conservative blogosphere about this news have registered hundreds of comments by readers to date, weighing in to agree that blame should be placed on the EPA, King Corn, anti-business Liberals, swamps that need draining, etc, many with the usual (and inaccurate) popular wisdom that ethanol costs more energy to make than it yields, and is stealing land from food producers. Less than 5% of the comments were critical of the company’s statements.