Philadelphia Energy Solutions blames RFS for bankruptcy

By Tim Albrecht | January 26, 2018

Philadelphia Energy Solutions, the largest refinery on the East Coast, filed for Chapter 11 bankruptcy, blaming its financial struggles on costs involved with complying with the EPA’s Renewable Fuel Standard. The bankruptcy filing is aimed at restructuring the company’s debt.

PES, owned by a joint venture of private-equity firm Carlyle Group LP and Energy Transfer Partners LP, filed the prepackaged plan with the U.S. Bankruptcy Court in Delaware to restructure $525 million of debt and bring in new owners. The refinery will continue operating and paying its bills and employees while the reorganization takes place.

Under terms of the filing, PES seeks to sell off assets while leaving behind $300 million to $350 million worth of the compliance liabilities. It might also opt not to sell its assets and reorganize on a stand-alone basis. But in that case, the company will have $225 million less in cash and $275 million more in debt, according to court documents.

PES says the RFS, enacted during the George W. Bush administration, which increased the amount of biofuels, primarily ethanol, in gasoline, has caused their financial problems, according to the court filing. While Renewable Fuels Association President and CEO Bob Dinneen believes PES got themselves into financial trouble due to bad business decisions.

“There is no factual basis to suggest the financial woes of PES are a consequence of the RFS,” he says. “Wall Street analysts, academic researchers, EPA officials, and even some other oil refiners have said repeatedly that RINs don’t negatively affect refining margins. PES is the oldest refinery in the country with antiquated technology that is captive to the higher priced Brent crude index. Like other refiners, 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."

The filing says PES doesn’t have adequate funds to buy renewable identification number (RIN) credits for this year. RINs cost the company about $218 million last year, it’s largest expense other than crude oil costs. The company also plans to sell $150 million worth of credits to help emerge from bankruptcy.

“Now, PES is saying it will ignore the RFS, while at the same time acknowledging it intends to sell the credits it has accumulated from it. Apparently, they want to have their cake and eat it too. That’s not just wrong, it’s illegal, and perhaps reflects the kind of thinking that got PES into this situation in the first place,” says Dinneen.