Cruz on RFS Offensive

Senator Wants RFS Reform to 'Save Jobs'

Todd Neeley
By  Todd Neeley , DTN Staff Reporter
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Sen. Ted Cruz, R-Texas, held a rally Wednesday at the now-bankrupt Philadelphia Energy Solutions refinery on the East Coast. (Photo from Facebook Live video)

OMAHA (DTN) -- Sen. Ted Cruz told an audience of employees of a now-bankrupt East Coast refinery in Philadelphia on Wednesday that he would have ended the Renewable Fuel Standard had he become president. At the same time, he called on federal lawmakers to reform the law to benefit refiners and farmers.

The election of Donald Trump as president was about the state of the American worker, indicating the RFS needs fixed to save jobs in the refining business, Cruz told employees at Philadelphia Energy Solutions.

Cruz, R-Texas, said when he met with the president about the RFS a couple of months ago, he was not asking for a repeal of the policy. Instead, he said, he asked Trump for reform.

"There is nothing that explains that election more than the men and women who want to see their jobs stronger and greater again," Cruz said, to a round of applause.

"It is appropriate for President Trump to stand with the working men and women. Right now in Washington this is all tied up in politics. I think we are taking positive, proactive steps forward on a solution. This refinery provides good, high-paying jobs. These are the jobs that built America."

Despite numerous academic studies refuting refiners' claims of economic hardship from the cost of renewable identification numbers, or RINs, the Texas Republican stepped up a notch his crusade to reform the RFS.

The now-bankrupt Philadelphia Energy Solutions claimed $832 million in RIN costs led to the company's Chapter 11 bankruptcy filing. Biofuels groups, Midwest members of Congress and others quickly denounced that claim, citing a number of other financial problems PES had as more likely causes of its difficulties.

Regardless, Cruz held up PES as a poster child for all that he believes is wrong about the RFS.

Cruz continues to hold up the nomination of Bill Northey to undersecretary of USDA as part of the senator's attempt to force RFS reform.

Earlier this week, the Iowa Republican Party warned Cruz his attempts to change the RFS could harm his chances to win future elections in Iowa.

During the rally Wednesday, Cruz pointed out that he still won the Iowa Caucuses even though he openly opposed the RFS, conceding he lost the nomination to a pro-ethanol candidate in Trump.

CRUZ OIL, GAS CONNECTIONS

While Cruz lamented the political atmosphere in Washington as it relates to the RFS, data from OpenSecrets.org show the senator is heavily invested in oil and gas interests.

Among Cruz's campaign contributors during the 2016 election cycle was the Carlyle Group, which contributed $10,356 to the senator's campaign. Carlyle Group is also an investor in Philadelphia Energy Solutions. As reported by Reuters this week, PES signed an agreement with a company called North Yard Logistics LP in 2015. Carlyle has about $178 billion in assets.

The contributions from Carlyle came from its political action committees, individual members or employees or owners, and those individuals' immediate families. Organization totals may include subsidiaries and affiliates of Carlyle.

The agreement was for PES to make $30 million in quarterly payments to terminal owner North Yard, even at times when crude oil wasn't flowing at the terminal. The investors in both PES and North Yard were led by the Carlyle Group, according to Reuters. In its bankruptcy filings, PES lists North Yard Logistics as a creditor.

PES borrowed about $160 million in order to make the payments to investors, Reuters reported.

When it comes to campaign contributions, Carlyle Group has given money to candidates from both political parties and to both ethanol supporters and opponents, according to OpenSecrets.org.

In addition to its contributions to Cruz, Carlyle Group also gave $10,400 to pro-ethanol Sen. Charles Grassley, R-Iowa, during the 2016 election cycle (http://bit.ly/…).

Carlyle Group also donated $9,486 to then-Republican presidential candidate Trump, who as president has been a supporter of the ethanol industry. Carlyle Group's largest donation of the 2016 cycle was to Democratic presidential candidate Hillary Clinton of $138,779.

Cruz received $688,486 in contributions from oil and gas industry interests from 2013 to 2018, according to OpenSecrets. He reported personal investments in oil and gas in 2015 of $457,500. In addition, he has oil and gas investments in ExxonMobil, Enterprise Products Partners, Oneok Inc. and ONE Gas. Also, in 2015, Cruz bought stock in Plains GP Holdings, according to OpenSecrets.

Plains GP Holdings LP operates as a holding company with subsidiaries in crude oil and refined products transportation, storage, terminal operations and marketing, in addition to liquid natural gas processing, transportation, fractionation, storage and marketing.

PES FINANCIAL DEMISE

In recent weeks, Sen. Grassley released a staff memo that pointed to a number of factors other than RIN costs that more likely led to PES' financial demise.

"Every independent study shows the PES bankruptcy was due to management decisions that did not work out, not the Renewable Fuel Standard," Grassley said in a statement to DTN on Wednesday.

"It sure looks like PES management and its private equity owners are scapegoating the RFS to distract from their own failings, which have risked the livelihoods of more than a thousand workers. PES should level with its employees, who deserve an honest explanation of the facts. Like the refining industry, America's biofuels industry creates tens of thousands of middle class jobs that support families across the country. I've long advocated for an all-of-the-above strategy to help secure America's energy independence. There's no reason biofuels and other renewables can't exist alongside conventional fuels."

A number of academic studies have concluded refiners likely pass on the RIN costs in fuel prices.

A recent analysis by Muse Stancil and Company, an energy consulting firm, shows East Coast refiners' margins show no correlation to RIN prices.

Average margins for East Coast refiners between 2013 and 2017 -- a period of elevated RIN prices -- were nearly double average margins between 2008 and 2012, the firm found. Margins were frequently negative in 2011 and early in 2012, the analysis said, when the price of RINs was, on average, just a few cents.

Just ahead of the Cruz rally Wednesday, he posted on Facebook, "Skyrocketing RINs prices are impacting refineries across the country, and Texas is no exception. We must work together to find a solution that benefits both Iowa corn farmers and Texas refinery workers."

During the rally, Cruz told PES employees, "This is an event to celebrate you. This is about jobs, good jobs. The working men and women count. You should have a federal government that stands with you rather than fighting against you. In recent weeks, this refinery declared bankruptcy. We need to fix this."

ETHANOL REACTION

American Coalition for Ethanol CEO Brian Jennings said in a statement that Cruz's "increasingly desperate publicity stunts do not change the fact that the problems facing Philadelphia Energy Solutions have nothing to do with the Renewable Fuel Standard and everything to do with mismanagement by the PES ownership group."

Growth Energy CEO Emily Skor said, "Ted Cruz seems more interested in the spotlight than facts. If Mr. Cruz cared about jobs, he would support workers in the heartland who produce America's homegrown energy and stop spreading falsehoods about the RFS."

Bob Dinneen, president and CEO of the Renewable Fuels Association, said if Cruz cares about PES jobs, he "ought to focus his angst on the investors who sacrificed their own refinery for more lucrative investments, including construction of a pipeline that diverted low-cost domestic crude oil away from East Coast refineries and forced them to import more costly crude oil from places like Saudi Arabia and Nigeria."

Advanced Biofuels Business Council Executive Director Brooke Coleman said that while companies like PES are lamenting the RFS for losses, other companies have profited from the policy.

"Sen. Cruz would blame U.S. biofuels for anything to get a headline, but that doesn't make it true," he said in a statement.

"The RFS has worked for over 12 years. It supports hundreds of thousands of jobs, including manufacturing jobs at over 200 biorefineries. Meanwhile, refiners like PBF and Valero are posting rising profits -- with a potential 20% boost under the new tax bill," Coleman said.

Todd Neeley can be reached at todd.neeley@dtn.com

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(AG/CZ)

Todd Neeley