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East Coast Refiner Blames RFS for Bankruptcy Filing

Todd Neeley
By  Todd Neeley , DTN Staff Reporter
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Photo caption: An East Coast refiner points to costs of complying with the Renewable Fuel Standard was behind its decision to file bankruptcy. (DTN file photo)

One of the largest refining companies on the East Coast has filed for Chapter 11 bankruptcy protection on Monday, blaming costs to comply with the Renewable Fuel Standard as a reason for the action.

Ethanol industry representatives pushed back, saying PES Holdings, LLC, a subsidiary of Philadelphia Energy Solutions LLC, much like any refiner required to blend ethanol, recovers the costs of renewable identification numbers, or RINs, through gasoline prices.

The company said in a news release it is going forward with Chapter 11 in part because of "skyrocketing costs of RINs." The company said RINs cost the company about $281 million in 2017; its largest single expense after crude oil.

An extended downturn in refining margins also have made the restructuring necessary, the refiner said. The company said it has secured $260 million in new financing.

Greg Gatta, chief executive officer of PES LLC, said it would continue to push for reform to the RFS. "In order to complete this process without delay, we will continue to work with the government to address the broken RFS system that is harming smaller, independent merchant refiners like PES," he said.

PES Holdings LLC, owned by The Carlyle Group and a subsidiary of Energy Transfer Partners, L.P., is the parent company of Philadelphia Energy Solutions Refining and Marketing.

The Renewable Fuel Association told DTN that merchant refiners recoup RIN costs through wholesale gasoline prices.

Numerous studies, including some funded by the oil industry, found refiners recover their RIN costs by slightly marking up the price of gasoline blendstock sold at wholesale. Iowa State University, Harvard University, the University of Michigan and MIT have conducted studies that reached that conclusion.

"Historically, East Coast refiners have generally had lower profit margins than their competitors in the Midwest and Gulf Coast regions because of their reliance on imports of more expensive crude oil from west Africa and the North Sea," RFA said in a news release.

Philadelphia Energy Solutions operates one of the nation's oldest refineries.

Bob Dinneen, president and chief executive officer of the RFA, said in a statement the company's claims about the RFS have "no factual basis.

"Wall Street analysts, academic researchers, EPA officials, and even some other oil refiners have said repeatedly that RINs don't negatively affect refining margins," he said.

"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."

Growth Energy Chief Executive Officer Emily Skor said in a statement, "The refinery has been on the brink of bankruptcy off and on for the last decade, and biofuels were never a part of the challenge facing PES, even after they received a taxpayer bailout in 2012. It's the nation's oldest refinery and refused to update its business model to blend biofuels."

The Fueling American Jobs Coalition, which includes steel workers, small retailers and refiners, including Holly Frontier, PBF, Delta, Valero and others said, "what we're seeing happen at PES is exactly what we've been warning about for many months. Refiners are captive buyers in the lucrative market for these RINs. Those who profit in this situation- Wall Street speculators, large integrated oil companies and large fuel retailers- consistently oppose reasonable changes to the RFS that would diminish their profit stream, even if those profits come at the price of economic pain for refiners and their workers."

United States Sen. Pat Toomey, R-Pa., said he will continue to push for RFS reform. He said in a statement the bankruptcy is "a result of the counterproductive, job-killing, EPA-imposed Renewable Fuel Standard that requires an excessive amount of biofuel be blended into the nation's fuel supply. I've had extensive conversations with PES management, senior EPA officials, my senate colleagues, and directly with President Trump in an effort to resolve this situation."

Sen. Ted Cruz, R-Texas, continues to hold up the nomination of Bill Northey to a USDA post, as leverage to forcing changes to the RFS.

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

Follow me on Twitter @toddneeleyDTN

(TN)

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