Court approves PES bankruptcy settlement

By Erin Voegele | April 05, 2018

On April 4, the U.S. Bankruptcy Court for the District of Delaware approved the U.S. EPA’s proposed settlement with Philadelphia Energy Solutions that allows the bankrupt refiner to waive a significant portion of its renewable volume obligations (RVOs) under the Renewable Fuel Standard.

PES filed for Chapter 11 bankruptcy in January, blaming its financial struggles on RFS compliance costs, specifically the price of renewable identification numbers (RINs). Supporters of the U.S. biofuels industry argue that the refiner’s financial struggles are not due to its RFS compliance obligations, but rather mismanagement and bad business decisions. 

On March 12, the U.S. government proposed a settlement with PES that would waive approximately 75 percent of its RVOs from January 2016 through April 2018. A 10-day public comment period on the proposed settlement opened March 16. 

Under the settlement, PES is set to retire a total of 138 million currently held RINs in order to resolve its liability for RVOs prior to the effective date of its proposed plan of reorganization, retire 64.6 million RINs towards its post-bankruptcy 2018 RVO and agree to retire RINs on a semiannual basis for their post-effective date RVOs through 2022.

Documents filed with the court on April 3 indicates the U.S. government received a total of 1,372 comments during the comment period, with approximately 1,345 in support of the proposed settlement and approximately 25 opposing it.

Representatives of the ethanol industry are among those that opposed the settlement, stressing that it undermines the RFS and sets a bad precedent.

“It is frustrating to learn the court has approved a government-sponsored bailout for PES,” said Bob Dinneen, president and CEO of the Renewable Fuels Association. “There is absolutely no merit to what PES has brought forward. The notion that the refiner’s financial difficulties were in any way caused by the Renewable Fuel Standard is preposterous.  The court has now essentially allowed PES to be let off the hook for three-quarters of its RVOs, while simultaneously carrying forward 64.6 million RINs to satisfy future 2018 RVO obligations.

“This decision simply sets bad precedent, signaling to others in the industry they can follow suit, thus allowing the agency to arbitrarily absolve an obligated party of its RVOs,” Dinneen continued. “This position is contradictory to the strong support President Trump has pledged for the RFS and to rural America. Today’s decision is a blow to the renewable fuels industry by eliminating demand and it is a loss for consumers across this country who have benefited from a strong RFS that has helped boost local economies."

Growth Energy also expressed disappointment in the court’s decision. “We are disappointed the court declined to consider our objections,” said Emily Skor, CEO of Growth Energy. “The EPA’s sue-and-settle-style settlement will give the Carlyle Group a free pass for skirting the law, even after they neglected the refinery while pocketing hundreds of millions of dollars in cash payouts.

“Combined with secret waivers for petroleum giants like Andeavor, the EPA’s backdoor handouts eliminate hundreds of millions of gallons in demand for homegrown biofuels, threatening to accelerate the sharpest decline in farm income in generations,” Skor continued. “Refiners of all sizes are reporting record profits—they don’t need any more favors at the expense of rural America. It’s time for the White House to uphold the president’s commitment to rural voters by restoring integrity to the RFS."