U.S. refiner PES says bankruptcy plan hinges on biofuel costs

By Jarrett Renshaw

NEW YORK (Reuters) – Philadelphia Energy Solutions, owner of the largest U.S. East Coast refinery, said on Monday its plan to emerge from bankruptcy hinges on whether it can shed existing biofuel obligations under the country’s renewable fuel laws.

The company’s bankruptcy plan sets up the latest debate between U.S. refiners and ethanol producers over renewables policy. The Trump administration could also wade deeper into the fray should the Pennsylvania refinery, which has some 1,100 workers, face closure.

PES does not have enough cash to comply with the nation’s renewable fuel laws in 2016 and 2017, according to its Chapter 11 bankruptcy filing on Monday.

Regulatory liabilities are given high priority in bankruptcy proceedings, but the government has provided relief in past cases, particularly when there is a political dimension, experts have said.

The U.S. Renewable Fuel Standard (RFS) is a Bush-era law that requires refiners to blend biofuels like ethanol into their fuels or buy credits from those who do.

PES is short some 267 million credits to comply with the program, the company said its Monday filing. It also plans to sell $150 million worth of credits to help emerge from bankruptcy.

The bankruptcy plan would be in jeopardy if the bankruptcy court forces the company to comply with its existing RFS obligations, the company warned.

Critics have argued the company’s woes are due to a flawed program, while supporters of the renewable fuel laws have said the refiner’s troubles stem largely from a lack of access to relatively cheap supplies.

The bankruptcy comes six years after private equity firm Carlyle Group LP (O:) and Energy Transfer Partners’ (N:) Sunoco Inc rescued Philadelphia Energy Solutions from financial distress, in a deal supported by tax breaks and grants that saved thousands of jobs.

Shortly after the sale, Carlyle Group issued a controversial $550 million term loan, with the bulk of the proceeds going to investors in the form of dividend-style payouts.

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