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US: PES RINs case is some or nothing choice: Update

04 Apr 2018 22:16 (+01:00 GMT)
US: PES RINs case is some or nothing choice: Update

Updates with hearing detail.

Houston, 4 April (Argus) — A federal judge should approve a deal waiving most of refiner Philadelphia Energy Solutions' (PES) outstanding fuel mandate costs instead of risking no compliance at all, the government said ahead of a hearing today.

The Department of Justice on behalf of the Environmental Protection Agency (EPA) rejected a months-long campaign by the Pennsylvania refiner blaming costs associated with the Renewable Fuel Standard (RFS) for its financial peril, as well as opponents who said the government was undermining the federal fuel blending mandates.

The government expected to prevail in court and hold PES joint venture partners Sunoco and The Carlyle Group responsible for an estimated $350mn in costs to comply with 2016 and 2017 requirements under the program. But DOJ questioned the cost. A proposed settlement waiving 70pc of those obligations made more sense than nothing, the government said.

"A victory on any of these legal arguments would be a hollow one if it resulted in liquidation of the Debtors and even less compliance with pre-effective date RFS obligations," the government said.

The hearing on the case continued into its third hour this afternoon.

PES in January filed for bankruptcy protection to separate its 330,000 b/d refinery in Philadelphia, Pennsylvania, and associated rail yard from its outstanding obligations under the RFS. The program requires refiners, importers and other companies to each year ensure minimum volumes of renewables enter the US transportation supply. Companies blend approved renewables to acquire renewable identification numbers (RINs) used to prove compliance with the volume requirements. Merchant refiners such as PES that do not operate sufficient blending must purchase RINs from other companies. Debate over the program this year has included meetings with President Donald Trump.

EPA last month proposed allowing PES to submit 138mn RINs — 30pc of its estimated 467mn USG requirement — to satisfy obligations for 2016 and 2017. Another 64.6mn RINs the refiner had on hand would go toward 2018 requirements.

EPA said it was a unique situation, and the government in its filing rejected PES claims that the RFS caused its bankruptcy. Opponents had warned approval would create a path for other refiners to dodge compliance.

"Factors leading to the financial condition of these Debtors involved structural conditions and operational actions that were separate and apart from anything having to do with RINs or the RFS program," the department said in its filing. "Therefore, there is substantial doubt that any other refiners would be in a similar situation."

But the PES reorganization plan "is already approaching the limit of viability" a US consultant said. Prevailing would mean the company would be sold off, its 1,100 employees jobless and its fuel output lost with even less compliance with the program.

Biofuel and renewable fuel trade groups, farmers association and retailer and blender businesses opposed the agreement. US independent refiner PBF Energy said the agreement did not address what it considered fundamental flaws in the mandates that will continue to make merchant refiners vulnerable under the program. The oil trade group American Petroleum Institute (API) also objected on the grounds that rules were not evenly applied across the industry. In all, 25 respondents opposed the plan.

Employees, union supporters and others in the Philadelphia area deluged the docket with more than 1,300 form and personal letters.