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US judge approves PES biofuels waiver agreement

05 Apr 2018 00:19 (+01:00 GMT)
US judge approves PES biofuels waiver agreement

Washington, 4 April (Argus) — A judge has approved an agreement to waive most of Philadelphia Energy Solutions' (PES) outstanding costs of complying with US biofuel blending requirements as part of the refinery's bankruptcy plan.

US bankruptcy judge Kevin Gross, in a bench ruling today, said the agreement was fair and reasonable. He approved the agreement over the objections from biofuels producers who said it would reward the 330,000 b/d refinery for "massive non-compliance" with the Renewable Fuels Standard (RFS) and ultimately reduce demand for biofuels this year.

PES initially sought to shed all its biofuel obligations when it filed for bankruptcy protection in January. But through a settlement with the US Environmental Protection Agency (EPA) filed last month, it will pay an estimated $350mn in costs for its 2016 and 2017 biofuel requirements, while being relieved of the remaining 70pc of its biofuel requirements for those years.

The RFS requires refiners, importers and other companies to ensure minimum volumes of renewable fuels enter the US transportation supply. Companies blend fuels to acquire renewable identification numbers (RINs) used to prove compliance. Merchant refiners such as PES without sufficient blending capacity must purchase RINs from other companies.

EPA's agreement would allow PES to submit 138mn RINs — 30pc of its estimated 467mn USG requirement — to satisfy blending obligations for 2016 and 2017. Another 64.6mn RINs the refiner has on hand would go toward 2018 requirements.

Biofuels group Growth Energy objected to the agreement because it said retiring so many RINs would curb demand for biofuels and harm its members. The group's attorney Jonathan Martel today argued EPA should have held PES joint venture owners Carlyle Group and Sonoco responsible for biofuel requirements.

"It is unreasonable and unfair that the government asks nothing of Carlyle and Sonoco," Martel said.

But the judge, after hearing nearly three hours of arguments, said the claims from biofuels producers that they would be harmed by the agreement were too "speculative" and noted the value of RINs fluctuate widely.

Even if Growth Energy could intervene, the judge said he would still approve the agreement. He said the agreement was a fair balance between bankruptcy and environmental laws and was "very likely" needed to prevent PES from being sold or liquidated.

"EPA has to consider the effect of liquidation on not just the refinery but the effect on the entire nation," the judge said.

EPA's attorney Alan Tenenbaum downplayed concerns from biofuels producers that the agreement would cause other refiners to use bankruptcy as a way of escaping RFS obligations. The factors that led to PES' bankruptcy involved unique circumstances, he said, that are unlikely to be replicated by other refiners.

PES' debtors defended the settlement. Their attorney Michael Slade said EPA negotiated a fair agreement that avoided the litigation risk that PES might be able to avoid all its biofuel obligations or be liquidated and leave a vacant industrial site.

"The only people here challenging that [agreement] have nothing to do with this company or its debtors," he said.