ACE commends Senator Grassley for finding RFS not a significant factor in PES bankruptcy
Posted on 02/06/2018
In early February, Senator Grassley released an internal memorandum produced by his energy policy staff who analyzed claims made by Philadelphia Energy Solutions (PES) and other opponents of the RFS. The analysis concluded that the RFS compliance mechanism (RIN credits) is not the primary reason for the PES bankruptcy filing.
Sioux Falls, SD (February 6, 2018) – American Coalition for Ethanol (ACE) CEO Brian Jennings released the following statement in response to analysis Senator Chuck Grassley of Iowa released on the recent claims made by opponents of the Renewable Fuel Standard (RFS), including Philadelphia Energy Solutions (PES), which attributed its recent bankruptcy filing in part to the RFS program.
“Senator Grassley’s analysis that the RFS compliance mechanism (RIN credits) is not the primary reason for the bankruptcy filing of Philadelphia Energy Solutions is spot on. As more light is shone on the decisions PES management made between 2012 and today, it has become clear that they sacrificed RFS compliance for other investments which went bad. RIN prices might be a politically convenient excuse for PES but the inconvenient truth is that other merchant refiners who adapted their business model to blend ethanol aren’t running to bankruptcy court for protection. It would be outrageous for Congress or EPA to reform the RFS based on the mismanagement of one East Coast refiner.”
Senator Grassley released an internal memorandum produced by his energy policy staff who analyzed the claims made by PES and other opponents of the RFS. The Grassley analysis reached similar conclusions as those of recent studies, including those of a four-part blog series released by the University of Pennsylvania’s Kleinman Center for Energy Policy this month. The Grassley staff analysis can be found here.
Philadelphia Energy Solutions (PES), the nation’s oldest merchant refiner, cited RIN credit costs as a primary reason why it filed for Chapter 11 bankruptcy.
Why is PES really in financial trouble?
1. Age – After nearly 150 years in business, PES is the nation’s oldest refinery and has been on the brink of collapse for the last 10 years – its antiquated technology cannot process heavy Canadian crude which is cheap compared to North Sea imports.
2. Location – East Coast refiners typically have lower profit margins than Midwest and Gulf Coast refiners because they rely on imports of more expensive crude oil from West Africa and the North Sea. These heavier crudes are more costly to ship and refine into gasoline. In the Fall of 2017, eastern refiners paid about $6 per barrel more for crude than Midwest refiners. While PES did invest in a new rail terminal to offload cheap Bakken shale oil – when the U.S. lifted the ban on oil exports – shale oil was exported through the Gulf and PES once again had to rely on North Sea crude imports.
3. Refused to Adapt – While other merchant refiners have made investments to blend ethanol, PES has stubbornly refused to innovate and adapt its business model – it has refused to invest in ethanol blending infrastructure despite the RFS being the law of the land.