Ethanol groups oppose proposed PES RVO settlement

By Erin Voegele | March 26, 2018

Representatives the ethanol industry are speaking out in opposition to a proposed court settlement between the U.S. EPA and Philadelphia Energy Solutions that would waive a significant portion of PES’s renewable volume requirements (RVOs) under the Renewable Fuel Standard.

The proposed settlement was filed with the U.S. Bankruptcy Court for the District of Delaware on March 12. A 10-day public comment period opened March 16.

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.

In the March 12 court filing, the EPA proposed a settlement under which PES would 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, which is expected to be April 1. PES would also 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.

Growth Energy has filed comments with the U.S. Justice Department opposing the settlement. “The proposed settlement sends the wrong message to industry stakeholders, implying that there are no consequences for violating the law,” said Emily Skor, CEO of Growth Energy. “The Carlyle Group pulled hundreds of millions of dollars out of the company and failed to make the clean energy investments that have allowed other refiners to thrive. The EPA should not reward the Carlyle Group by allowing PES to escape more than 70 percent of its obligations under the Clean Air Act.

“If this sue-and-settle-style settlement is approved, it sends a terrible message to investors who have played by the rules,” Skor continued. “With farm income at a 12-year low, rural America can’t afford another handout to refinery owners.”

According to Growth Energy, it opposes the fact that the proposed settlement would resolve the RVO liability of not only PES debtors, but also gives a free pass to non-debtor entities who are clearly liable for the RVO obligations, including the debtor’s parent companies and joint venture partners. Growth Energy said there is no justification for releases entities, such as PES’s parent the Carlyle Group L.P., which controls hundreds of billions of dollars in assets and clearly has the financial capacity to meet the compliance standards.

The Renewable Fuels Association also opposes the proposed settlement, calling its terms “unfair, unreasonable, and inconsistent with the purposes of the RFS program.”

The RFA opposes the fact that the proposed settlement offers expansive releases of liability to the parent entities of PES, which should be held legally responsible for RFS compliance. The RFA also criticizes the settlement for signaling the government is willing to overlook when obligated parties misuse the bankruptcy process at the expense of other obligated parties.

“By allowing PES to retire only 138 million RINs for its pre-effective date obligation of more than 500 RINs, DOJ and EPA have effectively waived approximately three-quarters of PES’s RVOs for this period….Exacerbating its noncompliance, PES reportedly had been also selling roughly 40 million RINs in the fall of 2017, even as the March 2018 RVO compliance deadline approached,” wrote the RFA in its comments. “This is a classic case of a regulated entity being allowed to have its cake and sell it, too—while PES seeks to escape from its financial responsibilities under the RFS program, it embraces that same program for the limited purpose of profiting from it.”

“PES is callously and fallaciously attempting to scapegoat the RFS for its bankruptcy, when the refiner’s poor business decisions are to blame,” said Bob Dinneen, president and CEO of the RFA. “The Department of Justice and the Court should reject EPA’s overly generous offer to PES, lest they be complicit in a settlement that rewards bad behavior, hurts consumers, undermines the integrity of all environmental regulations, and perverts the letter and spirit of the RFS.”