The Truth Behind Philadelphia Energy Solutions’ Bankruptcy

3.6.18 UPDATE
Vulture Investors Demand Handout in Dark Money Ad Promoting Refiners Over Farmers

According to a new ad from the “Fueling American Jobs Coalition,” a key dark money ally in what Reuters called “Valero’s secret campaign against U.S. biofuels,” President Trump should betray his promises to rural and farm families by undermining the Renewable Fuel Standard (RFS).

The refinery group wants a “deal” that offers a federal handout to corporate raiders at the Carlyle Group, while pulling the rug out from under farm families facing a four-year decline in income. According to a new study by Iowa State University, their so-called “deal” could eliminate a 700-million gallon market for homegrown biofuel and crush the value of U.S. corn by as much as 25 cents per bushel.

They claim that:

“Pennsylvania workers sent Washington a message.”

According to the Philadelphia Inquirer, Hillary Clinton “blew away her Republican rival in Philadelphia and its suburbs.” Pro-Trump voters “prevailed in Pennsylvania’s rural and rust belt communities.” The same was true across the heartland, in what Politico dubbed “Revenge of the rural voter.” These voters overwhelmingly support the RFS. They include rural manufacturing workers like those at Pennsylvania Grain Processing, an ethanol producer that provides a vital market for 300 Pennsylvania farmers and 100 more in neighboring states.

“Thousands of Pennsylvania jobs are at stake.”

Jobs are at one refiner are stake, but not for the reasons they claim. As reported by Reuters, the Carlyle Group bought Philadelphia Energy Solutions (PES) with the help of $25 million from Pennsylvania taxpayers, then loaded PES up with debt while draining “at least $594 million in cash distributions from PES before it collapsed.” Meanwhile, these same investors “knew if their primary investment, the Bakken Pipeline, panned out it could cripple the PES refinery,” according an analysis by the University of Pennsylvania.

Now the Carlyle Group wants another federal bailout so it can delay making investments in long-term job security for Pennsylvania workers.

“Save them by listening to Pennsylvania refiners and finalizing the RFS deal.”

While vulture investors at the Carlyle Group have crippled PES, other refiners, including those in the Northeast, are flourishing under the RFS. Demands for an industry-wide handout are nothing more than political gimmicks, designed to drive a wedge between President Trump and the farm families he vowed to protect.

Just this February, companies like PBF, Valero, Marathon, and HollyFrontier all posted surging profits. For example, Carl Icahn’s CVR Energy posted a whopping 2,888 percent jump in profits per share last quarter. As the EPA reported under Scott Pruitt, Renewable Identification Numbers (RINs) required under the RFS “do not cause significant harm to refiners” because compliance costs are recovered “in the prices they receive for their refined products.” Lawmakers should demand more than accounting gimmicks from those seeking a handout.

There is a Win-Win Solution:

The Environmental Protection Agency (EPA) can act now to lift needless summer-time restrictions on sales of fuel blended with 15 percent ethanol (E15). Cutting the Reid Vapor Pressure (RVP) regulations would promote growth on all sides while generating a new supply of Renewable Identification Numbers (RINs) to dramatically ease prices for refiners. Rural, farm, and bioenergy champions have embraced this solution, and EPA Administrator Scott Pruitt agrees.



February 2018

Philadelphia Energy Solutions (PES) cited the Renewable Fuel Standard (RFS) in its bankruptcy filing last month, stating that it was struggling under the high costs of complying with the law.

The real culprit? The Carlyle Group, a global equity firm – which made MILLIONS off quarterly payments from PES.

This recent piece from Reuters’ Jarrett Renshaw explains the truth behind what led to the refiner to bankruptcy:

Throughout 2016 and 2017, a rail terminal built to accept crude oil for the largest East Coast refinery often sat idle, with few trains showing up to unload.

Although little oil flowed, plenty of money did.

Under a deal Philadelphia Energy Solutions (PES) signed in 2015, the refiner paid minimum quarterly payments of $30 million to terminal owner North Yard Logistics LP – even if little crude arrived. Much of that cash, in turn, flowed to the investors that own both PES and North Yard, led by the Carlyle Group, a global private equity firm with $178 billion in assets.

The deal in effect guaranteed lucrative payouts to Carlyle regardless of whether the refinery benefitted from the arrangement. When oil market conditions made the rail shipments unprofitable later that year, the refinery took heavy losses while its investors continued to collect large distributions for two more years.

The rail contract exemplifies the financial demands Carlyle imposed on PES in the years leading up to the refiner’s bankruptcy in January. The Carlyle-led consortium collected at least $594 million in cash distributions from PES before it collapsed, according to a Reuters review of bankruptcy filings…

Read the full article here.

Senator Chuck Grassley even completed a recent analysis on the claims made by PES and other refiners against the RFS – finding that “the biofuels blending requirement and the cost of Renewable Identification Number credits (RINs), a compliance mechanism designed for flexibility, have little to do with the success of refineries and were not significant factors in the PES bankruptcy.

A new analysis from the University of Pennsylvania’s Kleinman Center for Energy Policy cuts through the misinformation, noting that both large and small refiners “recover their [RFS] compliance costs through the market price of refined fuel.” According to the report, “The primary challenge facing PES is the attractive environment it experienced when Bakken crude was shut in and Brent was expensive, no longer exists.” In other words, PES had to pay more for oil after drillers started exporting America’s crude oil. Worse, the report notes, “PES also had to siphon over $616 million between 2012 and 2017 in the form of dividends, debt repayment, and advisory fees to equity investors.”

Unfortunately, the misinformed narrative about the RFS continues.

Senator Ted Cruz is heading to Philadelphia on Wednesday, February 21 to meet with refinery workers to lobby against the RFS for allegedly killing PES – capitalizing on this misleading argument, while the refiner continues to pay $30 million quarterly to investors.

Ethanol and the RFS are not the cause of PES’s financial woes. It’s the refiner’s hefty payouts to Carlyle that led to its downfall.

Fueling America's Progress

Sign up to get the latest news on our mission to protect America's Renewable Fuel Standard and grow the U.S. economy by promoting homegrown biofuels.