Philadelphia Energy Solutions

An Entirely Predictable Bankruptcy

By —— Bio and Archives--January 24, 2018

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An Entirely Predictable Bankruptcy
On Monday, Philadelphia Energy Solutions (PES) announced it is filing for bankruptcy. PES operates the largest oil-refining complex on the east coast, with its two refineries capable of processing 335,000 barrels of oil per day. In filing for bankruptcy, PES citied its inability to pay for the 2018 cost of complying with the Renewable Fuel Standard (RFS), which mandates ever increasing levels of biofuel be mixed into the nation’s fuel supply regardless of demand or even whether the biofuels actually exist.

The specific cost that pushed PES over the cliff is the purchasing of RINs (short for Renewable Identification Numbers). The RFS requires that a company purchase RINs to cover any biofuel volumes below the federally mandated levels. In the case of PES, a merchant refiner that only processes oil, not biofuels, this means purchasing RINs to cover their entire mandated amount. The opaqueness and volatility of the market for RINs means that this cost is highly variable and so prone to abuse that even the beneficiaries of the subsidy recognize the problem. RIN costs have soared in recent years, with PES forced to put up $217 million to purchase compliance with the RFS just in 2017—more than the company spent on all salaries and benefits for its employees.

In response to PES’s bankruptcy filing, the biofuel industry has taken the “let them eat cake” approach, accusing PES of not spending its scarce resources to modify their refineries to blend biofuels. Needless to say, the United Steelworkers disagree and have sided with PES on the need to act immediately to change the biofuels obligation.

PES is asking the bankruptcy court to free it from its RIN obligations. That may work as a short-term rescue for PES, but it does not address the long-term impact of the RFS on other refiners and the economy as a whole. To be sure, there are market conditions like new pipelines and the relative prices of different grades of oil, as well as antiquated regulations like the Jones Act, that that have also hurt PES’s bottom line. But the RFS is not a market condition, it is government theft, and that is why merely shielding PES from its current RIN liabilities is not sufficient. The RFS itself needs to be sunsetted.

Put simply, the RFS is nonsensically economically destructive. Like any government intervention, it comes at a cost. While it may prop up some biofuel producers in Iowa, it destroys jobs at refineries in places like Philadelphia and its imposed costs ripple throughout the economy.

Why must the whole of the American people be subject to higher costs just to line the pockets of a few biofuel companies? Why are jobs in Iowa more important than jobs in Pennsylvania, Texas, and elsewhere? The PES bankruptcy should serve as a wakeup call to Congress to own up to their mistake and sunset this program. While it may have benefitted a few special interests in the biofuels industry, for the American people, the RFS is all cost and no benefit. It was misguided in its creation and design, and its manifest failings have become clear in the decade plus of its operation. Whatever its lobbying power, the biofuel industry cannot be allowed to continue to handcuff the country to this foolish and destructive mandate.

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