Bombshell: Propel Fuels Sues Phillips 66 over “Year-Long Extraction of Trade Secrets”

by Jim Lane (Biofuels Digest) In California, Judge Evelio Grillo of the Superior Court of Alameda County has unsealed a Propel Fuels-Phillips 66 lawsuit, ordered that Propel Fuels file an unredacted copy of the suit. According to Propel, the suit alleges hat “the Texas-based oil company misappropriated Propel’s trade secrets and engaged in unlawful business practices in violation of California’s Uniform Trade Secrets Act and Unfair Competition Law.” Propel Fuels is a leading distributor and retailer of renewable fuels, and Phillips 66 is a major oil refiner and marketers which has in recent years made a major shift towards renewables.

The bombshell lawsuit uncovers a proposed acquisition of Propel Fuels by Phillips 66 that dates back to 2017-18, according to Judge Grillo. The unredacted complaint has not yet been filed — Propel has provided some detail as background.

According to Propel: “the complaint alleges Propel’s trade secrets showed Phillips 66 that there was an opportunity not just to help Phillips 66 mitigate its LCFS compliance costs, but to pour the foundation of an entirely new business opportunity that could drive the profitability for Phillips 66 while burnishing its environmental, social and governance (ESG) credibility – a significant factor in driving the low-carbon business investments for fossil-based Big Oil companies.”

Propel’s take? “Propel founder and CEO Rob Elam said, “What started as standard due diligence transformed into a year-long extraction of trade secrets.”

Propel further alleged that “Phillips 66 demanded Propel use its proprietary location algorithms to choose the top 250 locations for new Phillips 66 / 76-branded low-carbon fueling sites across California, later built by Phillips 66 without Propel, and designed to lure away Propel customers.” Also, Propel alleges that “Phillips 66 repeatedly assured Propel’s senior management of its intention to consummate the deal and that it would not enter the California renewables market without Propel.”

Propel adds, “When final documentation for Phillip 66’s acquisition of Propel was mere hours from final signatures, Phillips terminated the transaction without any explanation on a Friday morning. The following Monday, Phillips 66 notified California regulators that it intended to apply for permits to distribute and sell the same kind of low-carbon fuels Propel Fuels was selling. Walking away after Propel had effectively designed an entire low-carbon business for it, the complaint asserts, Phillips 66 is now in the process of building a copycat business using the highly proprietary financial models, customer research data, and trade secrets it learned during the confidential due diligence process.”

The news comes a week after Phillips 66 made a final investment decision to move forward with Rodeo Renewed, the project to convert its San Francisco Refinery in Rodeo, California, into one of the world’s largest renewable fuels facilities.

Since pulling out of the deal, Propel said, “Phillips 66 rolled out renewable diesel and E85 (85 percent ethanol, 15 percent gasoline) fuel sales at some 450 of its California retail 76 stations, [and]Propel Fuels was left with “no choice” but to seek legal remedy for the alleged theft of its proprietary business data and methods.

Also, we have questions about the timeline relating to the Rodeo project itself, which was not announced until the summer of 2020, some years after the negotiations broke down between Propel and Phillips 66, and how Propel could have “effectively designed an entire low-carbon business for it, and that Phillips 66 is now in the process of building a copycat business,” given that Rodeo is engaging in production as well as distribution, which is different than the Propel model.

Further, we expect to learn more about the evolution of Propel’s business, recalling that in 2019, a year after the breakdown of negotiations, Propel announced a major expansion of the company’s business model with the adding of an electric vehicle charging network — which has not yet been built, we believe, based on a review of the Propel website.

So, there’s reason for some skepticism while we await more information, but the allegations are serious. Propel Fuels is a company of long and established standing in the industry that has done much to advance not only the volume of renewable fuels sales but also established a positive consumer culture receptive to sustainable fuels. And, we have been briefed by FBI, not in relation to the Propel case but in relation to the bioeconomy in general, that the United States sees substantial harm from past acts on theft of trade secrets. As many as one dozen FBI agents have made appearances at single ABLC events in order to provide protection, raise awareness and distribute information on making trade secrets more secure. READ MORE

Excerpt from Kobre & Kim/Biobased Diesel Daily: Prior to receiving Propel’s confidential information, Phillips 66 had not sold any branded renewable fuels to consumers in California, and it knew nothing about the business, the lawsuit claims. As one of California’s largest refiners and retailers of fossil transportation fuels in California, Phillips 66 is highly motivated to find a solution for its increasingly expensive carbon-emission obligations.

Under California’s Low Carbon Fuel Standard, Phillips 66 must reduce its fuels’ carbon content some 20 percent by 2030. To meet that requirement, Phillips 66 is required to sell a certain volume of low-carbon fuels—or buy LCFS credits from businesses like Propel—if it can’t reduce its fuels’ carbon content on its own.

According to the complaint, Phillips 66 had never sold a drop of low-carbon fuel to consumers in California at the time of the acquisition offer, meaning it was faced with the escalating costs of compliance by purchasing carbon credits, with no meaningful source of generating credits to offset them.

Enter Propel. Founded in Seattle, Washington, and recruited to California by state agencies seeking to expand low-carbon fuel availability, Propel pioneered an “on-ramp” for consumers to access California’s low-carbon economy. Propel did that by connecting people to affordable, low-carbon fuels at convenient locations throughout California—in places like Oakland, Fresno, Riverside and nearby locales considered disadvantaged communities by the California Environmental Protection Agency.

Where nearly every other market entrant failed, Propel thrived due to proprietary business strategies and data-driven analytics developed over years of experience. Based on the success of those strategies, Propel had been hailed as “cracking the code” of the renewable fuels retail market. READ MORE