More RFS Exemption Requests Monroe Energy, Pennsylvania Gov. Wolf Want Full RFS Waiver

by Todd Neeley (DTN The Progressive Farmer) Pennsylvania's governor and state refining interests are putting pressure on EPA to grant waivers to the Renewable Fuel Standard program, just ahead of the agency's Nov. 30 deadline to finalize new biofuels volumes for the upcoming year.

Monroe Energy, LLC, requested a waiver on Tuesday, claiming the RFS program is causing "severe economic harm" to refiners in the state and on the East Coast.

On Nov. 2, 2018, Pennsylvania Gov. Tom Wolf filed a broad petition for a waiver for refiners in the state. Wolf also filed the same petition last year on Nov. 2, 2017, and said in a letter to EPA Acting Administrator Andrew Wheeler this month that the agency had not responded to the first request.

In making the new request, Wolf provided a study completed by Craig Pirrong, professor of finance and director of the Global Energy Management Institute, Bauer College of Business at the University of Houston, which documents the effects of the RFS on East Coast refiners.

Pirrong suggested in the study if EPA set back the renewable volume obligations for 2019 to 2012 levels, "this would reduce the financial strain on East Coast refiners" and avoid potential job losses from shutdowns.

Closing a large refinery in Pennsylvania, Wolf said, could lead to a loss of more than 8,800 jobs and $539 million in employee income.

Renewable Fuels Association President and Chief Executive Officer Geoff Cooper said in a statement to DTN that Wolf's request is "an insult to America's biofuel producers and farmers, who are truly suffering economic harm as a result of the demand destruction caused by former EPA Administrator Scott Pruitt's RFS compliance bailouts for refiners."

Cooper said Pruitt's EPA allowed Philadelphia Energy Solutions to "ignore a huge portion of its RFS biofuel blending obligations. Pruitt also covertly abused EPA's waiver authority to let dozens of other refiners out of their legal responsibility to blend biofuels."

Less than one year ago, Cooper said, refiners in Pennsylvania claimed economic harm from elevated RIN prices "even though all the evidence showed that they were recouping their RIN costs through higher gross margins. Now, with RIN prices at a six-year low, those refiners are still complaining about economic harm even though the 'high RIN price' boogeyman no longer exists."

Frank Maisano, senior principal in the policy resolution group at Bracewell LLP, said small refiners are not recovering costs to comply with the RFS.

"There is no evidence that refiners most impacted by RINs were recouping any costs in higher margins," he said. "The only ones reaping the benefits of high RIN prices were blenders gaming the system which including integrated refiners and huge convenience store chains."

Conversely, Cooper said the price of ethanol has fallen to a 13-year low and RINs are cheap, while corn farmers have seen prices fall below the cost of production.

"Just today, the owners of the lone ethanol plant in Virginia announced they are shutting their doors for good, with dozens of jobs lost," he said. "These are the companies and workers facing economic hardship due to EPA's management of the RFS -- not highly profitable refiners." READ MORE

Excerpt from Reuters: Philadelphia Energy Solutions Inc, owner of the largest and oldest refinery on the U.S. East Coast, is facing another financial crisis just months after emerging from a controversial bankruptcy, according to two sources and a Reuters review of court filings.

The company filed for bankruptcy in January 2018, blaming its woes largely on the costs of complying with the U.S. Renewable Fuel Standard, a 2005 law that requires refiners to either blend biofuels like ethanol into fuel or purchase credits, called RINs, from competitors who do.

PES does not have those blending capabilities, so it has to pay for credits. But a Reuters analysis showed other factors played a role in the bankruptcy, including the withdrawal of more than $590 million in dividend-style payments from the company by its investor owners.

After filing for bankruptcy, the company was given a waiver for half of its $350 million in liabilities related to biofuels credits by the U.S. Environmental Protection Agency.

“I am not surprised that they are economically struggling once again, but I didn’t expect it to happen so soon,” Christina Simeone, a director at the Kleinman Center for Energy Policy, said.

In the last three months of 2018, while PES saw its cash balance fall by $61 million, the compliance credits were trading at multi-year lows.

"They're having financial difficulties when RIN prices dropped 75 percent. It's pretty damming evidence against their bankruptcy claims that the RFS is the primary claim in filing bankruptcy," said Simeone, who authored a report bit.ly/2TGukjQ last year that predicted the refinery would close by 2022 due to poor economics. The site has been home to a refinery since 1870.

U.S. East Coast refiners like PES lack access to cheaper crude that refiners in other parts of the country enjoy, which inflicts greater pain on the region’s industry when margins are low.

Delta Air Lines’ refinery in nearby Trainer, Pennsylvania, lost $40 million in the fourth quarter. The company is considering selling the plant, sources recently told Reuters.

PES recently secured a $50 million loan from Bardin Hill Investment Partners, formerly Halcyon Capital Management, one of the plant’s owners, two sources told Reuters. The company still has more $700 million in long-term debt, most of which comes due in 2022. READ MORE