2020 PES Holdings, LLC, et. al. Bankruptcy Renewable Fuel Standard Settlement
On this page:
- Overview of the Renewable Fuel Standard Program
- Settlement Agreement
- Comment Period
On July 21, 2019, following a June 21, 2019 explosion and fire at the Philadelphia Energy Solutions Refining and Marketing LLC (“PESRM”) owned and operated refinery located in Philadelphia, Pennsylvania (“Philadelphia Refinery”), PES Holdings, LLC, North Yard GP, LLC, North Yard Logistics, L.P., PES Administrative Services, LLC, PES Energy Inc., PES Intermediate, LLC, PES Ultimate Holdings, LLC, and PESRM (collectively the “Debtors”) filed for bankruptcy in the United States Bankruptcy Court for the District of Delaware. The United States entered an appearance in the bankruptcy proceedings.
The Philadelphia Refinery includes two once-separate refineries (Point Breeze and Girard Point) and had been used for refining operations for approximately 150 years. While in operation, the Philadelphia Refinery produced a full range of transportation fuels, such as gasoline and ultra-low sulfur diesel, as well as other refined products, including home heating oil, jet fuel, kerosene, fuel oil, propane, propylene, butane, cumene, and sulfur.
On May 1, 2020, the United States and the Debtors filed a Consent Decree and Environmental Settlement Agreement (“Settlement Agreement”) with the bankruptcy court to resolve the Debtors’ liabilities under a 2018 Consent Decree, In re: PES Holdings, LLC 18-10122 (KG) (“2018 Consent Decree”), and the Clean Air Act’s (“CAA”) Renewable Fuel Standards (“RFS”) program.
Overview of the Renewable Fuel Standard Program
The Energy Policy Act of 2005 amended the CAA to create the original RFS program. The program required 7.5 billion gallons of renewable fuel be blended into gasoline by 2012.
The Energy Independence and Security Act of 2007 expanded the RFS program, which became known as the RFS2 program. The RFS2 program is intended to reduce greenhouse gas (“GHG”) emissions by setting a national mandate for renewable fuels that meet specific GHG emissions reduction standards. The RFS2 regulations created a market-based program to assure that the national mandate will be met. Renewable fuel producers and importers generate renewable fuel credits, known as renewable identification numbers or RINs, for each gallon of renewable fuel that meets the GHG emissions reduction standards. The program requires refiners and importers, known as obligated parties, to retire a specific number of RINs each year based on the amount of petroleum fuel that they produce and import; this is known as a renewable volume obligation (“RVO”).
To combat RIN market fraud, EPA promulgated the Quality Assurance Plan (“QAP”) regulations. See 40 C.F.R. Part 80, Subpart M. Under the QAP regulations, independent third-party auditors monitor renewable fuel facilities to ensure these facilities are producing qualifying renewable fuel and generating valid RINs. A third-party auditor is required to register with EPA and submit a QAP for EPA approval before conducting any audits under that plan. Once a third-party auditor has conducted the on-site review, document review, and initiated on-going monitoring, the RINs may be identified as verified by the third-party auditor and sold to other parties as QAP verified RINs. This QAP label is intended to represent to the purchaser of those RINs that it is buying credits that have been closely examined by a third-party auditor who has determined the RINs are valid. A Q–RIN is a type of RIN that a registered independent third-party auditor verified using an approved QAP, and in accordance with the audit process laid out in 40 C.F.R. § 80.1472. See 40 C.F.R. § 80.1401.
The 2018 Consent Decree resolved PESRM and other Debtors’ RFS program-related liabilities from their previous bankruptcy. Among other things, it required PESRM to retire RINs by September 30, 2019 in order to meet the RVOs that it accrued for the period from January 1, 2019 through June 30, 2019. After the explosion, including in part while the bankruptcy was pending, PESRM continued to produce gasoline and diesel fuel from crude oils remaining at the Philadelphia Refinery, triggering additional RVOs under the 2018 Consent Decree that PESRM was required to retire by March 31, 2020. On March 31, 2020, its RVOs became due under the CAA's RFS program. See 40 C.F.R. §§ 80.1427(b) and 80.1451(a)(1). PESRM did not comply with these obligations under the 2018 Consent Decree or the CAA.
Based on the Debtors’ bankruptcy filing and sale of PESRM’s equity, the United States has agreed to a settlement under which the Debtors have agreed to purchase and retire up to 161,830,963 QAP Q-RINs, subject to a price cap of $22 million, to resolve their liability under the 2018 Consent Decree and the CAA’s RFS program. The Debtors Chapter 11 Plan (“Plan”) establishes a Liquidating Trust, which will, among other things, purchase and retire these Q-RINs within 90 days of the Effective Date of the Settlement Agreement or the Plan, whichever occurs later. Debtors’ obligation under this initial purchase is capped at $10 million. If PESRM, any Debtor, or the Liquidating Trust, receives an Excise Tax Refund from the United States, the Liquidating Trust will purchase and retire the remaining Q-RINs, within 90 days of receiving the refund. The Liquidating Trust’s RIN retirement obligation ends when the Liquidating Trust has (a) retired the full amount of Q-RINs, (b) purchased and retired $22 million worth of Q-RINs, or (c) purchased and retired $10 million worth of Q-RINs plus the number of Q-RINs worth the Excise Tax Refund from the United States if the refund is less than $12 million.
The proposed Settlement Agreement, lodged in the United States Bankruptcy Court for the District of Delaware, is subject to a 15-day public comment period and final court approval. The public comment period will begin when the Department of Justice (“DOJ”) publishes a notice of the Settlement Agreement in the Federal Register. The settlement will be available at the Department of Justice website.
For more information, contact:
Air Enforcement Division
U.S. Environmental Protection Agency
1595 Wynkoop Street (8MSU)
Denver, Colorado 80202