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PES Holdings, LLC, et. al. Bankruptcy Renewable Fuel Standard Settlement

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On January 21, 2018, PES Holdings, LLC, North Yard Financing, LLC, North Yard GP, LLC, North Yard Logistics, L.P., PES Administrative Services, LLC, PES Logistics GP, LLC, PES Logistics Partners, L.P., Philadelphia Energy Solutions Refining and Marketing LLC (PESRM), PESRM Holdings, LLC (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.

One of the Debtors, PESRM, a Delaware limited liability company formed in 2012, owns two interconnected refineries located on an approximately 1,300 acre tract of land near downtown Philadelphia, Pennsylvania. PESRM’s refineries produce 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 March 12, 2018, the Debtors and the United States filed a settlement with the bankruptcy court to resolve the Debtors’ obligations under the Clean Air Act Renewable Fuel Standard (RFS) program.

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Overview of the Renewable Fuel Standard Program

The Energy Policy Act of 2005 amended the Clean Air Act 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).

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The Debtors Bankruptcy Plan of Reorganization failed to provide for any compliance with a portion of Debtors’ 2016 RVOs, all of its 2017 RVOs, and the portion of its 2018 RVOs that it incurs between January 1, 2018, and the Effective Date of the settlement (anticipated to be April 1, 2018). When these obligations come due, they would be violations of 40 CFR § 80.1461(c)(1), which require that no person fail to acquire sufficient RINs to meet the person’s RVOs under 40 CFR § 80.1427. 

Settlement Agreement

Based on the Debtors’ lack of financial capability to meet its RVOs, the United States has agreed to a settlement under which PESRM is required to retire 138 million RINs within 3 days of the date of completion of the bankruptcy proceedings to satisfy its RVO obligations that were incurred before completion of the bankruptcy proceedings. On this date PESRM will also retire the remaining 64.6 million RINs it currently owns towards the Reorganized Debtors’ 2018 RVOs incurred between the completion of the bankruptcy proceedings and December 31, 2018.

In order to ensure that the reorganized company that emerges from bankruptcy meets its RFS obligations going forward, the settlement also requires the company to, by September 30, satisfy its RVOs incurred between January 1 and June 30, and by March 31, satisfy its RVOs incurred between July 1 and December 31. Failure to meet this requirement will subject the reorganized company to stipulated penalties. This requirement will remain in effect through December 31, 2022.

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Comment Period

The proposed settlement, lodged in the United States Bankruptcy Court for the District of Delaware, is subject to a 10-day public comment period and final court approval. The public comment period will begin when the Department of Justice publishes a notice of the settlement in the Federal Register.   The settlement will be available at the Department of Justice website.

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For more information, contact:

Melissa Schefski
Air Enforcement Division
U.S. Environmental Protection Agency
1595 Wynkoop Street (8MSU)
Denver, Colorado  80202
(303) 312-6842

Tahani Rivers
Air Enforcement Division
U.S. Environmental Protection Agency  
5 Post Office Square
Mail Code: OES04-3
Boston, MA  02109-3912
(617) 918-1299

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