The U.S. EPA has proposed to settle with Philadelphia Energy Solutions over its Renewable Fuel Standard compliance obligations, according to documents filed with the U.S. Bankruptcy Court for the District of Delaware on March 12.

PES filed for Chapter 11 bankruptcy in January, blaming its financial struggles on RFS compliance costs, specifically the price of renewable identification numbers (RINs). Supporters of the U.S. biofuels industry argue that the refiner’s financial struggles are not due to its RFS compliance obligations, but rather mismanagement and bad business decisions.  

Sen. Chuck Grassley, R-Iowa, is among those that dispute claims made by PES that the RFS is the cause of its financial problems. In February, he released a memo produced by his energy policy staff that finds RFS blending requirements and the cost of RINs have little to do with the success of refineries and were not factors in the PES bankruptcy. 

In the March 12 court filing, the U.S. EPA proposes as settlement under which PES would retire a total of 138 million currently held RINs in order to resolve its liability for renewable blending obligations (RVOs) prior to the effective date of its proposed plan of reorganization, retire 64.6 million RINs towards its post-bankruptcy 2018 RVO and agree to retire RINs on a semiannual basis for their post-effective date RVOs through 2022. The effective data is currently anticipated to be April 1.

The court filing states that the EPA “is not requesting any action by the court on the proposed settlement agreement. Instead, the proposed settlement agreement should remain lodged with the court while the United States provides an opportunity for public comment.”

According to the notice, the Department of Justice will publish a notice in the Federal Register announcing that the proposed settlement agreement with PES has been lodged with the court. The notice will include a 10-day public comment period. After the close of the comment period, the EPA will evaluate any comments received and advise the court whether it requests that the settlement agreement be entered. The EPA also requests that the court wait to act on the proposed settlement agreement until after it is able to complete the comment period and advise the court.

Commenting on the settlement, Grassley said, “It raises a couple of questions. How are the RIN obligations being treated compared to the other obligations of PES? Does this set an unfair precedent for other refiners that continue to act in good faith to comply with the law?”

Bob Dinneen, president and CEO of the Renewable Fuels Association, indicated his organization is in the process of assessing the settlement.  “We are evaluating the settlement and will comment on the proposal,” he said. “But at first blush, this strikes us as rewarding bad behavior and it sets an extraordinarily bad precedent."