PHILADELPHIA >> Philadelphia Energy Solutions announced a restructuring last week that includes a Chapter 11 bankruptcy filing in an attempt to deal with the skyrocketing cost of regulations that have increased tenfold in six years, topping all of their costs except crude oil.
Employee union representatives at the refinery are concerned that should this trend continue, they won’t be long out of a job, especially as some say no one is heeding their call to address the plight.
For now, the company has managed to strike a deal with its creditors and gain access to a new credit line. The company said they do not expect the bankruptcy filing to have any immediate effects on the workforce.
Much of the refinery’s struggles can be traced to a single issue. They’re called RINs, or Renewable Identification Numbers.
“If this RIN issue is not solved somewhere down the line, there will be a big impact to union and non-union workers,” said Ryan O’Callaghan, president of the United Steelworkers Union Local 10-1. His union represents about 650 of the 1,100 workers on site.
The company’s move stems from the requirement of refiners to purchase Renewable Identification Numbers, credits that are purchased to satisfy the federal mandates for ethanol in gasoline.
According to the company, in 2017 alone, PES spent about $218 million on RINs alone, more than twice the company’s payroll, almost one and a half times its average annual capital expenditures and four times its interest expense. The only expense larger than the RINs is crude oil.
O’Callaghan said six years ago, the cost of each RIN was 1 or 2 cents and it has gone as high as $1.06 a credit.
Since 2012, the refinery has spent $832 million on these credits.
“They’re putting money out and they can’t use that money for labor or equipment investment,”
O’Callaghan explained. “They’re getting nothing for it.”
The union leader said the refinery and its workers are not contesting having the ethanol placed into the gasoline – what they want changed is who bears the burden of that mandate.
“The battle,” O’Callaghan said, “is the point of obligation – who is required to turn this in. A refinery is not allowed to blend the ethanol in.”
So independent refiners like PES and Monroe Energy in Trainer have to buy the credits elsewhere, since they are restricted from actually blending the ethanol into the gasoline themselves.
Larger oil companies with integrated refineries have blending operations in other locations and that division of their company receives the ethanol credit while the refining portion takes the hit, a move that balances out for the bigger companies. A move, O’Callaghan said, that shuts out the smaller refiners like PES.
Others agreed with that.
“It was just meant to ensure people that the ethanol was being blended into the gasoline,” said Anthony Gallagher, business manager of the Steamfitters Union Local 420. “It was never meant to be a traded commodity and it became that.”
Gallagher’s union members tally anywhere from 300,000 to 500,000 a year at the Philadelphia facility.
“My members, the building trades, the steelworkers, quality jobs ... are going to get starved here,” he said.
Anthony Wigglesworth of the Philadelphia Area Labor Management Committee has been coordinating economic development efforts among the refinery owner, outside contractors and the contracted workforce since 1984.
He described the RINs as a phantom tax, likening it to having to pay for a car used by your neighbor and sitting in their driveway.
“We have a business that is viable,” Wigglesworth said. “PES is making money but they’re burdened by this expense ... which is greater than every other expense they have other than product. In this particular case, we have a tax that doesn’t even apply to the whole industry, just independent refiners.”
He compared it to labor costs.
“They’re not paying their employees 10 times as much,” Wigglesworth said. “They’re actually pay less for crude than they did based on circumstance. If it were actually identified as a tax, people would say it’s intolerable.”
When Sunoco got out of the refinery business six years ago, the plant was purchased by the Carlye Group, which created Philadelphia Energy Solutions to run the refinery, in the process saving hundreds of jobs after Sunoco padlocked the doors to its refinery operations in Marcus Hook.
In a letter dated Jan. 21 to company employees, PES CEO Gregory G. Gatta identified RINs as their largest financial difficulty.
“As you know, our industry and our company have faced a number of challenges recently, the most notable of which is the skyrocketing cost of Renewable Identification Numbers,” Gatta wrote. “This incredibly burdensome cost of complying with the Renewable Fuel Standard and other external industry forces have affected our financial flexibility.”
He also told them that this announcement would have no impact on their job, pay or benefits.
Through the restructuring agreement, the company acquired access to $260 million in financing and is anticipating to complete the recapitalizaton process by the end of March.
“Today’s agreement positions PES well for the future with a sustainable capital structure and additional liquidity, ensuring we can continue to provide critical refined product supply and energy security to the Northeast United States without disruption and with no impact on our employees, supplies and customers,” Gatta said in a public statement. “In order to complete this process, without delay, we will continue to work with the government to address the broken RFS system that is harming smaller, independent merchant refiners like PES.”
Philadelphia Energy Solutions’ efforts have taken them to the White House.
Gallagher said they’ve been advocating to have some solution.
“We are heavily involved in lobbying,” he said. “We’ve had lobbyists in the White House with senators ... It’s just so frustrating.”
In a letter to President Donald Trump last October, a group of senators, including U.S. Sen. Pat Toomey, R-Pa., implored the president to address the issue, especially after PES laid off 70 workers in 2016 because of the increasing RIN costs.
“Hard working Americans whose jobs depend on a strong independent refining industry deserve the opportunity for you to hear directly from their representatives on the potential impact of policies that could kill their jobs and destroy a critical component of our nation’s economy,” the senators wrote.
“If your administration does not make adjustments or reforms on matters related to the Renewable Fuel Standard (RFS), it will result in a loss of jobs around the country, particularly in our states.
“For example, a recent study found that if U.S. independent refiners go out of business, an estimated 75,000 to 150,000 American jobs are potentially at risk,” they wrote.
Gallagher said nothing was done.
“Don’t talk about saving American jobs and then put us out of business,” he said. “You can’t talk out of both sides of your mouth.”
Gallagher continued, “I don’t think anybody is asking for anything that’s not logical and that doesn’t make sense ... Nobody’s trying to hurt the Midwest. All we want is a common sense approach to something that’s putting people out of business.”
Others agreed about the harm this situation could create.
Mike Murphy is senior vice president and general manager of the Trevose, Pa.-based Nooter Construction Company, which does union mechanical and electrical work at PES.
“Over the last 10 years, there has been significant capital expended in the Philadelphia refinery,” he said. “This money has been spent on environmental and process upgrades to continuously improve performance of the facility.
“The structure of the Renewable Fuels Standard and the current point of obligation is, in my perspective, detrimental to Philadelphia Energy Solutions and other merchant refiners,” Murphy said. “The standard results in the destruction of the profitability of merchant refiners and also leads to the destruction of available, well paying, highly skilled jobs.”
Wigglesworth outlined the impact the work that PES provides at the 335,000-barrel-per-day, 1,300-acre complex.
This is the most important hidden economy in this region,” he said. “Year in and year out, ... about 1 million hours a year in building tradesmen time is supported by Philadelphia Energy Solutions and those jobs are not replaceable.”
Wigglesworth underscored that sentiment.
“We will not be able to replace the hole that’s created with any wobble with Philadelphia Energy Solutions,” he said.
O’Callaghan spoke to the volatility of the RINs pricing and its potential impact.
“How can you budget this cost?” the union leader asked. “It goes up and down all the time. It’s totally unfair. If this refinery closes, the whole Eastern seaboard would be affected. I don’t know where else the company can go.”
Philadelphia Energy Solutions operates two refineries in southwest Philadelphia, handling 335,00 barrels of crude oil a day. The plants employ about 1,100 people.
Source: The Delaware
County Times
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