Republican Senator Ted Cruz of Texas will speak at a rally against the U.S. Renewable Fuel Standard (RFS) on Wednesday hosted by bankrupt refiner Philadelphia Energy Solutions Inc – a company that blames the controversial biofuels policy for its financial demise.
The rally comes as the oil industry and the corn lobby clash over the causes of the Philadelphia-area refiner’s insolvency, which has become a touchstone in the debate over whether the RFS needs to be rewritten or replaced.
The decade-old regulation requires U.S. refiners to blend biofuels like corn-based ethanol into their fuel, or buy credits from those who do. While it has created a lucrative market for corn states like Iowa and Nebraska, refiners like PES that have no blending facilities say it is unfair and costly.
Philadelphia Energy Solutions (PES), which employs more than a thousand people in the Philadelphia area, declared bankruptcy in January and placed the blame squarely at the feet of the RFS.
The corn industry has pushed back, pointing out that other refining companies are raking in their biggest profits in years, and suggesting PES’s problems may have had more to do with regional refining economics and management choices.
Reuters reported that PES’s investor backers – led by the Carlyle Group – withdrew more than $594 million in a series of dividend-style distributions from PES since 2012, most of them backed by loans the company ultimately could not repay. The distributions, combined with a shift in U.S. energy economics, made complying with RFS challenging for PES.
Cruz, who represents the big refining state of Texas, has been leading an effort to reform the RFS, putting holds on presidential nominations favored by corn-state lawmakers and organizing meetings with administration officials.
The oil and gas industry is among Cruz’s top financial backers, according to the Center for Responsive Politics. Cruz has suggested putting a cap of 10 cents on credit prices – a fraction of their current value – a move that would save refiners millions of dollars but which was roundly rejected as unworkable by the biofuels industry.
PES is asking a bankruptcy judge to shed roughly $350 million of its current RFS compliance costs as part of its restructuring package. Complying with the RFS was more expensive than the company’s payroll, and ranked only behind purchasing crude oil as its biggest cost.
(Reporting By Jarrett Renshaw; Editing by Richard Valdmanis and Jonathan Oatis)