State says PES owes $3.8 billion in back taxes, urges court hold up bankruptcy plan

  • Jon Hurdle
Philadelphia Energy Solutions is the largest oil refining complex on the Eastern seaboard. Half of all Bakken Crude traveling across the country by rail ends up at the PES plant.

Nat Hamilton/WHYY

Philadelphia Energy Solutions is the largest oil refining complex on the Eastern seaboard. It filed for Chapter 11 bankruptcy in January.

Pennsylvania Attorney General Josh Shapiro is urging a federal bankruptcy court to withhold approval of a bankruptcy petition by Philadelphia Energy Solutions, saying the company owes the state $3.8 billion in back taxes.

Shapiro, in a document filed with the U.S. Bankruptcy Court in Delaware on Friday, said the taxes are owed for “liquid fuel and sales and use taxes,” and have arisen from a pending audit of the company’s refining and marketing arm.

The document said the liability “may be adjusted” after the audit but may mean that the PES’s pre-packaged bankruptcy, filed in January, may not work.

“The Commonwealth believes, however, the final audit may produce a substantial liability which could impact the feasibility of the debtors’ plan,” the document said.

The Pennsylvania Department of Revenue, which is represented by the Attorney General, issued its own statement, saying it had filed the claim to protect its interests. “The department did so in this case after considering the totality of the circumstances and to comply with the deadlines associated with the debtor’s voluntary bankruptcy filing,” the statement said.

Kate Murray, a spokeswoman for PES, declined to comment on the AG’s document.

Christina Simeone, an analyst at the University of Pennsylvania’s Kleinman Center for Energy Policy, said that if the state’s claim is upheld by the court, the magnitude of the liability may mean that liquidation, not an orderly emergence from bankruptcy, is the only option for the refiner, which is the largest on the East Coast, with some 1,100 employees.

“If they have merit and are upheld, I suspect the result would be a quick end to plans for Chapter 11 reorganization, and the onset of Chapter 7 liquidation,” she wrote in an email.

Simeone said the tax liability stated by the AG’s document is in line with recent budget deficits reported for the Commonwealth of Pennsylvania. “The sums are staggering,” she said.

The taxes owed consist mostly of unsecured priority claims of about $3.1 billion in liquid fuels tax, interest and penalties from Jan. 1, 2015 to Dec. 31, 2017. There’s also some $700 million in sales and use tax, interest and penalties from Jan 1, 2015 until Jan 21, 2018, court records show.

The AG’s office said it doesn’t comment on cases where it is representing other state agencies.

PES filed for Chapter 11 bankruptcy reorganization in January, placing most of the blame on the heavy expense of paying renewable fuel credits, or “RINs” to the federal government under its Renewable Fuels Standard.

Last week, the company reached agreement with the government, cutting about half of its liability for owed RINs payments but leaving the program in place.

The agreement allows the public to comment for 10 days, after which the court will decide whether to approve the pact.

Here’s the AG’s filing:

 



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