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State seeks to block PES reorganization; claims refiner owes $3.8B in taxes

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State seeks to block PES reorganization; claims refiner owes $3.8B in taxes

The Commonwealth of Pennsylvania is asking a federal bankruptcy judge to block PES Holdings LLC's plan to emerge from bankruptcy, claiming the refiner owes the state $3.8 billion in unpaid liquid fuel and sales and use taxes.

"While the Commonwealth's estimated claim reflects the best information available, the liability may be adjusted … after the Commonwealth has had the opportunity to examine the Debtor's records and complete its audit," the Pennsylvania Department of Revenue said in a March 16 filing with the bankruptcy court. "The Commonwealth believes, however, the final audit may produce a substantial liability which could impact the feasibility of the Debtors' plan."

The refiner, majority owned by the Carlyle Group LP and an Energy Transfer Partners LP unit, blamed its bankruptcy on the cost of complying with the U.S. EPA's renewable fuel standard program, which requires refiners to blend biofuels such as ethanol into transportation fuels. PES said in a Jan. 22 filing that it would have to purchase credits with an aggregate market value of approximately $350 million by March 31 in order to comply with the regulations.

Last week, the company entered into an agreement with the federal government that would allow it to shed its obligation for roughly half of the credits it would otherwise be required to purchase.

(U.S. Bankruptcy Court District of Delaware case no. 18-10122)