Report Update: At the time of original publication in November 2018, the report author had made regulators aware of perceived shortcomings in the public participation process conducted by Sunoco affiliate Evergreen with respect to environmental remediation at the Philadelphia refinery under Pennsylvania’s Land Recycling Act. These shortcomings were presented in the original release of the report. This included deficiencies in the public participation plan, absence of public notice, absence of documentation available at designated public libraries, and lack of public comment and response submission. In June 2019, Evergreen launched a public website that proposed a new public involvement plan and public comment period, provided proof of public notice, and made relevant documents available online (and in designated public libraries). As of July 2019, these actions by Evergreen are acknowledged with this update.
Some may believe that after emerging from bankruptcy reorganization in August 2018 there is no longer a need to pay attention to what’s happening at Philadelphia’s neighborhood refinery, Philadelphia Energy Solutions (PES). But, the exact opposite is true. Now, more than ever, involvement from municipal leaders and the public is pivotal.
Legacy of Pollution
The sprawling 1,300-acre footprint of land located just a few miles southwest of Center City, Philadelphia has been home to petroleum storage and refining activities since 1866. PES is the current owner of the facility, the oldest and largest refinery on the East Coast.
The history of pollution contamination at the refinery site is profound, given it has been home to hydrocarbon processing for over 150 years. The soil and groundwater at the site are heavily contaminated with hydrocarbons. Light non-aqueous phase liquids (e.g., refinery products like gasoline) are present on the groundwater in many areas of the facility. Specific chemicals of widespread concern include benzene (a known human carcinogen), lead, MTBE, toluene, benzo(a)pyrene, and many other toxic compounds. In some areas, contaminants have migrated offsite, and a drinking water aquifer used by the state of New Jersey could potentially be impacted. (Appendix C provides a detailed explanation of site contamination.)
Sunoco (owned by Energy Transfer Partners) is a part owner of PES and maintains legal liability for historic contamination at the site. Sunoco entered the facility into Pennsylvania’s voluntary Land Recycling Program (Act 2 of 1995) and has been taking steps for years to characterize pollution at the site, stabilize migrating pollution plumes, develop site-specific risk-based pollution concentration standards to achieve (i.e. standards less stringent than statewide health standards), and complete other required tasks. These activities—along with performing remediation and demonstrating to the satisfaction of the Pennsylvania Department of Environmental Protection (PA DEP) and the U.S. Environmental Protection Agency (U.S. EPA) that site-specific standards have been achieved—will provide Sunoco with relief from further federal and state liability for legacy contamination at the site.
Lack of Public Involvement
The City of Philadelphia, local communities, and other interested stakeholders have not been afforded an adequate opportunity to be informed or involved in remediation planning for the refinery. This is inconsistent with the legal requirements of Pennsylvania’s Act 2.
In 2006, the City of Philadelphia timely submitted a request to Sunoco to develop a public involvement plan. However, the plan subsequently developed by Sunoco does not meet the minimum requirements of Act 2 related to community involvement and public notice and review. For example, the plan does not include measures to notify or involve the public in the development and review of key reports and plans—e.g. remedial investigation reports, risk assessment reports, cleanup plans, or final reports. As a result, remedial investigation reports for eight of the eleven “areas of concern” at the refinery—as well as approval of a soil lead cleanup standard that is more than twice the statewide health-based maximum—have been approved without the benefit of municipal or public input.
Sunoco’s failure to fully comply with the relevant community involvement and public notice and review requirements of Act 2—for example, soliciting and submitting public comments and responses to those comments to PA DEP for the agency’s consideration prior to approval of relevant plans and reports—raises serious legal questions about the validity of the approvals thus far awarded.
Two of the three remaining areas of concern for which site characterization reports have yet to be approved involve pollution that has migrated off site, and one area of concern involves the New Jersey drinking water aquifer. Separate from PA DEP, the U.S. EPA is expected to open a public comment period on the proposed site cleanup plan, which is estimated to be available by 2020.
The omission of public involvement in the remediation planning for the refinery is a meaningful grievance. Given the magnitude, severity, and toxicity of the site’s contamination, coupled with its proximity to highly populated environmental justice neighborhoods, population centers, and drinking water resources, public involvement is critical to informing the municipality and community about existing risks, appropriateness of site-specific standards, and remediation options. In turn, this input could inform, improve, and garner public support for the project approach and goals. (See Section 5 for more information.)
PES Likely to Face Bankruptcy Again, By 2022
To add another wrinkle, although PES successfully navigated bankruptcy reorganization in August 2018, it is likely the facility will again face bankruptcy on or before 2022, when its debts mature. This is crucial to site remediation activities because it impacts the future use of the site, and therefore the appropriateness of the site-specific remediation standards Sunoco is pursuing.
Why PES Went Bankrupt
Sunoco had lost money on the refinery for years, before entering into the PES joint venture with the Carlyle Group in 2012. The effort initially looked like it might pay off, and plans for an initial public offering were launched in 2014. However, by January 2018, PES had declared bankruptcy citing burdensome compliance costs associated with the federal Renewable Fuels Standard (RFS), loss of economic rail access to cheap domestic crude, and compressed refinery crack spreads. (See Section 1 for more information.)
Petroleum refineries generally object to the RFS because it reduces the amount of fuel they can sell (i.e. by displacing it with non-petroleum fuel like ethanol) and creates compliance costs. In spite of this, many merchant refineries (PES is a merchant refinery), have remained profitable while complying with the RFS. More meaningful to PES’ bankruptcy is the refinery’s uncompetitive technology, loss of economic rail access to cheap domestic feedstock, and inability to process even cheaper Canadian heavy crudes.
Although PES is a large facility, it is not state of the art. Rather, it is below average in all of the technical measures examined in the report. PES is a rather simple refinery compared to the rest of the U.S. fleet. It has below-average conversion capacity (limited to fluidized catalytic cracking) that is reliant on higher quality, higher cost feedstocks. On top of this, the facility falls short on reliability, operating with a lot of costly down time.
Absent additional and significant disruption (e.g. changes to the Jones Act, oil production increases from the nearby Utica shale), and unlike many of its peers, PES may not be able to benefit from changes in North American crude oil production patterns. Policy changes or strategic investments that reduce RFS compliance costs—such as the RIN-generating biodigester partnership with RNG Energy—could benefit the facility. (See Sections 2 & 3 for more information.)
PES Is Facing Many Future Challenges
The bankruptcy reorganization allowed PES to postpone debt maturity, raise capital, and shed some costly obligations. However, post-bankruptcy, the company is more highly leveraged than it was before. Bankruptcy did nothing to change the fundamental structural challenges facing the refinery, nor did it address new challenges on the horizon. These new challenges include:
- Costly capital needs for refinery turnarounds,
- Required investments to meet domestic and international rules to limit sulfur in motor and marine fuels,
- Increased competition from Midwestern refineries,
- Proposed interstate flow adjustments to a key offtake pipeline,
- Significant unresolved back tax liabilities,
- Loss of competitive advantage in supplying summer gas to the Pittsburgh market, and
- Several other obstacles. (See Section 4 for more information.)
It is possible that PES could navigate these challenges and maintain viable refinery operations. It is also conceivable the facility could function as a fuel-storage terminal and logistic facility, even if refining operations cease. Post-bankruptcy, PES is now majority owned by creditors (e.g. financial institutions) with Sunoco and the Carlyle Group relegated to minority interests. PES’s January 2018 bankruptcy filings estimate the company could recover about $700 million upon liquidation (i.e. converting assets to cash to pay down debts), at best.
Exploring Redevelopment Opportunities
In 2013, Philadelphia released and began to implement a “Master Plan” for redevelopment of the 3,700 acre industrial Lower Schuylkill corridor, of which 1,300 acres includes the PES property. This plan was comprehensive in nature, but chiefly explored economic development opportunities outside of the refinery’s footprint. The plan assumed ongoing operations at the refinery and did not consider the opportunity for industrial redevelopment of all or parts of the refinery complex.
It is not often that 1,300 acres of contaminated land gets remediated near the center of a major metropolitan area. Remediation activities should consider potential alternative future uses for the site, informed by a redevelopment planning exercise based on highest and best use, and assuming cessation of refinery operations. To minimize worker hardship, early planning to prepare for displacement of workers and supply chain businesses should take place in the event that the refinery closes.
The Need for Engagement
The City of Philadelphia, neighboring residents, community leaders, local businesses, and other stakeholders should prepare for engagement.
- Achieving Compliance with Public Involvement Requirements. Sunoco, PA DEP, the City of Philadelphia, communities surrounding the refinery, and other stakeholders need to determine how to correct Sunoco’s omission of community involvement and public notice and review requirements in a manner consistent with Act 2. This includes 1) reviewing the entire remediation project to determine public involvement deficiencies, 2) developing an approach to ensure PA DEP has the opportunity to meaningfully consider public input for all regulatory milestones already approved (e.g. eight remedial investigation reports (RIRs), risk assessments, site-specific standards), and 3) revising Sunoco’s public involvement plan to ensure compliance for the remaining three RIRs, risk assessments, cleanup plans, and final reports. Ameliorating some of these grievances may be complicated given the law envisions public comment and remediator responses being inputs into PA DEP’s review prior to approval or rejection of the relevant plans and reports.
- Exploring Redevelopment Opportunities. Given the near-term potential for closure of refinery operations, stakeholders should begin exploring redevelopment options for the site. This could include consideration of a wide range of potential industrial and recreational uses for site parcels that would add value to the City. The opportunity to reclaim such a large footprint of land so close to Center City deserves thorough and creative exploration and analysis for the highest and best use. These potential future site uses should also inform the appropriateness of site-specific remediation standards being pursued by Sunoco.
- Preparing for Worker Dislocation. Closure of PES will create hardships for many employees and businesses dependent on the refinery. Relevant stakeholders should acknowledge the potential for the refinery’s near-term closure, understand the magnitude of related worker displacement, and plan for the associated needs of refinery workers and those employed in the refinery’s business supply chain. Evaluation and planning should take place for the potential need to deploy re-employment services (e.g. retraining, trade adjustment assistance), including assessing local, state, and federal funding resources.
PES is the largest single source of toxic, criteria, and greenhouse gas emissions pollution in Philadelphia County. Closure of the refinery will result in significant reduction of air pollution that is harmful to human health and the environment. In addition, reduced local air pollution emissions may ease permitting requirements for new or existing industrial entities—with the potential for job creation and economic development—given the regulatory air quality attainment status of the region.
There is only one chance to inform and influence Sunoco and Energy Transfer Partner’s legal obligation to fund the cleanup of Philadelphia’s neighborhood refinery. This remediation project is important to the future of the City and its residents, and the project will benefit from active public involvement and support.