REFINING:

Sweetheart deal for Philly-area plant under fire in Pa. state court

A political deal that paved the way for a private equity firm to take over the East Coast's largest refinery has been challenged by Philadelphia-area activists.

Clean Air Council has sued the Pennsylvania Department of Environmental Protection over an alleged sweetheart arrangement under which Carlyle Group was able to acquire the Philadelphia refinery from Sunoco Inc. with fast-tracked air permits to pump out as much as 330,000 barrels of product per day.

The deal was wrought at the highest level earlier this year when the White House, Pennsylvania Gov. Tom Corbett's office, state regulators and the Energy Department become concerned about Sunoco's plans for closing the refining hub.

When Carlyle stepped in to buy the plant, the Republican Corbett announced that projected upgrades would get all manner of state support, including $25 million in grants, tax-exempt bond authority and the possibility of a tax-free zone. All that was meant to help avert an anticipated supply crunch for gasoline on the East Coast (EnergyWire, March 7).

A little-noticed provision attached to the agreement stipulated that Carlyle would receive air pollution credit for a nearby closed refinery at Marcus Hook. At Corbett's prodding, the DEP agreed to let the Philadelphia refinery and Marcus Hook operate as a single air-pollution source.

Sunoco has since announced it will continue running the open refinery under Carlyle's management, through an outfit called Philadelphia Energy Solutions. Sunoco owned the air pollution credits for Marcus Hook under the Keystone State's system for regulating emissions.

But now, officials at Clean Air Council have filed suit within DEP's system to stop the deal. Joseph Otis Minott, executive director of the group, argued in an interview that the arrangement is improper and undermines the state's history of strict air quality regulation.

DEP, he said, has a standardized way of making sure an emitting source qualifies for aggregation. He rejected the notion that the Philadelphia refinery should qualify just because Marcus Hook is just down the road and no longer churning out fumes.

Minott charged that DEP and the state of Pennsylvania have created "a fiction" that the owners of the plant are the same, when the reality on the ground is Sunoco has been contracted to run the plant by the private equity giant.

"Sunoco had already gone above and beyond with pollution controls" at Marcus Hook, "so it creates a credit," he said. "But it's not one plant, so Carlyle has to go out and get credits or install new equipment."

Minott's group has filed suit within state environment court, which is the avenue in Pennsylvania for challenging the DEP in court. Attorneys for the group will argue the department created "a special category" to aggregate the Philadelphia refinery when none before existed, he said.

The suit has managed to rankle more than a few in the state, including Corbett and the United Steelworkers. Last week, the union and the Pennsylvania Coal Alliance issued a joint statement condemning the challenge, saying it could cost 1,000 jobs at the former Sunoco refinery.

Steelworkers President Leo Gerard said the legal review could threaten "months of hard work by USW members; local, state and national leaders; and environmental officials." DEP Secretary Mike Krancer offered a similarly strong view in a statement to EnergyWire.

"This baseless suit by the so-called 'Clean Air Council' stabs in the back 22,000 union and other workers and their families in Southeastern Pennsylvania," Krancer said. "Through Governor Corbett's leadership and bipartisan work between federal, city and state officials, as well as labor, management and the private-sector investment firm, we found a solution which saved the refinery and protected the environment."

Krancer added that overall emissions would be lower after the deal goes through due to the use of lower-sulfur Bakken crude oil from North Dakota at the plant. Among the upgrades expected to take place under Carlyle is an expansion of oil and gas pipelines and construction of a train-unloading facility to bring in 140,000 barrels per day of domestic oil from North Dakota.

"It is shameful that this out-of-touch, extreme organization would for no reason jeopardize the livelihoods and way of life of so many people and also jeopardize America's ability to refine oil on our own shores," Krancer said.

Neither Carlyle nor Sunoco returned calls or emails seeking comment. A source within Pennsylvania state government said the companies were unlikely to discuss the matter with the media until attempts to avoid court appearances have been exhausted.

Minott confirmed that lawyers from Sunoco and Carlyle have been in touch with his group in an effort to settle out of the environment court system. He added that the effect on jobs is unfortunate but that he would not rescind the lawsuit under pressure to do so.

"I understand the concern of the steelworkers; this is their jobs, and I'm sympathetic to that," he said. "I guess people don't like the fact that we're making DEP follow the law. Because we do that, we're called radical and fringe and out of touch."

Sullivan is based in New York.

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