VLO, CVRR, PBF, HFC, DAL
The Senate Environment and Public Works Committee is scheduled to vote Wednesday morning at 10:45 AM on the confirmation of Oklahoma Attorney General Scott Pruitt to be EPA Administrator in the Trump Administration.
Refiner stocks rose after Trump’s election in November on the expectation that the new administration will translate into relief for merchant refiners facing high compliance costs under the Renewable Fuel Standard (RFS).
A successful Senate confirmation vote for Pruitt in committee as well as the full Senate could result in another bump in stocks of affected independent refiners.
On Tuesday, the Senate Energy & Natural Resources Committee voted to approve the nominations of former Texas Governor Rick Perry to be Energy Secretary and Congressman Ryan Zinke to be Interior Secretary.
However, Senate Democrats on Tuesday blocked a committee vote for Senator Jeff Sessions to be Attorney General citing an arcane Senate rule that permits either party from stopping committee hearings that go beyond two hours after the official start of the Senate day.
Senator Tom Carper, the ranking Democrat on the Senate Environment & Public Works Committee, asked Chairman John Barrasso to delay the vote on Pruitt’s confirmation. Barrasso declined the delay but it is unclear if Democrats will try another “two-hour” rule challenge to Pruitt on Wednesday.
Regardless of any delay that may result, Pruitt has the votes to pass out of committee and be confirmed by the full Senate.
During his confirmation hearing, Pruitt reiterated his support for the Renewable Fuel Standard but specifically declined to oppose shifting the point of obligation for compliance from refiners to blenders and retailers.
We believe that Pruitt declining to answer the question on shifting the point of obligation is a sign that he is open to making the change. It is important to note that EPA can do this through a proposed rulemaking and does not require any approval or action from Congress.
Such a move would be a boost to merchant refiners like Valero, CVR Refining, PBF Energy, Philadelphia Energy Solutions, HollyFrontier, CVR Refining and Delta Airlines’ Monroe Energy. Compliance costs for these companies are in the hundreds of millions and for some companies even exceed labor costs.
Carl Icahn, Trump’s incoming regulatory adviser, and a major shareholder of CVR Refining, is a leading proponent of shifting the point of obligation and repealing the RFS. Icahn was one of several advisors who interviewed Pruitt and other EPA candidates before Trump selected a nominee.
