PBF Energy to Shareholders: No Need to Worry About Financial Fallout from Martinez Refinery Investigations

In addition to air quality issues, refinery faces possible $13.8 million fine for water quality violations impacting Carquinez Strait; city works on management plan for Alhambra Highlands

PBF Energy’s investors need not worry about penalties and violations related to several incidents at the Martinez refinery impacting the company’s bottom line, according to a quarterly filing by the New Jersey-based firm with the Securities and Exchange Commission.

In a section titled “Legal Proceedings” near the end of PBF’s financial report for the third quarter ended Sept. 30, the company disclosed a laundry list of violations and investigations facing its Martinez refinery over incidents dating to the November 2022 spent catalyst release of 20 to 24 tons of toxic dust, as well as a $13.8 million Administrative Civil Liability assessment it received in September 2023 from the San Francisco Bay Regional Water Quality Control Board. In each case, however, PBF reassured shareholders that it expected the outcome of these legal proceedings to have no “material effect” on its financial position, results of operations, liquidity or cash flow.

PBF disclosed the following in the quarterly report, which can be accessed at the following link: https://investors.pbfenergy.com/files/doc_financials/2023/q3/sec-show-15.pdf

We currently have multiple outstanding notices of violation (“NOVs”) issued by regulatory authorities for various alleged regulation and permit violations at our refineries. It is not possible to predict the outcome of any of these NOVs or the amount of the penalties that will be assessed in connection with any NOV. If any one or more of them were decided against us, we believe that there would be no material effect on our financial position, results of operations, or liquidity. SEC regulations require us to disclose certain information about proceedings arising under federal, state, or local provisions regulating the discharge of materials into the environment or protecting the environment if we reasonably believe that such proceedings will result in monetary sanctions of $300,000 or more. On November 24, 2022, the Martinez refinery experienced a spent catalyst release that is currently being investigated by the Bay Area Air Quality Management District (“BAAQMD”), Contra Costa County (“CCC”), the Department of Justice and the Environmental Protection Agency (“EPA”), and the California Department of Fish and Game. On July 11, 2023 and October 6, 2023, the Martinez refinery experienced unintentional releases of petroleum coke dust and has received inquiries or notices of investigation from the BAAQMD, the California Department of Industrial Relations, Division of Occupational Safety and Health, the CCC, and the EPA. The BAAQMD has issued 35 NOVs relating to the spent catalyst incident to date: 21 for opacity; four for failure to properly operate equipment; one for a public nuisance; one for failure to timely report the nuisance; one for fallout in the community; one for failure to timely report the fallout; one for emission of visible particles; one for failure to report an NOV; two for failure to submit a 30-day report; and two for failure to timely respond to the document requests. The CCC has issued two NOVs related to the spent catalyst incident. The BAAQMD also issued an NOV relating to the July 11, 2023 coke dust incident and an NOV relating to the October 6, 2023 coke dust incident. For the spent catalyst incident, the DFG, CCC, and the BAAQMD have referred their findings and/or NOVs issued to date to the CCC District Attorney for enforcement evaluation. For both the spent catalyst and coke dust incidents, no penalties have been assessed but it is reasonable to expect that, individually or in the aggregate, the amount of such penalties may exceed $300,000. On September 27, 2023, MRC received from the San Francisco Bay Regional Water Quality Control Board (“RWQCB”) an Administrative Civil Liability assessment in the amount of $13.8 million for allegedly: (1) exceeding its effluent limitations and discharging to the Carquinez Strait without authorization in October 2022, January 2023, and June 2023; and (2) failing to submit Climate Change Adaptation information. MRC is currently reviewing the assessment to determine the appropriate response to the RWQCB. We presently believe the outcome of this matter will not have a material impact on our financial position, results of operations, or cash flows. 5

The water quality violations and assessment have not yet been disclosed publicly by the Regional Water Quality Control Board because it is in settlement negotiations with the refinery that are considered confidential, agency spokesperson Blair Robertson said in response to an inquiry from this newsletter.

“If a settlement is reached and a proposed fine is issued, our general protocol is to make that information public and so we can begin accepting public comment prior to finalizing,” Robertson said.

The SEC filing also notes that the refinery has been named in a class-action lawsuit related to the impact of its operations on the community. In that case, as well, it anticipates no “material impact” on its financial condition:

On August 16, 2023, in Joseph Piscitelli and Lara Zanzucchi v. Martinez Refining Company LLC, our subsidiary MRC was named as a defendant in a class action and representative action complaint filed by Joseph Piscitelli and Lara Zanzucchi, and on behalf of all others similarly situated. The complaint contains allegations of public and private nuisance, trespass, and negligence arising from MRC’s operations. The proposed class is defined as all owners/occupants of residential property within two miles of the refinery’s property boundary within three years pre-dating the complaint. We filed our answer to the complaint on October 31, 2023. We presently believe the outcome will not have a material impact on our financial position, results of operations, or cash flows.

And finally, PBF addressed in the filing its ongoing lawsuit against the Bay Area Air Quality Management District over a new particulate emissions rule that would require it to ultimately install a device known as a “wet gas scrubber” to comply with mandated reductions. PBF has argued that the installation of such a device would be both prohibitively expensive and logistically infeasible given the space constraints at the refinery. The start of the trial on that lawsuit has been delayed several times as settlement negotiations continue between PBF and the air district. Again, PBF tells investors not to worry about any adverse impacts of that litigation on its overall financial condition.

We presently believe the outcome will not have a material impact on our financial position, results of operations, or cash flows.

The SEC filing raises further questions about whether the torrent of public criticism and investigations that have been heaped on the Martinez refinery by public officials, residents and regulatory authorities over the past 14 months will ultimately be more bark than bite, particularly if whatever penalties or punishments emerge leave the company financially unscathed.

As PBF noted in the filing, none of the violations or investigations related to the spent catalyst incident, or less-significant coke dust releases, have so far led to the assessment of any penalties. And while the string of incidents has led to calls from some in the community to shut down the refinery or at least curb its operations, nothing in the SEC filing indicates that PBF is concerned about such a possibility.

Meanwhile, the federal agency with perhaps the greatest power to investigate problem refineries, the U.S. Chemical Safety Board (CSB), has to date given no indication that it is interested in investigating the incidents at PBF’s Martinez refinery; it has, however, opened an investigation into Martinez’s other refinery, the Marathon Renewable Fuels plant on Solano Avenue near the Concord border, following a major fire in November that left a worker seriously injured with burns.

The CSB maintains a database of reported accidental releases involving a regulated substance or extremely hazardous substance that results in a death, serious injury or substantial property damage; none of the incidents at PBF’s Martinez refinery dating to the spent catalyst release are included, presumably because they don’t meet the criteria for severity.

The various agencies investigating the spent catalyst incident, in which the refinery failed to immediately alert the community and public health officials to the release through the Community Warning System, have been consistently tight-lipped as the probes have dragged on. An independent oversight committee established by Contra Costa Health Services into the accident is still awaiting the completion of a root cause investigation into the November 2022 spent catalyst release. The District Attorney’s Office, which agreed a year ago to investigate whether the refinery broke the law by not activating the warning system in that incident, has still not announced a decision; in November, it announced a vague “civil enforcement action” with relevant regulatory agencies into unspecified “enforcement claims,” omitting any mention of the Community Warning System failure.

The SEC filing came before the latest wave of criticism leveled at the refinery stemming from the two most recent incidents last month — a major flaring event that emitted strong odors into the community, followed by a ground flaring/grass fire incident that emitted highly visible black smoke. Those events sparked an “unannounced inspection” of the facility by Contra Costa Health (CCH) officials, followed a few days later by a visit to the refinery by Contra Costa County supervisors Federal Glover and John Gioia and a terse letter by Contra Costa Health’s chief executive, Anna Roth, decrying the “unacceptable” number of incidents there and spelling out a number of safety-related demands.

One of those demands was that the refinery submit to CCH a comprehensive plan outlining steps it would take to minimize flaring associated with its turnaround work that had originally been scheduled to begin later this month.

Refinery spokesman Brandon Matson said Friday that MRC has decided to reschedule the refinery’s turnaround to May “to take additional time to examine shut-down, maintenance, and start-up sequencing to minimize the potential for intermittent flare use associated with the turnaround. We will also use this time to make reliability enhancements to our refinery’s critical utility systems.” He said the refinery would submit the comprehensive plan sought by CCH to minimize flaring at least two weeks before the planned turnaround work begins.

Matson said the refinery had complied with all the other documentation and facility-access demands made by CCH by the agency’s Jan. 10 deadline (it was originally Jan. 2 but was extended for certain items at the request of the refinery).

A lingering question has been whether PBF is investing sufficiently in preventive maintenance and facility upgrades to improve safety at the refinery and reduce the frequency of hazardous materials incidents. According to the SEC filing, PBF anticipated spending approximately $800 million to $850 million on improvements to its six refineries “and refinery maintenance and turnarounds, as well as expenditures to meet environmental, regulatory and safety requirements.”

In a news release accompanying the filing, PBF said, “As always, the safety and reliability of our core operations are paramount,” noting that it was “currently conducting extensive turnaround work on the West Coast, at both our Torrance and Martinez refineries.”

PBF reported total income from its operations of $1.1 billion in the third quarter compared with $1.4 billion for the same quarter of 2022. It beat its Wall Street earnings forecast in each of the first three quarters of the year.

City works to open Alhambra Highlands to public

The following item was written by freelance writer Sam Richards

The city may control the land, but before the public can get the full benefit of the 297-acre Alhambra Highlands property south of Highway 4, a management plan taking wildlife, recreational demand, grazing and archaeological factors into account will have to be created and enacted.

At a Dec. 20 City Council study session, City Manager Michael Chandler would not commit to a timeline for when the public will have unfettered access to the land — specifically, any trails that may be opened there. But Mayor Brianne Zorn said she hopes the land is open to the public sometime this calendar year.

A docent-led hike of Alhambra Highlands in April

In the meantime, there figure to be more docent-led hikes, the first of which happened last April, organized by the city.  

But more important, Chandler said, is to get a management plan in place. "This isn't a park; this is a vast open space area, and it's a lot to manage," he said.

That plan has been tentatively deemed the Alhambra Hills Preserve Management Analysis. 

These 297 acres, some of it once owned by the famous environmentalist (and son of Martinez) John Muir, were once in position to become the site of a 109-home tract taking up about a quarter of that land. In July 2011, the Martinez City Council approved the housing project, to have been built by Texas-based Richfield Investment Corp.

But there were delays in construction, brought about by a soft housing market and compounded by the physical challenges of building on such hilly terrain. The project languished.

It wasn't long before momentum built to preserve the land as open space. Richfield agreed to delay project grading until at least April 2014 to give outside parties time to explore buying the land. No such parties stepped up, and there were more years of languishing.

Finally, Martinez voters in November 2022 approved Measure F, a 30-year special tax to acquire the 297 acres from Richfield, for $36 million, including financing costs. 

The land is "one of the most expensive open space preservation areas in the entire Bay Area," said Linus Eukel, executive director of the Martinez-based John Muir Land Trust, which is taking a stewardship role with this acreage. It is home to a number of animal species, including the protected Alameda whipsnake.

A long-term priority, Eukel said, should be for the city to obtain a "conservation easement" to protect the land in perpetuity as open space. Shorter term, grazing is also key to maintaining the property, he added, because it helps keep the grasses low, reducing fire danger. One rancher is currently using the land for grazing cattle.

Access to the property would initially be from near Bethany Baptist Church, on the parcel's southwest side off Alhambra Avenue. The church has so far been willing to allow its parking lot to be used as a staging area, Chandler told the City Council, but a better permanent link between the parking lot on the trail head would have to be built to take hikers away from the shoulder of the busy street.

There eventually could be as many as four access points to this land, and connections to other nearby recreational areas, including Briones Regional Park to the south and the John Muir National Historic Site (Mount Wanda) to the west.

Tentative plans call for one multipurpose trail, managed by the East Bay Regional Park District, running through the land. Branches off that main trail could be built later.

Though Eukel said the initial recommendation is that dogs wouldn’t be allowed on those trails, out of an “abundance of caution” to safeguard wildlife, several commenters at the study session contended that dogs on leash should be allowed, and that bikes should also be an allowed use there.

The basics of the Alhambra Hills plan pleased several commenters, including Igor Skaredoff of Martinez. “What I’ve heard so far gives me great joy. I think we’re approaching this in a very constructive way and exploring good alternatives.”

Jamie Fox of the Save Alhambra Hills Open Space group asked for another public workshop centered on Alhambra Highlands in the near future, to give more opportunities for public input. One thing not discussed enough yet, he said, is the importance of John Muir having personally owned, and spent time on, some of this property.

People who set foot on the land, Fox said, “should feel like they’re on a special property … because you’re up there where John Muir used to sit and write his poems.”

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