PHILADELPHIA ENERGY SOLUTIONS LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(in thousands, except unit and volume data)
On October 7, 2014, the Company sold refined products inventories to MLC as part of the new
supply and offtake agreement signed with MLC. The Company repurchased this inventory through the intermediation process and this inventory was subsequently sold to a third party. Revenue was recognized upon the sale to the third party consistent
with the sale of refined products noted below.
On October 7, 2014, the Company also acquired $371,120 of refined products inventories in
noncash transactions under the agreement with MLC, which the Company is obligated to redeliver to MLC at expiration or termination of the intermediation agreement. The obligation to redeliver is classified as a component of accrued liabilities on
the consolidated balance sheets and is carried at the current market price.
Under the agreement with MLC, when MLC receives title to the
crude oil or noncrude feedstocks from a third party supplier, it flashes title for this inventory to Refining and Refining has an obligation to redeliver the crude oil and noncrude feedstocks to MLC at a future date at a fixed price. The Company has
deemed the fixed price requirement to redeliver the inventory an embedded derivative and has designated these derivatives as fair value hedges of the inventory.
The Company purchases substantially all crude oil and noncrude feedstocks from MLC, based on market pricing for that day. The purchases occur
as crude oil or noncrude feedstocks are consumed in the refining process.
Also under this agreement, refined products and blendstocks are
sold to MLC as they are produced. The selling price is based on market pricing on such date. However, Refining holds title for these refined products and blendstocks until they are delivered to MLCs customer. As a result, the Company records
deferred revenue for these sales. The deferred revenue is recognized as revenue when the products are delivered to MLCs customer. Refining also receives pricing adjustments, primarily related to transportation and other market differentials,
when the refined products are delivered to MLCs customers. Purchases of crude oil and noncrude feedstocks from MLC and sales of refined products or blendstocks to MLC are net settled daily.
A limited liability company owned by an unrelated third party, serves as an intermediary between Refining and MLC to exchange flash title for
the receipt and delivery of certain crude oil and noncrude feedstocks and certain refined products and blendstocks.
MLC accounted for 76%
and 17% of the Companys revenues for the years ended December 31, 2015 and 2014, respectively. JPMVEC accounted for approximately 62% and 83% of the Companys revenues for the years ended December 31, 2014 and 2013, respectively. MLC
accounted for 37% and 53% of the Companys accounts receivable at December 31, 2015 and 2014, respectively.
The Company is subject to the Philadelphia Business Income & Receipts Tax (BIRT). Income tax expense related to BIRT was $409, $459, and
nil for the years ended December 31, 2015, 2014, and 2013, respectively.
Effective January 1, 2014, the geographic areas where the
Philadelphia refining complex are located were designated as Keystone Opportunity Zones (KOZ), providing specific Pennsylvania and City of Philadelphia tax benefits to the Company. Under this program, the Companys effective tax rates are
estimated to be 0.3205% of Philadelphia taxable income for BIRT, based on the statutory rate of 6.41%; and 0.007075% of Philadelphia gross receipts taxes, based on a statutory rate of 0.14150%; through December 31, 2020. From January 1, 2021 through
December 31, 2023, the Companys effective tax rates are estimated to be 0.641% of Philadelphia