The company, based in Sacramento, owns four ethanol production plants. Two in California produce 60mn and 40mn gallons a year, respectively, in Stockton and Madera. Plants in Burley, Idaho, and Boardman, Oregon, also produce 60mn and 40mn gallons a year, respectively.

A Chapter 11 filing shields a company from creditors as it reorganizes its finances under court supervision.

Pacific Ethanol lost $20.2mn on $183.9mn revenue in the quarter ending 30 September 2008, the last period for financial results reported by the company.

The ethanol industry has been hit hard by overexpansion, tight credit, weak demand, high feedstock costs and federal regulations that limit the ethanol blend in gasoline to 10% for cars and light trucks not designed to use flex-fuel above that amount. Between 4% and 5% of the US fleet of 240mn vehicles can use flex-fuel.

Also, when oil prices plunged, refiners cut their ethanol to the minimum levels mandated by the federal government.

Pacific Ethanol said its marketing subsidiaries, Kinergy Marketing and Pacific Ag. Products, were not part of the Chapter 11 filing.

Several lenders have agreed in principle to debtor-in-possession financing of up to $20 million, which is intended to enable the plant subsidiaries to meet customer obligations related to ongoing operations.

The arrangements may have some attraction to lenders because the bankruptcy court supervises such financing closely.

Kinergy sells ethanol produced by its parent company and other refiners in the US Midwest. Wachovia bank will continue to provide up to $10mn in working capital for Kinergy, after the two sides renegotiated and amended Kinergy’s credit facility.

The term of the loan lasts through October 2010 and Kinergy’s operations will continue uninterrupted in its coverage areas of Arizona, California, Colorado, Nevada, Oregon and Texas, the company says.

Today’s bankruptcy filing by Pacific Ethanol may complicate efforts by California officials to boost biofuels usage, a priority of Governor Arnold Schwarzenegger. The state has few ethanol producers, no statewide dedicated ethanol pipeline network and increased tank car trains will add to existing pollution problems.