Sunoco 2011 Annual Report Download - page 26

for crude oil in these areas. In either case, the volumes of crude oil transported in the Partnership’s crude oil
pipelines and terminal facilities could decline, and it could likely be difficult to secure alternative sources of
attractively priced crude oil supply in a timely fashion or at all.
Similarly, a decrease in market demand for refined products could also impact throughput at the
Partnership’s pipelines and terminals. Material factors that could lead to a sustained decrease in market demand
for refined products include a sustained recession or other adverse economic condition that results in lower
purchases of refined petroleum products, higher refined products prices due to an increase in the market price of
crude oil, changes in economic conditions or other factors, higher fuel taxes or other governmental or regulatory
actions that increase, directly or indirectly, the cost of gasoline or other refined products or a shift by consumers
to more fuel-efficient or alternative fuel vehicles or an increase in fuel economy.
If the Partnership is unable to replace any significant volume declines with additional volumes from other
sources, our financial position, results of operations or cash flows could be materially and adversely affected.
Rate regulation or market conditions may not allow the Partnership to recover the full amount of increases in
the costs of its pipeline operations. A successful challenge to the Partnership’s rates could materially and
adversely affect our financial condition, results of operations or cash flows.
The primary rate-making methodology of the Federal Energy Regulatory Commission (“FERC”) is price
indexing. If the changes in the index are not large enough to fully reflect actual increases to the Partnership’s
costs, its financial condition and ours could be adversely affected. If the index results in a rate increase that is
substantially in excess of the pipeline’s actual cost increases, or it results in a rate decrease that is substantially
less than the pipeline’s actual cost decrease, the rates may be protested, and, if successful, result in the lowering
of the pipeline’s rates. The FERC’s rate-making methodologies may limit the Partnership’s ability to set rates
based on its costs or may delay the use of rates that reflect increased costs. Under the Energy Policy Act adopted
in 1992, certain interstate pipeline rates were deemed just and reasonable or “grandfathered.” On the
Partnership’s FERC-regulated pipelines, most of its revenues are derived from such grandfathered rates. A
person challenging a grandfathered rate must, as a threshold matter, establish a substantial change since the date
of enactment of the Act, in either the economic circumstances or the nature of the service that formed the basis
for the rate. If the FERC were to find a substantial change in circumstances, then the existing rates could be
subject to detailed review. There is a risk that some rates could be found to be in excess of levels justified by the
cost of service. In such event, the FERC would order the Partnership to reduce rates prospectively and could
order it to pay reparations to shippers. In addition, a state commission could also investigate the Partnership’s
intrastate rates or terms and conditions of service on its own initiative or at the urging of a shipper or other
interested party. If a state commission found that the Partnership’s rates exceeded levels justified by its cost of
service, the state commission could order a reduction in the rates. Potential changes to current rate-making
methods and procedures may impact the federal and state regulations under which the Partnership will operate in
the future. In addition, if the FERC’s petroleum pipeline ratemaking methodology changes, the new methodology
could materially and adversely affect the Partnership’s and our financial condition, results of operations or cash
flows.
The Partnership does not own all of the land on which its pipelines and terminal facilities are located and we
do not own all of the land on which our direct retail service stations are located, and we lease certain facilities
and equipment, and we are subject to the possibility of increased costs to retain necessary land use which
could disrupt our operations.
We do not own all of the land on which certain of the Partnership’s pipelines and terminal facilities and our
retail service stations are located, and we are, therefore, subject to the risk of increased costs to maintain
necessary land use. The Partnership obtains the rights to construct and operate certain of its pipelines and related
facilities on land owned by third parties and governmental agencies for a specific period of time. The loss of
these rights, through its inability to renew right-of-way contracts on acceptable terms or increased costs to renew
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