Sunoco 2004 Annual Report Download - page 34

The accrued liability for hazardous waste sites is attributable to potential obligations to
remove or mitigate the environmental effects of the disposal or release of certain pollutants
at third-party sites pursuant to the Comprehensive Environmental Response Compensa-
tion and Liability Act (“CERCLA”) (which relates to releases and remediation of hazardous
substances) and similar state laws. Under CERCLA, Sunoco is potentially subject to joint
and several liability for the costs of remediation at sites at which it has been identified as a
“potentially responsible party” (“PRP”). As of December 31, 2004, Sunoco had been named
as a PRP at 46 sites identified or potentially identifiable as “Superfund” sites under federal
and state law. The Company is usually one of a number of companies identified as a PRP at
a site. Sunoco has reviewed the nature and extent of its involvement at each site and other
relevant circumstances and, based upon the other parties involved or Sunoco’s negligible
participation therein, believes that its potential liability associated with such sites will not
be significant.
Management believes that none of the current remediation locations, which are in various
stages of ongoing remediation, is individually material to Sunoco as its largest accrual for
any one Superfund site, operable unit or remediation area was less than $7 million at De-
cember 31, 2004. As a result, Sunoco’s exposure to adverse developments with respect to
any individual site is not expected to be material. However, if changes in environmental
regulations occur, such changes could impact multiple Sunoco facilities and formerly
owned and third-party sites at the same time. As a result, from time to time, significant
charges against income for environmental remediation may occur.
The Company maintains insurance programs that cover certain of its existing or potential
environmental liabilities, which programs vary by year, type and extent of coverage. For
underground storage tank remediations, the Company can also seek reimbursement
through various state funds of certain remediation costs above a deductible amount. For cer-
tain acquired properties, the Company has entered into arrangements with the sellers or
others that allocate environmental liabilities and provide indemnities to the Company for
remediating contamination that occurred prior to the acquisition dates. Some of these envi-
ronmental indemnifications are subject to caps and limits. No accruals have been recorded
for any potential contingent liabilities that will be funded by the prior owners as manage-
ment does not believe, based on current information, that it is likely that any of the former
owners will not perform under any of these agreements. Other than the preceding arrange-
ments, the Company has not entered into any arrangements with third parties to mitigate
its exposure to loss from environmental contamination. Claims for recovery of environ-
mental liabilities that are probable of realization totaled $21 million at December 31, 2004
and are included in deferred charges and other assets in the consolidated balance sheets.
Regulatory Matters
The U.S. Environmental Protection Agency (“EPA”) adopted rules under the Clean Air
Act (which relates to emissions of materials into the air) that phase in limitations on the
sulfur content of gasoline beginning in 2004 and the sulfur content of on-road diesel fuel
beginning in 2006 (“Tier II”). The rules include banking and trading credit systems, which
could provide refiners flexibility until 2006 for the low-sulfur gasoline and until 2010 for
the on-road low-sulfur diesel. These rules are expected to have a significant impact on
Sunoco and its operations, primarily with respect to the capital and operating expenditures
at its five current refineries. Most of the capital spending is likely to occur in the 2004-
2006 period, while the higher operating costs will be incurred when the low-sulfur fuels are
produced. The Company estimates that the total capital outlays to comply with the new
Tier II gasoline and on-road diesel requirements will be approximately $550 million. Capi-
tal spending to meet these requirements totaled $233 million through December 31, 2004.
In May 2004, the EPA adopted a third rule which will phase in limitations on the allowable
sulfur content in off-road diesel fuel beginning in mid-2007. The off-road diesel rule is cur-
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