Sunoco 2004 Annual Report Download - page 36

1992 and 1998 without obtaining requisite permits; at the Company’s Marcus Hook refin-
ery, certain modifications were made to the fluid catalytic cracking unit in 1990 and 1996
without obtaining requisite permits; and at the Company’s Toledo refinery, certain phys-
ical and operational changes were made to the fluid catalytic cracking unit in 1985 with-
out obtaining requisite permits. The EPA has also alleged that at the Company’s Toledo
refinery, certain physical and operational changes were made to the sulfur plant in 1995,
1998 and 1999 without obtaining requisite permits; certain physical and operational
changes were made to a flare system without obtaining requisite permits; and that the flare
system was not being operated in compliance with the Clean Air Act. Sunoco has met
with representatives of the EPA on these Notices and Findings of Violation with the aim of
trying to resolve these matters. Although Sunoco does not believe that it has violated any
Clean Air Act requirements, as part of this initiative, Sunoco could be required to make
significant capital expenditures, incur higher operating costs, operate these refineries at
reduced levels and/or pay significant penalties. There are no liabilities accrued at De-
cember 31, 2004 in connection with this initiative. With respect to the Company’s Eagle
Point refinery acquired effective January 13, 2004, El Paso Corporation, its prior owner,
has entered into a consent decree with the EPA and the New Jersey Department of
Environmental Protection as part of EPA’s enforcement initiative. Sunoco does not antici-
pate substantial capital expenditures on its part as a result of El Paso’s consent decree.
Energy policy legislation continues to be debated in the U.S. Congress. The Bush Admin-
istration and the U.S. Senate and U.S. House have been unable to reach agreement on
final legislation. There are numerous issues being debated, including an MTBE phase-out,
ethanol and MTBE “safe harbor” liability provisions, ethanol and renewable fuels mandates
and other issues that could impact gasoline production. Sunoco uses MTBE and ethanol as
oxygenates in different geographic areas of its refining and marketing system. While federal
action is uncertain, California, New York and Connecticut began enforcing state-imposed
MTBE bans on January 1, 2004. Sunoco does not market in California but is complying
with the bans in New York and Connecticut. These bans have resulted in unique gasoline
blends, which could have a significant impact on market conditions depending on the de-
tails of future regulations, the impact on gasoline supplies, the cost and availability of
ethanol and alternate oxygenates if the minimum oxygenate requirements remain in effect,
and the ability of Sunoco and the industry in general to recover their costs in the market-
place. A number of additional states, including some in the northeastern United States,
are considering or have approved bans of MTBE, with legislative and administrative actions
underway that could lead to additional MTBE bans by 2007.
MTBE Litigation
Sunoco, along with other refiners, manufacturers and sellers of gasoline, owners and oper-
ators of retail gasoline sites, and manufacturers of MTBE, are defendants in over 60 cases in
17 states involving the manufacture and use of MTBE in gasoline and MTBE contamination
in groundwater. Plaintiffs, which include private well owners, water providers and certain
governmental authorities, allege that refiners and suppliers of gasoline containing MTBE
are responsible for manufacturing and distributing a defective product. Plaintiffs also gen-
erally are alleging groundwater contamination, nuisance, trespass, negligence, failure to
warn, violation of environmental laws and deceptive business practices. Plaintiffs are seek-
ing compensatory damages, and in some cases injunctive relief and punitive damages. Most
of the public water provider cases have been removed to federal court by motion of the
defendants and consolidated for pretrial purposes in the U.S. District Court for the South-
ern District of New York. Motions to remand these cases to their respective state courts
have been denied. Up to this point, for the group of MTBE cases currently pending, there
has been little information developed about the plaintiffs’ legal theories or the facts that
would be relevant to an analysis of potential exposure. Based on the current law and facts
available at this time, Sunoco believes that these cases will not have a material adverse ef-
fect on its consolidated financial position.
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