Sunoco 2004 Annual Report Download - page 67

viewed 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 partic-
ipation therein, believes that its potential liability asso-
ciated with such sites will not be significant.
Management believes that none of the current re-
mediation locations, which are in various stages of on-
going 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 ad-
verse developments with respect to any individual site is
not expected to be material. However, if changes in envi-
ronmental 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 environ-
mental remediation may occur.
The Company maintains insurance programs that cover
certain of its existing or potential environmental li-
abilities, 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 deduc-
tible amount. For certain acquired properties, the Com-
pany has entered into arrangements with the sellers or
others that allocate environmental liabilities and provide
indemnities to the Company for remediating con-
tamination that occurred prior to the acquisition dates.
Some of these environmental indemnifications are sub-
ject to caps and limits. No accruals have been recorded
for any potential contingent liabilities that will be funded
by the prior owners as management 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 arrangements, the
Company has not entered into any arrangements with
third parties to mitigate its exposure to loss from
environmental contamination. Claims for recovery of
environmental liabilities that are probable of realization
totaled $21 million at December 31, 2004 and are in-
cluded in deferred charges and other assets in the con-
solidated balance sheets.
Environmental Regulatory Matters
Since the late 1990s, the U.S. Environmental Protection
Agency (“
EPA ”) has undertaken significant enforcement
initiatives under authority of the Clean Air Act, targeting
industries with large manufacturing facilities that are sig-
nificant sources of emissions, including the refining in-
dustry. The
EPA has asserted that many of these facilities
have modified or expanded their operations over time
without complying with New Source Review regulations
that require permits and new emission controls in con-
nection with any significant facility modifications or ex-
pansions that could increase emissions above certain
thresholds, and have violated various other provisions of
the Clean Air Act, including New Source Review and
Prevention of Significant Deterioration (“
NSR/PSD ”) Pro-
gram, Benzene Waste Operations National Emissions
Standards for Hazardous Air Pollutants (“
NESHAP ”), Leak
Detection and Repair (“
LDAR ”) and flaring requirements.
As part of this enforcement initiative, the EPA has entered
into Consent Agreements with several refiners that re-
quire them to pay civil fines and penalties and make sig-
nificant capital expenditures to install emissions-control
equipment at selected facilities. For some of these refin-
eries, the cost of the required emissions-control equipment
is significant, depending on the size, age and configuration
of the refinery. Sunoco received information requests in
2000, 2001 and 2002 in connection with the enforcement
initiative pertaining to its Marcus Hook, Philadelphia,
Toledo and Tulsa refineries, the Puerto Rico refinery di-
vested in 2001 and its phenol facility in Philadelphia.
Sunoco has completed its responses to the
EPA . In 2003,
Sunoco received an additional information request at its
phenol plant in Philadelphia.
Sunoco has received Notices of Violation and Findings of
Violation from the EPA relating to its Marcus Hook,
Philadelphia and Toledo refineries. The Notices and
Findings of Violation allege failure to comply with certain
requirements relating to benzene wastewater emissions at
the Company’s Marcus Hook, Toledo and Philadelphia
refineries and failure to comply with certain requirements
relating to leak detection and repair at the Toledo refin-
ery. In addition, the EPA has alleged that: at the Compa-
ny’s Philadelphia refinery, certain modifications were
made to one of the fluid catalytic cracking units in 1992
and 1998 without obtaining requisite permits; at the
Company’s Marcus Hook refinery, 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 physical and opera-
tional changes were made to the fluid catalytic cracking
unit in 1985 without obtaining requisite permits. The
EPA has also alleged that at the Company’s Toledo refin-
ery, certain physical and operational changes were made
to the sulfur plant in 1995, 1998 and 1999 without
obtaining requisite permits; certain physical and opera-
tional 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
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