Sunoco 2005 Annual Report Download - page 64

Sunoco owns or operates certain retail gasoline outlets
where releases of petroleum products have occurred. Fed-
eral and state laws and regulations require that con-
tamination caused by such releases at these sites and at
formerly owned sites be assessed and remediated to meet
the applicable standards. The obligation for Sunoco to
remediate this type of contamination varies, depending
on the extent of the release and the applicable laws and
regulations. A portion of the remediation costs may be
recoverable from the reimbursement fund of the appli-
cable state, after any deductible has been met.
Future costs for environmental remediation activities at
the Company’s marketing sites also will be influenced by
the extent of MTBE contamination of groundwater, the
cleanup of which will be driven by thresholds based on
drinking water protection. Though not all groundwater is
used for drinking, several states have initiated or proposed
more stringent MTBE cleanup requirements. Cost in-
creases result directly from extended remedial operations
and maintenance on sites that, under prior standards,
could otherwise have been completed. Cost increases will
also result from installation of additional remedial or
monitoring wells and purchase of more expensive equip-
ment because of the presence of MTBE. While actual
cleanup costs for specific sites are variable and depend on
many of the factors discussed above, expansion of similar
MTBE remediation thresholds to additional states or
adoption of even more stringent requirements for MTBE
remediation would result in further cost increases.
The accrued liability for hazardous waste sites is attribut-
able 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 Compre-
hensive Environmental Response Compensation 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 re-
sponsible party” (“PRP”). As of December 31, 2005,
Sunoco had been named as a PRP at 39 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 re-
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 $4 million at De-
cember 31, 2005. 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 $22 million at December 31, 2005 and are in-
cluded principally in deferred charges and other assets in
the consolidated balance sheets.
MTBE Litigation
Sunoco, along with other refiners, manufacturers and sell-
ers of gasoline, owners and operators of retail gasoline
sites, and manufacturers of MTBE, are defendants in ap-
proximately 60 cases in 16 states involving the manufac-
ture and use of MTBE in gasoline and MTBE contamina-
tion 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 that contaminated
groundwater. Plaintiffs are asserting primarily product li-
ability claims but additional claims are also being asserted
including, nuisance, trespass, negligence, violation of
environmental laws and deceptive business practices.
Plaintiffs are seeking compensatory damages, and in some
cases injunctive relief, exemplary and punitive damages
and attorneys’ fees. All of the public water provider cases
have been removed to federal court and consolidated for
pretrial purposes in the U.S. District Court for the
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