Sunoco 2006 Annual Report Download - page 30

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Environmental Matters
General
Sunoco is subject to extensive and frequently changing federal, state and local laws and
regulations, including, but not limited to, those relating to the discharge of materials into
the environment or that otherwise deal with the protection of the environment, waste
management and the characteristics and composition of fuels. As with the industry gen-
erally, compliance with existing and anticipated laws and regulations increases the overall
cost of operating Sunoco’s businesses, including capital costs to construct, maintain and
upgrade equipment and facilities. Existing laws and regulations have required, and are ex-
pected to continue to require, Sunoco to make significant expenditures of both a capital
and an expense nature. The following table summarizes Sunoco’s expenditures for
environmental projects and compliance activities:
(Millions of Dollars) 2006 2005 2004
Pollution abatement capital* $282 $498 $258
Remediation 42 50 38
Operations, maintenance and administration 266 192 135
$590 $740 $431
*Capital expenditures for pollution abatement include amounts to comply with the Tier II low-sulfur fuel requirements (completed in 2006)
and the Consent Decrees pertaining to certain alleged Clean Air Act violations at the Company’s refineries. Pollution abatement capital
outlays are expected to approximate $257 and $308 million in 2007 and 2008, respectively.
Remediation Activities
Laws and regulations result in liabilities and loss contingencies for remediation at Sunoco’s
facilities and at third-party or formerly owned sites. Sunoco accrues environmental re-
mediation costs for work at identified sites where an assessment has indicated that cleanup
costs are probable and reasonably estimable. Such accruals are undiscounted and are based
on currently available information, estimated timing of remedial actions and related in-
flation assumptions, existing technology and presently enacted laws and regulations. If a
range of probable environmental cleanup costs exists for an identified site, FASB Inter-
pretation No. 14, “Reasonable Estimation of the Amount of a Loss,” requires that the
minimum of the range be accrued unless some other point in the range is more likely in
which case the most likely amount in the range is accrued. Engineering studies, historical
experience and other factors are used to identify and evaluate remediation alternatives and
their related costs in determining the estimated accruals for environmental remediation
activities. Losses attributable to unasserted claims are also reflected in the accruals to the
extent they are probable of occurrence and reasonably estimable. The accrued liability for
environmental remediation is classified in the consolidated balance sheets as follows:
December 31
(Millions of Dollars) 2006 2005
Accrued liabilities $36 $37
Other deferred credits and liabilities 85 100
$121 $137
28