Sunoco 2007 Annual Report Download - page 61

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 retail marketing sites will also be influ-
enced by the extent of MTBE contamination of ground-
water, 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 ini-
tiated or proposed more stringent MTBE cleanup require-
ments. Cost increases 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 addi-
tional remedial or monitoring wells and purchase of more
expensive equipment because of the presence of MTBE.
While actual cleanup costs for specific sites are variable
and depend on many of the factors discussed above, ex-
pansion of similar MTBE remediation thresholds to addi-
tional states or adoption of even more stringent
requirements for MTBE remediation would result in fur-
ther cost increases. Sunoco does not currently, nor does it
intend to, manufacture or sell gasoline containing MTBE.
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, 2007,
Sunoco had been named as a PRP at 33 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 level of participation
therein, believes that its potential liability associated 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 $8 million at De-
cember 31, 2007. 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 laws or regulations occur, such changes could
impact multiple Sunoco facilities, formerly owned
facilities and third-party sites at the same time. As a re-
sult, 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 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 $14 million at December 31, 2007 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 are defendants in approximately 77 law-
suits in 18 states and the Commonwealth of Puerto Rico,
which allege MTBE contamination in groundwater. Plain-
tiffs, who include water purveyors and municipalities re-
sponsible for supplying drinking water and private well
owners, allege that refiners and suppliers of gasoline con-
taining MTBE are responsible for manufacturing and dis-
tributing a defective product that contaminates
groundwater. Plaintiffs are asserting primarily product li-
ability claims and additional claims including nuisance,
trespass, negligence, violation of environmental laws and
deceptive business practices. In addition, several actions
commenced by state authorities allege natural resource
damages. Plaintiffs are seeking to rely on a “joint liability
of industry” theory at trial, although there has been no
ruling as to whether the plaintiffs will be permitted to
pursue this theory. Plaintiffs are seeking compensatory
damages, and in some cases injunctive relief, punitive
damages and attorneys’ fees.
The majority of MTBE cases have been removed to federal
court and consolidated for pretrial purposes in the U.S.
District Court for the Southern District of New York
(MDL 1358) (“MDL Litigation”). Discovery is proceeding
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