Sunoco 2008 Annual Report Download - page 35

OSHA conducted a National Emphasis Program inspection at Sunoco, Inc. (R&M)’s Eagle Point refinery
for a six-month period commencing in June 2008. The inspection focused on the OSHA Process Safety
Management requirements. In December 2008, OSHA issued a citation in excess of $100 thousand. Sunoco has
formally contested the citation and is engaged in settlement discussions with OSHA.
In addition, Sunoco Logistics Partners L.P., the master limited partnership in which Sunoco has a 43 percent
ownership interest, is a party in the following administrative proceedings:
In January 2007, the Pipeline Hazardous Materials Safety Administration (“PHMSA”) sent a notice of
violation and proposed civil penalties totaling $200 thousand to Sunoco Pipeline L.P., a subsidiary of Sunoco
Logistics Partners L.P., based on alleged violations of various pipeline safety requirements relating to meter
facilities in Sunoco Pipeline L.P.’s western pipeline system. Sunoco Pipeline L.P. is currently in discussions with
the PHMSA to resolve this issue. (See also the Company’s Annual Report on Form 10-K for the fiscal year
ended December 31, 2007.)
In November 2007 and February 2008, Sunoco Logistics Partners L.P. received notices of administrative
fines from the Delaware County Regional Water Control Authority (“DELCORA”) totaling approximately $600
thousand relating to alleged non-compliance with monthly average arsenic limits. In December 2008, Sunoco
Logistics Partners L.P. entered into a Compliance Order with DELCORA, settling and resolving the penalty
assessment and, pursuant to the agreement, paid DELCORA $10 thousand. (See also the Company’s Annual
Report on Form 10-K for the fiscal year ended December 31, 2007 and the Company’s Quarterly Report on Form
10-Q for the quarterly period ended March 31, 2008.)
MTBE Litigation
Sunoco, along with other refiners, and manufacturers and sellers of gasoline is a defendant in approximately
24 lawsuits in 4 states and the Commonwealth of Puerto Rico, which allege MTBE contamination in
groundwater. Plaintiffs, who include water purveyors and municipalities responsible for supplying drinking water
and private well owners, allege that refiners and suppliers of gasoline containing MTBE are responsible for
manufacturing and distributing a defective product that contaminates groundwater. Plaintiffs are asserting
primarily product liability 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 may seek 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.
In December 2007, Sunoco, along with other refiners, entered into a settlement in principle which covers 53
MTBE cases. The settlement required a cash payment by the group of settling refiner defendants of
approximately $422 million (which included attorneys’ fees) plus an agreement in the future to fund costs of
treating existing wells as to which MTBE has not currently been detected but which later is detected, over four
consecutive quarters, above certain concentration levels. As MTBE is no longer used, and based on a generally
declining trend in MTBE contamination, the Company does not anticipate substantial costs associated with the
future treatment of existing wells. The Company established a $17 million after-tax accrual, representing its
allocation percentage of the settlement, in 2007 and recognized an $11 million after-tax gain in 2008 in
connection with an insurance recovery. During 2008, Sunoco made a cash payment of approximately $28 million
and recovered $18 million of proceeds from the insurance settlement.
The majority of the remaining 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 in all of these cases. One of the cases, City of New York, is scheduled to proceed to trial
in June 2009. Sunoco recently participated in a settlement mediation relating to MTBE cases arising out of
MTBE contamination in the Fort Montgomery, NY area which included Basso and Tonneson and two state cases,
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