Sunoco 2009 Annual Report Download - page 60

the county where the Toledo refinery is located, that now are in attainment of the fine particles standard. In
September 2006, the EPA issued a final rule tightening the standard for fine particles. This standard is currently
being challenged in federal court by various states and environmental groups. In March 2007, the EPA issued
final rules to implement the 1997 fine particle matter (PM 2.5) standards. States had until April 2008 to submit
plans to the EPA demonstrating attainment by 2010 or, at the latest, 2015. However, the March 2007 rule does
not address attainment of the September 2006 standard. In March 2008, the EPA promulgated a new, more
stringent ozone standard, which was challenged in a lawsuit in May 2008 by environmental organizations.
Regulatory programs, when established to implement the EPA’s air quality standards, could have an impact on
Sunoco and its operations. However, the potential financial impact cannot be reasonably estimated until the
lawsuit is resolved, the EPA promulgates regulatory programs to attain the standards, and the states, as necessary,
develop and implement revised SIPs to respond to the new regulations.
MTBE Litigation
Information regarding certain MTBE litigation in which Sunoco is a defendant is included in the discussion
under “MTBE Litigation” in Note 14 to the Consolidated Financial Statements (Item 8) and is incorporated
herein by reference.
Conclusion
Management believes that the environmental matters discussed above are potentially significant with respect
to results of operations or cash flows for any one year. However, management does not believe that such matters
will have a material impact on Sunoco’s consolidated financial position or, over an extended period of time, on
Sunoco’s cash flows or liquidity.
Quantitative and Qualitative Disclosures about Market Risk
Commodity Price Risk
Sunoco uses swaps, options, futures, forwards and other derivative instruments to hedge a variety of
commodity price risks. Derivative instruments are used from time to time to achieve ratable pricing of crude oil
purchases, to convert certain expected refined product sales to fixed or floating prices, to lock in what Sunoco
considers to be acceptable margins for various refined products and to lock in the price of a portion of the
Company’s electricity and natural gas purchases or sales and transportation costs. Sunoco does not hold or issue
derivative instruments for trading purposes.
Sunoco is at risk for possible changes in the market value of all of its derivative contracts; however, such
risk would be mitigated by price changes in the underlying hedged items. At December 31, 2009, Sunoco had
accumulated net derivative deferred losses, before income taxes, of less than $1 million on all of its open
derivative contracts. Open contracts as of December 31, 2009 vary in duration but generally do not extend
beyond 2010.
Sunoco also is exposed to credit risk in the event of nonperformance by derivative counterparties.
Management believes this risk is not significant as the Company has established credit limits with such
counterparties which require the settlement of net positions when these credit limits are reached. As a result, the
Company had no significant derivative counterparty credit exposure at December 31, 2009 (see Note 18 to the
Consolidated Financial Statements under Item 8).
Interest Rate Risk
Sunoco has market risk exposure for changes in interest rates relating to its outstanding borrowings. Sunoco
manages this exposure to changing interest rates through the use of a combination of fixed- and floating-rate
debt. At December 31, 2009, the Company had $1,798 million of fixed-rate debt and $666 million of floating-
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