Sunoco 2010 Annual Report Download - page 22

restructuring, the long-term operating and maintenance agreement with SunCoke Energy was assigned and
restated with AMB and AMB has guaranteed the dividend payable by the local project company to SunCoke
Energy.
In February 2008, SunCoke Energy entered into a coke purchase agreement and related energy sales
agreement with US Steel under which SunCoke Energy would build, own and operate a 650 thousand
tons-per-year cokemaking facility adjacent to US Steel’s steelmaking facility in Granite City, IL. Operations
from this facility commenced in the fourth quarter of 2009. Capital outlays for the project totaled $320 million.
Under the agreement, US Steel has agreed to purchase on a take-or-pay basis, over a 15-year period, all coke
production as well as the steam generated from the heat recovery cokemaking process at this facility. The coke
price under the coke agreement with US Steel reflects the pass through of coal and transportation costs, an
operating cost component and all applicable taxes (excluding net income taxes), as well as a fixed cost
component. US Steel is entitled to receive under the agreement, as a credit to the price of coke, an amount
representing a percentage of the realized value of certain applicable nonconventional fuels tax credits, to the
extent such credits are available.
In March 2008, SunCoke Energy entered into a coke purchase agreement and related energy sales
agreement with AK Steel under which SunCoke Energy will build, own and operate the Middletown cokemaking
facility and associated cogeneration power plant adjacent to AK Steel’s Middletown, OH steelmaking facility. In
February 2010, SunCoke Energy obtained the necessary permits to build and operate the plant, although some of
them have been appealed. These facilities are expected to cost in aggregate approximately $415 million and be
completed in the second half of 2011. The plant is expected to produce approximately 550 thousand tons of coke
per year and, on average, 44 megawatts of power. In connection with this agreement, AK Steel has agreed to
purchase, over a 20-year period, all of the coke and available electrical power from these facilities. Expenditures
through December 31, 2010 totaled $253 million.
SunCoke Energy is currently conducting an engineering study to evaluate the expected physical life of the
coke ovens at its Indiana Harbor operation. Some ovens and associated equipment are heaving and settling
differentially as a result of the instability of the ground on which it was constructed. This differential movement
has reduced production and required corrective action to certain ovens, ancillary equipment and structures.
Higher maintenance costs are expected to continue as a result of this condition. SunCoke Energy has completed a
capital project to improve the stability of certain boiler supports and the emission shed supports, which
previously had been damaged as a result of such differential movement. In addition, an oven repair and
maintenance program has been implemented to limit further deterioration to the ovens. The engineering study at
Indiana Harbor is expected to be completed during the first quarter of 2011. At this time, the likely outcome of
the study cannot be determined. Possible results include additional maintenance spending to continue operations
at the current operating levels, a change in the useful life of all or part of the plant, or the impairment of one or
more oven batteries which could be followed by capital spending to retain the current plant capacity.
The EPA has issued Notices of Violations (“NOVs”) to SunCoke Energy for the Haverhill, Indiana Harbor and
Gateway cokemaking facilities. These NOVs stem from allegations of alleged violations of air emission operating
permits for these facilities. At this time, the EPA has not issued a penalty demand associated with these NOVs and
SunCoke Energy currently is working in a cooperative manner with the EPA to address the allegations. Settlement
may also require payment of a penalty for alleged past violations, though the amount of any such penalty is currently
unknown. SunCoke Energy has recently undertaken capital projects to improve reliability of the energy recovery
systems and enhance environmental performance at its Haverhill and Gateway facilities. The projects will be carried
out over the 2010-2012 period at an expected total cost of approximately $65 million. The final cost of the projects will
be dependent upon discussions with regulators concerning compliance with the applicable environmental permits.
SunCoke Energy is currently discussing other opportunities for developing new heat recovery cokemaking
facilities with domestic and international steel companies. Such cokemaking facilities could be either wholly
owned or developed through other business structures. As applicable, the steel company customers would be
expected to purchase coke production under long-term contracts. The facilities would also generate steam, which
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