Commitments And Contingencies

9 Months Ended

Sep. 30, 2011

Commitments And Contingencies [Abstract]

Commitments And Contingencies

10. Commitments and Contingencies

Clean Air Act - Section 185 Liability.

Section 185 of the Clean Air Act ("CAA 185") requires states to collect annual fees from major source facilities located in severe or extreme nonattainment ozone areas if the designated area within the state did not meet its attainment deadline. Imposition of the fee is mandated for each calendar year after the attainment date until the area is redesignated as an attainment area for ozone. The Houston-Galveston region was initially determined to be a severe nonattainment area that did not meet its 2007 attainment deadline and, as such, would be subject to CAA 185. The Texas Commission on Environmental Quality ("TCEQ") drafted a "Failure to Attain Rule" (the "Rule") to implement the requirements of CAA 185. The Rule was scheduled to be final in the spring of 2010 and would have provided for the collection of an annual failure to attain fee for emissions from calendar year 2008 forward.  Under the Rule, the annual fees to be paid by entities within the Houston-Galveston non-attainment area would have been determined by the emissions from a facility that exceed the established baseline. We have certain facilities in the Houston area that would have been subject to the TCEQ's Rule.

In January 2010, the Environmental Protection Agency ("EPA") issued guidance for states developing fee programs under CAA 185. In response to and based on the standards in the EPA's guidance, the TCEQ suspended the draft Rule and submitted a request for a determination by the EPA (a "Termination Determination") that the Houston-Galveston Region no longer qualified as a severe non-attainment area. If TCEQ's request for a Termination Determination was approved by the EPA, the requirement to assess a CAA 185 fee would be terminated.  Subsequent to the TCEQ's request for a Termination Determination, the Natural Resource Defense Counsel submitted a petition in federal court challenging the legality of the EPA's guidance. Based upon the EPA's belief and assertion that the guidance would be sustained in federal court, management determined the probability of the assessment of an annual fee for the Houston-Galveston area was remote.

In July 2011, the court issued an opinion in the National Resource Defense Counsel case vacating the EPA's January 2010 guidance memorandum on states' CAA 185 equivalent programs. As a result of the court's ruling, the EPA has instructed the TCEQ that it is unable to approve the Termination Determination request.

Based on the recent court decisions and statements by the EPA, management now believes that it is probable that the TCEQ will move forward with its CAA 185 rule making process.  A number of potential alternative outcomes exist, including the possibility that we will not be assessed any CAA 185 fees.  However, management believes it is probable we will be assessed fees for excess emissions at our Houston area facilities and estimates that the range of fees that could be assessed to us for the periods from 2007 through 2010 to be between $6.4 million and $13.7 million. During second quarter 2011, we recorded an accrual of $6.4 million related to this matter, of which $4.8 million was recorded as a current environmental liability and $1.6 million was recorded as a long-term environmental liability. Additionally, during third quarter 2011, we accrued $0.6 million for estimated fees associated with 2011 operations, which was recorded as a long-term environmental liability.

Environmental Liabilities.

Liabilities recognized for estimated environmental costs were $32.8 million and $43.4 million at December 31, 2010 and September 30, 2011, respectively. We have classified environmental liabilities as current or noncurrent based on management's estimates regarding the timing of actual payments. Management estimates that expenditures associated with these environmental liabilities will be paid over the next 10 years. Environmental expenses recognized as a result of changes in our environmental liabilities are included in operating expenses on our consolidated statements of income. Environmental expense was $5.1 million and $10.2 million for the three and nine months ended September 30, 2010, respectively, and $3.6 million and $16.1 million for the three and nine months ended September 30, 2011. Year-to-date 2011 environmental expense includes expense recognized for the Section 185 contingent liability accrual discussed above.

Environmental Receivables.

Receivables from insurance carriers related to environmental matters at December 31, 2010 were $2.2 million, of which $1.0 million and $1.2 million were recorded to other accounts receivable and long-term receivables, respectively, on our consolidated balance sheet. Receivables from insurance carriers related to environmental matters at September 30, 2011 were $5.3 million, of which $1.4 million and $3.9 million were recorded to other accounts receivable and long-term receivables, respectively, on our consolidated balance sheet.

Unrecognized Product Gains.

Our petroleum terminals operations generate product overages and shortages that result from metering inaccuracies and product evaporation, expansion, releases and contamination. Most of the contracts we have with our customers state that we bear the risk of loss (or gain) from these conditions. When our petroleum terminals experience net product shortages, we recognize expense for those losses in the periods in which they occur. When our petroleum terminals experience net product overages, we have product on hand for which we have no cost basis. Therefore, these net overages are not recognized in our financial statements until the associated barrels are either sold or used to offset product losses. The net unrecognized product overages for our petroleum terminals operations had a market value of approximately $3.8 million as of September 30, 2011. However, the actual amounts we will recognize in future periods will depend on product prices at the time the associated barrels are either sold or used to offset net future product shortages.

Other.

We are a party to various other claims, legal actions and complaints arising in the ordinary course of business. While the results cannot be predicted with certainty, management believes the ultimate resolution of these claims, legal actions and complaints after consideration of amounts accrued, insurance coverage or other indemnification arrangements will not have a material adverse effect on our financial position, results of operations or cash flows.