United States Steel Corporation Robert M. Stanton
Law Department Assistant General Counsel-
600 Grant Street Corporate & Assistant Secretary
Pittsburgh, PA 15219-2800
412 433 2877
Fax: 412 433 2811
email: rmstanton@uss.com
October 30, 2006
Mr. Jeffrey Gordon
Staff Accountant
Division of Corporation Finance
Securities and Exchange Commission
100 F Street N.E.
Washington, DC 20549
Re: United States Steel Corporation Form 10-K for year ended December 31, 2005
and Forms 10-Q for Quarters ended March 31 and June 30, 2006
File No. 1-16811
Dear Mr. Gordon:
In response to the letter from John Hartz dated October 18, 2006, U. S. Steel is
pleased to voluntarily provide the following responses and information to the
staff of the Securities and Exchange Commission (the "Commission"). For
convenience, we have reproduced each of your comments below in italics in the
order in which it appeared in your letter, and our response to each comment
immediately follows it.
(a) You say that you do not possess the detailed information necessary to
estimate possible additional losses on a site-by-site basis because of
the numerous uncertainties inherent in environmental remediation
activities. We assume that your counsel separately evaluates each
location, making specific judgments about many matters related to these
uncertainties (similar to his practice regarding asbestos, a smaller risk
contingency). You also state that based on your experience in dealing
with remediation activities of this type (presumably the major material
sites) you believe that additional liabilities could range in the
aggregate up to 100 percent of the accrued liabilities. Explain to us why
your counsel is unable to make estimates related to any other site, or
for example tell us why the range of additional reasonably possible loss
is not estimated at $145 million, 100 percent of the entire accrual.
RESPONSE: U. S. Steel is involved in a number of sites, which we evaluate
as we progress through each project's life cycle with the involvement of
various parties including government agencies and outside contractors.
While each site is unique, we have identified several projects with
ongoing study and scope development for which material additional costs
are viewed as reasonably possible and we will disclose an aggregate amount
of reasonably possible additional losses for these sites.
For several major mature sites, such as the Grand Calumet River dredging,
where we have significant knowledge, we are able to disclose that we do
not expect material additional costs. There are also a number of very
minor sites, sites where we have only recently been notified that we may
have responsibility, and sites where U. S. Steel is one of multiple
parties, including a number where we have been notified that we are a de
minimis party. At multi-party sites we are generally not directly
involved with the applicable agency or the contractors undertaking the
work. As such, we may not possess the detailed information necessary to
make projections about the overall costs that may be involved.
Based on our current evaluations and in order to better provide reasonably
possible costs for all of our sites, we will provide an aggregate
reasonably possible cost as a percent of our total accrued liability as of
the most recent balance sheet date for the specified sites with ongoing
study and scope development, for mature sites and for all other sites.
In response to your comments in this and the prior letter, the following
are brief excerpts from the U. S. Steel Form 10-Q for the period ended
September 30, 2006, that we expect to file on or about November 3, 2006.
We believe these excerpts address reasonably possible losses for our
environmental projects, and you will see in the attached selected draft
sections of our Form 10-Q that we have classified our various projects to
provide a better understanding of the accrued liabilities and potential
liabilities for projects that are in varying stages of development. The
brief excerpts are:
Due to uncertainties inherent in remediation projects and the
associated liabilities, it is possible that total remediation
costs for active matters may exceed the accrued liabilities
by as much as 25 percent. [Note: This sentence concludes our
lead paragraph, which discloses that accrued liabilities as
of September 30, 2006 were $135 million.]
Additional liabilities associated with future requirements
regarding studies, investigations, design and remediation for
these projects may prove insignificant or could range in the
aggregate up to $25 million. [Note: This sentence appears in
a paragraph that identifies four specific projects with
ongoing study and scope development.]
(b) Notwithstanding the disposition of this issue, as previously
requested, you should disclose the range of reasonably possible losses
related to these contingencies in your discussion of critical estimates.
Companies should provide quantitative information as described in
Release 33-8350, Commission Guidance Regarding Management's Discussion
and Analysis of Financial Condition and Results of Operations.
RESPONSE: U. S. Steel will incorporate this comment into the preparation
of the Form 10-K for the year ended December 31, 2006.
As noted above, the estimate of reasonably possible losses related to
these contingencies will be included in Note 16, "Contingencies and
Commitments," of the Form 10-Q for the period ended September 30, 2006.
Please contact me, or, in my absence, Jack Moran, Senior Counsel - Corporate
(412-433-2890) with any questions. With respect to any accounting issues,
please contact Larry Schultz, Vice President and Controller (412-433-1139),
Hayley Scott-Davis, Director - Financial Analysis & External Reporting (412-433-
5556) or Colleen Darragh, Director - Financial Analysis & External Reporting
(412-433-5606) directly.
Very truly yours,
/s/ Robert M. Stanton
Robert M. Stanton
16. Contingencies and Commitments
Environmental Matters - U. S. Steel is subject
to federal, state, local and foreign laws and
regulations relating to the environment. These laws
generally provide for control of pollutants released
into the environment and require responsible parties
to undertake remediation of hazardous waste disposal
sites. Penalties may be imposed for noncompliance.
Accrued liabilities for remediation activities
totaled $135 million at September 30, 2006, of which
$17 million was classified as current, and
$137 million at December 31, 2005, of which
$18 million was classified as current. Expenses
related to remediation are recorded in cost of sales
and totaled $3 million and $14 million for the
quarter and nine months ended September 30, 2006,
respectively and $2 million and $10 million for the
quarter and nine months ended September 30, 2005,
respectively. It is not presently possible to
estimate the ultimate amount of all remediation costs
that might be incurred or the penalties that may be
imposed. Due to uncertainties inherent in remediation
projects and the associated liabilities, it is
possible that total remediation costs for active
matters may exceed the accrued liabilities by as much
as 25 percent.
Remediation Projects
--------------------
U. S. Steel is involved in environmental
remediation projects at or adjacent to several
U. S. Steel current and former facilities and
other locations, that are in various stages of
completion ranging from initial characterization
through post-closure monitoring. Based on the
anticipated scope and degree of uncertainty of
projects, we categorize projects as follows:
(1) Projects with Ongoing Study and Scope
Development are those projects for which
material additional costs are reasonably
possible.
(2) Significant Projects with Defined Scope are
those projects with significant accrued
liabilities, a defined scope and little
likelihood of material additional costs.
(3) Other Projects are those projects with
relatively small accrued liabilities for which
we believe that, while additional costs are
possible, they are not likely to be material,
and those projects for which we do not yet
possess sufficient information to form a
judgment about potential costs.
Projects with Ongoing Study and Scope
Development - There are four environmental
remediation projects where reasonably possible
additional costs for completion are not currently
estimable, but could be material. These
projects are three Resource Conservation and Recovery
Act (RCRA) programs, including two at Fairfield Works
and one at the Fairless Plant, and one state
Comprehensive Environmental Response, Conservation
and Liability Act (CERCLA) program at the Duluth St.
Louis Estuary and Upland Project. As of September
30, 2006, accrued liabilities for these projects
totaled $2 million for the costs of studies,
investigations, interim measures, remediation and/or
design. Additional liabilities associated with future
requirements regarding studies, investigations,
design and remediation for these projects may prove
insignificant or could range in the aggregate up to
$25 million. It is anticipated that the scope of one
of the Fairfield Works RCRA projects will become
defined during 2007 and may be removed from this
category. The scope of the Duluth project, depending
on agency negotiations, could also become defined in
2007.
Significant Projects with Defined Scope - As of
September 30, 2006, a total of $63 million was
accrued for projects at or related to Gary Works, as
well as the Municipal Industrial & Disposal Company
(MIDC) CERCLA site in Elizabeth, PA, where the scope
of the work required is well developed. The Gary
Works projects include the RCRA program, Natural
Resource Damages (NRD) claims, completion of projects
for the Grand Calumet River and the related
Corrective Action Management Unit (CAMU), and closure
costs for three hazardous waste disposal sites and
one solid waste disposal site. The RCRA program is
in the final study stage and data currently indicates
that any further required remediation, beyond that
which has been accrued, should not be material. The
NRD claims have been resolved by final settlement
orders and payment schedules are determined. The
Grand Calumet River and the related CAMU project are
essentially complete, except for currently accrued
liabilities for costs associated with additional
dredging, CAMU maintenance and wastewater treatment.
A Closure Permit application has been submitted for
the hazardous waste sites, that also addresses the
one solid waste site, and there has been no
meaningful agency action on the application.
Investigation and studies have been completed for the
MIDC project as well as 90 percent of the remedial
design. U. S. Steel does not expect any material
additional costs related to these projects.
At U. S. Steel's former Geneva Works, liability
for environmental remediation, including for the
closure of three hazardous waste impoundments and
facility-wide corrective action, has been allocated
between U. S. Steel and Geneva Steel Company pursuant
to an asset sales agreement and a permit issued by
Utah Department of Environmental Quality. In
December 2005, a third party purchased the Geneva
site and assumed Geneva Steel's rights and
obligations under the asset sales agreement and the
permit pursuant to a bankruptcy court order. U. S.
Steel has reviewed environmental data concerning the
project, has commenced the development of work plans
that are necessary to begin field investigations and
has begun remediation on some areas of the site for
which U. S. Steel has responsibility. U. S. Steel
had an accrued liability of $24 million as of
September 30, 2006 for its share of the remaining
costs of remediation and does not expect additional
costs to be material.
Other Projects - There are five other
environmental remediation projects which each had an
accrued liability of between $1 million and $5
million. The total accrued liability for these
projects at September 30, 2006 was $14 million.
These projects have progressed through a significant
portion of the design phase and material additional
costs are not expected.
The remaining environmental remediation projects
each had an accrued liability of less than $1
million. The total accrued liability for these
projects at September 30, 2006 was $12 million. We
do not foresee material additional liabilities for
any of these sites.
Post-Closure Costs - Accrued liabilities for
post-closure site monitoring and other costs at
various closed landfills totaled $15 million at
September 30, 2006 and were based on a known scope of
work.
Administrative and Legal Costs - As of September 30,
2006, U. S. Steel had an accrued liability of $5
million for administrative and legal costs related to
environmental remediation projects. These accrued
liabilities were based on annual administrative and
legal cost projections and do not change
significantly from year to year.
ENVIRONMENTAL PROCEEDINGS
Gary Works
On January 26, 1998, pursuant to an action filed by the
U.S. Environmental Protection Agency (EPA) in the United
States District Court for the Northern District of
Indiana titled United States of America v. USX,
U. S. Steel entered into a consent decree with EPA which
resolved alleged violations of the Clean Water Act
National Pollutant Discharge Elimination System (NPDES)
permit at Gary Works and provides for a sediment
remediation project for a section of the Grand Calumet
River that runs through Gary Works. As of September 30,
2006, project costs have amounted to $52.7 million.
U. S. Steel anticipates doing additional dredging at a
cost of $8.4 million. The Corrective Action Management
Unit (CAMU) will remain available to receive dredged
materials from the Grand Calumet River and could be used
for containment of approved material from other
corrective measures conducted at Gary Works pursuant to
the Administrative Order on Consent for corrective
action. CAMU maintenance and wastewater treatment costs
are anticipated to be an additional $2.1 million for the
next five years. In 1998, U. S. Steel also entered into
a consent decree with the public trustees, which resolves
liability for natural resource damages on the same
section of the Grand Calumet River. U. S. Steel will pay
the public trustees $1.0 million at the end of the
remediation project for ecological monitoring costs. In
addition, U. S. Steel is obligated to perform, and has
initiated, ecological restoration in this section of the
Grand Calumet River. The costs required to complete the
ecological restoration work are estimated to be $1.1
million. In total, the accrued liability for the above
projects based on the estimated remaining costs was
$12.6 million at September 30, 2006.
At Gary Works, U. S. Steel has agreed to close three
hazardous waste disposal sites and one solid waste
disposal site located on plant property. The related
accrued liability for the total estimated costs was
$19.2 million at September 30, 2006.
On October 23, 1998, EPA issued a final Administrative
Order on Consent addressing Corrective Action for solid
waste management units throughout Gary Works. This order
requires U. S. Steel to perform a Resource Conservation
and Recovery Act (RCRA) Facility Investigation (RFI) and
a Corrective Measure Study (CMS) at Gary Works. Reports
of field investigation findings for Phase I work plans
have been submitted to EPA. Two Phase II RFI work plans
have been submitted to EPA for approval. Four self-
implementing interim measures have been completed.
Through September 30, 2006, U. S. Steel has spent
approximately $22.7 million for the studies, work plans,
field investigations and self-implementing interim
measures. U. S. Steel is preparing a proposal to EPA
seeking approval for perimeter groundwater monitoring and
has begun an investigation of sediments in the West Grand
Calumet Lagoon. The costs to complete the Phase I work
and implement the field investigations for the submitted
Phase II work plans, the anticipated perimeter
groundwater monitoring and investigation of the West
Grand Calumet Lagoon are estimated to be $3.6 million.
U. S. Steel is preparing a proposal to EPA seeking
approval to implement Corrective Measures necessary to
address soil contamination at Gary Works. Additionally,
U. S. Steel has informed EPA that it will remove the
abandoned drums recently discovered in the West Grand
Calumet Lagoon and dispose of the materials at the CAMU.
U. S. Steel estimates the minimum cost of the Corrective
Measures for soil contamination and drum removal to be
approximately $3.5 million. Closure costs for the CAMU
are estimated to be an additional $4.9 million. Until
the remaining Phase I work and Phase II field
investigations are completed, it is impossible to assess
what additional expenditures will be necessary for
Corrective Action projects at Gary Works. In total, the
accrued liability for the above projects was $12.0
million at September 30, 2006, based on the estimated
remaining costs.
In October 1996, U. S. Steel was notified by the Indiana
Department of Environmental Management (IDEM), acting as
lead trustee, that IDEM and the U.S. Department of the
Interior had concluded a preliminary investigation of
potential injuries to natural resources related to
releases of hazardous substances from various municipal
and industrial sources along the east branch of the Grand
Calumet River and Indiana Harbor Canal. U. S. Steel
agreed to pay to the public trustees $20.5 million over a
five-year period for restoration costs, plus $1.0 million
in assessment costs. A Consent Decree memorializing this
settlement was entered on the record by the court and
thereafter became effective April 1, 2005. U. S. Steel
paid its entire share of the assessment costs and $4.5
million of its share of the restoration costs to the
public trustees in 2005. U. S. Steel paid an additional
$4.0 million of its share of restoration costs plus
interest in 2006. A balance of $12 million in
restoration costs to complete our settlement obligations
remains as an accrued liability as of September 30, 2006.
On November 30, 1999, IDEM issued a notice of violation
(NOV) alleging various air violations at Gary Works,
including opacity violations at the No. 1 BOP and pushing
violations at the four coke batteries. On August 21,
2002, IDEM issued a revised NOV, which supercedes the
1999 NOV and includes alleged violations at the blast
furnaces, steel shops and coke batteries from 1998 to
2002. On December 27, 2005, IDEM issued a NOV which
includes alleged violations at the No. 8 Blast Furnace
and the Coke Batteries for the period of 2002 through
2005. The cost of the settlement of this matter is
currently indeterminable. U. S. Steel received a draft
Agreed Order from IDEM on June 27, 2006, which includes a
proposed penalty of $2.3 million. The Agreed Order also
includes pushing compliance plans, a door work practice
plan, a refractory repair plan, monitoring of flue caps,
installation of two ambient monitors and compliance with
all coke battery requirements by January 1, 2007. U. S.
Steel responded with comments on the draft Order and is
now in discussions with IDEM to resolve this matter. The
$2.3 million proposed penalty was recorded as an accrued
liability as of September 30, 2006.
Clairton
In March 2006, U. S. Steel met with Allegheny County
Health Department (ACHD) to discuss entering into a
Consent Order to address compliance with the stack
opacity limit at the pushing emission control baghouse
for B Battery. No penalty amount was discussed, but a
penalty of an undetermined amount is anticipated. U. S.
Steel had already submitted a compliance plan to ACHD
committing to repair of 24 thru-walls. U. S. Steel
received a draft Consent Order from ACHD on July 3, 2006,
and is in discussions with ACHD to resolve this matter.
A liability has not been recorded for this matter as the
amount of the penalty it is not currently determinable.
Midwest Plant
A former disposal area located on the east side of the
Midwest Plant was designated a solid waste management
unit (East Side SWMU) by IDEM before U. S. Steel acquired
this plant from National Steel Corporation. After its
acquisition, U. S. Steel conducted further investigations
of the East Side SWMU. As a result, U. S. Steel has
submitted a Closure Plan to IDEM recommending an "in-
place" closure of the East Side SWMU. The cost to close
the East Side SWMU is expected to be $4.1 million, and
was recorded as an accrued liability as of September 30,
2006.
Fairless Plant
In January 1992, U. S. Steel commenced negotiations with
EPA regarding the terms of an Administrative Order on
consent, pursuant to RCRA, under which U. S. Steel would
perform a RFI and a CMS at its Fairless Plant. A Phase I
RFI report was submitted during the third quarter of
1997. A Phase II/III RFI will be submitted following EPA
approval of the Phase I report. While the RFI/CMS will
determine whether there is a need for, and the scope of,
any remedial activities at the Fairless Plant,
U. S. Steel continues to maintain interim measures at the
Fairless Plant and has completed investigation activities
on specific parcels. No remedial activities are
contemplated as a result of the investigations of these
parcels. The cost to U. S. Steel to continue to maintain
the interim measures and develop a Phase II/III RFI Work
Plan is estimated to be $412,000, and was recorded as an
accrued liability as of September 30, 2006. It is
reasonably possible that additional costs of $25 million
may be incurred at a combination of this site in addition
to the two RCRA projects at Fairfield Works and the
project at the Duluth Works discussed elsewhere in this
section.
Fairfield Works
A consent decree was signed by U. S. Steel, EPA and The
U.S. Department of Justice and filed with the United
States District Court for the Northern District of
Alabama (United States of America v. USX Corporation) on
December 11, 1997, under which U. S. Steel paid a civil
penalty of $1.0 million, completed two Supplemental
Environmental Projects (SEPs) at a cost of $1.75 million
and initiated a RCRA corrective action program at the
facility. The Alabama Department of Environmental
Management (ADEM) assumed primary responsibility for
regulation and oversight of the RCRA corrective action
program at Fairfield Works, with the approval of EPA.
The first Phase I RFI work plan was approved and field
sampling for the work plan was completed in 2004.
U. S. Steel submitted a Phase I RFI Report to ADEM in
February 2005. ADEM approved the Phase I RFI Report and
requested a Phase II RFI work plan. The cost to develop
and implement the Phase II RFI work plan is estimated to
be $819,000, and was recorded as an accrued liability as
of September 30, 2006. In addition, U. S. Steel has
implemented a final corrective measure for remediation of
Upper Opossum Creek and has completed the fieldwork for
this final measure and submitted a certification
completion report to ADEM. U. S. Steel has an accrued
liability for possible additional work on this
remediation project of $824,000 as of September 30, 2006,
pending final approval by ADEM of the completed
fieldwork. U. S. Steel has completed the investigation
and remediation of Lower Opossum Creek under a joint
agreement with Beazer, Inc. whereby U. S. Steel has
agreed to pay 30 percent of the costs. U. S. Steel's
remaining share of the costs for sediment remediation is
$210,000. In January 1999, ADEM included the former
Ensley facility site in Fairfield Corrective Action.
Based on results from its Phase I facility investigation
of Ensley, U. S. Steel has identified approximately 2.5
acres of land at the former coke plant for remediation.
The estimated cost to remediate this area and close
Ensley was recorded as an accrued liability of $1.5
million as of September 30, 2006. While U. S. Steel does
not possess information necessary to estimate reasonably
possible additional costs at this site, they may range
from insignificant to substantial. In total, the accrued
liability for the projects described above was $3.4
million at September 30, 2006, based on estimated
remaining costs. It is reasonably possible that
additional costs of $25 million may be incurred at a
combination of these sites in addition to the RCRA
project at the Fairless Plant and the project at the
Duluth Works discussed elsewhere in this section.
Great Lakes Works
Effective February 14, 2005, U. S. Steel entered into a
consent order with Michigan Department of Environmental
Quality (MDEQ) related to Great Lakes Works that included
the installation of a new bag house for B2 Blast Furnace,
which has been completed; the installation of baffles at
the Quench Tower, which has been completed; projects to
reduce emissions from the steel-producing facilities; a
civil penalty of $950,000, which has been paid; and a SEP
at a cost of $200,000 for river bank improvements.
Construction for the riverbank restoration SEP was
completed in September 2005. Various construction
projects were initiated at the steel-producing facilities
to improve emission capture and control. On-site
construction activities associated with these projects
have been completed in compliance with the consent order
schedule.
On January 6, 2006, Great Lakes Works received a proposed
administrative consent order from MDEQ that alleged
violations of NPDES permits at the facility. U. S. Steel
is engaged in negotiations with MDEQ to resolve this
matter and U. S. Steel has submitted to MDEQ a proposed
revised consent order with a proposed civil penalty and
SEP totaling $300,000, which was recorded as an accrued
liability as of September 30, 2006. The proposed order
identifies certain corrective actions desired by MDEQ to
address the alleged violations. Great Lakes Works had
previously initiated work on some of these corrective
actions and is committed to do others. One of the
corrective actions addresses three river basins along the
Detroit River and U. S. Steel has undertaken a project to
remove historic basin sediments from these areas. As of
September 30, 2006, $1.1 million has been spent on the
project, and an accrued liability of $1.8 million has
been recorded for estimated costs to complete the river
basin project. Costs to complete the remaining
corrective actions are presently not determinable.
Duluth Works
At the former Duluth Works in Minnesota, U. S. Steel
spent a total of approximately $13.1 million for cleanup
and agency oversight costs through September 30, 2006.
The Duluth Works was listed by the Minnesota Pollution
Control Agency under the Minnesota Environmental Response
and Liability Act on its Permanent List of Priorities.
EPA has consolidated and included the Duluth Works site
with the St. Louis River and Interlake sites on EPA's
National Priorities List. The Duluth Works cleanup has
proceeded since 1989. U. S. Steel is conducting an
engineering study of the estuary sediments. The method
and extent of remediation at this site is presently
unknown, therefore, future costs are indeterminable.
Study and oversight costs are currently estimated at
$273,000, and were recorded as an accrued liability as of
September 30, 2006. These costs include risk assessment,
sampling, inspections and analytical work, and
development of a work plan and cost estimate to implement
EPA five-year review recommendations. It is reasonably
possible that additional costs of $25 million may be
incurred at a combination of this site in addition to the
two RCRA projects at Fairfield Works and the RCRA project
at the Fairless Plant discussed elsewhere in this
section.
Granite City Works
Granite City Works received two NOVs, dated February 20,
2004 and March 25, 2004 for air violations at the coke
batteries, the blast furnace and the steel shop. All of
the issues have been resolved except for an issue
relating to air emissions that occur when coke is pushed
out of the ovens for which a compliance plan has been
submitted to the Illinois Environmental Protection Agency
(IEPA). IEPA referred the two NOVs to the Illinois
Attorney General's Office for enforcement. We anticipate
resolving this case by entering into a Consent Order,
which will include a revised pushing compliance plan and
a penalty. IEPA has proposed a civil penalty of
$175,000. On September 14, 2005, the Illinois Attorney
General filed a complaint in the Madison County Circuit
Court, titled People of the State of Illinois ex. rel.
Lisa Madigan vs. United States Steel Corporation, which
included the issues raised in the two NOVs. U. S. Steel
submitted a counteroffer of $125,000 for the civil
penalty and will submit to IEPA an updated pushing
compliance plan. U. S. Steel has recorded an accrued
liability of $175,000 for this matter as of September 30,
2006.
Geneva Works
At U. S. Steel's former Geneva Works, liability for
environmental remediation, including the closure of three
hazardous waste impoundments and facility-wide corrective
action, has been allocated between U. S. Steel and Geneva
Steel Company pursuant to an asset sales agreement and a
permit issued by Utah Department of Environmental
Quality. In December 2005, a third party purchased the
Geneva site and assumed Geneva Steel Company's rights and
obligations under the asset sales agreement and the
permit pursuant to a bankruptcy court order. U. S. Steel
has reviewed environmental data concerning the site
gathered by itself and third parties, has commenced the
development of work plans that are necessary to begin
field investigations and has begun remediation on some
areas of the site for which U. S. Steel has
responsibility. U. S. Steel has recorded an accrued
liability of $24.3 million as of September 30, 2006, for
its estimated share of the remaining costs of remediation
of three hazardous waste impoundments.