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Environmental Risk Communications, Inc.
2012 Capabilities
Contact:
Ryan LafrenzRyan Lafrenz(415) 982-3100
www.erci.com
© 2012 Environmental Risk Communications, Inc.
CONFIDENTIAL
ERCI Background
Wh d h t d
2
Who we are and what we doProvide environmental liability management software solutionsDevelop advanced decision analysis and strategic planning for individual sites and portfolios of environmental liabilitiessites and portfolios of environmental liabilitiesPerform tracking and detailed financial analysis of environmental counterpartiesProducts and services include:
Defender™ (Remedy & Portfolio)Historical And Legacy Operations (HALO) DatabaseSite Strategic PlanningFinancial Assurance Monitoring
Representative Clients
© 2012 Environmental Risk Communications, Inc.
Product and Service Offerings3
Defender™ is ERCI’s principal software tool, built for efficient and auditable cost engineering and management of environmental liabilities. Key features include probabilistic cost estimating, reserve forecasting, decision analysis, and watch list calculation for single sites and portfolios. Our software users have found that environmental reserve audits, project manager transitions, budgeting, and reserve validation are all easier when using Defender™. Better decisions, improved capital and environmental stewardship, more informed stakeholders, and retained
tf li k l d h b i i li t ’ b tt li i 1994
Defender™
portfolio knowledge have been improving our clients’ bottom lines since 1994.
ERCI’s HALO database provides long-term storage for institutional knowledge about past and future environmental liabilities. Historical spending, decisions, past strategies, counterparties, PRP ll ti d th it b k d t d K b fit i l d h t d f t
HALOPRP allocations, and other site background are stored. Key benefits include shortened future response times, higher reliability in responding to regulatory notices, PRP group invoices, press attention, and environmental reserve audits.
Database
f l d h l h h l d h h l d
Site Strategic Planning
Our facilitated approach to complex, high-cost environmental remediation projects has helped our clients:
Understand escalation risksKnow financial impact of a strategy or project decisionArchive site at decision phase gates using standardized data points (e.g., past strategies / spending, site history, regulatory status, and source-receptor pathway conceptual model)Develop key performance metrics and end state vision
Financial Assurance
Develop key performance metrics and end state vision
Using Dun & Bradstreet’s credit scores and USEPA’s ability to pay models, ERCI pioneered a tracking process used by Fortune 500 companies and CERCLA sites’ common counsel to understand and document the counterparty (bankruptcy). Through objective metrics and
© 2012 Environmental Risk Communications, Inc.
Assurance Monitoring
enforcement, ERCI has prevented losses to PRP groups and former site owners. We prevent cost reallocation by ensuring that all PRPs are guaranteed by a viable corporate entity or guaranty instrument at all times.
Defender™ 4
Environmental Liability Management SoftwareReserve Forecasting
Probabilistic Cost EstimatingProbabilistic Cost EstimatingDecision Analysis
Reporting and Business Planning
Defender User NeedsCompliance – Documentation of site-specific liabilities and recoveries, along with significant probabilities to calculate reserves as expected values
Consistency – Uniform testing of future costs under new GAAP ASC 410 criteria; quantification of project-specific issues, alternatives, and desired outcome; timing and nature of liability settlement, reopeners and cost recoveries; counterparty risk(s)
Accuracy – Delineation between environmental remediation liability, asset retirement obligation, operating expenses, and capitalized environmental compliance costs; differentiation between budgets, reserves, and lifecycle cost-to-close; separation of reimbursements, and future possible reserve increases (“watch list”); alignment to enterprise software (e.g., SAP, Oracle, JDE)
Clarity – Project issues, risks, and decisions; reserve increase trigger points, comparison of scenarios
Speed – Respond to any audit concerns promptly
© 2012 Environmental Risk Communications, Inc.
Low-risk Deployment – Use off-the-shelf technology, minimize cost, have high flexibility in customizing the system, low / no learning curve for software
Defender™ 5
© 2012 Environmental Risk Communications, Inc.
Historical And Legacy Operations (HALO)6
Needs answered by HALONeeds answered by HALOStore select parameters (e.g., sunk costs, decisions, contracts, consent decrees, guarantees, etc.)
Prevent “project reset” costs (e.g., deep dive to file rooms, entrenched / legacy consultants)
Survive turnover and transitions
Balance “knowledge is power” with current information saturation
Apply best practices and lessons learned to prevent new liabilities
What is environmental program institutional knowledge?What is environmental program institutional knowledge?Regulatory Compliance – When and how were the cleanup goals set? Why are we involved in this CERCLA multiparty cleanup project?
Cost History – What are transactional costs for this site? Any trends over the last five years? Are all de minimis and insurance recovery projects complete? When was our allocation adjusted? When did de minimis and insurance recovery projects complete? When was our allocation adjusted? When did trust funds run out? Did we cash out of this site already? Which legacy entities?
Transaction / Counterparty Knowledge – When and how did we transfer a facility to a successor owner? Any reopener terms for the environmental costs? When and how did we acquire this facility from a previous owner? Any provisions for taking back property, or the liability reverting back to us?
P t K l d Wh d th it ? I it b i d l d?Property Knowledge – Who owned the site? Is it being redeveloped?
Remediation Knowledge – Did we survey for asbestos and USTs already? Which landfill was used for soil disposal? Where did we get the import backfill?
Project Manager Notes – What correspondence took place with other PRPs, stakeholders, or common counsel? Which documents should be reviewed? What was the timeline of this project?
© 2012 Environmental Risk Communications, Inc.
common counsel? Which documents should be reviewed? What was the timeline of this project? Were any action items completed? Is there any, otherwise undocumented, information?
Historical And Legacy Operations (HALO)7
What Liability Exists?
Project Manager Notes
Regulatory History
Cost HistoryRemediation Knowledge
Transaction / Counterparty
l dProperty
Knowledge
© 2012 Environmental Risk Communications, Inc.
KnowledgeKnowledge
Site Strategic Planning
Wh t i i Sit St t i Pl (SSP)?
8
What is in a Site Strategic Plan (SSP)?Documentation of how we got here, what we have tried, and what has been spent to dateWhat problems remain today?What options are available today?What it will take to work?What risks will be left?
Why is this work useful?yProvides enduring, flexible reference for people new to a site’s liabilitiesProvides assurances that the current level of site and strategy documentation will endure changes in site ownership, contractor resources, and employee turnoverConfi ms that management can a tic late a sing la st ateg fo ans e ing the sho tConfirms that management can articulate a singular strategy for answering the short-and long-term risks to successfully extinguishing the liabilityStores any significant ideas to improve the cost, quality, pace, sustainability, and finality of a given site’s strategyE l i if t ti i ifi t i k t th t t
© 2012 Environmental Risk Communications, Inc.
Explains if counterparties pose a significant risk to the strategy
Site Strategic Planning 9
© 2012 Environmental Risk Communications, Inc.
Financial Assurance Monitoring
What need does Financial Assurance (FA) Monitoring meet?
10
What need does Financial Assurance (FA) Monitoring meet? All environmental liabilities involve counterparties, whether they are former or successor owners of a facility, insurers, neighbors, or disposal sites – Not every counterparty has a material allocation or financial depth to share costs, but some counterparties are in transition from viability to dissolution
Our FA Monitoring service efficiently: Our FA Monitoring service efficiently:
Watches for credit downgrades, changes to corporate structures, bankruptcy filings, and other triggers
Tests all PRPs against common financial reference points, and justifies pre-bankruptcy cashouts or weaker PRPs
Provides the “probability of default” needed for FASB 157f calculations of counterparty risks
Anticipates PRP reallocation due to bankruptcies
K b fitKey benefits:Enables clients to passively track the financial health of unrelated entities / properties and anticipate risks
At CERCLA sites prevention of cost At CERCLA sites, prevention of cost escalations due to peer bankruptcies
Proactively allows steps to be taken prior to CERCLA 104(e) inquiries and proposed NPL listings
© 2012 Environmental Risk Communications, Inc.
Financial Assurance Monitoring11
How would Financial Assurance
Identify weak and weakening counterpartiesDocument moment when
How would Financial Assurance Monitoring help my company?
Your company is a Potentially
counterparty passes into the riskiest “bottom 10%” of companiesProvide a validated “probability of default” for FASB 157f determinations of counterparty risks
When does Financial Assurance Monitoring add value?
Responsible Party (PRP) at a site with future costs >$5 millionAny single counterparty (PRP)’s share of the future costs exceeds $1 millionThere are more than fivecounterparties named at the site
risksProvide a deadline and discount basis for cashing out a counterparty from an environmental liability
ERCI evaluates each
What does Financial Assurance Monitoring entail?
counterparties named at the siteRemediation of the site –including O&M – will not be finished for ten yearsAgency financial assurance obligations are likely / active
counterparty’s financials monthlyIf a counterparty fails the tests, ERCI recommends cash out negotiations or requests additional financial assurance (e g letter of credit surety (e.g. letter of credit, surety obligation, parent guaranty)ERCI provides quarterly updates to the PRP group, indicating the financial status of each PRPCost to monitor a 12-party PRP
© 2012 Environmental Risk Communications, Inc.
p ygroup is $12,000 / annually
1 Dun and Bradstreet (D&B) Financial Stress Model, “Incidence of Financial Stress”
ERCI Payback Period12
Payback Period of Initial Cost
Defender
HALO9 months
Watchlist
Defender
4 months
SSP
1 month
1 month 4 months 9 months
1 month
© 2012 Environmental Risk Communications, Inc.
1 month 4 months 9 months
Time to Deliver