ERCI Capabilities Summary

Environmental Risk Communications, Inc.

2012 Capabilities

Contact:

John RosengardJohn Rosengard(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 do Provide environmental liability management software solutions

Develop advanced decision analysis and strategic planning for individual sites and portfolios of environmental liabilitiessites and portfolios of environmental liabilities

Perform tracking and detailed financial analysis of environmental counterparties

Products and services include:

Defender™ (Remedy & Portfolio)

Historical And Legacy Operations (HALO) Database

Site Strategic Planning

Environmental Counterparty Tracking

Representative Clients


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


Our facilitated approach to complex, high-cost environmental remediation projects has helped our clients: Understand escalation risks Know financial impact of a strategy or project decision Archive 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

Environmental Counterparty

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


Counterparty Tracking

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 Estimating

Decision Analysis

Reporting and Business Planning

Defender User Needs Compliance – 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


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


Historical And Legacy Operations (HALO)6

Needs answered by HALONeeds answered by HALO Store 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?


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 d

Property Knowledge


KnowledgeKnowledge


Wh t i i Sit St t i Pl (SSP)?

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What is in a Site Strategic Plan (SSP)? Documentation of how we got here, what we have

tried, and what has been spent to date

What problems remain today?

What options are available today?

What it will take to work?

What risks will be left?

Why is this work useful?y Provides enduring, flexible reference for people new to a site’s liabilities

Provides assurances that the current level of site and strategy documentation will endure changes in site ownership, contractor resources, and employee turnover

Confi ms that management can a tic late a sing la st ateg fo ans e ing the sho t Confirms that management can articulate a singular strategy for answering the short-and long-term risks to successfully extinguishing the liability

Stores any significant ideas to improve the cost, quality, pace, sustainability, and finality of a given site’s strategy

E l i if t ti i ifi t i k t th t t


Explains if counterparties pose a significant risk to the strategy

Site Strategic Planning 9


Environmental Counterparty Tracking

What need Environmental Counterparty Tracking (ECT) meet?

10

What need Environmental Counterparty Tracking (ECT) 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 ECT service efficiently: Our ECT 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


Environmental Counterparty Tracking 11

How would Environmental

Identify weak and weakening counterparties

Document moment when

Counterparty Tracking help my company?

Your company is a Potentially

counterparty passes into the riskiest “bottom 10%” of companies

Provide a validated “probability of default” for FASB 157f determinations of counterparty risks

When does Environmental Counterparty Tracking add value?

Responsible Party (PRP) at a site with future costs >$5 million

Any single counterparty (PRP)’s share of the future costs exceeds $1 million

There are more than fivecounterparties named at the site

risks Provide a deadline and

discount basis for cashing out a counterparty from an environmental liability

ERCI evaluates each

What does Environmental Counterparty Tracking entail?

counterparties named at the site Remediation of the site –

including O&M – will not be finished for ten years

Agency financial assurance obligations are likely / active

counterparty’s financials monthly

If 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 PRP

Cost to monitor a 12-party PRP


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


1 month 4 months 9 months

Time to Deliver

ERCI Capabilities Summary

Documents

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