1. CONFIDENTIAL
Defender Software Tools
Remedy Defender™
Portfolio Defender™
Due Diligence Defender™
Contact:
John Rosengard
(415) 982-3100
www.erci.com
© 2012 Environmental Risk Communications, Inc.

2. ERCI and Defender Software
 ERCI incorporated in California in 1994
 Initial customers: US DOE, FMC, Chevron
 Software competence in:
 Microsoft Excel, Access, and Project
 Visual Basic for Applications (VBA)
 Crystal Ball and @Risk (Monte Carlo modeling for Excel and Project)
 17 portfolios, 300 users
 Remedy Defender: Single site analysis
 Portfolio Defender: Rollup reports of Remedy Defender
 Due Diligence Defender: Parametric models built for specific industries
 Midstream gas
 Sediments
 Counterparty Defender: Credit-weighted analysis of counterparties
sharing future environmental costs
© 2012 Environmental Risk Communications, Inc. 2

3. Needs of the Typical Defender User
 GAAP Compliance / Audit Defense
 ASC 410-30-25 Recognition of Environmental Obligations
 ASTM E2137 for Estimating Environmental Liabilities
 ASTM E2173 for Disclosing Environmental Liabilities
 Performance Management
 Strategic consistency: Cost benchmarks, risks, remedial alternatives
 Challenge current strategy: New options, accelerate / defer
 Differentiate between reserve, asset retirement, OPEX, CAPEX spending
 Change Management
 Document site history, key assumptions
 Prepare for any team turnover: Project manager, lead consultant, regulator, external
counsel
 Vendor Management
 Identify best practices, lessons learned
 Record cost benchmarks
© 2012 Environmental Risk Communications, Inc. 3

4. What is Defender?
ENVIRONMENTAL BUSINESS PLAN RESERVE CASE: ($24,910,034)
 Software for environmental I. SITE SUMMARY
Site Name County Landfill Business Unit 1001
liability teams Project Manager
Project Code
Street
Luke Vermeire
01CLF
475 Sansome Street
Lead Internal Attorney
Additional Internal Attorney
Business Unit or Owner Contact
Ryan Lafrenz
n/a
n/a
City San Francisco Public Affairs Coordinator n/a
Measure
State California Real Estate Coordinator n/a
 Zip Code
Lead Regulatory Agency
94111
EPA
External Counsel
Offsite Landowner
n/a
n/a
Superfund or NPL Site CA123456789 Third Parties n/a
PRP Participant Yes Consultant (study) URS
 Analyze PRP Share
USEPA Regulatory Contact
75%
Jane Doe
Consultant (remediation/O&M)
Property Tax Status
SCS Engineers
n/a
USEPA Generator ID n/a Adjoining Property Owners Joe's tire shop
State Regulatory Contact n/a Date Notified 5/12/2012
 Display State Generator ID
US EPA Region
Project Cause
n/a
9
Landfill Operations
Date Added
Estimated Project Closure Date
Regulator's Contaminants of Concern
6/29/2012
7/4/2052
CAM 17, VOCs, SVOCs, PCBs
Disclose
Last Update Date 8/31/2012 Budget Approval Date 6/30/2012
 II. ASC 410-30-25-15 Recognition Benchmarks
a. Identification and verification of 1/16/1996 Company recognized as PRP by EPA
 How Does Defender Work? an entity as a potentially
responsible party
FINANCIAL SUMMARY
b. Receipt of unilateral 1/16/1999 AO dated 1/16/1999 received by PRP group
Cost forecasting / estimating
administrative order
 Case Case Case Case
R
c. Participation, as a potentially
1 5/12/2009
2 3
PRP group completed RI in 2009
Alternative analysis
responsible party, in the remedial
 investigation-feasibility study
Strategy Description Reserve Case Delay Project 5 Years
Increased PRP
Recoveries
Complete Coverage
with Asphalt Cap
FUTURE VALUE 5-YR (2011-2015) ($9,967,590) ($521,445) DISTRIBUTION CHARTS
($10,409,933) ($10,508,806)
d. Completion of feasibility study 6/29/2012 PRP group completed FS in 2012
Monte Carlo modeling
FUTURE VALUE 10-YR (2011-2020) ($16,867,332) ($11,554,072) ($17,798,058) ($19,075,710)

R01
FUTURE VALUE 30-YR (2011-2040) ($24,910,034) ($25,503,923) ($25,840,760) ($26,186,143)
e. Issuance of record of decision
PRESENT VALUE 30-YR (2011-2040) ($12,599,881) ($8,963,293) ($13,219,348)
Waiting for EPA to release ROD, expected 2013
($13,911,252)
 Project controls COST RECOVERIES $6,098,722 $6,247,194 $8,863,965 $6,535,437
OPERATING BUSINESS IMPACTS $0 $0 $0 $0
f. Remedial design through Expected 2016
Audit support
pp
PROJECT CASH operation
FLOWS NPV and maintenance,
($9,458,030) ($6,730,589) ($8,603,942) ($10,434,139)
 including post-remediation
monitoring
Financial Assumptions: 2.00% In f lat io n
10.00% Disc o u n t rat e
III. STRATEGIC ALTERNATIVES BUDGET VALUE
Reserve Case ($24,910,034) Reserve case, most likely
Probablistic Cost Modeling (Monte Carlo) Delay Project 5 Years ($25,503,923)
R02
Same costs as Case R, delayed 5 years plus 5 years of PM, legal, etc. costs
Increased PRP Recoveries ($25,840,760) Additional legal support to gain 10% more recovery from recalcitrant PRPs
Complete Coverage with Asphalt Cap ($26,186,143) Complete coverage with asphalt and reduced length of O&M by 5 years
p10 p50 p90 Expected Value Chart #
Case R: Reserve Case
Remedial Costs $ 1,000,000 $ 1,500,000 $ 2,500,000 $ 1,649,019 R01
Capping Acres 75 100 125 100.1 R02
Capping Cost / Acre $ 70,000 $ 85,000 $ 100,000 $ 85,043 R03
Material Cost $ 1,000,000
1 000 000 $ 1,500,000
1 500 000 $ 2,000,000
2 000 000 $ 1,501,426
1 501 426 R04
Yearly Monitoring Cost $ 125,000 $ 150,000 $ 225,000 $ 165,085 R05
Click to Add Row Rcase
Case 1: Delay Project 5 Years
$ - $ - $ -
$ - $ - $ -
$ - $ - $ -
$ - $ - $ -
$ - $ - $ -
Click to Add Row 1Case
© 2012 Environmental Risk Communications, Inc. 4

5. Defender – Index
User may select
alternatives to update
Navigation buttons
for users
Allows user to save a PDF
copy for archiving
Allows user to save a copy of file for audit
that removes privileged information
© 2012 Environmental Risk Communications, Inc. 5

6. Defender – Plan Page
Site / project specific data,
contact information, and
critical dates
Information regarding compliance
with ASC 410-30-25-15
Recognition Benchmarks
© 2012 Environmental Risk Communications, Inc. 6

7. Defender – Plan Page (cont.)
Strategic alternatives
comparison
Historical notes and
summaries
© 2012 Environmental Risk Communications, Inc. 7

8. Defender – Financial Summary & Site Narrative
Comparison of alternative
cases and financial
summaries for analysis
User may store project manager notes,
regulator correspondence, additional
information or documentation
i f ti d t ti
regarding the site / project
© 2012 Environmental Risk Communications, Inc. 8

9. Defender – Modeling
User inputs for ranges
p g
to be modeled
User inputs line items, unit
cost, or units for analysis
Modeled expected values flow
to individual case estimates
© 2012 Environmental Risk Communications, Inc. 9

10. Defender – Modeling (cont.)
Various options for
distribution charts
(Weibull shown)
Distribution charts
created for every modeled
line item
© 2012 Environmental Risk Communications, Inc. 10

11. Defender – Case R
Main section for inputting
cost estimates
User selected subtasks
from pop-up list
Expected values from
modeling sheet
© 2012 Environmental Risk Communications, Inc. 11

12. Defender – Case R (cont.)
Automatic WBS code lookup
from company-defined Work
Breakdown Structure
(ASTM WBS shown)
Cost recovery / PRP
share calculations
Inputs for OPCO
impacts
© 2012 Environmental Risk Communications, Inc. 12

13. Defender – Case R (cont.)
Inputs for OPCO
impacts (cont.)
Section for budgeting, reporting,
analysis, and display
© 2012 Environmental Risk Communications, Inc. 13

14. Report: “Bow Wave” Analysis
 Concern: $1 spent ≠ $1 liability work-down
$120
$110 2011
$100
$90 2010
2009
$80
2008
$70
($ MM)
$60 2006
2007
(
$50
$40
$30
Cumulative spending
$20
$10
$0
Cumulative Spend Budget Remaining 2006 2007 2008 2009 2010 2011
© 2012 Environmental Risk Communications, Inc. 14

15. Report: “Bow Wave” Analysis
 Goal: $1 spent ≈ $1 liability work-down
$120
$110
$100
$90
$80
$70
($ MM)
$60 2006-2011
(
$50
$40
$30
Cumulative spending
$20
$10
$0
Cumulative Spend Budget Remaining 2006 2007 2008 2009 2010 2011
© 2012 Environmental Risk Communications, Inc. 15

16. Report: Scenario Comparison, 30-yr NPV, $MM
GW Liability
Percentiles
Protection Work
0% $3.83 $5.13
100%
10% $5.04 $7.63
20% $5.46 $8.78
90%
30% $5.79
$5 79 $9.84
$9 84
40% $6.08 $10.91
50% $6.37 $12.06
80%
60% $6.61 $13.07
70% $6.89 $14.15 70%
80% $7.24 $15.14
90% $7.77 $16.44 60%
100% $9.92 $18.38
50%
ed
Reserve Propose
Reserve Original
40%
30%
e:
e:
20%
10%
0%
$0 $5 $10 $15 $20
Ordinarily, there is a gap between reserve levels and lifecycle (NPV)
© 2012 Environmental Risk Communications, Inc. 16

17. Report: Reserve History
Future reserves:
10
+ $ 8.2 million
Recognition criteria and 9
trigger date in Watch List
8
7
$ million
6
5
4
Actual spending
Typically lags reserves by 3
two to ten years
2
Initial study 1
0
2008 2010 2012 2014 2016 2018
Reserve History
A. $1.8M Costs to perform initial study [Reserved]
Original reserve: B. $2 6M
B $2.6M Costs to conclude assessment, explore options, draft
assessment options
feasibility study or EE/CA (add in 2010)
$ 1.8 million C. $4.0M Remedy implementation update (add in 2011)
D. $1.6M O&M cost update (add in 2013+)
© 2012 Environmental Risk Communications, Inc. 17

18. Recognition Triggers of Future Losses
 New tool for environmental remediation liability forecasting
 ASC 410-30-50-9 “Disclosures that Are Encouraged but Not Required”
 Displays to management – for potential disclosure – future reserve changes
 Site-specific
 Recognition trigger is specific and measurable
 Range of costs and timing noted
g g
Site Recognition Trigger Low Value Mid Value High Value Timing
($ millions) ($ millions) ($ millions)
Site 1 CAMU size and installation year 1.0 1.5 2.25 3/31/2014
Site 2 Remedy selection: SVE for 10 years 1.5 2.25 4.5 2014-2015
Site 3 Remedy selection: P&T for 30 years 2.0 2.5 3.0 1/1/2015
Site 3 Source removal: 300,000 CY soil (lead) 2.5 3.0 3.5 1/1/2015
Site 4 Scope of investigation 0.5 0.7 0.8 1/1/2014
Site 5 NRDA claim/damages 0.5 1.0 2.0 2015-2018
Site 5 30% design of soil removal 20,000 MT (lead) 1.0 2.5 4.5 7/1/2016
Site 5 Remedy selection for 195,000 MT (solvents) 7 12 16 7/1/2016
Site 6 Building demo, redevelopment (ARO or CAPEX) 2.5 5.0 5.5 2013-14
© 2012 Environmental Risk Communications, Inc. 18

19. Uncertainty is Normal
Expected Cost Estimate Accuracy Along the Superfund Pipeline
Source: USEPA, A Guide to Developing and Documenting Cost Estimates During the Feasibility Study, July 2000
© 2012 Environmental Risk Communications, Inc. 19

20. Audit Experience
Fortune
Fo t ne 500
Company Division Auditor Audits
(sales)
Chevron Environmental Management Co.
Chevron Pipe Line Co Annual, plus
Chevron 3
Chevron Canada, Ltd. quarterly items
Texaco Downstream Properties, Inc.
Duke Energy Duke Energy Field Services
173 Annual
Field Services Natural gas collection and pipelines
Now part of KinderMorgan Annual, plus
El Paso Corp 488
Diversified energy company special items
p
Corporate-wide
FMC 475 Annual
Diversified manufacturer
Corporate-wide Annual or less
Hewlett-Packard 10
Computer and microelectronics manufacturer (not material)
Northrop Corporate-wide
104 Annual
Grumman Aerospace and defense and DCAA
Corporate-wide
Port of Seattle NA Annual
Regional airport and marine port authority and State Auditor
Corporate-wide
C t id Annual, plus
Tesoro Petroleum 101
Oil refinery and marketer special items
Corporate-wide
TRW Automotive 161 Annual
Automotive parts
Corporate-wide
Univar Private Annual
Chemical processor and distributor
Corporate-wide Annual, plus
Delphi 163
Automotive parts quarterly items
© 2012 Environmental Risk Communications, Inc. 20

21. Defender Value Proposition
 Calculating core business effects of environmental projects
 Assess, anticipate, price, and react to risks
 Apply reserve dollars, operating expenses (OPEX), capital expenditures (CAPEX) fairly
and accurately
 Maintain strategic consistency
 Using standard financial terms
 Budget: 2-5 years
 Reserves: 3-30 years
 Cost-to-close (lifecycle)
 Expected value, future value, present value
 Documenting forecasts for audit defense
 Responding to changing sources of risk
 Time to regulator acceptance or NFA
 Viability of cost recovery source
 Permanence, effecti eness
Pe manence effectiveness of remedy
emed
 Regulator turnover
© 2012 Environmental Risk Communications, Inc. 21

22. Defender Deployment
 Duration: 90 days
 Key Steps
 Define the Work Breakdown Structure (WBS)
( )
 Import current budgets and reserves (with backup)
 Populate the history, issues / alternatives, and other narrative
 Adjust the budget vs. actual reporting process
 Key Performance Indicators
 Reduction of time spent on reserve updates / variances
 Reduction of time spent on project handoffs
 More time thinking critically about the reserve watch list
 Fewer reserve surprises
 Better t k h ld
B tt stakeholder reactions t upcoming decisions
ti to i d i i
 Minimal time with auditors and improved auditor acceptance
 >90% of reserve adjustments (by $) come from the reserve watch list
© 2012 Environmental Risk Communications, Inc. 22