This document summarizes a webinar presented by John Rosengard on trends seen in environmental liability disclosures in 2014 10-K reports. Some of the key findings from the webinar include: disclosures of environmental liabilities are not always uniform; 17 of 18 companies reviewed showed growing environmental liabilities from 1995 to 2014; and most companies claim to use fair value measurement for liabilities but only metals/mining say they apply it to environmental liabilities. The webinar also included case studies on environmental liability balances and spending at various large companies over time.

1. © 2015 Environmental Risk Communications, Inc.
Contact:
John Rosengard
(415) 336-5085
www.erci.com
2014 10K Reports on Environmental
Liabilities - Trends
March 2015

2. © 2015 Environmental Risk Communications, Inc.
Outline for Today’s Webinar
Speaker’s Bio and Elevator Speech
Why Are Liability Disclosures Necessary?
What Will We See in Case Studies
Case Studies
ERCI Observations
Q&A

3. © 2015 Environmental Risk Communications, Inc.
Speaker Background: John Rosengard
Wrote Defender™ liability forecasting software
package
 Environmental remediation liabilities (ASC 410-30)
 Asset retirement obligations (ASC 410-20)
 Due diligence on acquisitions and divestitures
 Watch list for future reserve increases (sites &
portfolios)
 Decision analysis on individual sites
 Pollution remediation obligations (GASB49)
 Counterparty (PRP) default tracking
We support
 Corporate remediation groups
 PRP groups
 Port authorities
 The engineering/consulting and legal partners
 Their internal and external auditors
MBA, Northwestern; BS, Georgetown
John
Rosengard
President & CEO,
ERCI
john@erci.com
Oakland, CA

4. © 2015 Environmental Risk Communications, Inc.
Elevator Speech: 2014 10-K Review
ERCI internal R&D project; publicly-disclosed data only; 21 US-
based companies, seven industries, 1995 to present.
ERCI Findings:
1. disclosures are not universal
2. divergence on form and substance
3. 17 of 18 companies show growing environmental liabilities
from 1995 to 2015.
3.a More sites, more regulations, more assets.
3.b Plus…failed cleanups, reopeners, bankrupt PRPs.
4. ARO disclosure only improved after 2001’s FAS143 release
5. All 21 companies say they use “fair value measurement”…only
metals/mining companies say they apply FVM to
environmental liabilities

5. © 2015 Environmental Risk Communications, Inc.
Why Are Liability Disclosures Necessary?
Help a reasonable investor make better decisions
Comply with GAAP:
 FASB: ASC 410-20 [ARO], 410-30 [ERL], 440, 450, 460, 820
 GASB: GASB Statements 18, 49, 72
 IASB: IAS 37, IFRS 13
 SEC Regulation S-K (17 CFR 210 to 230)
 Securities Act (1933)
 Securities Exchange Act (1934)
 Sarbanes-Oxley Act (2002)
 Dodd-Frank Act (2010): Title IX, Subtitle I
 PCAOB AU 336 (2011+)
 PCAOB Audit Standards 5, 12, 15 (2011+)
 ASTM E2137-06 Standard Guide for Estimating Monetary Costs and
Liabilities for Environmental Matters (2002, updated 2011)
 ASTM E2173-07 Standard Guide for Disclosure of Environmental
Liabilities (2002, updated 2011)

6. © 2015 Environmental Risk Communications, Inc.
Are Liability Disclosures Useful?
What an investor wants to know about
environmental liabilities:
 Are the liability values true (ERL, ARO)?
 Any recent or proposed acquisitions that can
trigger surprises?
 For operating facilities, will an industry
downturn or contraction lead to more
liabilities?
 If we exit a business, are we ready?
 For divested facilities, can any come back to
us?
 Are the reserves trending up, down, or
sideways?
 Do we differ substantially from our peer
companies? Why?
Recognition
Measurement
Presentation
Disclosure
Elements of
Financial
Statements
Investor only sees this

7. © 2015 Environmental Risk Communications, Inc.
FASB: Where Do Disclosures Fit In?
Source: FASB Statement of Financial Accounting Concepts No. 8, September 2010
Enhancing
Qualitative
Characteristics
Fundamental Qualitative
Characteristics
Objective of
Financial
Reporting
Information
Useful to
Decisions
Relevant
Predictive value
Confirmatory
value
Faithful
Representation
Complete
Neutral
Free from error
Elements of
Financial
Statements
Comparability
Verifiability
Timeliness
Understandability
Recognition
Measurement
Presentation
Disclosure
Cost Constraint
Materiality Constraint
GAAP Conceptual Framework

8. © 2015 Environmental Risk Communications, Inc.
What Does ERCI See in 10-K Reports?
Minimal metrics: accrued, spent, balance for 2-3 years
Cautionary statements, policy statements
Jargon
“Charged to expense”…means “reserve increase”
“Accretion”…means rolling the present value forward a year
Reductive reasoning/oversimplification (“Reserve minus
spending equals remaining liability; we always get exactly
100 cents of value for all spending”)
Recursive reasoning (“the reserve balance is the liability; the
liability is the reserve”)
Inductive reasoning (“CERCLA and RCRA cause our liabilities;
without notice of violation, liability is therefore zero”)

9. © 2015 Environmental Risk Communications, Inc.
Detailed vs. Minimal Disclosure
Chevron
2014 10-K
Excerpts
The company records asset retirement obligations when there is a legal obligation associated with the retirement
of long-lived assets and the liability can be reasonably estimated. These asset retirement obligations include
costs related to environmental issues. The liability balance of approximately $15.1 billion for asset retirement
obligations at year-end 2014 related primarily to upstream properties.
For the company’s other ongoing operating assets, such as refineries and chemicals facilities, no provisions are
made for exit or cleanup costs that may be required when such assets reach the end of their useful lives unless a
decision to sell or otherwise abandon the facility has been made, as the indeterminate settlement dates for the
asset retirements prevent estimation of the fair value of the asset retirement obligation.
Refer to the discussion below for additional information on environmental matters and their impact on Chevron,
and on the company's 2014 environmental expenditures. Refer to Note 23 on pages FS-57 through FS-59 for
additional discussion of environmental remediation provisions and year-end reserves. Refer also to Note 24 on
page FS-59 for additional discussion of the company's asset retirement obligations.
General
Electric
2014 10-K
Excerpts
Our operations, like operations of other companies engaged in similar businesses, involve the use, disposal and
cleanup of substances regulated under environmental protection laws. We are involved in a number of
remediation actions to clean up hazardous wastes as required by federal and state laws. Such statutes require
that responsible parties fund remediation actions regardless of fault, legality of original disposal or ownership of
a disposal site. Expenditures for site remediation actions amounted to approximately $0.4 billion in each of the
years 2014, 2013 and 2012. We presently expect that such remediation actions will require average annual
expenditures of about $0.4 billion in 2015 and $0.3 billion in 2016.
We are involved in numerous remediation actions to clean up hazardous wastes as required by federal and state
laws. Liabilities for remediation costs exclude possible insurance recoveries and, when dates and amounts of
such costs are not known, are not discounted. When there appears to be a range of possible costs with equal
likelihood, liabilities are based on the low end of such range. It is reasonably possible that our environmental
remediation exposure will exceed amounts accrued. However, due to uncertainties about the status of laws,
regulations, technology and information related to individual sites, such amounts are not reasonably estimable.
Total reserves related to environmental remediation and asbestos claims, were $2,182 million at Dec 31, 2014.
Environmental Remediation Reserves 2014 2013 2012
Balance at January 1 $ 1,456 $ 1,403 $ 1,404
Net Additions $ 636 $ 488 $ 428
Expenditures $ (409) $ (435) $ (429)
Balance at December 31 $ 1,683 $ 1,456 $ 1,403
Asset Retirement Obligations 2014 2013 2012
Balance at January 1 $ 14,298 $ 13,271 $ 12,767
Liabilities incurred $ 133 $ 59 $ 133
Liabilities settled $ (1,291) $ (907) $ (966)
Accretion expense $ 882 $ 627 $ 629
Revisions in estimated cash flow s $ 1,031 $ 1,248 $ 708
Balance at December 31 $ 15,053 $ 14,298 $ 13,271

10. © 2015 Environmental Risk Communications, Inc.
Source: 10-K Reports
Case Studies: Chevron and ExxonMobil
Takeaways on Environmental Remediation Liabilities
From 1995-2014, Chevron spent $6.5B, ExxonMobil $6.4B
At year-end 2014, Chevron assets $266B; Exxon $349B
Major merger for ExxonMobil: Mobil in 1999. Major merger for Chevron: Texaco in 2001, Unocal in 2005.
Exxon reported ARO and ERL balances jointly 1995-2002

11. © 2015 Environmental Risk Communications, Inc.
Source: 10-K Reports
ARO: Chevron and ExxonMobil
Takeaways on Asset Retirement Obligations
From 1995-2014, Chevron settled $8.9B, ExxonMobil $7.6B
At year-end 2014, Chevron assets $266B; Exxon $349B
Major merger for ExxonMobil: Mobil in 1999. Major merger for Chevron: Texaco in 2001, Unocal in 2005.
Exxon reported ARO and ERL balances jointly 1995-2002

12. © 2015 Environmental Risk Communications, Inc.
Source: 10-K Reports
ERL: Honeywell and Boeing
Takeaways on Environmental Remediation Liabilities
From 2006-2014, Honeywell spent $2.6B, Boeing $1B
At year-end 2014, Honeywell assets $45B; Boeing $99B
Major merger for Honeywell: AlliedSignal in 1999. Major merger for Boeing: McDonnell Douglas in 1997.
Boeing did not disclose environmental remediation liabilities before 2006.

13. © 2015 Environmental Risk Communications, Inc.
Source: 10-K Reports
ERL: Dow and DuPont
Takeaways on Environmental Remediation Liabilities
From 1995-2014, Dow spent $2.4B, DuPont $1.5B
At year-end 2014, Dow assets $69B; DuPont $50B
Major Dow mergers: Union Carbide in 2001, Rohm and Haas in 2009.
Major DuPont divestiture: Conoco 1998.

14. © 2015 Environmental Risk Communications, Inc.
Source: 10-K Reports
ERL: Valero and Tesoro
Takeaways on Environmental Remediation Liabilities
From 1995-2014, Valero spent $526M, Tesoro $303M
At year-end 2014, Valero assets $46B; Tesoro $17B
Major Valero mergers: UDS in 2001, Premcor in 2005.
Major Tesoro acquisitions: six refineries 1998-2013.

15. © 2015 Environmental Risk Communications, Inc.
Source: 10-K Reports
ERL: Duke, PG&E and Exelon
Takeaways on Environmental Remediation Liabilities
From 2010-2014, Duke increased reserves by $140M, PG&E $368M, Exelon $164M; no spend disclosed.
At year-end 2014, Duke assets $80B; PG&E $60B, Exelon $87B.
Major Duke mergers: Cinergy in 2005, Progress in 2012.
Exelon mergers: Unicom in 1999, Constellation in 2012, Pepco Holdings is pending. PG&E had no mergers.

16. © 2015 Environmental Risk Communications, Inc.
Source: 10-K Reports
ARO: Duke, PG&E and Exelon
Takeaways on Asset Retirement Obligations
Each of the three displayed have nuclear decommissioning funds
At year-end 2014, Duke assets $80B; PG&E $60B, Exelon $87B.
Major Duke mergers: Cinergy in 2005, Progress in 2012. Exelon mergers: Unicom in 1999, Constellation in
2012, Pepco Holdings is pending. PG&E had no mergers.

17. © 2015 Environmental Risk Communications, Inc.
Source: 10-K Reports
ERL: Republic Services & Waste Mgmt
Takeaways on Environmental Remediation Liabilities
From 2002-2014, Republic spent $558M, Waste Management spent $458M.
At year-end 2014, Republic assets $20B; Waste Management $21B.
Major Republic events: IPO in 1998, Allied merger in 2008. Waste Management mergers: USA Waste in 1998.

18. © 2015 Environmental Risk Communications, Inc.
Source: 10-K Reports
ARO: Republic Services & Waste Mgmt
Takeaways on Asset Retirement Obligations
From 2002-2014, Republic settled $637M of their AROs, Waste Management settled $938M.
At year-end 2014, Republic assets $20B; Waste Management $21B.
FASB 143 covering asset retirement obligations took effect after June 2002.
Numbers above exclude financial guarantees and financial assurance to State and Federal Agencies

19. © 2015 Environmental Risk Communications, Inc.
Source: 10-K Reports
ERL: KinderMorgan & Enterprise Products
Takeaways on Environmental Remediation Liabilities
From 2002-2014, KinderMorgan spent an undisclosed amount, Enterprise Products spent over $88M.
At year-end 2014, KinderMorgan assets $83B; Enterprise Products $47B.
Major KinderMorgan events: El Paso merger in 2012.

20. © 2015 Environmental Risk Communications, Inc.
Source: 10-K Reports
ARO: KinderMorgan & Enterprise Products
Takeaways on Asset Retirement Obligations
From 2002-2014, KinderMorgan settled $30M of their AROs, Enterprise Products settled $90M.
At year-end 2014, KinderMorgan assets $83B; Enterprise Products $47B.
Major KinderMorgan events: El Paso merger in 2012.

21. © 2015 Environmental Risk Communications, Inc.
Source: 10-K Reports
ERL: Newmont, Freeport and Alcoa
Takeaways on Environmental Remediation Liabilities
From 1995-2014, Newmont spent $334M, Freeport $949M and Alcoa spent $920M.
At year-end 2014, Newmont had $25B of assets, Freeport $59B, and Alcoa $37B.
Over 1995-2014, Newmont completed six mergers/acquisitions. Freeport acquired Phelps Dodge (2007),
Plains E&P (2013) and McMoRan Exploration (2013). Alcoa acquired Reynolds in 2000.

22. © 2015 Environmental Risk Communications, Inc.
Source: 10-K Reports
ARO: Newmont, Freeport and Alcoa
Takeaways on Asset Retirement Obligations
From 2002-2014, Newmont settled $738M of their AROs, Freeport $560M, and Alcoa $635M.
At year-end 2014, Newmont had $25B of assets, Freeport $59B, and Alcoa $37B.
Over 1995-2014, Newmont completed six mergers/acquisitions. Freeport acquired Phelps Dodge (2007),
Plains E&P (2013) and McMoRan Exploration (2013). Alcoa acquired Reynolds in 2000.
Numbers above exclude financial guarantees and financial assurance to State and Federal Agencies

23. © 2015 Environmental Risk Communications, Inc.
Chevron
ExxonMobil
Honeywell
Boeing
Dow
DuPont
Valero
Tesoro
Duke
Republic Services
Waste Management
Enterprise Products
0
2
4
6
8
10
12
2010 2011 2012 2013 2014
How Long Will an ERL Balance Last?
YEARS
Takeaway: this is the price of using “probable and
reasonably estimable”: no reliable or consistent duration

24. © 2015 Environmental Risk Communications, Inc.
Chevron
ExxonMobil
Honeywell
Boeing
Dow
DuPont
Valero
Tesoro
Duke
PG&E
Exelon
Republic Services
Kinder Morgan
$-
$50
$100
$150
$200
$250
$300
$350
$400
$450
$500
2010 2011 2012 2013 2014
Will Environmental Reserve Increases End?
annualreserveincrease
Takeaway: not in the near future….

25. © 2015 Environmental Risk Communications, Inc.
 Outliers during the past twenty years:
 Only DuPont reduced their environmental liability balance
 Only Chevron notes the use of counterparty risk data in
forecasts
 Fair value is not being applied to ERLs…yet.
 Reserves and AROs are typically replenished (annually) at
rates from 80-120% of current year spending.
 Anecdotal justification for reserve increases:
 Existing sites progressing from study to remedial design, then
to remediation to OM&M (including five-year reviews)
 New sites, AOCs, pathways (NPL listing, litigation, contractual,
counterparty default, vapor intrusion)
 Acquisitions initially adding their environmental reserves
 Acquisitions later “trued up” with acquirer’s policies
 PRPs defaulting on their allocations
 Changing cleanup goals
ERCI Observations

26. © 2015 Environmental Risk Communications, Inc.
 If the ERLs were $439M annuities paying $79.6M/yr, they
would be yielding 18% (!).
 Use a lower discount rate instead, the liability shifts up:
 Takeaway: “probably and reasonably estimable” liability
balances are not consistent with PV of historical spend
 Takeaway: adjust for inflation, distortion worsens
Are Reserve Balances Too Low?
Discount rate justification Discount rate Liability Value
“probable and reasonably
estimable”
$79.6M/$439M
= 18.13%
$439M
NYSE – Price/Earnings
Multiplier of 19 (March 2015)
5.27% $1,511M
DuPont pension plan (2014) 4.55% $1,749M
DuPont’s cost of LT debt (2015) 2.43% $3,276M
DuPont 2010-2014 1995-2014
ERL Spending/year $79.6M $75.4M
ERL Balance (avg) $439M $422M
Shelf life (years) =439/79.6 = 5.5 =422/75.4 = 5.6

27. © 2015 Environmental Risk Communications, Inc.
 Has anyone started applying fair value measurement?
 Yes, all 10-Ks had narrative. None applied to environmental reserves/AROs.
 Is “nonperformance risk of counterparty default” quantified and
tracked?
 Only Chevron noted this as a factor.
 Are remediation obligations or AROs discounted to a present
value?
 Environmental remediation: no stated policy, except for Occidental Pet.
Asset retirement: all discounted to present value; discount rates not shared
but could be deduced.
 Do AROs correlate with capital expenditures? Total assets?
 In oil/gas, landfill operation, electric utilities, yes.
 In chemicals, pipelines, aerospace/defense, no.
 Is anyone “working down” their balances for ASC 410-20 (ARO)
or ASC 410-30 environmental obligations?
 ERL: only DuPont has accomplished this. Acquisitions cloud comparisons.
 ARO: emphatic no. Possibly on “runaway”; rates of settlement plummeting.
Answers ERCI Sought From Disclosures

28. © 2015 Environmental Risk Communications, Inc.
Resources to Read
 ASC 410 – current FASB GAAP on environmental obligations
and asset retirement obligations, including counterparty risk
 ASC 820 – current FASB on fair value measurement
 GASB 49 – Pollution Remediation Obligations
 GASB 72 – Feb 2015 release on Fair Value Measurement
 ASTM E2137 – Estimating Environmental Liabilities
 ASTM E2173 – Disclosing Environmental Liabilities
 SEC Regulation S-K
 PCAOB - Auditing Standard 15 Audit Evidence
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29. © 2015 Environmental Risk Communications, Inc.
Next Steps
 Website: www.erci.com
 LinkedIn Group – webinar announcements
 YouTube page – select webinar recordings
 Email john@erci.com or call me at (415) 336-5085
 PDF of this presentation (original PPTX format on request)
 March 2015 webinars on
 Managing Nonperformance Risk of Environmental Counterparties
 Obstacles to Recognizing and Measuring Environmental Liabilities
 April 2015 webinars on
 Estimating and Disclosing Environmental Liabilities
 Auditor’s Tough Questions on Environmental Liabilities
 Calculating Counterparty Risk on Environmental Liabilities
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