1. A Case Study in What Can Go Wrong, Thinking in 3D, and Alternative Solutions

2.  Houston, Texas  Moderately performing asset owned from 1993-1999.  Scheduled for sale in 1998  Contamination from gas station held process  Concerns about retention of liability  A solution to sell with a fixed fee remediation plan and an “insurance” policy

4.  Northwestern obtained a fixed fee remediation contract to affect the free product contamination on the site and obtain closure from the TCEQ (using LUST fund)  A “Cost Cap” Environmental Insurance policy was obtained to “guarantee” the remediation contract.  The property transacted and was sold in 1999.  Within one year, it became clear that the remediation plan would not work…

5.  Remedial Action Plan projected 6-12 months to clear free product from wells.  After 18 months the Contractor became difficult to work with and non-responsive.  At 24 months, chlorinated solvents were detected on the east half of the property (somewhat away from the petroleum contamination).  At 30 months, the contractor found an exit to the contract…

6.  The Contractor discovered, via historical city directory search, that the property had formerly had a dry cleaner listed as occupying the site. (No evidence that this was anything more than a pick-up/drop off location).  Contractor notified TCEQ of chlorinated solvent contamination, causing the site to be kicked out of LUST fund.  Contractor claimed breach of contract terms and abandoned the project and files bankruptcy.

7.  As the Buyer (new Owner) becomes vocal, Northwestern moves forward and inserts new consultant on the project.  Environmental Insurance carrier was notified, very slow to respond.  After 12 months of monitoring and holding the TCEQ at bay, Kemper Environmental Insurance notifies policy holders that they can no longer cover losses on existing policies.  Northwestern begins to manage the project on a sold asset…

8.  My first advice: just sell the property as contaminated and take the monetary write-down.  If you’re going to enter the site in a Fixed Fee contract, hire a reputable, high net worth contractor and ensure that all contracts absolve your firm and ownership interest.  If you’re going to use Environmental Insurance for Bonding, make certain all contracts tie to new Buyer.  Don’t stay involved after sale.  If things fail, refer the project to your legal department and stay away from it.

9.  When you manage a general fund, your name is on title…dictates action plan.  Northwestern has 9 remediation projects on assets not owned. Projects held through sale or lawsuit.  Tendency is long term monitoring.  This project drifted for five years…  Finally, in 2008 we started taking action after demands from current owner.

20.  Quarterly monitoring and natural attenuation  Site has been enrolled in LNAPL Risk Based Closure Program  Very few sites have been closed  “Progress” alleviates contractual obligations  May or may not be a good long term solution for long term invested assets  Risky for short term invested assets