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Solve CERCLA and SEC Asbestos Liability - ABCOV METHOD
- Sandi Muniswamy
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- April 11, 2013
- 438 Comments
Solve CERCLA and SEC Asbestos Liability
The regulatory whirlpool keeps turning the U.S. power industry every which way but loose.
At the same time forward-looking industry CEOs and CFOs are challenged by the uncertainties posed by the rising tide of state and federal environmental regulatory requirements, many utilities are engaged in rear guard actions, fighting the regulatory ghosts of industry practices discontinued decades ago.
Until the latter part of the 20th century, the marriage of asbestos and the power industry seemed a match made in heaven. Because of its superior insulating properties, asbestos seemed an ideal fit for coal fired, oil fired and nuclear power plants.
Asbestos containing material (ACM) was used liberally in underground electrical feeds and power plants, to the point where distributors and generators became one of the most ACM-pervasive environments in all of American industry.
But now, asbestos haunts power distributors and generators who once embraced it. ACM’s ubiquitous presence in the utility industry has forced shut-downs and work stoppages, increased costs, regulatory scrutiny, employee asbestos related illness, and thousands of law suits, vexing an industry already bedeviled by the lack of public consensus about what’s environmentally acceptable.
Asbestos may be a utility owner’s worst nightmare, but in its heyday, asbestos was a miracle product of American industry. Plentiful and pliable, asbestos provided tensile strength and withstood high heat, and enjoyed nearly 5,000 industrial applications, across the board.
Boilers, turbines, generators and underground cables were assembled and insulated with ACM. In a typical power plant, asbestos not only lined miles of pipes, boilers and electrical wiring, but also was used as fire-proof roofing and flooring, and installed in walls. Since insulation and gaskets were often fitted to specific areas, asbestos dust and particles were released during repairs and renovations, especially when working with friable ACM.
Asbestos fell from favor during the 1970s on news it was carcinogenic. Congress soon moved to give ACM abatement efforts the force of law, enacting legislation governing the handling and disposal of ACM which in turn gave birth to the asbestos abatement industry.
In 1980, Congress passed The Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), and in 1986 revised it as the Superfund Amendment and Reauthorization Act (SARA).
Under this legislation, owners of sites containing ACM that was removed and shipped to a landfill for storage became a “potentially responsible party” (PRP), subject to “strict, joint and several” liability that potentially result in incalculable future cleanup costs.
CERCLA and SARA further mandate that liability can be imposed on PRPs regardless of whether such parties were negligent, environmentally compliant, or participated in or benefitted from handling ACM. Additionally, CERCLA calls for treatment of hazardous substances, to reduce volume, mobility and toxicity.
Even as demand for power continues to rise, the industry is weighted down by asbestos-related factors that are costly and disruptive.
Despite all the steps generators take to comply with their regulatory burden, the issue of present and retroactive liability lives on to haunt them, providing a living for lawyers.
Utilities and others who used ACM as insulation are now unable to insure themselves against exposure claims and CERCLA responsibilities.
The Securities and Exchange Commission’s (SEC) required environmental accounting principles further add to the bottom line concerns of the utility industry.
In March 2005, a Financial Accounting Standards Board (FASB) and Financial Accounting Standards (FAS) clarification raised the bar for hazardous and regulated waste generators and others by requiring the industry to account more fully for its environmental liabilities — i.e., asbestos abatement costs — associated with the future retirement of fixed assets and asbestos storage in a landfill.
Rather than waiting until the asset is sold or retired to estimate and recognize the costs of addressing embedded environmental liabilities, FASB financial interpretation No. 47 takes a sooner, not later, approach.
Under FIN 47, the cost of abatement generally cannot be deferred indefinitely, nor avoided by selling the asset.
FIN 47 didn’t just narrow the range of industry accounting practices — it has emerged as a diligence issue in financial transactions that can affect closure. Compliance demonstrates the extent to which companies have good environmental-accounting systems in place, and proves a company is proactively dealing with and accounting for embedded environmental liabilities, which spins off good public relations and adds value.
FASB 143 applies to “legal obligations” associated with retirement of tangible long-lived assets. FAS 5 and Statement of Position (SOP) 96-1 address hazardous contamination, whether in a facility or landfill. All hazardous waste liabilities require CERCLA enforcement and must be reported on the balance sheet of a public company.
Asbestos is extremely resilient, defies most attempts to destroy it, and takes many decades to degrade naturally. Today, as in years past, the asbestos abatement industry’s prevailing modus operandi is to warehouse ACM in landfills. ACM is double bagged in 6 mil plastic, then loaded and enclosed for transport, and finally deposited into a landfill for storage, where it is covered with a six-inch layer of non-asbestos material.
Further liability problems can occur when bags break and asbestos fibers become airborne or migrate into the water table, or the landfill becomes a Superfund site.
Consolidated Edison of New York (Con Ed) ran afoul of regulators during the 1980s when company employee’s informed authorities that ACM was mishandled on numerous occasions during removal and transport operations. Adding to Con Ed’s woes was a steam pipe explosion in Gramercy Park, N.Y. that killed two workers and contaminated apartment units, setting in motion a far-ranging federal investigation that concluded when Con Ed became the first utility to be placed on federal probation.
It has become increasingly important for the CEO and CFO to insure environmental and financial sustainability to their stockholders, employees, and customers.
Under CERCLA, for instance, generators responsible for small percentages of site waste may be held liable for the entire costs of site remediation, a burden which frequently falls on the PRP with the deepest pockets, such as utilities.
The ideal solution is to meet SEC and CERCLA requirements by treating asbestos and other hazardous waste on site, preventing further contamination and stopping future liability.
On-site treatment eliminates protests and community concerns about the transport of asbestos and hazardous waste through neighborhoods.
Cost effective on-site technology development for hazardous and regulated wastes treatment must become our way of life. Landfills are already over burdened and expanding them is increasingly difficult. What little land is left must be preserved.
The sustainability movement is here to stay. Companies that proactively deal with their environmental problems are the winners.
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Asbestos became increasingly popular among manufacturers and builders in the late 19th century because of its sound absorption, average tensile strength, its resistance to fire, heat, electrical and chemical damage, and affordability. It was used in such applications as electrical insulation for hotplate wiring and in building insulation. When asbestos is used for its resistance to fire or heat, the fibers are often mixed with cement.”…
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