The Client and Its Challenge
This utility company, which owns and operates more than 42,000 megawatts of generating capacity in the United States and select international markets, wanted to release environmental responsibility for 23 properties along a natural gas transmission system. The client hoped that selling its subsidiary with more than ten contaminated sites would ensure that the long-term regulatory obligations for site restoration would be met, eliminate the financial uncertainty associated with these environmental issues, and enable the company to focus its resources on strategic initiatives.

The client turned to Marsh for assistance in drafting the sale so that it would avoid a major reduction in the sale price because of the uncertainties in the environmental costs and the need to depend on the buyer’s indemnity in order to avoid incurring additional environmental expense.

The Risk Consulting Solution
Marsh was hired to prepare the request for proposals (RFP), assist the utility compare the bid responses, — of which there were four — and select the best contractor. In addition, Marsh was hired to negotiate the specifics of the contract as well as the accompanying insurance policy. The goal was to negotiate an insured fixed-price cleanup (IFC) policy, which is a tool through which a corporation or other party can get a site (or sites) cleaned-up for a fixed-price that is backed up by insurance.

Results
Under the terms of the contract negotiated by Marsh, the contractor assumed the responsibility for the environmental closure for soil and groundwater cleanups, which had previously been progressing under the direction of the client. Marsh also negotiated a comprehensive insurance and risk management program for the project to protect against known and unknown environmental issues at the sites for the anticipated duration of the project and ensure project completion. The resulting IFC enabled the client to obtain the maximum cost certainty, maximize the sale price of the subsidiary, and avoid future reliance on the buyer’s indemnity.