Risk Inventory and Categorization

On-site Contamination: Known contamination issues at the company locations and/or the exacerbation of those known conditions. This also includes the risk of previously unknown contamination being discovered as a result of other activities (such as construction). Can occur on owned or leased properties. Generally, these conditions originate from gradual releases rather than sudden and accidental events. Sudden and accidental events are included in the Fuel Spill risk below.

Observed Conditions: Unlocked and uncapped monitoring wells; open pits from UST tank removal activities; piles of contaminated soils staged on the company property.

Holes, cracks, weathering of secondary containment liners.

Piles of contaminated soil from UST upgrades are staged on-site.

Primary Risk Drivers: Unintended contamination of monitoring wells, releases from containment liner breaches, new construction, land acquisition, environmental investigations at other properties where contamination is identified, citizen complaints/suits, tanks/piping construction and inspection/maintenance programs.

Off-site Waste Disposal: Costs related to clean-up of off-site waste disposal sites that have been used by the company and required by EPA/state to clean up contamination at that site.

Observed Conditions: Wastes are generated at several locations and sent off-site for disposal. These wastes include hazardous wastes from the refineries, maintenance wastes, site remediation wastes and wastes from cleaning up product spills that occur during delivery to customer locations.

Primary Risk Drivers: Amount and type of wastes generated by the company operations, use of disposal sites that are currently or become subject to government-ordered clean-up actions.

Natural Resource Damage: Legal claims to recover economic value of the public’s loss (or diminution) of natural resources. This includes the value of recreational use of waterways, public areas, parks, wildlife and/or habitat.

Observed Conditions: Several operations are located in or near sensitive environmental receptors, transportation of product through sensitive habitats.

The Contract with the emergency responder excludes any warranties or protection for the company relative to Natural Resource Damages.

The common carrier contract does not contain any provisions addressing Natural Resource Damages resulting from spills of the company product during transportation.

Primary Risk Drivers: Citizen activism, environmental group activism, significant or long-term spills/releases, location of the company operations relative to sensitive habitats and native lands.

Regulatory Changes for Remediation Standards: Changes in environmental clean-up standards, remediation targets or technologies for clean- up activities that are state- approved, under way but not completed.

Observed Conditions: A few locations are currently involved in clean-up operations, some of which require long term monitoring and reporting.

Primary Risk Drivers: Governmental regulations, remediation technology efficacy.

Third Party Emergency Response: Timeliness and effectiveness of emergency response contractors and authorities.

Observed Conditions: Contracts with remediation contractors specifically exclude warranties or responsibility for efficacy or adequacy of clean-up/emergency response activities. The indemnifications that are contained in the contract are limited to: (a) the limit of the applicable insurance coverage held by the company, and (b) gross negligence/willful misconduct by the company and employees. The insurance specification documents in the contract do not include any pollution coverage, including Contractor Pollution Coverage.

Primary Risk Drivers: Quantity of product spilled, location/setting of spill, emergency response time and effectiveness of response actions, qualifications of personnel.

Fuel Spill: Spills and leaks from the crude, diesel and gasoline storage, piping and dispensing equipment as well as spills from product transportation. This exposure includes sudden/accidental releases caused by natural disasters, acts of God, vandalism and sabotage. Gradual releases are included in the On-site Contamination risk above.

Observed Conditions: Unlocked and uncapped monitoring wells.

Weather/mud slide damage to fuel storage tanks in the past.

Tank containment walls may not be adequate to prevent overtopping from wave action in the event of a catastrophic failure, especially where transitions in containment walls/plant expansions create low points in the wall height.

Primary Risk Drivers: Age, condition and inspection/monitoring procedures for tanks, piping and dispensing equipment, number of the company vehicles in service, amount of fuels used and stored on-site, containment area design, weather conditions, fuel loading/unloading procedures, spill response measures.

Errors & Omissions: Includes consultant errors (such as calculations); errors in claims reporting; errors in air permit compliance certification; material handling errors.

Observed Conditions: The Contract with the emergency response contractor specifies that company bears full responsibility for giving proper direction to contractor teams during spill response scenario.

Primary Risk Drivers: Use of/reliance on external consultants, peer reviews for environmental documents, employee training efficacy and scope.

Contractual Indemnifications Concerning Remediation: The adequacy of contractual transfer of known and unknown environmental clean-up obligations for the company locations (owned and leased) to other parties, such as previous property sellers, owners and buyers; the financial stability of the other parties who are indemnifying the company for such costs.

Observed Conditions: The company retains responsibility for contamination on the leased premises and/or adjoining property EXCEPT for contamination that was preexisting prior to the date of lease inception between the company and lessee.

The lease wording does not indemnify the company against contamination that may migrate onto the leased property from an off-site source for which the company has no responsibility. In the event an adjacent property becomes contaminated after lease inception and as a result of activities not related to the company, this clause holds the company responsible for that contamination.

The Project Agreement for Construction, Operation and Maintenance of the lessee’s project does not contain pollution indemnifications or insurance requirements relative to lessee’s activities on the company’s property.

Primary Risk Drivers: Waste management and other environmental liabilities caused by the company vendors or suppliers’ actions regardless of fault.

Business Interruption (First Party): Certain direct costs and loss of revenue incurred by the company directly resulting from an environmental incident.

Observed Conditions: The emergency response contract excludes any warranties or protection for the company relative to business interruption costs.

Primary Risk Drivers: Spills and spill response, on-site storage of wastes and materials, property loss control activities, fire control water management, security of monitoring wells.

Business Interruption (Third Party): Certain direct costs and loss of revenue incurred by a third party as a result of an environmental incident, release or liability for which the company is claimed to have responsibility.

Observed Conditions: Unlocked and uncapped monitoring wells, which could create additional contamination impacting adjacent properties; fuel spills at customer sites; transportation spills. The emergency response contract excludes any warranties or protection for the company relative to business interruption costs.

Primary Risk Drivers: Spills and spill response, on-site storage of wastes and materials, property/casualty loss control activities, fire control water management, security of monitoring wells.

Third Party Damage Claims: Actual or perceived injury, loss, trespass diminution of property value or other claims from a third party against the company related to an environmental incident, release or liability for which the company is claimed to have responsibility.

Observed Conditions: Unlocked and uncapped monitoring wells, which could create additional contamination impacting adjacent properties; fuel spills at customer sites; transportation spills. An occupied residence is located immediately adjacent to the tank farm.

Primary Risk Drivers: Spills and spill response, on-site storage of wastes and materials, property/casualty loss control activities, fire control water management, security of monitoring wells, public reputation, settlement trends for other types of third-party damage claims.

Legal Defense: Legal fees incurred defending the insured in regulatory or third party actions, even where the lawsuit is considered without merit.

Observed Conditions: No specific conditions or matters were observed at the time of site visit/document reviews. However, based on the nature of the company’s operations, this risk is applicable to the company under certain circumstances.

Primary Risk Drivers: Legal responses/defense required in environmental events/claims.

Regulatory Changes for Operational Standards: Changes in regulatory or permit requirements for operating conditions other than remediation activities.

Observed Conditions: No specific conditions or matters were observed at the time. However, based on the nature of the company’s operations this risk is applicable to the company under certain circumstances.

Primary Risk Drivers: Internal regulatory tracking processes, on-site response to/management of regulatory requirements, efficacy of and follow- up to environmental audits/inspections/site visits, regulatory knowledge of key the company staff, internal use and communication of environmental issues and requirements.

Area Air Quality Issues: Changes in the EPA/state air quality designations for the areas in which the company operates. Such a designation can result in additional regulatory requirements and compliance costs for both companies and residents. These costs include air pollution control equipment, administrative burden and increased auto emissions requirements. the company may also incur additional costs for changes or upgrades to its transportation infrastructure (e.g., alternative fuel vehicles) and fuel loading/unloading/dispensing equipment.

Observed Conditions: The State is not currently designated as a “non-attainment area” for any ambient air quality pollutants. However, a change in status is possible.

Primary Risk Drivers: Governmental regulations, citizen or environmental group activism, significant or long-term air quality/public health concerns, increased government concern over wood burning emissions and rural air quality, actions on the part of other entities in the state, results of the rural diesel health study, increased industrialization and oil and gas production/refining in the state.

Regulatory Compliance Management: Ongoing operational compliance with regulations and permits. This includes efficacy of established internal systems/processes for supporting continued compliance.

Observed Conditions: Unlocked and uncapped monitoring wells.

Drum management/stained soils need improvement at truck shop. On-site accumulation of fuel delivery spill clean-up material for up to 2 years.

Damaged liners in the tank farm containment areas. Annual changes to hazardous waste generator status.

Certified UST installers have primary responsibility to file UST registrations without the company oversight/involvement. In the event the installer makes an error or does not submit the registration form, the company would be held responsible.

Environmental audits are not conducted under any self disclosure or information protections.

No audit finding analysis/trending is conducted to reduce exposure.

Lean staffing level for environmental risk management/compliance support across all operating sites. Existing environmental staff appear technically qualified, but the number of dedicated environmental experts within the organization is low in comparison with the workload.

No written environmental management program has been developed.

Primary Risk Drivers: On-site response to/management of regulatory requirements, efficacy of and follow-up to environmental audits/inspections/site visits, regulatory knowledge of key the company staff, internal use and communication of environmental issues and requirements, regulatory agency enforcement trends/initiatives.

Contractual Indemnifications Concerning Operating Requirements: The adequacy of contractual transfer of environmental liabilities triggered by actions of other parties (such as maintenance contractors); the financial stability of the other parties who are indemnifying the company for such costs.

Observed Conditions: The Project Agreement for Construction, Operation and Maintenance of the lessee’s project specifies that the company retains responsibility for all regulatory permitting, compliance and testing for commingled emissions. The Agreement also specifies that the company retains full and complete responsibility for leaks and other environmental issues except those that are specifically related to the generation equipment owned and operated by the lessee.

Primary Risk Drivers: Waste management and other environmental liabilities caused by the company vendors or suppliers’ actions regardless of fault, misunderstanding of lessee’s responsibilities.

Environmental Liability Accounting: Process for and accuracy of estimating environmental liabilities for financial accounting and reporting.

Observed Conditions: Environmental remediation reserves were established for sites at the time they were acquired. It is not clear if the current reserve also reflects other company sites that have active remediation projects.

Primary Risk Drivers: Previously identified remediation projects and costs; potential costs to the company related groundwater contamination migration; environmental remediation identification processes; new acquisitions.

Emergency Response: In cases where the company provides or supports emergency response services that involve the collection, management and/or disposal of chemicals, fuels or other materials, the company may be held liable for claims related to those activities.

Observed Conditions: Drums of spill clean-up material were observed. The material originated from small fuel clean-ups resulting from spills/leaks during product delivery at customer locations. These drums may remain on-site for up to two years before being disposed of.

A mutual aid agreement with other companies is in place to provide spill containment and use of spill recovery tanks in the event of a spill from other fuel distributors nearby.

The indemnifications that are contained in the emergency response contract are limited to: (a) the limit of the applicable insurance coverage held by the company, and (b) gross negligence/willful misconduct by the company and employees. The insurance specification documents in the contract do not include any pollution coverage, including Contractor Pollution Coverage.

Primary Risk Drivers: Efficacy and timeliness of response support activities; management of spill waste; creation or exacerbation of contamination during response actions; contractual indemnifications for the company’s involvement in these activities.