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Group Leader, Risk and Insurance Mgmt. and Public Safety
Arizona Public Service
Phoenix

A group of utilities tries to identify the risks of carbon capture and sequestration and creates a new kind of liability package.

Imagine driving by your local power plant and seeing no thick cloud of smoke floating overhead. The surrounding sky is blue and the air is fresh.

The carbon-capture and sequestration technology necessary to trap that waste and store it safely underground could be closer to making its way into mainstream America, thanks to William Persyn, group leader of risk and insurance management and public safety at Arizona Public Service.

Persyn's company, the largest electricity utility in Arizona, has embarked on a partnership to test the feasibility, efficacy, safety and cost of storing carbon dioxide underground as a way of managing greenhouse-gas emissions. It was Persyn who took on the task of securing an insurance program that protected all members of the consortium, not just his employer.

It all started when APS joined WestCarb, one of the U.S. Department of Energy's seven carbon sequestration regional partnerships. WestCarb's research project site is located on land owned by APS, so while all members of the consortium share an equal partnership, APS and Persyn have the most vested in the project. The project created new risks that have up to now not existed or been evaluated. Persyn said he was excited by the challenge, particularly because carbon capture is an important step before all energy is renewable.

"As a utility, as much as renewables sound sexy and a great prospect, there's no getting around that they cost so much more and can't replace our existing fossil-fuel methods," he said. "The government is giving grants for this because they realize that existing power plants are a pretty heavy investment and we'll have to continue maximizing them while we look into renewable energy."

But who wants to be the risk manager in charge when something goes wrong, when a leak occurs, a person is injured or the environment suffers as a result of this experiment? The government certainly hasn't offered to be held accountable. Persyn said he felt that, if not him, then who? "Even though this project sounds risky and new, it's on a small scale," he said. "There are some other countries that have begun doing some large-scale carbon storage and sequestration and it seemed like the right thing for us to do as a utility."

Persyn assembled a task force of representatives from the other utility members of the consortium to identify what risks were not covered by their current general liability insurance program. Persyn then gathered his brokers at Marsh and other environmental insurance experts to discuss the alternative coverage needed to mitigate the specific risks associated with carbon capture and sequestration.

Before approaching underwriters, Persyn sought out geologists to explain the scientific theory about rock formations holding the carbon, and he also engaged members of the oil and gas industry, which has for 60 years pumped carbon dioxide under ground to force oil out of wells.

"It's not quite as scary once you get all those disciplines together," he said. "We talked to insurers and underwriters who understood the concept." Putting together a policy was complicated by the other utilities in the consortium, all of which had different appetites for risk and some of which preferred to sit on the sidelines completely. Jonathan Ball, managing director at Marsh, said Persyn ran the show. "He was the captain of the team, taking the lead in addressing these things," said Ball. "We weren't working for four or five risk managers, we were working for Will. There was no one else raising their hand saying they wanted to take this on, so Will stepped up to the plate. He took all the steps in designing something that would work for all of them."

The end result was absolutely innovative, according to Ball. The program was the first of its kind, a complete environmental liability package, including bodily injury and damage to natural resources that could occur if the sequestration area were to leak into the ground or water.

Ball said five different environmental insurance carriers were eventually narrowed down to one and Persyn refined the terms and conditions so that the policy had broader coverage over a longer time period and offered more protection and lower premium than his previous environmental coverage.

--By Erin Gazica

President
M. Adams & Associates Inc.
Middletown, N.J.

Company president solves a messy problem for the heating oil industry.

The heating oil industry hasn't always had the cleanest reputation, mostly due to the occasional bad publicity resulting from leaking underground tanks.

Real estate agents and attorneys don't do much to help the situation either. A warranty helps to solve one aspect of the problem but tank remediation is a messy process, not to mention it costs the big bucks and it's a pain in the neck for the homeowner. Oh, and the environment gets a bit polluted too.

Michael Pugaczewski, president of M. Adams & Associates Inc., based in Middletown, N.J., has come up with a solution that not only helps the homeowner but has changed the way the residential heating oil industry approaches the problem of underground storage tank leaks.

Prior to Pugaczewski's program, a leak would mean removing the underground tank and replacing it with a basement or above-ground tank--an often unnecessary step that encouraged the negative attitude toward oil heat. It didn't help that volumetric or hydrostatic tank tests used to monitor the condition of the tank are expensive to perform every year.

What the industry needed was a way to monitor the tank soundness, track its deterioration and uncover a signal when the tank has truly reached the end of its useful life so that it could be removed before a leak--all this combined with a warranty triggered if the tank leaked during the monitoring period.

Well the industry had come up with a partial solution. The heating oil industry worked with the National Oilheat Research Alliance to develop the ChekTank program, a peer-reviewed process to determine if the underground tank had expired. ChekTank offered neither liability protection for the provider nor remediation protection for the homeowner, however, if the tank leaked while being monitored.

Pugaczewski and his firm found a way to enhance the ChekTank offering by combining it with a warranty and a newly developed provider policy that included liability protection and pollution coverage.

Homeowners now have the ability to use their heating oil tanks to their full life with the peace of mind that the chance of a leak in an underground storage tank will be significantly reduced. If a leak does happen, it will be discovered sooner--sometime within a 365-day period--which will lessen the severity of the leak.

A future buyer of the home will then have the option to transfer the program. But if they insist on a test to determine the tank's condition, the seller won't have to worry about a potentially costly leak that could affect the sale of the home.

With Pugaczewski's program, reducing the prospect of a leaking tank not only protects the environment from harm, but neighboring properties, waterways and groundwater will be safe as well.

James Eaton, vice president at Beazley Group and a business associate of Pugaczewski's, said the idea was "very clever." Pugaczewski approached the problem in a very unique way compared with how the heating oil industry typically approached it.

"Mike's idea was to pretest every tank to make sure there were no environmental problems," said Eaton. "Then the tank would be insured and continuously tested each year during the lifetime of its membership in the program."

Eaton said the best part about the program is that it limits the risks associated with tanks that are already leaking while also allowing for earlier detection of leaks. "We liked it because it was addressing a problem in the industry, and it was an industry-changing idea," he said.

On a personal level, Eaton said Pugaczewski has a grasp on the needs of his clients more than most insurance professionals.

"He's got a deep understanding of the industry in which he works, grown over many years of experience," said Eaton. "He's very dedicated to finding a solution to problems, and he understands the needs of insureds and the needs of the heating oil industry."

--By Erin Gazica