In May of 2009, the Obama administration, investment bankers, attorneys and General Motors executives were pushing to save the country’s largest industrial company through a controversial bankruptcy plan.
The plan split GM into two companies, with the ongoing operations under the new GM and the bad assets under Motors Liquidation Co., or the old GM.
At the time, many feared the bankruptcy would be a disaster, that GM’s sales, half of their 2008 levels, might plummet further, leading to even bigger losses. The resulting cascade effect, as GM’s suppliers failed and thousands more jobs were lost, would threaten the entire economy.
In late May, Baton Rouge resident James Redwine got a call from AlixPartners LLP, the consultants GM brought in to put together the Chapter 11 reorganization plan. AlixPartners wanted to know if Redwine would mind having his name submitted for a big, anonymous project.
Redwine was just a few weeks into a new job at Toxicological & Environmental Associates Inc., Baton Rouge-based environmental cleanup consultants. He had spent the previous 19 years with IT Group and then with The Shaw Group Inc. after its acquisition of IT. Redwine’s job at TEA was to build a remediation trust business, doing much the same work he had while heading Shaw Environmental Solutions LLC.
Still, Redwine was intrigued. He gave the OK.
A few days later, AlixPartners called and asked him to fly to Detroit. Two days after that, on May 28, Redwine met with AlixPartners and was offered job of running the environmental portion of Motors Liquidation Co. He started June 1, the same day GM filed its bankruptcy plan.
Motors Liquidation’s real estate portfolio included 89 sites covering 7,200 acres, with 48 million square feet of factory space in 14 states. One site was an entire town in Indiana made up of 53 parcels of land, Redwine said.
Redwine said he had barely found his way around the office when AlixPartners told him he had two weeks to figure out what to do with the environmental issues and how much it would cost.
The amount of money that the U.S. Treasury, or taxpayers, would invest would be fixed by the bankruptcy court at the end of June, he said. There would be no other funding available.
“After my jaw had been picked up off the floor, I said, ‘Ooh boy, this is a task,’” Redwine said.
Redwine said at that point he was still trying to sort through the dozens of environmental issues involved: What were the properties the old GM owned? Was the estate still liable for Superfund sites? How much of GM’s staff was available?
Redwine said he started by looking at “the complicated intersection” between bankruptcy and environmental law.
He asked himself what the media would say.
“Do I want the headline to be about a half bailout or a failed bailout or bailout leaving a toxic legacy? No, quite frankly. I didn’t want to do that,” Redwine said. “I didn’t think AlixPartners-Motors Liquidation wanted to do with that, and certainly not the U.S. Treasury.”
And certainly not when the public’s money was involved, he said. The question was what to do?
Redwine said he immediately decided against a long, drawn-out legal fight with regulatory agencies.
Instead, Redwine decided that Motors Liquidation would clean up its sites … and do so the same way that state and regulatory agencies would recommend.
John Pottow, a law professor at the University of Michigan, said the “we’re going to clean it all up” approach seems unusual.
“Companies don’t like to admit environmental liability,” he said.
There may have been other factors in play, Pottow said.
The last thing the Obama administration wanted was to see stories saying not enough money was provided to clean up toxic sludge at old GM plants, Pottow said. AlixPartners may not have gotten orders from on high, but it was probably made clear that things had to be done correctly on the environmental front.
Motors Liquidation had one shot to get the money needed for that work, Redwine said.
Now all he had to do was figure out what was involved and estimate the cost.
He broke the work into phases.
“Phase I was getting folks to review the biggest, high priority sites and the ones with the highest risks for cost overruns,” Redwine said.
The team looked at the costs for 34 sites and estimated from there on the remaining properties, he said. The clean-up cost was estimated at $536 million — only about half the amount the federal government provided to wind down the old GM.
“What we came up with was subject to, shall we say, a certain amount of uncertainty in the process,” Redwine said.
Redwine said he knew no one would believe that number.
“There’s no way that we’re going to convince the DEQs of 14 states, Region II, Region V of EPA headquarters that our two-week romp through the numbers — even though it was a very thorough process — that we looked at everything,” Redwine said.
Phase II involved going through each site and figuring out the clean up costs. The team started with the six most polluted sites, building up the cost estimates through “decision-tree analysis,” a disciplined way of factoring in the uncertainties involved in remediating a site, he said.
For example, the variables include different possibilities for the contamination involved, the volume of that contaminant, what clean-up method is likely to work, how much it will cost on an annual basis, and how long that method will be required, Redwine said.
There might be a 20 percent likelihood that it would take 10 years for a free product recovery system, used to capture spilled liquids, to clean up a site; 70 percent for 15 years or 10 percent for 30 years.
Redwine was more than familiar with the technique. He had spent 19 years solving environmental problems for clients, first at IT Group and then with Shaw after it bought the company.
Redwine said the team arrived at the estimated cost by multiplying the annual cost of operating the system by the number of years required. The process was repeated for each component of the cleanup, such as the number of ground water monitoring wells needed, or the number of buildings where vapor intrusion systems were required.
Some of the factories and their problems were enormous, Redwine said. It will cost around $120 million to clean up the polychlorinated biphenyl (PCB) contamination in Messena, N.Y. For history buffs, this was the original Corvair plant featured in consumer advocate Ralph Nader’s book “Unsafe at Any Speed.”
The Willow Run plant near Ann Arbor Mich., used to build bombers during World War II, covers 5 million square feet, Redwine said. It also has something like 4 million gallons of transmission fluid floating beneath the plant.
By comparison, the Pentagon is “a measly 3.75 million square feet,” the Mall of America, a little more than 4 million square feet.
Redwine said the team ran through some 10,000 simulations to come up with the cost to clean up the sites and a cushion to make sure the funding was adequate.
The team used conventional engineering estimates for the less polluted sites, Redwine said. There were around 30 properties, including the Shreveport Hummer plant, that had no pollution.
The second phase took four months.
Redwine and his team then had hundreds of meetings with state and federal regulators in order to assure them, and the communities where the shuttered plants were, that the cleanup estimates were adequate.
“By May 2010 we got an agreement from all 14 states, Region II and Region V of the EPA, EPA headquarters, and the U.S. Treasury that the money set aside was adequate,” Redwine said.
Pottow said it sounds like the estimates were done carefully and meticulously.
“Getting everyone to sign off sounds like an encouraging thing. It sounds like a very inclusive process, so that’s kind of a happy circumstance,” Pottow said. “That does not happen all the time in bankruptcy.”
The end result was the largest environmental trust in U.S. history.
Redwine said the trust set aside $500 million for environmental cleanup and $262 million for administrative funding. There is a $68 million cushion to handle additional environmental costs.
The trust itself is now in the process of investigation and conducting remediation work, Redwine said. The idea is to return the sites to productive use, restore the tax bases of the affected communities, and generate jobs in some places with very depressed communities.
The plan calls for the bulk of the active cleanup work to be done in 10 years, Redwine said.
“In many cases the operation and maintenance will continue on for more than 100 years. In some cases, it will go on perpetually,” Redwine said.
Redwine now works for the trust as senior environmental counsel and director of environmental support. His duties include helping to coordinate the cleanup process.