ACCOUNTING FOR POLLUTION COSTS:
AN ANALYSIS
OF EXTERl^AL REPORTING PRACTICES
by
NORMAN LEE POPE, B.B.A.
A THESIS
IN
ACCOUNTING
Submitted to the Graduate Faculty
of Texas Tech University in
Partial Fulfillment of
the Requirements for
the Degree of
MASTER OF SCIENCE
IN
ACCOUNTING
Approved
-AEVA-UI5J
73
1971
No. ^7
Cop.f
I am deeply indebted to Dr. Doyle Z. Williams for
his guidance and helpful criticism of this thesis.
n
TABLE OF CONTENTS
ACKNOWLEDGMENT
il
LIST OF TABLES
v
I.
II,
INTRODUCTION
1
Statement of the Problem
1
Significance of the Problem
1
Causes of Pollution
^
Cost of Pollution
6
Relationship to Accounting
9
Purpose of the Study
12
Limitations of the Study
12
Organization of the Study
12
CURRENT METHODS OF ACCOUNTING FOR AND
REPORTING POLLUTION COSTS
l4
Introduction
1^
Selection of Sample
l4
Selection of Industries
l4
Selection of Companies
18
Results of Analysis
19
Chemicals
19
Energy
28
111
III.
Forest Products and Packaging
39
Metals
50
Utilities
61
Interindustry Analysis
69
General Observations
80
POLLUTION REPORTING DEFICIENCIES AND
RECOMP^NDATIONS
8l
Introduction
81
Principle of Full Disclosure
82
Recommendations for Reporting Standards
86
Audit of Pollution Information
88
Benefits of Pollution Audit
89
Problems of Pollution Audit
89
Suggested Audit Procedures
93
Conclusion
IV.
95
SUMMARY AND CONCLUSION
97
SELECTED BIBLIOGRAPHY
103
APPENDIX
106
IV
LIST OF TABLES
Table
Page
1.1
Requests Mailed and Reports Received
20
2.1
Pollution Reporting in Letter to Stockholders—
Chemicals Industry
21
Pollution Reporting in Body of Annual Report—
Chemicals Industry
24
Pollution Reporting in Financial Statements—
Chemicals Industry
26
Percentage Trend Analysis of Pollution Reporting
in Annual Reports—Chemicals Industry
29
Pollution Reporting in Letter to Stockholders—
Energy Industry
32
Pollution Reporting in Body of Annual Report—
Energy Industry
33
Pollution Reporting in Financial Statements—
Energy Industry
35
Percentage Trend Analysis of Pollution Reporting
in Annual Reports—Energy Industry
37
Pollution Reporting in Letter to Stockholders—
Forest Products and Packaging Industry
40
Pollution Reporting in Body of Annual Reports—
Forest Products and Packaging Industry
43
Pollution Reporting in Financial Statements—
Forest Products and Packaging Industry
45
Percentage Trend Analysis of Pollution Reporting
in Annual Reports—Forest Products and Packaging
Industry
48
2.2
2.3
2.4
3.1
3.2
3.3
3.4
4.1
4.2
4.3
4.4
V
Table
5.1
5.2
5.3
5.4
6.1
6.2
6.3
6.4
7.1
7.2
7.3
Page
Pollution Reporting in Letter to Stockholders—
Metals Industry
5I
Pollution Reporting in Body of Annual Report—
Metals Industry
53
Pollution Reporting in Financial Statements—
Metals Industry
56
Percentage Trend Analysis of Pollution Reporting
in Annual Reports—Metals Industry
59
Pollution Reporting in Letter to Stockholders—
Utilities Industry
62
Pollution Reporting in Body of Annual Report—
Utilities Industry
64
Pollution Reporting in Financial Statements—
Utilities Industry
66
Percentage Trend Analysis of Pollution Reporting
in Annual Reports—Utilities Industry
70
Pollution Reporting in Letter to Stockholders
of 1970—Percentage Comparison of Industries
72
Pollution Reporting in Body of Annual Report
of 1970--Percentage Comparison of Industries
75
Pollution Reporting in Financial Statements
of 1970—Percentage Comparison of Industries
78
VI
CHAPTER I
INTRODUCTION
Statement of the Problem
Individuals living in the twentieth century can be
certain of three things:
death, taxes and pollution.
Of the three, pollution is a new concern.
It is being
discussed daily by individuals of all backgrounds; hov/ever, there appears to be a lack of thought concerning the
effect that pollution has, and will continue to have, on
the welfare and financial position of modern day business.
Although measuring and reporting pollution costs is a
rapidly growing concern, accounting literature is sparse
!
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on the subject.
Guidelines are needed to aid accountants
\
in determining generally accepted principles of accounting
for and reporting the deterioration of the environment and
the related control cost.
Significance of the Problem
Until the late twentieth century, the United States
was unaware and unconcerned about the continued growth of
deterioration to environmental resources.
1
Suddenly it
was discovered that the skies were no longer blue and the
waters were no longer clear.
From 1959 to 196I, a group at the Medical School of
the State University of New York at Buffalo made a study
of the effects of air pollution on men age fifty to sixtynine in Erie County, New York.
The study resulted in the
observation that there is an association between air contamination and deaths from cancer of the prostrate, esophagus and stomach.1
Since pollution is a threat to health
and to the environment, it is rapidly becoming a global
concern.
One writer makes the following observation on the
growth of pollution:
During the last 20 years U. S. GNP has risen an average of nearly 4 percent per year. Water use has risen
at roughly the same rate, while annual consumption of
automobile gasoline has been rising at 5 percent and
aviation fuel twice as fast. This means that the output of pollutants into the limited environment has
been doubling once every 7-17 years. This rising
volume must remain suspended in the environment until
it can be reabsorbed or recycled through natural
processes, and since the carrying power of the environment is finite, it becomes increasingly contaminated. ^
York:
^Melvin A. Benarde, Our Precarious Habitat (New
W. W. Norton and Co., Inc., 1970), p. 192.
York:
^Daniel B. Suits, Principles of Economics (New
Harper and Row, Publishers, Inc., 1970), p. 38I.
The future seems to hold some promise of improvement.
Many industries have begun to respond to public
and legislative pressure for ecological improvement, and
i
it seems that public concern is finally translating it-
t
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self into direct legal action through the courts. The
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toughest air pollution control bill ever drafted has
I
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been passed by Congress.
The most controversial provi-
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sion is the requirement that the automobile industry
i
reduce air pollution in cars produced after January 1,
1975 at least 90 percent below that of the 1970 model
automobiles.
The bill also provided that national air
quality standards and goals would be set requiring all
':
major new stationary sources of pollution to install the
i
best control equipment available.^
State governments are also joining the fight to
i
control the contamination of the environment.
Michigan
I
has enacted a law that allows individual citizens to sue
polluters without having to show evidence of direct
personal injury.
The burden of proof has been shifted
from the complainant to the defendant.
California has
continued to create and enforce tougher laws.
Beginning
in 1973, car manufacturers will be fined up to $5,000
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3K. A. Kaufman, "Pollution Bill Packs KO Wallop,"
Iron Age, October 1, 1970, p. 38.
for each vehicle manufactured that fails to meet emission standards.^
It is a certainty that all levels of
government will continue to enforce more stringent regulations dealing with air and water pollution.
Govern-
ment will also continue to aid in research to find the
causes and cures of the problem.
Causes of Pollution
There are several views concerning the underlying
origin of pollution.
One view blames the over-zealous
industrialist with making as much profit as possible and
leaving the final results to society.
Another view is
that pollution is part of a subversive plot aimed at
undermining the free-enterprise system.
Othe':'s believe
that a certain amount of environmental degradation is
necessary and the problem seems to be determining the
allowable amount.
The causes of pollution may be viewed from an
alternative perspective--namely, primary and secondary
origins.
The primary origin of pollution is contamination
caused by industries and individuals who do not utilize
all possible means to reduce pollution.
At the present
time the automobile industry is the greatest single
^Ernest Holsendolph, "States Join the Pollution
Battle," Fortune, October, 1970, p. 116.
contributor to the deterioration of the environmental
attributes.
The I968 estimates show automobiles re-
sponsible for about half the nation's yearly total of
nearly 200 million tons of air pollutants.5
The
secondary origin of pollution is the consequence of
accidents.
Off-shore oil wells sometimes incur accidents
which result in oil leakage.
Sea life is usually de-
stroyed along many miles of coast line.
Regardless of the causes of pollution, it may not
always be feasible for businesses to utilize control
[
equipment because the industries are involved in a competitive system.
Under competition, supply and demand
j
will set product prices at a level that will cover the
I
cost of obtaining economic resources needed to produce the
product and provide a normal profit to the business.
;
These costs, sometimes called private costs, are expendi-
I
tures which private business concerns must bear if they
'
are to continue to obtain resources.
j
process may sometimes incur additional cost which are not
The productive
1
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built into the price system.
Pollution abatement cost is
i
an additional cost which business enterprise may incur
because of regulations dealing with pollution.
^Gene Bylinsky, "The Long Littered Path to Clean
Air and Water," Fortune, October, 1970, p. 112.
t
{
If only a portion of business concerns begin to
incur additional cost, one of two outcomes will occur.
First, the businesses could lose customers to competitors
if they raise product prices to cover the additional cost.
This may be illustrated by the "law of demand."
People
buy less at a higher price than at a lower price.
When
the additional cost is added to the product price the
sales volume will decrease.
An alternative would be main-
taining the same sales price and internally absorbing the
additional cost.
This alternative is generally unaccept-
able because the reduced profit margin per unit would
result in smaller profits.
Therefore, a widespread be-
lief is that some producers are forced to be contributors
to the degradation of the environment in order to stay in
business.
These producers should consider the cost of
pollution when making the decision to "stay in business."
Cost of Pollution
The observation has been made that "when the present
generation of college students was born, pollution output
was only about a quarter of what it is today, and when
their children reach college age, it will be eight times
greater than it now is unless we recognize it as a
critical problem and take massive steps to correct it."^
Can a value be placed on such future occurrences?
Who
is to bear the cost for reducing such occurrences?
All
businesses contributing to pollution directly or indirectly will eventually incur additional cost to reduce
pollution to meet the federal and state regulations as
well as the demands of the public.
Before pollution laws were enforced, industries
freely discharged their waste and left the external cost
to society.
Businesses avoided the cost of pollution
control because the cost was not incorporated into the
price system.
To avoid the cost, firms disposed of
waste materials by polluting lakes and rivers. The guilty
firms shifted the cost of a polluted environment on
society as a whole.
By shifting these "social costs" onto
the community, firms found that their total costs of
production were lower than if pollution controls were
utilized.
A greater output of product occurred because
of the lower production cost.
This resulted in misalloca-
tion of economic resources because too many resources
were used in the production of those products which
entailed substantial social cost.
Suits, Principles of Economics, p. 382.
8
The goal now is to internalize these externalities
and to assess industry and its customers their share of
the social costs of pollution.
"Attempts to measure
disproduct must begin because there is sufficient evidence
that its generation in our society is significant.""^
Industries need some type of incentives to encourage steps toward control methods.
These incentives could
be in the form of penalties or in the form of rewards.
Penalties, to a limited extent, are already being used by
the federal government.
One incentive that is gaining support is the tax
allowance for recycling.
In some cases, it is possible
that the cost of recycling waste materials is cheaper
than obtaining the raw materials from their original
source.
In other cases it might cost slightly more to
recycle waste, but it would preserve swiftly dwindling
resources.
However, the decision to recycle on a large
scale will probably be the result of legislative action.
Because of the inevitable high cost of pollution abatement resulting from legislative action, businesses must
develop comprehensive pollution cost systems. Also,
'^Boyd Collier, "The Concept and Measurement of Disproduct," p. l4 (Mimeographed.)
because of the public interest involved, external reporting
of pollution costs will increase in significance, offering
a challenge to the accounting profession.
Relationship to Accounting
The latest published definition of accounting is
as follows:
Accounting is a service activity. Its function is to
provide quantitative information, primarily financial
in nature, about economic entities that is intended to
be useful in making economic decisions—in making
reasoned choices among alternative courses of
action.°
Therefore, any economic decisions concerning pollution
which involve some type of financial character will have
an effect on accounting.
One of the most important functions of accounting
is that of providing quantitative information.
Transac-
tions are recorded for the purpose of determining the net
income for a given period and for determining the financial position for any given point in time.
A decision
concerning the classification of expenditures and receipts
must be made of each transaction.
This assures the proper
application of expenses against revenues in determining
"Accounting Principles Board, Basic Concepts and
Accounting Principles Underlying Financial Statements of
Business Enterprise, Statement of the Accounting
Principles Board No. 4, (New York: American Institute of
Certified Public Accountants, Inc., 1970), p. 17-
10
net income.
The same decision must be made for expendi-
1
tures on pollution control.
For example, the accountant
I
must determine whether the expenditure should be recorded
I
as a capital expenditure or a period expense.
If the out-
lay is recorded as a capital expenditure, the method of
cost allocation must then be determined.
After determining expenditures related to pollution
control, the accountant must report the expenditures.
Public pressure will eventually require reporting all
cost related to pollution control in financial statements.
The accountant must be aware of the need for standards of
reporting the cost as well as standards for auditing such
cost.
Auditing.—Auditing represents another function of
accounting which reviews the records and statements of a
business for the purpose of expressing an opinion regarding the fairness, accuracy and the application of generally accepted accounting principles in the records and
statements.
At the present time, because of the absence
of established accounting practices the auditor must
determine for himself what constitutes generally accepted
principles of accounting for pollution.
^/
11
Management Advisory Services.—Management advisory
service is a rapidly growing aspect of accountants' work.
Surveys and studies are made for the purpose of aiding
management in all phases of decision making.
It is this
aspect of accounting in which accountants are most involved with pollution at the present time.
Studies have
already been made for some firms to determine the most
profitable and logical methods of controlling the contamination of the environment.
Two additional aspects of accounting, which would
also be included in management advisory services, are
cost accounting and budgeting.
Companies with pollution
controls have the actual cost of the controls and the operating expenses of the controls to use in computing or
measuring pollution.
The matter becomes more complicated
when several departments use the same control equipment
and the cost is to be allocated to the departments.
Cost
accounting methods can be used for determining the cost
applicable to each department or product.
Tax Service.—Tax accounting also interfaces with
pollution costs.
Incentives for pollution control may
involve tax credits and/or tax charges.
The accountant
12
I
must be familiar with the tax laws Involved in filing tax
,
returns and providing long-range tax planning assistance.
I
Purpose of the Study
I
The purpose of this study is to analyze efforts of
I
Individual firms and selected industries in accounting
i
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for pollution costs and to determine to what extent, if
I
any, companies are reporting externally these costs.
For
a basis of making recommendations, accounting principles
r
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\
are compared to current methods of reporting and disclosing pollution costs.
Limitations of the Study
This study is limited to the major polluting industries and their accounting and reporting of pollution
to stockholders in the Annual Reports of I969 and 1970.
1
It is not intended to be an ultimate study on the subject,
I
but it is intended to open paths for further study and to
[
stimulate thought on the subject.
I
;
i
Organization of the Study
Ths following chapter discusses the basis for the
*
{
I
inclusion of companies in the sample for determining
current methods used in reporting pollution abatement.
Information determined from the analysis is presented and
^^JS^***-*.
13
discussed by industries.
Chapter 3 analyzes the defi-
ciencies found in current pollution cost reporting in
Annual Reports.
Against this backdrop, recommendations
are offered for improving current practices in pollution
reporting.
The last chapter of the study summarizes the
findings and offers the conclusion of the Investigation.
]
i1
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i
CHAPTER II
CURRENT METHODS OF ACCOUNTING FOR AND
REPORTING POLLUTION COSTS
Introduction
For purposes of determining current methods used
in reporting pollution cost, a selected sample of corporate Annual Reports were requested and the Annual Reports
received were analyzed on the basis of how and where the
information appeared concerning pollution abatement.
This chapter discusses the basis for the inclusion of
companies in the sample and the information determined
from the analysis.
Selection of Sample
Selection of Industries
Selection of industries for analysis v/as based
f
i
upon those believed to be the largest contributors to
t
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environmental deterioration and consequently face the
i
;
;
largest pollution control cost. Five basic industries
have been identified as the major polluting industries
!
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14
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I
u
15
facing the greatest cost with respect to pollution.^
On
this basis the following industries were selected for
analysis:
Chemicals, Energy, Forest Products and Pack-
aging, Metals, and Utilities.
Chemicals.—Since the Chemicals Industry produces
a large variety of products from many processes, the pollution caused by this industry is varied.
A survey of
twenty-six industries recently conducted by McGraw-Hill's
Economics Department revealed that this industry's total
investment required to meet U. S. Government anti-pollution laws as of January 1, 1971 is $1,000,000,000.
Actual expenditures amounted to $169,000,000 in 1970 and
planned expenditures for 1971 are $263,000,000, an increase of 56^.^
George Howick, an analyst in the pollution control
area for Equity Research Associates, believes that between 3% to 15% of new plant investment will be allocated
for pollution control equipment in the Chemicals Industry. 3
^See David McLean, "Heard on the Street," Wall
Street Journal, March 10, 1971, P- 35 and "Polluters
Raise the Cleanup Ante," Business Week, May 15, 1971,
p. 46.
^"Polluters Raise the Cleanup Ante," p. 46.
3McLean, "Heard on the Street," p. 35.
16
Energy.—Many types of pollution are related to
the Energy Industry.
This industry has operations in all
parts of the world Including land and water.
In addition
to the problems of oil leakage, sulphur oxide emissions,
and hydrocarbon emissions, the Energy Industry is being
pushed to develop and market nonleaded gasoline and lowsulphur fuels.
The American Petroleum Institute esti-
mated air pollution control expenditures at $86,000,000
in 1968.
Investments in pollution cleanup are expected
to increase from the actual $337,000,000 in 1970 to
$507,000,000 in 1971.5
Forest Products and Packaging.—A third widely recognized polluting industry is the Forest Products and
Packaging Industry.
water pollution.
It is associated with both air and
Papermakers, only a portion of the For-
est Products and Packaging Industry, plan the largest proportionate increase in pollution spending for 1971-
Ac-
tual expenditures were $153,000,000 in 1970 as compared to
the planned $321,000,000 for 1971.^
^Ibid.
^"Polluters Raise the Cleanup Ante," p. 46.
^Ibid.
17
Metals.—The Environmental Protection Agency esti-
i
t i
1 I
mates that the Metals Industry is responsible for about
i
I ii
!
•
U
10^ of total particulate emissions and some sulphur ox-
! !
ides.'
Total investments required to meet U. S. Govern-
ment anti-pollution laws for particulate and other emissions as of January 1, 1971 by iron, steel and nonferrous
metal companies are $4,260,000,000.^
Utilities.—The fifth widely recognized polluting
industry is the Utilities Industry.
It has controlled,
to some extent, pollution by particulate matter. Technology has provided means of controlling these particles
by using electrostatic precipitators, mechanical collectors, wet scrubbers, and large filters.
According to
scientists at the Midwest Research Institute in Kansas
City, Missouri, the estimated 21 million tons of particulate matter that was expected to be poured into the air
over the United States in 1970 could have been cut down
dramatically to 13 million tons by I98O if currently
available control devices were installed on all sources.
"^McLean, "Heard on the Street," p. 35.
^"Polluters Raise the Cleanup Ante," p. 46.
18
Of the seven industries^ that face pollution control costs
of more than $1,000,000,000 each, electric utilities lead
with an estimated cost of $3,200,000,000.
These utilities
plan a jump of 68^ in their spending for 1971 to
$679,000,000.^°
Selection of Companies
All companies in each of the five major polluting
industries of Chemicals, Energy, Forest Products and
Packaging, Metals, and Utilities analyzed by Forbes in
its January 1, 1970 issue were included in the sample
for a total of 145 companies.
These represent the major
companies in each industry.H
For each company selected.
°These seven industries are Electric Utilities,
Gas Utilities, Iron and Steel, Nonferrous Metals, Petroleum, Paper and Chemicals. In this study, Electric and
Gas Utilities are combined as Utilities; Iron, Steel, and
Nonferrous Metals are combined as Metals.
l'^"Polluters Raise the Cleanup Ante," p. 46.
'
j
i
The editors of Forbes for the last 22 years in
the Annual Report on American Industry have measured how
well the managers of the biggest companies have succeeded
at their task. Nearly 6OO m.ajor companies are evaluated
by Forbes on the basis of (1) return on stockholders'
equity, (2) return on capital and (3) grov/th of the company. Each company is ranked first v/ithin all companies
evaluated and then within each industry. See "Measuring
Management: I969," Forbes, January 1, 1970, pp. 43-189.
19
a request was mailed for its I969 and 1970 Annual Reports.
Of the 145 requests mailed, 136 Annual Reports were received for 1969 (93.8^) and 125 Annual Reports were received for 1970 (86.2^).
An analysis of the requests
mailed and reports received by industry is presented in
Table 1.1.
Results of Analysis
Each Annual Report was reviewed and divided into
three sections for analysis:
Letter to the Stockholders,
Body of the Annaul Report, and Financial Statements.
Tables 2.1 through 7-3 show the factors used in analyzing each section along with the findings in each industry.
Chemicals
Letter to the Stockholders.—Table 2.1 indicates
that 55,6% of the I969 Annual Reports reviewed included
references to pollution as compared to 58.8^ of the 1970
Annual Reports.
Although the references to pollution
control with no dollar amount stated increased from 38.9^
in 1969 to 41.2/S in 1970, the most significant increase in
pollution reporting was the reference to pollution abatement with estimated dollar amounts stated.
This figure
Increased from 5.6^ in I969 to 17.6^ in 1970, indicating
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22
that businessmen are increasingly becoming aware of the
importance of pollution abatement to stockholders and potential Investors.
However, this finding is counteracted
by the results in regard to reference to pollution abatement
with specific dollar amounts stated.
In 1969, ll.ljS in-
cluded references to pollution abatement with specific
dollar amounts stated, but in 1970 there were no references with specific dollar amounts stated in the Letter
to the Stockholders.
Based on this analysis, no conclu-
sion can be reached with respect to the trend of reporting pollution costs in Letter to Stockholders in the Chemicals Industry.
Table 2.1 also indicates only a small increase from
22.2^ in 1969 to 23-5^ in 1970 of references to pollution
abatement costs included in goods manufactured.
This
includes references to products manufactured which aid in
reducing pollution and references to statements about increased costs in manufacturing these products.
Some of the reported achievements of companies in
the Chemicals Industry for producing pollution controls
were noteworthy.
Ethyl Corporation has developed an ex-
perimental car whose emission levels are below the existing 1974 California requirements and are also close to the
standards for unburned hydrocarbons, carbon monoxide, and
23
nitrogen oxides recently proposed by the Department of
Health, Education and Welfare for 1975 model year cars.^^
Eastman Kodak Company also reported an interesting
product:
A new lacquer solvent, methyl n-butyl ketone, meets
stringent air pollution control requirements. With
increasing public interest in air quality, the new
solvent should find wide acceptance in areas where
legislation limits the use of certain other industrial solvents.-^3
Body of the Annual Reports.—Unlike the Letter to
the Stockholders, there was a decrease in reference to
pollution abatement in the Body of the Annual Reports by
companies in the Chemicals Industry as indicated in Table
2.2.
In 1969 there were 73.3^ and in 1970 there were
62.5^ of the Annual Reports that contained reference to
pollution abatement in the Body of the Annual Reports.
The most significant decrease was in reference to pollution
i
abatement with no dollar amounts stated.
It decreased
I
1
1
from 40.0^ in I969 to 25.0^ in 1970.
Another decrease was
i
found in the reference to pollution abatement costs in1
eluded in goods manufactured.
The decrease was from 46.7^
\
in 1969 to 25.0^ in 1970. Companies continue to
1^The Automotive Emission Problem...Ethyl's
Approach To A Solution... (Ethyl Corporation, '1969) , p. 3^3i970 Annual Report (Eastman Kodak Company, 1970),
p. 19.
24
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25
manufacture equipment related to controlling pollution but
evidently believe pollution is a subject of decreasing
interest to stockholders.
The only category recording an increase in the
Body of the Annual Reports with respect to pollution reporting in the Chemicals Industry was an increase from no
reference to pollution in I969 to 6.3^ reports in I97O
containing references to pollution abatement with dollar
amounts stated in combination with other items.
The com-
bined dollar amount was generally a combination of expenditures for research and development which dealt with
pollution abatement as well as developing new products.
Financial Statements.—The analysis of the Financial Statements, as shown in Table 2.3, revealed that
pollution abatement is not considered to be a significant
factor in Financial Statement presentation of the Chemicals Industry.
None of the Financial Statements analyzed
contained any stated amounts related to pollution abatement.
However, the notes to the Financial Statements revealed
an increase from 5.5^ in I969 to 11.8/a in 1970 of references to litigation dealing with pollution.
This is prob-
ably the result from increased enforcement of pollution
control laws by local, state, and federal governments.
27
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28
Trend Analysis.—Table 2.4 provides a percentage
trend analysis of pollution reporting in the Letter to
Stockholders, Body of the Annual Reports, and Financial
Statements for the Chemicals Industry.
This Table reveals
that reference to pollution abatement increased in Letters
to the Stockholders by 3.2^ and increased 6,3% in the
Financial Statements, but there was a decrease of such
references in the Body of the Annual Reports by 10.8^.
In general, no significant trend was observed in the
Chemicals Industry in reporting pollution information to
the public.
The largest increase in incidents of pollution
reporting occurred in the Letter to Stockholders where
references to pollution abatement with estimated dollar
amount stated more than tripled.
as compared to 17.6^ in 1970.
In 1969 there were 5.6^
The largest decrease ap-
peared in the Body of the Annual Reports where there was
a decrease from 46.7^ in 1969 to 25.0^ in 1970 of references to pollution abatement costs included in goods
manufactured.
Energy
Letter to the Stockholders.—The analysis of the
Letter to Stockholders in the Energy Industry as shown
30
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31
in Table 3.1^ reveals an increase in references to pollution abatement similar to that in the Chemicals Industry.
In 1969 there were 61.5^ and in 1970 there were
68.0^ references to pollution abatement in the Annual Reports.
Table 3.1 reveals that references to pollution
abatement was made only with no dollar amounts stated or
with estimated dollar amounts stated for both years.
Of
the two, the most significant Increase was the increase
from 7.7^ in I969 to 12.0^ in 1970 of references to pollution abatement with estimated dollar amounts stated.
Table 3.1 also reveals a high percentage of Annual Reports
containing references to pollution abatement costs in
goods manufactured.
In 1969, 30.8^ of the Annual Reports
contained such references and 1970 had an increased percentage to 40.0^.
This high percentage is attributable
to the production of nonleaded gasoline and fuels containing fewer polluting elements.
Body of the Annual Reports.—The Energy Industry
had the largest percentage increase from 1969 to 1970 of
references to pollution abatement in the Body of the
Annual Reports.
Table 3.2 indicates that the increase was
from 72.0^ in 1969 to a surprising 95-8^ in 1970.
This
overall increase is attributable to the increase of
32
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40.0^ in 1969 to 70.8/. in 1970 of references to pollution
abatement with no dollar amounts stated.
This indicates
that the Energy Industry, unlike the Chemicals Industry,
significantly Increased its coverage of pollution abatement reporting in 1970 from the previous year.
Financial Statements.—Although it appears that the
Energy Industry does consider pollution to be a subject
of interest to Annual Report readers. Table 3.3 indicates
that this industry does not consider pollution abatement
to be of significance in the Financial Statements.
This
is the only industry which had no apparent pollution
related items in the Financial Statements or in the notes
to the Financial Statements.
Some of the notes to the
Financial Statements mentioned litigation "incurred in the
ordinary course of business" which were, in some cases,
probably related to pollution.
Trend Analysis.—Although the Financial Statement
analysis revealed no pollution related references, there
is a definite trend of increasing references of pollution
abatement in the Letter to Stockholders and Body of the
Annual Reports in the Energy Industry as shown in Table 3.4.
There were only two decreases in the three analyses.
One
36
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39
was a decrease from 16.0^ in I969 to 12.5^ in 1970 of
references to pollution abatement with specific dollar
amount stated.
The other decrease was from 4.0^ in I969
to 0.0^ in 1970 of references to pollution abatement with
dollar ,amount stated in combination with other items.
Since both decreases are small and consequently not significant, it is apparent that the Energy Industry is well
aware of the importance of pollution abatement and is
considering it to be increasingly important, although such
reporting has not yet been expanded to include the Financial Statements.
Forest Products and Packaging
Letter to the Stockholders.—Table 4.1 reveals a
slight increase for the Forest Products and Packaging
Industry in references to pollution abatement in the Letter
to Stockholders.
In 1969, 59.1^ references were made
compared with 61.1% in 1970.
Although the increase was
small, the Table indicates that some percentages for
different factors used in analyzing the Letter to Stockholders increased while others decreased.
The references
to pollution abatement with no dollar amounts stated
increased from 27.3^ in I969 to 33-3^ in 1970, but the
reference to pollution abatement with estimated dollar
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amounts stated decreased from l8.1Jg in 1969 to 11.1^ in
1970.
The most significant figure is the increase from
9.1^ in 1969 to 16.7^ in 1970 of references to pollution
abatement with specific dollar amounts stated.
Although the increase of references to pollution
abatement from I969 to 1970 was small in the Letter to
the Stockholders, the increase in statement of specific
dollar amounts is a significant advance in pollution
reporting because specific dollar amounts present more
information to the Annual Report readers than do estimated
amounts or no amounts at all.
Table 4.1 also reveals that two companies in the
Forest Product and Packaging Industry contained pamphlets
about pollution with their 1970 Annual Reports.
Westvaco
Corporation included a sixteen page pamphlet entitled
Westvaco and the Environment which explains each type of
pollution, including sulphur dioxide, and the steps taken
by Westvaco to reduce such pollution.
It states:
Our research scientists are also making encouraging
progress in developing an activated carbon system
designed to reduce sulphur dioxide emissions from
pov/erhouses that burn fossil fuels. This patented
system not only viould capture the gases but convert
them to usable sulphuric acid or sulphur.1^
^^Westvaco and the Environment (Westvaco Corporation, I97O), p. 16.
42
Scott Paper Company included a booklet which is as
large as the entire annual report.
Paper, People and
Pollution....How Paper Affects the Environment explains
the cycle of producing paper products and the pollution
involved in each step.
Scott Paper Company has invested
over $20 million in air and water quality improvement
systems and has plans for additional capital investments
of approximately $100 million by 1978.15
Body of the Annual Reports.—Although the Letter to
the Stockholders had only a slight increase in references
to pollution abatement in the Forest Products and Packaging
Industry, the Body of the Annual Reports had a significant
increase from 75.0^ in I969 to 93.3^ in 1970, as indicated
in Table 4.2.
References to pollution abatement with no
dollar amounts stated decreased from 45. Of. in I969 to
33.3JS in I97O.
However, the overall increase in reference
to pollution was the result of Increases in references to
pollution abatement with estimated dollar amounts stated
and with specific dollar amounts stated.
The increase in
reference to pollution with estimated dollar amounts
15paper, People and Pollution
How Paper Affects
the Environment (Scott Paper 'Company, 1970), p. 1.
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stated was from 10.0^ in I969 to 33.3^ in 1970. The
increase in reference to pollution with specific dollar
amounts stated was from 20.0^ in I969 to 26.1% in 1970.
The increases in references to pollution with estimated dollar amounts and specific dollar amounts stated
as compared to the decrease in references with no dollar
amounts stated indicates an increasing awareness by the
companies analyzed in the Forest Products and Packaging
Industry of the need to report pollution abatement costs
to the public.
Financial Statements.—Table 4.3 reveals that two
Annual Reports of companies in the Forest Products and
Packaging Industry included some type of reference to
pollution abatement in the Financial Statements.
The
Annual Reports of Bemis Company, Inc. and International
Paper Company were of particular interest in the Financial
Statement section of the analysis.
The 1969 Annual Re-
port of Bemis Company, Inc. listed in the Consolidated
Statement of Source and Application of Funds a negative
figure entitled "Proceeds from Disposals" listed under
"Funds were applied to."
Although this does not specif-
ically state that the disposal was waste related to pollution, the Body of the Report states that the Bemis
46
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47
plants have stopped burning waste and are able to sell
it as reclaimable scrape or dispose of it as sanitary
landfill.
The title "Proceeds from disposals" should be
more descriptive so the reader fully understands its
meaning.
International Paper Company listed "Anticipated
abandonments" under the Reserve section of the Balance
Sheet.
A dollar amount was listed for 1970, the year
in which the reserve was established.
The related foot-
note states:
A reserve of $78,000,000 before taxes ($39,600,000
after tax effect) was provided in 1970 for estimated
extraordinary losses to be incurred in connection
with the anticipated abandonment of facilities which
are unprofitable, obsolete or unusable and which
cannot, in the opinion of management, be niade profitable by economically justifiable expenditures
and of facilities which do not meet environmental
standards and which, in the opinion of management,
cannot be brought into compliance for similar economic reasons.-^^
Trend Analysis.—As indicated in Table 4.4, the
Forest Products and Packaging Industry has Increased its
recognition of pollution as a significant factor in all
sections of its constituent companies' Annual Reports.
The most significant factor was the Increase in all three
^^1970 Annual Report (International Paper Company,
1970), p. 32.
49
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sections of analyses of references to pollution abatement
with specific dollar amounts stated.
In the Letters to
the Stockholders the increase was from 9.1^ in 1969 to
16.7^ in 1970.
An Increase from 20.05? to 26.7^ appeared
in the Body of the Annual Reports and an increase from
4.8^ to 5.6^ appeared in the Financial Statements.
Another significant increase was the references to
pollution abatement costs included in goods manufactured.
This includes references to products manufactured which
aid in reducing pollution and references to statements
about increased costs in manufacturing these products.
These increases indicate that more companies in the Forest
Products and Packaging Industry, while probably incurring
higher pollution control cost, believe these costs are of
importance to Stockholders.
The analyses of the Annual
Reports of this industry have revealed an overall trend
toward more recognition of pollution abatement in external
reporting.
Metals
Letter to the Stockholders .—The analysis of the
Letter to the Stockholders in the Metals Industry, as revealed in Table 5.1, indicates a similarity to Letter to
Stockholders analyses of the industries previously discussed.
The increase in reference to pollution abatement
51
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was from 53.8^ in I969 to 58.3^ in 1970.
The increase is
attributable to a significant increase in references to
pollution abatement with estimated dollar amounts stated
which increased from 11.5^ in I969 to 20.8$^ in 1970.
References to pollution abatement with no dollar
amounts stated decreased slightly from 30.8^ in I969 to
29.2^ in 1970.
Another decrease was the decrease in
references to pollution abatement with specific dollar
amounts stated from 11.5^ in 1969 to 8.3% in 1970.
The overall Increase in reference to pollution
abatement tentatively indicates a trend toward reporting
pollution abatement by more companies in the Metals Industry.
However, other analyses should be considered be-
fore deriving a conclusion.
Body of the Annual Reports.—Table 5.2 reveals that
in the Metal Industry a larger Increase in references to
pollution abatement in the Body of the Annual Reports than
was evident in the analysis of the Letter to the Stockholders.
These references increased from 68.0^ in I969
to 76.2^ in 1970.
Although the references to pollution
abatement with specific dollar amounts decreased from
32.OJS in 1969 to l4.3^ in 1970, the references to pollution
abatement with estimated dollar amounts increased significantly from 8.0^ in I969 to 23.8^ in 1970.
References to
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pollution with no dollar amounts stated increased from
2a.0fo in 1969 to 38.1^ in 1970.
Table 5.2 also reveals an Increase in references
to pollution abatement costs included in goods manufactured.
1970.
This increase was from 16.0^ in 1969 to 19.0^ in
An example of such costs is the statement in the
Essex International, Inc. Annual Report of 1970 which
states, "The Essex Electro-Mechanical and Wire Assembly
Divisions are playing major roles in the development and
production of many of the new anti-pollution controls and
safety systems which will be required in the immediate
future."17
The Body of the 1970 Annual Report of Jones and
Laughlin Steel Corporation indicates that it is feeling
the full affect of pollution control legislation:
Three million dollars' worth of modern air cleaning
equipment on the basic oxygen furnace shop, completed
in 1968, is unable to meet the newly revised regulations. We are spending another $8.1 million for
additional eauipment, v/hich we expect to be Installed
by mid-1972.-^^
The unaudited Ten-Year Summary reveals "Expenditures for
environmental control" under the heading "Capital Expenditures . "
171970 Annual Report (Essex International, Inc.,
1 9 7 0 ) , p."5':
181970 Annual Report (Jones and Laughlin Steel
Corporation, 1970), p. W.
55
The Body of the 1970 Annual Report of the Aluminum
Company of America (ALCOA) indicates that it has started a
program of recycling aluminum cans:
An innovative reclamation and recycling program,
"Yes We Can," which pays 10 cents a pound for used
all-aluminum cans, was introduced on a pilot basis in
San Diego, Dallas and Port Worth. Alcoa, which is a
major supplier of can sheet but not a can maker, has
undertaken the program to help solve the nation's
litter and solid waste problems, although aluminum
constitutes less than 2 percent of these waste materials. 19
Financial Statements.—Although the analyses of the
Letter to the Stockholders and the Body of the Annual Reports Indicate an increase in the Metals Industry of references to pollution abatement. Table 5.3 indicates that
only one Annual Report of 1970 in the Metals Industry
mentions pollution control in the Financial Statements.
The Balance Sheet of General Cable Corporation list "Liability for container deposits" which does not indicate
any relation to pollution control, but if the containers
were nonreturnable they would be contributing to environmental deterioration similar to nonreturnable bottles and
cans.
References to litigation in the notes to the
Financial Statements have decreased from 11.5^ in I969
191970 Annual Report (Aluminum Company of America,
1970), p.lX
57
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58
to 8.3^ in 1970.
Overall, the analysis of the Financial
Statements in the Metals Industry reveals that this industry does not consider pollution abatement to be a significant financial factor to report in Financial Statements .
Trend Analysis.—Table 5-4 reveals that in the Metals Industry the Letter to the Stockholders and the Body
of the Annual Reports had increased references to pollution abatement from I969 to 1970.
The Letter to Stock-
holders had an increase from 53.8^ to 58.3^ in 1969 and
1970, respectively.
The Body of the Annual Reports had an
increase from 68.0^ to 76.2^ in 1969 and 1970, respectively.
The Financial Statements had a decrease in references
to pollution abatement from 19.2^ to 12.5^.
The most significant increase was in the references
to pollution abatement with estimated dollar amounts
stated in the Body of the Annual Reports.
These refer-
ences Increased from 8.0^ in I969 to 23.8^ in 1970. There
were significant decreases in references to pollution
abatement with specific dollar amounts stated.
The Letter
to the Stockholders had a decrease from 11.5^ in 1969 to
8.35? in 1970 and the Body of the Annual Reports had a decrease from 32.0^ to 14.3^, but the Financial Statements
had a slight increase from 3-8^ to 4.2^.
A,,
60
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61
Overall, the Metals Industry appears to consider
pollution abatement reporting of increasing importance
from 1969 to 1970.
The only decrease reported was the re-
ferences to litigation and contingencies in the notes to
the Financial Statements, and the only year in which a
dollar amount was stated in the actual Statements was in
1970.
Utilities
Letter to the Stockholders.—Table 6.1 indicates
that the Utilities Industry, like all five industries
analyzed, had an increase in references to pollution
abatement in the Letter to the Stockholders.
These re-
ferences increased from 48.8^ to 51.2^ in 1969 and 1970,
respectively.
The only significant increase was in the re-
ferences to pollution abatement with estimated dollar
amounts stated which Increased from 2.3^ in I969 to 5.0^
in 1970.
References to pollution abatement with specific
dollar amounts stated increased slightly from 7.0^ in I969
to 7.3^ in 1970 while references with no dollar amounts
stated slightly decreased from 39.5^ in 1969 to 36.5^ in
1970.
Only one company in the Utilities Industry included a pamphlet about pollution with their Annual Report.
Southern California Edison Company included a thirteen
62
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page pamphlet entitled Edison and the Environmental Crisis.
The following statement identifies the relationship between pollution and industry as a whole:
Industrial growth has occasionally violated the
environment in the past, and the resulting deterioration has been accepted as the price of progress.
But no longer. Industry must now find the wisdom
and the way to meet both considerations without
sacrifice to either.20
The pamphlet also states Southern California Edison Company's view concerning the cost of pollution:
Building our facilities to minimize air pollution
and to conform with other environmental demands inevitably raises the cost of construction and operation. Therefore, our environmental efforts have had
their economic impact on our operations. This added
cost eventually translates into higher rates for
electricity.21
Body of the Annual Reports.—Table 6.2 indicates in
the Utilities Industry a larger increase in references to
pollution abatement in the Body of the Annual Reports than
was found in the analysis of the Letter to the Stockholders
The increase was from 61.9^ in I969 to 82.0^ in 1970. References to pollution abatement with no dollar amounts
stated increased from 42.8^ in I969 to 53.8^ in 1970 and
references to pollution abatement with estimated dollar
2QEdison and the Environmental Crisis (Southern
California Edison Company, 1969), p. 1^•^Ibld, p. 8.
64
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amounts stated increased from 2.H% in 1969 to 7.7^ in 1970
Another increase occurred in the references to pollution
abatement costs which were stated in combination with
other items such as research and development.
This in-
crease was from no references in 1969 to 5.1% in 1970.
The only decrease in the Body of the Annual Reports analysis of the Utilities Industry was in the references to pollution abatement with specific dollar amounts
stated.
This decrease was from l6.7^ in 1969 to 15-^%
in 1970 and is insignificant as compared to the increases
in references to pollution abatement.
Financial Statements.—As indicated in Table 6.3,
there were no references to pollution abatement in any of
the Financial Statements analyzed in the Utilities Industry, but there were such references in the notes to the
Financial Statements.
Two Annual Reports in 1970 contained reference in
the footnotes to the financial statements of litigation
directly related to pollution.
Consolidated Edison Com-
pany of New York, Inc. notes legal actions pending in the
amount of almost four times the 1970 total operating
revenues:
...there are several legal actions pending against
the Company. A purported class action is pending in
67
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68
the Supreme Court of the State of New York seeking
injunctive relief and $4,001,000,000 for damages
suffered as a result of air pollution from the Company's generating plants. Counsel of the Company
is of the opinion that the injunctive relief requested will not be granted and that this is not a proper
class action under the reported decisions as to New
York law. The Attorney General of the State of New
York has also commenced an action against the Company
alleging that Indian Point No. 1 is damaging the
ecology of the Hudson River. The complaint seeks
damages in the amount of $5,000,000 and an injunction
against the operation of this plant in such a manner
as to damage the river.^2
The other Annual Report containing reference in
the footnotes to the financial statements of litigation
directly related to pollution was the 1970 Annual Report
of Florida Power and Light Company.
It states:
...an action has been brought against the Company by
Federal authorities seeking an injunction against
creating alleged present and future ecological
disturbances by the operation of such facilities.
In the event a permanent injunction is granted the
Company intends to apply for variances to operate
the facilities pending completion of appropriate
action necessary to satisfy governmental authorties.^3
Trend Analysis.—Although the analysis of the
Financial Statements does not reveal any significant recognition of pollution abatement in the Financial Statements
^^1970 Annual Report (Consolidated Edison Company
of New York, Inc., 1970), p. 23.
^31970 Annual Report (Florida Power and Light Company, 1970), p. 18.
69
of the Utilities Industry, the percentage trend analysis
as shown in Table 6.4 reveals a trend toward reporting
pollution abatement in the Letter to the Stockholders and
the Body of the Annual Reports.
The Utilities Industry,
like the other industries analyzed, appears to consider
pollution abatement to be a subject of increasing importance to Annual Report readers.
Interindustry Analysis
Letter to the Stockholders.—For the purpose of
comparing pollution reporting among the five industries
analyzed. Tables 7.1, 7.2, and 7.3 present percentages
for 1970.
Table 7.1 reveals that more than one-half the
1970 Annual Reports analyzed in each Industry contained
references to pollution abatement in the Letter to the
Stockholders.
The Energy Industry had the highest per-
centage of such references with 68^ while the Utilities
Industry had the lowest percentage with 51.2^.
Forest
Products and Packaging contained 6l.l^, Chemicals 58.8^,
and Metals contained 58.3^ references to pollution in the
Letter to the Stockholders.
The most significant factor in the comparison is
the references to pollution abatement with specific dollar
amounts stated.
The statement of specific dollar amounts
present the most useful information to stockholders.
The
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Chemicals Industry and the Energy Industry did not have
any references to pollution abatement with specific dollar
amounts stated.
The Forest Products and Packaging had the
largest amount with 16. 7^, the Metals Industry had 8.3J?
and the Utilities Industry had 7.35S.
Body of Annual Reports.—Table 7.2 Indicates a high
percentage of references to pollution abatement by all
industries in the Body of the 1970 Annual Reports.
The
Energy Industry contained 95.8^ and the Forest Products
and Packaging Industry contained 93.3^.
The lowest was
the Chemicals Industry with 62.5^ while the Metals Industry had 16.2% and the Utilities. Industry had 82.0^.
All industries analyzed had references to pollution
abatement with specific dollar amounts stated in the Body
of the Annual Reports.
The Forest Products and Packaging
Industry contained 26.7^, the Chemicals Industry had 18.7^,
the Utilities Industry contained 15-4^, Metals Industry
had 14.3^ and the Energy Industry had the lowest with
12.5^.
References to pollution abatement costs included
in goods manufactured was the highest in the Energy
Industry which contained 54.2^.
This is primarily attrib-
utable to the production of nonleaded gasolines and fuels
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which contain less pollutants.
The Forest Products and
Packaging Industry contained 26.7^, Chemicals 25.05?,
Metals 19.0^ and Utilities 12.8^ references to pollution
abatement costs for products which aid in controlling
pollution.
Financial Statements.—Table 7.3 reveals that the
only two Industries that contained any references to pollution abatement in the actual Financial Statements, excluding the notes to the Financial Statements, were Forest
Products and Packaging and Metals.
The Balance Sheets of
the Forest Products and Packaging Industry contained 5.6^
references to pollution abatement and the Balance Sheets
of the Metals Industry contained 4.2^ references to pollution abatement.
The notes to the Financial Statements of the
Chemicals, Metals and Utilities Industries contained
references concerning litigation dealing with pollution
abatement.
Chemicals had the highest with 11.8^, Metals
had 8.3^ and the lowest was the Utilities Industry with
4.9f^.
The comparison of industries in regard to reporting
pollution abatement in the Financial Statements reveals a
definite lack of reporting, by all the industries, of the
79
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affects that pollution has on the financial position of
each business.
Some reports contained statements con-
cerning expected expenditures related to pollution in the
Letter to the Stockholders or the Body of the Reports but
did not account for these contingencies in the Financial
Statements or the related Notes.
General Observations
Statements by several companies in the five industries analyzed indicate that pollution control will be
brought about because of legislation, but that the public
will pay the cost because the cost of goods sold will be
higher.
Table 7.3 Indicates a lack of financial reporting
for the effect that pollution has, and will continue to
have, on the welfare and financial position of modern day
business.
The Industries analyzed considered pollution
abatement to be a subject of significance but do not
have guidance in reporting the costs in the financial
statements.
Guidelines are needed to aid accountants in
measuring and reporting the financial affects of the
deterioration of the environment and the related control
cost. .
CHAPTER III
POLLUTION REPORTING DEFICIENCIES
AND RECOMMENDATIONS
Introduction
In the preceding chapter, the analyses determined
that pollution is recognized in most of the Annual Reports
analyzed either in the Letter to the Stockholders, Body
of the Report, or the Financial Statements.
Of the I36
Annual Reports analyzed for 1969, 109 Reports mentioned
pollution somewhere in the Report.
There were 103 of the
125 Annual Reports for 1970 which mentioned pollution.
However, there is a lack of consideration of the affects
that pollution has on the financial position of each business.
Only 18 Annual Reports of the total 26l analyzed
contained any reference to pollution in the Financial
Statements or the Notes to the Financial Statements.
Some Reports contained statements concerning expected expenditures related to pollution in the Letter to the
Stockholders or the Body of the Report but did not account
for these contingencies in the Financial Statements or
the related Notes .
81
82
The deficiencies in pollution accounting reflect
three underlying inadequacies:
(1) the "full disclosure"
principle of accounting is generally ignored,^ (2) there
are no generally accepted standards for pollution reporting, and (3) due to the lack of reporting standards, the
possible contingencies of pollution related expenditures
are not always audited to ensure that report readers receive meaningful and reliable information.
Principle of Full Disclosure
Generally accepted accounting principles are explained by the Accounting Principles Board of the American Institute of Certified Public Accountants as follows:
Generally accepted accounting principles encompass
the conventions, rules, and procedures necessary to
define accepted accounting practice at a particular
time. The standard of "generally accepted accounting
principles" Includes not only broad guidelines of
general application, but also detailed practices and
procedures.
-'-The term "adequate disclosure" is often used in
lieu of "full disclosure." For purposes of this study,
the term "full disclosure" is used. Accounting Research
Study No. 7 explains that "this enumeration is not intended to be all Inclusive, but simply indicative of the
nature and type of disclosures necessary to make financial statements sufficiently informative." For more discussion on this point see Paul Grady, Inventory of Generally Accepted Accounting Principles for Business Enterprises j Accounting Research Study No. 71 (New York:
American Institute of Certified Public Accountants, Inc.,
1965), p. 350.
83
Generally accepted accounting principles are conventional—that is, they become generally accepted by
agreement (often tacit agreement) rather than by formal derivation from a set of postulates or basic concepts. The principles have developed on the basis of
experience, reason, custom, usage, and to a significant extent, practical necessity.^
One of the generally accepted principles of accounting
is the full disclosure principle.
This principle pro-
vides that care should be exercised to be reasonably certain that the significant financial facts are appropriately disclosed either in the body of the Financial Statements or in the notes and parenthetical statements associated with them.
Many companies violated this principle
of accounting in their Annual Reports by (1) including
pollution cost and contingencies under general headings
which tend to conceal any relationship to pollution, or
(2) completely ignoring pollution cost and contingencies
for financial reporting purposes.
A majority of the violations of the full disclosure
principle are of the first type.. For example, the Body of
the 1969 Annual Report of Air Reduction Company, Incorporated contains several stated amounts of current and
expected expenditures for pollution control equipment to
meet regulations totaling more than $64.7 million.
^Accounting Principles Board, Basic Concepts and
Accounting Principles, p. 54.
84
However, the Notes to the Financial Statements simply
state:
The unexpended portion of amounts authorized for capital expenditures at December 31, I970 and I969 approximated $21,000,000 and $26,000,000, respectively,
as to which commitments have been made for approximately $4,300,000 and $12,400,000 respectively.3
The estimated $64.7 million is a significant financial
fact which should be fully disclosed in the Financial
Statements or the related notes.
Potential investors or
current shareholders could make decisions concerning ownership of stock depending upon the past, current, and expected expenditures for pollution control.
The second type of violation completely ignores
pertinent financial information in the Financial Statements
but states amounts for pollution related expenditures
and contingencies in separate sections of the Report.
The 1970 Annual Report of Crown Zellerbach and the 1970
Annual Report of Potlach serve as prime illustrations of
this violation.
The Letter
to the Stockholders in the
1970 Annual Report of Crown Zellerbach states:
The largest portion of our 1970 capital budget, apart
from necessary replacement and repair of operating
equipment, was spent to achieve our expressed goal
of improving the environment through installation
of the most modern air and water quality control
3l969 Annual Report (Air Reduction Company, Incorporated, ~T9"Sn7~^~i 2~~and 3.
85
facilities. In 1970 expenditures amounted to $9-5
million, and the rate of expenditure is expected to
increase markedly during the next five years as we
press forward with our accelerated environmental
control program.4
The Financial Statements and related notes do not mention
these expenditures or any related contingencies for the
expenditures expected over the next five years.
The President's Report in the I97O Annual Report
of Potlach states:
Our long-standing commitment to reduce pollution from
company operations needs restatement. While we have
accomplished much, we do not hesitate to install new
equipment if we believe it is effective and if we
can bear the cost. This is shown by our firm plans
to spend $55,000,000 at Cloquet and Lewiston on air
and water purification facilities plus a pulp mill
expansion occasioned by pollution abatement measures . 5
The Financial Statements and related notes do not mention
any contingencies or reserves for planned expenditures.
These are only a few of the many Annual Reports
which violate the full disclosure principle.
These vio-
lations also indicate a lack of reporting standards for
pollution reporting.
^1970 Annual Report (Crown Zellerbach, 1970), p. 5
5l970 Annual Report (Potlach, 1970), p. 4.
86
Recommendations For Reporting Standards
At present there are no standards for the conditions under which cost related to pollution should be reported, the measurement of such cost, or the amount of
disclosure in published financial reports.
Pollution re-
porting has been ignored by accounting writers although
the analyses of the Annual Reports revealed the importance of pollution to each company.
Tentative recommendations for improving pollution
accounting should include the following:
(1) A company should report pollution information when
(a) the amount is material and (b) when the amount
provides significant financial facts.
(2) Information of current and expected future expenditures should be stated in dollar amounts.
(3) The notes to the Financial Statements should contain an explanation of the extent to which the
company is observing government pollution control
regulations, both current and future.
(4) Financial facts of pollution information should
be separately stated and not combined with other
items.
This last recommendation would prevent companies
from combining contingencies for pollution control
87
equipment with the contingencies for plant expansion.
example of this is the statement of the Letter to
An
Stock-
holders in the 1970 Annual Report of Stauffer Chemical
Company.
It states:
Significant expenditures are scheduled in I971 for
the Company's pollution abatement programs.
More
stringent state and federal regulations in the area
of environmental control will increase costs of existing plant operations and investments in new plants
and equipment in the years ahead. While Stauffer has
been attempting to meet or exceed existing environmental control standards, the rapid changes in requirements and the questions of jurisdiction between
federal, state, and local governments will require
even greater management attention.6
The notes to the Financial Statements simply state:
Unexpended appropriations for the construction of
additional plant facilities approximated $20,000,000
at December 31, 1970. Portions of these amounts are
covered by firm commitments.7
If the expenditures for the Company's pollution abatement
program are significant, why are they not stated as separate amounts to provide sufficient information?
These tentative recommendations provide a basis
for further research in the area of reporting standards
and provides for a basis of auditing pollution information for financial reporting purposes.
^1970 Annual Report (Stauffer Chemical Company,
1970), p. 2.
7lbld., p. 13.
88
Audit of Pollution Information
The analyses in the previous chapter reveal inadequate reporting of pollution Information.
The major-
ity of amounts reported were in the Letter to the Stockholders and the Body of the Annual Reports.
Only amounts
stated in the Financial Statements were reviewed by auditors to determine the fairness of such figures.
In be-
half of public interest, it is important that pollution
abatement information be audited to provide accurate and
reliable information.
If pollution information is so important to the
public, stockholders, and companies, why is it not audited
at the present time?
The principal reason is that audit-
ing is limited to the basic financial statements and pollution information is usually combined with other information which makes it unnoticeable.
However, due to public
pressure and government regulations, the past trends will
change to provide progress in accounting and advance its
state of art.
The fundamental question is:
Would audited
figures provide sufficient benefits to the users of the
information, in light of the additional costs and other
problems, to warrant separate audited figures?
89
Benefits of Pollution Audit
With respect to pollution accounting, auditing will
offer such benefits as:
(1) Ensure proper disclosure of pollution information
when such information is material in the appraisal
of the company's financial situation.
(2) Tend to prevent concealed pollution information by
use of combined figures under general headings.
(3) Assure the reader of financial statements that
pollution information has been prepared accurately
and in accordance with a set of generally accepted
accounting standards.
(4) Provide comparability of pollution information
among companies.
(5) Ensure consistency of pollution reporting from one
period to another.
Regardless of the benefits of pollution audit, the costs
and problems of the audit must also be considered.
Problems of Pollution Audit
The problems of auditing pollution information as
separate financial presentations would include a lack of
standards for such an audit, the problems associated with
90
the Professional Ethics concerning forecast information,
and the increase of the auditor's potential liability.
Lack of Standards.—Since there are no generally
accepted standards for measuring, reporting, and auditing
pollution information at present, the auditor has no objective way of knowing when he can certify to the fairness
of amounts shown as pollution cost and contingencies, the
extent of disclosure or the adequacy of his audit procedures.
However, with research, standards can be developed
to assist in eliminating these limitations.
Forecast Information.—Rule 2.04 of the Code of
Professional Ethics of the American Institute of Certified
Public Accountants states:
A member or associate shall not permit his name to
be used in conjunction with any forecast of the results of future transactions in a manner which may
lead to benefit that the member or associate vouches
for the accuracy of the forecast.8
If the auditor verifies only the expenditures to a given
date, he is not lending his name to forecast information.
8code of Professional Ethics, (New York: American
Institute of Certified Public Accountants, Inc., 1970),
p. 3.
91
He is reporting on transactions that have occurred and
can be supported by examination of documents and other
objective evidence.
However, contingencies for future pollution cost
would connote forecast of future expected government regulations and public pressure.
Rule 2.04 probably pre-
vents the auditor from certifying some pollution information at the present time.
Auditor's Liability.--By reporting separate pollution information in financial statements the auditor's
liability is likely to be increased.
On the one hand,
the auditor would face the risk that he would not detect
an overstatement of pollution contingency cost.
For ex-
ample, expected government regulations might not be
properly forecast and the contingency may be overstated.
On the other hand, there is the risk that the auditor
would not discover an understatement of cost related to
pollution.
Since expected future changes required by
government regulation is not predictable, there are no
assurances that all regulations will remain unchanged or
that expected regulations will occur as expected.
It should be possible to develop audit procedures
which will detect errors in pollution reporting.
In
92
addition, the auditor may wish to reduce his potential
liability by disclosing the basis on which the amounts
are determined.
With these precautions, the audit should
not result in a significant increase in the auditor's
liability so long as he does not lend his name to forecast information.
However, there remains the problem of
additional cost involved in auditing separate pollution
information.
Additional Cost.—Extension of auditing procedures
will result in additional cost of an audit.
The cost of
auditing pollution expenditures and contingencies would
be the most for companies that do not maintain good records of current and expected cost.
However, it is prob-
able that the additional cost of an audit would be offset by the benefits that could flow from providing useful
pollution information.
The preponderance of argument favors an audit of
pollution information.
Auditing will assure the reader
that he will receive meaningful, reliable and comparable
pollution data.
These benefits outweigh the costs and
other disadvantages of an audit.
93
Suggested Audit Procedures
Suggested audit procedures are presented in the
framework of the "generally accepted auditing standards"
issued by the Committee on Auditing Procedures of the
American Institute of Certified Public Accountants.
Planning and Supervision.—The first standard of
field work states, "The work is to be adequately planned
and assistants, if any, are to be properly supervised."9
Due to the time element of auditing, the auditor should
plan to obtain from the client a schedule for the related
expenditures.
Arrangements should be made in advance to
obtain information of pending legislation and future
legislation dealing with pollution control from a reliable
source.
As in any auditing operation, the auditor should
make sure that assistants are properly qualified to perform the operation and should exercise sufficient supervision to ensure that audit procedures are properly
observed.
^Committee on Auditing Procedure, Auditing Standards and Procedures, Statements on Auditing Procedure
No";^ 3^^ (New York: American Institute of Certified Public
Accountants, Inc., 1963), ?• 16.
94
Evaluation of Internal Control.—The second standard of field work states, "There is to be a proper study
and evaluation of the existing internal control, as a
basis for reliance thereon and for the determination of
the resultant extent of the tests to which auditing
procedures are to be restricted."!^
The system of in-
ternal control should ensure that (a) all pollution related expenditures are properly recorded and (b) an
effort is made to determine future regulations on pollution controls.
Examination of Evidence.--The third standard of
field work states, "Sufficient competent evidential matter
is to be obtained through inspection, observation, inquiries, and confirmations to afford a reasonable basis
for an opinion regarding the financial statements under
examination."11
The auditor should inspect supporting
documents, recompute contingencies, and make inquiries of
management.
If pollution expenditures are capitalized,
the auditor is primarily concerned with proving that acquisitions and retirements during the year under audit
have been properly reflected in the records.
IQibld.
l^Ibld.
However, if
95
the expenditures are recorded in expense accounts, the
audit is primarily concerned with determining that items
have been appropriately classified in the accounts.
Adequacy of Reporting.—The standards of reporting
provide that the report shall state whether the financial
statements are presented in accordance with generally
accepted principles of accounting, whether such principles have been consistently observed, and whether disclosures in the financial statements are reasonably adequate.
When standards for measuring and reporting pollution information have been developed and received general acceptance, then the auditor can comply with this regulation.
Conclusion
Development of standards and an audit requirement
are the keys to better pollution reporting.
Without
standards the accountant has no ground rules for making
his audit.
Without an audit there is no assurance that
standards will be followed.
Before standards and auditing are possible, research is necessary to obtain information about the problems of issuers and the needs of users in connection
with public disclosure of pollution information.
96
Research, reporting standards and auditing are
needed "^o improve pollution reporting practice.
If the
accountl;:g profession will institute these measures,
report users will receive significant information affecting investment decisions in many companies.
CHAPTER IV
SUMMARY AND CONCLUSION
Public pressure will eventually require reporting
all cost related to pollution control in the financial
statements.
Although measuring and reporting pollution
costs is a rapidly increasing concern, accounting literature is sparse on the subject.
The accountant must be
aware of needs for standards of reporting the costs as
well as standards for auditing such cost.
The purpose of this study was to analyze efforts of
individual firms and selected industries in accounting for
and reporting pollution costs.
From this analysis, the
objective was to develop recommendations with respect to
accounting for and reporting pollution costs.
Industries
used for analysis of current pollution accounting methods
were the largest contributors to environmental deterioration and consequently face the largest pollution control
cost.
The analysis included I36 Annual Reports for I969
and 125 Annual Reports for 1970.
Each Annual Report was read separately and divided
into three sections for analysis:
97
Letter to Stockholders,
98
Body of the Annual Report, and Financial Statements.
In
the Chemicals Industry, references to pollution abatement
increased in Letter to the Stockholders from 55.6^ in I969
to 58.8^ in 1970 and increased from 5.5^ in 1969 to 11.8^
in 1970 in the Financial Statements, but there was a decrease of such references in the Body of the Annual Reports
by 10.8^ or from 73-3^ to 62.5^.
The largest increase
appeared in the Letter to Stockholders where references to
pollution abatement with estimated dollar amounts stated
more than tripled, from "5-6% in I969 to 17.6% in 1970.
The largest decrease appeared in the Body of the Annual Reports where there was a decrease from 46.7/? in I969 to
25.0^ in 1970 of references to pollution abatement costs
included in goods manufactured.
In general, no signifi-
cant trend was observed in the Chemicals Industry in reporting pollution information to the public.
The Financial Statements of the Energy Industry revealed no pollution related references, but there is a definite trend of increasing references of pollution abatement in the Letter to the Stockholders and Body of the
Annual Reports.
There were only two decreases in the
three analyses.
One was a decrease from l6.0^ in I969 to
12.5/S in 1970 of references to pollution abatement with
specific dollar amounts stated.
The other decrease was
99
from 4.0^ in 1969 to no reference in 1970 for references
to pollution abatement with dollar amounts stated in combination with other items.
Since both decreases are small
and not significant, it is apparent that in general the
Energy Industry is well aware of the Importance of pollution abatement and is considering it to be Increasingly
important for external reporting purposes.
The Forest Products and Packaging Industry has increased its recognition of pollution as a significant factor in all sections of its constituent companies' Annual
Reports.
The most significant factor was the increase in
all three sections of analyses of references to pollution
abatement with specific dollar amounts stated.
In the
Letter to the Stockholders the increase was from 9-1^ in
1969 to 16.7% in 1970.
An increase from 20.0^ to 26.7^
appeared in the Body of the Annual Reports and an increase
from 4.8^ to 5.6^ appeared in the Financial Statements.
The increases indicate that more companies in the Forest
Products and Packaging Industry are broadening the scope
of their external reporting of pollution costs.
The Letter to the Stockholders analysis and the
Body of the Annual Reports analysis of the Metals Industry reveal increased references to pollution abatement
from 1969 to 1970.
The Letter to the Stockholders had an
100
Increase from 53.8^ to 58.3/S in 1969 and 1970, respectively.
The Body of the Annual Reports reported an increase
from 68.0^ in I969 to 76.2% in 1970.
The Financial State-
ments had a decrease in references to pollution abatement
from 19.2^ to 12.5^.
The most significant increase was in
the references to pollution abatement with estimated dollar
amounts stated in the Body of the Annual Reports.
These
references increased from 8.0^ in 1969 to 23.8JS in 1970.
Overall, the Metals Industry appears to consider pollution
abatement reporting of increasing importance from I969 to
1970.
The only decrease was the references to litigation
and contingencies in the notes to the Financial Statements,
and the only year in which a dollar amount was stated in
the actual Statements was in 1970.
Although the Financial Statement analysis in the
Utilities Industry did not reveal any significant recognition of pollution abatement in the Financial Statements,
there is a trend toward greater reporting of pollution
abatement in the Letter to the Stockholders and the Body
of the Annual Reports.
The Utilities Industry, like all
the industries analyzed, appears to consider pollution
abatement to be a subject of increasing importance to
Annual Report readers.
101
As indicated by the analyses, the deficiencies In
pollution accounting reflect three underlying inadequacies:
(1) the "full disclosure" principle of accounting
is generally ignored, (2) there are no generally accepted
standards for pollution reporting, and (3) due to the lack
of reporting standards, the possible contingencies of pollution related expenditures are not always audited to ensure that report readers receive meaningful and reliable
information.
The first two inadequacies are due to a lack of
standards for conditions under which cost related to pollution should be reported, the measurement of such cost,
and the amount of disclosure in published financial
reports.
Recommendations for improving pollution account-
ing include the following:
(1) A company should report pollution information
when (a) the amount is material and (b) when the
amount provides significant financial facts.
(2) Information of current and expected future expenditures should be stated in dollar amounts.
(3) The notes to the Financial Statements should
contain an explanation of the extent to which
the company is observing government pollution
control regulations, both current and future.
102
(4) Financial facts of pollution information should
be separately stated and not be in combined
amounts with other items.
For example, contin-
gencies for pollution control equipment should
be separate from contingencies for plant expansion.
These recommendations provide a basis for further research
in the area of reporting standards and provide for a basis
of auditing pollution information for financial reporting
purposes.
The third inadequacy cited may be solved by the development of standards and an audit requirement to ensure
better pollution reporting.
Without standards the account-
ant has no ground rules for making the audit.
Without
an audit there is no assurance to third parties that
proper reporting was consistently observed.
The accounting profession should be aware of each
Inadequacy of pollution reporting and should institute
measures to ensure reporting of adequate and significant
information to Annual Report readers.
These measures
would be easier to develop at the present time than waiting
until public pressure or government regulations require reporting all cost related to pollution control in financial
statements.
It is a challenge to the accounting profession.
SELECTED BIBLIOGRAPHY
Books
American Institute of Certified Public Accountants. APB
Principles. Chicago: Commerce Clearing House,
I9F9:
Benarde, Melvln A. Our Precarious Habitat.
W. W. Norton Company, Inc., 1970.
New York:
Grady, Paul. Inventory of Generally Accepted Accounting
Principles for Business Enterprises. Accounting
Research Study No. 7. New York: American
Institute of Certified Public Accountants, Inc.,
1965.
Suits, Daniel B. Principles of Economics. New York:
Harper and Row, Publishers, Inc., 1970.
Company Annual Reports and Publications
1970 Annual Report.
Aluminum Company of America, 1970.
1970 Annual Report. Consolidated Edison Company of New
York, Inc., 1970.
1970 Annual Report.
Eastman Kodak Company, 1970.
1970 Annual Report.
Essex International, Inc., 1970.
1970 Annual Report.
Florida Power and Light Company, 1970
1970 Annual Report.
International Paper Company, 1970.
1970 Annual Report.
1970.
Jones and Laughlin Steel Corporation,
1970 Annual Report.
Stauffer Chemical Company, 1970.
103
104
Edison and the Envirohmental Crisis.
Edison Company, 196^"!
Southern California
Paper, People and Pollution...How Paper Affects the
Environment. Scott Paper Company, 1970.
The Automotive Emission Problem...Ethyl's Approach To
A Solution... Ethyl Corporation, 1969.
Westvaco and the Environment.
Westvaco Corporation, 1970
Articles in Journals or Magazines
Ayres, Robert U. and Kneese, Allen V. "Production, Consumption, and Externalities." The American Economic Review, LIX (June, I969), 2«2-97.
Bierman, Harold, Jr. "Measurement and Accounting." The
Accounting Review, XXXVIII (July, I963), 501-07.
Bylinsky, Gene.
Water."
133-34.
"The Long Littered Path To Clean Air and
Fortune, October, 1970, pp. 112-15 and
Forbes, M. C. "Cost Accounting for Pollution Control."
Hydrocarbon Processing, October, I969, PP• 145-48.
Holsendolph, Ernest. "States Join the Pollution Battle."
Fortune, October, 1970, p. II6.
Kaufman, K. A. "Issue Cloudy on Tax Relief for Pollution
Abaters." Iron Age, November 6, I969, p. 63.
"Pollution Bill Packs KO Wallop."
October 1, 1970, pp. 38-39.
"Measuring Management:
pp. 43-189.
I969."
Iron Age,
Forbes, January 1, 1970,
Morgan, John S. "Make Pollution an Asset."
Processing, June, 1970, pp. 135-38.
"Polluters Raise the Cleanup Ante."
May 15, 1971, P- ^6.
Hydrocarbon
Business Week,
105
"Putting A New Charge on an Old Cleanup Chore."
Week, October l4, 1970, p. 45.
"Treating Pollution as a Business Cost."
October 17, 1970, pp. 88-90.
Chemical
Business Week,
"Turning Junk and Trash Into a Resource."
October 10, 1970, pp. 66-75.
Business Week,
Other
Accounting Principles Board. Basic Concepts and Accounting
Principles Underlying Financial Statements of
Business Enterprises. Statement of the Accounting
Principles Board No. 4. New York: American
Institute of Certified Public Accountants, Inc.,
1970.
Collier, Boyd. "The Concept and Measurement of Disproduct." pp. 1-17. (Mimeographed.)
American Institute of Certified Public Accountants. Code
of Professional Ethics. New York: American
Institute of Certified Public Accountants, Inc.,
1970, p. 3.
McLean, David. "Heard on the Street."
Journal, March 10, 1971.
Wall Street
APPENDIX
106
107
CHEMICALS INDUSTRY
COMPANIES IN SAMPLE (n = 20)
Air Reduction Company, Inc.
Allied Chemical Corporation
American Cyanamid Company
American Enka Corporation
Celanese Corporation
Chemetron Corporation
Diamond Shamrock Corporation
Dow Chemical Company
E. I. DuPont De Nemours and Company
Eastman Kodak Company
Ethyl Corporation
Hercules Incorporation
Inmont Corporation
International Minerals and Chemical Corporation
Monsanto Company
Pennwalt Corporation
Rohn and Hass Company
Stauffer Chemical Company
Union Carbide Corporation
W. R. Grace and Company
108
ENERGY INDUSTRY
COMPANIES IN SAMPLE (n = 27)
Amerada Hess Corporation
Ashland Oil and Refining Company
Atlantic Richfield Company
Cities Service Company
Continental Oil
Dresser Industries, Inc.
Eastern Gas and Fuel Associates
Getty Oil Company
Gulf Oil Company
Halliburton Company
Kerr-McGee Corporation
Marathon Oil Company
Mobile Oil Corporation
Occidental Petroleum Corporation
Pennzoil United, Inc.
Phillips Petroleum Company
Pittston Company
Schlumberger Ltd.
Shell Oil Company
Signal Companies, Inc.
Standard Oil Company
Standard Oil Company of California
Standard Oil Company of Indiana
Standard Oil Company of New Jersey
Sun Oil Company
Texaco Inc.
Union Oil Company of California
HLH-WT
109
FOREST PRODUCTS AND PACKAGING INDUSTRY
COMPANIES IN SAMPLE (n = 23)
American Can Company
Bemis Company, Inc.
Boise Cascade Corporation
Continental Can Company, Inc.
Crown Cork and Seal, Inc.
Crown Zellerbach Corporation
Diamond International Corporation
Evans Products Company
Georgia-Pacific Corporation
Hammermill Paper Company
International Paper Company
Kimberly-Clark Corporation
Marcor
Mead Corporation
National Can Corporation
Owens-Illinois, Inc.
Potlatch Forest, Inc.
tscott Paper Company
St. Regis Paper Company
Union Camp Corporation
U. S. Plywood-Champion Paper, Inc
Westvaco Corporation
Weyerhaeuser Company
K;;^ior;;;,..5!,,V„
v^;:^r-7^'3^7;3i;^^^^fe^^^^'JP^
'" ""'
"
110
METALS INDUSTRY
COMPANIES IN SAMPLE (n = 30)
Alcan Aluminum Corporation
Allegheny Ludlum Steel Corporation
Aluminum Company of America
American Metal Climax, Inc.
American Smelting and Refining Company
Anaconda Company
Armco Steel Corporation
Bethlehem Steel.Corporation
Cerro Corporation
Cyprus Mines Corporation
Engelhard Minerals and Chemicals Corporpticn
Essex International, Inc.
General Cable Corpcration
Inland Steel Company
Interlake S^eel Corporation
International Nickel Company, Inc.
Jones and Laughlin Steel corporation
Kaiser Steel Corporation
Kennecott Copper Corporation
Lykes-Youngs'town Corporation
McLouth Steel Corporation
National Steel Corporation
Phelps Dodge Corporation
Republic Steel Corporation
Revere Copper and Brass, Inc.
Reynolds Metals Company
Scovlll Manufacturing Company
Texas Gulf Sulphur Company
United States Steel Cox^yoratlon
Wheeling-Pittsburg Steel Corporation
WBiiijwmiifUP'iy?
Ill
UTILITIES INDUSTRY
COMPANIES IN SAMPLE (n = 45)
American Electric Power Company, Inc.
American Natural Gas Company
American Telephone and Telegraph Company
Baltimore Gas and Electric Company
Central and South West Corporation
Coastal States Gas Producing Company
Columbia Gas System, Inc.
Commonwealth Edison Company
Communications Satellite Corporation
Consolidated Edison Company of New York, Inc.
Consolidated Natural Gas Company
Consumers Power Company
Continental Telephone Corporation
Detroit Edison Company
Duke Power Company
El Paso Natural Gas Company
Florida Power and Light Company
General Public Utilities Company
General Telephone and Electronics Corporation
Long Island Lighting Company
Middle South Utilities, Inc.
New England Electric System
Niagara Mohawk Power Corporation
Northeast Utilities
Northern Illinois Gas Company
Northern Natural Gas Company
Northern States Power Company
Pacific Gas and Electric Company
Pacific Lighting Corporation
Panhandle Eastern Pipe Line Company
Philadelphia Electric Company
Peoples Gas Company
Public Service Electric and Gas Company
Southern Company
Southern California Edison Company
Southern Natural Gas Company
Tenneco Inc.
Texas Eastern Transmission Corporation
Texas Gas Transmission Corporation
Texas Utilities Company
Transcontinental Pipe Line Corporation
112
Union Electric Company
United Utilities, Inc.
Virginia Electric and Power Company
Western Union Telegraph Corporation