PENNVEST Webinar Outreach Slides

Paul MarchettiExecutive Director, PENNVEST

August 5, 2010

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Objectives of Presentation

• Background description of PENNVEST’s clearinghouse services

• Introduce rulebook

• Mock auction description

• Announce upcoming dates and initiation process of PENNVEST’s clearinghouse services

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Overview• PENNVEST will provide stakeholders the option to use its

“clearinghouse” services to participate in the state’s nutrient credit market

• PENNVEST has spent the past year, through iteration and multiple outreach sessions with stakeholders, designing the structure of the clearinghouse

• Goal of PENNVEST services:– Reduce transaction costs and risks to market participants – Be customizable to reflect different needs– Require risk-mitigating assurances so that transaction risk to both

PENNVEST and market participants is reduced

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Basic Clearinghouse Functions• PENNVEST will host the following types of market events, with

the schedule and frequency based on stakeholder interest:

– Provide auctions and clearing for multi-year forward contracts

– Provide auctions and clearing for “spot” contracts at the end of the compliance year

– Clearing of bilaterally negotiated prices and credit quantities between self-identified counterparties

– Option contracts to accommodate property developers’ multi-step regulatory approval process

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Rulebook• PENNVEST’s services and the process for entering into contracts

are described further in a rulebook available on PENNVEST’s website

• The rulebook is a formal description of how PENNVEST’s clearinghouse will operate, which is consistent with descriptions presented over previous year, and describes the process by which participants can enter into contracts with PENNVEST

• PENNVEST is accepting comments on the rulebook

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Mock Auction• PENNVEST and CCX will be administering a mock nutrient

credit auction Friday, August 27, 2010 to:

– Engage in outreach to potential market participants

– Become accustomed with the process of administering auctions

• PENNVEST has created a document that provides background detail about the mock auction and is available on PENNVEST’s website

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Structure of Mock Auction• Step 1: Participants notify PENNVEST of interest in participation

by Wednesday August 25 by submitting provided form

• Step 2: PENNVEST confirms registration

• Step 3: Submit mock bid/offer to CCX on Friday August 27

• Step 4: CCX announces results week of August 30

• Step 5: Debriefing session on Wednesday September 15

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Format of Mock Auction• Participation is voluntary as mock auction is purely for educational and

informational objectives

• Nutrient contracts will be specified in advance: spot and five-year strips for each pollutant in each basin (8 contracts in total)

• Bid / offer limits: each participant can submit one bid to buy or one offer to sell for each contract

• Auction will be sealed-bid single-round

• Auction will be uniform price for each specified contract

• PENNVEST will be a counterparty to all market participants (i.e., will effectively be two simultaneous auctions: regular auction for buyers and reverse auction for sellers)

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Contract Types in Mock Auction

Contract Number Basin Pollutant Contract Type Price ($/lb)

Contract 1 Susquehanna Nitrogen Spot

Contract 2 Susquehanna Nitrogen Five-Year Strip

Contract 3 Susquehanna Phosphorus Spot

Contract 4 Susquehanna Phosphorus Five-Year Strip

Contract 5 Potomac Nitrogen Spot

Contract 6 Potomac Nitrogen Five-Year Strip

Contract 7 Potomac Phosphorus Spot

Contract 8 Potomac Phosphorus Five-Year Strip

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Sample Auction Bid Form(offer form is analogous)

Contract Number Bid Price Quantity "Partial Fill" or "All-or-None"

Bid 1

Bid 2

Bid 3

Bid 4

Bid 5

Bid 6

Bid 7

Bid 8

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Auction Example: Bids/Offers(Basin “A”, nitrogen, spot contract)

Demand for Credits Supply of Credits

Purchaser Number

Maximum Willingness-

to-Pay (per lb N)

Quantity (lb N)

Cumulative Demand

Project Number

Minimum Willingness-to-Sell (per lb N)

Quantity (lb N)

Cumulative Supply

1 $10.00 10,000 10,000 1 $2.50 25,000 25,000

2 $9.00 25,000 35,000 2 $3.75 150,000 175,000

3 $6.00 125,000 160,000 3 $5.25 225,000 400,000

4 $5.00 250,000 410,000 4 $7.00 100,000 500,000

5 $4.50 200,000 610,000 5 $8.00 80,000 580,000

6 $4.00 75,000 685,00011

Results from Example• All bids “all/none”; all offers “partial”

• 160,000 credits purchased and sold at $4.77/lb

• Bids #1, #2, and #3 each have bids completely filled

• Offer #1 sells 25,000 credits and offer #2 sells 135,000 credits

• $4.77 is calculated as weighted average of:– last successful offer: $3.75 weighted by 150,000 / 275,000– last successful bid: $6.00 weighted by 125,000 / 275,000

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Upcoming Dates• Wednesday August 18: in-person meeting with PENNVEST,

DEP, and CCX staff in Harrisburg

• Wednesday August 25: last date to notify PENNVEST of interest in participating in mock auction

• Friday August 27: mock auction administered by CCX

• August 30: mock auction results announced this week

• Wednesday September 15: debriefing session for mock auction participants

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Webinar Participants

• All webinar participants are requested to send an email to Paul Marchetti (pmarchetti@state.pa.us) to indicate their presence on the webinar

• Please indicate in the email if you intend to participate in the mock auction

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Background Information

• Background information about PENNVEST’s clearinghouse role:http://www.portal.state.pa.us/portal/server.pt/community/pennvest/9242

• Background information about Nutrient Trading Program:http://www.dep.state.pa.us/river/Nutrient%20trading.htm

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Contact Information

• Please feel free to contact me for additional questions:

Paul MarchettiPENNVESTExecutive Director717-783-4496pmarchetti@state.pa.us

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