PENNVEST Webinar Outreach Slides Paul Marchetti Executive Director, PENNVEST August 5,

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 2

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 3

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 4

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 5

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 6

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 7

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) 8

Contract Types in Mock Auction Contract NumberBasinPollutantContract TypePrice ($/lb) Contract 1SusquehannaNitrogenSpot Contract 2SusquehannaNitrogenFive-Year Strip Contract 3SusquehannaPhosphorusSpot Contract 4SusquehannaPhosphorusFive-Year Strip Contract 5PotomacNitrogenSpot Contract 6PotomacNitrogenFive-Year Strip Contract 7PotomacPhosphorusSpot Contract 8PotomacPhosphorusFive-Year Strip 9

Sample Auction Bid Form (offer form is analogous) Contract NumberBid PriceQuantity "Partial Fill" or "All-or-None" Bid 1 Bid 2 Bid 3 Bid 4 Bid 5 Bid 6 Bid 7 Bid 8 10

Auction Example: Bids/Offers (Basin “A”, nitrogen, spot contract) Demand for CreditsSupply 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$ ,000 1$2.5025,000 2$9.0025,00035,0002$ ,000175,000 3$ ,000160,0003$ ,000400,000 4$ ,000410,0004$ ,000500,000 5$ ,000610,0005$8.0080,000580,000 6$4.0075,000685,000 11

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 12

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 13

Webinar Participants All webinar participants are requested to send an to Paul Marchetti to indicate their presence on the Please indicate in the if you intend to participate in the mock auction 14

Background Information Background information about PENNVEST’s clearinghouse role: /community/pennvest/9242 Background information about Nutrient Trading Program: 0trading.htm 15

Contact Information Please feel free to contact me for additional questions: Paul Marchetti PENNVEST Executive Director