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US: ODS investigation delays PG&E offset tender

18 Jun 2014 22:51:10 | edcm

Utility Pacific Gas & Electric (PG&E) delayed a formal process to buy California carbon offsets and asked for lower prices in the wake of the Air Resources Board (ARB) investigation into whether 4.4m credits should be invalidated, offset sources told ICIS.

PG&E, one the three large Californian investor-owned utilities (IOUS), launched a tender in March for buying a minimum of 25,000 offsets that could be delivered over multiple years.

IOUs are subject to more restrictive rules than other compliance entities when it comes to offset procurement. Those rules are to ensure ratepayers are not adversely impacted by the carbon market. For example, IOUs can only buy credits where the seller assumes the invalidation risk, so-called golden offsets, and the credits must have an invalidation period of three years.

PG&E had shortlisted an unknown number of participants prior to the ARB’s announcement on 29 May that it would start a formal review of 25 ozone-depleting substances protocol (ODS) projects that have generated 4.4m credits from a facility not in compliance with a federal environmental law ( see EDCM 29 May 2014 ).

The tender, called a request for offer, was supposed to conclude on 11 June, according to PG&E documents. Offset sources, however, told ICIS that the utility was still negotiating deals with parties and had taken an aggressive approach to pricing after the ARB began the investigation.

One source said the ODS investigation came as some parties were submitting their final offers. As a result, the utility tried to negotiate lower prices.

Another offset source confirmed the delay and cited the timing of the ODS investigation as the cause.

The first source, however, added that he considers it unlikely that the utility would walk away and not buy offsets.

A PG&E spokesman said he could not comment on the ARB investigation or where the company was in the process of buying offsets.

Compliance entities, including IOUs, have been hesitant to use offsets due to the small discount they have to California carbon allowances and the risk of invalidation.

The ARB can invalidate offsets if they are not in compliance with state or federal laws. Credits can also be invalidated if they are overstated by more than 5% or are used in another compliance programme.

Allowances are trading in the $11.66-$12.18/tonne of CO2 equivalent (tCO2e) range depending on the delivery date and vintage year. Offsets are selling between $8.00-10.00/tCO2e. Dan X. McGraw

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