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Saturday, October 23, 2021

CERC-Sebi resolution: Longer term power derivatives allowed

The long-pending dispute between the Securities and Exchange Board of India (Sebi) and the Central Electricity Regulatory Commission (CERC) has finally been resolved with the Supreme Court favourably disposing of the matter as per the terms of the agreement reached upon by the two parties.

By: ENS Economic Bureau | Mumbai |
Updated: October 8, 2021 3:49:29 am
Power station in Panchkula. (File)

A 10-year-old regulatory jurisdiction issue regarding power markets has now been fully clarified and resolved, paving the way for introduction of various delivery-based contracts with longer duration on power exchanges.

The long-pending dispute between the Securities and Exchange Board of India (Sebi) and the Central Electricity Regulatory Commission (CERC) has finally been resolved with the Supreme Court favourably disposing of the matter as per the terms of the agreement reached upon by the two parties.

Sebi and CERC have come to an agreement that the latter will regulate all the physical delivery-based forward contracts whereas the financial derivatives will be regulated by the market regulator.

According to the Power Ministry, the resolution has opened the gate for introduction of longer duration delivery-based contracts in the power exchanges which has been currently restricted to only 11 days due to the pendency of the case. “This will enable the discoms and other large consumers to plan their short-term power procurement more efficiently,” the Ministry said in a statement.

Similarly, the commodity exchanges, including MCX, can now introduce financial products like electricity futures which will enable the discoms and other large consumers to effectively hedge their risks of power procurement. “… This will bring newer products in the power/commodity exchanges and attract increased participation from genco, discoms, large consumers etc, which will eventually deepen the power market,” it said.

All Ready Delivery Contracts and Non-Transferable Specific Delivery (NTSD) entered into by members of the power exchanges will be regulated by CERC. The contracts are settled only by physical delivery without netting and the rights and liabilities of parties to the contracts are not transferable. Commodity derivatives in electricity other than Non Transferable Specific Delivery (NTSD) contracts as defined in SCRA will fall under the regulatory purview of the Sebi.

“… Distribution companies and other large consumers would be able to utilise such contracts to better plan their portfolio requirements in a more efficient and transparent manner. Such contracts effected through the power exchange would ensure payment timeliness and guarantees,” said Prabhajit Kumar Sarkar, MD & CEO, Power Exchange India Limited.

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