CERC plans to hike trading margin to 7p

Written by Sanjay Jog | Mumbai | Updated: Oct 15 2009, 05:31am hrs
The Central Electricity Regulatory Commission (CERC) has proposed to increase the trading margin from 4 paisa to 7 paisa if the sale rate is more than Rs 3 on a short-term trading market. During 2006, initially CERC proposed 2 paisa trading margin and later on revised it to 4 paisa. Sources in the power regulator told FE, The draft regulations seek revision in trading margin based on the KPMG report. The objective is to

promote healthy trading market and protect consumers interest.

As per Electricity Act, 2003, one of the CERC functions is to cap trading margin, but industry sources said putting up 4 paisa trading margin eased trading of electricity as 95% of traders have sold the power at an open rated after including trading margin.

According to CERC, the licensee will not charge trading margin exceeding 1.5% of its sale price, subject to a maximum of 7 paisa per unit when the sale price exceeds Rs 3 per unit and trading margin of 4 paisa where the sale price is less than or equal to Rs 3 per unit, including all charges, except the charges for scheduled energy, open access and transmission losses. CERC added that trading margin in case of multiple trader-to-trader transactions would not exceed the trading margin cap specified under this regulation.

KPMG in its report observed that considering the change in market conditions through factors such as rise in prices of traded power, notification of new trading norms, emergence of power exchanges in the country, it has been felt by some stakeholders that the flat trading margin of 4 paise per unit may prove detrimental to the growth of trading market in the medium to long term. The overall objective, therefore, of the study was to facilitate the growth of mature bilateral trading market that, among others, helps the distribution utilities meet overall demand of power at optimum costs and promotes investments in generation by providing avenues for sale of power.

In fact capping of trading margin has virtually killed the market and there is no player involved. Further there was unprecedented price rise as prices of electricity shot-up from Rs 3 to 8 per unit with most of the additional money going to generators. For revising trading margin CERC has appointed one consultant to analyse the Risk options. In fact, currently there is no risk and in spite of financial crunch of utilities there was not a single default of payment so far in trading of power, said power analyst D Radhakrishna. He opined that instead of allowing market to determine the prices and profit margin such capping may simply jack up the power price by another 3 paisa.

A Mumbai-based analyst, who desired not to be quoted, said, The price of power is determined with the kind of power as most of the hydel power plants does not have any variable cost and most of the

thermal power plants are now buying coal from open market. At the time of

implementation of EA 2003, while introducing traders in the electricity business it was thought that monopoly of business will be over and traders with there technical strength and financial capabilities will bring competition in the market and consumers will have a choice to select the supplier. However, as of date not a single end consumer has opted to switching over the supplier.

He added, All traders are selling power to distribution companies and the tariff of discoms is also regulated and therefore, instead of making penal payment under unscheduled interchange mechanism, utilities are buying electricity from the for over drawing from the grid.