CERC seeks strict norms for power exchanges

Written by Sanjay Jog | Mumbai | Updated: Oct 22 2009, 04:01am hrs
The Central Electricity regulatory Commissions (CERC) draft power market regulations envisage tighter prudential norms for power exchanges, more teeth to power watchdog to maintain market oversight and surveillance to check market integrity.

According to the prudential norms, a power exchange will always have a minimum net worth of Rs 25 crore and it (the net worth) will be as per the last audited balance sheet. A power exchange will have a minimum current ratio of 1:1 and a liquidity ratio of 1:1. The initial security deposit paid by all members will be aggregated to create a settlement guarantee fund (SGF) of the power exchange. CERC may by order direct that SGF will not be used as initial margin of contracts to cover market risks but only other operational risks including defaults claims. CERC has sought suggestions and objections from stakeholders till November 10.

According to the draft regulations, CERC can check manipulative or attempted manipulative trading activity, trading that is misleading or deceptive, or is likely to mislead or deceive, unwarranted speculation leading to price rise, any form of cartelisation, any form of market abuse and use of dominant position by any market participant. These regulations will be applicable to existing two power exchangesIndian Energy Exchange and Power Exchange Indiaas well as the proposed exchange to be set up NTPC-led JV. Further, CERC may issue directions in a situation when there is abnormal increase or decrease in prices of electricity or sudden or unreasonable fluctuations or unwarranted changes in the prices of electricity and high volatility.

Similar directions can be issued when there are sudden high trading volumes on an exchange. Moreover, CERC without prejudice to the generality of the foregoing power may issue written order to impose floor and cap on prices of electricity in the market; suspend trading activities for a cooling off period (in case of increased volatility); and suspend contract specific trading on exchange.

It must be mentioned here that CERC has recently put cap on electricity prices for 45 days ranging between a10 paise per unit to a maximum ceiling of Rs 8 per unit.

As far as prudential norms for shareholding pattern is concerned, any shareholder other than a member of the power exchange can have a maximum (whether directly or indirectly) of 25% shareholding in the power exchange. A member of the power exchange can have a maximum (whether directly or indirectly) of 5% shareholding in the power exchange. In total, a power exchange can have a maximum of 49% of its total shareholding owned by entities which are members of the power exchange.