MCX move to launch electricity future faces legal hurdle

Updated: Dec 24 2008, 05:25am hrs
Multi Commodity Exchanges (MCX) move to launch electricity futures contracts has been challenged legally. Power Exchange India (PEX), promoted by National Stock Exchange (NSE) and National Commodity and Derivatives Exchange (NCDEX), has approached the Central Electricity Regulatory Commission (CERC) with a plea that MCX-promoted Indian Energy Exchange (IEX) be restrained from introducing, selling, marketing or otherwise dealing in any manner with electricity futures contracts. They should be restrained from introducing any products whether termed as futures contracts or any other contracts, that involve dealing in, trading.

PEX has also made the Forward Markets Commission (FMC) as a respondent apart from MCX and IEX. MCX has already sought FMCs permission to start electricity futures contracts. Infact, PEX has questioned the FMCs jurisdiction to deal with electricity.

It is submitted that electricity is not a commodity as envisaged under the provisions of the Forward Contract (Regulation) Act, 1952 (FCRA). Further, the provisions of the FCRA, the Rules framed thereunder and the diverse notifications issued thereunder, do not provide any jurisdiction to FMC to deal with electricity.

PEX argued that the impugned contracts, if allowed to be traded over the commodity exchange of the MCX, as proposed, will severely distort the electricity market, cause impediments in the operations of its power exchange.

In any event, it is respectfully submitted that duality of regulatory oversight of the electricity sector is neither legally permissible but it is also not consistent with a comprehensive policy on creation of markets. CERC chairman Pramod Deo told FE on Monday CERC has received PEXs petition.

PEX submitted that MCX is not a power exchange approved by the CERC. Therefore, it cannot undertake any activity that involves dealing in any form of trading and/or delivery of electricity. Any activities undertaken by it, as proposed, will have an adverse impact on its business. Para 5.7.1(d) of the National Electricity Policy mandates that any development in the power exchange has to be carried out by way of a consultative process with all concerned. This was also reiterated in the CERCs order of September 19, 2008. However, MCX appears to be avoiding the entire consultative process and the scrutiny of the CERC, PEX said.

Moreover, PEX said the Electricity Act, 2003 is a special Act dealing with the various aspects of the electricity industry, which includes, inter alia, the development, promotion and regulation of a power exchange under section 66 of the Act read with the National Electricity Policy.

Any activity of power exchange has to be approved by the CERC in the manner indicated by it in its order dated February 6,.2007. Therefore, any permission to launch any product in relation to electricity can be considered only by CERC.