Resolution of SEBI-CERC jurisdiction issue to deepen power market, says power ministry

Resolution of the jurisdiction issue between market regulator SEBI and electricity regulator CERC, will further deepen the power market and pave the way for the introduction of longer duration delivery-based contracts on exchanges, the Power Ministry said on Thursday.

The statement came a day after the Supreme Court disposed of the long-pending matter between the SEBI and the CERC regarding regulatory jurisdiction of electricity derivatives.

"10 years long pending jurisdictional issue related to power market between CERC (Central Electricity Regulatory Commission) and SEBI (Securities and Exchange Board of India) resolved by Supreme Court," the ministry said in a statement.

It mentioned that the power sector had been waiting for the big reforms for more than 10 years which were held up due to the jurisdiction issues between the two regulators.

On October 6, the long-pending matter between SEBI and CERC regarding regulatory jurisdiction of Electricity Derivatives has finally got resolved with the Supreme Court favourably disposing of the matter in terms of the agreement reached upon by the SEBI and the CERC, the ministry said.

This will further deepen the power market from the present level of approx. 5.5 per cent of the volume to the targeted volume of 25 per cent by 2024-25.

This has opened the gate for introduction of longer duration delivery-based contracts on the power exchanges which has been currently restricted to only 11 days due to the pendency of the case, the ministry informed.

This will enable discoms and other large consumers to plan their short-term power procurement more efficiently. Similarly, the commodity exchanges viz. MCX etc. can now introduce financial products viz. electricity futures etc. which will enable discoms and other large consumers to effectively hedge their risks of power procurement, it stated.

This is a significant development and has the potential to change the landscape of the power market in the country, it added.

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.

The ministry stated that it took the initiative of resolving the jurisdictional issue between SEBI and CERC with regard to various forms of contracts in electricity for efficient regulation of electricity derivatives by constituting a committee on 26th October, 2018.

The committee submitted its report on October 30, 2019.

It had recommended that All Ready Delivery Contracts and Non-Transferable Specific Delivery (NTSD) Contracts as defined in the Securities Contracts (Regulation) Act, 1956 (SCRA) in electricity, entered into by members of the power exchanges, registered under CERC (Power Market) Regulations, 2010, shall be regulated by CERC subject to some conditions.

Theses conditions includes that the contracts are settled only by physical delivery without netting. Besides the rights and liabilities of parties to the contracts are not transferable.

It also provided that no such contract is performed either wholly or in part by any means whatsoever, as a result of which the actual delivery of electricity covered by the contract or payment of the full price therefore is dispensed with.

It also provided that no circular trading shall be allowed and the rights and liabilities of parties to the specific delivery contracts shall not be transferred or rolled over by any other means whatsoever.

The conditions also provided that all information or returns relating to the trade, as and when asked for, shall be provided to the CERC, who shall monitor the performance of the contracts entered into on the power exchanges.

The committee had also recommend that Commodity Derivatives in electricity other than Non Transferable Specific Delivery (NTSD) Contracts as defined in SCRA shall fall under the regulatory purview of SEBI.

Based on the recommendations of the Committee both SEBI and CERC have come to an agreement that CERC will regulate all the physical delivery based forward contracts whereas the financial derivatives will be regulated by the SEBI. The power ministry issued the suitable order on July 10, 2020.