CERC drafts laws to stop market abuse

Proposals allow it to issue directions in cases of anti-competitive pacts

The Central Electricity Regulatory Comm-ission (CERC) has issued draft regulations intended to prevent abuse of market power and regulate the conduct of companies harming or potentially harming competition in the sector.

The proposals allow it to issue directions in the event of anti-competitive agreements, abuse of dominant position or anti-competitive combinations entered into by any entity, licensee, deemed licensee and licence-exempt ones.

An agreement can be construed to have an anti competitive impact if it leads to creation of barriers to new entrants in the market; driving existing competitors out of the market and affecting long-term planning and quality of supply. When a power purchase agreement between generator and buyer bars the market to a new entrant, long-term consumer interest is likely to be adversely affected and provides a reason for the regulator to step in. Further, agreements not to invest in new technology to bring down the cost of producing electricity might restrict market development.

TWO-PRONGED STRATEGY

• Draft rules aim is two fold: Promotion of competition and monitoring conduct of players in the sector
• Envisages close links between power regulators and CCI on issues pertaining to abuse of market power, deals that are anti-competitive and abuse of dominant position
• Proposes penalty of Rs 1 lakh and imprisionment for three months for non compliance

Pramod Deo, chairman, CERC, told Business Standard: “The Electricity Act, 2003, places considerable emphasis on competition and competitive markets as a means to achieve consumer welfare, promote efficiency and attract investments in the sector. These regulations, framed under Section 60 of the Act, strive to achieve the balance between the application of objectivity and flexibility in a manner that is principled and predictable to the entities. The objective of these draft regulations is to promote competition in the power market, which is still evolving.”

CERC might initiate an investigation under these regulations on receipt of a petition or on its own initiative. After giving the other party an opportunity of being heard, a penalty not exceeding Rs 1 lakh for each contravention could be imposed and in case of a continuing failure, with an additional penalty extending to Rs 6,000 every day during which the failure continues after contravention of the first such direction.

These are in accordance with the provisions of Section 142 of the Act. Further, the defaulter would be punishable with imprisonment for up to three months or with a fine, which might extend to Rs 1 lakh, or with both in respect of each offence and in the case of a continuing failure , with an additional fine which could extend to Rs 5,000 for every day during which the failure continues after conviction for the first such offence. Further, if any matter is referred by the CERC to the Competition Commission of India (CCI), the provisions of the Competition Act, 2002, would apply, and the penalties applicable determined by CCI.