CERC reviewing power trading margin cap

The Central Electricity Regulatory Commission (CERC), the apex power sector regulator, is reviewing the 4 paise per unit cap on power traders’ margin to assess if it is impacting the viability of power trading business in India.

“We are reviewing the cap. The commission has received some representations (from the traders) arguing that 4 paisa (cap) is not adequate,” said a senior CERC official.

The traders have challenged the cap and the case is pending in the Supreme Court since 2006. “If it has to be done, it will be done through discussion and consultation,” the official said, adding that the commission would wait for the court’s decision in the matter.

Asked if the commission was worried about loss of profitability of power traders, the official said, “No view has been taken yet”.

Another official from the commission, however, said, “There is a question of the relevance of such a trading margin in a changed business scenario (proposal to allow forward trading on power exchanges)”

Currently, there are two full-time functional power exchanges in the country — the Indian Energy Exchange (IEX) and Power Exchange India Ltd (PXI). Electricity is also traded at the Multi Commodity Exchange (MCX). Power exchanges are allowed to carry out only short-term (day-ahead) transactions.

Earlier this year, however, both exchanges sought permission to launch long-term (week-ahead and month-ahead) transactions.

“When these term-ahead transactions are approved, they will do the same business as traders. We have to find out if there is a level-playing field,” said the second official.

The commission had imposed the cap in view of the high margins being charged by the traders. “The margin was fixed in a certain context. Things have changed since then. We are getting a study done into various business risks involved in trading,” said another CERC official. More than 90 per cent power trading carried out in the first half of 2005-06 was at margins of over 10 paise per unit of power traded.

Power traders refused to comment on the issue saying the matter was sub-judice.