IEX suggests changes in draft power mkt norms

Wants norms to spell out a clear roadmap for power market development

Days before the Central Electricity Regulatory Commission (CERC) announces the final version of power market regulations, the Indian Energy Exchange (IEX), the largest power exchange in the country, has demanded the norms to spell out a clear roadmap for power market development.

The power market regulations are aimed at providing the guidelines for functioning of power exchanges, ensuring adequate price discovery thereby helping the power market grow. IEX alone accounts for a major chunk — over 90 per cent — of the power traded electronically in the short-term market in India.

Recommending modifications in the draft regulations which were published by the regulator earlier this year, IEX has called for a change in the commission’s approach of “micro managing” issues in the draft. “The regulation is leaving the macro management on power exchanges and is concentrating more on micro management. For example, too many restrictions on margins and net worth have been imposed. However, there is no discussion on standardisation of technology and rating of exchanges,” IEX has stated in its comments on the draft.

The commission had defined its approach for these regulations as to “manage the macro picture with adequate safeguards and leave micro management to participants” in the explanatory memorandum of the draft in September this year.

The exchange has also commented that the draft has left open price discovery methodology to be decided by the exchanges “although it is the primary responsibility of a regulator.”

A senior official from the promoter group of IEX said there should be more “regulatory consistency” between the guidelines for setting up power exchanges published in 2007 and the proposals in the drafted norms. “For instance, at that time it was decided collectively that the maximum shareholding limit should be 49 per cent. But now the draft has proposed a limit of 25 per cent and 5 per cent individually,” he said. The commission has proposed that a shareholder — other than a member of the power exchange — cannot have more than 25 per cent stake in the exchange. The shareholding limit for a member has been placed at 5 per cent.

The IEX has also argued that the provision will mean that no shareholder remains in a leadership position, which might impact the investor’s willingness to infuse capital. “In view of this, we have requested CERC to keep the maximum shareholding criteria at 40 per cent instead of 25 per cent,” said the official.

Another point of contention is the net worth criterion. The commission has stated in the draft norms that while an exchange is required to maintain a net worth of Rs 25 crore, this net worth requirement will reduce to Rs 5 crore as soon as the exchange hives off its clearing corporation — a separate entity for settlement of contracts. The exchange, on its part, maintains that an investment of Rs 5 crore is too low for a technology-intensive organisation like an exchange.

The regulator has, however, discarded IEX’s comments. “Maximum net worth of 5 per cent is justified. Once a power exchange hives off its clearing corporation, why does it need so much money only to run the platform?” asked a senior CERC official.

“A power exchange should be a demutualised body. Through these regulations, we have tried to separate the ownership or management of an exchange from the players. The draft clearly spells out a clear roadmap for market development,” he added.

The regulator was likely to announce the final power market regulations on January 10, another senior official from CERC informed.