Power futures in FMC domain,insists Khatua

The country’s power regulator, the Central Electricity Regulatory Commission (CERC), has adjourned the hearing of a case regarding the jurisdiction of the Forward Markets Commission (FMC) in granting permission for electricity futures, till February.

As the CERC has not passed any stay order in the case, futures trading in electricity will continue on the Multi Commodity Exchange (MCX).

The case was first heard by the CERC on Tuesday. The power regulator’s Chairman, Pramod Deo, had heard the petitioner Power Exchange India’s (PXI’s) argument.

PXI is promoted by the National Commodity & Derivatives Exchange (NCDEX) and the National Stock Exchange of India (NSE). Half a dozen others have equity stakes for trading in the exchange.

PXI filed a petition with CERC, claiming that electricity was not a commodity and therefore, FMC could not have any jurisdiction over its futures trading. The petition made MCX a respondent.

“The lawyer of the petitioner, PXI in this case, asked for adjournment of the case as he wanted time to answer the respondent’s, in this case, the Multi Commodity Exchange’s arguments and we accepted the request. Now, it is up to the PXI lawyer for the new hearing date,” Deo said.

When asked about the merit in the claim, Deo said, “Both sides will have to convince us. Our decision will come after hearing is over.”

On the new hearing date, the decision will be taken whether the case is maintainable or not, he added.

Deo confirmed that the MCX, on its part, has already submitted its arguments, which apparently said that the exchange launched electricity futures on January 9 with mandatory permission from the FMC.

Meanwhile, FMC Chairman B C Khatua claimed that electricity futures is in the domain of the Forward Contract (Regulation) Act, 1952 until delivery takes place on futures platform. When the electricity is delivered, the contract becomes the domain of CERC, he added.

On Wednesday, existing contracts are the “derivatives of electricity” and not the “electricity”, which is financial derivatives and not the contract of the actual commodity. These two should not be mixed as has been done in the case, Khatua explained.

The delivery of electricity is optional, which can be decided mutually. It is not a compulsory delivery contract, Khatua claimed.

The contracts available for trading on the MCX throughout the week, has trading unit as 1MW x 24 hrs with tick size as Rs 1 per MWh. The delivery is optional for both buyers and sellers and due date rate (DDR) is the average of daily system prices of day-ahead market of Indian Energy Exchange (IEX) for delivery during the contract week/month. At any point of time, eight weekly contracts and four calendar month contracts are available for trading.

The total annual market size (electricity generation) in 2007-08 stood at Rs 2,00,000 crore (for 665 million MWh @ Rs 3000/MWh), that is, about 665 billion units. The present short term market per year is around 4 - 5 per cent of the total market i.e. Rs 13,500 crore (30 million MWh @ 4500 per MWh) which is equivalent to about 30 billion units.