The long-pending matter between SEBI and CERC regarding regulatory jurisdiction of electricity derivatives finally got resolved with the Supreme Court, on October 6, 2021, favorably disposing of the matter in terms of the agreement reached upon by SEBI and CERC.
The Union power ministry 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 October 26, 2018, under the Chairmanship of the Additional Secretary, Ministry of Power with representatives from various government and private entities.
Expressing his views, Prabhajit Kumar Sarkar, MD & CEO, PXIL, said that this landmark judgement paves the way for the introduction of longer duration contracts on power exchanges. (Read more)
The committee submitted its report on October 30, 2019, with the following recommendations:
- 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 conditions.
- Commodity Derivatives in electricity other than Non Transferable Specific Delivery (NTSD) Contracts as defined in SCRA shall fall under the regulatory purview of SEBI.
- The Central Government reserves the right to impose additional conditions from time to time as it may deem necessary.
- A Joint Working Group between SEBI and CERC shall be constituted with terms of reference as agreed in the report of the Committee.
Agreement reached
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 SEBI.
Impact
This settlement is expected to have far-reaching positive impacts:
- This has opened the gate for introduction of longer duration delivery-based contracts in the power exchanges which has been currently restricted to only 11 days due to the pendency of the case.
- This will enable the 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 the Discoms and other large consumers to effectively hedge their risks of power procurement.
- This is a significant development and has the potential to change the landscape of the power market in the country. 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.
- This will further deepen the power market from the present level of approximately 5.5 per cent of the volume to the targeted volume of 25 per cent by FY25, the government estimates.
