Please read the Correction at the end of the article.
The Bombay High Court on Monday set aside the earlier orders of the power and commodity derivatives market regulators on their claim over regulatory jurisdiction of electricity futures in India.
In an order, the court ruled that the commodity derivatives market regulator, the Forward Markets Commission, must consult its counterpart in the power sector — the Central Electricity Regulatory Commission (CERC) — before allowing any futures contracts in electricity in the country.
The court also ruled that both CERC and FMC are independent regulators. Hence, they don’t have any sole/exclusive jurisdiction to regulate and control the futures and forward contracts in electricity.
FMC and MCX argued in the court that futures contracts don’t have a co-relation with the spot market, which is a complete reversal of the statement on FMC’s website.
In January 2006, the consumer affairs ministry, without consulting the power ministry, declared electricity to be a commodity. FMC then gave permission to MCX on the basis of that order. The CERC, as well as the Ministry of Power, had immediately opposed this move. When CERC refused to reverse the order, FMC and MCX took CERC to court and Power Exchange India Limited (PXIL) was made a party to it, because it had originally complained to CERC that in a deficit power situation in the country, it would be premature to allow derivatives.
The power sector in the country has been completely regulated and since even bilateral trading in electricity is itself less than 10 years old, CERC is following a calibrated and cautious approach in allowing additional contracts on power exchanges .
Since April 2009, the commodity exchange, MCX, has been involved in a court battle with the CERC and trading in electricity futures halted.
Currently, only spot trading in power is allowed by CERC on both IEX and PXIL (in which NSE and NCDEX have a 26 per cent stake. Power Finance Corporation, the state utilities of Gujarat, West Bengal and Madhya Pradesh, JSW Energy and GMR Energy are also shareholders).
The current contracts allowed on both the power exchanges are day ahead and weekly power contr-acts, which are compulsorily for delivery.
CORRECTION
This article had mentioned that Indian Energy Exchange Ltd (IEX) allowed trading of electricity futures on its platform, which is wrong and has been removed. IEX has only launched physical delivery-based contracts approved by the power regulator, Central Electricity Regulatory Commission (CERC). Also, the exchange did not file any complaint against electricity futures in CERC or in any court. The errors are regretted.
