All eyes on High Court ruling on regulatory jurisdiction over power derivatives
MCX, Forward Markets Commission pleas against CERC.

Kripa Raman

Mumbai, Oct. 24

The curtains might be drawn soon on one more regulatory issue in the country. Whether the Forward Markets Commission or the Central Electricity Regulatory Commission will have jurisdiction over trading in electricity derivatives will be decided any time now by the Bombay High Court.

The hearings in the matter of the two cases of FMC and Multi-Commodities Exchange against CERC got over last week and the court is expected to deliver its verdict shortly, according to sources. An official at MCX (which had started electricity derivatives in January 2009) said it discontinued trading in February this year because of the dispute.

Meanwhile, it is little known that at a meeting of a Committee of Secretaries a couple of months ago, it was decided that till the dispute is resolved, CERC will omit the provisions relating to electricity derivatives from its power market regulations; and that the Department of Consumer Affairs will de-notify electricity under Section 15 of the Forwards Contracts Regulations Act.

There will be no trading in electricity futures for the time being, said the minutes of the committee. The decision to introduce this will be taken by the Central Government “at an appropriate time with the concurrence of FMC/Department of Consumer Affairs and CERC/ Ministry of Power.”

CERC had notified its power regulations in January, saying that these regulations would govern spot contracts, term ahead contracts, derivatives and other electricity-related contracts. The committee has asked CERC to omit the provisions relating to electricity derivatives. In the case of FMC, the Department of Consumer Affairs had declared electricity a commodity in early 2006.

It was on the basis of this that FMC – the regulator for commodities in India – assumed regulatory control over electricity futures and granted permission to Multi-Commodities Exchange (MCX). The Department will have to denotify electricity, said the committee. The committee also decided that the Department of Legal Affairs will obtain the permission of the Attorney-General on regulatory jurisdiction in electricity derivatives.

The dispute started when Power Exchange of India (in which NSE is a promoter) complained to CERC saying that electricity futures are within the domain of CERC and that FMC cannot give permission to MCX for electricity derivatives.

CERC passed an order saying that only it had jurisdiction over electricity trading, including derivatives, and that MCX would have to get its permission to start derivatives trading. At this, FMC filed a writ petition in Bombay High Court in late 2009 against CERC.

Early this year, CERC notified its power market regulations, making it clear that its rules will govern all electricity related contracts, including derivatives. MCX had to discontinue trading in derivatives.

It was at this point that in February MCX filed a writ petition against CERC. FMC's writ petition at the court was admitted at around the same time. The High Court decided to hear the cases simultaneously.