The Central Electricity Regulatory Commission (CERC)  has ordered a comprehensive audit of all three power exchanges in the next six months and the elimination of manual entries of bids and cancellation/modification of bids outside of trading hours, citing multiple violations.

In a suo motu order, the CERC said its staff will conduct an audit of the processes and software of all three power exchanges with the help of suitable agencies to ensure the provisions of Power Market Regulations 2021 are followed.

The audit will be completed within six months from the date of the order. The designated agencies must submit their report within three weeks of completion of the audit.

Based on the findings in the audit report, the Commission may issue further directions as deemed necessary.

Background

The CERC, through the Market Surveillance Committee (MSC) reports, identified that there was no uniformity in the contents of the reports submitted by the three power exchanges – Indian Energy Exchange, Power Exchange India, and Hindustan Power Exchange.

It observed that there have been instances of manual entry and cancellation of bids outside of trading hours and, in some cases, extension of market hours.

The CERC noted that in reports for Q1 2019-20 to Q3 2023-24, there has been an increasing trend of such instances, especially in 2022-23.

The exchanges, in their submission, cited reasons such as operational and communication issues, unavailability of workforce on a round-the-clock basis, and bids placed during non-office hours.

The CERC said it believes that accommodating such requests to enter bids on the members’ behalf can provide a potential breeding ground for market manipulation. It goes against the principle of anonymity and transparency of collective transactions.

In the past, the CERC had allowed members to cancel their bids after trading hours up to five times a year.

One of the power exchanges, in its Risk Assessment and Management Committee and MSC report, mentioned reasons like members facing difficulty in placing bids, non-installation of the latest software by some of the members, and events like policy restrictions (Payment Security restriction on DISCOMs) that led them to extend the trading hours.

No Manual Bids

The Commission noted that power exchanges must operate in a fair, transparent, and competitive manner to maintain the faith of market participants and stakeholders.

While being flexible in dealing with system exigencies and accommodating members’ requests, the Commission believes key elements of the double-sided closed auction process with uniform price discovery, like bid entry procedures and timelines, must be strictly complied with to avoid any market manipulation.

The Commission has ordered that there must be no manual entry of bids by power exchanges on behalf of their members within or outside of trading hours.

No bids must be accepted by the power exchanges after the trading hours.

The central regulator also directed the exchanges to build a robust system with end-to-end encryption of data from the trading workstation of members and the trading platform. This is to ensure that the entire trail of the bidding session, starting from submission till the end, is encrypted to ensure bid anonymity and market integrity is maintained.

The data must not be made available to anyone till bid matching and finalization of the results.

Power exchanges are to make necessary changes to their existing system and report compliance to the Commission.

Bids entered by a member of the exchange must be first checked against the availability of funds or collateral in the risk management system before being accepted in the bid book.

The Commission directed the exchanges to automate the process completely with no manual intervention. The need to re-run the provisional and final results due to the deletion of bids because of fund shortage must be eliminated. The exchanges must make the necessary changes to verify this at the very stage of entering bids.

The Commission withdrew its previous order, allowing cancellation of bids post trading hours, with immediate effect. The exchanges are to no longer entertain any requests for cancellation outside of trading hours in any of the collective market segments.

CERC has also restricted the modification of bids outside of trading hours. It has directed exchanges to design the software to capture any changes due to provisional or final results or congestion, separately from any modification done at the member level.

No extension of trading hours will be allowed except for cases where the system operator identifies a constraint.

The Commission directed the exchanges to train the market participants from time to time to enable the smooth submission of bids. The exchanges will be required to submit a report on the training sessions and awareness programs they conduct every six months.

They must ensure the latest version of the interface is made available on workstations and that the required infrastructure is in place.

The exchanges were also directed to align their respective Business Rules, Rules, and Bylaws according to the directions in the CERC order and submit the compliance report within two weeks.

Recently, the CERC authorized a shadow pilot on power systems and cost optimization through a market coupling of various segments of all three energy exchanges.

In May last year, a committee of experts constituted by the Ministry of Power noted that the electricity market in India faces significant challenges that hinder the integration of renewable energy and limit the participation of DISCOMs in power exchanges.

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