Power Exchanges Allowed Time to Implement Clearing and Settlement Mechanism

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The Central Electricity Regulatory Commission (CERC) has granted time for one more year from August 15, 2022, for power exchanges to align their clearing and settlement system to the Payment and Settlement Systems Act (PSSA) 2007.

It directed the staff at the Commission to examine the issues involved in carrying out the clearing and settlement per the PSSA 2007, in consultation with the Ministry of Finance and the Reserve Bank of India (RBI), and draw a roadmap for implementation of the same as per Regulation 27 of the Power Market Regulations (PMR) 2021.

Background

In 2008, the Commission granted Indian Energy Exchange Limited (IEX) and Power Exchange India Limited (PXIL) permission to set up and commence power exchange operations.


The Commission notified Power Market Regulations 2021 on August 15, 2021. Regulation 12(5) provided that the power exchanges were required to realign their bye-laws, rules, and business rules per the PMR 2021 and to seek approval of the same within six months of enforcement of the regulations.

As required, all the registered exchanges realigned their draft bye-laws, rules, and business rules and submitted them for the approval of the Commission.

Regulation 27(1) of PMR 2021 states that the power exchanges which have been granted registration before the regulations would be required to carry out the clearing and settlement mechanism per PSSA 2007 within one year.

PSSA 2007 provides that the payment and settlement-related activities of the exchanges would be under the purview of the RBI.

PXIL, in its submission, stated that the procedure for settlement of transactions on the power exchanges was similar to that of settlement of transactions on stock exchanges and commodity exchanges which were excluded from the applicability of PSSA 2007. The power exchanges have distinct contracts, including their clearing and settlement. Moreover, RBI was yet to evolve guidelines for regulating the clearing and settlement function of electricity transactions.

IEX submitted that given the overlapping of regulations, power exchanges should be exempted from the applicability of PSSA 2007. IEX requested that the Commission should allow it to continue to carry on the clearing and settlement function as per the existing arrangement till clarity is achieved concerning the PSSA 2007.

Hindustan Power Exchange (HPX) presented that the RBI was yet to issue any framework or guidelines regulating clearing and settlement functions of power exchanges. As such, it was impossible to ensure compliance with Regulation 27(1) without such a framework.

Clarity required

The Commission noted that carrying out the clearing and settlement by the power exchanges per the PSSA 2007 required clarity.

The Commission approved the extension of time for the power exchanges to align their clearing and settlement system to the PSSA 2007 for one more year from August 15, 2022.

In June this year, CERC directed the Hindustan Power Exchange to use the ‘Uniform Price Step Auction’ as a matching methodology for price discovery in daily and weekly contracts. It also directed the exchange to use open auction for ‘Uniform Price Step Auction’ so that the participants, while bidding for these contracts, can make informed decisions after seeing buy and sale bids offered by other anonymous participants.

Earlier, CERC had directed the power exchanges to re-design their bidding software so that members can submit their buy bids at the maximum price of ₹12 (~$0.16)/kWh for Day-Ahead Market and Real-Time Market.

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