CERC plans to cap power prices in OTC trading mkt

THE country’s nodal power regulatory agency is planning to cap prices in the over-the-counter trading market and spot exchanges in an attempt to restrict traders from turning in abnormal profits and help distribution companies improve their financial health. Prices in the short-term spot market, driven by demand and supply, have recently been rising sharply. Power distribution companies meet their additional requirements from this market. The distribution utilities of powerdeficit states have little choice other than to buy electricity at high prices to meet demand,” explains Central Electricity Regulatory Commission chairman Pramod Dev.

Electricity distribution companies source nearly 92% of their requirement through long-term power purchase agreements (PPA) for supply to retail consumers. The remaining 8% is secured through short-term transactions,and such prices are higher than longterm PPA rates because of the uncertainty in returns. The power regulator recently amended the Unscheduled Interchange (UI) norms to allow states and distribution companies to withdraw only a certain amount of power without a prior agreement. Over-drawing state utilities were also required to pay congestion charges, which may compel state distribution companies to meet their additional demand from the short-term market. The new regulations have raised concerns that the market prices will increase as UI rates are mostly considered as the benchmark for negotiations in the bilateral market,” said a government official, who did not wish to be named. Unscheduled interchange refers to buying and selling of electricity apart from the planned sale or purchase through long-term power purchase agreements. According to the official, the commission is studying various methods for a price limit such as a differential price cap based on cost plus other factors like return on equity, plant capacity utilisation and fuel cost. Another alternative could be a uniform price cap based on the most expensive fuel type, which would be applicable for all generators.