The Central Electricity Regulatory Commission (CERC) issued new trading regulations to fix the margin for inter-state trading in electricity where the major beneficiaries from this new regulation would include PTC India, Adani, NTPC Vidyut Vyapar Nigam and Tata Power.

For the inter-state trading, margin would apply to short-term buy and sell contracts and will include day ahead, week ahead and month ahead contracts.

According to these regulations, if the selling price of electricity is less than or equal to Rs 3 per unit then the trading margin would not go beyond 4 paise per unit. And, if the selling price of electricity exceeds Rs 3 per unit then the trading margin shall be 7 paise per unit.

In order to assist innovative products and contracts for new capacity addition that entail higher transaction risk, the CERC has exempted long-term agreements from trading margin.

Mr. Pramod Deo, Chairman of CERC said CERC wants to increase the strength of the power market. For the short-term contracts, trading margin will be attractive for traders, but burdensome for state consumptions. Moreover, long-term contracts are exempt from trading margin which will benefit the trading companies that are making equity participation in power projects.

According to CERC, if in a chain of transactions, more than 1 trading licensees are involved than the ceiling on trading margin would consist of the trading margins charged by all the traders put together. Where, the traders cannot get out of the ceiling by routing the electricity through multiple transactions.

The new ceiling rates on trading margin would come into effect after a period of 1 month so that the existing contracts can be re-aligned by the parties.

Earlier, in 2006, CERC had fixed a trading margin of 4 paise per unit. The earlier regulations were reviewed on account of the raise in the risk faced by traders.

CERC had also made a detailed study to review the default risk, late payment risk, contract dishonour risk and inflationary risk for arriving at the new ceilings on trading margin.

CERC last month proposes to impose a congestion charge on states as a commercial measure and this is in an effort to reduce power congestion in real-time operations.

As per its draft regulation, the congestion charge will be paid by a regional entity or entities, causing congestion in the inter-regional link or intra-regional link, to a regional entity or entities relieving congestion.