Financial Daily from THE HINDU group of publications
Thursday, Jan 26, 2006
Regulatory Bodies & Rulings
Industry & Economy - Power
CERC fixes trading margin at 4 paise per unit Big blow to cos which have been charging higher
New Delhi , Jan. 25
IN a move that could affect the revenue streams of a number of power trading firms, the Central Electricity Regulatory Commission (CERC) has decided to fix the power trading margin at 4 paise per unit for players who have been given licences for engaging in inter-State trading of electricity.
This could come as a blow to a number of trading firms who have been charging much higher margins, with the result that the weighted average of trading margins during the first half of 2005-06 was as high as 10 paise per unit.
"The CERC has decided to fix the trading margin at 4 paise per unit for traders, who have been given licences for engaging in inter-State trading of electricity," the Central power regulator said in a release today.
Under the Electricity Act 2003, the CERC is empowered to fix trading margin for inter-State trading of electricity, if considered necessary.
While there has not been any ceiling on trading margins so far, average trading margins being charged by trading firms have shown an increasing trend over the last year. While nearly 90 per cent of trading that happened during 2004-05 was carried out at trading margins of 5 paise per unit or less, the margins have gone up subsequently.
In the first half of 2005-06, 68 per cent of volume traded by the electricity traders carried a margin of 6 paise per unit or more, despite the fact that the Open Access regulations had been simplified in 2005.
The instance of highest trading margin in a single transaction in 2004-05 was 43 paise per unit and in the first half of 2005-06 it was as high as 128 paise per unit
The Commission said the move to fix the margins was aimed at "protecting" the consumers as well as providing "reasonable return to traders." The margins do not include transmission charges, application fees, unscheduled charges and transmission losses, it said.
The regulator had, in September last year, proposed to fix trading margin at two paise a unit but traders had opposed the idea.
"The electricity traders were generally not in favour of fixing of trading margin but on the contrary the buyer distribution utilities and consumers had welcomed the proposal of fixing margins," the Commission said, adding that after examining various comments it has decided to fix margins at a "reasonable" level of four paise per unit.
According to an executive with a power trading major, the move to fix margins could be construed as a sign of excessive regulation in a sector that is yet to take off.
"Putting the shackles on a fledgling sector seems to be a bit premature.
It is a fact that a handful of players have been charging very high trading margins.
But at four paise a unit, the new margin works out to only around one per cent of the average cost of traded power at around Rs 4 per unit," he said.
Another player said that traders had suggested to the CERC that the trading margin should be fixed in specific cases where the Commission finds that the traders were abusing their position.
It was also suggested that the trading margin should be on percentage of traded electricity rather than on the paise per unit basis.
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