Isra-Mart srl: FMC to move SC on power futures dispute

www.isramart.com

The jurisdiction of forward/futures trading in power has taken a new turn, with the Forward Markets Commission (FMC), regulator of commodity futures, under the aegis of the ministry for food and consumer affairs, proposing to file a special leave petition (SLP) with the Supreme Court (SC).

The food ministry has also written to the law ministry asking for the attorney general to appear for them in the case.

The power ministry, on the other hand, had proposed to the Cabinet an amendment to the Electricity Act, 2003 and the Forward Contracts Regulation Act (FCRA) to empower the Central Electricity Regulatory Commission (CERC) as the regulator for forward trading in electricity. This proposal followed a legal opinion from the law ministry, said officials at Power Exchange India (PXIL).

PXIL, which had launched forward contracts in electricity, has already filed an appeal in the SC. While FMC will defend its case in the court, it also plans to file a SLP for special hearing in the SC.

Sources say the law ministry is opposing any amendments in various Acts to make CERC as the regulator for forward trading in electricity. The forward market, under FCRA, is completely regulated by FMC and thus, it does not make sense for every individual sector and commodity to have its own regulator for forward trading, official sources said.

Both parties, FMC and CERC, had earlier approached the high court here, which had decided upon having both as jurisdictional authorities for forward electricity trading. But, in its final verdict the HC decided CERC cannot be the sole authority to control futures contracts as well as existing forward trading in the electricity department. The same was said for FMC. In addition, the HC also said unless Parliament makes any change, CERC is not sanctified to introduce any changes or new guidelines for the contracts.

The dispute started when PXIL complained to CERC, saying electricity futures are within the domain of CERC and that FMC couldn’t give permission to the Multi Commodity Exchange (MCX) for electricity derivatives.

CERC passed an order saying only it had jurisdiction over electricity trading, including derivatives, and MCX would have to get its permission to start derivatives trading. At this, FMC filed a petition in the HC in late 2009 against CERC.

Early this year, CERC notified its power market regulations, making it clear its rules would govern all electricity related contracts, including derivatives. MCX had to discontinue trading in derivatives.

It was at this point in February, that MCX filed a petition against CERC. FMC’s petition at the Court was admitted around the same time. The HC decided to hear the cases simultaneously.