The Central Electricity Regulatory Commission (CERC) has given time till August 15, 2023 to power exchanges to carry out the clearing and settlement of electricity traded on their platforms as per the Payment and Settlement Systems Act (PSSA), 2007.
The PSSA 2007 provides for regulation and supervision of payment systems and designates the Reserve Bank of India (RBI) as the authority.
The regulator, in a suo moto order on August 12, said that in terms of Regulation 27 (1) of the (Power Market) Regulations (PMR), 2021, the commission accords approval to an extension of time for power exchanges to align their clearing and settlement systems to the provisions of the PSSA 2007, for one more year with effect from August 15, 2022.
“We also direct the staff of the commission to examine the issues involved in carrying out the clearing and settlement in accordance with the PSSA 2007, in consultation with the Ministry of Finance and RBI, and draw a roadmap for implementation of the same in accordance with Regulation 27 of PMR 2021,” it added.
Clearing and settlement
The PMR 2021 had mandated that exchanges, which have been granted registration by the CERC prior to the date of coming into force of these regulations, have to carry out the clearing and settlement in accordance with the PSSA 2007 within a period of one year from August 15, 2021 or as decided by the commission.
On August 15 last year, the regulator notified the CERC (Power Market) Regulations 2021 (PMR 2021), repealing the PMR 2010. The PMR 2010 made it optional for power exchanges to hive off the clearing and settlement functions to a separate clearing corporation.
Power exchanges—Indian Energy Exchange (IEX), Power Exchange India (PXIL), and Hindustan Power Exchange (HPX)—were required to realign their bye laws, rules, and business rules as per the PMR 2021 and seek approval from CERC within six months of the enforcement of these regulations. As required, all the exchanges completed the formalities.
One year extension
The CERC pointed out that it has taken cognisance of the fact that some of the operational issues in carrying out the clearing and settlement by power exchanges in accordance with the PSSA 2007 require clarity. The regulator had also taken note of the submissions made by the exchanges.
In its submission, PXIL said that power exchanges have a distinct nature of contracts, including their clearing and settlement. Ambiguities and avoidable delays in regulatory directives may also lead to an increase in transaction costs. Moreover, RBI is yet to evolve any guidelines or framework for regulating the clearing and settlement function of electricity transactions.
Besides, the procedure for settlement of transactions arising out of transactions on an exchange platform is similar to that of settlement of transactions on stock exchanges and commodity exchanges, which are excluded from the applicability of PSSA 2007, it added.
IEX submitted that, in view of the overlapping of regulations, exchanges are required to be exempted from the applicability of PSSA 2007. IEX requested that the Commission allow it to continue to carry on the clearing and settlement function as per the existing arrangement till clarity is achieved.
HPX submitted that the RBI is yet to issue any framework or guidelines regulating the clearing and settlement functions of exchanges under the PSSA 2007. As such, in the absence of such a framework, it is not possible to ensure compliance with Regulation 27(1) at this stage. It also favoured an extension of the deadline.