CERC has issued a staff paper on "Regulatory Oversight on Bidding Behaviour in Power Exchanges". The paper discusses the current price discovery mechanism in collective transactions, analyses the bidding behavior of the market participants and proposes mechanisms for screening of buy and sell bids.

One of the issues identified in the paper is that the clearing price in approximately one-fifth of blocks in a year is close to the ceiling price. Consequently, there is a possibility of buyers bidding high to secure supply, while sellers may bid higher than their variable cost to achieve significant gains in some blocks. To address this, the paper proposes introducing screening for buy and sell bids, followed by rejection if pre-specified criteria are not met, as well as ex-post sell bid evaluation.

Our comments and suggestions relate to:

• the issues and the three proposals identified in the paper
• the need to revisit the ceiling tariff which has substantial impact on bidding behaviour and
• complimentary institutional and regulatory initiatives required towards market monitoring in a growing market

To address many of the concerns in market operations and considering the present demand-supply scenario, we propose the introduction of a  dynamic price ceiling in the market. The ceiling can be reflective of the demand-supply scenario which has clear, observable daily and seasonal trends.  For instance,the ceiling could be set even lower than Rs. 10/unit during the day. Conversely, during evening or morning peak periods, it could be higher, perhaps around Rs. 15/unit.

This approach as well as our concerns with the proposals in the paper are detailed in this submission.