CERC Notice To Power Trading Firms For Failing to Maintain Net Worth

For National Energy Trading Services Limited, and Atria Energy Services Private Limited, a weak balance sheet submitted to the  Central Electricity Regulatory Commission (CERC) for downgrading their energy trading licenses has landed both in a hot soup. In both cases, the Central Regulator, after going though the documents  on record,  has seen a fit case to impose penal provisions for not maintaining net worth requirements, forget a simple downgrade to a lower category as requested. Both the orders were delivered yesterday, July 8.

National Energy Trading Services Limited  (NETSL)  

This Gurugram based firm had filed an application for down-gradation of its inter-State trading license in electricity from Category ‘I’ to Category ‘III’.

Categories are broadly summarised as below:

NETSL thus, had applied for a move to a category where the minimum net worth requirements are Rs 20 crores, and trading limit is 4000 million units of electricity.

However, the CERC found, based on the documents submitted to it (a special balance sheet of 28.2.2021), that the firm had an actual negative net worth of  Rs 18.69 crores. making it worse was the picture from the 2019-20 financials, which indicated a final negative net worth of 18.13 crores on March 31, 2020.  The CERC also points out that the Applicant company has the current ratio of 0.68:1 and liquidity ratio of 0.67:1, both well below the required 1:1 ration that has to be maintained as per regulations. Thus, it became a fit case for rejection, as far as downgrading the license goes, and a stronger case for a notice on why penal csts should not be imposed on the firm.

Atria Energy Services Private Limited (Atria)

Bengaluru based Atria faces a similar issue. The firm made a plea for downgrade from a category IV to category V license. The commission observed that “as per audited special balance sheet as on 30.9.2020 submitted by the Respondent, it had a net worth of only Rs. 166.27 lakh. Therefore, the Respondent does not meet requirements of net worth for any category of trading licence as prescribed under Regulation 3(3)(a) of the Trading Licence Regulations”. That has, in the eyes of the commission, made Atria a fit case to have its application rejected, and also liable for penal action.

So Just What Can The CERC Do Now ?

The CERC has quite a few options to consider now.

Regulation 19 of the Trading Licence Regulations provides for penalties for contravention by the licensee as under:
“19. Penalties for Contravention and non-compliance: Where the charge of contraventions is established against the Trading Licensee, the Commission may:

(1) give warning to the Trading Licensee subject to such conditions as may be deemed fit in the facts and circumstances of the case; or

(2) direct that the Trading Licensee shall pay, by way of penalty, a sum which shall not exceed rupees one lakh for each contravention and in case of a continuing failure with an additional penalty which may extend to six thousand rupees for every day during which the failure continues after contravention of the first such direction; and/or

(3) debar the Trading Licensee from trading in short term market or long term market or through power exchanges or banking or Cross Border Trade of Electricity for a period as may be specified by the Commission; or

(4) suspend the licence for a period as may be specified by the Commission; or

(5) revoke the licence of the Trading Licensee; or

(6) issue such other directions or impose such other conditions as the Commission may
deem appropriate:

Provided that in case of debarment or suspension, National Load Despatch Centre or concerned Regional Load Despatch Centre or State Load Despatch Centre, as the case may be, shall take appropriate action with regard to scheduling and despatch of electricity in respect of the transactions of the Trading Licensee.”