Decoding CERC’s Draft Regulations on Market Coupling

By – Devank Maheshwari

Table of Contents

Introduction

The Central Electricity Regulatory Commission (CERC) has now moved market coupling from an enabling concept to a formal regulation-making exercise. The Draft CERC (Power Market) (Second Amendment) Regulations, 2026 (Draft Regulations), published on 17.04.2026, would designate Grid Controller of India Limited (Grid India) as the sole Market Coupling Operator (MCO), create a new Power Market Coupling Procedure to be framed by Grid India with CERC approval, and shift price discovery in coupled segments from individual power exchanges to a central process. 

the Draft Regulations are also significant because it addresses the central procedural issue that ran through the litigation before APTEL i.e., Regulation 39 of CERC (Power Market) Regulations, 2021 (PMR 2021) had expressly provided that market coupling provisions would come into effect only “in accordance with the regulations to be specified separately.” The Draft Regulations are precisely that separate regulation-making step. 

Consultation History and Design Shift

The present draft sits on top of a much longer consultation trail than the 2026 public notice alone might suggest. PMR 2021 already contained the key market-coupling objectives i.e., uniform market clearing price, optimum use of transmission infrastructure, and maximization of economic surplus. However, Regulation 39 deliberately postponed implementation until the Commission chose to proceed through separate regulations. 

The August 2023 staff paper of CERC threw opened the Market Coupling design question in a structured way. It framed market coupling as a response to fragmented liquidity and different prices across exchanges, but it was notably exploratory rather than prescriptive. On the critical MCO question, the staff paper put forward two models: an exchange-led rotational MCO, and a neutral third-party or system-operator MCO. The staff paper expressly recorded that a rotational model would require a single algorithm, inter-exchange contractual arrangements, repeatability and auditability of results, and periodic audit by the Commission. It also separately recorded that a third-party MCO, potentially the system operator, would offer greater objectivity and fewer conflicts of interest.

The conversation then moved from paper to pilot. In February 2024, CERC directed Grid India to run a shadow pilot for RTM coupling, RTM coupling with SCED, and DAM coupling, and required power exchanges to share the necessary data and information with Grid India for that purpose. 

Thereafter, CERC in terms of the 23.07.2025 order recorded that Grid India had used roughly 29 months of historical data, submitted a report in January 2025, and later submitted a feedback report for the four-month D+1 shadow-pilot. On that basis, the Commission decided to initiate phased implementation- DAM first, in a round-robin mode among exchanges by January 2026, and RTM later and RTM-SCED requiring further regulatory intervention and stakeholder consultation, and TAM to be tested through another shadow pilot. At the same time, the Commission directed its staff to begin consultations on operational and procedural aspects and to propose regulatory amendments, and it directed exchanges to provide the necessary data and information.

What do the Draft Regulations Actually Changes

The draft makes four structural moves.

First, it inserts formal definitions for “Grid India” and for the “Power Market Coupling Procedure” or PMCP. The PMCP is defined as the detailed procedure formulated by Grid India for market-coupling implementation, and Regulation 39C would require Grid India, with CERC approval, to formulate that procedure within six months of notification of the amendment. That signals that the amendment supplies the legal framework, while many operational details are deliberately deferred to a Commission-approved procedural instrument.

Second, the draft rewrites price discovery in the collective segments. Today, PMR 2021 Regulation 5 provides that price discovery in DAM and RTM is to be done by power exchanges or by the MCO “as and when notified”. The draft provides that once the Commission notifies the relevant date, price discovery is to be done by the MCO, while until then exchanges continue to perform price discovery. 

Third, the draft turns the old enabling text on designation and scope into an operative architecture. Existing Regulation 38 merely says that the Commission shall designate an MCO. Existing Regulation 39 merely says market coupling and MCO provisions will come into force later through separate regulations. The draft replaces that open-textured framework with an explicit designation with Grid India as MCO and provision to the effect that market coupling in DAM, RTM, and other market segments from dates to be separately notified, with different dates allowed for different segments. Relative to the 23.07.2025 order, that is a broadened posture as 23.07.2025 order prioritized DAM first and deferred RTM. However, the draft keeps phasing flexibility but writes RTM and future segments into the formal scope clause itself.

Fourth, the draft adds coupling-specific operational clauses. Proposed Regulation 39A would require power exchanges to collect bids in a uniform bid format, validate and anonymise those bids, and transmit them securely to the MCO. Proposed Regulation 39B codifies the economic-surplus objective and the uniform-price/market-splitting result. Proposed Regulation 39C says PMCP must cover roles, sequence of events, bid format and encryption/decryption, algorithm features, scheduling, delivery, accounting, clearing and settlement, operational constraints, and MCO charges. Proposed Regulation 39D then extends to the MCO selected IT-system, data-transfer, information-dissemination, and surveillance obligations that already apply to power exchanges under PMR Regulations 28, 29, 31 and 32

Therefore, the Draft Regulations begin to build a governance and accountability perimeter around the MCO by importing rules on software systems, secure communication channels, reporting, public information, and market surveillance. That is one of the clearest signs that CERC is attempting to institutionalise coupling as a permanent market function.

For market participants and exchanges, the major operational implication is reallocation of critical functions. Exchanges remain the customer facing layer, but price discovery in coupled segments moves to the MCO. The reform is likely to shift competition away from liquidity-driven price-discovery advantages and toward transaction fees, interface quality, analytics, and ancillary services. That is a preliminary reading of the scheme, though it remains contingent on how the final PMCP handles bid formats, user interfaces, and settlement responsibilities etc.

Another obvious takeaway from the Draft Regulations is its scope compared with the July 2025 directions of CERC that prioritized DAM and deferred RTM after experience, while the Draft Regulations incorporate DAM, RTM and other segments into the coupling scope clause but still permits different notified start dates. 

Conclusion

In policy terms, the biggest design shift is the abandonment of the round robin model under which the three exchanges were to rotate as MCO with Grid India as backup/audit MCO. Now, what is proposed is a single neutral operator model to be housed in Grid India. That makes the 2026 draft materially closer to the third-party/system operator MCO option explored in CERC’s August 2023 staff paper than to the rotational exchange run structure discussed there and also reflected in the CERC Order dated 23.07.2025 directions.

The draft adds a coupling-specific obligation that bids must be collected in a uniform format, validated and anonymized, and then transmitted securely to the MCO under strict timelines. It further extends to the MCO a bundle of obligations currently imposed on power exchanges concerning IT systems, secure data transfer, information dissemination, and surveillance.

Taken together, the Draft Regulations are best understood as the formalization of a long-running consultative arc involving enabling provisions in PMR 2021, a CERC Staff Paper in August 2023, and shadow pilot studies.

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