MoP Issues Draft Amendments To Rule 3 Of The Electricity Rules, 2005

(Requirements of Captive Generating Plant) of the Electricity Rules, 2005 ("Draft MoP Amendment")¹. The amendments will come into force on the date of publication in the Official Gazette, except Rules 3(2)(iii)(b), (c) and 3(4), which shall come into force with effect from 01.04.2026.

The salient features of the Draft MoP Amendment are as follows:

1. Rule 3(1)(a) defines the assessment period as a financial year or such other continuous period within a financial year, as may be opted for by the captive user(s) for the purposes of verification under the Rules.
2. Rule 3(1)(b) defines captive user as an end user of the electricity generated in a Captive Generating Plant ("CGP"), and includes persons or group of persons consuming electricity directly or through an energy storage system storing electricity generated from the CGP. If the captive user is a company, it will be deemed to include as a single captive user its subsidiary(ies), holding company and other subsidiary(ies) of such holding company.
3. Rule 3(1)(c) defines ownership as proprietary interest and control or equity share capital carrying voting rights, held directly or through subsidiary(ies), its holding company and any other subsidiary or subsidiaries of such holding company.
4. Rule 3(1)(d) defines a special purpose vehicle as a legal entity established for the sole purpose of owning, operating and maintaining a generating station, and which does not undertake any other business or activity. The SPV shall be treated as an Association of Persons ("AoP") under the Rules.
5. Rule 3(2)(i) stipulates the requirement for qualifying as a CGP whereby (a) captive users' percentage of ownership should not be less than 26% and (b) captive consumption of the aggregate electricity generated from the CGP should not be less than 51% during the assessment period by the users. As per Explanation 1 to the Rule, the captive consumption shall be determined with reference to the aggregate generation of the generating unit or units identified for captive use, and not with reference to the entire generating station as a whole. Further, as per Explanation 2, equity shares to be held in the generating station shall not be less than 26% of the proportionate equity corresponding to generating units identified as CGP.
6. Rule 3(2)(ii) provides that in case of power plant set up by a registered co-operative society, the conditions specified in Rule 3(2)(i) shall be satisfied collectively by the members of the co-operative society.
7. Rule 3(2)(iii) provides an illustration in Schedule-III and stipulates that in case of AoP:
   1. The conditions specified in Rule 3(2)(i) shall be satisfied collectively by all the captive users and aggregate consumption by all such users shall be considered;
   2. captive consumption by any individual user shall be admissible only upto 100% of its proportionate entitlement, calculated with reference to its share in the total captive ownership in the power plant. However, this condition relating to proportionate entitlement shall not be applicable to a captive user holding not less than 26% of the ownership in the power plant;
   3. if there is variation in ownership of the plant during the assessment period, the proportionate entitlement of each captive user shall be determined on the basis of the weighted average shareholding of such captive user during the assessment period; and
   4. for calculation of proportionate consumption for AoP, the captive user, its subsidiary or subsidiaries, its holding company, and any other subsidiary or subsidiaries of such holding company shall be collectively treated as a single captive use.
8. Rule 3(3) mandates the captive users to ensure the requirements in Rule 3(2) are complied with during the assessment period. In the event the requirements are not met, entire electricity generated shall be treated as supply of electricity by a generating company.
9. For verification of CGP status, Rule 3(4) provides that:
   1. If the power plant and the captive users are located in the same State, a nodal agency designated by the State Government shall undertake the verification as per the procedure issued by such nodal agency. If the CGP and its captive users are located in more than one State, the verification shall be carried out by the National Load Despatch Centre in accordance with the procedure issued by it with approval of the Central Government;
   2. An appeal against the verification carried out by the nodal agency shall lie before a Grievance Redressal Committee constituted by the appropriate government; and
   3. Pending such verification for any financial year, the cross-subsidy surcharge and additional surcharge will not be levied, subject to furnishing of a declaration by the captive users as per the procedure to be issued by the nodal agency. If the power plant fails the verification after furnishing such declaration, applicable cross-subsidy surcharge and additional surcharge along with the carrying cost calculated at the base rate of late payment surcharge specified in the Electricity (Late Payment Surcharge and Related Matters) Rules, 2022, shall be payable.

Footnote

1 Draft amendments to Rule 3 of the Electricity Rules, 2005.

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