The Ministry of Power has through its notification of September 1, 2023, notified the Electricity (Third Amendment) Rules, 2023 (3rd Amendment Rules). The 3rd Amendment Rules will be effective from the date of their notification in the official gazette i.e., September 1, 2023. The 3rd Amendment Rules have been issued to clarify certain changes to the Electricity Rules, 2005 (Rules) brought by Electricity (Amendment) Rules, 2023 which were notified on June 30, 2023 (Amendment Rules).

Background

The Amendment Rules had amended Rule 3(a)(i) of Rules which provides the requirements for a plant to qualify as a captive generating plant (CGP) under Section 9(8) and Section 2 of the Electricity Act, 2003 (Act). The Amendment Rules provided that a power plant will be considered to be a CGP only if not less than 26% of ownership of the plant was held by the captive user. The pertinent point in the Amendment Rules was the revision of the word ‘Captive User(s)’ in Rule 3(a)(i) to ‘Captive User’ which suggested that each captive user is required to own 26% of a CGP. This would have had a significant impact on group captive projects.

Further, the Amendment Rules provided that if the CGP is being set up through an affiliate company, the captive user will have to own at least 51% of such affiliate company. The Amendment Rules had also amended the definition of ‘Captive User’ provided in the explanation to Rule 3(2), to, inter alia, include the consumption of electricity by a subsidiary company (as defined under Section 2(87) of Companies Act, 2013) of an existing captive user to also be considered as captive consumption by the captive user.

3rd Amendment Rules

The 3rd Amendment Rules have rolled back or clarified the following revisions in Rule 3 that had been introduced in the Amendment Rules:

1. The word ‘Captive User’ in Rule 3(a)(i) has been substituted with ‘Captive User(s)’, effectively reinstating the previous position as contained in the Rules and facilitating group captive projects.
2. The proviso to Rule 3(a)(i) which stated that a company setting up a CGP through an affiliate is required to hold at least 51% in such an affiliate, has been omitted.
3. The second proviso to the definition of ‘Captive User’ in the explanation of Rule 3(2) had been inserted by the Amendment Rules to include the consumption of electricity by a subsidiary company (as defined under Section 2(87) of Companies Act, 2013) as captive consumption. The said proviso has been further amended by the 3rd Amendment Rules to also include the consumption by the holding company (as defined under Section 2(46) of Companies Act, 2013) of a captive user, as captive consumption by the captive user.

The 3rd Amendment Rules has further introduced a new sub-rule in Rule 3 to state that the captive status of a generating plant where the CGP and its captive user(s) are located in more than one state, shall be verified by the Central Electricity Authority as per the procedure issued by the CERC with the approval of the Central Government.

Please find attached a copy of the 3rd Amendment Rules.

This update has been contributed by Rachika Agrawal Sahay (Partner) and Siddhant Satapathy (Senior Associate).

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