Karnataka Electricity Regulatory Commission Withdraws 2018 Captive Power Circular Following Supreme Court Ruling

The Karnataka Electricity Regulatory Commission has issued a suo motu order regarding the interpretation of ‘captive status’ under the Electricity Act, 2003. The matter relates to how ownership and operational control of captive generating plants (CGPs) are to be considered for a power consumer or group of consumers to be recognized as captive users under Indian electricity regulations.

Earlier, on 18 September 2018, the Commission had issued a communication stating that unless a group of high-tension or extra-high-tension consumers themselves set up a power plant, they could not claim the status of group captive users. According to that interpretation, acquiring rights in an already established power plant did not qualify those consumers as group captive users. The Commission had also directed power distribution companies to monitor such generators and users to ensure that they met the requirements of ownership and electricity consumption as per the Electricity Rules, 2005.

This communication was challenged in court by several companies, including A One Steel & Alloys Pvt. Ltd. The matter is still pending before the High Court of Karnataka.

Meanwhile, a ruling by the Hon’ble Supreme Court dated 9 October 2023 in Civil Appeal Nos. 8527-8529 of 2009, in the Kadodara case, has clarified the legal interpretation of ‘captive status.’ The Court held that the term “set up” used in Section 2(8) of the Electricity Act should not be interpreted narrowly. The Court emphasized that the construction, maintenance, or operation of a CGP can be carried out by different entities and need not all be performed by the same party. The law does not prohibit the transfer of ownership of a captive generating plant after it is established.

According to the Supreme Court, a practical and business-friendly interpretation must be applied. Ownership of a CGP can be transferred, and the new owner can still maintain the captive status of the plant, provided they meet the eligibility conditions under Rule 3 of the Electricity Rules. These include having an appropriate share of equity ownership and consuming the electricity generated for their own use during the financial year. The ruling confirmed that transfer of ownership does not negate the captive nature of the plant as long as the conditions are fulfilled.

The Court also cited earlier judgments and reiterated that the term “set up” should be harmoniously read with Section 9(1) of the Electricity Act, which allows any person to construct, maintain, or operate a CGP. The legal interpretation supports flexibility in ownership, especially when business interests and energy needs are involved.

Taking note of the Supreme Court judgment, the Karnataka Electricity Regulatory Commission decided to withdraw its earlier communication dated 18 September 2018. This withdrawal aligns the state’s regulatory framework with the latest interpretation by the Supreme Court and allows for broader recognition of captive-generating plant ownership structures. The order was officially signed and issued by the Chairman and Members of the Karnataka Electricity Regulatory Commission.