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The Tamil Nadu Electricity Regulatory Commission (TNERC) has issued the draft TNERC (Verification of Captive Status of Generating Plant/Consumers in Tamil Nadu) Regulations, 2024 (regulations) for the verification of captive generating plant (CGP) status. This follows the Supreme Court’s (SC) ruling in , and the regulations build on existing directives from the TNERC, the Appellate Tribunal for Electricity and various provisions of the Electricity Act, 2003, and Electricity Rules, 2003 (rules).

The SC’s decision came after several state distribution companies and regulatory commissions had taken divergent stances on the eligibility requirements for CGPs. Clarity in classifying CGPs is crucial as they are exempt from cross-subsidy and additional surcharges, with the state commission holding the authority to determine this exemption’s applicability.

A key part of the ruling is that CGPs may keep their status even if ownership is transferred, provided the new owners comply with the eligibility criteria. The criteria for ownership and electricity consumption must be met continuously throughout the financial year and changes in ownership are assessed using a weighted average principle to ensure compliance. The SC emphasised the importance of proportional power consumption among CGP shareholders. Each 1% stakeholder must consume electricity proportionally, within a 10% variation, to prevent gaming or abuse of the CGP mechanism. Shareholders who consume disproportionately will not be recognised as captive users and will lose associated benefits.

The regulations set out the method for verifying CGP status. It will apply to all CGPs and users within the state, whether the power is transferred within or outside Tamil Nadu.

The captive status of generators and users, based on consumption and equity shareholding criteria under the rules, will be monitored annually by the authorised distribution licensee (licensee). Generators and consumers must submit details of their shareholding and consumption in the form prescribed in the regulations within a month from the end of every financial year and report any changes during the financial year within 15 days. For plants in multiple states, the Central Electricity Authority will carry out verification. By 30 April each year, captive users must provide a security deposit in the form of an irrevocable bank guarantee for 51% of captive consumption to cover the estimated cross-subsidy and additional surcharges.

The regulations establish that verification of CGP status is a continuous process using a dedicated web portal for real-time data logging and monitoring. This portal will alert generators and users if they fail to meet criteria, allowing for timely corrections. Should non-compliance occur, the licensee will report to TNERC, which will decide the plant’s status. CGPs losing their status will face cross-subsidy and additional surcharges, which must be paid promptly by the defaulting entities. For group captive consumers, if some members fail to meet the criteria, the remaining members must still collectively satisfy the requirements of 26 per cent ownership and 51 per cent electricity consumption within the permissible variation range.

Disputes between licensees, CGPs and users will be adjudicated by the TNERC. No coercive action can be taken during the dispute and proceedings involving cross-subsidy surcharges are suspended until the dispute is settled. Initiating dispute proceedings does not allow the licensee to withhold payment to the generators for unused energy, which must be made within three months after the financial year ends. Payments for unused energy and cross-subsidy surcharges are distinct and must not be linked.

Through the regulations, the TNERC is trying to bring transparency to the implementation of CGP norms. By setting clear criteria and establishing rigorous monitoring, the regulations protect the interests of stakeholders while promoting a stable investment environment. The most important change is that prohibiting coercive actions while the status is determined. This will go a long way to foster confidence in the state’s electricity market. Historically one of the more progressive states for CGPs, Tamil Nadu’s move may further cement its reputation.

Abhishek Tripathi is the managing partner and Rahul Bangia is a senior associate at Sarthak Advocates.