KERC Issues New Rules for Captive Status Verification of Power Plants

The Karnataka Electricity Regulatory Commission (KERC) has issued a comprehensive procedural framework for verifying the captive status of power plants and their consumers in the state.

This directive aims to streamline compliance and provide regulatory clarity for captive power projects under the Electricity Act, 2003. The new guidelines, which come into effect from FY 2024-25, establish a robust verification mechanism to ensure that captive generating plants (CGPs) meet the ownership and consumption criteria required to avail exemptions such as the waiver of cross-subsidy surcharges.

KERC’s framework aligns with the Electricity Act, 2003, and relevant rules, ensuring strict compliance with Section 2(8) and Section 9 of the Act, which define and regulate CGPs. It also adheres to Rule 3 of the Electricity Rules, 2005, which specifies that CGPs must be owned at least 26% by captive users and must consume at least 51 percent of the generated power.

The Supreme Court’s ruling on October 9, 2023, in Dakshin Gujarat Vij Co. Ltd. vs. Gayatri Shakti Paper & Board Ltd. reinforced that ownership and consumption criteria must be met continuously throughout the financial year. A deviation of ±10 percent in proportional consumption is permissible, and Special Purpose Vehicles (SPVs) qualify as 'associations of persons' under captive rules.

Under the new verification process, KERC has tasked Distribution Licensees (DISCOMs) with the responsibility of collecting data and verifying compliance. The verification process involves assessing the ownership structure to ensure captive users collectively own at least 26 percent of the CGP, analysing consumption patterns to confirm that at least 51 percent of power is consumed by captive users in proportion to their ownership, and implementing real-time metering and monitoring linked with State Load Despatch Centres (SLDCs) and DISCOMs. Captive power generators and users must submit verification documents annually, with May 31 set as the deadline for submission. DISCOMs will then scrutinise the data and submit their reports to KERC within two months.

To accommodate changes in ownership during the financial year, KERC has introduced a weighted average method to determine compliance dynamically. If a shareholder alters their stake mid-year, compliance will be assessed using a time-weighted calculation. For instance, if a user holds 30 percent ownership for 47 days, 40 percent percent for 263 days, and 50 percent for 55 days, their weighted average ownership will be determined accordingly, ensuring that ownership compliance is maintained throughout the financial year.

For group captive models, different categories have specific requirements. Cooperative societies are exempt from individual proportionality checks but must collectively meet the 51 percent consumption rule. Other group captive structures, such as SPVs, must ensure that each user’s consumption aligns with their ownership percentage, allowing a ±10 variation. For example, if a CGP generates 10,000 kWh, a user with 30% ownership must consume between 1,530 and 1,530–1,870 kWh, ensuring proportionality is maintained.

KERC has also addressed energy storage integration in captive frameworks. Energy Storage System (ESS) consumption will be permitted, but losses in storage systems will be accounted for in compliance calculations. Separate metering is required for energy stored and withdrawn, ensuring transparency in power usage.

The new regulations are expected to have far-reaching implications. Stricter verification processes will increase transparency and reduce misuse of captive status exemptions. Renewable energy developers, in particular, will benefit from a structured framework for captive power projects, providing greater certainty for investors. Additionally, the guidelines align with the Central Electricity Authority’s (CEA) interstate captive verification procedure introduced in January 2025. Non-compliance with ownership and consumption requirements may result in disqualification from captive status, leading to additional financial liabilities such as cross-subsidy surcharges.

"As far as applicability of the procedure is concerned, the Commission is of the view that the same should be made applicable for the energy consumed from the captive plant during the FY 2023-24 and monitoring carried out in FY 2024-25, i.e the year during which the Hon’ble Supreme Court issued the Order. However, keeping in view the hardships faced by the CGP and Captive Consumers, the Commission decides to apply the procedure as approved in this Order for the energy consumed from the captive plant from FY 2024-25 for which monitoring of Captive Status will be done from FY 2025-26," said the Commission.

KERC reserves the right to amend the verification framework as needed. The new framework signals a move towards stricter regulatory oversight, reinforcing Karnataka’s commitment to transparent and efficient electricity governance.