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Power Ministry Proposes Amendments to Electricity Rules to Clarify Captive Power Framework

The Ministry of Power (MoP) has released draft amendments to Rule 3 of the Electricity Rules, 2005, outlining proposed changes to the regulatory framework governing Captive Generating Plants (CGPs). The draft notification, issued as the Electricity (Amendment) Rules, 2026, aims to bring greater clarity to ownership norms, captive consumption requirements, surcharge treatment, and verification procedures.

The Ministry has invited comments from stakeholders, including central and state government bodies, regulators, utilities, and industry associations, within 15 days, with the consultation window closing on January 17, 2026. Feedback is to be submitted electronically to the Ministry of Power.

According to the draft, the amendments seek to address persistent interpretational challenges surrounding captive qualification, particularly for projects involving group companies, special purpose vehicles (SPVs), and associations of persons (AoPs). The proposed framework reiterates that captive users must collectively hold at least 26% ownership in the generating plant and consume a minimum of 51% of the electricity generated during the assessment period for captive use. The definition of ownership has been broadened to explicitly recognise holding companies, subsidiaries, and group entities, thereby accommodating contemporary corporate structures.

To reflect operational realities across industries, the Ministry has proposed greater flexibility in determining the assessment period for captive verification. Rather than limiting verification to a standard financial year, the assessment period may align with actual operating cycles, which is expected to benefit sectors with seasonal or fluctuating power demand. Ownership and consumption compliance will be evaluated using a weighted average shareholding approach over the assessment period.

The draft amendments also provide detailed guidance on the treatment of SPVs and AoPs. SPVs will be assessed as AoPs for captive verification purposes. While individual captive users within an AoP may draw power based on operational needs, consumption exceeding proportionate entitlement will only count toward collective captive compliance and not individual captive status. However, captive users holding 26% or more ownership will be exempt from proportional consumption limits, with all power drawn qualifying as captive.

On verification responsibilities, the proposed rules establish a clear jurisdictional framework. Intra-state captive projects will be verified by nodal agencies notified by state governments, while inter-state captive plants will fall under the verification authority of the National Load Despatch Centre (NLDC), subject to approval by the Central Government. Any disputes arising from the verification process may be referred to a designated Grievance Redressal Committee.

The draft also clarifies the treatment of cross-subsidy surcharge (CSS) and additional surcharge (AS). No surcharge will be levied during the verification period if the generating company submits a declaration of captive status. However, if the plant is subsequently found to be non-compliant, applicable surcharges along with carrying costs under the Electricity (Late Payment Surcharge and Related Matters) Rules, 2022, will become payable.

A key change proposed in the amendments is the provision for unit-level verification of ownership and captive consumption, rather than assessing an entire generating station as a single entity. This is expected to offer greater operational flexibility for projects with multiple units or phased capacity additions.

The Ministry stated that the proposed changes are intended to align captive power regulations with evolving industrial demand patterns, modern corporate ownership structures, and administrative practices, while reducing disputes and regulatory uncertainty. Provisions relating to group captive consumption and nodal agency verification are proposed to take effect from April 1, 2026, while the remaining amendments will come into force immediately upon notification.

The consultation follows earlier proposals issued in September 2025 and incorporates stakeholder inputs received so far. The Ministry reiterated that captive power generation remains a critical enabler of industrial competitiveness, energy security, and broader economic growth.

Comments have been sought from a wide range of institutions, including MNRE, CEA, CERC, state energy departments, power distribution companies, and industry bodies such as FICCI, CII, PHDCCI, and ASSOCHAM, as well as academic and research organisations.