JSA Prism | Electricity and Power | January 2026

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Ministry of Power releases draft Electricity (Amendment) Rules, 2026 on captive generating plants

The Ministry of Power, on January 2, 2026, released the draft Electricity (Amendment) Rules, 2026 (“Draft Amendment Rules”), proposing substitution of Rule 3 (Requirements of Captive Generating Plant) of the Electricity Rules, 2005. Comments and suggestions on the Draft Amendment Rules have been invited within 15 (fifteen) days from the date of issuance, i.e., on or before January 17, 2026.

The Draft Amendment Rules have been proposed in light of interpretational issues observed following the June 2023 amendments to the Electricity Rules, 2005, particularly in relation to captive consumption by group companies, proportionality requirements applicable to Associations of Persons, and verification of captive status. The amendments seek to clarify ownership and consumption norms, align the captive framework with contemporary corporate structures, and reduce disputes arising from divergent interpretations.

Salient features

• Group entities consolidated as a single captive user[1]: The Draft Amendment Rules clarify that a captive user includes its subsidiaries, holding company and other subsidiaries of the holding company, all of which are to be collectively treated as a single captive user, addressing industry concerns regarding extending captive consumption benefits to group companies under the earlier framework.
• Ownership clarified to reflect contemporary corporate and investment structures[2]: The concept of ‘ownership’ is clarified to include proprietary interest and control, or equity share capital carrying voting rights held directly or indirectly through group entities, aligning captive eligibility with modern corporate structuring practices.
• Flexible assessment period introduced for captive status verification[3]: The Draft Amendment Rules permit verification of captive status with reference to a financial year or such other continuous period within a financial year as may be opted by the captive user, replacing the earlier financial-year-based compliance approach and reflecting actual operational periods.
• Weighted average ownership methodology during the assessment period: Where the ownership pattern of a captive generating plant varies during the assessment period, the proportionate entitlement of each captive user is proposed to be calculated on the basis of weighted average shareholding, a methodology not expressly provided under the earlier rules.
• Revised captive consumption framework for plants set up by an Association of Persons: For captive generating plants established by an Association of Persons, the Draft Amendment Rules propose that each captive user may draw power based on its operational requirements, with eligibility for captive consumption linked to proportionate entitlement aligned with ownership, without disqualification arising from consumption above or below such entitlement. Only the consumption exceeding the proportionate entitlement of an individual captive user will not qualify as individual captive consumption, while such excess consumption will continue to be considered for determining whether the plant meets the minimum 51% collective captive consumption requirement.
  Further, where any captive user holds not less than 26% ownership in the captive generating plant, the requirement relating to proportionate entitlement will not apply to such user and the entire consumption by such user will be treated as captive consumption, whereas under the earlier framework such exemptions and treatment were not expressly recognised.
  The following illustrations demonstrate the manner in which captive consumption requirements are applied across different scenarios.

Example 1: Plant qualifies as captive – proportionate consumption within limit:

Note:

• Actual consumption by A qualifies as captive consumption.
• Only consumption up to 23.33% qualifies as captive consumption for B.
• Actual consumption by C qualifies as captive consumption.

Example 2: Plant qualifies as captive – collective vs. individual limit:

Note:

• Actual consumption by A qualifies as captive consumption.
• Only consumption up to 9.33% qualifies as captive consumption for B; however, the entire consumption of 28% is considered for collective captive verification.
• Actual consumption by C qualifies as captive consumption.

Example 3: Plant qualifies as captive – individual ownership not less than 26%:

Note:

• Although the proportionate entitlement is 58.2%, actual consumption of 80% qualifies as captive consumption as ownership is not less than 26%.
• Actual consumption by B qualifies as captive consumption.
• Actual consumption by C qualifies as captive consumption.

Example 4: Plant qualifies as captive – group entities treated as a single person:

Note:

• Where ownership is held by a group entity and consumption is spread across the holding company and subsidiaries, only collective consumption up to the group’s proportionate entitlement qualifies as captive consumption; allocation within the group is determined by the group.
• Actual consumption by B qualifies as captive consumption.
• Actual consumption by C qualifies as captive consumption.
• Extension of unit-level ownership and consumption verification: The Draft Amendment Rules propose to permit unit-level ownership and consumption verification, as against generating station-level verification, for all captive users.
• Captive status verification mechanism formalised: The Draft Amendment Rules propose to empower State Governments to designate a nodal agency for verification of captive status in cases of intra-State captive consumption. Verification for inter-State captive consumption is proposed to be undertaken by the National Load Despatch Centre, in accordance with procedures approved by the Central Government. Any disputes arising from such verification are to be placed before a Grievance Redressal Committee constituted by the appropriate Government. This replaces the earlier absence of a uniform and clearly defined captive verification framework.
• Non-levy of cross-subsidy and additional surcharge pending verification, subject to subsequent recovery: Under the Draft Amendment Rules, cross-subsidy surcharge and additional surcharge will not be levied during the period in which captive status is being verified, provided the captive user furnishes the prescribed declaration. If the generating plant is found not to qualify as a captive generating plant for the relevant assessment period, the applicable cross-subsidy surcharge and additional surcharge, together with carrying cost calculated at the base rate of late payment surcharge under the Electricity (Late Payment Surcharge and Related Matters) Rules, 2022, will become payable.

Conclusion

The Draft Amendment Rules propose a comprehensive substitution of Rule 3 of the Electricity Rules, 2005, with the stated objective of clarifying ownership and consumption requirements for captive generating plants, addressing proportionality issues in group captive structures, and streamlining captive status verification and surcharge treatment. Stakeholders may review the proposed framework and submit comments to the Ministry of Power within the prescribed consultation timeline.

This Prism has been prepared by:

Vishnu Sudarsan Partner

Sugandha Somani Gopal Partner

Vihaan Pathak Associate

For more details, please contact [email protected].

[1] Captive user means an end user of electricity generated in a captive generating plant and includes a person or group of persons consuming such electricity either directly or through an energy storage system, and, where such captive user is a company, includes its subsidiary or subsidiaries, holding company and other subsidiaries of such holding company, all of which are to be collectively treated as a single captive user.

[2] Ownership means proprietary interest and control, or equity share capital carrying voting rights, held either directly or through a subsidiary or subsidiaries, a holding company, or other subsidiary or subsidiaries of such holding company.

[3] Assessment period means a financial year or such other continuous period within a financial year, as may be opted by the captive user for the purposes of verification under the rules.