The Electricity (Amendment) Rules, 2026 keep the 26% ownership and 51% consumption tests but apply them to group captive users collectively, so one user’s disproportionate draw no longer disqualifies the plant. In exchange, each user below 26% now has a capped captive entitlement — a user-level exposure that lands hardest on the anchor offtaker and moves with what its co-users consume.
MaxZen Energy Advisory | Regulation & Compliance | 14 min read
Two numbers decided an appeal at the Appellate Tribunal for Electricity on 17 September 2026: 14.57% and 26%.
Piccadily Hotels Pvt Ltd had drawn power in FY 2020-21, through a Haryana banking arrangement, from the 17 MW bagasse-based cogeneration plant of Piccadily Agro Industries Ltd in Karnal district, and claimed it as captive power. It held 14.57% of the generating company. Following the Supreme Court’s 2022 judgment in the CSPDCL case, APTEL held that consuming shareholders must hold at least 26% of the generating company.
In Appeal No. 392 of 2025, the Tribunal directed the appellants to pay the ₹68,03,220 of captive benefit the discom had demanded, with interest at the State Bank of India’s marginal cost of funds-based lending rate for the relevant year plus 150 basis points, within four weeks.
The Haryana Electricity Regulatory Commission had reached the same result on a different number: the hotel company drew only 37.24% of the output of the 5 MW unit earmarked for it. APTEL rejected that route, because the unit-wise equity rule applies only to a special purpose vehicle and Piccadily Agro also runs a sugar mill and a distillery. It decided the case on ownership and did not reach consumption. The demand notice came in June 2024; the appellate outcome, six financial years after the consumption.
The judgment applies Rule 3 as it stood in FY 2020-21, and the Electricity (Amendment) Rules, 2026 have since rewritten it. Whether the new group-company provisions would have changed this result depends on corporate relationships the judgment does not record, so we draw no conclusion about the case. What it does show is how captive status is enforced: in arrears, one financial year at a time, with carrying cost.
Our reading is this: the 2026 amendment moved the risk in a group captive arrangement from the structure to the meter. Plant-level qualification is easier. But a captive user holding less than 26% that draws more than its share of the captive pool now pays cross-subsidy surcharge and additional surcharge on the excess — even though the plant stays captive. The user most likely to do that is the anchor offtaker: in this article, the captive user whose load the plant was sized around, where it holds less than 26% of the plant.
| Qualification is now tested collectively. Entitlement is now capped individually. The second test is the one that creates exposure through day-to-day operation — even while the plant stays captive. |
At a glance
| 26% + 51% Plant-level tests, unchanged — now met collectively by all captive users | Share × pool User-level limit for each user below 26%, as computed in Schedule III | ₹2.50 crore/yr Illustrative anchor exposure on a 50 MW plant (Section 4) | FY 2026-27 First full financial year under the individual cap, in force from 1 April 2026 |
1. The twin test survived. Proportionality no longer decides qualification
Rule 3 of the Electricity Rules, 2005 sets the conditions for captive status, and captive status is what relieves captive users of cross-subsidy surcharge and additional surcharge. The Ministry of Power substituted Rule 3 in full by the Electricity (Amendment) Rules, 2026, notified as G.S.R. 186(E) on 13 March 2026. Most provisions took effect that day. Rules 3(2)(d)(ii), 3(2)(d)(iii) and 3(4) — the individual cap, the 26% carve-out and the new verification machinery — took effect on 1 April 2026.
The qualifying conditions are unchanged. Captive users must hold not less than 26% of the ownership of the plant and consume not less than 51% of its aggregate generation in the financial year (Rule 3(2)(a)).
What changed is how they are tested across several users. The old rule required the captive users of an association of persons to consume “in proportion to their shares in ownership of the power plant within a variation not exceeding ten percent”. In Dakshin Gujarat Vij Company Ltd v. Gayatri Shakti Paper and Board Ltd (2023 INSC 886, 9 October 2023), the Supreme Court read that as a minimum of 1.96% of generation for each 1% of equity (51 ÷ 26), within a range of 1.764% to 2.156%, and held that a special purpose vehicle is an association of persons.
In practice the test worked as a floor. The Court’s illustrations treat users consuming well above the range as captive, and exclude a user that falls below it; where the remaining users then miss the twin thresholds, no one qualifies. Under-drawing was the risk, and it could reach the whole plant.
Rule 3(2)(d)(i) removes the floor. For an association of persons — which now expressly includes any special purpose vehicle (Rule 3(1)(e)) — the twin conditions are satisfied collectively by all captive users. The Ministry’s Explanatory Note is direct: “There will not be any disqualification due to disproportionate consumption by an individual user.”
| IMPORTANT DISTINCTION Disproportionate consumption no longer disqualifies a group captive plant. It does not make unlimited consumption by an individual user captive. |
2. What the amendment gives back
For corporate groups the definitions matter more. A captive user that is a company now includes its subsidiaries, its holding company and the holding company’s other subsidiaries, treated as a single captive user (Rule 3(1)(a)). Ownership includes voting equity held directly or through any of them (Rule 3(1)(d)). Consumption anywhere in that group counts toward the same captive user, and equity anywhere in it toward the same 26%.
Schedule III to the rule illustrates a group in which one company holds the equity and three others do the consuming; the group’s limit is computed once and allocated internally. Where group sites sit in different discoms’ areas, the Explanatory Note expects each to report its own consumption with the group’s consolidated entitlement and a declaration that it forms part of the group’s captive pool.
The amendment also codifies the weighted-average principle from Dakshin Gujarat: where ownership changes during the year, proportionate consumption follows the weighted-average holding (Rule 3(2)(d)(iv)). An SPV share transfer now has a rule rather than an argument.
Table 1. Rule 3 for group captive plants, before and after the 2026 amendment
| Question | Before: Rule 3 as read in Dakshin Gujarat (2023) | After: Rule 3 as substituted (2026) |
| How the plant qualifies | Each member had to consume in proportion to its shareholding, within ±10% | Twin conditions met collectively by all captive users — Rule 3(2)(d)(i) |
| A member under-draws | Member could lose captive status; plant at risk if the rest missed the twin tests | No disqualification; its draw still counts toward the collective 51% |
| A member over-draws | Consumption above the proportionate share treated as captive | For users below 26%, consumption above 100% of the proportionate limit is charged CSS + AS — Rule 3(2)(d)(ii), proviso to 3(3) |
| A member holds 26% or more | No separate treatment | Individual cap does not apply — Rule 3(2)(d)(iii) |
| SPV status | Association of persons by case law | Expressly an association of persons — Rule 3(1)(e) |
| Mid-year ownership change | Weighted average by case law | Weighted average codified — Rule 3(2)(d)(iv) |
Source: Supreme Court, 2023 INSC 886, paras 43–48 and 64–67; Electricity Rules, 2005, Rule 3 as substituted by G.S.R. 186(E).
3. The floor became a ceiling
The same clause that removed the floor added a ceiling. Rule 3(2)(d)(ii) provides that “captive consumption by an individual captive user shall be admissible only up to one hundred per cent of its proportionate consumption, calculated with reference to its share in the total captive ownership in the power plant.” Under the proviso to Rule 3(3), consumption above that limit “shall be treated as supply of electricity by a generating company and cross-subsidy surcharge and additional surcharge shall be levied on such excess consumption.”
How the 2026 test works for a group captive plant
| Step 1 | Step 2 | Step 3 | Step 4 |
| Plant level Captive users together hold ≥26% of ownership and consume ≥51% of generation in the year. If not, the plant is not captive. | User limit For each user: (its ownership ÷ total captive ownership) × aggregate actual consumption of all captive users. | Compare Draw within the limit is captive. Draw above it is treated as supply by a generating company; CSS + AS on the excess only. | 26% carve-out A user holding ≥26% of the plant has no individual limit. The plant-level tests still apply. |
Source: Rule 3(2)(a), 3(2)(d)(i)–(iii) and 3(3); Schedule III.
Two features of the cap matter more than its headline.
The base is the actual captive pool, not 51%. Schedule III sets each user’s limit at its share of total captive ownership multiplied by the aggregate actual consumption of all captive users. The 1.96 ratio no longer applies; the multiplier floats with what the captive users consume. The excess still counts toward the collective 51%, as the Explanatory Note confirms.
| MAXZEN INSIGHT: A user’s limit depends on what its co-users draw, and unused headroom is not passed on. Below 26%, a user stays within its limit only if its share of the captive pool is no larger than its share of captive ownership. If a co-user under-draws, the pool shrinks and the anchor’s limit shrinks with it. Example 1 in Schedule III shows two users under-drawing while the third is still capped. |
There is one exception. Under Rule 3(2)(d)(iii) the cap “shall not apply” to a captive user holding not less than 26% of the ownership in the power plant — 26% of the plant, not of the captive block. The Explanatory Note says “the entire consumption by him will be treated as captive consumption”. The plant must still meet the collective 26% and 51% conditions.
The practical consequence is that two different events now carry two different results, and they should not be confused.
Table 2. Plant-level failure and user-level excess are different events
| Situation | Provision | Consequence |
| Plant level: collective condition not met (26% ownership or 51% captive consumption) | Rule 3(2)(a), 3(2)(d)(i), 3(3) | Plant is not captive for the year. Where the minimum captive consumption is not met, the entire generation is treated as supply by a generating company and CSS and AS are levied on it. |
| User level: a user below 26% draws above its proportionate limit | Rule 3(2)(d)(ii); proviso to 3(3) | Plant stays captive. Only that user’s excess is treated as supply by a generating company and charged CSS and AS. |
| Verification pending; declaration furnished | Rule 3(4)(c) | CSS and AS not levied pending verification. If the plant then fails, CSS and AS as determined by the State Commission become payable with carrying cost at the base rate of late payment surcharge under the LPS Rules, 2022. |
Source: Electricity Rules, 2005, Rule 3 as substituted by G.S.R. 186(E), 13 March 2026. Applicable CSS and AS rates are those set by each State Commission.
4. What the cap costs: an illustration
The following is illustrative. Actual charges vary by state, voltage, consumer category, contract structure and prevailing regulation.
Take a 50 MW group captive solar SPV generating 100 MU a year ex-bus, roughly a 22.8% capacity utilisation factor. Consumer A, the anchor load, holds 20%; Consumer B holds 6%; the developer holds the remaining 74%. A draws 60 MU and B draws 5 MU, so the captive pool is 65 MU — comfortably above the 51 MU the plant needs.
Table 3. User-level entitlement under Rule 3(2)(d)(ii), computed as in Schedule III
| Consumer A | Consumer B | Total | |
| Ownership of plant | 20% | 6% | 26% |
| Share of total captive ownership | 76.92% | 23.08% | 100% |
| Proportionate limit (share × 65 MU pool) | 50.00 MU | 15.00 MU | 65.00 MU |
| Actual consumption | 60.00 MU | 5.00 MU | 65.00 MU |
| Admissible as captive | 50.00 MU | 5.00 MU | 55.00 MU |
| Excess, charged CSS + AS | 10.00 MU | nil | 10.00 MU |
Illustrative. Limit = (user’s ownership ÷ total captive ownership) × aggregate actual consumption of all captive users, as in Schedule III. The 10 MU excess still counts toward the plant’s 51%. Generation: 50 MW × 8,760 h × 22.8% = 99.9 MU, rounded to 100 MU ex-bus.
At plant level, the plant qualifies; under the old floor it would have been at risk, with B far below its proportionate share. At user level, 10 MU of A’s supply is now non-captive — ₹2.50 crore a year at an assumed combined cross-subsidy and additional surcharge of ₹2.50/kWh. For scale, Haryana’s additional surcharge alone was reported at ₹1.37/kWh for the second half of FY 2025-26.
| Illustrative sensitivity only — not an indication of the CSS and AS applicable to any particular consumer or state. |
Table 4. Consumer A’s exposure depends on what Consumer B draws
| B’s consumption | Captive pool | A’s limit | A’s excess | ₹ cr/yr at ₹1.50 | ₹ cr/yr at ₹2.50 | ₹ cr/yr at ₹3.50 |
| 2 MU | 62 MU | 47.69 MU | 12.31 MU | 1.85 | 3.08 | 4.31 |
| 5 MU | 65 MU | 50.00 MU | 10.00 MU | 1.50 | 2.50 | 3.50 |
| 10 MU | 70 MU | 53.85 MU | 6.15 MU | 0.92 | 1.54 | 2.15 |
| 18 MU | 78 MU | 60.00 MU | nil | nil | nil | nil |
Illustrative. A draws 60 MU throughout; ownership 20% and 6%. Exposure = A’s excess × assumed combined CSS + AS per kWh. The bold row is the Table 3 case.
As B’s draw rises from 2 MU to 18 MU, A’s exposure at ₹2.50/kWh falls from ₹3.08 crore to nil without A changing anything. Applying the old arithmetic — each user’s share of 51% of generation — would put A’s excess at 20.77 MU, more than double the figure above. Schedule III does not support that reading, and the rule’s words, “total captive ownership”, rule out a denominator of total plant ownership.
The 26% route. If A buys six points from the developer and reaches 26%, Rule 3(2)(d)(iii) disapplies the cap for A. At an illustrative ₹4.0 crore/MW and 70:30 debt to equity, the SPV’s equity is ₹60 crore. Ownership under Rule 3(1)(d) is voting equity, not project cost, so six points cost ₹3.60 crore at book value. Against the illustrative exposure, that is recovered in about 17 months at ₹2.50/kWh, 29 months at ₹1.50 and 12 months at ₹3.50 — and it is a capital commitment, not an expense.
The cap is a cliff, not a slope. Below 26%, extra equity lifts A’s limit only marginally: at 25%, 7.58 MU stays exposed. At 26%, the individual cap stops applying altogether. That makes reaching 26% an important structuring option to evaluate, alongside contractual responses such as minimum-offtake commitments from co-users and operational ones such as re-planning the anchor’s draw.
Two effects need modelling before any transfer. Raising A to 26% enlarges the captive block to 32% and cuts B’s limit from 15.00 MU to 12.19 MU — harmless here, a problem where every user is near its limit. And timing may matter.
| REGULATORY INTERPRETATION TO WATCH: Rule 3(2)(d)(iv) expressly applies weighted averaging to proportionate consumption. Rule 3(2)(d)(iii) is silent on whether the 26% carve-out itself is tested on a weighted average. If it is, a transfer effective 1 November 2026 gives A only 22.5% for FY 2026-27, trimming its excess from 10.00 MU to 8.68 MU, with full relief from FY 2027-28. Our view: confirm the treatment with the verification agency or the Ministry of Power before relying on a mid-year increase to secure the carve-out for the same financial year. |
5. Who is bound, who verifies, and from when
Rule 3(3) places the obligation to comply on the captive users, at both levels shown in Table 2.
Verification moved on 1 April 2026: to a nodal agency designated by the State Government where the plant and its users are in one state, and to the National Load Despatch Centre where they span states. The Explanatory Note keeps the Central Electricity Authority as verifier for inter-state consumption up to FY 2025-26. Appeals go to a Grievance Redressal Committee constituted by the appropriate government.
As at 2 October 2026 we could not locate a published NLDC verification procedure or a state order designating a nodal agency. That is not proof that none exist. With half of FY 2026-27 gone, a consumer relying on Rule 3(4)(c) should confirm in writing which procedure applies to its plant.
6. What is still uncertain
Whether the 26% carve-out is tested on a weighted average. The rule is silent, as noted in Section 4. The answer decides whether a mid-year share purchase helps the current year.
When a user’s excess is billed, and with what carrying cost. Rule 3(4)(c) is written for a plant that fails verification. It does not say whether user-level excess is billed monthly or after verification, or whether carrying cost applies to it.
How earlier years are treated. Years up to FY 2025-26 should be assessed under Rule 3 as it stood in each year; the amendment does not automatically resolve those disputes. The new definitions took effect on 13 March 2026, before FY 2025-26 closed, and whether they bear on that year’s verification is not addressed.
How meter data maps to the formula. Schedule III works in percentages of ex-bus generation. Converting drawal-point readings, banked energy and storage losses to that basis is left to the verification procedures.
7. What to watch next
- NLDC procedure and state nodal agency designations. Until they exist, the Rule 3(4)(c) declaration cannot be used as intended. No date has been announced.
- The first Grievance Redressal Committees, which will decide how contestable a verification outcome is.
- 31 March 2027 — close of FY 2026-27, the first full financial year under the individual-consumption cap. When user-level excess is billed, within the year or after verification, is one of the open questions in Section 6.
- APTEL and state commission decisions on pre-2026 years. Piccadily shows FY 2020-21 demands still being decided in FY 2026-27.
- Any Ministry of Power clarification on the questions in Section 6. None had been issued as at 2 October 2026.
8. MaxZen Perspective
The headline reading of the Electricity (Amendment) Rules, 2026 is that they eased group captive. We think that reading is half right.
The amendment separated two questions that used to be tangled. Does the plant qualify? That is now a collective test, and easier to pass. How much can each user claim as captive? That is now an individual cap, and it binds. The old risk was primarily structural: it was managed in the shareholders’ agreement and usually caught in diligence. The new risk is operational and can arise through day-to-day consumption behaviour, without any structuring error.
The detail that matters most for contracts is that the anchor’s limit depends on its co-users’ consumption. A shareholders’ agreement that fixes equity but says nothing about offtake leaves the anchor carrying a cost that other parties’ behaviour drives. Consumption covenants and surcharge-sharing clauses should now sit in every group captive agreement alongside the cap table.
The second-order effect is the one we would put in front of a board. Early commentary has suggested the cap may push the market toward single-captive structures. A 26% position — ₹15.6 crore of equity in our illustration — can be more than an individual offtaker wants to carry. Depending on project economics and contractual structures, some consumers may reassess group captive participation in favour of alternative procurement arrangements, including conventional open access or grid supply. That trade-off is worth putting to the Ministry of Power while the provision is new.
For consumers already inside a group captive arrangement, the question is no longer whether the structure qualifies. It is how much each user drew against its limit this year, and what that costs — a metering and shareholding question, answerable this quarter.
9. What C&I consumers should do now
| Step | Action | By when / owner |
| 01 Reconcile | April–September 2026 ownership (weighted average) and metered consumption for every captive user, converted to an ex-bus basis. | 31 October 2026 · plant electrical head and company secretary, with the SPV share register |
| 02 Recalculate | Each user’s Schedule III limit — and, separately, the plant-level 26% and 51% conditions. | 31 October 2026 · same team |
| 03 Stress-test | The anchor’s limit with co-users at their lowest plausible draw; price any excess at your state’s current CSS and AS against the options, including reaching 26%. | 30 November 2026 · energy manager and finance |
| 04 Review contracts | Recompute every user’s limit before any SPV share transfer; add minimum-offtake and surcharge-sharing terms to the shareholders’ agreement; aim for any transfer to take effect by 1 April 2027. | Before any transfer · legal and company secretary |
| 05 Confirm verification | Written confirmation of the procedure, declaration format and timeline from your state nodal agency, SLDC or the NLDC; keep the cap table, transfer documents, meter data and limit workings in one evidence file. | 31 December 2026 · regulatory or compliance lead |
| 06 Review earlier years | Open assessments for FY 2025-26 and earlier, under the rule in force in each year; provide for carrying cost (in Piccadily, SBI MCLR plus 150 basis points under HERC’s 2024 multi-year tariff regulations). | Now · finance and legal |
10. Closing
A rule rewritten to make group captive workable has made plant-level qualification easier and user-level entitlement narrower at the same time. The exposure accrues quietly, on a meter, against a share register nobody re-reads, and it is assessed in arrears. For an energy manager the instruction is specific: reconcile consumption against entitlement this quarter, while the financial year can still be steered.
FAQ
Can a group captive plant still be disqualified after the 2026 amendment?
Yes. The 26% ownership and 51% consumption conditions still apply at plant level, now tested collectively across all captive users. Under Rule 3(3), where the minimum captive consumption is not met in a financial year, the entire generation is treated as supply by a generating company. What changed is that one user’s disproportionate consumption no longer disqualifies the plant.
We hold 18% and take most of the plant’s output. Are we exposed?
Yes, at user level, for consumption above your proportionate limit — unless you hold 26% or more of the plant. Your limit is your share of total captive ownership multiplied by the aggregate actual consumption of all captive users, as Schedule III illustrates. The excess is charged cross-subsidy surcharge and additional surcharge but still counts toward the plant’s 51%. Reaching 26% removes the cap; confirm how a mid-year move is treated before relying on it.
Does a co-user’s low consumption affect our limit?
Yes. Because the limit is a share of the actual captive pool, a co-user drawing less than its ownership share shrinks the pool and your limit with it. Unused headroom is not reallocated to other users. Shareholders’ agreements should address minimum offtake for this reason.
Does the cap apply to years before FY 2026-27?
No. Rules 3(2)(d)(ii) and 3(2)(d)(iii) came into force on 1 April 2026. Earlier years are assessed under Rule 3 as it stood in each year — for an association of persons, the proportionality requirement with its ten per cent variation, as the Supreme Court read it in Dakshin Gujarat (2023).
Who verifies captive status now, and what protection applies while verification is pending?
A nodal agency designated by the State Government where the plant and its users are in one state, and the NLDC where they are in more than one. Pending verification, CSS and AS are not levied if the captive users furnish the declaration the applicable procedure requires; if the plant then fails, they are payable with carrying cost at the base rate of late payment surcharge. Confirm the procedure locally before relying on this.
Can consumption through a battery count as captive consumption?
Yes. The definition of captive user in Rule 3(1)(a) covers electricity consumed through an energy storage system used to store energy generated by the captive plant. This matters for round-the-clock captive structures built with co-located storage.
About MaxZen Energy Advisory
MaxZen Energy Advisory LLP is an independent energy consulting and advisory firm serving large commercial and industrial electricity consumers, with no developer, trader or vendor affiliation. We work with C&I consumers and captive project sponsors on entitlement reconciliation, ownership-change modelling and FY 2026-27 captive compliance; if a group captive arrangement in your portfolio needs that before the year closes, we are happy to talk.
Sources
- Ministry of Power, Electricity (Amendment) Rules, 2026, G.S.R. 186(E), with Schedule III and Explanatory Note, Gazette of India Extraordinary, Part II, Section 3(i), No. 180, 13 March 2026.
- Appellate Tribunal for Electricity, Piccadily Agro Industries Ltd & Anr v. Haryana Electricity Regulatory Commission & Ors, Appeal No. 392 of 2025, judgment dated 17 September 2026.
- Supreme Court of India, Dakshin Gujarat Vij Company Ltd v. Gayatri Shakti Paper and Board Ltd, Civil Appeal Nos. 8527–8529 of 2009, 2023 INSC 886, 9 October 2023.
- Haryana Electricity Regulatory Commission, additional surcharge for the second half of FY 2025-26 (₹1.37/kWh), as reported on 5 May 2026.
Disclaimer: This article is provided for general information and does not constitute regulatory, legal or financial advice. Illustrative figures are indicative only. Readers should evaluate their specific circumstances and applicable state regulations before acting.