TANGEDCO v. TNERC & CCCPL

Brief Introduction

The case revolves around a dispute concerning the status of Chettinad Cement Corporation Private Limited’s (CCCPL) Captive Generating Plants (CGPs) under Rule 3 of the Electricity Rules, 2005. CCCPL operates three cement manufacturing units in Tamil Nadu, each co-located with coal-based CGPs, which collectively generate 135 MW of electricity. The Tamil Nadu Electricity Regulatory Commission (TNERC), in its order dated 13.07.2023, ruled in favor of CCCPL, allowing aggregation of electricity consumption across all three CGPs to meet the 51% captive use requirement. Tamil Nadu Generation and Distribution Corporation Limited (TANGEDCO) challenged this ruling, contending that compliance with the captive use criterion must be assessed individually for each CGP. Additionally, TANGEDCO sought ₹95.02 crore as cross-subsidy surcharge (CSS) for alleged non-compliance during the financial years 2014-15 and 2015-16, raising questions about the timeliness of its claim.

Issues Identified

The following legal and procedural issues were framed for consideration:

1. Aggregation of Consumption: Can electricity generation and consumption across multiple CGPs, owned by a single entity, be aggregated to meet the 51% captive use requirement?
2. Interpretation of Rule 3: Does Rule 3 adopt a user-centric or plant-centric approach to determine compliance with CGP requirements?
3. Cross-Subsidy Surcharge (CSS): Is the respondent liable to pay CSS if CGP status is disqualified?
4. Bar of Limitation: Was TANGEDCO’s claim time-barred under applicable laws?

Rationale Behind Judgment

• Understanding the Rule: Captive Generating Plant Requirements

Captive Generating Plants (CGPs) are regulated under Rule 3 of the Electricity Rules, 2005, which stipulates two primary conditions. First, at least 26% of the ownership of the generating plant must be held by the captive user(s). Second, at least 51% of the electricity generated annually must be consumed for the captive use of the owner(s). Together, these criteria ensure that the CGP primarily serves the energy needs of its owners, aligning with the policy goals of self-reliance and cost-efficiency.

The key dispute in this case pertained to the second requirement—the consumption threshold. TANGEDCO contended that each generating plant must independently meet the 51% consumption criterion, while CCCPL argued that aggregate consumption across multiple plants should suffice. This disagreement brought the tribunal to the critical question: should Rule 3 be interpreted in a plant-centric or user-centric manner?

• User-Centric vs. Plant-Centric Interpretation

The tribunal adopted a user-centric interpretation of Rule 3. It emphasized that the rule’s language supports an aggregated approach to consumption, particularly when the generating plants are owned and operated by a single entity for its use. The tribunal pointed to the phrasing of the rule, which refers to “aggregate electricity generated” and “aggregate consumption,” to argue that these terms inherently allow for consolidation across multiple plants.

The tribunal also referenced the illustrative example provided in the explanation to Rule 3. This example permits a generating station with multiple units to identify specific units for captive use. By extension, the tribunal reasoned that there is no statutory prohibition against treating multiple generating plants under common ownership as a single unit for compliance purposes. This flexibility aligns with the rule’s intent to focus on the user entity’s consumption rather than the physical location or output of individual generating plants.

TANGEDCO’s argument rested on a rigid, plant-centric interpretation of Rule 3. It asserted that each plant must independently meet the 51% consumption threshold, failing which the user entity would lose CGP status and become liable for cross-subsidy surcharges. The tribunal rejected this argument as overly restrictive and inconsistent with the legislative intent.

A plant-centric approach, the tribunal reasoned, would lead to absurd results. For instance, a user with one large generating plant consuming 51% of its output would qualify as a CGP, while another user with multiple smaller plants consuming the same percentage in aggregate would not. Such an outcome would not only penalize entities with distributed operations but also create inequities between similar entities based solely on their operational structures.

Moreover, the tribunal highlighted that imposing a plant-centric requirement would discourage investment in captive power generation, particularly for industries operating multiple plants. This would undermine the Electricity Rules’ primary objective of promoting captive generation as a reliable and cost-effective alternative to centralized power supply.

• Objective of Electricity Rules, 2005

The tribunal’s judgment is deeply rooted in the policy objectives underlying the Electricity Act, 2003, and the Electricity Rules, 2005. These legislative frameworks aim to:

1. Promote captive generation as a means of ensuring reliable, affordable electricity for industries.
2. Reduce dependence on centralized distribution systems, thereby enhancing energy self-reliance.
3. Foster industrial competitiveness by providing flexibility in energy management.

By adopting a user-centric approach, the tribunal aligned its interpretation of Rule 3 with these objectives. It emphasized that the rule’s purpose is to facilitate, not hinder, captive power generation. Penalizing users for operating multiple plants or requiring plant-wise compliance would run counter to this purpose.

The judgment also underscored the importance of the word “primarily” in the definition of a CGP under Section 2(8) of the Electricity Act. The tribunal interpreted “primarily” to mean “mainly” or “for the most part,” rather than “exclusively.” This interpretation reinforces the idea that as long as a CGP satisfies the majority threshold of 51% consumption, it should retain its status, even if the remaining electricity is supplied elsewhere.

• Cross-Subsidy Surcharge Not Payable

Cross-subsidy surcharges are intended to offset revenue losses for distribution licensees when consumers opt for alternate sources of electricity. However, the Electricity Act, 2003, explicitly exempts CGPs from such surcharges, provided they meet the conditions set out in Rule 3.

The tribunal reaffirmed this exemption, noting that CCCPL fulfilled the ownership and consumption criteria for CGP status during the disputed financial years. Imposing surcharges despite compliance with these criteria would not only violate the statutory framework but also undermine the policy goal of encouraging captive generation. The tribunal noted that the primary issue (aggregation of consumption) resolved the case. As a result, it did not explicitly decide whether TANGEDCO’s claim was barred by limitation.

Practical Implications of the Judgment

The judgment has profound implications for industries operating multiple generating plants. By validating aggregation, it provides legal certainty and operational flexibility to industrial users. Entities can now optimize their energy strategies without fear of disqualification due to procedural hurdles or plant-centric compliance requirements.

Moreover, the decision removes a significant disincentive for investing in captive power generation. Industries with geographically distributed operations often establish multiple plants to optimize resources or meet regional demand. Requiring each plant to independently meet the 51% threshold would impose unnecessary costs and complexities, discouraging such investments.

The judgment also curtails the potential for regulatory overreach by distribution licensees. By rejecting TANGEDCO’s claims, the tribunal sent a clear message that utilities cannot exploit procedural ambiguities to levy unwarranted cross-subsidy surcharges. This strengthens the regulatory framework’s integrity and ensures fairness for industrial users.

Conclusion

The APTEL judgment in TANGEDCO v. TNERC & CCCPL is a landmark decision that reaffirms the principles of fairness, practicality, and legislative intent in electricity regulation. By adopting a user-centric interpretation of Rule 3, the tribunal struck a balance between statutory compliance and operational efficiency, safeguarding the interests of industrial users while ensuring adherence to policy objectives.

This judgment not only clarifies critical aspects of CGP compliance but also sets a robust precedent for future cases. Its emphasis on promoting captive generation aligns with the broader goals of energy security, economic growth, and industrial self-reliance, making it a cornerstone of electricity law jurisprudence in India.