Karnataka Electricity Regulator Denies Captive Status to a Wind Project

The Karnataka Electricity Regulatory Commission (KERC) has rejected a petition submitted by a wind power company seeking captive power project status for the financial year (FY) 2017-18. The Commission directed the developer to refund any cross-subsidy surcharge, additional surcharge, or differential electricity tax it received from the consumers within two months of the Order.

The petitioner, Clean Wind Power (a special purpose vehicle of Hero Wind Energy), had approached KERC seeking qualification as a captive power project for FY 2017-18. The petitioner stated that the consumers Rane Limited, DM South Hospitality Limited, and Klene Paks Limited had complied with the requirements specified under the Electricity Rules for their captive consumption for FY 2017-18.

The petitioner challenged what it considered unlawful actions by Chamundeshwari Electricity Supply Corporation, which imposed a cross subsidy surcharge on some of the captive users of its power project.

Background


Clean Wind Power owns and operates a 50 MW wind power project in Raichur, Karnataka. The petitioner has twelve shareholders, out of which eleven are captive users who consume 100% of the electricity generated from the wind power project. The remaining shareholder is Hero Wind Energy.

The petitioner said that it submitted the relevant documents to Chamundeshwari Electricity Supply Corporation, indicating that the consumption of the captive users was proportionate to the shareholding pattern as of FY 2017-18. The petitioner also argued that this consumption was within the permissible variation range of +10% as prescribed under the Electricity Rules, 2005.

The petitioner contended that only the appropriate state commission could determine a project’s captive status and levy a surcharge if applicable. The Chamundeshwari Electricity Supply Corporation had no authority to unilaterally levy cross subsidy surcharge, assuming that the captive users were not complying with the rules.

Clean Wind Power also claimed that Chamundeshwari Electricity Supply Corporation overlooked the requirement that each fiscal year be assessed separately to verify captive status in terms of the requirements stipulated under Rule 3 of the Electricity Rules 2005.

The petitioner maintained that the captive users procured 9,97,56,000 units of 9,97,40,724 units, i.e., 100% of the power generated by the wind power project in FY2017-18. The captive users held a 32.90% stake in the captive power project.

Chamundeshwari Electricity Supply Corporation submitted that in FY2017-18, the petitioner failed to meet the criteria set out in the Electricity Act, 2003 and Electricity Rules, 2005 concerning captive generating projects.

The respondent also argued that the consumers of the petitioner were not procuring energy in proportion to their shareholding in the petitioner’s company. Therefore, it directed the captive users to pay cross subsidy surcharge and electricity tax.

The respondent also contended that the rules clearly state that to be considered a captive consumer, an entity has to own at least 26% of the share capital in the captive generating company and consume not less than 51% of the power generated.

In addition, the captive power had to be procured by the consumers in proportion to their share capital within +10% variation. In the present case, the consumers of the petitioner were not consuming power in proportion to their shareholding.

Commission’s analysis

The Commission observed a change in the number of shares held by the consumers as of July 2017 and March 2018. However, the total number of 42,32,800 equity shares remained the same. It said that there had been a change in the shareholding pattern in FY2017- 18 compared to the equity shareholding pattern during its incorporation in July 2014.

Since the petitioner did not submit any material evidence to prove that the generating unit was set up as a captive generating project, the Commission cannot ascertain the shareholding pattern of the captive users at the time of establishing the generating unit.

The Commission stated that the respondent could levy a cross subsidy surcharge. Such surcharge is utilized to meet the requirements of the current level of cross subsidy within the area of supply of the distribution licensee. Another contingency is that any such surcharge and cross-subsidies will be progressively reduced as specified by the State Commission.

The Commission dismissed the petition submitted by Clean Wind Power seeking captive power project status for FY2017-18. The Commission has also directed the developer to refund any cross-subsidy surcharge, additional surcharge, or differential electricity tax it received from the consumers within two months of the Order.

In September this year, the KERC ruled that a wind power plant owned by Green Infra Wind Power Generation was a captive power project. It directed the Bangalore Electricity Supply Company to refund payments received towards cross-subsidy surcharge, additional surcharge, and differential electricity tax, if any, within three months.

Subscribe to Mercom’s real-time Regulatory Updates to ensure you don’t miss any critical updates from the renewable industry.