Weighted Shareholding and Proportionate Electricity Consumption: Court’s Fair and Equitable Ruling for CGP Ownership Compliance
Last Updated on October 16, 2023 by News Desk
The second proviso of Rule 3(1)(a) of the Electricity Rules, 2005 specifies that in situations where a Captive Generating Plant (CGP) has multiple users and fluctuating shareholding or ownership changes occur, the “Weighted Average” principle should be applied to ascertain each user’s proportionate electricity consumption.
The court held that even in the event that a captive user leaves the company or transfers its ownership to another user, they are still required to consume power in proportion to the amount generated when they become shareholders in the middle of the year. The court came to the conclusion that weighted average ownership aids in determining the appropriate average shareholding and appropriate power usage.
Case History
A power plant built by an individual or cooperative society with the primary purpose of producing electricity for their own use is known as a captive generating plant (CGP). The prerequisites for becoming a CGP are specified in the Electricity Rules, 2005. In a group of individuals, the minimum percentage of shares held must be 26%, and the percentage of total electricity consumed, proportionate to ownership, must be less than 51%. A 10% variance in benefit is necessary.
The court addressed the computation of proportional consumption of electricity in a CGP, considering multiple users and the fluctuating shareholding of captive users under Rule 3(1)(a).
Verdict
The Supreme Court ruled that the proportionality principle in Rule 3(1)(a) of Electricity Rules requires a unitary qualifying ratio, which is the consumption requirement divided by the shareholding requirement. This means that the owner of every 1% shareholding of a Central Government Power Plant (CGP) should have a minimum consumption of 1.96% of the electricity generated by the CGP, with a variation of +10% permissible. The unitary qualifying ratio must be within a range of 1.764% to 2.156%.
The court argued that the shareholding requirement should be applied to the electricity consumed, not 100% of the electricity generated. This twin test aims to avoid misuse of Rule 3(1)(a), such as a 1% or insignificant shareholder disproportionately using the electricity generated.
In cases where a change in ownership, shareholding, or consumption occurs, the weighted average should be applied. This method ensures compliance with the proportional electricity consumption requirement stipulated under the second proviso to Rule 3(1)(a). For example, if a captive consumer exits or drops out in the middle of the year, the captive user who becomes a shareholder in the middle of the year is required to consume proportionately to the electricity generated.
The weighted average shareholding method is applicable in instances where the shareholding of a captive user in a CGP fluctuates, provided that the minimum ownership requirement of 26% in aggregate is not breached. The court held that weighted shareholding and proportionate consumption of electricity are the fair, equitable, and correct method to determine whether the essential requirements of the second proviso to Rule 3(1)(a) are satisfied.
Case Title: M/S. Dakshin Gujarat Vij Company Limited v. M/S. Gayatri Shakti Paper And Board Limited And Another, Etc.
Written by: Srijan Raj @raaj_srijan
