Petition No.10 of 2004
Date of hearing: August 29,2006
Date of order: January 10,2007

1. The petitioner initially filed petition with a prayer to grant license to transfer surplus power from its captive power plant (CPP) of 5 MW to the associates of the petitioner i.e. M/s Malwa Cotton Spinning Mills Ltd. (Worsted) and M/s Malwa Cotton Spinning Mills Limited (Processing Division). This petition was admitted on June 17, 2004. Thereafter, notice was issued and the parties filed their pleadings.

2. On July 18, 2006, a request was made on behalf of the petitioner to allow amendment of the petition. This prayer was allowed and the amended petition was filed on July 28, 2006 with a prayer to grant permission to the petitioner to transfer surplus power from its CPP to its sister concern.

3. It is stated in the petition that the petitioner is installing 6 MW CPP at its premises at Machhiwara (Ludhiana). The petitioner has a cluster connection of 66 KV for 3 units, one unit belonging to the petitioner and the other two units belonging to its sister concern, M/s Malwa Cotton Spinning Mills. The petitioner shall consume not less than 65% of the net electricity generated through the said CPP. The petitioner proposes to use 100% of the power generated through CPP after expansion of its capacity and till then the surplus electricity is proposed to be transferred to its sister concern.

4. It is next stated that the petitioner shall use its own dedicated existing power distribution system within the premises, that no infra-structure from the Punjab State Electricity Board (PSEB) will be required, that existing connection from PSEB shall be maintained reducing the present connected load, that DG Set installed at the premises shall be used as Auxiliary Supply and PSEB connection and/or DG Set will be used during maintenance of CPP or break-down of power. Thus, surplus electricity from CPP will be transferred through existing dedicated power distribution system and not through the transmission system of PSEB.

5. It is further stated that the transfer of surplus electricity generated through CPP shall not alter status of CPP and it shall continue to qualify within the definition of CPP as envisaged under Section 2(8) of the Electricity Act,2003 (the EA 03) read with Rule 3(1)(a) of the Electricity Rules 2005 ( the ER 05). The petitioner and its sister concern qualify the test of (i) ownership and (ii) consumption of aggregate electricity generated in CPP in accordance with Rule 3(1)(a) of the ER 05. The ownership of CPP by sister concern is through ownership of 24% equity shares of the Petitioner Company. It is the established corporate law that ownership of a corporate body is established through its ownership of the equity share capital. Further 100% of the aggregate electricity generated by CPP would be consumed for captive use. The petitioner and its sister concern would be captive users and consume 100% of the electricity generated by CPP. Audited balanc! e sheet of sister concern as on 31st March, 2006 was filed as evidence of holding 24% of the outstanding voting, equity capital of the petitioner company. The petitioner has stated that since the requirements of Rule 3 of the ER 05 are fully satisfied, permission for transfer of surplus electricity from CPP to its sister concern may be granted.

6. The petitioner has also relied upon Order dated April 7, 2004 passed by the Commission in Petition No. 17 of 2003 in the matter of M/S Narindra Paper Products Limited.

7. PSEB filed its reply to the amended petition stating therein that the case of the petitioner is not covered under Rule 3 (1)(a) of the ER 05 and that the petition deserves to be dismissed.

8. Submissions made by both the parties have been carefully considered. The prayer in this petition is for allowing the petitioner to transfer surplus electricity from its CPP to its sister concern through dedicated transmission lines. The point that arises for consideration is “whether the petitioner can transmit electricity generated from its CPP to the place of end use of its sister concern through dedicated transmission lines without obtaining licence under Section 12 read with Section 14 of the E.A.03” .

   In this regard it is necessary to refer to Sections 9, 10 and 12 of the E.A. 03. For ready reference the relevant portions of these Sections are reproduced below:-

   Section 9. Captive generation –
   1. Notwithstanding anything contained in this Act, a person may construct, maintain or operate a captive generating plant and dedicated transmission lines:

      Provided that the supply of electricity from the captive generating plant through the grid shall be regulated in the same manner as the generating station of a generating company.

   2. Every person, who has constructed a captive generating plant and maintains and operates such plant, shall have the right to open access for the purpose of carrying electricity from his captive generating plant to the destination of his use

      Provided that such open access shall be subject to availability adequate transmission facility and such availability of transmission facility shall be determined by the Central Transmission Utility or the State Transmission Utility, as the case may be.

      Provided further that any dispute regarding the availability of transmission facility shall be adjudicated upon by the Appropriate Commission.

      Section 10. Duties of generating companies-
      (1)     -----
      (2)    A generating company may supply electricity to any licensee in accordance with this Act and the rules and regulations made thereunder and, may subject to the regulations made under sub-section (2) of section 42, supply electricity to any consumer.
          x x x
      Section 12.    Authorized persons to transmit supply, etc. electricity. –
      
           No person shall –
      1. transmit electricity ; or
      2. distribute electricity; or
      3. undertake trading in electricity,
         
         
          unless he is authorized to do so by a licence issued under section 14, or is exempt under section 13.

9. Section 9 (1) of the EA 03 provides that the supply of electricity from CPP shall be regulated in the same manner as from a generating company. No distinction is made between supply of electricity from a CPP or supply for electricity by a generating company.

   Section 9(2) of E.A. 03 provides that a person who has constructed etc. a CPP has the right to open access for the purpose of carrying electricity to the destination of his own use. Such right does not extend to the transfer of electricity for the use of sister concern.

10. The petitioner has prayed for permission to transfer surplus electricity generated from its CPP to its sister concern through its own dedicated transmission lines. It is stated that no infrastructure of the Board would be required for transfer of such surplus electricity. A reading of Section 10(2) and Section 12 brings out very clearly that where-as the generation of electricity under the EA 03 is not a licensed activity a licence is required, for all other activities as stipulated under Section 12 of the EA 03. The pre-condition of licence to transmit electricity under Section 12 of the EA 03 is irrespective of the fact whether such transmission is through the dedicated transmission lines of the owner of CPP or through the transmission system of the licensee. The term “dedicated transmission lines” as defined in Section 2 (16) of the EA 03 is distinct from the ‘transmission lines’ defined in section 2 (72) of the EA 03. The definition of trans! mission lines cannot be said to include dedicated transmission lines as defined in section 2 (16) of the EA 03. A license is required under section 12 read with section 14 of the Act for undertaking any transfer of electricity through transmission lines. The dedicated transmission lines are to be used by a generating company for its own purpose, namely to evacuate the electricity generated by it and not for rendering any service to others. The dedicated transmission line can not extend to the place of installation of consumers.

11. In view of the above, if an owner of CPP wishes to establish a line connecting the premises of a consumer or connecting a place where the electricity is to be consumed, it would amount to transmission and distribution of electricity and, therefore, would require a licence under Section 12 read with Section 14 of EA 03. No CPP can, therefore, transmit or distribute electricity i.e. lay down a dedicated line to carry electricity from the place of captive generation to the place of consumption of any other person without a licence under section 12 of the EA 03. This issue has already been decided in the judgement of the Bombay High Court in Bhushan Steel Limited’s case in writ petition No. 882 of 2005 decided on April 4, 2005 which had set aside the decision of the Maharashtra Electricity Regulatory Commission allowing transfer of electricity to third party through dedicated line constructed by CPP without licence. The Special Leave Petition filed aga! inst the decision of the Bombay High Court was dismissed by the Hon’ble Supreme Court in CA No. 10881/2005 decided on May 12, 2005. Further, there is no concept of a CPP supplying electricity to a sister concern. In the case of Andhra Pradesh Gas Power Corporation Limited AIR 2004 SC 3090, the Hon’ble Supreme Court has rejected the contention that a Group Captive can supply electricity to a sister concern of the member of the group. The same concept will apply to supply of electricity from CPP by Proprietary concern also.

    Thus the clear answer that emerges from the harmonious reading of the relevant sections is that transfer of electricity from a CPP to its sister concern cannot take place without a licence u/s 12 of the EA 03 even using own dedicated transmission lines.

12. The petitioner has next submitted that the petitioner and its sister concern qualify the test of ownership and consumption as envisaged under Rule 3(1)(a) of the ER 05. Accordingly, the question which needs to be answered is “whether the petitioner, as owner of CPP can transfer surplus electricity from CPP to its sister concern, a shareholder of the petitioner-company contending that its sister concern complies with the test of ownership and captive user as laid down under Rule 3(1)(a) of the ER 05?”

13. The relevant portions of Rule 3 of the ER 05 are re-produced as under:-
    
    
          “Rule 3 -
    

    1. No power plant shall qualify as a ‘captive Generating Plant’ under section 9 read with clause (8) of section 2 of the Act unless-
       1. in case of a power plant : -
          1. not less than twenty six per cent of the ownership is held by the captive user(s), and
          2. not less than fifty one percent of the aggregate electricity generated in such plant, determined on an annual basis, is consumed for the captive use:”
                    x x x
       2. in case of a generating station owned by a company formed as special purpose vehicle for such generating station, a unit or units of such generating station identified for captive use and not the entire generating station satisfy(ies) the conditions contained in paragraphs (i) and (ii) of sub-clause (a) above including -”
               x x x
          “Explanation - (1) For the purpose of this rule, -
          1. ---------
          2. ---------
          3. “Ownership” in relation to a generating station or power plant set up by a company or any other body corporate shall mean the equity share capital with voting rights. In other cases ownership shall mean proprietary interest and control over the generating station or power plant;
          4. ---------”

            While Rule 3(1)(a) of the ER 05 determines status of CPP as captive based on the ownership, Rule 3(1)(b) deals with the status of CPP set up by a company formed as a Special Purpose Vehicle. The first part of the definition of ownership contained in Explanation (1) (c) refers to a generating station set up by Special Purpose Vehicle such as a company or body corporate while its second part deals with proprietary ownership covered under Rule 3(1)(a). What is covered in Rule 3(1)(a) is the ownership by proprietary interest and control and what is covered in Rule 3(1)(b) is when a CPP is established as a Special Purpose Vehicle. The ownership by share holding or voting power is relevant only for Rule 3(1)(b). Thus in a case where a limited company is setting up a CPP for consumption of electricity for its business purpose, ownership of the captive power plant is by virtue of Rule 3(1)(a) and not by virtue of Rule! 3(1)(b). Even in case of a limited company the ownership to be considered in terms of the Explanation (1)(c) is not the ownership of the company itself but the ownership in relation to a CPP. In the present petition, the ownership of CPP is by way of proprietary interest and control by the petitioner alone. The sister concern holding part of equity capital of the petitioner company does not translate to the ownership of CPP as envisaged under Rule 3(1)(a) of the ER 05. Again, in view of the above, a Company holding part of equity in another company owning a CPP can not be considered as a Captive User of the electricity generated by CPP. In such a case, the company owning the CPP can only be the captive user in regard to the electricity generated by said CPP.

14. In view of the above, it is evident that sister concern of the petitioner does not comply with the test of ownership as well as consumption as laid down in Rule 3 of the ER 05 with regard to electricity generated by CPP set up by the petitioner. Therefore, answer again is in the negative i.e. under the relevant provisions of EA 03 and the ER 05, the petitioner is not permitted to transfer surplus electricity from its CPP because its sister concern does not qualify the test of ownership as well as consumption as contended by the petitioner.

15. The petitioner has requested to follow the decision of this Commission dated April 7, 2004 in Petition No. 17 of 2003 in the matter of M/s Narindra Paper Products Limited on the plea that the Commission has allowed transfer of surplus electricity to a sister concern in that petition in similar circumstances. In this regard it is observed that in view of the decisions of the Hon’ble Supreme Court in Bhushan Steel Limited case and Andhra Pradesh Gas Power Corporation Limited case (AIR 2004 S.C. 3090) discussed in Para 11 above, the order of the Commission in the above noted petition stands over-ruled and is of no help to the petitioner.

16. To conclude, it is held that in view of the provisions contained in Sections 9, 10 and 12 of the E.A.03 and decision of the Hon’ble Supreme Court in the case of Bhushan Steel Limited cited above, it is not open to the petitioner to claim that it can transfer surplus electricity from its CPP using its own dedicated transmission lines to the place of its sister concern for end use. It is further held that sister concern of the petitioner does not comply with the conditions of ownership and consumption as laid down in Rule 3 of the ER 05 as the ownership of CPP is through Proprietary interest and control of the petitioner alone. Hence transfer of surplus electricity from CPP by the petitioner to its sister concern is not permissible under the E.A. 03.

17. In view of the above discussions, the prayer to grant permission to the petitioner to transfer surplus power from its CPP to its sister concern is rejected and the petition is dismissed.

    Sd/-	Sd/-	Sd/-
    (Satpal Singh Pall)	(Baljit Bains)	(Jai Singh Gill)
    Member	Member	Chairman

    
    
    Chandigarh
    Dated: January 10, 2007