Electric power: Reforms in distribution

The Electricity Act, 2003, was a milestone in the reform journey. Since then, several states have reformed their distribution sectors along different paths. This Report, prepared as a collaboration between NITI Aayog and Rocky Mountain Institute (RMI), USA, presents a review of the reform efforts in the Indian distribution sector. A copy of the report from the following web site of NITI Aayog would form the source for the following article.

 https://www.niti.gov.in/sites/default/files/2021-08/Electricity-Distribution-Report_030821.pdf

Many states struggle to implement the needed reforms in distribution sector. Let us study the details of reforms which if implemented dispassionately would reduce your/mine power bill, regular supply of electricity with no uncertainty and the bills produced digitally , and correctly.

The report is of 65 pages with 8 chapters with expert comments. Let me narrate the chapters.

Chapter 1. Introduction

Chapter 2. Structural reforms

Chapter 3. Regulatory reforms

Chapter 4. Operational reforms

Chapter 5. Solutions for RE integration

Chapter 6. Managerial reforms

Chapter 7. Best practices and recommendations

Chapter 8. Appendix.

Where do we stand today in availability of electricity to any individual?

Almost all have the availability of electricity, and to augment continuous availability, renewable energy is produced up to 25%. It is equally true that power distribution companies(discoms) incur losses every year and the total losses cross nearly ₹ 90,000 crore in FY 2021. Hence payments to those who supply them electricity, namely, generators are owed as of March 2021 an amount of ₹ 67,917 crore. The statement that inability to make investments required to ensure continuous high- quality power or build the infrastructure to enable smooth transition from fossil fuel to renewable energy sources, such as, solar or wind aptly describes their deficiencies.

Is electricity an essential utility for a citizen or a commodity which must be bought or sold on commercial terms?

It is a valid question that what efforts were made to turn around these loss- making huge enterprises and at whose cost?

The Electricity Act (EA), 2003, brought about major changes in the power sector, including delicensing of generation, open access in distribution, and independent regulators at the state and central levels.

What were the initiatives ushered in to improve the financial health of the discoms and ensure availability of quality power at all times?

Let me narrate them.

• e Ujjwal DISCOM Assurance Yojana (UDAY), Deen Dayal Upadhyaya Gram Jyoti Yojana (DDUGJY), and Integrated Power Development Scheme (IPDS).
• A revamped reform scheme, with an allocation of ₹ 3.05 lakh crore, was also announced in this year’s Budget.
• Then what? Neither the health of these discoms nor availability of electricity as expected happened.

Vertical unbundling of three functions of generation, transmission, and distribution was undertaken. Results vary from state to state. Gujarat leads with better results for its discom.

 Only 10% of licensees are in private sector and two of them, namely, Odisha and Bhiwandi in Maharashtra where the private licensee system has shown rapid improvements in metering, billing, and collection have shown encouraging results.

 Let me also quote the results of Delhi where power distribution was taken over by three private licensees, and the aggregate technical and commercial (AT&C) losses have come down from about 55 percent in 2002 to about 9 percent in 2019. It is heartening to know that with the recent budget delicensing distribution and allowing distribution companies non-discriminatory access to the distribution system, competition would enable retailers to choose among companies.

Further operational results would however depress you, as I quote directly from page 29 of the report:

“In 2018–19, distribution utilities incurred a total expenditure of ₹ 7,12,610 crore against a total revenue of ₹ 6,63,093 crore (this is on a subsidy-booked basis with UDAY grants included, see Table 1). About 77 percent of the cost was the cost of power alone. The other major heads of costs included employee costs (8 percent) and interest costs (7 percent). Of the revenue, about 74 percent was from the sale of electricity, and 17 percent from the booked tariff subsidy.”

How about some leading overdues of the states (big ones in my view) (page 31)?

Rs in Crores

Tamil Nadu – 14123, Rajasthan – 10262, Maharashtra – 10021, U.P. – 5685, Telangana – 5000.

It is equally true that a public-private partnership (PPP) model can be especially useful in loss-making areas, where commercial operation might not be feasible without support in the form of viability gap funding (VGF) by the government.

Let us analyze various reforms suggested for implementation.

Regulatory reforms

Without this, nothing can be done to make the turn around.

SERCs State Electricity Regulatory Commissions

The state governments should promote autonomy, competence, and transparency of the State Electricity Regulatory Commission (SERC). To improve the financial health of this sector, tariffs need upward revision to reflect the actual fixed and variable costs.

The existing regulatory assets should be cleared according to a defined schedule over the next three-to-five years through appropriate tariff changes. One way to insulate regulatory functions is to create regional electricity regulatory commissions with the participation of the central government which would insulate the state boards from other influences. Direct benefit scheme successfully implemented in other sectors is likely to help the actual users with reduced leakages and improved efficiency.

State of Madhya Pradesh has started this experiment recently.

Operational reforms

This is the most important political discussion at the time of elections to further liberalize the tariff. But what is the reality?

Overall A T &C loss of nearly 24.54 % as the Damocles sword, better metering with usage of prepaid or smart meters with revamped cyber security features, as recommended by the central government is the ideal way to reduce thefts. Upgradation of distribution infrastructure with the assistance from the central government and separation of agricultural use which is free in many states like Rajasthan, Andhra Pradesh, Gujarat, Karnataka, and Maharashtra from other uses can also be attempted. Use of solar pumps as promised in Tamil Nadu agricultural budget is a new way to look at the issue.

Why to have long term power purchase agreements when the current markets can give lower costs? Yes, states like Chhattisgarh, Gujarat, Maharashtra, and Uttar Pradesh have banned new thermal PPAs. Another useful fact is that Discoms may use time of day (Tod) tariffs to incentivize changes in demand patterns. Dynamic tariffs, enabled by advanced metering and a smart grid, can reduce the discoms’ power purchase costs, and help manage peak loads.

Let us look at renewable energy integration reforms.

How to use or bring reforms in the usage of renewable energy, the current debate among all states?

Let us look at usage of renewable energy in short.

• Develop capabilities to accommodate more renewable energy purchase by developing improved RE forecasting techniques, increase large scale power storage by more battery systems or pumped hydro-storage systems.
• Judicious use of purchase of renewable purchase obligations (RPOs to avoid over run cost of excess purchase)
• Mini grids (an electricity distribution network involving decentralized small-scale generation from locally available renewable energy sources) can provide more predictable power in remote and sparsely populated areas. They can also be used to provide greater resilience to critical infrastructure such as hospitals.
• A PPP model can be explored in such remote areas, with the government providing VGF in return for the concessionaire supplying power at a specified rate while meeting specified service quality targets. A win- win situation for both the parties.

Managerial reforms

• Is it possible to have an effective managerial team to implement the reforms?
• Yes, the experience of the states of Odisha, Manipur, Gujarat, Andhra Pradesh, Haryana, and New Delhi do indicate vital managerial changes in attitudes, stability in employment when the discoms got sold to independent companies periodically, incentives to produce more at the least cost, even transfer policies based on performance, etc., have brought better results. Some results of independent states with privatized management will be covered separately to know the actual pulse of privatization and whether one size fits all had worked.
• It is equally interesting to know that some organizations have been established to provide training (such as the National Power Training Institute, and the Tata Power DDL Learning Centre).
• There is a need to augment the capacity to provide training in these fields.
• Other factors that helped were easily accessible call centers, convenient bill payment facilities, and accurate billing which reduced customer dissatisfaction and increase revenue. In Delhi, even if the electricity is discontinued, the discom can predict up to minutes the resumption time. One does not want to compare the most unpleasant experience when Delhi Electricity Board functioned.

Let us present a summary of the experiences of selected states/utilities in their transformation efforts. These states were chosen to illustrate the crucial roles that managerial and operational reforms played in their path to loss reduction. The information is given certain statewide.

New Delhi (TPDDL) private licensee: (from page 71 of the report)

AT&C loss trajectory 45% in 2001-02 to 9.1% in 2018-19

ACS-ARR Gap (₹ /kWh): 0.61 in 2009-10 to -0.21 in 2018-19

Initial Measures: Š PPP Model introduced in 1999. TPDDL & BSES awarded distribution licenses for Delhi discoms, Government support in enabling transition to private licensee

Technology Measures: GIS Mapping of assets, AMR meters, tamper- proof static meters, SCADA Control Systems.

Management reforms:

• Dedicated Corporate Strategy Planning and Performance Management Group to formulate a long-term strategic plan.
• ‘Distributed Leadership’ was implemented to run the setup as individual business units.
• Transfer of state utility employees to TPDDL with benefits, and two-way communication channels established for grievance redressal. (It is unbelievable that the same employees who refused to work normally with basic service now totally transformed to produce outstanding results)
• A three-tier performance management system.
• Digital meters to avoid diversion or misuse of electricity without accountability.

Haryana, public licensee

• AT&C loss trajectory: 27% in 2012-13 to 18.1% in 2018-19 ACS-ARR Gap (INR/kWh): 0.94 in 2012-13 to -0.05 in 2018-19
• Profitability (₹ Crores): -23,358 in 2012-13 to 281 in 2018-19
• Initial Measures: Reduction in interest burden through UDAY
• Transition towards cost-reflective tariff via tariff hike Management and Operational Measures:
• Leadership direction of CMD Š
• Performance-based transfer policy, Regular touring and interaction with field staff, Compensation Policy, Reward scheme for vigilance work, and Theft detection and imposition of fines.

The results given above are corroborated by actual users of electricity in Gurgaon that the electricity officials visit house to house to verify misuse of premises for commercial purposes and if so, whether commercial rate of electricity is charged.

Gujarat, public licensees: One of the most debated , and reformed state, it will be interesting to study its discom performance.

• AT&C loss trajectory: 18% in 1996-97 to 14% in 2018-19
• ACS-ARR Gap (I₹/kWh): 0.04 in 2008-09 to -0.02 in 2018-19
• Profitability (₹ Crores): 149 in 2008-09 to 184 in 2018-19. Yes, in increasing profits. Highly commendable.
• Financial Measures: Fuel & Power Purchase Price Adjustment (FPPPA) model enabled marginal quarterly tariff adjustment minimizing gap between costs and revenue Institutional Measures:
• Distribution licenses implemented in Ahmedabad, Gandhinagar, and Surat.
• Frequent theft drives, setting up of special police stations and special courts to deal exclusively with power theft
• Other measures like digital meters, installation of new substations and specially designed transformers, AMR for feeders. Etc., helped in avoidance of diversion of electricity for illegal purposes.

The other better performing states, namely, Manipur, and Odisha also invite any one’s attention due to their continued attempts to improve discom.

Manipur, public licensee

AT&C loss trajectory: 52% in 2015-16 to 29.8% in 2018- 19

ACS-ARR Gap (₹ /kWh): 0.50 in 2015-16 to 0.10 in 2018-19

Profitability (₹ Crores): -45 in 2015-16 to -19 in 2018-19. Increasing sign of profits or reduction in loss.

Initial Measures: Unbundling and corporatization initiated in 2015.

Institutional Measures: Controlled energy theft using special courts and police forces; detection and disconnection of unauthorized connections and tapping; Community participation to improve O&M including theft prevention.

Manipur took various managerial steps like instituting new processes and mechanisms like project review training, frameworks, data flow, division-wise and MD-level dashboards for monitoring project performance; establishing structural and role accountability via periodic reviews at the field level which effectively resulted in very good performance.

For a small state, remarkable achievements.

Some of the technology measures included installing prepaid meters; computerized billing and revenue collection, taking timely actions like integrated feeder-wise performance monitoring systems, installing aerial bunched cables for LT connections, and sealed meters to check tampering.

It is very important to know that almost all successful states have attempted to install sealed digital meters to check tampering which successfully helped them to avoid diversion of agriculture power for other purposes and usage of proper measurement of commercial electricity to fetch better income. Clear distinction between free agriculture power but commercial power at a cost.

Odisha (FEDCO, private distribution franchisee

AT&C loss trajectory: Average 23% reduction between 2013-2017. An appreciable action.

Initial Measures: FEDCO was given franchisee for four divisions in 2013 following the challenges faces by existing licensees

Operational Reforms

Implementation of a web-based CRM software to handle customer complaints with a centralized server helped minimize the need for multiple customer care centers

Formal trainings and one-on-one trainings were provided for customer care executives by FEDCO as capacity-building exercise to improve service experience with customers

Quality team was set up to check and verify customer resolution timelines at the offices of line men.

Conclusions

With above details which emit the realities at ground level by various states which attempt to change the current mess in state discoms by getting a suitable price for commercial usage of electricity, devolving sufficient powers for discoms to get experts for their Board of directors and basically run the organizations on profit- based operations than a facility for citizens, proper corrective actions are being taken.

But my personal experience confirms that The Electricity Act 2013 if properly implemented, will enable electricity for the whole nation at the most competitive rate but with profits for organizations that deal in electricity.

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