Key Issues and Chanllenges Before Distribution Sector

Electric power supply has been viewed both as public right and public service in our country ever since independence. The government provided this service, till the last decade of the 20 th century. However, ill management and poor governance led to rising deficits and turned SEBs into sick organisations.As a working professional in SEBs / private utilities, you may have also come across unpleasant situations arising out of individual and collective societal concerns at some point of time. You will study about these issues and ways of managing them in detail at different places in all courses of this programme.The changed scenario of economic liberalisation and globalisation has impacted the power distribution utilities. The utilities have now to be managed more efficiently, generate revenues and provide better services to the consumers. Many challenges and issues have emerged in the operation and management of the utilities. Some of these are: Shortage of power, poor management, high technical and commercial losses (including theft and pilferage of electricity), non-remunerative tariff structure based on irrational subsidies, privatization and restructuring, low consumer satisfaction, poor quality power.

We now briefly discuss each one of these issues. As a working professional in SEBs / private utilities, you may have also come across unpleasant situations arising out of individual and collective societal concerns at some point of time.You will study about these issues and their in detail at different places in all courses of this programme.

Shortage of Power

You will agree that power cuts or frequent interruption in the power supply have serious ramifications on the overall economy of our country.Lack of electric supply leads to tremendous loss in industrial output including loss to the power industry and causes inconvenience to consumers. For example, the Northern Grid collapses in January, 2001 resulted in losses to the tune of Rupees 250 – 500 crore for the power industry alone.

Do you know that during the peak hours, one-fifth of India remains powerless?The peak load demand in the country is about 15% to 20% more than the available generating capacity. This is one of the major reasons for frequent and prolonged power cuts during peak hours.But the demand for electricity is not the same at all times of the day. So it should be possible to manage the usage of electricity in a way that the power demand stays steady most of the time. How does your utility manage this demand? You can read more about demand management in Block 1 of the Course BEE-002 entitled Energy Management and IT Applications.

Another reason for power shortage lies in frequent breakdowns in the power distribution system. This is linked to the larger issue of the poor management of power utilities.

Poor Management of Distribution Utilities

Most of the distribution utilities are like sick giants suffering from ills such as poor infrastructure, financial crunch, non-professional management of the system, low tariffs, high technical and commercial losses, power theft and misuse, corruption and erosion of values, political interference, etc.

Reasons for Poor Infrastructure

Let us take a brief look at some of these factors.

• Poor Infrastructure

This is a bane for the distribution utilities. The reasons are many as show

• Financial Crunch

Power is a critical infrastructure for economic growth. The economic acceleration would greatly depend upon a commercially viable power
sector. The reality is that most of the power utilities, particularly the State Electricity Boards, are in a financial mess today. Their losses have gone up more than 5 times in the last decade. A vast majority of states show a negative rate of return. The average revenue per unit does not cover even the cost of supply. There is a gap of about 80 paisa per unit.

The Electricity Value Chain

SEBs run huge deficits that deter prospective investors. The accounts of SEBs are not up to date. There are no asset registers and the liabilities of SEBs are not fully known. There are huge outstanding payments to various Central Power Sector Undertakings and large receivables. As per a report of TERI (The Energy and Resources Institute based in Delhi),SEBs owe 260 billion rupees to the NTPC and others.

Reasons for Poor Financial Health

All the factors mentioned above have added to the financial burden of the distribution utilities with ominous effect on their financial health.Commercial viability of the distribution sector is the key to growth and development of the sector, since this is the source of flow of money into the system. The financial resources so generated can be used to fund major infrastructure improvements and upgrading the distribution system. Thus, restoring the financial health of the distribution utility is a major challenge today.

a) Non-professional Management of the System

Do you agree with the following statements? Put yes or no against each statement.

− Most distribution utilities operate in a traditional style without adopting professional management practices. Their emphasis
seems to be more on paper work.

− The skills and knowledge-base of the staff working in the distribution utilities are not upgraded continuously. They are not
properly trained in various operations, latest technologies and proper maintenance of systems on a continuous basis.

− New technology in metering etc. also has not been adopted due to the huge initial cost. Most utilities still rely on manual systems and clerical entries. This is an inefficient way of functioning and also aids corruption. As far as possible, all operations of the utility, (e.g.,meter reading, billing and invoicing) should be computerized.

− Overstaffing and indiscipline is a common phenomenon in distribution utilities. Moreover, there is a shortage of skilled
workforce in important technical and professional areas.

− Lack of commercial culture, accountability and transparency in operations are some other areas of concern in the management
of utilities. As a result, performers, who may be few, get subsumed by the non- performers.

The following could be some of the reasons for this state of affairs:

− Since their inception, the utilities were generally operating without a focus on commercial viability; the idea was to reach to a wider customer base in India and ensure widespread electrification as far as possible.

− The Managements never stressed on accountability of individual employee/officer to the utility and the consumers. Also the
employees did get an opportunity to be heard on various issues related to good management.

− The system lacked transparency.

− There is general lack of concern for public property, decline in value system and work culture.

What other reasons can you think of?

High Technical and Commercial Losses

The power distribution sector suffers from very high aggregate technical and commercial losses (AT & C), which range up to 60%. This is a matter of grave concern as it amounts to a revenue loss of $ 6 billion annually, which is equivalent to 2% of India’s GDP. These losses have historically doubled every 3 years and are twice of what our country spends on health and half of the total expenditure on education. Any solution that addresses the problem of profitability of the sector must target the issue of T&D losses.

Main Factors Underlying Technical and Commercial Losses

Some reasons for technical and commercial losses are summarized in Fig.

It should be possible to bring down the technical losses in the distribution system to the level of 9% by undertaking suitable system- improvement schemes. However, this has not been possible for want of adequate funds, perseverance and professional development of the staff concerned. Unless these losses are reduced to acceptable levels, the power industry cannot become financially viable and turn itself around.

The commercial losses of distribution utilities are likely to increase from Rs. 400 crore in 1991-92 to Rs. 24,000 crore (projected) in 2006-07. These are mainly due to theft and pilferage, low metering efficiency, inefficient billing and inadequate revenue collection. The common thread running through these aspects is lack of sensitivity and a sense of belongingness to the system.

At an all India level, only 55% of electricity is billed and about 40% is realised. Of the remaining 60%, around 10% is supplied to the un-metered category and the rest 50% constitutes T&D losses.

•Theft and Pilferage of Electricity

Theft and pilferage of electricity is a prevalent undesirable feature in most of the states. Across India, the theft of power between generation and supply runs as high as 20 - 40%. It is estimated that the theft level in Delhi is 35% as against 15% in Mumbai and 25% in West Bengal.The reported figure of national average of 21% T&D losses is an underestimate of what is actually lost. Even in well run utilities, pilferage could be to the extent of 6-7%.There are estimates that at least one-third of all power produced gets stolen with the connivance of the staff, bureaucrats and politicians.Power thefts are carried out by the poor and rich alike with tapped electric lines, poles, tampering with meters being pretty common in the urban areas. Do you know: At the national level, cutting down of such losses by 12%, gets transformed into Rs.10, 000 crore?We can prevent these losses only by the pro-active participation of well meaning officials and staff. Colluding elements have to be exposed and booked. Moreover, there is a need to create public awareness to cut down losses, as is being done by the Central Income Tax department, Vigilance Commission and Central Information  Commission.

•Metering

Fig. shows some of the critical issues related to metering. Put a tick mark against each issue in Fig.if your utility is affected by it.

Metering and billing of the distribution systems in India are in complete disarray. Inadequate and less reliable metering facilities make the commercial working of the utilities very difficult. According to the Central Electricity Regulatory Commission, one-half of the electricity supplied in the country is not metered; either it is drawn directly from transmission lines or the meters are managed in connivance with unscrupulous elements (Fig. ).

•Inefficient Billing

Under billing and non-billing is rampant in the electricity sector and is a major reason for commercial losses. What is more, media reports have time and again highlighted the fact that the government departments, residences of government officials, public opinion makers and representatives are some of the biggest defaulters. We list some other major billing maladies in Table

Other factors like billing non-existent consumers, incorrect identification of category, lack of reconciliation, delays in audit of cycle summaries also contribute to commercial losses. In addition, bill distribution is not outsourced to competent vendors with a reliable network and tracking facilities, no surveillance is done on disconnected consumers,defaulting consumers are not disconnected for long, and consumer ledgers are not updated regularly.

•Inadequate Revenue Collection

Some of the reasons for inadequate revenue collection are:

− insufficient, collection avenues;

− infrequent updating of revenue accounts;

− unfriendly consumer commercial policies;

− non-existent or casual consumer surveys;

− non-compliance of regulatory issues; and

− poor energy accounting / auditing.

All the misdoings described above are in the last mile that continues to bleed with AT&C losses of 40%, which are as high as 62% in some States. Such tremendous losses also impact the tariff critically. We next take up the issue of tariff structure and subsidies.Non-remunerative Tariff Structure and Subsidies

Unviable tariffs further weaken the condition of the distribution utilities, and particularly the State Electricity Boards. Though the power to fix tariffs is vested with the utilities, in practice the tariff determination has all along been done by the State Governments invariably with political/ populist/electoral considerations. There is political interference in setting of tariffs which results in substantial cross subsidization in retail tariffs amongst various consumer categories.

The tariff set by the government is not enough to meet the SEBs’expenses. The industrial/commercial consumers have subsidized and are still subsidizing a large section of the agricultural and domestic consumers. This leads to a skewed tariff structure, which needs to be rationalized through an independent regulatory body. You will read about this in Unit.

Since the electricity pricing in, particularly, the domestic and agricultural sectors, has been done on ‘pragmatic’ considerations rather than on a realistic basis, there has been scant regard for proper use of electricity amongst the beneficiaries. Proper and efficient utilization of electricity needs to be given the attention it deserves.

The poor financial position of the State Governments has not allowed them to provide adequate subsidies to the SEBs to compensate for the retail tariffs for agricultural and domestic consumers set at low levels. The cross-subsidies from the industries and the commercial consumers have already reached unsustainable levels in most states. This has led to considerable financial losses to the SEBs and erosion of their credit-worthiness. As a result, the required capacity additions to the generation and the T&D network to cater to the economic growth could not be made leading to considerable deterioration in the quality and reliability of supply.This has also impacted consumer satisfaction.

Privatization and Restructuring of Distribution Utilities This is a contentious issue and has been widely debated. Distribution reforms that involve regulatory and structural changes have been introduced due to the inability of the public sector to provide adequate resources/services. Since the distribution sector is the weakest link in the entire supply chain, privatisation was adopted as a means, in some parts(e.g., Orissa and Delhi in India) to improve the financial health of the sector and its service quality. The choice of privatisation model, its process and sequencing is a real challenge before the sector.

However, Private Distribution Utilities in Ahmedabad, Kolkata, Mumbai, etc. have shown very good performance. You will study more about this issue in Unit 3 of this Block.

Low Consumer Satisfaction

You will agree that customers form the key to any service-oriented industry. The utility-client contacts in electricity business are the highest in comparison to any other service. Though there are some signs of improvement, the concern for customers has been a relatively low priority.Customer service leaves much to be desired in areas such as giving new connections, solving the problems of supply disruptions or taking care of the issues relating to bills. Electricity Industry in the last few decades has been supplying power to customers under the culture that the organizations are not “marketing” power but “giving” power.

It is a fact that there are customers who consume electricity and are reluctant to pay. It is also a fact that there are customers who are wiling to pay and do pay, but they do not receive the right attention and service from the suppliers of electricity. This problem is not limited to SEBs. Even the private licensees have to give required attention to this subject and adopt customer friendly policies and practices.Low consumer satisfaction also results from hard procedures for new consumers, rampant corruption and favours, lack of commercial approach, harassment of even genuine consumers, long chain for dispute resolutions, avoidable litigations, missing or erratic reconciliation,insufficient payment mechanisms, red tape in getting new connections,load enhancements and replacements. The single window exists only on paper and even honest consumers are deterred. There is no business thrust to improve customer satisfaction.Another reason for low consumer satisfaction is the poor quality of power being supplied.

Poor Quality Power

When we buy any good in the market, we check its quality and consider if it is worth the money we are spending.In respect of the power sector, we need to consider: Do the consumers who buy electricity have a choice and a voice over the quality of power supplied? The fact is that while there are consumer courts for redressal, a majority of complaints remain unresolved. You will agree that you must ensure power quality in terms of uninterrupted power supply, non-fluctuating voltages, etc.

Do the following events occur in your utility? Put Yes (Y) or No (N) against each statement.

• The supply of electricity is erratic. ..........

• Power cuts, voltage fluctuations (280 kV to 435 kV), fluctuations in frequency (47.8 Hz to 53.3 Hz) are common........

• Restoration of power and response to meter-related and bill complaints are tardy........

• When a consumer pays for the utility, is he or she allowed the liberty to call attention to these aspects?..........

• Are any concessions made in this regard? ...........

• Are complaints addressed immediately?............REM

Some other Problems

• Almost 100% of the networks are overhead which makes the system quite vulnerable to weather conditions.

• Inadequate reactive compensation leading to poor quality of power supply.

• Inadequacy of load management leading to peaks and valleys which are beyond manageable limits.

• Poor reliability of supply.

Does your utility suffer from one or more of the above problems as well? Write yes or no against each question above.So far, you have studied the problems, issues and challenges faced, in general, by power distribution utilities. You have also done exercises to assess your own utility. Do these challenges seem insurmountable or can they  be overcome? We now briefly discuss this issue.

WHAT CAN BE DONE?

Well, the first step is to generate enough power. Network capacity addition to the system commensurate with the load growth should be done on a priority basis. New legislations for regulating the electricity supply industry in the country and the ensuing reforms are welcome steps in this direction and we shall discuss these in the next 2 units of this Block.You would agree that electricity distribution has to be looked upon as a consumer service. The present power distribution systems require regular strengthening, upgrading and modernization. This requires capital investment.

The power shortages in the country are so large that almost 8000 MW to 10,000 MW of additional capacity is required every year. This alone would require a capital investment of the order of Rs. 40,000 crore per year on generation and matching investment would be required on transmission and distribution networks.

Any ideas, where this magnitude of investment can be sourced from?

Quite a bit can be done by a distribution utility to meet these challenges and solve the problems at its own level. This is what you are going to learn in the remaining part of this course as well as the other two courses.Here we shall briefly chart out some measures to end this unit on the positive note that with a determination and will to succeed, we shall overcome!Revenue Realization and Reduction in AT&C Losses Revenue collection can be increased and AT&C losses can be minimized by

• infusion of technology,

• improving metering efficiency,

• proper energy accounting and auditing,

• improved billing and collection efficiency, and

• professional managerial practices.

Some Measures that Can Be Taken to Address the Challenges before
the Power Distribution Sector

Over the last decade, a lot of technological advancements have been made in the areas of metering and billing with the introduction of electronic meters.However, consumer awareness in this respect is very poor and the utilities need to spread awareness about this aspect. Revenue collection could also be improved by holding employees of power utilities to be responsible for this activity and providing incentives to them.

Improving Customer Satisfaction

Customer satisfaction can be improved by:

a) Enhancing consumer convenience: A commercial call centre to deal with all kinds of bill and meter related complaints and fully networked Consumer Care Centres for quick redressal of consumers’ complaints could be established.

b) Providing ample bill payment avenues: Information on consumption,billing and payment should be made available on-line to all consumers to view bills, print duplicate bills and make payments through the web .c) Providing better quality power in terms of voltage fluctuations and reliability by reducing power cuts. These require ensuring that the system is renovated and maintained in proper working condition.

d) Putting in place a customer complaint redressal mechanism that is more responsive and proactive. The system should be capable enough to meet the growing demand of information conscious customers.Adopting Better Management Practices Operational efficiency improvement and customer servicing also need to be addressed at various levels in the organization. Successful management services revolve around

tariff management;

meter management;

credit and collection management;

payables and receivables;

business functionality and regular technology refresh;

improving the bottom line in customer care;

possessing competitive agility;

invoking right operations; and

monitoring quantitative and qualitative benefits.

Maintaining performance standards should be given due attention. An effective Management Information System (MIS) could be used to

− ensure effective and timely flow of accurate information to facilitate quick decision-making at various levels of organization; and

− improve operation and management of the distribution system.

MIS should be able to take care of different needs at various levels.Otherwise huge data generated from MIS will not be of any significant use.The structure of MIS should be SEB specific because of the difference in their organizational structures and responsibilities at various levels across the organization. You will study in detail about the management of power distribution utilities in the course on Management of Power Distribution.In case of privatization of distribution, safeguards need to be put in place.Private participation should be subject to definite, time bound goals of improving quality and reliability of supply. The government should provide support such as control of theft and provision of subsidy during the transition phase.

Application of Information Technology

Now-a-days, information technology and computer aided tools for revenue realisation, reduction in power cuts, monitoring and control, etc.,play a vital role in distribution management. Creation of comprehensive, up to date consumer index and system databases on computerized platforms is essential for efficient commercial and technical operation, and management of any distribution system. The energy accounting, billing and revenue management can be computerized to provide better services to the customers.

Development of digital mapping of the entire assets of distribution system,computerized load flow studies, GIS (Geographic Information System) mapping, SCADA (Supervisory Control and Data Acquisition System) are some other IT applications for long-term strengthening of the distribution system. You will learn more about these areas in Blocks 3 and 4 of the course BEE-002 entitled Energy Management and IT Applications.

Improving Governance in the Sector

The focus should be on improving governance so that reforms are more compatible with broader sustainable development goals.You should understand that the distribution industry today has become complex and demanding. Electric utilities are no more monopolistic enterprises; competition in this sector is being encouraged. Every utility,public or private, has to demonstrate concrete achievements in reductions in AT&C losses and increase in collections. Cost-effectiveness is the key to remain in business.

Several reform initiatives have been undertaken to improve the functioning of utilities. Concerted efforts are being made to meet investment requirement for capacity building in the state, improve operational efficiencies and quality of supply, and improve the financial viability of the sector and its overall management. You will study about these efforts in detail in Unit 3 after you have studied about the regulatory framework in Unit 2.