Sectoral Overview and

Enabling Framework

In Unit 2, you have studied about various Acts and Policies relevant to the
power sector, their objectives, main features and implications for the sector.
You have learnt how the Electricity Act, 2003 and the ensuing National
Electricity Policy have redefined the roles of various stakeholders in the
electricity industry. You will agree that the electricity industry needs to be
turned into a commercially viable venture that is able to attract investments
and deliver good quality products and services to the consumers. It is hoped
that these Acts and Policies will facilitate the much needed reforms in the
power sector in India and help it in overcoming its sickness and getting back
on the right track.

The Central and State Governments play a key role in providing an enabling
framework to the power sector reforms and restructuring as well as
implementing the provisions of the Electricity Act, 2003. They have entered
into Memoranda of Agreement to affirm their joint commitment for reforming
the power sector in the respective states and to set out the reform measures.
The states are the implementing agencies of these reforms with appropriate
support from other stakeholders, viz., the Central Government, the Regulatory
Bodies, the utilities and the consumers.

You need to understand the role of all these stakeholders in implementing the
reforms, which is discussed in the beginning of the unit. We also discuss the
legal and administrative requirements that the reforms place on power
distribution utilities. Finally, we share the experiences of various stakeholders
in the reforms process.

In Unit 1, you have learnt about the issues and challenges facing the power
distribution sector. You know that, in the distribution sector, the T & D losses
have remained high, billing and collection efficiencies are poor, the physical
infrastructure has remained overloaded and weak, and new investments have
not been forthcoming to the extent anticipated. Apart from rampant theft, the
distribution sector is beset with poor billing (only 55%) and collection (only
41%) efficiency.

These challenges could be met only through comprehensive reforms in the

distribution sector. In Unit 2, you have studied about the roles of the Central
and State Governments set forth in the Electricity Act, 2003, the National
Electricity Policy and the National Tariff Policy. You have studied that the main
features of the distribution reforms ushered in by these Acts and Policies are:

• setting up of CERC and SERCs for rationalization of tariff;

• corporatisation of SEBs;
• 100% feeder metering;
• 100% consumer metering;

66
• energy accounting and auditing at all levels to promote accountability and Distribution
Reforms:
reduce T & D losses; The Changing
• securitisation of outstanding dues of CPSUs; and Perspective
• government support to SEBs/Utilities.

However, these steps have not been sufficient to transform the State
Electricity Boards into commercially viable industrial ventures. The process of
reforms in the power sector has yet to attain the desired results. The
initiatives on tariff rationalization and removal of subsidies have resulted
in tariff increases without any improvement in quality, reliability and
availability of power supply. This, in turn has led to increased consumer
resistance. Apart from this, investments, particularly from the private sector,
could not be sustained in the sector for a variety of reasons. The situation calls
for concerted action by all stakeholders on problems affecting electricity
distribution, particularly, those concerning the customer-utility interface.

Fig. 3.1: Some Stakeholders in the Reforms Process

What role can the various parties involved in the reforms process play in
improving the situation and accelerating the power distribution reforms
process? This is what we discuss now.

3.2.1 Role of the Central and the State Governments

The Central and the State Governments have to perform a very positive and
facilitating role in bringing about reforms in the sector as per the new
directions of the Electricity Act, 2003. This Act provides a legal framework for
ushering distribution reforms like enabling local institutions to manage
distribution, third party sale, reduction in cross-subsidies, penal provision for
thefts, etc. Under the provisions of the Act, the Central Government has
formulated the National Electricity Policy and National Tariff Policy for the 67
Sectoral Overview and development of the power system based on optimal utilization of resources. It
Enabling Framework
has to notify a National Policy for rural areas permitting stand-alone systems
based on renewable and non-conventional energy sources in consultation with
States (Section 4 of the Electricity Act, 2003). It has also to formulate a
National Policy in consultation with the concerned State Governments for bulk
purchase of power and management of local distribution through Users’
Associations, Cooperatives, Franchisees and Panchayati Raj Institutions, etc.
(Section 5 of the Electricity Act, 2003). The Rural Electrification Policy has
also been notified under Sections 4 and 5 of the Act.

The Central Government recognised the need for rapid improvement in the
distribution sector and committed itself to supplement the efforts of the state
utilities. It launched the Accelerated Power Development Reform
Programme (APDRP) to provide financial assistance to utilities in the
distribution sector as well as incentives to encourage improved financial
performance of the utilities.

Further, to achieve commercial viability in the state owned Power Sector,

the Central Government has formulated a six level intervention strategy that
encompasses initiatives at the national level, state level, SEB/utility level,
distribution circle level, feeder level and the consumer level. It may be
interesting to also compare the structure of the electricity industry prior to the
Electricity Act, 2003 with the evolving structure in the reforms era (Figs. 3.2
and 3.3).

Regulation Generation Transmission Distribution

MoP regulated
generation and
transmission
NTPC
and tariffs PGCIL
NHPC State
Electricity
ownership
CEA regulated
clearances for Boards

PUBLIC
generation and
transmission Owned and
infrastructure operated
State State
bulk of
Electricity Electricity
distribution
Boards Boards

State Generated vast

Government
majority of
regulated
electricity
SEB/Licensee
OWNERSHIP
PRIVATE

tariffs and
provided IPP
approvals Pvt. Pvt. Pvt.
Licensees Licensees Licensees

Industry Structure Pre Electricity Act, 2003

68 Fig. 3.2: The Structure of Electricity Industry Prior to the Electricity Act, 2003
In the reforms era, the Central Government has also taken many other Distribution
Reforms:
measures such as The Changing
Perspective
• setting standards and specifications for equipment and technologies;
• evolving standard operating procedures for project formulation, execution,
monitoring and evaluation;
• capacity building in states, SEBs and utilities; and
• initiating R&D programmes for upgrading technology, remote metering and
efficient equipments based on the recommendations of the Technical
Committees in the power sector and financial sector.

MoAs have been signed with the State Governments to set up SERCs,
restructure SEBs, reduce cross-subsidies and tariff anomalies. Budgetary
support has been given to SEBs towards subsidies. Privatization is being
encouraged. The following additional support from the Central Government is
expected to run the system smoothly in terms of improving power availability:

supply of additional power where feasible;

increased assistance for distribution system through APDRP;
funding for 100% rural electrification;
speedier implementation of the Rajiv Gandhi Grameen Vidyutikaran
Yojana;
strengthening and improvement of the transmission network by
POWERGRID; and
concessional financing by Power Finance Corporation.

Augmentation of the transmission and distribution networks is necessary along

with funds for carrying out the above-mentioned activities.

Policy

$%
Plan

Regulations

Generation $ &

Private
Transmission Transmission
Licensee generation

System distribution
Operators companies

Distribution
Distribution Licensee

Trading

Appeal !
! "# !

Fig. 3.3: The Evolving Structure of the Electricity Industry 69

Sectoral Overview and The State Governments have to implement the legislative measures and
Enabling Framework
other measures stipulated in the Acts and Policies. States have constituted
SERCs which have already issued tariff orders. The SERCs would work
towards rationalization of electricity tariffs in a phased manner. In addition,
states have the following functions:

reorganisation of State Electricity Boards; (Twelve states have already

reorganised their SEBs.)
metering of all 11 kV feeders and of all consumers;
energy audit at all levels;
100% electrification of villages and hamlets;
budgetary allocation for Electricity Subsidy and its Disbursement;
creation of Special Courts for speedy disposal of theft cases; and
enactment of anti-theft legislation.

The States can involve local bodies, panchayats and cooperatives, User’s
Associations, franchisees, etc. in discharging some of these functions for
better management of power distribution.

3.2.2 Role of SEBs/Utilities

The SEBs are being restructured under the reforms process to provide for

• increased accountability;
• introduction of commercial accounting; and
• setting up of online management information systems for decision making
covering technical, commercial, and management functions.

Twelve states have unbundled/corporatised their respective SEBs. Delhi and

Orissa have privatized distribution. The utilities are required to take techno-
commercial steps at the Distribution Circle level for reducing outages,
improving reliability and reducing technical and commercial losses. In the
scheme of the reforms, each circle is visualised as an independent profit
centre. Capacity building, network and load data survey, collection and
validation, preparation of circle-wise Detailed Project Reports, project
formulation and execution is being done at this level.

At the 11 kV feeder level, the feeders are visualised to be operated as

business units that will be accountable for quality of power and reliability,
metering, billing and collection. IT applications covering remote metering at
feeder and distribution transformer levels will be the mainstay for monitoring
and collection. Replacement of conductors and energy efficient distribution
transformers, metering of feeders and distribution transformers, reducing
HT/LT ratio, segregation of technical and commercial losses, etc. are being
done. Further, load research and demand side management measures are
expected at these levels.

In the course of implementing the APDRP, it has been observed that utilities
have undertaken innovative programmes to reduce aggregate technical and
70
commercial losses, improve metering, billing and collection, improve load Distribution
Reforms:
management, IT intervention, implement SCADA and distribution automation. The Changing
The power distribution utilities around the world have begun to embark on Perspective
radical reforms in electricity distribution business with a view to increase
efficiency, reduce per unit power supply cost and enhance customer service
and satisfaction. It is important that utilities share their experiences and adopt
the best practices for improvement of the distribution sector and for achieving
maximum benefits of the investments made in the distribution sector.

The following steps could be adopted by the utilities to discharge their roles
satisfactorily.

All utilities should adopt turnkey mode of execution of projects under

APDRP for the ensuing projects. Outsourcing of meter billing and
collection could be undertaken. A few utilities have outsourced the
meter billing and collection part of the billing process to local bodies and
they have been successful in increasing revenue collection. How effective would
the steps outlined
Operation and maintenance activities have also been outsourced by
here be in bringing
some of the distribution companies, who have been able to improve the
about reforms in the
maintenance of the equipment. The mode of “outsourcing” could be
power distribution
decided by the employees and the management jointly.
sector? What is your
IT initiatives in the distribution sector are one of the key areas of role in this
intervention. Supervisory Control and Data Acquisition System (SCADA), endeavour?
one of the options, is required to be necessarily implemented in the
distribution sector for better demand side management (see Units 4 and 5
of the course BEE-002) and other activities. Remote metering may also
be beneficial for implementation, as it will obviate many hurdles of the
traditional type of metering.

Distribution management in rural areas could be facilitated by adopting,

to the extent possible, the High Voltage Distribution System (HVDS),
which is the latest innovation in providing power supply to rural
sector/industrial sector. Utilities that have adopted this system have
been able to reduce their losses substantially.

Uniform equipment standards need to be adopted and the guidelines for

technical specifications issued from time to time by ERCs and the CEA
have to be followed. Benchmarking of performance will not only improve
the performance of individual utility but also pave the way for comparison
amongst the utilities. Utilities should evaluate their performance against
certain benchmarks and strive hard for progressive improvement.

Market liberalization and setting up of independent regulators has created a

greater need to define the quality, reliability, cost of the power and services
being provided by the distribution utilities. Therefore, time has come for the
distribution utilities to keep pace with the market requirements for their
survival. This needs setting up of benchmarks in all spheres of its operation
such as technical, commercial, financial, human resources, research, etc.
Setting up of benchmarks and creating new ones after surpassing them is

71
Sectoral Overview and basically a continuous drive for improving quality of business and services to
Enabling Framework
customers.

Customer care and satisfaction is an important dimension of the role of the

utility, which has suffered through all these years. It is a fact there are
customers who consume electricity but are reluctant to pay. It is also a fact
that there are customers who are willing to pay and do pay, but they do not
receive the right attention and service from the suppliers of electricity. Utilities
must concentrate on the facilities to be provided which result in 100%
customer satisfaction. Some of the facilities are web based billing and round
the clock opening of customer care centres. Computerization of billing and
revenue process, prompt redressal of complaints through computer based
tracking, establishment of computer based trouble-call management system,
bringing transparency in dealing with the cases, etc. are some of the
measures that utilities can take for improving customer satisfaction. All utilities
must provide consumer indexing and computerized mapping system so that
customer supply can be monitored and energy audit is also carried out to cut
down the losses.

The electricity industry has so far been supplying power to customers under
the culture that organizations are not “marketing power” but giving power.
Giving new connections, solving the problem of electricity disruptions or taking
care of issues related to bills, etc. are some issues that need to be taken care
of promptly by every utility. Tariff hikes have to be very judiciously planned so
that there is less resistance from the consumer and the prices are gradually
rationalized.

The utility has to act very responsibly towards the customer and its
needs.

This problem is not limited to SEBs. Even the private licensees have not given
the required attention to this subject. Though it must be mentioned that the
care for customers by and large in their case is much better, there is
considerable scope for improvement. The real issues pertain to improving the
reliability of power supply for which shortages need to be tackled, system
network and other infrastructure need to be strengthened, good work culture
has to be established, and theft of electricity has to be curbed and penalized.

Utilities need to understand that the satisfaction level of a consumer plays a

very important role in the entire process of revenue realization. What is the
situation today? On the one hand, the quality of supply is getting deteriorated
and on the other hand, the rates of electricity are going up. The consumer is
not willing to accept this situation any more.

What do the consumers expect from a utility today? A consumer of any

product or service has basically three rights:
• reasonable quality and price of goods or service;
• adequate and correct information of product or service; and
• in case of dispute, ‘Fair interpretation of the law’.

72
Based on this, any consumer of electricity Distribution Company expects Distribution
Reforms:
uninterrupted power (reliability and quality) at appropriate tariff (commercial The Changing
billing, metering and recovery) with human face (attitude and approach of Perspective
utility staff).

The world over, distribution utilities are striving hard to excel in these areas to
earn ‘consumer affection’, which is much beyond satisfaction. With the
reforms in ‘power sector’ and the Electricity Act, 2003, in place, the consumers
in India are hopefully looking towards the newly created distribution
companies to address their woes and give them a sigh of relief. The
consumers also have an important role to play in the reforms process.

3.2.3 Role of Consumers

In the reforms process, mandatory metering for all consumers is being
implemented. Consumers should implement this measure. Public awareness
campaigns for compliance of billing and prevention of theft, use of energy
efficient equipment and appliances have been carried out to involve the
consumers in the reform process. Consumers need to be educated and made
aware of the realities of the power sector economics and the revenue cycle so
as to ensure better compliance and thereby reducing the resistance. They also
need to be encouraged to take part in public hearings of SERCs and also give
suggestions on their draft regulations. This will help them in discharging their
responsibilities for metering, bill payments, energy conservation, etc. in an
effective way.

Though tariff fixation has been depoliticised to the extent that the Government
no longer has a role in it, political pressures still exist. It is hoped that the
problem is of the transition period. The Regulatory Commissions have
established consumer service benchmarks, which utilities have to follow.
The consumers should be aware of these developments to be able to demand
good quality and reliable electricity from the Utility.

!" # #
$ %# &

Has the power distribution utility in your area taken any initiatives in the
reforms process? If so, spell them out. If not, write what it should be doing.
………………………………………………………………………………………
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73
Sectoral Overview and
Enabling Framework ' (

You have studied in Unit 2 that Regulatory Commissions have been

established at the Central and State levels as per the requirements of the
Electricity Act, 2003.

The primary responsibilities of the Central Regulatory Commission are

to:

• fix tariff of Central Sector generating plants as well as of inter-state power

projects;

• fix rationalized tariffs for the generation, transmission and distribution

utilities and the trading margins in the inter-State trading of electricity, if
considered necessary;

• regulate the inter-state transmission of electricity and issue licenses to

transmission licensees and electricity traders with respect to their inter-
state operations;

• specify Grid Code with regard to Grid Standards, specify and enforce the
standards with respect to quality, continuity and reliability of service by
licensees;

• make sure that the utilities improve consumer services, and establish
benchmarks which are upgraded over a period of time;

• examine and adjudicate upon disputes, and reconcile the interests of

different stakeholders, e.g., the state run corporations and organizations,
private utilities, consumers, shareholders and society at large;

• ensure a fair and equitable treatment to each stakeholder.

The functions of the State Electricity Regulatory Commissions are to:

• set standards by setting codes, by license conditions, by directions in tariff

orders and by miscellaneous orders;

• determine the tariff for generation, supply, transmission and wheeling of

electricity, wholesale, bulk or retail, as the case may be, within the State;

• regulate electricity purchase and procurement process of distribution

licensees including the price at which electricity shall be procured from the
generating companies or licensees or from other sources;

• facilitate intra-state transmission and wheeling of electricity;

• issue licenses to persons seeking to act as transmission licensees,

distribution licensees and electricity traders with respect to their operations
within the State;

• promote cogeneration and generation of electricity from renewable

sources of energy by providing suitable measures for connectivity with the
74 grid and sale of electricity to any person, and also specify, for purchase of
 electricity from such sources, a percentage of the total consumption of Distribution
Reforms:
electricity in the area of a distribution license; The Changing
Perspective
• adjudicate upon the disputes between the licensees and generating
companies and to refer any dispute for arbitration;

• specify Codes such as the State Grid Code consistent with the Grid Code
for optimum scheduling and despatch of electricity in accordance with the
contracts, disciplining grid operations, keeping accounts of the quantity of
electricity transmitted and overall supervision and control over the
transmission system; the Electric Supply Code, which would deal with
recovery of charges, billing, payment and disconnection/restoration of
supply, tampering, distress or damage to electrical plant, electric lines or
meter, entry of distribution licensee or any person acting on his/her behalf
for disconnecting supply and removing the meter; entry for replacing,
altering or maintaining electric lines or electrical plant or meter; the
Distribution Code (for distribution licensee) for the development,
maintenance and operation of the Distribution System and the code of
practice on payment of bills;

• specify overall performance standards for providing electricity supply

services and promoting efficient use of electricity by consumers, apart from
taking all reasonable steps to ensure safe, economical and reliable supply
of electricity;

• specify or enforce standards with respect to quality, continuity and

reliability of service by licensees as well as penalty on failing standards;
(The compensation should be determined and be made within 90 days.
However, an opportunity would be given to the licensee before allowing
compensation).

• set accounting standards for the licensee to follow the guidelines issued
by the Company Law for maintenance of accounts, keeping of basic
accounting records, reconciliation of bank accounts, comparison of stock,
maintenance of works register, reconciliation of accounts relating to
revenue, updating of interest payable to consumer and security;

• set operational standards for the licensee for reduction of technical and
commercial losses, improvement of collection, maintenance of quality
supply and consumer satisfaction index, proper meter reading, billing and
collection system, fault attendance system, reduction of power purchase
cost by proper demand management and following merit order, completion
of projects within schedule, planning investment on priority and profitability
basis, implementing a metering plan, i.e., change of defective or non-
functional meters, new meters, review of load, checking accuracy of the
meters, computerization of billing records and billing, proper monitoring of
arrears and disconnection of defaulting consumers (in case the bill amount
increases over the security amount), good governance, transparency in
HR policies, work-force rationalization;

• fix the trading margin in the intra-state trading of electricity, if considered,

necessary;
75
Sectoral Overview and • specify for the consumers a complaint handling system and consumer
Enabling Framework
rights statement.

In addition, the State Commission shall advise the State Government on all or
any of the following matters:

promotion of competition, efficiency and economy in the activities of the

electricity industry;

promotion of investment in electricity industry;

reorganization and restructuring of electricity industry in the State; and

matters concerning generation, transmission , distribution and trading of

electricity or any other matter referred to the State Commission by the
Government concerned.

+ , #
- $$ !

In what ways can the State Regulatory Commissions help in improving the
functioning of the power utility in your area?
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) ' *

In this section we discuss the legal obligations and administrative

requirements spelt out for distribution licensees in the distribution reforms
process. These include reporting obligations of licensees, monitoring and
enforcing conditions for implementation of standards and conditions for tariff
determination. We first present the reporting requirements.

Reporting Requirements
Distribution licensees are required to give operational reports, commercial
reports, financial reports, energy audit reports and interruption reports.
We briefly explain the requirements and formats of these reports.

The operational report on Generation Monitoring, Generating Plant

Performance and Emission Monitoring has to be given on a monthly basis
by the generating stations.

76
The commercial report has to be given by the distribution companies at Distribution
Reforms:
the frequency shown in the box ahead. The Changing
Perspective
REPORT FREQUENCY

Load Distribution Monthly

Bill Details Billing Cycle

Comparison of Actual and Estimated Demand Monthly

Metered Data Billing Cycle

Un-metered Connection Details Billing Cycle

Data on Connections, disconnections and

Monthly
reconnections

Consumer Complaints Monthly

Financial reports of the following kind have to be presented annually:

Report Title

Fixed Assets (Plant & Machinery) (G,T,D)

Depreciation of Fixed Assets (G,T,D)

Statement of Profit (G,T,D)

Capital Base (T,D)

Loan Details (G,T,D)

Major Investments (G,T,D)

Fixed Assets (Plant & Machinery) (G,T,D)

In addition, the following reports have to be submitted by transmission and

distribution licensees covering the aspects given with each type of report.

Energy audit report covering

• Feeder-wise Load and Voltage,
• Substation-wise Load and Voltage,
• Losses for the Transformers,
• Feeder-wise Energy Accounting, and
• Substation-wise Energy Accounting.
Interruption report covering

• Feeder-wise Interruption,
• Substation-wise Interruption, 77
Sectoral Overview and • Line-wise Interruption,
Enabling Framework
• Transformer-wise Interruption,
• Capacitor Banks, and
• Reactors.
The formats for various energy audit and interruption reports are given in the
Appendix 1 of this unit.

% # !+

Collect data from your utility and try to prepare a few audit and interruption
reports in the formats given in Appendix 1.

Tariff Filing Requirements

The following essential information must be provided by the licensee for
Tariff Filing:

1. Asset-wise details for each business of licensee;

2. Audited accounts and financial statements, including cash flows for the
preceding years and monthly balances for the current year;
3. Billing and commercial data for all categories of consumers with their
sub-categories with the break-up sale (consumption) and revenue for
each component of tariff;
4. Details of losses in transmission and distribution;
5. Sub-station wise energy received and energy sold;
6. Availability of energy from each source available to the licensee;
7. Financial details, i.e., cost of capital, capital structure, equity/debt;
8. Power purchase cost from each source;
9. Employees cost;
10. Administrative and general expenses;
11. Repair and maintenance expenses;
12. Bad and doubtful debts;
13. Capital expenditure;
14. Source of finances for capital investment;
15. Investment capitalized;
16. Interest and financing cost;
17. Depreciation;
18. Reasonable return;
19. Non-tariff income;
20. Income from sale of power; and
21. Income from any other business.
78
The formats for providing these details are given in Appendix 2. Distribution
Reforms:
The Changing
Perspective
) #
$, # !+ ,#

Study Appendix 2. Collect data from your utility and fill up the formats for
tariff filing given there.

There have to be consultations between various stakeholders such as the

licensees, the governments, generating companies, consumers and regulatory
bodies about all these matters. All stakeholders will have to meet certain basic
requirements for these reforms to move full steam ahead. We spell them out
briefly before ending this section.
The licensee should

• recover the cost of the company and make reasonable profit; and
• make adequate investments for meeting the existing and projected
demand.
The government should

• see to it that the tariffs are reasonable and easily acceptable; and
• provide minimum subsidy.

The generating company should ensure

• mutually agreed PPA with cost plus recovery; and

• schedule management

The consumers should

• accept reasonable tariff; and

• demand improved quality of service with minimum impact on the current
prices.

The regulatory staff has to

• encourage efficient use of resources by the licensee so that maximum

benefit is made available to the consumer; and
• ensure long term financial viability of utility.

The advisory committee should

• protect the interest of each category of consumer; and

• ensure quality of supply and standard of performance.

We now present some case studies to help you appreciate the impact of the
distribution reforms on the power sector.

79
Sectoral Overview and
Enabling Framework .

Here we present the case studies of Andhra Pradesh, Rajasthan and Delhi.

Andhra Pradesh − A Case Study

Andhra Pradesh, one of India’s leading reforming states, has implemented

several measures towards fiscal, governance and sectoral reforms. By the late
nineties, the state was facing both energy and peak shortages and the quality
of power supply had deteriorated; the power utility’s financial losses had
grown to about Rs 39 billion and new investments were not coming. The
power subsidies had increased to 1.6 per cent of the Gross State Domestic
Product (GSDP). A comprehensive programme of power sector reforms was
initiated by the GoAP in 1999. The GoAP requested the World Bank for a
multi-phased adaptable lending with an indicative financing of US $ 1 billion
over a period of eight to ten years to support the implementation of reforms.
The programme was designed to be implemented in a phased manner:

Phase I • Establishment of legal, regulatory and

(1999-2001) institutional framework.
• Removal of critical bottlenecks of the power
system.

Phase II • Fully functional Regulatory Commission and

(2001-2003) corporate entities.
• Privatization of a part of the distribution business.
• Partial restoration of the sector's creditworthiness
and improvement in system efficiency.

Phase III • Consolidation of the functioning and financial

(2003-2005) performance of new power utilities.

Phase IV • Deepening of reforms to increase competition and

(2005-07) private participation.
• Attainment of high customer satisfaction through
reduction of power deficit.
• Improvement in quality and efficiency of
electricity services.

The reforms process in the state has been reasonably successful in meeting
its development objectives to a large extent. The outcome and impact
resulting from the project implementation have been significant. The financial
performance of the power sector is improving but continues to remain highly
vulnerable. Functional unbundling of APSEB has led to its restructuring
into six corporatized entities:

• one power generation company (APGENCO);

• one transmission and bulk supply company (APTRANSCO); and
80 • four distribution companies (Discoms) for retail power supply.
There are several areas in which Andhra Pradesh’s power sector has Distribution
Reforms:
performed well with a positive impact on its finances, supported by the efforts The Changing
of the government, regulator and utilities. These include: Perspective

i) Reduction in cross–subsidy amongst consumer categories, introduction of

multi-year tariff incentive scheme and improvement of quality of supply for
HT-industrial consumers. These measures have resulted in reversal of the
five year trend of declining sales to HT-industries to 26 per cent growth in
sales in FY2003.

ii) Reduction in T&D losses from 38 percent in FY1999 to 26 percent in

FY2003 through increased investments for augmentation and rehabilitation
of the T&D network, control of theft, and better consumer metering. (The
progress has marginally exceeded 10.5 percentage point loss reduction
target set under the business plan in 1999).

iii) Further improvements in the collection efficiency from 92 percent in

FY2000 to 98 percent in FY2003.

iv) Reduction in the costs through financial restructuring and efficient power
procurement.

The financial restructuring involved a cleanup of APSEB' s balance sheet and

restructuring of outstanding liabilities to bring down cash flow in the initial
years while postponing the servicing of these liabilities to later years. The
GoAP wrote off its Rs 9 billion debt to APSEB against the accumulated losses
of APSEB; Rs 28 billion dues for coal and power purchases were converted
into medium to long term liabilities by issue of bonds (7 -10 years with 5-8
years moratorium); and Rs 8.3 billion outstanding dues to a financial institution
were rescheduled with a repayment relief in the first two years.

Impact of Reforms

The impact of reduction in distribution losses and improvements in metering

and collection efficiency is evident from the fact that during the Financial Years
2000-03, the power purchased by the Discoms increased by an average
annual compounded growth rate of 2.3 per cent. Their sales increased at a
higher rate of about 7 per cent and the revenue by 16 per cent.

Rajasthan − A Case Study

The situation before the reforms is shown in Fig. 3.4. You can see that
consumers as a group had no representation in this structure. The
Government controlled all aspects of the power sector as a monopoly. It set
prices, decided upon production, rationing or power cuts, and subsidies. It was
only in the wages of employees that a countervailing power existed in the form
of unions. Also, since the government owned the electricity board, it could give
directions, which the civil servants manning the Board had to follow. The
Board could do little other than request the government to infuse funds − even
those that were owed to it in the form of payments due. As a result, its
operating deficit rose in such a way that the more power it supplied, the
greater its losses became. And this became a drag on the state budget.
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Sectoral Overview and
Enabling Framework Government of Rajasthan
Ministry of Power

Generation Transmission
Plants (Thermal) (Domestic and
Commercial)
State Electricity
Board

Collection of Bills Distribution

Unions of Employees

Fig. 3.4: The Pre-reforms Status in Rajasthan

Rajasthan, a predominantly agrarian but dry state was plagued by acute

shortages in electricity in the pre-1999 years. There were long hours of
scheduled − and unscheduled − power cuts. Power availability declined when
demand increased. The government felt that the solution lay in focusing on the
generation of power. Power Purchase Agreements to the tune of 2500 MW
were signed with private parties. There were high expectations on these
private producers which could not be met. The deficit in the sector, in money
terms, ballooned.

The Reforms

The Government of Rajasthan went in for a massive programme of power

generation in the public sector, investing about Rs. 5000 crore with loans from
the Power Finance Corporation. Within 3 years [1999-2003] the power
capacity of the state doubled as 1300 MW was added. The state coined a new
phrase in project management in India, of "cost and time under-runs". This is a
remarkable achievement in India, especially in the public sector.

The result was an improved availability of power. Transmission and

Distribution losses, which were around 45% in 2000, came down to 39% in
2002. The World Bank provided support to the extent of US$ 180 million by
way of reimbursements for technical improvements in the system. The GoR
considered this the first instalment of a larger loan it had applied for and
planned a multi-year reform programme.

Phases of the Reforms

The reform of the sector consisted of unbundling the Rajasthan State

Electricity Board. Generation was separated and made into separate
companies, with its own management. A transmission company was formed,
to take power from the generator to the load centres. The state was divided
into three circles, and three distribution companies were formed. Each was to
focus on its operating and financial efficiency. The Rajasthan Electricity
Regulatory Commission was set up in January 2000 at the same time as part
of this process to look into requests for tariff increases in an open and
transparent manner.
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The State Electricity Board has been unbundled and its activities, assets and Distribution
Reforms:
liabilities and staff have been transferred to the Rajasthan Rajya Vidyut The Changing
Prasaran Nigam Ltd. (RRVPNL), Rajasthan Rajya Vidyut Utpadan Nigam Ltd. Perspective
(RRVUNL), and three distribution companies, i.e. Jaipur Vidyut Vitaran Nigam
Ltd.(JAIPUR VVNL), AJMER VVNL and JODHPUR VVNL in July, 2000.

There were plans to privatise the distribution companies in the third phase, but
that has not taken place. The Chairman of the transmission company was also
the Chairman of the distribution companies, each of which had its own
Managing Director. Fig. 3.5 shows the organisational structure in the post-
reforms phase.

Generation Transmission
Companies Company

Distribution
companies

Government of Rajasthan
Fig. 3.5: The Organisational Structure in the Post-reform Era

The key processes in the power distribution reform process were:

increase in capacity for generation and improvement in plant load factor;

reduction of T & D losses in transmission by investment in new equipment;
reducing corruption in the staff;
prosecuting those caught of power theft;
aligning tariffs with costs in a realistic manner;
reducing subsidies, and where subsidies were to be given, giving them in
a transparent manner through the budget process, through the
independent regulatory commission;
bringing in private players into the power sector in all its areas of
operation.

The companies were free to approach the Rajasthan Electricity Regulatory

Commission for tariff hikes. The process of unbundling was smooth, with no
disputes. This was in part because of a carefully worked out plan for the
transfer of staff and of assets from the former Electricity Board to the new
companies that succeeded it.
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Sectoral Overview and Delhi: The NDPL Experience
Enabling Framework
Soon after starting its operations in July, 2002 in North and North-West Delhi
(510 sq. km., 8.5 lakh consumers), a ‘gap analysis’ was made by NDPL in
terms of various areas of operation to know consumer expectations vis-à-vis
The case study of the level of performance at the time of take-over. Consumer touch points
NDPL has been were mapped and all the processes were studied to enrich them through BPR
adapted from the (Business Process Re-engineering) activity.
article by
Shri V.D. Apte, Thorough technical audit of the infrastructure (lines, cables, transformers,
General Manager,
NDPL, published in switchgear etc.) was carried out with the assistance of OEMs and consultants
IEEMA journal, p.58, to arrive on the asset utilization decision based on run, repair and replace.
March, 2005 and is NDPL carries out benchmarking with the best utilities in the world to know
thankfully
(initially, how inferior it was in comparison to them) and how it is improving
acknowledged.
year by year and bridging the gap.

A central level call centre has been set into operation where any power supply
related issue/complaints/grievance is monitored from its inception till closure
through a unique ‘SMS-Mobile phone facility’ made available to field staff.

Field units have been provided with round the clock fully equipped breakdown
vans having on-line communication facilities. Table 3.1 indicates figures of
improvements in this area.

Commercial (Metering, Billing, Collection and Tariff Related) Issues

All the related processes in RCM (Revenue Cycle Management) areas were
re-engineered to suit consumer expectations. Apart from tracking billing errors
at the inception stage, the response time to the complaints in these areas was
reduced substantially. New connection and meter management groups
started functioning in proactive and more consumer-friendly ways, by
eliminating the role of middlemen. This resulted in reduction in A T&C losses
by over 17%.

It helped ultimately to sustain the 40% rise in bulk power purchase price in the
last 2.5 years, with the consumers facing only 8% tariff-hike which is in tune
with the inflation rate. A back log of pending 1 lakh commercial complaints,
and 20,000 pending new connections at the time of take over was cleared and
now these activities are carried well within the prescribed regulatory norms.
Activity of up-grading the ‘Consumer care centre’ to world class standards was
undertaken and today consumers have started enjoying the facilities. Over
1012 payment gateways are now available for bill payment against 18 at the
time of take over.

HR and Training Focus

Changing the mind-set of employees from the arrogance of monopoly status

to politeness in competitive business environment continues to be a great
challenge. No doubt, consumers have already started feeling a difference,
which they are openly communicating, but only persistent efforts can bring
such attitudinal changes. An in-house training programme on quality, skills
and technical management to focus on consumer satisfaction is conducted to
84 impart at least 4 days training in a year to each employee.
 Table 3.1: Improvement in NDPL Performance Distribution
Reforms:
The Changing
On take YTD Perspective
Parameter Remarks
over July (FY 04-05)
2002 Dec.

Reliability Index 98.5% 99.69% Decrease in hours of

interruptions by 50%.

No. of Transformer failure/ 552 122 Failures decreased by

annum 70%.

Mean time to repair cable 11 2 Reduced by 82%

fault

No. of no supply 8000 2377 Decreased by 70%

complaints received per
day at call centre

Street Lighting working 50% 97.99% Significant

condition improvement

Automation and IT Initiatives

A plan of ‘Automation Road map’ and IT initiatives at Operational, Tactical and

Strategic level has been drawn up. This has gradually increased consumer
satisfaction by providing reliable power supply with lesser hassles in payment
for accurate energy consumption.

Installation of the equipments based on latest technologies in the field, What more could be
automation of grid station operations, use of accurate static meters, reading done by the utilities
through HHD (Hand Held Devices) and AMR (Automatic Meter Reading, beyond what the
without a need for the reader to visit consumer premises) are some measures case studies
which have enabled consumers to feel a difference. The consumers today can presented here
log on to NDPL website and have access to their billing records, consumption indicate?
patterns, etc. They can print duplicate bills and even make on-line payment.
This is really seen as a delight by many consumers.

Consumer Satisfaction Survey

NDPL adopted a route of getting the consumer satisfaction level survey done
at regular intervals through an independent agency of international repute to
know the direction in which the company is moving and take measures
according to consumers’ expectations. The level of importance attached by
the consumer to specific areas of service (power supply position, fault
management system, billing and commercial issues, communication, attitudes
of employees, etc.) is noted by asking some pointed questions. The
performance of the company, as perceived by the consumer, is mapped
against each item. This has been found to be a very sensitive and valuable
tool to change/shift the priorities of activities to travel further in the direction of
consumer satisfaction.

85
Sectoral Overview and Lessons to be Drawn
Enabling Framework
With the accelerated pace of reforms, more and more distribution utilities
(government companies, joint ventures, private sector) will start playing their
roles to upgrade the service level to consumers and bring them more
satisfaction and delight. The challenge will become tougher when consumers
start acquiring the role of customers with the introduction of more competitive
environment through open access and other provisions of the Electricity Act,
2003. The executives and other field staff of power utilities (mostly drawn from
erstwhile SEBs) need to focus on effectiveness (performance/expectation).
Being efficient (output/input) is not enough in a public service utility to have
satisfied consumers. Focus needs to be shifted from doing the things
rightly to the selection of rights things to do. The approach should shift
gears from reactive to proactive commitment to continuous improvement. This
is ultimately the key to bring excellence on consumer satisfaction front.

Of course, the Government can play a vital role by giving adequate transitional
financial support for initial years of operation to the distribution utilities. NGOs
and other consumer protection bodies can play a more participatory role in the
regulatory process of annual tariff fixation and educating various consumer
groups (farmers, industry, domestic) to help them understand the need to pay
the correct price for the service, instead of fighting only to protect their
individual interests.

On this positive note, let us end the unit and summarise its contents.

/ (

• In this unit, we have discussed the reforms being implemented in the

power distribution sector.

• In particular, we have focused on the role of the Central and State

governments, Regulatory Bodies, power utilities and the consumers in
implementing distribution reforms.

• We have elaborated on the legal and administrative requirements

placed on the distribution utilities by these reforms in terms of
maintaining standards and reporting various aspects of their day-to-day
running.

• The experiences of a few distribution utilities have also been shared

along with their pre-reform status and the post-reform developments.

1. Spell out the implications for the power distribution reforms in your
utility/area.

2. What lessons can you draw from the experiences of various DISCOMS
86 presented in the last section for your utility?
3. Outline the impediments, if any, in carrying out reforms in the power Distribution
Reforms:
distribution sector. The Changing
Perspective
4. Outline the obligations placed on the consumers by the reforms process in
the power distribution sector.

5. Are the current power distribution reforms sufficient to achieve the goal of
providing reliable and good quality power to all? Justify your answer.

87