1
Evaluation of Indian Power Sector Reform
Strategies and Improvement Direction though
DEA
Santosh Ghosh Vinod Kumar Yadav
Corporate R&D Department Dept. of Electrical Engineering
Kirloskar Brothers Limited Gautam Buddha University
Pune, India-411045 Greater Noida, (UP), India-201312
e-mail:Santosh.Ghosh@kbl.co.in e-mail:Vinod@gbu.ac.in e-mail:gitanjali.iitr@gmail.com e-mail:Ravindra.Birajdar@kbl.co.in
Abstract—This paper evaluates relative performances of power
distribution utilities of 28 states of India for the year 2012-13,
through application of Data Envelopment Analysis (DEA).
Benchmark utilities have been identified for each non-frontier
utilities to emulate the best practices for improvement. Further
slack analysis is carried out to identify the root causes of
inefficiencies of the utilities lying away from the frontier. About
86% of the distribution utilities are found to be digressing from
efficiency frontier. The main cause of the inefficiencies is
observed to be excessive distribution line length compared to the
revenue realized and number of consumers served by those.
Specific recommendations have been made for the policy level
changes required for improving the overall performance of the
distribution utilities and socio-economic standing of the rural
population of India.
Index Terms--Data Envelopment Analysis; Slack Analysis;
Electricity Distribution Utility; Power Sector Reform.
I. INTRODUCTION
S ince initiation of power sector reform in 1991, India has
come a long way and achieved significant feet in setting up
institutional and policy framework in place [1]. As a result of
which, India, has clocked generation capacity of about 303
GW as on 30th April 2016 [2]. Per capita electricity
consumption has crossed over 1000 kWh from a mere 18.17
kWh post its independence in 1947 with an annualized rate of
increase of 7.18% [2] on average. The energy deficit is
reported to have been brought down to 2.3% from 12.1% and
shortage of Peak power to 3.2% from 10.6% during 2010-15
[3,4]. The forecasted figures of peak power deficit and energy
shortage are even more attractive for 2016-17, which are 2.6
% and 1.1% respectively [4]. Though the above figures look
quite impressive, but the ground realties differ widely. State
wise and region wise data mining reveals maximum peaking
shortage and energy shortage were still as high as 20 % and 25
% respectively and the Aggregate Technical and Commercial
(AT&C) losses were around 23% during 2015-16 [2]. In some
of the states only about 70% rural households are electrified so
far [5]. In this scenario, it is imperative to evaluate the
performance of distribution utilities region wise to identify the
micro level issues and opportunities for improvement. In this
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Gitanjali Mehta Ravindra Birajdar
School of EE & CE Corporate R&D Department
Galgotias University Kirloskar Brothers Limited
Greater Noida, UP, India Pune, India-411045
regard, Data Envelopment Analysis (DEA), a non-parametric
analysis tool has gained popularity amongst researchers and
policy makers, and found its application in diverse and wide
range of power system and energy studies in the recent past
[6]. DEA is the tool for quantifying relative efficiencies of
Decision Making Units (DMU) having multiple inputs and
multiple outputs. CCR (named after their proponent A.
Charnes, W.W. Cooper and E. Rhodes) model of DEA was
introduced by Charnes et al. [7] in 1978. Since then, numerous
extensions of the classical DEA model have been proposed by
number of researchers, which have been applied to wide and
diverse fields of research, viz, performance evaluation of
manufacturing plants, power plants, network expansion
planning etc. [8-11].
DEA based performance evaluation of power distribution
utilities has also been reported by researchers from different
parts of the world. Tschaffon and Meza [12] quantified
relative performance of twenty Brazilian electricity
distribution utilities using DEA. Composed efficiency index
and Inverted Frontier were also used for the raking of those.
Jie et al. [13] applied a two-stage network DEA framework
and evaluated china’s progress in energy saving and emission
mitigation during 2006-2010. Moreno et al. [14] also applied
two stage-network DEA model with shared inputs to evaluate
Brazilian electricity distribution utilities, wherein length of
distribution network was considered both as input and output
in two different stages. Chia-Yen [15] studied effectiveness of
energy production of 50 states of USA and District of
Columbia using DEA, taking into consideration both
regulatory cap on emissions and fluctuating level of sales.
Soushi and Peter [16] applied a novel extended DEA model
for performance evaluation of energy-environment-economic
efficiency of 27 EU, APEC and ASEAN countries for the
period 2003 to 2012. Georgia et al. [17] evaluated trends in
relative efficiency change of five energy-intensive industries
i.e. electricity, manufacturing, construction, transportation and
mining in 23 European Union (EU) countries over the period
2000–2009.
The main objective of the present work is to assess the
relative performance of Indian state distribution utilities using
DEA. Output oriented CCR model has been applied to
evaluate the relative efficiencies of distribution utilities of 28
states of India. Further, slack analysis has been carried out to
 2

identify the root cause of inefficiencies of the utilities lying where,

away from the frontier. Bench mark utilities have been θ is relative efficiency score, and
identified as well, for each non-frontier utilities to emulate the λi is dual variable
best practices of them for improvement of their operating The above LP model is run z times for quantifying the
efficiency. relative efficiency scores of all the DMUs, and values of θ
The rest of the paper is organized as follows: subsequent to and λi . Model (2) identifies benchmarks for each inefficient
this introductory section, the DEA methodologies applied for DMUs for improvement of their performance.
the present work is presented in section-II. Section-III
discusses the rationale behind the selection of inputs and III. SELECTION OF INPUTS AND OUTPUTS
outputs considered for the analysis. Results and discussion are Selection of inputs and outputs is a very crucial step in the
presented in section-IV. The main findings of the research process of performance evaluation using the proposed
work are summarized in concluding section V. approach. In this paper, the selection of inputs and outputs has
been made based on the insights given by Miliotis [21].
II. METHODOLOGY Following input and output parameters were selected for the
A. Data Envelopment Analysis (DEA): analysis in the present work:
DEA is a non-parametric approach for generating the Inputs (x): Total Cost (INR, million); which represents the
efficiency frontier of the Decision Making Units (DMUs) [8- cost incurred by the utility to supply electricity to the
11]. It deals with the multiple inputs and outputs without prior consumers. The components of the total cost are: cost of
knowledge of functional relationship between the input and primary energy, operating and maintenance cost (O&M),
output variables [18]. The following paragraph describes the administrative and general cost (A&G), interest payment
CCR model applied in the present work. liability, depreciation and the cost of power purchase [22].
The CCR model: Outputs (y): In the present work, energy sold (MkWh) (y1),
CCR model is the elementary model of DEA proposed by number of customers (million) (y2); distribution line length
Charnes et al. [7] and named after its proponent. It assumes (circuit km) (y3) are chosen as outputs. The population density
Constant Returns to Scale (CRS), which makes this model characterizes the output variables- number of customers and
suitable for evaluating performance of electric utilities as distribution line length, while energy sold reflects the status of
suggested by number of researchers [19,20]. The CCR socio-economic development of those.
methodology is explained in the following paragraphs. For z
DMUs having m inputs, utilizing which produce n outputs, For a valid DEA model, the number of DMUs should be at
least thrice the number of selected variables [8] this condition
the relative efficiency score of pth DMU is given by equation
is satisfied by the selection of input and output. The
(1).
n m
correlation between the input and outputs are presented in
max ¦ vk ykp / ¦ u j x jp
k =1 j =1
Table 1, which shows that the variables are positively
correlated, which is another important criterion for a valid
DEA model as well.
n m
s.t. ¦v y ¦u x
k =1
k ki
j =1
j ji ≤ 1 for i = 1,..., z TABLE I
CORRELATION BETWEEN INPUT AND OUTPUT VARIABLES
u j , vk ≥ 0 ∀j, k … (1)
Output Variables
where, Input Variable
y ki is output k produced by DMU i y1 y2 y3

x ji is input j utilized by DMU i Total cost (INR, millions): x 0.9876 0.9213 0.9162

vk is weight assigned to output k

IV. RESULT AND DISCUSSIONS
uj is weight assigned to input j The output oriented CCR model is applied to determine the
The above fractional programming model is converted to a efficiency frontier for 28 state owned electric utilities
dual form of linear programming (LP) model, for ease of (SOEUs). In this study the dual LP formulation of the CCR
computation and to identify the benchmarks for the inefficient model were run 28 times by executing computer program-
DMUs, as below: DEAP V2.1.
min θ
z
The CCR result of overall efficiency scores of all SOEUs
s.t. θx jp − ¦ λi x ji ≥ 0 ∀j are presented in Table 2 (third column) and illustrated in Fig.
1. The CCR result shows that only four utilities lie on the
i =1
z
efficiency frontier and hence are efficient with relative
− y kp + ¦λ y
i =1
i ki ≥0 ∀k efficiency score equal to 100% and rest of the utilities are
relatively inefficient and the score varies widely about the
mean overall efficiency of 75%. Majority of utilities, i.e. 17 of
λi ≥ 0 ∀i … (2) 28 (60.7%) lie below the mean efficiency score, while only 7

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Fig.1. Relative operating efficiencies of Indian state owned distribution utilities
(25%) amongst the non-frontier SOEUs have efficiencies
above average. This reflects that there are immense
opportunities for efficiency improvement for the Indian state
owned distribution utilities. Benchmark utilities have been
identified for each non-efficient utility to emulate the best
practices of those. The serial number of the efficient utilities,
which are best suited as benchmarks for the inefficient ones
are presented in the fourth column of Table 2. It can be
noticed that all the four CCR efficient divisions can serve as
benchmark for the inefficient utilities. As presented in Table 2,
27th distribution utility i.e. distribution utility of Sikkim can be
benchmark for 89% of the state utilities for improving their
performance. Similarly, Kerala (11th), Assam (2nd) and Tripura
(28th) state distribution utilities can be benchmark for 57.14%,
35.71% and 32.14 % of the inefficient utilities respectively.
The coverage of target DMUs by 4 benchmarks has been
illustrated in Fig. 2.
It can also be observed that 3 out of 4 efficient distribution
utilities belong to hilly regions, even though hilly states have
to deal with poor load characteristics, unfavorable topography,
harsh weather conditions, scattered households loads and low
population density, due to which power supply to hilly
divisions are expensive and challenging.
The summary of output slack has been presented in last
three columns of the Table 2. The output slack is the measure
Fig.2. Coverage of target DMUs by benchmarks
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3
of output excesses, i.e. it identifies the amount by which an
output variable needs to be reduced, in order to move the
respective DMUs towards the efficiency frontier or in other
words improve its efficiency. It shows that most of the
inefficient utilities are suffering slack in the third output
variable, i.e. distribution line length (y3). It can be observed
that output slacks for the efficient utilities are zero, which
corroborates the fact that, the efficient utilities are using the
distribution line length at optimum scale, while others are not.
The result makes big revelation for the policy makers to
take note of. The arbitrary increase in distribution line length
in the plain regions to inflate the figure of village
electrification is de facto decreasing the operating efficiency
of the distribution utilities relative to even hilly states. India is
focusing on building humongous infrastructure of distribution
network through its ambitious rural electrification program-
Deendayal Upadhyaya Gram Jyoti Yojana (DDUGJY)
(erstwhile RGGVY) with cumulative capital outlay of USD
17.4 billion [23]. However, rural consumers are thinly
populated and electricity consumption of rural households is
meager due to their low purchasing power. Hence, extension
of grid to every rural household and supply reliable and
quality power to every household centrally, will be an
extremely challenging task, both technologically and
financially for India and other developing countries as well.
Because of which the change at the ground level will remain
sluggish for the rural and remote part of India. As evident
from the result of the analysis in the present work, the solution
of the above problem does not definitely lie in concentrating
on portraying attractive figures of village electrification by
extending central grids to remotely located villages and then
not being able to supply quality power when required. For
changing the ground realities of rural India, villages need to be
empowered to be self-sufficient in decentralized power
generation and consumption from renewable resources
available locally and abundantly. This will eliminate the need
to divert resources for extending central grids to remote
locations where the possibility of revenue realization of thin.
 4

TABLE 2
RELATIVE EFFICIENCIES, BENCHMARK DMUS AND OUTPUT SLACKS (IMPROVEMENT OPPORTUNITIES) OF 28 ELECTRIC UTILITIES IN INDIA

Output slack analysis

S/No. State utilities CCR Efficiency Sl. No. of efficient DMU(s) which
(%) can be adopted as benchmarks Number of Distribution Line
Energy Sold
Consumers Length
1 Andhra Pradesh 72.6 11, 28, 27 0.00 0.000 0.000
2 Assam 100 2 0.00 0.000 0.000
3 Bihar 72.7 11, 27 0.00 0.000 10328.850
4 Chhattisgarh 86.4 2, 27 0.00 0.063 0.000
5 Gujarat 76.8 28, 27, 11 0.00 0.000 0.000
6 Haryana 51.10 11, 27 0.00 0.000 22036.602
7 Himachal Pradesh 73.10 11, 27 0.00 0.000 2528.120
8 Jammu & Kashmir 60.10 27, 2 0.00 0.218 0.000
9 Jharkhand 52.60 11, 27 0.00 0.000 71898.895
10 Karnataka 94.70 28, 27, 11 0.00 0.000 0.000
11 Kerala 100 11 0.00 0.000 0.000
12 Madhya Pradesh 75.20 27, 2 0.00 0.164 0.000
13 Maharashtra 64.50 28, 27, 11 0.00 0.000 0.000
14 Meghalaya 69.90 2, 27 0.00 0.041 0.000
15 Punjab 64.50 28, 27, 11 0.00 0.000 0.000
16 Rajasthan 61.40 27, 2 0.00 1.489 0.000
17 Tamil Nadu 69.30 11, 27 0.00 0.000 115428.391
18 Uttar Pradesh 55.10 27, 11 0.00 0.000 91190.861
19 Uttarakhand 70.60 28, 2, 27 0.00 0.000 0.000
20 West Bengal 84.50 28, 11, 27 0.00 0.000 0.000
21 Arunachal Pradesh 66.30 27, 2 0.00 0.027 0.000
22 Goa 99.60 11, 27 0.00 0.000 6818.909
23 Manipur 60.50 27, 2 0.00 0.038 0.000
24 Mizoram 71.40 27, 28, 11 0.00 0.000 0.000
25 Nagaland 65.00 27, 2 0.00 0.010 0.000
26 Pondicherry 81.20 11, 27 0.00 0.000 12830.366
27 Sikkim 100.00 27 0.00 0.000 0.000
28 Tripura 100.00 28 0.00 0.000 0.000

Hence, suitable policy interventions in this direction will
not only change the socio-economic standing of rural
population but also increase operating efficiency of the
distribution utilities, as indicated by the findings of the present
work
V. CONCLUSIONS
In this paper output-oriented CCR model of DEA has been
applied to quantify the relative performance of 28 state owned
electricity distribution utilities of India, in terms of relative
overall efficiencies and output slacks. Results of this non-
parametric analysis reveal that most of the state utilities
(60.7%) are operating under mean efficiency score, which
shows a great deflection from efficiency frontier. Only four
state owned distribution utilities are found to be CCR
efficient, amongst which three are dominated by hilly terrains.
Benchmark utilities have been identified as well for each
relatively inefficient utility. It is observed from the result of
slack analysis that the root cause of the inefficiencies in most
of the cases are found to be the fact that the distribution line
lengths are not commensurate with the number of consumers
served and the revenue realized. Based on the result of the
analysis, deviation from the present policy direction is
suggested. It is recommended to empower the remote villages
and hamlets for decentralized power generation from
renewable sources and consume through mini and micro grids
rather than the ongoing effort of Government of India to
extend grid centrally to all the remote locations.

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 5

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