Fixing Distribution

To meet the country’s growing power demand, adequate capacity additions have been made in the generation and transmission segments over the past few years. However, the distribution segment has continued to wrestle with an array of challenges with untimely tariff revisions, high network losses, and poor billing and collection efficiency resulting in high accumulated losses. The poor financial health of discoms has impacted their power offtake ability and, in turn, affected the performance of the generation segment. With power demand expected to surge in the coming years, especially given the government’s 24×7 Power for All scheme, the revival of the distribution segment is imperative. To this end, the electricity regulatory commissions are expected to play a crucial role in the distribution segment to bring together all stakeholders and ensure that all activities in the sector are in the best interest of consumers. Since power distribution is the only segment that involves the participation of the end-consumers, the regulator plays a significant role in managing the segment.

At a recent Power Line conference, state regulators shared their perspective on the key issues affecting the distribution segment and the way forward. Excerpts…

Tariffs trends

The fundamental issue being faced by the distribution segment is the poor financial health of discoms, which have accumulated losses of about Rs 3.8 trillion. This can be partially attributed to the non-remunerative retail power tariffs. Unless there are timely and adequate tariff revisions, a healthy distribution segment in the country will be a pipe dream. An important aspect for ensuring appropriate retail power tariffs is the adoption of long-overdue amendments to the existing regulations and corrections to the tariff structure. The fine-tuning of the tariff structure could help reduce the revenue gap of discoms. Another important factor in improving the financial health of discoms is to control the AT&C losses. Electricity theft, faulty meters and improper billing are major loss-making areas for discoms. Electricity theft has depicted a varying trend across states. While states like Uttar Pradesh, Odisha and Rajasthan witness high electricity theft, some other states are better placed. The regulatory commissions must ensure that discoms provide consumers with good quality meters and replace the faulty ones.

Competition in power distribution

The Electricity Act, 2003 had mandated the state and central governments to make the distribution segment competitive. Competition was envisaged through open access and parallel licences. However, with the imposition of additional surcharges by discoms, open access has failed to take off in its true spirit. Besides, the implementation of parallel licences in the segment has not gained the desired traction. Typically, allowing parallel licences, which will entail establishing new distribution infrastructure, makes no economic sense. In order to make the distribution segment competitive, the government has proposed the segregation of carriage and content. This is expected to address the challenges associated with the implementation of open access as well as parallel licences. However, it is widely believed that the Indian power market is not significantly mature for adopting carriage and content segregation. Even after the approval of the amendment bill for segregation, it may take another four to five years for its implementation. Nevertheless, it is only with carriage and content segregation that the distribution segment can be made competitive.

RPO

Some discoms are taking a hit on their balance sheets in complying with the renewable purchase obligation (RPO) targets, as the retail tariff set by the regulatory commissions does not appropriately take into account the cost of more expensive renewable energy. Apart from this, some of the regulators have set unachievable targets without considering the fuel-wise generation mix of the state. Subsequently, discoms often seek to carry forward their RPO targets.

Regulatory staff

The regulatory commissions face the issue of inadequate manpower. Often, they rely on external consultants hired to meet the transitory staffing demand. As a result, the capacity and skill building abilities of the staff are hampered. In addition, appointing regulators from varied disciplines is necessary to manage different issues and petitions.

Conclusion

In order to improve the current situation of power distribution in the country, the regulators need to focus on timely revisions of tariffs, and improvement of metering, billing and collection. Meanwhile, the discoms need to take stringent measures to reduce network losses by improving their infrastructure and undertaking vigilance activities. Besides, the union government is extending significant financial support to the states for network strengthening under the Deendayal Upadhyaya Gram Jyoti Yojana and the Integrated Power Development Scheme.

Going forward, the health of discoms is crucial for the growth of the sector, and all the stakeholders need to function in tandem to obtain the desired results.

Based on a panel discussion among R.K. Choudhary, Member, BERC; Anand Kumar, Chairman, GERC; M.S. Puri, Member, HERC; and Vishvanath Hiremath, Chairman, RERC at a recent Power Line conference

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