The Ministry of Power (MoP) published the Tenth Annual Integrated Ratings for the review year 2020-21 in August 2022, comprising insights and ratings on the operational performance and financial condition of around 76 discoms, comprising 46 state discoms, 11 integrated power departments and 14 private discoms. Broadly, the discom ratings use modified standards including the incorporation of quantitative parameters from the regulatory filings of discoms, in addition to the replacement of the revenue accrual metrics to cash-adjusted metrics. The MoP has also set up a committee to review the discom ratings quarterly so as to reflect the impact of regulatory changes on discoms as well as of pivotal events pertaining to specific discoms such as defaults or addition of debt.
In the tenth rating exercise, the absolute cash-adjusted gap (that is, losses) in the distribution segment has been calculated for the first time. The cash-adjusted calculations show that the financial deficit of the discoms is larger than previously recorded and has risen over 2019-21. The national absolute cash-adjusted gap in the distribution segment is Rs 1.13 trillion. This rise is predominantly owing to the rising loss per unit of energy of sold (that is, the ACS-ARR gap), considering that the gross input energy during the period remained almost constant. The sector’s total liquidity gap is nearly Rs 3.04 trillion. The discoms’ current liabilities of Rs 6.56 trillion exceed their overall current assets of Rs 5.27 trillion and are almost twice the value of their current liquid assets of Rs 3.52 trillion.
Key findings
In 2020-21, 12 discoms were rated A+, against five discoms in 2019-20. Seven discoms were rated A against three in 2019-20. These figures demonstrate a marked improvement in discom performance compared to 2019-20, although it needs to be noted that the change in ranking parameters could have led to the improved ratings. Notably, the MoP expanded the rankings from six in the Ninth Annual Integrated Ratings to seven in the Tenth Annual Integrated Ratings with the inclusion of a new grade below C- termed D. These ratings also have an overriding condition related to the ACS-ARR gap, with discoms with surplus or break even ACS-ARR gaps classified as A+. Six of the 12 discoms rated as A+ are in Gujarat and two are in Maharashtra. Seven discoms from different states and UTs are rated A. These discoms have an added ACS-ARR gap condition, requiring them to have a gap of less than 15 paise per kWh. Three discoms were rated B+ and six discoms were rated B-. The discoms in this category have an ACS-ARR condition requiring them to be in the bandwidth of Re 0.15 per kWh to Re 1 per kWh, with discoms having an ACS-ARR gap of less than Re 0.50 per kWh being considered as B+. Furthermore, 12 discoms were rated C+ and 20 discoms were rated C-. In other words, the majority of discoms were rated either C+ or C-. All discoms with an ACS-ARR gap of less than Rs 1.25 per kWh fall in this category. There are three discoms rated D, the rating assigned for discoms that have interest and principal payments overdue for 61-90 days. These are discoms with very low financial and operational performance and are at risk of defaulting.
Seventeen utilities improved their cash-adjusted ACS-ARR gap performance over financial years 2019-21. Thirty-one utilities out of 52 (excluding newly formed utilities and power departments) have reduced their AT&C losses in financial year 2021 compared to financial year 2019. Accordingly, the AT&C losses during financial years 2019-21 have broadly remained unchanged over the last three years, at about 21 per cent. Twenty-six utilities (including power departments) registered AT&C losses of less than 15 per cent in financial year 2021 against nine utilities in 2019-20 and 20 utilities in 2018-19. The national average collection efficiency declined by 1.2 per cent, which was substantially compensated by improvement in billing efficiency.
Forty-four discoms out of 60 have implemented auto-pass through of fuel costs. This is especially important in the context of rising coal and natural gas prices, as it ensures that the discoms will pass the rising fuel costs to consumers and retain their financial sustainability.
Fourteen utilities (excluding power departments) scored greater than 10 out of 13 on the performance excellence dimension (namely, billing efficiency, collection efficiency, corporate governance, distribution loss – SERC-approved). Furthermore, 13 utilities have achieved full scores on corporate governance parameters (without any disincentives).
The way forward
The successful financial performance and operational excellence of certain discoms in states such as Gujarat and Haryana, and of privately owned discoms in 2020-21 can be attributed to the best practices instituted by them. These innovative measures include the implementation of high voltage distribution systems and underground cables, bifurcation of feeders based on loading, rerouting of feeders, and replacement of conductors to reduce technical losses. Other organisational measures include the creation of a dedicated team for data-based loss monitoring at the substation and feeder levels, and consumer engagement programmes. These successful discoms have also instituted financial measures to enhance working capital and taken cost management measures. Overall, discom-level initiatives, along with the implementation of central government schemes are expected to improve the operational and financial performance of discoms going forward. N
