Issues in Electricity Distribution

Some Fundamentals

• T&D Losses: difference between the energy available and the

energy supplied (as recorded) to the consumers.
• T&D Loss=Technical Loss+Non-Technical Loss
• Technical Loss-Loss occurring due to physical characteristics of
the power system(power lines, transformers, substation equipments)
(Occur mainly in the transmission/distribution lines and the
transformers)
• Non-Technical Loss-Loss occurring due to wrong measurement of
energy supplied to consumers.(Reasons-theft and faulty meters)
• T&D Loss=Total Energy-Total Load=Total Energy-(Direct
Load+Consumer Supply)
• Percentage T&D Loss=100 x (T&D Loss/Total Energy)
• Till such time as all agricultural and domestic supplies are fully
metered and energy audit is in place, T&D losses are a derived
figure/inappropriate measure.
• Till the time metering is completed, the level of losses is being
assessed in terms of Aggregate Technical and Commercial Losses.
• AT&C Loss is the difference between units input into the system
and the units for which the payment is collected/realised.
• AT&C=(Energy Input-Energy Realised)/Energy Input
• Energy Realised is the number of units for which money is
collected from the consumers.
• As per CEA T&D Loss in India is of the order of 31%.
• As per PFC AT&C Loss in India in 2005-06 is of the order of
33.46%.
• AT&C Loss is in the range of 40-50% in many states.(Jharkhand-
65%, Manipur-72% and Sikkim-78%)
• AT&C Losses-Ahmedabad and Surat-11-12%,Noida Power Co.:
10.49%, BSES Maharashtra:11.32%, North Delhi Power Co: 26.52%
• Availability Based Tariff and its impact:ABT refers to the new
tariff structure which separates the fixed and variable costs of power
generation. Fixed Charge (Capacity Charge)=Operating and
Maintenance Cost+Income Tax+Interest+Repayment of
Loan+Depreciation+Return on equity (Under ABT a generation company
would receive this component depending on the declared availability of its
plant and irrespective of actual generation.)Variable Cost/Energy
Charge=Fuel Cost (Depends upon schedule of generation as given by load
dispatch centre, based on load requirement.) Segregation of fixed and
variable charges enables generation based on incremental cost of
generation, bringing down the overall generation cost.
• Wheeling Charge: The tariff payable as per the tariff orders
provided by various regulatory commissions.
• Open Access: Refers to a mechanism whereby generating company
can sell power to a buyer of its choice and a consumer can purchase
 power from seller who gives him the best price anywhere within the
country.
• Cross Subsidy Surcharge: This is to be paid by open access
consumers. This is calculated as the difference between the consumer
tariff and the cost of supply. Cost of Supply is calculated based on the
weighted average of power purchase costs(fixed and variable) of the
costliest 5% sources(excluding liquid fuel based sources) adjusted for
average loss compensation at the relevant voltage level and the
distribution network charges. Surcharge=Tariff-{Cost x (1+Loss/100) +
Distribution Charge}(Cost=Weighted average cost of power purchase of
the top 5% of power(as per the merit order generation) excluding the
liquid fuel based generation and renewable generation, Distribution
Charge=Wheeling charge set for the distribution utility, L=System losses
till the voltage level at which power is withdrawn)

Distribution Reforms

• Bifurcation of Feeders: Due to fast expansion of towns the length

of the feeders has gone far beyond the standard limit which has been
creating problem of low voltage and high technical loss. This warrants
bifurcation. Bifurcation also enables the utility to segregate various types
of load, which helps utilities in restricting supply to particular types of
consumers for certain time period.
• Segregation of Rural Feeders from Urban Feeders/ agricultural
feeders from non agricultural feeders: This will help the utilities in
effective energy accounting and auditing and will help in fixing
accountability.
• Revamping old, weak and overloaded networks along with feeder
bifurcation-Quality equipment matching load requirements and of much
longer guarantee periods are required to be installed. The required shunt
capacitors need to be installed to improve power factor and voltage.Due
to inadequate network expansion commensurate with load growth, many
power transformers, distribution transformers, 33kv lines and 11kv
feeders are overloaded. Most of the distribution networks in India are
quite old which results in reduced reliability, increased R&M expenses
and poor quality of supply.
• Maintenance of substation and distribution network.
• Adoption of High Voltage Distribution System(HVDS) to increase
High Tension-low tension ratio.
• Governance or administrative Measures include constitution of
SERC and timely filing of tariff petitions, preparation of long term plans
for strengthening and improvement of distribution systems along with
associated transmission system, training of employees, proper network
planning for future expansion, provide sufficient budget annually for
strengthening and upgradation of electricity network.
• Theft Control-Electricity Amendment Bill, 2005 aims to make all
offences under the Electricity Act, 2003 non-cognizable offence. A Scheme
of incentives and disincentives will help to motivate the employees of the
utilities in reducing the losses and also in controlling theft of electricity.
Some State Governments have also constituted special courts and special
police stations to deal with cases related to electricity theft. High voltage
distribution system has been suggested in the National Electricity Policy
as an effective method for prevention of theft as well as reduction of
technical loss, improved voltage profile and better consumer service.
Other measures include incentive for informers and workshops and
awareness programmes for officers of the district administration, power
utilities and general public.
• Metering: It was resolved in 2001 for the States to provide 100%
metering on 11kv feeders and to start energy accounting and auditing
within next six months at 11kv feeder level for fixing accountability at
local level. Andhra Pradesh, Assam, Delhi, Goa, Gujarat, Himachal
Pradesh, Kerala, Mizoram, Utaranchal and West Bengal have achieved
consumer metering above 95%. Arunachal Pradesh, Bihar, Jharkhand,
Manipur and Ngaland still have low feeder metering. Most of the States
have not yet taken up metering of agricultural consumers. Following steps
need to be taken : (i) 100% feeder metering (ii) 100% metering of
Distribution Transformers (iii) 100% consumer metering (iv) Pre-paid
metering for small consumers/ single point consumers/remote areas (iv)
GIS mapping of assets and consumer indexing (v) Energy accounting and
auditing coupled with proper billing.
• Franchising: It is necessary that the system of franchisee is
implemented in a phased manner by the state government/utilities in
order to bring down commercial losses, improve collection efficiency and
provide door-step services to the consumers. The assets will be owned by
the state utilities and the franchisee will be allowed to recover the
investment through regulatory mechanism. Franchisee will be required to
pay the electricity charges to the utility at bulk supply tariff after
allowing for reasonable T&D loss in the network. The franchisee would
be responsible for distribution of electricity within an identified
contiguous area for a prescribed duration, carry out minor/major repairs,
issue of new connections etc. and for collecting revenue directly from the
consumers at a tariff decided by the regulator. Franchisees need to be
selected following a transparent process on the basis of clearly laid down
criteria. Wherever feasible, franchisees should be selected on the basis of
competitive bidding for the most favourable bulk supply tariff for the
distribution licensee. Franchisees could be NGOs, Users Association,
Cooperatives, individual entrepreneurs or the Panchayat institutions.
Franchisees have to be developed and will need hand holding by the
utility for some time.REC has launched a national programme for
franchisees under which a task force on capacity building has been
formed. The performance of a franchisee will have to be closely
monitored on various benchmark parameters like AT&C losses, revenue
collection, reliability of supply and consumer services etc.
• Determination of Cross Subsidy Surcharge and Wheeling Charge:
The forum of regulators could expedite determination of cross subsidy
surcharge and wheeling charge in a rational manner as provided in the
tariff policy The States need to extend cooperation to SERCs in bringing
about reduction in cross subsidies. The Tariff Policy provides that the
cross subsidies are to be reduced to the range of + 20% of the average cost
of supply by year 210-11 and the SERCs were required to notify roadmap
within six months for achieving this. The policy also provides that
wheeling charges should be determined on the basis of same principles as
laid down for transmission charges so that open access consumers are not
discriminated against in respect of wheeling charges.
• Early implementation of intra state ABT as envisaged in the Tariff
Poicy
• Restructuring of Power Distribution System through introduction
of Open Access: Privatisation of distribution system has shown mixed
success. However this only transfers State monopoly to private monopoly.
Open access in distribution has not materialised due to the inability of the
consumers to aggregate and approach the generator directly, due to high
charges including cross subsidy surcharge and wheeling charges and due
to the highly entrenched interests of the incumbent distribution entities
etc. The electricity Act can be interpreted to mean a supplier of electricity
who has no asset and does not need any licence, but can buy electricity for
resale. However, when read with the CERC regulations on trading, this
interpretation no longer holds. Section 12 of the Electricity Act provides
that licence will be required for trading in electricity. But as per Section
13, the provisions of section 12 may not be applicable to certain non-
commercial organizations like local authority, panchayat institutions,
users' association, cooperative societies, NGOs or franchisees. However,
under CERC regulations 'licence' means licence granted under section 14
of the Electricity Act to undertake inter state trading in electricity as an
electricity trader. So some confusion exists. In order to foster competition
in distribution, we would need to create the category of licensed
Electricity Suppliers under the Electricity Act to come under the present
definition of 'trader' by appropriate regulations under the Act. These
suppliers would have no assets of their own but use the transmission and
distribution system of the present transmission service providers and
distribution service providers. The existing distribution licensees could be
the default suppliers for consumers who fail to register with any of the
suppliers. In course of time this function can also be phased out. Rates
could be regulated through tariff caps and fixed transmission and
distribution charges. Rate caps will ensure that retailers do not make
money out of the supply till such time as the prices are adequately
balanced through the forces of demand and supply. There could be
requirements that a minimum percentage of consumers are residential
consumers. Such electricity providers could be regulated through
licensing with the regulator, perhaps as a sub-class of 'trader' provided
suitable regulations are made. The entities who wish to register must be
financially capable of carrying out the business of electricity supply.
However, open access would not assume any significant proportion unless
sufficient quantity of electricity is available in the market outside the long
term PPAs.
• Encouraging development of various products for different
consumer groups: Efforts should be made to develop different products
with retailers coming up with different packages to cater to different
populations.
 • Change in the role of the regulatory authority: Tariff fixation
should increasingly be left to the market and the regulatory authority
should rather monitor more closely the performance standards in the
power sector.
• Creation of a vibrant Power Exchange: A vibrant power exchange
could ensure that the resultant price is an outcome of both supply and
demand as it would match the prices at which various suppliers are
willing to supply. This system would score over the system of competitive
bidding where buyers enter the market separately and compare the prices
bid by the electricity suppliers.
• Improving the financial health of state utilities: Utilities should put
in place a Financial Turnaround Plan duly approved by the regulator and
the State Government, which should include timely filing of Annual
Revenue Requirement(ARR) and Tariff Petition, adoption of Multi-Year
Tariff as provided for in the National Tariff Policy 2006, and a scheme for
timely payment of electricity dues by Government Departments, local
bodies and advance payment of subsidies from the State Government, in
addition to restructuring of their balance sheets as a one-time measure.
• Creation of a central repository of data in electronic form:
Absence of this leads to delay in filing tariff petitions and responding to
queries from regulators.

Accelerated Power Development and Reform Programme(APDRP)

• In 2001, Government introduced the Accelerated Power

Development Programme(APDP) with the objective of initiating a
financial turnaround in the performance of the State owned power sector.
The programme was formulated to finance specific projects for
upgradation of subtransmission and distribution network and Renovation
and Modernization of power projects in Thermal and Hydro Sectors.
• In 2002-03 the programme was re-christened as APDRP and the
assistance was linked to reforms.Initially the programme covered 63
distribution circles out of the 400 distribution circles in the country. Later
the focus shifted to densely electrified zones i.e. urban and industrial
areas. The programme now aimed at strengthening and upgradation of
the subtransmission and distribution system in the country with the
objective of reducing AT&C losses, improving quality of supply of power,
increasing revenue collection and improving customer satisfaction. The
strategy envisaged technical, commercial, financial and IT intervention,
organization and restructuring measures and incentive mechanism for
reducing AT&C and cash loss reduction.
• Under this programme, SEBs are entitled to receive 50% of the
losses reduced by them in a year from the centre in the form of a grant.
APDRP has both an investment component financing investment both via
loan and grant in State Power Systems and an incentive component linked
to loss reduction.
• Status as of January, 2007: 571 projects were sanctioned under the
investment component with an estimated outlay of Rs.17033.58 cr
involving grant component of Rs.6445.84 cr and loan component of
 Rs.2274.23 cr. The Government has so far released Rs.4666.79 cr grant
and the entire loan component. Under the incentive component nine states
have achieved cash loss reduction ofRs.5254.60 cr and has become eligible
for incentive of Rs. 2627.30 cr. The Government has so far released Rs.
1587.12 cr out of this amount. AT&C Losses have been brought below 20
percent in 212 APDRP Towns and below 15% in 169 towns.

Proposal for Revised APDRP:

• Ministry of Power constituted a task force under Shri P. Abraham

to assess and analyse the current efforts,suggestions made by various
agencies and to suggest restructuring of the programme to better achieve
the objectives of APDRP.
• The task force suggested continuation of the scheme during the
11th Plan under a new name 'Accelerated Power Distribution Reform
Programme' as a Centrally Sponsored Scheme.
• Focus of the programme shall be on establishment of base line data
and adoption of IT in areas of energy accounting and auditing and
improvement in consumer services through establishment of IT enabled
Consumer Service Centres.
• The programme will cover urban areas only, covering all district
headquarters and towns with population of more than 50,000. The
funding will be project specific. Important towns of Special Category
States having lesser population will also be covered.
• Funding for strengthening of sub-transmission and distribution
network will be in form of loan through Financial Institutions. Upto
50%(90% for special category States) of the loan would be converted into
grant on reducing AT&C losses to at least 15% through specified reform
and performance milestones.The target period will be determined after
establishment of validated base-line data. The base-line data and the
reduction in AT&C loss will be verified by independent validating
agencies appointed by the Power Ministry.It is proposed to provide
incentives to employees in project towns where the agreed targets are
achieved.
• Methods to be used for collecting base line data-consumer
indexing, GIS mapping, remote metering of distribution transformers
and feeders, automatic data logging for all distribution transformers and
feeders, IT applications, establishment of consumer care centres etc.
• Part A:-The base line data would be independently verified
alongwith the loss levels for each distribution transformer.
• Part B:-Renovation and Modernization: - sub-stations,
transformers/transformer centres,re-conducting of lines at 11kv level and
below, load balancing, SCADA etc.
• Part C:-Validation of the base line data, Project advisors and
Management Information System, project evaluation by third parties,
capacity building, consumer attitude survey, Rating exercise.
• Part D:-Incentive programme for distribution utility employees.
 • Part E:-10th Plan incomplete projects shall be completed during
the 11th Plan. The incentives shall be released against admissible claims
from 10th Plan period.

Eligibility Criteria:

• All Distribution Companies with valid licence in accordance with

Electricity Act 2003
• Conditions to be achieved by States/DISTCOs (within stipulated
timeframe which is company specific)

1. Adoption of a Financial Restructuring Plan duly approved

by the Regulator and by the State Government
2. Restructuring of SEB/Power Deptt.
3. Establishment of special courts and special police stations
4. Introduction of measures for better corporate governance
5. Introduction of competition in distribution
6. Introduction of measures for better accountability at town,
sub-station and transformer level
7. Establishment of input based franchisees in towns with high
AT&C loss.