ANALYSING EFFICIENCY OF ELECTRIC DISTRIBUTION UTILITIES IN INDIA: A

DATA ENVELOPMENT ANALYSIS

Anoop Singh, Indian Institute of Technology Kanpur, +91-512-2597679, anoops@iitk.ac.in
Dilip Kumar Pandey, Indian Institute of Technology Kanpur

Overview

Reforms in the Indian power sector mid 90s led to restructuring of the vertically integrated State Electricity Boards
(SEBs). Orissa led the march by unbundling, corporatising and privatization of distribution electric utilities. A
number of states have embraced regulatory reforms and unbundling of SEBs. This has led to emergence of a number
of distribution companies. Regulatory reforms in states have led to setting up of State Electricity Regulatory
Commissions (SERCs), which adopted a rate of return regulation regime. Distribution companies continue to be
saddled with operational inefficiency and financial losses. Setting the performance benchmarks remains one of the
key regulatory challenges. The Electricity Act 2003 further suggests adoption of a multi-year tariff regime. In such
an environment, regulators need to be equipped with tools to set performance standards against costs are allowed to
distribution companies. Jamasb & Pollitt (2003), Thakur et. al. (2006), Edvardsen and Førsund (2003) and Chen
(2002) have measured relative efficiency of distribution companies in national as well as international context.

Methods

The relative performance of Discoms is measured based on Data Envelopment Analysis. The data used in the
analysis are units input, number of distribution transformers (DTs), operating expenditure (OPEX), units realised.
Two separate analysis are undertaken. The first analysis was based on three inputs and one output parameters. The
parameters are units input, number of DTs and OPEX as input side and units realised on output side. The second
analysis includes duration of outages as additional input paramter.

Results
The paper measures efficiency of electricity distribution companies in India using Data Envelopment Analysis. The
study uses data on 27 distribution companies across four years both under public and private ownership.
A comparison of efficiency score across alternate models provides relative efficiency based rank of distribution utilities
under constant returns to scale as well as variable returns to scale. The results help quantify potential improvement in
controllable variables as compared to their effieicnt peers. The outcome of the paper would help SERCs as well as
management of the distribution utilities to identify sources of inefficiency in regulated entities and also assist in setting
up appropriate targets for efficiency improvement.

Conclusions
On the basis of the analysis we conclude that overall performance of discoms improved 2002-03 to 2005-06. The
results for three inputs and one output, output-oriented VRS model are as follows. The efficiency score of
TPC(2002-03), TPC(2003-04), TPC(2004-05), TPC(2005-06), TPSEC(2005-06), DGVCL(2004-05), NPCL(2002-
03), NPCL(2003-04), NPCL(2005-06), APCPDCL(2004-05) and APCPDCL(2005-06) are 100% as same as Input
Oriented Variable return to scale. The model gives the target of the Discoms in terms of output parameter whereas
Input Oriented variable return to scale gives target in terms of inputs.

Electronic copy available at: https://ssrn.com/abstract=3440250

References

Chen, Tser-yieth. (2002). An assessment of technical efficiency and cross-efficiency in Taiwan's electricity
distribution sector. European Journal of Operational Research, Volume 137, Issue 2, 421-433.

Edvardsen, Dag Fjeld & Finn R. Forsund, (2003), International benchmarking of electricity distribution utilities, The
Norwegian Building Institute, Oslo, Norway, Department of Economics And Frisch Center.

Jamasb, T. & Pollitt, M., (2001).Benchmarking and regulation: International electricity experience,Utilities Policy 9:
107-130

Jamasb, T. & Pollitt, M., (2003). International Benchmarking and regulation: an application to European electricity
and distribution utilities, Department of Applied Economics, University Of Cambridge & Judge Institute Of
Management, University Of Cambridge.

Tripta Thakur, S.G Deshmukh & S.C Kaushik (16 June 2005), Efficiency evaluation of the state owned electric
utilities in India, Center of Energy Studies, IIT New Delhi, India & Department of Mechanical Engineering, IIT
New Delhi, India.

Electronic copy available at: https://ssrn.com/abstract=3440250