No momentum in distribution

The Electricity Act 2003 envisaged distancing the power sector from direct government control by setting up independent regulatory commissions so that power sector utilities can function as commercial entities, leading to sustainable operations.

Almost eight years have passed since, still state electricity distribution utilities are grappling with operational and financial inefficiencies, leading to high T&D and AT&C losses, high energy and peak deficit and large revenue gaps. In a true sense, power sector reforms have not really taken off in the distribution segment. Direct or indirect interference by vested interests remains a challenge for the regulatory bodies, and their complete independence remains a distant dream.

Power supply accounts for the bulk of a utility's cost. Forecasting demand accurately is a prerequisite for meeting the ever-increasing requirement of electricity. Any failure to undertake such assessments for short-, medium- and long-term scenarios leads to inefficient power purchase arrangements.

Despite the significant capital intensive interventions over the years, AT&C losses in the country have remained high. AT&C losses were around 28% in 2008-09. Power theft remains a key threat to the profitability and self-sustenance of the sector. The lack of metering till the distribution transformer level, innovative ways used by power thieves, local political environment in which the utility operates are some of the reasons that inhibit curbing of power theft.

The inefficient tariff structure is another area of concern. State electricity regulatory commissions (SERCs) have failed to work out a realistic and progressive tariff structure that reflects cost-to-serve and targets a reduction of cross-subsidy, promotes competition in distribution and bridges the revenue gap of utilities. The tariff structure is beset with direct and indirect subsidies (cross-subsidy). In most states, electricity is being supplied to the agricultural sector free or on nominal tariffs. Further, in most of these cases, direct subsidies are not provided by state governments, which widens the revenue gap for the utility.

Ideally, tariffs should be based on the cost of power supply to the respective categories. A comprehensive assessment of category-wise costs has not been done by most utilities, and the inherent consumer resistance to any increase in tariffs is generally attributed to supply side inefficiencies. Also, political sensitivity of the sector poses further hurdles to designing a viable tariff regime.

Thus, to enhance the efficiency and performance of the sector, regulatory commissions have to play a key role. Directives issued by the SERCs and interventions envisaged to reform the sector needs to be prioritised and a more focused approach is required. The very basic initiatives such as 100% metering at the consumer, feeder and distribution transformer levels needs urgent attention.

Also, studies on demand forecasting, cost of power supply and load research can help improve efficiencies. Teri is assisting regulatory commissions and utilities in such studies.

Tags: power supply, power sector, energy regulation, electricity tariff structure, Electricity Act